Cheap Gasonline and Alternative Energy Do not go Hand in Hand-At Least not at First

Cheap Gasoline and Alternative Energy Do not go Hand in Hand-At Least not at First.

Everyone seems to be complaining these days about high gas prices, the need simultaneously lower gas prices and develop new, clean, alternative sources of energy. Both Political Candidates in this Election are promising lower Gas Prices, Development of Alternative Energies, and a "Solution to America's Energy Crisis".

Let's explore why this will not work. When gasoline and Oil Prices are high it creates the incentive to develop new energy sources. With Oil well over $100 dollars per barrel, and gasoline well over $3.50 per gallon, we seem to want to have our cake and eat it too.

If we were in Venezuela with gas at around 12 cents per gallon, what incentive do people have to invest money into developing new sources of Energy? None! It is too cost prohibitive. To make the Investments in developing new sources of Energy the Investors are going to want to know they are going to make their money back, and have a return on their investment. If gas was $1.00 per gallon in America we would not care about conserving energy at all.

Proponents of more oil drilling to lower prices and develop clean, alternative energy sources, are not consistent. There is no economic incentive to invest the Trillions of Dollars in Alternative fuels if the costs will not be recouped.

The High Oil and Gas prices are good for Americans! It encourages innovation, and spurs investments, and new ideas. As Oil Prices go higher, MORE incentive is created to develop alternatives, as oil prices go lower there LESS incentive. The term "Alternative Energy" is what it sounds like, and Alternative to conventional energy (Oil). The Alternative needs to be competitive in price. It is more difficult for it to be competitive with Lower Oil Prices, rather than Higher.

Since the World Oil Supply is running out anyways, and other fuels like Compressed Natural Gas are Clean Burning and abundant in America we obviously need to explore other options.

Lets assume that Oil Companies have invested profits from high oil into new energy Alternatives, and formed a viable new energy solution, such as Compressed Natural Gas, electric power, or solar, complete with new cars, and refueling/charging stations. If the fuel was truly an "Alternative" to oil, then even with a finite supply of oil, the price would have much less demand side pressure. This scenario is a long way off. So for now Higher Oil prices are going to be the only thing that spurs investment in Alternative Fuels, ironically Higher Oil Prices will be the catalyst that leads to the development of new Fuels.

*Note that I did not include any Environmental incentive in this argument. Currently I am assuming this is an economic argument only, since we do not have clear environmental regulations and mandates for development of Alternative Energy. Obviously there is always clear Environmental incentive to develop Alternative Energy. In Reality economic factors drive investment more than Environmental*

Traders Prepare for Gustav

Hurricane Gustav has been the talk of the News wires this entire Labor Day Weekend. The New York Mercantile Exchange (NYMEX) opened up trading for a special session today to allow Traders to adjust positions pre-Gustov. Oil gained 1.67 for October Devilry to $117.13 a Barrel, Gasoline gained 6.58 cents or 2.3% to $2.92, and Natural Gas fell 6.1 cents or 0.8% to 7.882 per million British Thermal Units.

I am Long VLO SEP 34 Calls in preparation for Gustav. I except that the refining sector, among the worst performers of the last 12 months will receive a huge boost from the storm. When the refining capacity drops, the refiners can operate with much better margins. Even if oil prices rise, the refiners margins will increase substantially.

Look at stocks like VLO, TSO, and WNR. If the stocks behave as I anticipate, I will start buying more calls come next week Tuesday.

Why Trading is NOT like Gambling. Why Gambling is NOT like Trading.

It gets me very upset when Someone wrongly draws an Analogy from Investments/Trading into the World of Gambling, saying "they are the same thing". They conclude this because both are events where money is wagered and money can be gained or lost. But that is where the similarities end.

I was recently making small talk with a fellow at the Airport when waiting to hop aboard a plane. He inquired about what I do for living. I told him I was an Options Trader. He scuffed at me, look at me as if I was lower than scum and proceeded to explain to me how "Trading was Gambling". I brought up numerous well known Investors and Traders such as: Warren Buffett, George Soros, Bill Gross, Eddie Lampert, John Paulson, Bill Ackman, ect. He replied those people were "Lucky".

In a vain attempt to explain to him Why and How the two were different (for my own amusement, to change his mind, and because I had an hour to kill) I proceeded to argue.

(1)Gambling creates a new financial risk, when no previous risk existed merely for the sake of that risk. If we decide to bet on a coin flip which has a 50% chance of coming up Heads or Tails we are creating a new risk.

(2)In Trading, one party assumes a financial risk that already exists for the purpose of a financial gain. If I buy a stock from you that you want to sell, I am taking on risk that was already in the market place. You may say its a new risk to me, which it is, however the risk would have been taken on by someone your broker matches up on the other end of the trade. The risk is constant in Trading and waiting to be assumed by someone.

(3)In Gambling the odds are fixed and calculated. That is why Casinos exist. They Systematically know the odds on every single game over a series of wagers. For Example: The house edge on a bet on a random number of an American Roulette Wheel (a game I would never play) is 5.3%. You will lose an average of 5.3 cents on every dollar bet. This is a non debatable fact.

(4)In Trading no precise odds of one event happening can be calculated. People may say they can use historical volatility models and other data sets to predict odds, perhaps they can come somewhat close. Long Term Capital Management tried to calculate such odds, and it did not work out too well for them. Trading odds are not exact. Trading odds are based on variety of factors and variables that occur outside of the game such as breaking news, government data, interest rate decisions, analyst reports, market sentiment, insider activity, natural disasters, order flow, ect. These variables cannot be accounted for, and therefore cannot be calculated.

(5)Gambling Events are one time occurrences, and are non-continuous. After the flip of the coin, roll or the dice or spin of the wheel, the game is over. The player must make a conscious decision to wager new money and begin playing a new game. He must become an active loser, and decide to play again, and again.

(6)Trading Events are continuous and Never ending. The Market is always in motion. Even when the Market is closed, news is happening and being priced into the market. When in a Trade, the market participant decides when to enter, how long to stay in, and when to exit. In gambling these rules are very clearly defined. The Trader does not have to choose to do anything. He can lose money for doing nothing. The market can take all of this money and more if he stays in a losing position for too long.



While this post may serve as a good argument as to Why Trading is NOT like Gambling and Why Gambling is NOT like Trading, many people just cannot understand it. The fellow in the airport surely could not. In fact, He did not offer any other counter arguments except using circular reasoning to restate his conclusion.

In the future I would advise just agreeing with the person and not wasting time debating them. Just tell them they are right, and you are wrong, and go back to doing something useful.

Risk Control, Money Management-The Keys to Success

The two key concepts to trading success are Risk Control and Money Management. It is a fact that about 95% of all Traders do not make money in the markets, in fact they lose money. The remaining 5% of Traders happily take the money from the losing Traders accounts and are among the wealthiest people on the planet.

The reason that most Traders fail is because they do not have any type of Risk Control and Do Not Follow a system of Money Management.

Many Traders decide to arbitrarily Risk more less of their Capital Based on how they feel about a trade, Whether they have been winning or losing lately, and How much money they want to Make, instead of carefully considering the mathematics of their actions and following a Trading Plan.

Mark Douglass in his Book Trading in The Zone identifies the essential word to best describe Trading as "Contradiction". The reason is because in the Trading Environment events are unlimited and continuous, there are no formal rules or regulations that govern our behavior. We must make our own rules. Then we must follow all of these rules ourselves. The Rules in the "Trading World" are directly contrary to all of the rules we learn in the "Real World" and to our own human emotions.

Most people are attracted to Trading because of this "Freedom" from having to work for a someone else, to be Creative, to work when and how they want, and to have the potential for eye popping income. However, These Freedoms do not Translate into how one must conduct themselves to operate a Successful Trading Business.

To be successful the Trader must develop a Mathematical system of allocating capital, controlling risks, and managing his account to generate a consistent stream of profits. This means you can't just make up your own rules as you go along, and decide to break your own rules when ever you want.

If the Trader does not have a Trading Plan and Specific Risk Control and Money Management Guidelines, it is only a matter of time before they lose all of their money.

Mccain losses the election by picking Palin

Just when it looked like the Democrats were losing strength leave it to John Mccain to blow the chances for the Republicans with one Pick. By Picking Sara Palin for his Vice President I believe blew the chances for the Republicans.

The Average age for White Men in America is 75.29 years. John Mccain turned 72 years old today. So according to the Average, Mccain would die within his first term in office. If this did happen he would leave the reins to former Alaska Governor Sara Palin.

Just when all the Republicans had to do what pick a credible VP Mccain drops the ball by picking Palin. I now favor the Democrats hands down. Despite the Obama/Biden and Obasa/Binladen post the Republicans now dealt the fatal blow to themselves.

Obama/Biden looks like Osama Bin Laden

Yet another blow has been dealt to the Democratic Party with the name on the party ticket. Quite possibly the most hated and hunted man in America, Osama Bin Laden is just 4 letters away from "Obama/Biden" right inside your voting both.

On the Obama/Biden Ticket all you need to do is subtract a "B" add an "S" to get "Osama". On Biden's name you need to add "N" "L" "A" to get "Bin Laden".

Why is this a problem? Because of the way our brains read and interpret information.
We do not read every letter in a word, or in a straight line, but rather in a sequence of movements (jumps). Our brains scan information an quickly make connections, and associations.

When we see "Obama/Biden" it looks a lot to our brains subconsciously like "Osama Bin Laden". We would obviously not vote for "Osama Bin Laden" for President. I think the "Obama/Biden" ticket becomes increasingly more difficult to get into the oval office due to this fact. "Obama/Clinton" sounds less evasive and more Presidential.

To vote for "Mccain/(any name)" sounds a lot less risky and familiar than "Obama/Biden". The problem is that most people will not even know why they fear "Obama/Biden". It is on a subconscious level, and is not something they will have the time to logically consider.

The Opposite of What to Do

I made these rules because sometimes following the "Traditional Trading Rules" is hard to do. People are rebellious and don't like to be told what to do. So this is list of the exact opposite things to do. Just read over them to see how ridiculous they are, and maybe it will motivate you to "Do the Right thing".

(1)Don't have a Trading Plan. Trade haphazardly and without a clear purpose. That way if something goes wrong, its not clearly defined, and the fore its not really your responsibility.

(2)Don't Set Limits or Use Stops. Enter the Market without the Slightest Clue as to when you are going to Exit. Just get in. Have no idea where the market is likely to go. Just do what feels right.

(3)Ride your Losers and Hope they will come back. When you are in a losing Trade, Just hope that it comes back. If that does not work Pray. Pray to your God. If that does not work Pray to a new god. Keep trying to pray to new gods until the market starts coming your way. If that does not work try Scientology.

(4)Add money to your losing trades. Throw Good money after bad. If your trade is going against you, what better way to lower your cost then to add more money. If the Trade Comes back again, then you make that much more money. If it keeps losing you money, add more money until the trade starts working. If it does not work Repeat step 3.

(5)Sell your Winning Trades too Soon. As soon as you have a Winning Trade book your Profits immediately. Even though the market is rewarding you by putting money into your account, take those profits and be fearful that you are wrong. It is much better to sell Winners fast and Ride Losers Long.

Always Hope your Losing Trades will come back, and be Fearful your Winning Trades will reverse on you. This is a Crucial Step. The Good news is that your natural human instincts and emotions will guide you in this direction anyways.

(6)Focus on what you want to happen, Not What is most likely to happen. Don't worry about what the market is likely to do. Just keep focusing on what you want to happen. If you are long find all of the ways why the market should be going up. If you are short find all of the ways why the market should be going down. If you try very hard to visualize the market doing what you want, it will happen. Don't listen to anyone who has a different opinion than you. Remember they are always wrong and you are always right.

(7)Find someone or something to Blame if the Market does not go your Way. Get Angry. Throw your Furniture at the Walls, Blame the news, Kick your Dog, Scream, get emotional, get upset. Blame your Broker, Blame your Spouse, Blame your friends, Blame your Computer, Blame your Parents, Blame the weather. Just do not ever take responsibility for anything yourself.

(8)Keep doing what is not working. If something is not working, keep hoping that it will work. Then proceed to Repeat these steps until something changes.

(9)Watch CNBC and Bloomberg all day long. Who better to give you trading advice than from people who never trade on their own? Or from guest contributors who have a vested interest in promoting their positions? These people are obviously experts or else they would not be on Television. Glue yourself to the Television and Soak up the infinite Wisdom of these financial Geniuses.

Learn To Love to Take Losses

To be successful in Trading you need to learn to love to take losses. This sounds ridiculous to any non-trader or respectable member of society. In our culture we are taught to win. We even have clever slogans like "Winning is not everything, it's the only thing". People love to win and they hate to lose. To be a "loser" is certainly not a desirable trait.

Our Socialization and self preservation instincts have created an aversion to taking losses. In Trading taking manageable losses is the name of the game. The Hallmark of a Great Trader is not how he wins, but how he handles his losing Trades. Winning Trades can take care of themselves.

In the "Real World" people are paid and encouraged to come up with creative solutions to problems. This is why we recieve years of specialized education, degrees, and certifications. In the Movie "Fight Club" Brad Pitt says to Edward Norton: "Being Clever, How is that working out for you?" Clever In Trading will get you no where. It will cost you. You don't get paid any money for being clever. The law of Parsimoney is a scientific law that says "Let the Simplest Explanation Suffice". Less is More. The More complicated you need to make a trade exit, the more you think about it, The more I would bet you are losing more and more money.

In trading when we try to come up with elaborate solutions to our losing trades (telling ourselves it will comeback, adding to losers, hoping, waiting too long too exit, ect) We are selling ourselves on the outcome we would like to happen and not the likely outcome. We are still trying to win over ourselves subconsciously.

Everything in Trading is contrary to The Real World. If there is one word that best best describes Trading it is: Contradiction. It is so easy to look at past prices to think about buying at a lows and selling the highs. This is an illusion designed to again seek out a way to win.

Take the loss. Being able to accept and admit your loss is by far the hardest part. There should be a warning over every stock chart that says "Trading-Much Easier Said than Done". Good Traders know there are plenty of great trades coming our way. They don't waste energy, time or capital on losing trades. Being a "Winner" in the Trading World means admitting when you are losing, and cutting your losers quick.

If you can do that-Then You Can't Lose.

Market Rallies Off Bernanke, Lower Crude and Lehman Brothers Buyout Rumor

The Stock Market rallied lightly on Friday off Warren Buffett's interview on Squawk Box on CNBC where he said "today the market is priced more attractive than last year", Ben Bernankes comments on the economy were not that bad, and Most off all Lehman Brothers Buyout rumor got the market excited and allowed the financials to rally modestly. I except a modest rally for the S&P 500 to go up to around the 1300 level again.

The Trend of chop, chop and more chop is likely to continue. Sell the Rips and Buy dips as Jeff Macke says will probably continue to work until a fundamental shift occurs in the economy or the market has some reason to rally. The Market will not likely move Up or Down appreciably until after the US Presidential elections in November. The market needs to know for sure who is going to be in office.

In regard to Lehman Brothers, and the Buyout Rumor.....It is funny that people can falsify rumors to raise the price of stocks, but can not say anything untrue and negative to press down the price of stocks. The reason is simple enough, not as many people complain when stocks go up.

The only Trade that I am in right now is BAC calls. I increased the size of my account last week by 11 percent overall by purchasing some Bank Of America calls on Wednesday at $2.30 cents, They are now priced at around $3.30.

My trading has been going exceptionally well. I have not been updating the Blog with real time trades. No one seems to trade off of my ideas in real time. However if requested I will then update the blog per trade on a timely basis.

Market Ready to Hang on Every Word Bernanke Says, Crude and Gold Gain

Tomorrow Fed Chairman Ben Bernanke will give a speech at a Kansas City Fed conference. The Market is expecting him to touch on the current debate over mortgage lenders Fannie Mae (FNM)and Freddie Mac (FRE). Investors are unsure if Treasury Secretary Paulson and U.S. Treasury Department will backstop the firms, and exactly how. I believe any "Bailout" will wipe out the existing shareholders equity.

Crude gained more than $5 to hit $121 Thursday, on a weaker dollar,supply concerns and the uncertainly of the Geo Politics between the US and the Soviet Union. The CRB Commodity Index also made a strong advance, climbing 3.7% for the session. Commodities. The dollar shed 1.1% against a basket of major foreign currencies. While the U.S. economy continues to slog along, data is not at recession-like levels. Initial jobless claims for the week ending Aug. 16 fell 13,000 to 432,000, which is below the 440,000 claims economists forecast. The 4-week moving average for jobless claims remains elevated, advancing to 445,750 from 438,500.

Oil, Commodity, Natural Gas, Coal and Solar Stocks ripped back from their recent downfall. Financial shares held steady, allowing the broad market to advance. The nasdaq fell 8.7 points, The Dow and S&P were up less than a quarter percent each. The Market is wating on the Bernanke testimony to clear the fog over the fate of FRE and FNM. And comment once again in the US economy.

Speculation abound from Market Observers and many Financial Press have declaring these GSE basically insovlent, and have bascially said the Government is clueless and cannot really solve these problems.

Those are the Charges, Now Big Bad Ben Bernanke will have his chance to counter these allegations and shed some light on how and what the Federal Reserve sees over the near and far Horizon.

Fannie and Freddie race to Zero, Bill Miller should just Kill Himself.

With Barron's coming out this weekend and concluding that Both government sponsored darlings FRE and FNM have a negative equity valuation of around -$50 Billion a piece, it seems these stocks are racing rapidly towards zero. With many people invested in the stocks, and much belief that they can recover stocks do not go to zero overnight. Kinda of like how everyone knows some day, they will die. This is a fact. Most of us can say within 100 years from our birth will be our death. But we can't determine exactly when, unless we have a specific illness. With Fannie and Freddie the death of the equity is rapidly approaching. Within a month or two these stocks will both be trading under a dollar.

I think its funny that Fund Managers like Bill "I could not pick a crappier portfolio if I tried" Miller's Legg Mason Value Fund just keep holding the bag and buying more of these losers on the way down. He now owns 12% of the worthless equity in Freddie Mac. Someone should tell this guy about technical analysis. Did this guy forget that companies are comprised of equity and debt holdings? Did he bother to look at the Balance sheets? Shares of FNM and FRE are down 95% and 96%, did someone ever tell Miller to cut losses after say losing a certain portion of capital? I think not. When a manager thinks he is right and the market is wrong, this is very dangerous.

Fannie Mae CEO Daniel Mudd proclaimed Fannie Mae has more capital than it has ever had in its history. Yeah, more capital and more liabilities. So if you lent me a million dollars yesterday, and I was losing 200 thousand a day, I could also make the claim that I "had more capital than ever in my history". But at this rate it would only last about 5 days. Kids this is why you can't always trust the fundamentals, and why you never try to "catch a falling Knife". Let someone else like Mr. Miller put the floor on stocks, its far too expensive and frustrating for me. By the way, I hope Bill Miller does himself and his "investors" a favor and leaps head first off a tall building. But If he actually did it I would be surprised, because he would actually be cutting his losses.

No matter how successful I will ever become in this businesses, I pray that I can stay humble, objective and continue to respect the universal truth that "The Market is Always Right". No matter what my personal opinion is, or what I want or think the market should do, staying objective is the most important Investment and Trading virtue. Amen. Happy Trading.

The Dollar Rips, Taking the Appeal out of Commodites, The Volatility is Here to Stay, Sorry.

The Drop in Oil Prices for now is fueling the Bulls on Wall Street, Blue chips close positive in session with good news about bond insurers and lower oil, but indexes are mixed for the week. The rising dollar is taking the appeal out of Commodities and Commodity related stocks, and the Intense Gut Wrenching Market Volatility is Here to Stay.

FROM OUR FRIENDS AT TRADERS AUDIO, THE AUGUST NEWSLETTER TO INVESTORS......

Volatility and wide daily ranges continue to be the main topic of conversation still as we continue to see increased speculation due to fallout from the housing/mortgage environment and inflated energy prices. We expect to see continued volatility during the summer months this year due to increased levels of uncertainty in investors minds. Considering that prior negative economic and market conditions still exist I don't anticipate any dramatic change and do expect to see continued volatility into the fall trading session.

S&P Futures managed a strong rally off the 1201.00 level as fear selling failed to develop into panic selling. The sell off was a high energy trade driven primarily by the lack of presence of any real aggressive bargain hunting type buying. Stories in the news about continued bank write downs and slow if any GDP had kept the buying to a minimum as the bears had their way for the most part of July. But equally important is the huge rejection we've seen from the extreme low levels of 1201.00 sp and 10800 Dow. The SP's have enjoyed a huge run up to 1300.00 as oil retreats and holds a sustained trade below $120.


Pit population continues to be at levels as we would expect for this time of year. We have been seeing some good size orders, market movers as we call them, coming off our large desks providing good information for our listeners. Remember this is still summer trading session and while the ranges haven't really been tight the market at times has. By that I mean that during the mid day trade we have seen slow local to local type trade, typical for this time of year.

With the fundamentals essentially still what they were or have been for the last year plus now we do not anticipate any major change for the trends we've been experiencing. We think the market still has a full steam ahead type mentality and wants to test some of the key technical levels set last month. A couple big downside numbers traders are watching in the SP Futures are 1255 and 1200 in the Dow Futures the level is 10800 then 9500 if things get extreme to the downside. Above many traders are watching 1320 in the SP and 12000 Dow.

Happy Trading

Commodities Stocks Decimated

Commodities Stocks Decimated. What would you expect with oil currently below $115 per Barrel and Gold Dipping Below $830 per ounce? The Technology sector seems to be taking the money that was previously in the Oil, Nat Gas, Agriculture, Coal and Metal Names. The Airline Stocks are loving the decline in oil prices and as a "Trading Vehicle" have worked out exceptionally well. With the Fear of a Global Recession the The US Ten Year note yield pushed over 4% today.


The companies that need to purchase these raw materials should benefit from the lower costs. Think Airlines, Retailers, Transports, Industrial, ect. The Financial Stocks have held up relatively well but still have yet to break out and show significant leadership. Since they are no longer moving down the broad market indexes have the chance to advance. The money is moving fast and furiously from the winners to the Losers. Happy Trading.

Will CNBC ever stop asking "When Will the Housing Market Bottom or Have we hit the Bottom?"

Will CNBC ever stop asking "When will the Housing Market Bottom?" "Have we hit Bottom in the Housing Market?" and my favorite "Is it time Now to Buy Financials?".

We will know when the market bottoms. After the inventories start to decrease, foreclosures dramatically reduce and Bank reposessions dramatically reduce. The most imoportant sign of a bottom will be very simple: Affordability. When house prices become affordable again, and credit becomes more available, then the market will bottom.

It is not time to buy and hold any equity in any financials. Most equity is worth nothing. It is going to be a process for the equity capital to go to zero. There are too many hopers, traders and too many investors with too much money to see this happen overnight. It wil be a process of the equity being reduced to zero, this will take a while to play out. But it will happen.

After CNBC asked these questions over and over again, with no useful information being drawn out of the talking heads, I decided to smash my TV. Ok, well I did not actually smash my TV (I wanted to) I no longer listen all day. I have the TV on mute, glace at headlines, and turn the volume back on for useful, interesting, or entertaining informnation.