Happy Halloween

Everyone have a fun and safe Halloween.

Will be enjoying myself with my son.

Are There Still Shorts to be Found?

After 2 days and 900 points down, I am still some how finding shorts. The market is moving so fast it is hard to feel safe recommending new ideas.

It is difficult to guess at a bottom.

I was speaking to one friend who thought the market would calm down after the election. I don't think that will make much difference but hopefully I will be wrong.

I saw 2 articles this week, one said the economy may not be in bad shape and another that said we were at a bottom. Taking a contrary view you would have to wonder about both.

When things are on the front page of various news papers bet the other way.

So, got to look forward to the world series. That should be fun.

A Typical Weekend

Since there is more to my life than just the money stuff. Here is a sample weekend (well, this last weekend):

After a bit of work on Saturday I went to a charity event on Saturday night. It was a gambling event and I didn't win anything. But I sure had a lot of fun.

On Sunday I spent the day with my son and ended up going to a friends house for an afternoon barbecue.

Sunday night we watched Pushing Daisies. It is a family favorite.

After my wife and son went to bed I watched the Rays beat the Red Sox and advance to the world series. Wow worst to first, what a great story. The eighth inning was great. But after blowing a 7 run lead in game 5 the rays gutted it out when they could have folded.

The 49ers lost to the New York Giants. They stink. Maybe they will play better next week.

For now its time to get ready for the world series.

Monday was Wild

The market has been crazy for weeks but Monday was really wild.

We were up 980 points a new record for sure. The problem now becomes, what happens from here. I think the market will have to at least retest or get close to Fridays low as a start.

Earnings are starting to come out and we will see how cautious people are and what tone that sets for the market. It could be very volatile from here until the end of the year.

I think that there will be plenty of stocks that will go down whether the market is strong or not.

Are We Any Better Off?

The market isn't responding to the liquidity added to the economy yet. The feds agreed to buy commercial paper issued directly from companies and in a few weeks the bailout package will start to hit.

In the meantime, yesterday I watched the market go from down 200 to up 150 to down 250 to up again and finally closing down nearly 200.

The actions of the government are not making anyone more confident in America or its money.

The Dow is down 37% from the highs it set last fall and people are in a panic. It seems like the market has no chance and things are moving down so fast it is hard to find something to short.

You can basically short anything right now so fundamental research isn’t playing any part in anything.

Today, Thursday, we were down another 678 and I have no idea what to think.

Mutual funds which are supposed to be the safe havens of the market are down huge amounts over the past year. Fidelity Magellan is down 44%, I doubt people ever thought that could happen. I certainly didn’t. Peoples lives are changing and mostly for the worst.

Bailout

The bailout has arrived and people may be figuring out it isn't the answer to the liquidity the banks need or the stock market.

It didn't really help the markets as they closed down 150 points. It was interesting to watch because people felt a sigh of relief early, the market was up 250 at one point during the day. Then President Bush spoke and the market collapsed. It has been that way for 8 years; every time the President comes on TV he kills the stock market.

But, I digress, I don't think people realize how hard it is to expand a business or just operate without banks loaning money.

Right now they aren't and it is throwing people into a tizzy.

If the fed doesn't make things easier pretty fast people will lose interest in the bailout the stock market will suffer, the dollar will become less valuable and inflation will be a bigger threat. We had a glimpse of that today. Our market and world markets need a strong US so there isn't a world wide collapse.

This morning most of the European and Asian markets were down 5% and the US market was down over 5% at one point. The bailout and subsequent actions need to start and then they need to work to make money more available to the general public and businesses.

Then we can get an economic footing and make job growth come back.

Commercial Real Estate

I read an interesting article yesterday about commercial real estate: http://www.efinancialnews.com/

Commercial real estate hasn't been effected by the economy as much as residential has.

But, it is starting to be a problem in various parts of England and Europe. The U.S Vacancy rates in commercial properties are just starting to rise in New York, which has been immune from problems for a long time.

Vacancies will go up and rates should drop.

Up to this point commercial real estate hasn't been affected the same way residential has. I think that has already started to change. The above article explains it very well.

Will the Bailout Really Work?

The market is in trouble and I don't know what will happen. They passed the bill and now people don't know if congress will mess it up.

The fertilizer stocks got trashed today and people who made a bunch of money playing the commodity game may have been hurt bad today. Mosaic is down 37% percent today, Bunge down about the same and Potash down 30%.

It is hard to make those losses up.

Here is one sarcastic view of the bailout: http://strategerycapital.com/index.php?slug=home

Seems to be Getting Crazier

Monday was crazy after the democrats and republicans started pointing fingers when the bailout vote faded into the sunset.

Like I said the buck doesn't stop here it moves the next finger.

There isn't any musical chairs so it doesn't stop.

I worked all day in new shorts but it is getting weird when the market goes down nearly 800 points. People should be worried about the economy and some are. When the market is down so much I don't find much else to do besides work.

Black Monday

Well the politicians messed up further what was already a mess.

Someone should have a sign that says the "the finger pointing starts here" circa 2008, any politician in the U.S. Congress ("instead of the buck stops here" President Truman).

Really amazing and I hope I am wrong about the problems that may ensue from this mess. Will we have a depression, maybe, I just don't really know.

The economy will be dead for a long time to come.

So much money has been lost and so many people will be affected.

I watched the news all weekend and thought we had a good chance this would go through. Instead it didn't make it.

Yes I would call this a Black Monday and Quicksand Tuesday followed by Black Tar Wednesday.

Slow Government

On Friday it looked like the bail out was toast and the market opened down 150 points.

I was supposed to go out for breakfast with a guy but he canceled because he thought the market would be down huge for the day. I came in and watched the market go up and down and finally close up on the day.

Now I am seeing headlines about the solar tax credits and whether they will make it through the next legislative hurdle. I am guessing it won't only because oil is at 100 dollars a barrel and why would we want to become less dependent on foreign oil in the future (sarcasm, just in case you missed it).

I am sure it isn't as simple as that.

But solar energy is important so why can't our government figure out how to help out. It doesn't matter whether it is a bail out or solar energy, things just don't get accomplished in Washington, unless our President wants to start another war.

Update and Two Cents

I didn’t listen to President Bush last night but I would have listened to either Bill Gross or to Warren Buffet.

I think our President might be a bit confused by the economic situation.

Someone told him to hire Henry Paulson and that was a good thing to do. Mr. Paulson came up with the plan and he has the backing of people who understands the problems that the economy is in.

The lawmakers passed the bill today and we will see if it works.

Also, I am about to start a survey on high school and grade school principles
on a subject that I am interested in. If I am right about their feelings
then an industry might change.

Is this Market Botton?

Today brought the news that Warren Buffet had invested 5 billion dollars in Goldman Sachs. He said that the government was doing the right thing with the bail out.

Then I read that Bill Gross from PIMCO said the government was doing the right thing as well.

So I guess we are now near a market bottom.

Both men are extremely smart and understand these sorts of debacles.

Let's hope that the politicians don't spend too much time trying to figure out how to mess things up. If they do the market will collapse.

Special Interest and the Stimulus Package

I realized over the weekend that the market is having trouble because the politicians can't seem to put away their special interests to finalize the economic rescue plan.

On Sunday I was visiting with a friend who wanted my views on the stock market. I told him I thought there was still trouble to come and that if congress didn't swiftly pass the stimulus package early in the week that the market would be right back down to where it was before the Thursday and Friday rallies.

Lucky guess on my part as the politicians are taking there time.

So we have given back about half (350 points on Monday and 150 points on Tuesday) so far and we are in a world of hurt for the moment at least.

Wrong Target

As I am sure many know, the government has intervened in a large way. I haven’t seen anything this large ever. $85 billion to AIG is small compared to the $900 billion they are going to help out financial institutions with.

When the government came out and said no short selling, well that was a bit too much.

People now have the wrong reason for the market decline. It isn’t short sellers, it is bad management decisions by financial companies such as Bear Stearns and Lehman Brothers. Those companies and others ended up making large over sized bets that nothing could go wrong. Almost all of it is real estate related. And plenty has gone wrong.

We haven’t seen the end to this crisis just because someone diverted the attention off of the financial problems to people who short stocks.

You will now get artificial up moves in stocks because people will believe these problems are over.

Banning short selling may be one of the worst ideas ever, even if it is only in financial stocks banning. Forcing people to short stocks legally is another matter and I hope that part of the plan works.

I wonder how much bad real estate paper is left to write down. It has to be more then the 900 billion. That will tell us when the market decline is over.

I think most of these moves by the government are politically motivated and they may not be in the best interests of the American people. Blaming short sellers is sort of retarded.

This week was extraordinarily stressful for traders and investors and me.

The Playing Field is Constantly Changing

I started writing the below text on Tuesday and then things got more exciting, the government loaned AIG 85 billion dollars for 80% of the company.

People have lots billions and billions of dollars. The market in general is now worried about the next shoe to drop. People are not sure if Goldman Sachs or Morgan Stanly might end up getting sold or going out of business.

The landscape keeps changing and lots of companies will be extinct.

Huge leverage will not be allowed anymore. There will likely be even more government regulation and many people will suffer. Many already are and it is sad.

I remember the crash of 87 and how exciting it was to be short and make money, and then I woke up the next day worried for America. As a Country we made it through that, this will be much harder

My original beginning went:

On Sunday it was clear that Monday would be an interesting day, Bank of America was buying Merrill Lynch not Lehman and Barclays also walked away from Lehman. Lehman has filed for bankruptcy.

AIG is having liquidity problems and between Lehman and AIG the market collapsed 500 points on Monday.

It seems as though people are waiting to see what will happen with the actual financial instruments not just the stock and companies that bought them. A lot of people will be losing their jobs and it is really a sad state of affairs. This will bring more financial oversight and more regulation.

Additionally the banking troubles are not over. AIG may get bailed out but the cost to share holders has still been huge. AIG is so large the ramifications of this company going bankrupt or something like it is unknown.

So, I have been asked how the insurance and mortgage fields break-down might affect what I do in the short market.

The insurance companies are part of a larger group called financials which would include the brokerage firms, banks, saving and loans and other things.

Financial Institutions Getting Crushed

It is interesting to watch these financial institutions get crushed.

I have no information or way to know if Bank of America would buy Lehman (I wouldn't have enough knowledge to know what they were buying, in terms of assets).

But, the amount of leverage they were using must have been so large they couldn't get their hands uncuffed at Lehman. So many billions of dollars down the toilet for investors and employees.

It will be too bad for all the people out of jobs and all the people who have lost money in what should have been a very stable company.

Diamond Profits in the '70s

When I first got into the diamond business, it was very exciting.

I remember the first big sale: A $200 commission in one day. Remember, this was the late '70s and that would have been a lot of money for me at the time. I thought "Wow, a job I could make $200 a day at!!"

Of course, many years later as a short seller, my expectations were far exceeded!

Don't Drop a Diamond

Especially on carpet.

First time I ever opened an envelope of loose diamonds, one fell onto the carpet and was "lost".

Small loose diamonds are very hard to find especially on carpet.

After a lot of searching, on my hands and knees, it still could not be found.

What I learned later: the trick is to vacuum the carpet and go through the vacuum bag.

If only I knew how then, oh well, live and learn

Why invest in shorts?

You can find a more detailed but still very simple explanation here, but really basic initial reasons are:

1) It is a good way to make money

2) It is a good way to hedge your longs, similar to "hedging your bets". If you have some long and some short you make it possible to make sure you make money either way the stock goes.

Both have their risks but if you do your research you can have both shorts and longs and end up with more money in the end.

How I became a short seller

I had a very interesting route to becoming a short seller.

I have never followed tradition: from not finishing high school to playing professional poker in order to supplement my income when I first started in the market.

For example, shooting pool was a big part of my high school life. While other 16-year-old kids were out drinking and messing around, I was using a different approach. I wanted to make money. This was in the ‘60’s and playing pool for 5 or 10 dollars a game wasn’t going to lead to riches. But I did learn that being a student wasn’t really something I was cut out for.

After leaving high school, I lived in Israel for 18 months on a kibbutz. I was just 17 when I left. The kibbutz had apple and orange orchards and also turkeys. I worked in the turkey area and most days started at 5 a.m. and finished at 5 p.m. All of the people I worked with there put in long hours. It always felt good to work and this was where I learned the value of hard work and putting your time in on a project. I followed this with a trip around Europe staying in youth hostels, camping out and meeting people. I still have a friend or two that I met on that trip.

Upon returning to the States, I tried going to junior college, but again higher education wasn’t for me. I ended up working in a gum factory for $2.50 an hour. I lasted about 9 months and haven’t had a real job since.

For the next few years I tried selling various things including gold and diamond jewelry. In 1978 I met a diamond and estate dealer who put me in business in the diamond and estate jewelry trade. He is still a dear friend and one of many who gave me a good starting chance in life.

In order to supplement my income from the diamonds, I started playing poker. I started in a relatively small game playing for 100 to 200 dollars. By 1980 I had graduated to a very large game for its day. The game I played in then took $3000 to get into. It was a no limit game, so every hand all your chips were at risk. Even today it could be considered a BIG game and in 1980 it really was. Often times there was $50,000 to $100,000 on the table.

Learning about value started with diamonds, learning about people started with judging poker players. You can also learn value from understanding the value of cards in your hand. Do they have it or don’t they, can you call someone with all of your chips if that will put you out of the game?

Then there was the worry of whether you could pay the rent or feed your family. There really was only one option, which was not necessarily to win, but to survive. Basic economics applied to poker. If you didn’t have any money left, you couldn’t play. It was exhilarating and quite fun.

During that time, I made my first investment in the stock market. It was 1978. And I made my first short sale, an oil company, in 1981.

I continued playing poker until about 1984 when our business was growing so fast that I just didn’t have any time. It has been interesting to see the popularity of poker and tournament play grow over the last years. I rarely play anymore, although I enjoy watching some of the tournaments on T.V.

In 1980 I left the diamond business and started doing financial public relations for small oil and gas companies. At that time I met one of my early mentors who taught me how to read balance sheets and income statements. He showed me over and over again how to do valuations and how to understand business and their economics.

During that period oil and gas were all the rage and learning asset values was part of my training. It was simple back then: reserves plus acreage minus the debt gave you the value. It was amazing how many came up at zero.

I started managing money for a few friends in 1981 and then founded Feshbach Brothers along with my brother Matt in 1982; Falcon Research was started in 1984. The bull market of ‘91 made it particularly hard to be 100% short and we lost a few too many investors to keep going. My brothers and I trained 2 dozen short side analysts, many who are still active and successful today.

I have shorted hundreds of stocks over the years; many are no longer around. My scope has included energy, entertainment, financials, retail, restaurants, fads, frauds, dumb ideas, uneconomic ideas and companies who have missed the mark entirely.

No one I worked with in the early ‘80’s dismissed me because I hadn’t finished high school, hadn’t gone to college or business school. I was extremely lucky to have had people who taught me skills that have been useful for the past 28 years.

I was also guided by these same investors to do investigatory research and to dig into companies’ businesses. Learning about businesses from the outside instead of the companies themselves keeps you balanced. Doing the research and finding the key elements to a story is fun for me.

And finding a good short is one of those things that still gets my heart rate up.