OptionPundit

Tag: GE

  • GM Doesn’t Need Money

    AP reports that General Motor’s (GM) CFO says they don’t need $2billions as cost cutting is bearing fruits. Quite interesting, and possibly a good sign for GM’s survival. But I think more than cost cutting, they need to have cutting edge car models and this cutting edge doesn’t mean high tech, but the models that will fit to the pockets and life style of the consumers of tomorrow. It’s not going to be the same world as it was few years back, and before oil reaches to the moon again (i don’t know when), they need to be ahead in the fuel efficient and possibly electric car models and streamline the supply chains. Net, a good news is a good news.

    S&P lowered General Electric (GE) long term rating one notch to AA+ from AAA with a stable outlook. They think GE’s capital is under increasing pressure that will result in rising credit losses. Interesting, but, guess what, the stock is up almost +10%.

    FSYS, AKS and DDUP Puts are active. TYC and DNA Calls are active.

    CAT covered call example that I shared in the free trade section is up +10.9% (as my account uses portfolio margining) and for account without margining it is up +4.5%.

    Have fun, markets are being released from deeply oversold levels. As I mentioned earlier, watch-out for-

    Coming back to Dow, the short term buy signal expects it to move further up, and once it crosses 7,286 (round it off to 7,300), the low that Dow registered on Oct 9, 2002, the next logical resistance level will be 7,470. We need to see if Bulls has what is takes to penetrate that level with sufficient degree of confidence as demonstrated by volume.

    Trade profitable, Trade Carefully, OP

  • Berkshire Hathaway’s worst year, Buffet Speaks, Likes Long Term

    Berkshire Hathaway (BRK.A) had its worst year on record, Chairman Warren Buffet told shareholders Saturday that the economy would remain in “shambles” during 2009 and beyond. His 22 page annual letter is full of wisdom nuggets. Also you may wanna read the annual report. Though I am capturing key points per my understanding, I shall encourage my readers to read the full letter as it offers valuable insights.

    Berkshire Hathaway profits dropped 96%. The per-share book value of both Class A and Class B shares of Berkshire fell 9.6%. For beginners, Berkshire Hathaway has produced a compounded annual gain in value of 362,319% since it’s founding in 1964, about 10 times what you would have gotten investing in the S&P 500, compounded at 20.3% per annum. This includes recent bad results.

    Let’s begin with some context of the economy-

    • “By the fourth quarter,” says Mr. Buffett, “the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.”
    • Government action was needed – ‘Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.
    • What’s needed – “Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects, Inflation is likely to be one such effect, Buffett said. “Moreover, major industries have become dependent on federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly. However, said Buffett, the U.S. government did need to take “strong and immediate action” to avoid a “total breakdown” of the economy.
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  • Is Berkshire in Trouble?

    This 2 part series will cover recent market developments about Berkshire Hathaway, points to a strategy on how you may benefit more on the same trades he did recently and an option trading strategy that probably Berkshire uses for maximizing it returns on the underlying they find worth investing. Don’t forget to read the big picture of US stock markets. Markets are behaving pretty much that way. I am opening December portfolios for OPNewsletter, to join, pls click here.

    Before I proceed, I must mention that I admire Mr Buffett’s skills. I got an opportunity to meet-up face to face with him in 2005 and it was one of the finest moments of my life to first hand hear the living legend. Listening and questioning him propelled my learning about his style way more than any book did. I, in no way can doubt his selection or will know in full his style of investing. Beyond classic investing theory, his intuition is par excellence. So below post is a mere attempt to interpret in my way. Pls do your own due diligence before making any decision based on info presented here.

    According to Forbes, The credit default swap market says the Oracle of Omaha is headed for trouble. The credit default swap market thinks so. Spreads on insurance against a debt default by Warren Buffett’s triple-A-rated Berkshire Hathaway are trading about on par with that of the embattled General Electric and worse than Goldman Sachs and Citigroup. Per same article, “Credit default swaps on Berkshire traded at 440 Wednesday, according to Phoenix Partners Group.

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  • A Terrible, and A Fantastic Week

    It was a terrible week for U.S. stocks and equally for almost every major stock markets worldwide. The Dow fell 157.47 points, or 1.5%, on Friday to close at 10,325.38, racking up a 7.3% drop for the week. The Nasdaq Composite Index fell 29.33 points, or 1.5%, on Friday to close at 1,947.39 and lost 10.8% for the week. The broader Standard & Poor’s 500 Index dropped 15.05 points, or 1.4%, on Friday, ending the day at 1,099.23. For the week, the index was down 9.4% for the week. But all this shouldn’t come as a major suprise to OPNewsletter subscribers especially those who were following this general market comments thread of OPN member’s only section. I also mentioned clearly that I wouldn’t trade for stock pinning for Sept expiration cycle. This is not a “praise myself” post, but to state clearly how we handled first hurrcane of the season, that has just passed.

    If I say this was the most volatile weeks since 1987 market crash, I think I wouldn’t be too far-off from reality. Too much of uncertainty, hopes and dreams surrounded the stock markets world-wide. Starting with the hope that bail-out package will be passed without issues; it was dashed to zero when markets were taken by surprise upon defeat of the bail-out plan, markets tanked on Monday, and the worst 1-day performance since 1987. Soon after there was revised hope that package will be passed and markets started to go back up, one of the best one day performances in past 5 years. Dow was up nearly 300points when bill was to be voted on Friday, I wrote to OPN subscribers at OP discussion forum to stay away from rally and also on my twitter account, that it might be “Buy in anticipation and Sell on news” event.

    For income trades, OPNewsletter stayed on the sidelines. We opened only one trade, a RUT iron condor that we officially closed for +9%, some might have had minor losses due to the fills that received during a very fast moving market that it was. For OPN, I invested only 8% of capital in that. Since I invest majority of my capital in income trades, I preferred and shared with OPN subscribers to stay in cash since mid September. Preservation of capital is of utmost importance to a trader or investor. Market environments were not such that I could leave the income trades on and not watch it. It required one to be nimble, closely monitor markets and always be “on”. Staying in cash proved to be a good strategy, we could sleep well while markets were gyrating.

    Though I had my own share of losses, it was a great week. Attached snapshot is just for few profitable trades. A fantastic week for those who played bearish on my fantastic fours (POT, MON, MOS and CF) as MOS missed the earnings and was punished by markets really ruthlessly. I also mentioned in the speculative sections of the forum when Apple (AAPL) was drowning below $100 watermarks due to rumors. I had been a net buyer of puts and sold some as market closed, but still in bearish position. WFC went down within minutes of S&P putting it on Credit Watch negative. It was a quick trade, generating +25% in less than 1hr time in a very volatile market environment. A bear call spread was also opened (37.5/35) Oct, which is also yielding +45% as of Friday close. Due to its highly speculative and directional nature I didn’t write on forum. Then was GE, VIX (+25%) and many more directional trades. Overall a great week for “directional/speculative” trader!

    Where are we now, as per my indicators, we are in for trouble ahead. But this is market which has defied several rules and indicators and therefore I would like to prepare for worst but hope for the best since most of the past major bull markets kicked-in during worst market sentiments.

    Preserve capital, stay cautious and be profitable,
    Profitable trading, OP

  • The Week Ahead

    If you are looking for a qick list of the stock showing gapping activity, here is a list for both up and down:

    • Gapping Up: CALM, DRYS, AAPL, APPX, BCE, FXI
    • Gapping Down: TEVA, GSK, BHP, GLD AAUK, DIS, MRK, MI, ABX, APKT

    Most of the Asian markets closed higher. Particularly China , Hong Kong and Japan, all recorded some nice gains. US futures are pointing to a neutral to green opening. Oil and Gold futures are easing off.

    Market moods are indecisive so I shall take care before going long. There is no major economic news expected this week except international trade data on Friday.

    Alcoa (AA) will officially kick-off the earning season. As such there is not so mch heavy activiy but look out of what Stawarts are saying. This includes Pepsi (PBG), General Electric (GE), Marriot (MAR) and so on. Keep an eye on themes, what is their outlook about the economy and where are the pressure points.

    Trade carefully, trade profitable, OP