Sunday, September 28, 2008

Ridin' the Rails on a Downbound Train

The Psychology of the Call (POTC) team is very disturbed by the recent economic, financial, and political storms. None of the living has witnessed such a market, and even the free market guys on Wall Street, who are 80% responsible, are pointing fingers at each other. Their pig headedness in not addressing the issue of imbalanced sheets sooner earns them the title of investment bank boneheads, especially the Brothers Lehman and John Thain's bull no more, Merrill Lynch. Their days of levering up 30-1 are over, and the last two remaining U.S. Investment Banks, GS & MS, have been forced in line with the rest of the Bank Holding Cos., a sweet reality for many Americans, yet a sour long-term reality for lovers of liquidity, volatility, options, risk and fast money ~
The equity market will hiccup from this oversold position after the billion dollar D.C. legislation is signed. But caution is warranted as the market could...
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Friday, September 26, 2008

Our Commandments for Trading

The Psychology of the Call team (POTC) wants to thank everyone for returning to our blog on a daily basis. We wish you a happy and healthy weekend, with dreams of better days ahead. We will continue to strive toward making Psychology of the Call the go-to financial portal for analysis and articles on geo-political macro issues as well as individual recommendations on micro ideas/stocks. Now we bring you the 11 Commandments. POTC wants every individual supporter to understand how critical they are to your financial success going forward. Without an actionable plan, many well known investors of our time have failed, but eventually succeeded due to diligent adherence to strict rules. Although there are thousands of financial forums on the Internet, filled with great facts, opinions, rumors, and educational information; POTC offers you a more scientific channel to help through this maze of information. We stress the need for an actionable plan rather than mere hope. Hope and faith should never enter into your investment ideas, ever. Perhaps no one is more qualified than "Master Kung", the great Chinese philosopher Confucius (479BC) to explain why modest words are important, but nonetheless, quantifiable methods of action must surpass well meaning words of hope: "The superior man is modest in his speech, but exceeds in his actions".
The Eleven Commandments of Trading
1. Never trade more than 10% of your total capital/account value in any one position. 2. Cash is King, and we recommend keeping 20% liquid to take advantage of dislocations and volatility. 3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week. 4. Take and enjoy profits of 30% or more. 5. Never fall in love with a stock and never force trades or over trade; remember commandment #2. 6. Never accept excuses from management, period. 7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades. 8. There are two sides to the market, long & short; take advantage of that leverage. 9. Understand the significance of the macro geo-political economic environment. 10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2) 11. All of the above are void without reading the Psychology of the Call.

Sign of the Times, ECB's Wellink Cancels Crisis Management Speech

DJ ECB Wellink Pulls Out Of Chicago Conference Citing Mkt Turmoil By Emily Barrett Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--The financial crisis is causing considerable attrition at the annual international banking conference hosted by the Federal Reserve Bank of Chicago, with European Central Bank governing council member Nout Wellink the latest high-profile speaker to pull out, citing the ongoing turmoil in markets. Wellink, who is also chairman of the Basel Committee on Banking Supervision and head of the Dutch Central Bank, had his staff notify the conference organizers late Thursday that he would be unable to attend to deliver the keynote address at Friday's lunch. His withdrawal was followed late Thursday by that of Vincent Reinhart, former Federal Reserve official and professor at the American Enterprise Institute. Kenneth Dam, who is former deputy secretary of the Treasury in 2001-2003, will replace Wellink, and no replacement for Reinhart has yet been announced. He was to speak on a panel at 8.15 a.m. CDT on "Experience with Crisis Management." In another signal of how highly strung the proceedings have become, one of his fellow panelists has requested there be no recording of his comments. This year's conference, the 11th in the series, is named "Credit Market Turmoil of 2007-2008: Implications for Public Policy." The dinner keynote address was given by ECB Board Member Jose Manuel Gonzalez-Paramo. -By Emily Barrett, Dow Jones Newswires; (201) 938 2248; (END) Dow Jones Newswires September 26, 2008 09:11 ET (13:11 GMT)

Thursday, September 25, 2008

HSBC's (HBC) Actions Could Signal Bottom

DJ HSBC: Which Bank Is It Buying Today? Press 1 For No Comment . By Ragnhild Kjetland Of DOW JONES NEWSWIRES LONDON (Dow Jones)--It is a small comfort to many banks, their shares beaten black and blue, that helpful traders more than likely will name them as acquisition targets of HSBC Holdings PLC (HBC). Without ranking the following according how deep into the quicksand they've sunk in the credit crisis, Washington Mutual Inc. (WM), Morgan Stanley (MS), Lehman Brothers Holdings Inc., Citigroup Inc. (C), UBS AG (UBS), Societe Generale SA (13080.FR), Royal Bank of Scotland Group PLC (RBS), HBOS PLC (HBOS.LN) and Bradford & Bingley PLC (BB.LN) have in the past nine months all been named as potential targets for the mother of all banks, HSBC, which Forbes earlier this year ranked as the world's largest company. Is HSBC taking over the world, or has the rumor mill run amok? "It is interesting the number of banks that HSBC has been linked with over the past few months," one trader said, adding that HSBC has been "very clever" the way that it has conducted itself throughout the market crisis. "They have completely distanced themselves from HBOS, UBS, Bradford & Bingley et al recently," he said. But he said he wouldn't bet against HSBC getting involved at some stage, "and if they do - we'll probably be close to the bottom." Another trader said that if the rumors are plausible and ties in with his thinking, technical views and models, he will trade on them. He also said that he would forward rumors to other traders and journalists unless there was reason to believe they weren't true. "Information is the life blood of the markets," the trader said. "Without it, they would dry up and rumors are part of that system. Our job is to sift the wheat from the chaff and advise our clients accordingly, just as we do with other forms of information. Truth is often stranger than fiction. You only need to look at the markets at the moment to see that." Able, But Maybe Not Willing All evidence suggests that if it wanted to, HSBC could go on a shopping spree. It is the only major Western hemisphere bank whose share hasn't lost any of its value since the start of the year. In fact, it has gained 3.7%. At 7.84%, it far exceeds the market's 6% golden standard for equity held against risky assets, or core Tier 1 ratio. It has more deposits than loans, as it takes care of $1.16 trillion sitting in customer accounts, and it can absorb $10 billion in loan impairments and other credit-risk provisions and still deliver a net profit of $7.72 billion in the first six months of the year, all thanks to a hugely profitable Asian franchise. Last but not least, a week ago, it withdrew a $6 billion bid for U.S. private equity firm Lone Star's stake in the Korea Exchange Bank (004940.SE). So, being strapped for cash is certainly not an excuse. But HSBC likes its high ratio of deposits. It likes its capital ratio, and it likes emerging markets. The bank will never comment on market rumors, and Thursday, HSBC didn't return calls for comment on why it is so often subject to market rumor. But whenever possible, the bank's management repeats two mantras: HSBC doesn't want to buy an investment bank and HSBC wants to grow in emerging markets. And it is risk adverse. For a bank that has avoided many of the potholes that the rumored takeover targets haven't, it seems only natural to ask: Why should it expose itself to that risk? This week, two banks that are still branded high-risk have been named in connection with HSBC: UBS and the ailing U.K. buy-to-let lender B&B. The logic behind UBS was that HSBC would get its hands on the wealth management business, but sell on the investment bank to BNP Paribas SA (13110.FR). Incidentally, BNP is another bank often rumored to buy this, that and the other. Not only did people familiar say that HSBC isn't in talks with UBS or BNP, but analysts also pointed out the risk of carrying UBS' balance sheet until a transaction with BNP could be done. A balance-sheet split is easier said than done. Bear in mind that RBS is still carrying parts of ABN Amro on its balance sheet that belong to Spain's Banco Santander (STD) and Fortis N.V. (30088.AE) after their joint acquisition a year ago. For B&B, the situation appears more precarious every day. One analyst said Thursday that its outlook is at best "dire. It needs to be taken over. ASAP." Banco Santander, which recently sealed a deal to buy the mortgage lender Alliance & Leicester PLC (Al.LN), has also been named as a possible buyer of B&B. Santander may also want to introduce a "Press 1 for no comment" service on its press hotline. Research conducted this year by IntraLinks and London City University's Cass Business School found that more than half of deals leaked to the press don't materialize. But for HSBC, the never-ending rumor mill suggests that they are guilty until proven otherwise. That could take a while. Company Web site: -By Ragnhild Kjetland; Dow Jones Newswires; +44 207 842 9268; (Andrea Tryphonides contributed to this item.) Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires September 25, 2008 11:42 ET (15:42 GMT)

Tuesday, September 23, 2008

"Lights, Camera, Action", Attention all POTC readers

Warren Buffet will be interviewed Wednesday on CNBC at 8 ET. He will address the bailout and his $5B-$10B investment in Goldman Sachs that broke after market close, Tuesday. POTC feels the S&P could witness a 4%+ advance with the combination of these psychologies: Buffet-Berkshire/Blankfein - Goldman hook-up buzz; an okay Durable Goods Orders report (8:30ET), and the scariest of all; an unemployment number that doesn't exceed 450K (8:30ET). The market inversion we predicted in the last sentence of the "McCain vs Obama" piece is upon us, yet now in the late stages. We believe Buffet's actions will bring down the volatility index (VIX). And, IF you feel the bailout will pass before the weekend, we could see the S&P move past 1,280. Many IFs, yet we feel the pressure has shifted squarely on the shorts to cover, especially after the 70 pt S&P inversion in the last two trading sessions. Simply a panicked herd, simply oversold. Buffet's actions come at a very uncomfortable & questionable political time as Paulson and Bernanke are grilled on Capitol Hill. What will you say IF the bailout doesn't pass by Friday, yet financials and S&P stabilize due to Buffet's tune? Wouldn't that give the D.C. animals more leverage on adding their bells and whistles? You decide. POTC will set-up trades with conviction the bailout passes by Friday. We feel the risk-reward is too great to be short or overweight in cash. Lastly, Buffet's 'perpetual preferred' share investment is a long term deal as far as he's concerned. Warrants worth $5B are attached at $115/share, with an option to buy in at anytime. The psychology of the closing bell will be critical Wednesday, and we see bear blood. Equity markets are the best leading indicator of the economic cycle, so we feel it's critical the S&P closes up at least 35 points for the bulls to mount control. And that would be only half of what we lost in the last two days... We recommend aggressive traders go long, and even conservative forward thinkers nibble at some "best in breed' positions for your IRAs. We are optimistic after this Buffet $Billion investment, since the majority of recent blood loss came from the financials, especially ex-Investment Banks GS & MS. The Psychology of the Call team remains confident there will be a market, in some form this Friday, next week, and next year. Thanks to all for answering the POLL on the blog as well. Good night.

Sunday, September 21, 2008

Psychology of the Upcoming Week's Economic and Earnings Data

From border to border and coast to coast, to all supporters reading, wherever you may be, sincere greetings to all forward thinkers! "I cannot say whether things will get better if we change; what I can say is they must change if they are to get better."
G.C. Lichtenberg The Psychology of the Call team (POTC) refuses to cheer or jeer for what is transpiring, as some of it is positive on a macro-economic scale, yet some of it negative on micro levels, i.e. market/trade efficiency. The banning of selling short 799 financials has caused a market dislocation, and some participants are steaming mad. Many lawsuits are being filed, and as you continue reading, we will offer a compelling stock pick that will take advantage of the developing regulatory actions and cosmic proportion of litigation proceedings ahead of us. The Island Where Forward Thinkers Evolve has stressed the importance politics play in money & banking since February, and what an unfortunate last few days for strict technicians or fundamental analysts, as the full force of the U.S. Treasury stepped in and temporarily stabilized the market inversion. There are still those who doubt HMP's "Newer Deal" will work: that's fine, but as forward thinkers, we will find ways to trade this market and let history be the ultimate judge. We know the "11 Commandments" will continue to play an important role in our future trading successes. Many sophisticated traders are dumbfounded and trying to make sense of what is unfolding, and we do believe only those who have practiced defensive tactics will survive this market cycle and whipsaw. If you feel G.C. Lichtenberg's quote carries any weight, please do take a moment and review all of the 11 Commandments before you place your next trade, because the change in front of us remains enigmatic.
In February, before the collapse of Bear Stearns, we pointed to the "foundational crack" in banking. Now, we believe...
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Friday, September 19, 2008

HMP's Newer Deal Cements the Foundational Crack in Banking

Hank Merritt Paulson's (HMP's) astronomical deal will go down in the annals of history with the late FDR's "new deal." The "foundational crack" in the banking system, which POTC addressed before the collapse of Bear Stearns, finally gets cemented. We applaud the bipartisan effort and await its finality on Friday, by 3:00pm ET. POTC wishes one and all, from border to border, scattered across all five habitable continents a happy Friday and weekend ahead. We look forward to delivering a detailed "Psychology in the Upcoming Week's Earnings & Economic Data" on Saturday night, as well as other useful/relevant updates to the Island Where Forward Thinkers Evolve. Stay tuned! The Psychology of the Call team. Here's a reminder of how we addressed the "Foundational Crack" back on February 28th:
Thursday, February 28, 2008
Psychology of the Call did finger Alan Greenspan yesterday for causing the "irrational speculation" in the Real Estate/Mortgage market, and today the fall out continues. The Unemployment numbers released this morning are inching up to disastrous levels. Greenspan's lowering of the Fed Funds rate to 1.25% unleashed a steroidal effect across the U.S. economy and now the credit and stock markets are in panic mode. The foundational crack has been revealed and it'll take a lot more than carpenters to fix it.
--Wall Street prefers the ability to forecast the future, giving them an understanding of what to do with their capital. Wall Street prefers growth orientated momentum on both sides of the accounting ledger, but neither stocks nor bonds feel comfortable here.
--A good childhood buddy in the Corporate Offices of Goldman Sachs in Manhattan, New York is beginning to question the legitimacy of what is left in the subprime market. The credit spreads are causing bewilderment in the most powerful Wall Street Institutions. Now that we know that, do we advise our readers to buy stocks today? Absolutely NOT! We actually see more lay offs on the horizon at major Wall Street houses, so exhibit caution.
We see the "biggest hammer being wielded" in anticipation of the Unemployment Number on March 7. This hammer will not be kind to those who are long stocks and investors should shy away from adding to any positions until after that date.. Your Cash Will Be King as you sit and listen to the confused talking heads on CNBC and other for-profit channels.As for Bernanke, the tone of his delivery and the trembling in his voice will only get worse after this morning’s employment data – ugly, ugly, ugly. What is the Fed to do? We’re not Economists and we wouldn’t wish Bernanke's job on Mahmud Ahmadinajad (well, maybe we would). But we urge our readers to sit back and watch the show, with cash and buttered popcorn in hand; don't step in what we see as a deep foundational crack.
--Happy trading and remember, Psychology of the Call matters.

Wednesday, September 17, 2008

Attention POTC Readers

A somber but optimistic hello to all forward thinkers, 10,680 on the Dow marks a significant trading bottom in our opinion and we feel S&P 1,168 marks a significant trading double bottom as well. The market has had a lot to digest in past few days, but we feel most of the bad news is behind us. Any economic growth and final stabilization in real estate prices could have very positive effects on the stock market over the coming weeks. These are very difficult times for all market participants, and we want you to know we sincerely care. We reiterate our feelings of a short-term trading bottom. Wishing all a good end to the week, better days are ahead. The Psychology of the Call team.

Tuesday, September 9, 2008

If... Then

Greetingstoallforwardthinkers! - 011001010100010101010111010010101001010010101 10101001010010010101010011011001010010011101 IFyoubelievecrudeoilwillbreakbelow$100barrelTHENbuy EbayEBAY010100010GoogleGOOG100101010 WholeFoodsWFMI00011010111010100001010 IFyoubelievecrudeoilwillbreakabove$110barrelTHENbuy PetrobrasBrasileiroPBR110100011XTOEnergyXTO0111010100FirstSolarFSLR10010101 IFyoubelieveMcCainPalinwillwinTHENbuy CamecoCCJ110101001CelgeneCELG010110101HarrisHRS010001110 LayneChristensenLAYN101010101NordstromJWN000110111Tiffany&CoTIF01101101 THENsellMcDonaldsMCD101001010&sellWalMartWMT101001010 IFyoubelieveObamaBidenwillwinTHENbuy CelgeneCELG010100011CoinstarCSTR010101010DeVryDV111000101H&RBlockHRB 101001000iSharesXinhuaFXI101010111JoyGlobalJOYG000011111McDonaldsMCD 10100011OracleORCL001100110PetroBrasileiroPBR110100101 THENsellNordstromJWN010000111&sellTiffany&CoTIF1010 0001101101011011011010010ThePsychologyoftheCall101010111101001111110101 0110010101101011010TheIslandWhereForwardThinkersEvolve1010000100101010110

Sunday, September 7, 2008

Tossing Stones at -the King of the Bonds- and HMP is Wrong

Good Morning, Afternoon or Evening! You have probably read many articles and had your email box stuffed from many tossing stones at Pimco's Bill Gross for forcing the government spoon to help feed Freddie & Fannie. Here's one example: With all due respect, we too believe in a laissez-faire approach (the "let them go bankrupt philosophy") in 99% of cases, but not this one, no way, no how. Do the journalists who arecriticizing Gross & government officials like Paulson not understand that Fannie was created because the free market banking system failed us during the Great Depression? Franklin Delano Roosevelt (FDR) took aggressive steps that were contrary to "leaving it alone" and it worked for seven decades. Pimco manages the largest bond portfolio on earth, therefore Bill Gross is the perfect messenger the media can crucify after government officials see no way out and begin whispering into his ear and through his mouth. Is Pimco/Gross responsible for the current credit mess, or should he be lashed for speaking his positions? On the contrary he has in fact purchased billions of dollars of government agency paper through the decades, and is Hank Merritt Paulson's (HMP) best friend, best scapegoat, and most qualified expert witness to negotiate a very sensitive "New Deal of 2008", buoying & tweaking FDR's 1938 creation of the Fannie Mae enterprise. So perhaps the acronym 'HMP's New Deal of 2008' will make it into history books as the credit crisis stabilizes and turns. We expect some credit may go directly to Pimco's Bill Gross, aka -the King of the Bonds- Yet many in the media punish Gross and Paulson: shame on them. We believe... --- If you would like to receive this and future posts and market analysis, please send an e-mail to and make sure that your e-mail client will not consider messages from that address as spam.

Thursday, September 4, 2008


Ospraie Hedge Fund Blows Up, the Cockroach Theory Urges Caution

POTC sent out an alert many weeks ago about the dislocations that might result from the bursting of the oil bubble, and with the Ospraie news we are VERY cautious of entering ANY long positions, perhaps only for day trades. As the cockroach theory states "where there's one, there are many more lurking." This is exactly why POTC asks readers to obey the 11 Commandments, as these types of events usually come out of left field, and the 2nd Commandment becomes more relevant. We are now very concerned with how the financial sector digests this negative news, and we urge traders to be overweight cash. In addition, the ISM coming in at 49.9 foreshadows a grim Unemployment Rate this coming Friday, perhaps above the 5.7% forecast, and that would be devastating to most long positions with positive betas. As much as we hate recommending stockpiling cash, it's at times like these that cash will allow you to get some sleep. Even if there is a delayed market reaction to this news, we are very worried about the domino effect this may cause in the weeks ahead, especially as more hedge fund blow ups hit the wires. The Psychology of the Call team.

Tuesday, September 2, 2008

Gustav Stage Left, Palin Stage Right, Energy Prices Plummet

Good Trend Setting Tuesday to one & all! The weakness of Gustav is welcome news for all consumers, but perhaps the entrance of Alaska Governor Sarah Palin for Vice President has spooked the energy market more, causing crude oil and natural gas to fall more than 6% in a single trading session. Whether you subscribed to the notion of supply/demand driving up prices, or favor the idea that speculators are responsible, we know Gustav did not increase supply or demand, yet energy prices are plummeting beyond where they were when Gustav wasn't even a single storm cloud. Perhaps it is simple market/economic psychology of discounting future prices based on Alaska's huge energy supply as Palin made her beautiful stage right entrance? There are still those convinced oil is down and stocks are rallying because Gustav missed: Yet there are others who respect and may credit Palinomics with today's market reaction: With respect for your personal opinion, a majority of Americans do agree that drilling should be part of a comprehensive energy policy. The fact we now have a Governor from the energy rich state of Alaska on the elephant ticket is a breath of fresh air, much fresher than any hurricane Miss. A beauty to put it in supply/demand terms ~ We hope you enjoyed the Psychology of this Call.

Monday, September 1, 2008

Psychology of the Week's Upcoming Economic and Earning's Data

Good morning and good evening to all who enjoy this weekly piece we call the "Psychology of the Upcoming Week's Economic & Earnings Data." Welcome back to the Island Where Forward Thinkers Evolve and monoliths like gold bugs and perma-bulls just vanish in the churn, whipsaw, and noise of normal market cycles ~ The following analysis assumes adherence to the 11 Commandments and no unforeseen market inversions as addressed in Commandment #10, but especially related to geopolitical or terror events. Monday, Sept 1st brings the U.S. Labor Day Holiday, all markets are closed except for commodities, and what a bearish day for crude oil, currently down $4.15/barrel. It’s now evident Gustav will cause a lot less destruction than Katrina. More importantly, we have great faith the loss of human life will be close to zero this second time around! POTC has turned slightly bullish, at least until Thursday afternoon and then we believe being long into the monthly employment report on Friday carries too much foolish risk. We don’t anticipate any upside surprises to Friday's 5.7% unemployment forecast. Also, holding long positions into a September weekend (historically the worst for stocks), coupled with the current geopolitical atmosphere would not be justified. Even though we are in an election year, we refuse to hold unhedged long positions into "Employment Fridays" and weekends just yet. We will offer you a hedged trade idea shortly, one we are confident you can hold into Friday and the weekend. IF crude continues to break down, retracing below $110/barrel, and the S&P sells off, we would definitely begin going long select technology and select retail, as a majority of the recent pain has been the direct result of the weak greenback and energy bubble, and both are showing signs of turning toward the bullish campfire. We recommend exposure to technology and retail names that enjoy 70% or greater of their revenues/sales inside the U.S., as the strengthening greenback and falling gas prices will be synergistic. A slight positive for stocks is the fact we are in an election year stretch. With the Republican National Convention underway, conservatively run institutions, which dominate Wall Street, will no doubt be influencing trading, so a positive bias is expected at least up to Friday's unemployment release. ------------------- If you would like to receive this and future posts and market analysis, please send an e-mail to and make sure that your e-mail client will not consider messages from that address as spam.