The Real Story Behind JPMorgan's Infamous "Whale" Trade
Here's an insight for you – along with a trademark indictment, of course.
Take it with a grain of salt, because it's just an educated guess on my part.
It's about how the infamous London Whale may have been harpooned by spawn from his own pod.
For those who haven't heard, the London Whale is one of the latest traders to make the headlines. Bruno Iksil was the top trader at JPMorgan Chase's Chief Investment Office (CIO) in London.
He got the nickname "the London Whale" for the outsized bets he became known for.
But this is no fish story…
Five Ways to Consistently Bank Gains and Manage Winning Trades
Most investors become so focused on their losers that they have no idea how their winners are performing…until they become losers and start paying attention to them.
As far as I am concerned, that's bass-ackward.
What they should be doing is figuring out how to harvest their winners, especially now that the six-week rally we've enjoyed appears to be losing steam.
If you've been raised under the old axiom of "cut your losses and let your winners run," this may seem counterintuitive.
But, if you really want to succeed in today's markets, you have to consistently sell your winners. That way, you continually cycle your capital into brand new opportunities.
It's not much different than what regularly happens in the produce department at the grocery store. Places like Safeway Inc. (NYSE: SWY) always replenish the tomatoes and the like to keep them fresh.
You should do the same with the "inventory" in your portfolio because if you let your stocks sit on the shelf too long, they'll eventually go bad – just like fruit that's past its expiration date.
Here are some of my favorite tactics to help you lock in profits instead of letting irrational behavior and emotion take over when the markets suddenly have a mind of their own.
1.) Recognize every day is a new day
This one is very simple. If the original reasons why you bought something are no longer true, ditch it – win, lose or draw.
You can't risk falling in love with your assets any more than you can let them rust – yet that's exactly what most investors do. They buy something then assume that it will somehow plod along on autopilot.
This is a variation of what I call the "greater fool theory" as in some greater fool is going to come along at a yet-to-be-determined point in the future and pay you more for a given investment than you paid to buy it.
I can't imagine what these folks are thinking.
Today, more than ever, you've got to continually re-evaluate your investments to ensure that they stand on their own merits and are worth the risk of continued ownership.
The Dumb Money Hates Silver, it’s Time to Go Long
Speculators hate silver…
For the past year, the positive silver headlines have been few and far between.
Ever since the poor man's gold peaked near $50 in April of last year, it's become a despised metal.
Admittedly, it's been languishing near $27 since early May not far from where it was for the first time – in this bull market – back in late 2010.
But as I'll show you, right now a number of technical, seasonal, and sentiment indicators are pointing upwards for this volatile metal.
This could well be the critical turning point silver investors have been waiting for. One of these indicators is the resilient price of gold.
Let me explain.
The Silver/Gold Ratio
Silver has always pretty much been gold's lapdog and on a relatively short leash at that.
As a rule, silver prices usually follow the direction of gold. But as long time silver investors recognize, the moves are amplified both on the downside and the upside. Silver prices are simply more volatile than gold prices.
As for gold, since it peaked about a year ago, it seems to be drifting aimlessly in zombie land. For the better part of the year it's been consolidating about 16% below its previous peak of $1,900.
Today, at $1,600, gold is back to levels its first saw a whole year ago. What investors need to pay attention to is the gold to silver ratio.
Silver Prices: Metals Rise on Hopes of QE3
Fresh weak economic data and comments from Federal Reserve Chairman Ben Bernanke have stoked hopes that another round of quantitative easing is on the horizon. Those expectations gave gold and silver prices a boost this week.
Glum retail sales numbers released from the Commerce Department on Monday and high initial jobless claims on Thursday fueled optimism of QE3 despite the lack of hints from the central bank chief earlier in the week. But, Bernanke and his team have clearly left the option of QE3 on the table and stand ready to intervene when they see fit.
The markets' recent spate of lackluster financial reports and escalating concerns over the waning global economy are suggesting a pressing need for QE3 – sooner rather than later.
Insider Trading Ban: Congress Really Wants You to Like Them
In an attempt to end plunging approval ratings – and win favor in an election year – the Senate passed an insider trading ban yesterday (Thursday) preventing Congress members from profiting from non-public information.
The Senate passed the bill in a 96-3 vote. U.S. Rep. Eric Cantor, R-VA, said the House would consider the bill next week. U.S. President Barack Obama pledged to sign it immediately.
Congress members hope the new law will change growing American disgust with Congressional perks and partisanship, which has hammered approval ratings down to the teens.
"The numbers of people who have a favorable impression of this body are so low that we're down to close relatives and paid staff. And I'm not so sure about the paid staff," Sen. Joe Lieberman, I-CT, said earlier this week.
Insider Trading Ban Run Down
The insider trading ban prevents members of Congress, top aides, and administrative officials from using non-public information when trading. Any stock bought or sold must be disclosed in a public report online within 30 days.
Several last-minute amendments added to the insider trading ban include:
Five Tech Stocks to Avoid: RIMM, HPQ, YHOO, ORB, GRPN
After a rocky 2011, tech stocks have gotten a nice bounce so far this year.
But while tech stocks may look tempting right now, knowing which tech stocks to avoid will prevent a lot of pain to your portfolio in 2012.
So here are five tech stocks you should avoid, at least for now.
Don't Miss These Three Year-End Trading Strategies
Before yesterday's Thanksgiving leftovers even got cold many U.S. consumers ventured out to catch the best Black Friday deals, already worried about how much this holiday shopping season will cost them.
But instead of fretting over how much you'll spend this year, now's the time to focus on how much more you can earn.
You see, over the next few weeks, three year-end trading strategies will come into play, all capable of producing major short-term profits for astute investors.
- Annual tax-loss selling – which, given some major stock and sector declines since early-year highs, could be heavy this year.
- A "Santa Claus rally" in late December, triggered in part by bargain hunters buying beaten down stocks.
- And the "January Effect," a strong tendency for nearly all stocks – especially small caps – to gain during the first month of the year, or even earlier.
We've outlined all three here, so you can pick your favorite option for year-end profiting.
There are a few ways to play the tax-selling phenomena, depending on your goal, but the most common is to offset your taxable gains.
The best time to unload a large paper loss is the end of the year. Taking a loss on a position reduces your trading gains and limits your tax liability. You'll also see professional fund or portfolio managers do it to replace losers with stronger performers before they issue quarterly or annual reports – a process often referred to as "window dressing."
So if you're sitting on a position with a large paper loss in a stock you want to drop, go ahead and sell to realize the losses for tax purposes. But make sure you beat the crowd – begin looking for selling opportunities now, and try to get out on a day when the market – and hopefully your stock – is sharply higher. (No one wants to take a loss that's larger than absolutely necessary, even to save on taxes.)
If you have a handful of losing stocks and don't know where to begin, start with your biggest gainers, or choose those stocks with the poorest fundamentals.
But before you go cleaning house, there are few things to remember to maximize your profit potential from this trading strategy.
The Treasury Investment That's WAY Better Than Treasury Inflation Protected Securities (TIPS)
I've made no secret of my aversion to Treasury bonds. Yields right now are irrationally low, and thus do not accurately reflect U.S. credit risk.
And since inflation is already running higher than bond yields – and is likely to rise even further – Treasuries offer an inadequate return at best, and at worst, a capital loss if sold before maturity.
Even Treasury Inflation Protected Securities (TIPS) aren't as safe as you might think.
Fortunately, the U.S. Treasury is finally thinking about issuing something useful: Floating rate notes (FRNs).
If the Treasury does end up issuing FRNs, and the pricing is reasonable (and the U.S. Treasury still has a credit rating better than junk bonds), then you should seriously consider buying some.
Don't Trust TIPs
Floating rate debt issues are not that common here, but there have been many in Europe. They were even more common in my early banking days in the 1970s – when interest rates were generally rising.
FRNs have one great advantage over fixed-coupon bonds: If interest rates go up, fixed-coupon bonds go down, sometimes by a lot if the bonds have a long time to maturity.
For example, if 30-year interest rates rise from 4% to 5%, the trading price of a 30-year bond ($100 face value) will drop to $84.48. If you were to sell at that point, you'd lose 15% of your principal – the equivalent of nearly four full years worth of interest.
However, a floating rate note on a good credit rating should always trade near par. If short-term interest rates go up from 1% to 5%, the note will pay 5% in the next interest period, so it will still trade close to par. That means you have principal protection as well as interest rate protection.
Theoretically, TIPS should offer similar protection. And they do if interest rates always stay at the same margin above inflation. But in periods like the present, interest rates trade below inflation, so the price of TIPS gets bid up above par.
Today, 10-year TIPS yield only 0.19% and 30-year TIPS yield only 1.00%. Since real bond yields in normal markets should be in the 2% to 3% range, there is potential for the loss of principal here. Indeed, in real terms there is a certainty of loss of principal – the "on-the-run" 30-year TIPS trade at a price above $128, so over the next 30 years you are bound to turn $128 into $100 in real terms – not a good deal.
Sidestepping Uncle Sam
Additionally, there is another problem with TIPS: The government sets the price index to which TIPS are linked. And if you think the government is too honest to fudge the price statistics to make its debt cheaper, I have some sad, disillusioning news for you.