The U.S. markets have been marching up and hit a 4-year high with the S&P 500 touching 1425 this month. On the other hand, the Shanghai Composite is at a 3.5 year low, around 2050. This has to be one of the strangest phenomena in world markets today. On the one hand, China was being touted as the savior of the global economy for the last 4 years since the financial crisis of 2008, the growth engine of the world. On the other hand, its markets are absolutely in the dump. Take a look at this scary chart comparison of the Shanghai Composite and the SPX (S&P 500 index)
Choosing a timeframe for your investment is critical. If you don’t have a plan for this particular parameter, you’re likely to underperform. Let’s take a look at what we mean – Both these charts of Google (GOOG) are taken on August 28, 2012.
The stakes in online Poker just got a little higher. Online gambling is a major industry (mostly in the UK where it’s completely legal), and other European and Asian jurisdictions where things are semi-legal, and in America, its mostly an underground but huge industry. Despite it being illegal on paper in the US, in 2010, the industry wagered $20B – no chump change. Facebook just launched its online Bingo platform in the UK. Zynga (ZNGA), Caesars (CZR), and several publicly traded companies in the UK would simple love to see online Poker legalized and taxed in the US
As an avid fan of soccer and the English Premier League, I’m watching the developments of the American IPO of Manchester United with a lot of interest. A great day for soccer indeed (even if it happens to be one of the biggest rivals of my team Chelsea FC. I promise to be objective with this analysis 🙂 ). And let’s not forget this IPO comes on the heels of the great Olympic Gold medal win by the U.S. Women’s team.
This is one topic where we don’t mince our words. In the last decade or so, the financial world has changed, possibly irreversibly. Back in the 70’s, 80’s and 90’s, “Buy and Hold” worked very well. Investors and fund managers like Jack Bogle and Peter Lynch picked stocks well, built solid portfolios and generated attracted returns for their investors. The world immediately attributed their stellar success to “Buy and Hold” strategies or long-term investing.
We always maintain that it is just not practical to take a long-term view on the markets anymore and a trading outlook of 4 to 8 weeks is ideal to get in and out of positions profitably. But with Europe still muddling through and most of the continent basking on warm beaches this month, the S&P 500 may have entered into a bullish mode for the rest of the summer. In this video, we analyze the S&P 500 chart.
It was exactly one year ago when the U.S. credit rating was downgraded from AAA to AA by Standard & Poors, a move primarily motivated by the inaction in Congress to raise the debt ceiling. At the time, the event threatened to throw financial markets into chaos – the Dow Jones average crashed over 600 points that day. Fears of rising interest rates and a falling dollar were stoked. And Gold was expected to go to the moon. Much of these expectations were rational. If anyone borrows beyond their means, their credit suffers; your credit card company may raise your interest rates; you may not be allowed to borrow any more and so on and so forth. The ultimate objective of the S&P downgrade, in fact of any sovereign nation downgrade, is that the nation will get its act together, reduce its debt (as measured by its debt-to-GDP ratio), polish up its policy-making apparatus and move into a more fiscally more responsible position. That’s what is expected in a normal world. Aha.. but are we living in a normal world anymore ?
The market saw one of the worst sell-offs of 2012 yesterday. As we mentioned in our previous video, the VIX had fallen to about 17 by Wednesday, just at Ben Bernanke delivered the FOMC meeting press conference. (If you bought a Long Straddle at this level of the VIX, you did great – please see our previous video blog). Sure enough, the Fed didn’t give the market the fix it wanted – and coupled with some bad economic data on Thursday, the markets fell off a cliff. Adding to the woes, 16 global banks were downgraded by Moody’s, including the largest U.S. banks.
The Vix or the “Fear” Index dropped over 10% today. Of course, this is not surprising given that the much-watched Greek elections over the weekend were what the markets wanted. The markets did indeed dodge a bullet ! However, all is not well with Spain’s 10-year bonds spiking to over 7.1% today, and that has the European and U.S. markets worried. We are entering a low-VIX environment and this can produce a few great strategies over the next 6 to 12 weeks. In this video, we discuss some of these Options strategies.
Okay, so I don’t mean that literally. But the point is – MBA graduates spend an enormous amount of time studying theories of classical finance, the behavior of financial markets and precise methods of valuation of companies. We pore through complicated financial statements, calculate the weighted average cost of capital to the second decimal place, plot Beta correlations on complex spreadsheets, and like magicians, can come up with detailed cash flow statements of a company for the next 5 years. How pompous is that – but I digress. Now why do we do all this – supposedly to find the fair value of what that stock should be worth. We convince ourselves (and others, unfortunately) that taking such a rigorous approach to analysis cannot result in anything but the precise values for the market, stock or company.
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