Doing Tha' Deal

Weekend Round Up

Goldman opposes "full" nationalization (Reuters) - I guess it all depends who gets the advisory mandate doesn't it........

How to make a buck off the banks - ZeroHedge - I kinda just like watching them go to zero..........

Another retard calls for the end of Mark to Market - this time it is Ben Stein (NYTIMES) - Maybe I should have the option to randomly revalue my portfolio too?  The market is only broken when it isn't going your way.....

Fun with Fractals

Just starting to understand this stuff Download Lecture12

Black Swans

Why you use risk management or BLOW UP

Nassim Taleb and  Victor Niederhoffer

Random Thoughts

Spent a lot of time working on the concept of supply and demand in relation to buyers and sellers and trying to figure out why signals are sometimes so accurate and other times 100% wrong

Has to do with who is driving the market.  The market is made by sellers and buyers - supply and demand.  But it isnt just an increasing demand that drives prices up - sometimes it is scarcity.  People don't want to sell a commodity below a certain price.

Some players will also accumulate and distribute large positions - this is the large driver of the market

So a supply line can upward sloping or downward sloping and a demand line can upward sloping or downward sloping BUT the lines change their positions when the cross the equilibrium line - once price breaks up,  suppliers raise their prices as an asset gets more scarce.

Occasionally price will be heading strong one direction and there will be a sudden, often short lived severe reversal of direction.........what is this

1. Someone testing the market - how does the market react to me unloading a larger position
2. Hitting a portion of trend of a much larger time period
3. Someone  trying to liquidate a bad position

You can look at it this way - during the demand line, players accumulate - then they liquidate, but you dont want to liquidate into a weak market - otherwise you will eventually lose money

On another note, whoever came up with the Random Walk Theory (Fama et al.) must have been one hell of a crappy stock trader.

Required Readings

This, this and this.

Everything else is a waste of time.  Read the news only to see if there is any big stats coming out.  For the most part, the news is useless.

PS - this guy's stuff is pretty good too

The one thing I have learned is that most things in trading are counterintuitive to my initial thougths and impressions

Skilling's Defense Strategy

.........confuse the hell out of the jury?

Who knew that Jeff Skilling was a stand up (or sit down as the case may be) comedian:

"It's funny that Sarbanes-Oxley, that's one of the protections to make sure there isn't another Enron, we had it before," maintained former Enron chief executive officer Jeffrey Skilling on his first day of testimony, according to the Houston Chronicle.

What is the "it" that you are referring to Jeff, is "it" your "internal Sarbanes-Oxley" or Enron's prior internal control issues in the late 1980's with Louis Borget and his flirtation with Enron's cash.

and don't forget this classic:

In fact, asked by his attorney Daniel Petrocelli whether he would consider himself "a control freak," Skilling reportedly responded, "It's more accurate to call me a controls freak than a control freak." CFO

Shit Jeff, I hope, for your sake, that your lawyers are going to pull a rabbit out of your ass, cuz this ain't looking like much of a defense so far..............ya ya ya, I know, your lawyers will play up that most of the prosecutions witnesses have rolled over for lighter jail terms and that you were more of a visionary/strategy guy who left the details type work to others (yet you maintain that you are a "controls freak", despite that bizarre never-marking-to-market accounting approach that Enron used).  Good luck on the "I didn't know" strategy, despite being a "controls freak".

What if I Propose a Deal to you?

You sell me your wife car for $1000.00 and then I turn around and sell her it for $1300.00 right in front of your face, would you be celebrating?

You'll give me a grand for my wife.........yahoo!  Didn't think so?

So why are the Tim Horton's/Wendy's Corporate types all happy that their stock is up 30% by the middle of its first day of trading?  You just left 30% sitting on the table.  Ya, Ya, you can argue that it was only 15% of the company, and it was really important for the sale to go well, but geez, isn't it the part of the deal makers to make sure the deal goes well?  I mean any idiot can underprice an asset and then celebrate when it sells for a higher price?  Is that really worth an underwriting commission of around 5% (ya, I am guessing on this) on a raise of $670 million?

Tim Hortons shares leap 30 pct in market debut - Reuters

"F" is also for Fake

As in the "fake half billion dollars worth of bonds" held in offshore REFCO accounts.  Now of course the article didn't say if the bonds were fake in that they were forgeries or that they didn't really exist at all.  The article also failed to mention the name of the company that had sold the bonds (i.e. who "borrowed" the money to begin with)..................but that is just nitty gritty details that no one really cares about.  Solid journalism never the less.

Refco held $525m in 'fake' bonds - Financial News

General Stupidity from

General Motors

KKR leads nonbinding $12.5-13 bln GMAC bid - WSJ - Reuters

So rather than spinning GMAC off into its own publicly traded entity (by any number of possible mechanisms - Outright IPO, stock butterfly, stock dividend, rights offering, etc, etc, etc), the financial wizards at GM seem to think it is better to sell the company to a group of private equity players and watch them spin it out as a public company (and pocketing the windfall associated with moving from a private company multiple to a public company multiple).  Hell, it looks like the KKR group are even trying to get out of the liabilities of dealing with the off lease vehicles.

Would have loved to have been in the room when management and the board were sold on this idea.  Can't really see why GM would just hand free money over to the private equity group.............can someone enlighten me.  Please?

Don't feel like investing in Florida swamp land

try a public stock exchange..........

From Reuters:

"According to its merger proxy, NYSE Group expects earnings of $194.3 million on $1.55 billion in revenue this year and $302.0 million earnings on $1.66 billion revenue in 2007. On that basis the shares trade at 65 times this year's earnings and 42 times next year's profit.

That's a hefty premium to the valuations afforded by other newly listed exchanges, including the Chicago Board of Trade, Intercontinental Exchange, the International Securities Exchange and the Chicago Mercantile Exchange.

The London Stock Exchange fetches 38 times its expected normalized 2006 earnings, according to Reuters Estimates. Only Nasdaq Stock Market, which trades at 61 times forward earnings, is in the same valuation league."

65 times this year's earnings!!! So assuming that someone holds NYSE stock for 65 years and the company's earnings stay constant, you'll have your investment paid for(well acutally you won't because we don't know what the cashflow and dividend per share will be).......better yet, the company is trading for 42 times of something that doesn't even exist yet.  I know I know, I'm just not sophisticated enough to understand how it really works.................

Where can I send my money?