Tuesday, September 30, 2008

How did we come to this Financial Crisis?

If you have been following the news, you know there is a pending Financial Crisis. While you might not be feeling a crisis personally, there is a crisis in the financial industry. Below is a link to a really good article that describes how we got here. The reasons are fairly technical, but the author does a good job in writing it in simple terms to understand.

If you still don't get it, then give me a call and I will explain..

In simples terms here are the reasons for this crisis:
  1. Government creation of GSE, Fannie Mae and Freddie Mac to buy Mortgage Loans
  2. Desire to increase home ownership: Bush pushed GSEs and Fed to lower rates and lending standards to allow more people the ability to own homes
  3. Sarbanes Oxley Act comes along after Enron scandal, requiring Mark to Market accounting for all public companies, including banks
  4. Interest rates start to increase and people with ARM start foreclosing
  5. Wall Street stops buying Mortgage Back Securities
  6. Banks requiring to "mark to market" there unrealized loan losses do so, causing rating agencies to downgrade there credit
  7. Banks sell and buy Credit Default Swaps to protect against loan losses
  8. Investment Bankers that sell CDS, go out of business when they are required to pay out and cant.
  9. Banks go into bankruptcy after there capital requirements are not meet and the CDS protection they purchase goes into default.

Thinking about buying this dip?

By Helene Meisler
RealMoney.com Contributor

I'm not writing the following to scare anyone and I'm not writing it to be dramatic. I am writing it because I kept hearing folks who in the interest of being calm were telling us what great opportunities there were to buy stocks Monday. I kept hearing "for the long term" and how if you'd bought the low in 1987 you'd have made a fortune. So let me share with you what I saw in that photo from nearly 21 years ago. Keep in mind that these were the stocks to watch back then.

General Motors
(GM - commentary - Cramer's Take)closed the day down $16 to $50. GM is currently trading around $9. Ford Motor (F - commentary - Cramer's Take) closed that day at $69, down $15 on the day. Ford is trading with a four handle last time I checked.

OK, so you want to scoff because they are auto stocks? Note how I didn't bother to mention that Chrysler isn't a public company anymore. So let's look at some of the tech stocks that were deemed important back then.

Prime Computer. Who? That's right. I can't even remember what happened to that company. Unisys (UIS - commentary - Cramer's Take) is still around although it now trades with a two handle. At the low of the crash of 1987 it was $30, down $7 on the day. Digital Equipment was IBM's (IBM - commentary - Cramer's Take) biggest competitor then. DEC, as it was called, actually traded about 25 cents shy of $200 during the final week of September 1987. On the day of the crash it closed at $130, down $42 on the day.

DEC was eventually bought out in the late 1990s. I can't recall the exact price but something in the $60s rings a bell. And no, that price isn't split adjusted. It was bought by Compaq. Oh yes. I'm sure you remember Compaq which got bought by Hewlett-Packard (HPQ - commentary - Cramer's Take) for peanuts I recall!

The list of brokers and banks will bring back memories too. E.F. Hutton, Salomon Brothers, Chemical Bank, Chase Manhattan Bank. Manny Hanny as we called Manufacturers Hanover Trust. Bankers Trust was there too. It took me a few minutes to realize that GS on the screen back then was not Goldman Sachs (GS - commentary - Cramer's Take) but Gillette, the razor company.

But the one that really shocked me was Kodak (EK - commentary - Cramer's Take). I had forgotten what an important stock it was. It was in the Dow Jones Industrial Average back then. It closed the day down $26, at $63. It is currently a teenager.

There will be great bargains when this decline is done. There will be great stocks to buy. But whoever tells you what a great opportunity XYZ stock is today clearly doesn't know that the market rotates its favorite names, its favorite groups. I have often said that last year's winners are rarely this year's winners. Well, we can expand that to say something a bit more general: The winners of today are rarely the winners of tomorrow and I believe this trip down memory lane from 1987 proves that point.

Monday was ugly, and it felt a bit panicky too. The VIX jumped. The Index ratio zoomed over 200%. Volume was relatively high as well. So we ought to get an oversold bounce shortly but I can tell you that I would rather be late to the party than early in this case. I've given the market the benefit of the doubt lately by ignoring the intermediate-term indicators and their continued down-trending ways. They were clearly sending us a message and I will now wait until they tell us it's safe to go back in the water.

For more explanation of these indicators, check out The Chartist's primer.

Saturday, September 27, 2008

Why do they ask, "Do you have a set?"...

What a grind..! 12 hours straight... it's amazing how time flies by playing poker.. Where does the time go? I started playing at 8:00pm Friday night to 8:30am Saturday morning. Slept all day Saturday and now just getting up to relax and watch the financial news about the rescue plan. I made $155 or about $12.90/hr.. I was up quickly in the first 30 minutes with a profit of $150. I actually wanted to quit and relax, but it was to soon, so I kept on playing and loss $200 and had to keep playing to make it back. I eventually did, but it wasn't easy. Most of the players were new and we got shorthanded and decided to play Round by Round. Omaha and Hold'em.. It was a nice change of pace. I actually hit quad fours in Omaha and then flopped a boat with pocket fours in Hold'em. Another girl hit quad fours with pocket fours the same night. So the hand of the night was pocket fours. .
I actually loss with my flopped full house. Here is they story. A fairly tight girl raised $10 preflop. I called with my pocket fours and two other guys called. The flop is 884. The girl goes all-in with $45. She was short stacked. I decided to go all-in with over $200. The other two guys fold. I show my boat.. She keeps her card faced down, looking depressed. The turn is a Queen and the river is a King. I see her face lite up and realize that she must have hit her 2 outter... She rolls over pocket kings and takes down the pot... I was due of a set over set, at least once every 3 months it happens to me.. At least it was with someone short stacked and only cost me $55.
At the end of the night I eventually got my money back from her after bluffing her with pocket 10s. She said she had pocket Jacks. Then the hand that put me back into the black. I have AQ and raise $17. I have not played a hand in a long time. Everyone is now scared of me since they saw me lose with a flopped full house, hit a set of nines and Aces and hit quad fours. I have the total fear and respect of everyone and they call me the tightest Asian player they have ever played with. Two guys kept asking, "Do you have a set?" Most holdem players are working about top pair, but with me everyone is worried about hitting a set. I guess most Asian play pretty loose in Austin. I want to make money and playing tight is right.
Anyways, back to the hand. Everyone folds except the girl that hit the two outer on me. I feel that she is still steaming over folding pocket Jacks and me hitting a two outer on her early with a set of nines of the river. The flop is AQ3. She bets out $25. I re-raise her to $50. She calls. The turn is a 10. She checks and says to me don't bet.. I say I have too.. I bet $100. She thinks really hard. She looks shocked that I bet that much. She takes forever to decided, but eventually calls. The river is a blank and she rolls over A5. I show my two pair and take the pot... Now I am back up to $360 in front of me.. Basically where I was 11 hours ago with a $160 profit. I sit for a few more rounds and leave. I was glad to leave with a little profit and keep my winning streak alive at Sheldon's place.

Wednesday, September 24, 2008

Covered my WB and GS...

I sold my WB puts yesterday and covered my GS puts this morning. Made about $750. The trading environment is tricky and I think all these financials have a long way down before they go back up.

The news on GS seems puzzling, the media is hyping that it is all good, but the stock offering scares me? Why do they need $5B more, if they are so well capitalized? Why are they issuing preferred stock? It sounds like they are in a cash crunch just like all the other firms that have collapsed. Every other financial firm did the same thing. Raised money by offering preferred shares or issued more stock. Something doesn't seem right with this story.If I were Jim Cramer at his hedge fund, I would be long the preferred shares and shorting the common? Oh wait, we cant short now.. Wow, amazing how that has worked out.. I guess Paulson is helping out his old firm after all..

Tuesday, September 23, 2008

Short Wachovia!

Short WB!!! That's my hot tip.. Since you cant short financials now.. then buy some puts... It is the next big bank to go bankrupt.. I have a good tip by someone that knew about Bear, Lehman and Merrill Lynch going under months before it happen.. I should have stayed with all those shorts.. Would have made out like a bandit..

Saturday, September 20, 2008

Can you fold a set?

Wow! Another great night of poker. I found this new place that I call Sheldon's place. I have played there 3 times and have won each time. I have won over $950 this month alone there. Mostly from this guy named Ed. He is a very solid player ( a dealer too, I think..), but really wants to crack my ass. That is a big mistake, you should never take poker personally.. Not sure why anyone would want to try and take me down, but you can certainly try. You better be able to beat a set.. Since I don't put my money in the pot unless I have a set or better.

Now for the poker story: I buy in for $200. At this game they have a $130 button bonus. If you are the first 8-10 people to play, Sheldon will give out $130 for free. He deals everyone 5 cards and each Ace gets $25 and the best 5 card hand gets $30. I won the best 5 card hand with a pair of 10s. So I start with $230. I am the 2nd big stack, everyone else buys for between $80-180 except for Ed who gets $500 in chips. I don't see Ed actually buy in, so I think he has house credit as a dealer.

The game starts out slow and everyone seems to be playing tight. Standard raises are $7-$12.. I finally get my hand. Pocket Jacks. I am fairly early in position so I raise to $15. Ed in the big blind calls and someone in early position who limped in calls $15. The flop is J83, with 2 hearts. I hit top set! No real straight draw but there is a potential flush draw. The two callers check to me. I bet $35, not expecting to get paid off, since there is no over card. Ed thinks about it and calls. The other guy thinks really long. He start counting out $100. He pretends like he is going to push all in. I am thinking, do it fool, I flopped the nuts! He eventually decided to fold. I put Ed on a flush draw. The turn is the 10 of hearts, now there are 3 hearts. Ed bets $95. Damm, I put him on the flush, but I instant call with top set showing no fear. The river is another 10, giving me Jacks full of 10s. Ed quickly checks and I push all-in for $140. Ed looks shocked and thinks for a while. He wonders what I instant called him on the turn.. He eventually calls my bet and pays me off. I say do you have a flush? He rolls over A6 of hearts, the nuts on the turn! I show my boat and he starts steaming.. Calling me a donkie for calling $95 on the turn. I had 10 outs. Who could fold top set? Ed should never have called my $15 pre-flop raise with A6 suited. Yes, he had the nuts, but I had the best hand starting, on the flop. He took over on the turn, and now expects me to fold top set. Forget that.. I am tight, but not that tight.. Now I am up over $580 in less then 1 hr of play.

The Classic Hold'em Showdown: I continue to play tight. Getting no cards for 40 minutes. Then I pickup pocket Aces under the gun. I think, dam I hate when that happens (a big hand under the gun...). Now many people will just limp in and hope someone raises behind them. I think that is a bad play and my best advice for most players is to never slow play a big hand unless you got quads or unless you can fold Aces. So I raise $20, which is the biggest pre-flop raises all night. I expect everyone to just fold to me, the tightest player at the table, ha ha... The guy next to me calls! The guy after him calls.?.. Everyone else folds.. a guy near me says how do you get all that action after not playing a hand for an hour. I say, "I don't know, I guess I got no respect.. I will have to teach them a lesson.." The flop is 57Q. I am first to act and bet $50. The guy next pushes all in, raises to $110. The last guy asks, "Do you have AQ?" He looks over at me and says I must have Aces or Kings. He throws his hand over showing AQ, and says "he will call.." (pointing to me...) Which I do... The other guy had pocket kings and I take him out.. I am up over $750 now and have only been playing for just 2 hrs, that is $275/hr, just sick... The guys say that I will be having a thousand dollar night. I think to my self, I am just happy to take what I have now.. Anyways, I owe them some play, so play till closing 2:50am.. some guy slowed played pocket Aces when I had AK and hit a King on the flop.. I walk out with $600, happy with my night, but still wishing I would have quit at $750.... Anyways, I had fun.

I treated myself to some PF Changs. I read some good reviews about them. I tried there Orange Peel beef, it was pretty good. It was the first time that I was there. It was a pretty nice place, I will have to go back and try a few other dishes.

Current Stats

Friday, September 19, 2008

Im out! 20pt gain in 2 days...

I just sold my Goldman at $130/share for a $20pt gain in two days. That's $2000 in two days of investing.. The trading before the open up 40pts to around $144.. I was getting ready for work and missed the opening and a friend text me the news. He was also in the stock, just by coincidence. I have not traded in 4 months and I pick the same stock as my buddy to buy. I had not spoken with him in a month. Anyways , the stock came back down to $120.. then back to $130.. I decided to take what I got, a 18% move in two days.... There is a saying in trading, "Bulls make money, Bears make money, pigs get slaughter..!" Basically don't get to greedy in the markets.. Take what you can get.. try to find the middle ground. It's to hard to find the exact bottom or the exact top. I just shoot for something in between...

The SEC is banning short-selling for all US financial stocks. This is the dumbest thing I have ever heard of. I guess the UK did this yesterday for just financial stocks, also. This tells me that the government really don't understand the market. Short-selling creates liquidity and for every short seller they are a buyer at a later date. When a stock is going down, sometimes the only buyers are short sellers that are covering. I just don't get how they think this will help. In China, short selling is outlawed and it has done nothing to keep its markets up. Its been in a bear market all year long. This ban will just create more volatility down the road. After the shorts cover and there are no buyers left, who do you think will support stocks in a downward spiral.

Wednesday, September 17, 2008

Ugly days in the stock markets!

What the heck...? The stock markets is really tanking. I have been out of the market for some time now. With my relocation and new job, its been hard to focus on any investments. But the bottom must be near... The best time to buy stocks is when everyone is selling. And now is that time. I finally put on a trade after months of being on the side lines. I got 100 shares of GS: Goldman Sachs for $110 each.

Saturday, September 13, 2008

Quad Eights!

I'm home from another late night session of poker. I played from 8pm to 2:45am. I cashed out $530, bought in for $190... About $50/ hr.. damn good night considering I made most of it during the 2nd half of the night. My low point was about $90 when I had pocket 88s in the Big Blind. Five people limped in for $2, I think about raising and decided against it, since I was out of position and short stacked. The flop was perfect A83 with 2 diamonds, I hit my set with an Ace on the flop.

There is nothing better then hitting your set on the flop and also having an Ace. I bet out $12. An aggressive crazy guy re-raises me another $30 on top. I push all-in for about $80. The guy takes forever to call.. Hemming and hawing.. He calls and shows AQ... The turn is another 8 and he is drawing dead... I was just thinking to myself that its been a while since I hit quads. I generally average hitting quads once a month and its been at least 2 months since my last quads. This is at least my 2nd, maybe 3rd time hitting quad eights. The last time was in Detroit in Motor City Casino. That was a huge pot also with an Ace on the flop. AJ called me down and I hit quads on the turn... If you think I hit quads more then normal, you are right.. I think the secret is to just play tight and only pocket pairs.. It's not easy to do, but when you make a hand.. its usually better then most. I know of a loose player that plays allot and he only hits quads once a year.. That is hard for me to believe, but since he plays lots of different hands.. he makes more straights and two pairs then I do.. By just playing pocket pairs.. you are basically going for sets, boats and quads... Who do you think will win more at the end...

After that hand I was up to over $200. I hit a set of Jacks later on also. Then the guys started playing crazy.. Straddling and double and triple straddling and all in my blinds. In one round I am in the small blind and there is a triple straddle of $25. Someone already straddled for $6 and $12. So there was already $46 in the pot pre-flop. I look down at AJ. Everyone folded to me, just blinds bet left, so I decided to bump it to $75. Everyone folds except the 4th straddler who was in blind for $25. The flop is Q89 all hearts. I go all-in for around $110. The guy calls... The turn is a 6 and the river a 10. The guy called with pocket sixes and hit his set on the turn.. I hit a straight on the river.. that was a lucky hand for me.. Now I am up over $300.. They guy is steaming...

Another round shortly later, the same guy straddles for $6 on my button. I look down at pocket Aces, my first time of the night... I pop it to $25.. Big blind calls and straddler pushes all in for around $190. I go all-in with over $300. The Big blind guy folds and shows A10. The straddler shows AK and announces that he is drawing dead. My Aces hold up and now I'm over up over $550....

Now, I am thinking about last time I won this much and my advice to quit while I am ahead. I want to quit, but feel like I atleast owe the players some time. I play for another 30 minutes and cash out after losing $20..

Current Stats

Saturday, September 6, 2008

Quit when you are up fast...

Why didn't I quit when I was up over $600 after only 2 hours of play? I know the my own rule. If I am doing significantly better then $30/hr then I should be gracious and consider myself very fortunate and just leave the table a big winner. Well, I was at almost at $200/hr and it was a $1/2 game. That is pretty sick.. The simple fact is that I got lucky. I hit a couple flushes and got paid.
I hit a boat with of 55s and the pot was huge. I was feeling good so I raised with pocket 55s $12. Seven people called and then a short stack guy goes all in for another $13. I call and the other six player just call. That is $25x 8 = $200 in the pot pre-flop. The flop is A53, I hit my set with an Ace on the board.. Poker heaven! I bet $50... another short stack calls with only $24. Everyone else folds. The turn is another Ace and the river doesn't matter. My boat takes it down!
In another hand I had AQ off suit. The flop comes Queen high with 2 clubs. Blind guy bets $15, I re raise to $45. He calls. The turn is a club and he goes all in for $51. I notice I got the Ace of clubs and decide to call. The river is a 4th club and turn over the nuts. He said he had a flush, but never shows it...
At this point I am up over $600 in front of me. I started with $200. I am the chip stack leader. Every kept busting out. I want to leave, but feel that I owe the game some time. So I decide that I will just play tight and hang around for a little while longer. That was a big mistake.
Now we are playing short handed, 6 players. I start losing small little pots. I get down to $550. Now, I really want to quit. I just hate losing money.. I get A7 suited in diamonds. Everyone limps in and I am on the button, so I call for $2. The flop is 95J. Everyone checks.. I check. The turn is a 6 and there are 2 diamonds and I got 2 diamonds. Everyone checks again, so I bet my flush draw $15. Two players call. The river is a 8 (so the board is 95J68). I just hit a straight!! One guy bets $30.. another goes all in for $71.. I double check my hand.. I got a straight, but obviously not the nut straight. The all-in guy is a loose player so I decide to just call and the originally better calls. I show my 7 for the straight to the 9. The first better shows 10-7 for a straight to the 10. The all-in guy shows Q10 for a straight to the Q.. Just sick they both had me beat!!!!
I have a saying "You have to get lucky to make money, but you have to be good to keep it..." I was lucky early and made money. Then someone else got luck and made money on me. I should have folded, but didn't. So again, the hardest part of poker is keeping the money you make. That is the real secret to successful poker player. Trying to keep the money you make. After that beat I was down to around $460. We got really short handed to 5 players and I loosen up and lost a few more small pots. After we got down to 4 handed I decided to quit. I was at $421, but just feeling sick that I donked off $200 in some bad plays.. My rate was now at $55/hr for about 4 hrs of play. Still very good, but I should have known when things are running well, they invariable turn bad. Reminder me never to do that again...

Tuesday, September 2, 2008

Advice of the day....

"Whoever walks with the wise will become wise;
whoever walks with fools will suffer harm."
Proverbs 13:20

In other words: "Your companions are like the buttons on an elevator; they will either take you up or they will take you down."

I got this book of sayings. It changes everyday.. I though today's saying was inspirational..