On Monday I went long on Goldman in a big way, buying the GS Jan 2009 150.0000 calls at 7.25. Other options were the LEAPS on MS and GE, because I thought the financials were undervalued. By Tuesday depression had set in, because the speed of the government bailout had predictably slowed and market was not responding. Even worse, the deleveraging of MS and GS and their evolution into bank holding companies would surely mean lower profits and a lower multiple. Still, they were trading at book value (however one wants to estimate it) -- how could I lose?
Trading options is a lot different than trading stocks. My nontaxable accounts are littered with technology stocks that I have bought on momentum, only to see them tank in 2002. But with common equity you can always buy and hold. Not so with options. While Goldman certainly represents the best of breed in M&A and private equity, holding the options means you don't have time to wait for their eventual recovery. GPYAJ.X will be worthless come the third Saturday in January.
My father, a longtime broker for Merrill Lynch and UBS, used to trade options and other derivatives because it was like going to Las Vegas from the comfort of your home. This week I felt the familiar knot in my stomach that was all too common in late 2000 when the tech bubble started to unwind. It brought back memories of all my bad trades in the past: Exodus Communications, Vitesse Semiconductor, JDS Uniphase. I'll never forget the day I thought Yahoo was due for a correction and wrote naked calls, only to see YHOO added to the S&P 500 the following week (that trade earned me a 30-day suspension from my broker). Everyone likes to boast about their prowess in the market, because it makes great cocktail conversation. Few people talk about their losses.
I like to think I'm smarter now. Evidently Warren Buffet agrees with my call on Goldman. It's a great day to be an investor!
Wednesday, September 24, 2008
Monday, September 22, 2008
Thursday, September 18, 2008
No better place to be in a crisis
The current market situation reminds me of the last time the financial markets were in crisis: September 11th 2001. That morning I had driven into Liechtenstein from Austria, had a light lunch and then drove to Bachau in order to catch the train to Zürich (I've learned the hard way not to park in Kreis 1 if you can help it). At the time I was working for Merrill Lynch, and my office was a block away from the WTC.
I called my banker, explaining that it would be nearly 4:30 by the time I got to the Paradeplatz. "Haven't you heard?" he said, and you know the rest of the story. In those early moments of the attack no one knew what was next, and despite the horror and sadness of that day I must say that it felt good to be in Switzerland.
Anyway, on to the markets. Regular readers know that I work for a large swiss bank, and am thereby prohibited in investing in short term financial instruments except under very narrow conditions (as my father used to say, "Buy low, stay high"). Therefore the following commentary may or may not reflect my actual investments and should not be relied upon as investment advice.
First, don't panic. B-school investing 101 states that your number one goal should always be to preserve capital. If you don't have anything left in the game, you can't play. Working stiffs like me can always make more money to invest, but only as long as we're young and healthy. This is why I hold the majority of my taxable investments in energy, tobacco, and consumer products. The speculative stuff stays in my retirement accounts (technology and a few banks). With Kraft being added to the Dow tomorrow I stand to make a killing when the market opens in the morning. As Warren Buffet likes to say, "Stocks are on sale!"
I always cringe when people compare the stock market to a casino, but as a veteran gambler I know that the name of the game is risk management in both situations. Anyone can make money in the stock market, but you must know your risk exposure. (Conversely, few people make money gambling, so the objective is to enjoy yourself for as long as possible at the lowest vig. For me that means 100x odds on craps at the Casino Royale, next to the Venetian in Vegas.)
A few picks for tomorrow:
Goldman is trading below book value. In what universe does this make sense? I was waiting for Morgan to fall so that I could buy GS below 80, but it's still a buy at 110. Now that the feds are stepping in (again?) the opportunity is probably gone for a quick buck. It'd still make a good long term investment; I'm looking at the Jan. 150 calls for 8 bucks a contract, as the IV is still low at 77 (again, remember the volatility of recent days).
Morgan will succeed in getting a bailout, or least a decent buyout from Wachovia. I'd love to see Wachovia fail, as its CEO is chairman of Duke's board of trustees and one of the people to blame for the lacrosse debacle. John Mack went to Duke and used to fly up Coach K to management meetings when I worked in the NY office. These two are going to make a deal. I am long MS.
For something more conservative, GE is a buy. It's not a bank, despite the fact that GE Capital is losing their shirts.
I bought DR Horton many, many years ago when it was at 12. I took some off the table at 30, but if you're betting on interest rates to stay low the fundamentals of DHI are outstanding. I am long.
Speaking of interest rates, I love that T-bills are giving zero return. Ask someone who lived through negative interest rates how well this worked out in Japan. At least they had macro deflation!
I had a great economics professor at Duke who correlated the federal reserve's actions with the "jawboning" of the administration. If you think Bush wants McCain to win, then you must realize that easy money is going to keep on coming from Bernanke & Co.
I called my banker, explaining that it would be nearly 4:30 by the time I got to the Paradeplatz. "Haven't you heard?" he said, and you know the rest of the story. In those early moments of the attack no one knew what was next, and despite the horror and sadness of that day I must say that it felt good to be in Switzerland.
Anyway, on to the markets. Regular readers know that I work for a large swiss bank, and am thereby prohibited in investing in short term financial instruments except under very narrow conditions (as my father used to say, "Buy low, stay high"). Therefore the following commentary may or may not reflect my actual investments and should not be relied upon as investment advice.
First, don't panic. B-school investing 101 states that your number one goal should always be to preserve capital. If you don't have anything left in the game, you can't play. Working stiffs like me can always make more money to invest, but only as long as we're young and healthy. This is why I hold the majority of my taxable investments in energy, tobacco, and consumer products. The speculative stuff stays in my retirement accounts (technology and a few banks). With Kraft being added to the Dow tomorrow I stand to make a killing when the market opens in the morning. As Warren Buffet likes to say, "Stocks are on sale!"
I always cringe when people compare the stock market to a casino, but as a veteran gambler I know that the name of the game is risk management in both situations. Anyone can make money in the stock market, but you must know your risk exposure. (Conversely, few people make money gambling, so the objective is to enjoy yourself for as long as possible at the lowest vig. For me that means 100x odds on craps at the Casino Royale, next to the Venetian in Vegas.)
A few picks for tomorrow:
Goldman is trading below book value. In what universe does this make sense? I was waiting for Morgan to fall so that I could buy GS below 80, but it's still a buy at 110. Now that the feds are stepping in (again?) the opportunity is probably gone for a quick buck. It'd still make a good long term investment; I'm looking at the Jan. 150 calls for 8 bucks a contract, as the IV is still low at 77 (again, remember the volatility of recent days).
Morgan will succeed in getting a bailout, or least a decent buyout from Wachovia. I'd love to see Wachovia fail, as its CEO is chairman of Duke's board of trustees and one of the people to blame for the lacrosse debacle. John Mack went to Duke and used to fly up Coach K to management meetings when I worked in the NY office. These two are going to make a deal. I am long MS.
For something more conservative, GE is a buy. It's not a bank, despite the fact that GE Capital is losing their shirts.
I bought DR Horton many, many years ago when it was at 12. I took some off the table at 30, but if you're betting on interest rates to stay low the fundamentals of DHI are outstanding. I am long.
Speaking of interest rates, I love that T-bills are giving zero return. Ask someone who lived through negative interest rates how well this worked out in Japan. At least they had macro deflation!
I had a great economics professor at Duke who correlated the federal reserve's actions with the "jawboning" of the administration. If you think Bush wants McCain to win, then you must realize that easy money is going to keep on coming from Bernanke & Co.
Sunday, July 27, 2008
die krumme
What is the deal with the swiss cigars? This one is called "die krumme", which I think means "the twist".
Rather than being rolled perfectly, die krumme comes from the package looking like a pipe cleaner stuffed in someone's pocket. It also has a convenient plastic mouthpiece, so there's no need to cut it or get tobacco trimmings in your mouth.
The old farts outside of my local watering hole (La Ola Bar, Seefeldstrasse north of Badenerstr.) can be found sitting outside smoking these every day at about 1600. They also play this weird dice game involving an octagonal felt board and three dies -- the objective seems to be to roll doubles or triples in order to accumulate chits (coasters), which can be used to have someone else buy your bier.
Rather than being rolled perfectly, die krumme comes from the package looking like a pipe cleaner stuffed in someone's pocket. It also has a convenient plastic mouthpiece, so there's no need to cut it or get tobacco trimmings in your mouth.
The old farts outside of my local watering hole (La Ola Bar, Seefeldstrasse north of Badenerstr.) can be found sitting outside smoking these every day at about 1600. They also play this weird dice game involving an octagonal felt board and three dies -- the objective seems to be to roll doubles or triples in order to accumulate chits (coasters), which can be used to have someone else buy your bier.
Tuesday, July 8, 2008
Land of the fat swiss ladies
We live at the corner of Marta and Hilda streets, just north of Badenerstrasse and Sihlfeldstrasse. Nearby are Bertastr., Idastr., Agnesstr. -- you get the idea.And here I thought Kreis 4 was supposed to be "die PartyZone".
Monday, July 7, 2008
about the site
The name "Fortress Democracy" really sums up what I love about Switzerland. If the US was "The Great Arsenal of Democracy" during the 20th century, then I submit that less interventionist countries such as Switzerland can best serve the cause of humanity by becoming fortress democracies. The point is to lead by example, rather than to force your system of government on others (I make no judgement as to which is better).
With one of the highest standards of living in the world, a degree of personal freedom not often found in Europe (where else can you smoke in your office?), and a great urban landscape for the city dweller in all of us, Switzerland has a lot to offer. As an IT professional for a large swiss bank, I have traveled here often and witnessed its change from a sleepy banking backwater to one of the most progressive and exciting cities in central europe. I currently live in Kreis 4.
Other names considered for this site: "Röstfrei", after the inscription at the base of every Victorinox blade. (As a kid I wielded this giant swiss army knife that was the envy of all the other Boy Scouts.)
"HundBegrabä": you won't find this in any dictionary, but it's one of my favourite expressions in Swiss German. If someone wants to get to the heart of the matter, they will say "da lit da Hund Begrabä", which means literally "that's where the dog is buried".
Pictured above is the rear of a sculpture in the Niederdorf, up on the hill north of Bellevue.
Gruezi!
The intention is for this website to express my sense of wonderment (and frustration!) at my experience in moving to Zürich, Switzerland.
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