5 Points

The duration of the rally caught me. I was only 5 points away from being wiped out. Not easy. True that the market will remain irrational longer that we can remain solvent.

Ending Balance: €223,620

Better Than Expected

Everyone wants the market to continue rallying. So we are having all these “better than expected” corporate earnings when the expectation is being lowered in order not to “disrupt” the rally.

Alexon had its earning reported on 22nd April and sounded confident at the time: "New high fashion lines have been well received by customers and the fashion press and a revitalised image has been designed for Bay Trading reflecting its more fashionable proposition".

The Bay Trading fashion chain went into administration 48 hours later right after Alexon’s stock price went up 55% on Friday.

Watch out folks!

Oil Pulling

This was on the today's Gerry Ryan. Did a couple of search on the internet - worth a try?!

Got the AMZN right but could have waited a little longer to double the profit. Was not in the mood to trade, doing some gardening instead.

Ending Balance: €200,699

48 Hr Spades

Took a short break after the loss. Playing 48 hr spades, non-stop, just to clear my head.

Amazon is moving in the right direction, finally.

Ending Bal: €219,542

Easy Money

The Geithner's plan provides an opportunity to make easy money big time.

First this is how it works – the Geithner's way:

Geithner's plan is not as complex as it seems. The main objective is to get a “price” for the so-called “toxic assets” by creating a market for them. If the plan works out as it should, the “market price” will be above their net book value currently carried in the banks' balance sheet. This will improve the banks net worth and encourage them to lend and perhaps, more importantly, allow some of the banks to remain solvent. This is more attractive than insuring these toxic assets (as the UK Government did) as the US Government will benefit from any subsequent increase in the “market price” - an insurance scheme, on the other hand, will pass all potential benefits to the banks while guaranteeing to take up all the potential losses.

In order to give incentives to the private sector to participate in creating this market, the US Government will chip in $1 (from TARP) for every $1 of private fund. In addition, the FDIC will provide a 1:6 leverage as non-recourse loan (it means that the private investor's maximum loss is capped at the $1 he put in and he doesn't have to worry about the $12 loan made available to the partnership).

In essence, for every $100 the partnership has at its disposal, the private investor only has to put in $7.14 – the Government will make it up by matching it with $7.14 from the TARP fund and $85.71 from FDIC in the form of a loan.

Now time for easy money.

How sweet this deal can be (or the potential hiccup of Geithner's gamble) is what the “market price” the partnership will pay and what price the banks are willing to sell these “toxic assets”. Given the huge dose of sweetener from the US Government, the private investor will likely price the “toxic assets” higher than what they would otherwise be in a free market. Hopefully, the banks will sell at this government subsidized price. But will they?

If the private investor can see that there is a potential gain in acquiring the “toxic assets”, so will the banks. Why should the banks be selling something that will generate a reasonable return? Unless, of course, they are forced to sell (possible through the stress test to be carried out) or the price is so outrageously attractive as to exceed any potential return. In the former case, it's easy money for the private investor at the taxpayers expense. In the latter case, the bankers will benefit, also at the taxpayers expense. It will never be a win-win-win situation as some of us may have wished. It guarantees a win-win-lose situation.

If you believe the first scenario (bank forced to sell) will pan out, it's time for us to pool some money and queue up for some truly under-valued assets in your lifetime. There is no restriction (except for the banks themselves) for anyone to set up a fund to bid for these assets. If you believe the second scenario is likely, go all-in for bank shares – guaranteed 100% return.

And there is the third scenario but players will be restricted to senior bank executives. We cannot join in, unfortunately.

Although banks are barred from bidding these “toxic assets”, there is nothing to prevent bank executives doing it through the back door by setting up a private fund anonymously or pool their money into an existing fund to bid for these assets. To guarantee an attractive return for these funds, all they have to do is agreeing to a rock bottom price for these assets. This is why I think the Geithner's plan will work because if I were a senior bank executive, I would be a fool not doing this (especially now my retention bonus is gone).

As always, a small group of people will benefit and it's not going to be you or me. And forget the second scenerio, it won't happen.

Ending Balance: €373,968

Week Ahead 23/03/2009

The last trading period for the 1st quarter coupled with announcements of some very important stats. Next week will be hugely significant.

Geithner is expected to give details of the bailout. My bet is that the announcement will come either Monday or Tuesday before Obama's scheduled prime-time speech. This will be the only positive for the week. Whether this is enough to out-weight all the negatives will dictate the overall direction of the market. There will be quite a few negatives to overcome:

Monday: 2:00pm GMT - existing home sales in Feb is expected to have fallen from Jan's 4.49 million units.

Tuesday: Obama's prime time speech.

Wednesday: 12:30pm GMT - durable goods orders - expected to dip 2% after Jan's 5.2% drop.

2:00pm GMT - new home sales - expected to have fallen from Jan's 309K units to 300K units.

Thursday: 12:30pm GMT - Jobless claims expected to deteriorate. 12:30pm GMT - 4th Quarter GDP - expected to have shrunk to 6.6% as compared to earlier reading of 6.2% - worst in 26 years.

Friday: 12:30pm GMT - Personal Incomes - expected to have fallen 0.1% from a slight increase of 0.4% last month.

Expecting some wild swings. Not for the faint-hearted. I'm holding a net long position over the weekend.

About This Blog

This is primarily a scratchpad for my day trading. It will include notes, thoughts, observations or anything that may cross my mind while not gazing at the computer monitor looking for clues as to how the market is going to fluctuate in the short term.

Margin trading is highly speculative and as such has very little to do with investments (unless, of course, you consider investments are simply speculations that have gone wrong). This is not a place for financial advice - I believe that those who give financial advice are not at all qualified to do so while those who are qualified will not do so.

I'm a gambler and not a particularly good one. One thing I have to keep reminding myself is that this is not a game. This is real money and I should be very careful of what I am doing with it.