Handcuffed, but not in a Good Way

I neither understand bonds, nor bondage.

Maybe it's just the fact that I'm not really wired to think in terms of inverse relationships.

Or any relationships for that matter. 

Although, maybe if I understood bondage better Sugar Momma would change her opinion about my understanding of relationships.

I do better with correlation. For example, I do understand that over the past couple of months, whenever Federal Reserve Chairman Ben Bernanke has spoken, it was a clear opportunity to make money by buying gold or silver before he spoke. Today was no different.

Direct correlation.

In the case of bonds (and currencies) I get confused thinking about whether I would want values going up or down. Just way too much thought seems to be necessary. Besides, I still have that belief that bonds are for the feeble and infirm and need to be held for a long time.

I have the attention span of a gnat and maybe the life expectancy, as well, so I really don't want to be overly involved with anything that's going to require me learning its name.

It used to be that if you held onto something for a long time, that was a good sign. You held onto winners and cut your losers.

Although I don't understand inverses, I do just the reverse.

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Weekend Update

I got a Tweet from Matt Miller, host of Bloomberg Rewind, yesterday.

Back in November I was a guest on his show.

I'm very upset with Matt Miller. He has completely changed my beloved prime time viewing habits, so much so that Comedy Central executives have checked in on me to see if everything was alright. Maybe it's a kiss of death for a beyond middle aged white guy to say that his show is "hip and happening," but it's really an enjoyable and educational hour to top off the day.

But to paraphrase Christopher Walken, "It needs more TheAcsMan."

Anyway, the day that I appeared happened to be the day when Green Mountain Coffee Roasters was getting hit in the after hours and went down about 40%. Idiot I am, I brought it up during the show, as an example of a company that I had owned. Not because it was a great stock, but because it had nice options premiums, due to all of that volatility, momentum and uncertainty.

Capitalists like to capitalize, but the other characteristics are precisely the things that I profess not to like, but in a Ted Haggard kind of way, fully embrace, sinner that I am.

I nursed shares back by a combination of buying new shares and exercising the strategy that I call "Having a Child to Save a Life", as well as selling puts. Again and again.

It worked.

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Hello, My Name is Bernanke

The CNBC morning show, Squawk on the Street, has a daily Tweet prompt asking viewers for their opinion on a wide range of topics.

Most of the time it's an attempt to inject a little bit of humor into the news of the day.

Today's thought surrounded yet another appearance by Ben Bernanke, this time in front of an august collection of elected officials far more genteel than those Philestine Congressman.

Senators. They're the higher and more refined form of elected official. They are usually less likely to be involved in petty scandals or felonies. They very often have better hair than their counterparts, as well.

What if you were Chairman of the Federal Reserve, Ben Bernanke, what parting words would you like to leave with the Senate committee that you were appearing in front of today?

You just know that he can't always have the highest regard for the questions coming his way and probably even less regard for the lengthy and rambling preambles to each question.

I'm sure there's a cottage industry somewhere that has Cambodian laborers painting thought bubbles over Bernanke's image as some clever humorist then finds the words to make the photo chuckle provoking.

Since I have lots of time on my hands, especially given the boring nature of the markets for the first two days of this week, I responded to the prompt, as I do a couple of times each week and ultimately had my Tweet glow in its 3 seconds of fame.

I guess they won't accept two "winners" on the same day, because I sent a second one while listening to the testimony, questioning and answering:

"Hello, my name is Bernanke. How do you thank me?" I think was actually better than the "winning" submission.

I think that most everything in life can have a parallel drawn to something Johnny Cash sang.

Maybe they just have something against homages to Johnny Cash, who has also inspired my investing philosophy.

Maybe it was the alcohol, maybe the drugs, not likely the adultery, but there's certainly an anti-Cash agenda.

Bernanke himself seems to have an anti-cash agenda, at least as it comes to personal savings.

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I Need a Case of the Blews

After the first week of trading in 2012, I was pretty ecstatic.

I don't really recall the details anymore, but I was way ahead of the S&P for those first few trading days, but had I just matched the overall market's performance I would have been happy, as the year was getting off to a good start.for everyone other than the Godless short sellers.

As the prayerful believers intone during the Passover Seder, "Daienu" - it would have been sufficient, as God is thanked for each successive miracle that he bought to a fleeing people in the desert. One such miracle would have been enough, but two? Three?

There's nothing like a series of miracles to chase a bad case of the blues.

For what it was worth, I was also hearing the fruits of my laborious efforts on air at CNBC as the crew of "Street Signs" was continually referring to their new word of the year, "Eurosis," which coincidentally enough I had submitted in response to their request for viewer submissions.

It was going to be a very good year. Miraculously so? Probably not, but as Szelhamos would say "Good enough."

Money and ego. How can you go wrong with that combination? The former feeds the latter and then if you can independently build the latter as well, all is good, as long as the ego doesn't give you a false sense of invincibility.

Then along came Ben Bernanke.

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A Test of Faith

You often hear stories about deathbed conversions or returns to faith near the moment when there's not much left to lose by professing one's faith.

So what if an unexpected profession of faith leaves your followers and fans behind in a world of even greater uncertainty?

Screw them. When you see the white light, it's every man for himself and the adoption of the Captain Schettino rules applies, whereby woman and children have to fend for themselves while the captain of the ship trips his way past those pearly gates ahead of the rest.

Who knows, there may be limited seating.

Many famous and infamous people have purportedly had deathbed conversions, including Darwin and Stalin, but the reports of other such conversions may just be wishful thinking or generated for proganda purposes alone.

Based on the appearance of the term "ProShares UltraShort Silver ETF" in the word cloud that accompanies this blog you might be lead to believe that I worship at the feet of some silver idol.

Not really, but you would be right to have that suspicion, as it does seem to appear with great frequency.

By the same token, the constant "God Damn" refrain doesn't necessarily reflect belief in a diety.

I'm not particularly religious, although I don't know if I'll be one of those undergoing the end of life "seeing of the light" experience.

At the moment, there is a 24 hour "Yahrtzeit" candle burning in our household, as is the Jewish tradition to mark the anniversary of a close relative's passing. Still, nothing really religious, just adherence to tradition and maybe trying to keep my options open in case "The Big Man" chooses to exercise an option over whether those last minute attempts to enter the Kingdom will be honored.

Szelhamos, who wasn't particularly religious would probably be pleased that he's remembered. In the slight chance that such a possibility exists, then "why not?"

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Starting the Year Right

Maybe I wasn't listening very carefully today, but this year in the stock market seems to be getting off on the right foot.

For me, that has nothing to do with a 200 point gain, but it has everything to do with platitudes and what is frequently assumed to be the "conventional wisdom" not making their annual appearances.

Okay, maybe the 200 point gain has something to do with it, but I like to think that I'm bigger than that, even though I know that my superficiality won't take me there.

Specifically, getting off on the right foot means that there was a noticeable absence of anyone getting on the typical first trading day of the year talking points.

In the years that I've been fairly addicted to business television the beginning of the year stories are always the same.

Dogs of the Dow, January stock rally, retail sales revisions come in better than expected, Super Bowl Indicator theory and so on.

There's usually also some human interest story, like the twins born in different years.

Great stuff.

I guess I'm so sensitized to these kinds of stories that the recent nightmare I had made so much sense.

Listening to Dana Telsey describe how thisyear, once again Chinese restaurants and movie theaters in major metropolitan areas saw 30% of their annual profits maerialize during the week between Christmas and New Years.

So far, there hasn't even been a summary of best and worst performers, although that has to be related to my inattention.

Although, still, its absence may be plausible. I guess when you can go an entire year and not see anything change in the S&P 500 level, it's almost as if the year had never happened, other than memories of the vomiting during the up and down segments of the ride.

That's exactly why you need to sit in the front row of the roller coaster. Staying ahead of the curve works. Sitting behind someone who vomits doesn't.

Now to be totally fair, I did hear someone refer to the "Dogs of the Dow" theory on Friday, but did so only in the context of pointing out that the list for 2012 looks pretty much like the list for 2011.

That's not the way it's supposed to work, so maybe that explains today's silence. Of course, that silence may make adhering to the theory a good idea, were it not for the stocks involved.

After the past week, which was so utterly boring, it really was nice to see a definitive move, especially in a higher direction, but I pretty much traded myself out for the day after the first 60 minutes.

I'm not usually prone to making New Year's resolutions, but I did so this year.

The first, has already been satisfied.

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Stunning Reversals

I've never made any secret of the fact that I don't read very much.

My daily ritual of reading DIlbert and The New York Times Obituaries was recently complemented with James Altucher's blog. I actually thought long and hard about whether to refer to it as being in "complement" to or in "supplement" of my daily activities and realized that there really wasn't a word to convey both impacts.

I've linked to it a couple of times and bored readers of this blog have clicked on that link, which has also activated a small hidden webcam near their laptops, in addition to any resident webcams you they already have.

I like my fuzzy clandestine streaming to be in 3-D.

For those who read this blog on a regular basis it doesn't come as a surprise that I don't read much. In fact, there's really not a strong body of evidence that I even read my own blog, much less proof-read it.

And forget about reading for the sake of getting my information right.

When I was younger, I was horrified to find some ham in our refrigerator since it's not Kosher, as you may be aware.

My mother, in response to my pointing this out to her, said "if it tastes good, it's Kosher."

What a great philosophy.

I use that philosophy with my supportive facts. If I believe them to be true and accurate, then they're true and accurate.

A "Kosher pig" is an example of an "oxymoron" until some moron ruined it about a decade ago with the discovery of a species of pig in some god-foresaken rainforest that might just satisfy all of the criteria necessary to be considered Kosher.

I wrote about Oxymorons a few months ago, but with an emphasis on the "moron." The thought was rekindled a few days ago reading one of Altucher's blog entries.

He was asking whether there could really be anything such as an amicable divorce.

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Jury Duty

I'm a fairly boring guy. I don't think I've ever initiated a social interaction in my life. Which works out well with my sedentary lifestyle that has me tethered to the La-Z-Boy, only occasionally reaching out for my keyboard and mouse.

The fact that La-Z-Boy stock surged today didn't do much for me as I've never owned the stock, only the lifestyle.

Yet, despite immensely enjoying my sedentary lifestyle, today I learned that there are consequences. Seeing a family of field mice escape from my stomach folds while I was being measured by a tailor for pant alterations was embarrasing, but it's not as if I'll ever see that tailor again.

At least, not if Immigration and Naturalization arrives before next Tuesday, 5 PM.

The very idea that my elastic banded Jorts weren't going to fit me for life hasn't really caused my to rethink the physical aspect of sedentary life, just as long as that cognitive part keeps on moving.

However, that comfort and solitude promises to be disrupted as I've received my first ever notice to be called for jury duty.

Since I went to a high school that was focused on math and the sciences, that didn't leave too much time for civics lessons. My guess is that a class mate of mine, David Viniar who has served as CFO of Goldman Sachs did find the time to take Civics classes in secret, because I've heard no one impugn his name or reputation over the past few difficult years over at Goldman.

But yeah, I know that it's my responsibility. Yeah, yeah, I've heard it before.

Here's the thing.

Not that I'm complaining, but the county that I live in has almost no meaningful crime.

Sure, if its your mailbox that's been knocked over it's pretty major. But if I'm going to do anything, whether it's social or civic duty related, I want it to be exciting.

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What Does it All Mean

What's in the Szelhamos Portfolio?

I'm not really sure what exacty happened on Monday, but I'm not about to complain. Not when the Dow goes up 275 points.

Here's to anarchy. Sometimes it's just pointless to try and figure out what it all means. Just go with. Remember the courtroom scene in Animal House? "Don't stop him. He's on a roll."

The general theme today was one of disconnects. Sometimes my lack of understanding and sophisitcation is the source of perceived disconnects.

Not today.

The day started with the futures pointing toward a 100 point climb at the opening bell, probably based on the absence of a European meltdown over the weekend and an orderly start to their Monday morning markets.

So far, so good.

When the bell rang the S&P 500 just jack-rabbited out of the gate. But in the meantime, the Dow was barely up a single point. Not to overly simplify, but everything else being equal, there's generally an 8 to 1 ratio between S&P 500 moves and the Dow. Obviously on days when a Dow component, such as Hewlett Packard crashes, that ratio is off, or if trading in a specific stock is delayed, the ratio may be temporarily imbalanced.

But today, there was no great standout in either direction. Just a 90 to 1 ratio.

You could tell that Jim Cramer and Melissa Lee, on the NYSE floor at the time were perplexed, but it took a while before anyone said anything about the seeming discrepancy. No one likes to look stupid or not in command of what's going on around them.

Finally Cramer, who's not terribly shy about opining, correctly ventured that something was wrong with the price reporting going into the calculation of the index.

Disconnect #1. But that was resolved within 15 minutes and before you knew it, the Dow Jones was up 90 points, putting it right in line with the S&P 500, which was about 11 points at the time.

Before trading, the morning started out with what I like to refer to as the "You're paying me alot of money to give you good information based on solid research, so here's the bad information" Disconnect.

Research firm, Sanford C.Bernstein, based on its in-depth and proprietary research, analysis and information came out and lowered its price target on poor Goldman Sachs to $185, down from about $230.

That's a huge drop.

But still, it's about double Goldman's current price.

I should mention that in it's own humble opinion the Sanford C. Bernstein Research firm, referring to itself in the third person, claims that "Sanford C. Bernstein is widely recognized as Wall Street's premier sell-side research firm."

If they can help me sell Goldman Sachs for $185 right now, they're really everything they say they are.

That's what I call sell side.

The next disconnect is an everyday kind of occurrence, the kind that is often referred to as the "What you talking about, Willis?" Disconnect.

That occurs when seemingly intelligent people look at the same information and come up with wildly different interpretations.

Today it was the announcement that the world's greatest value investor, Warren Buffett, seems to believe that his own Berkshire Hathaway shares are inappropriately priced.

He proposed a large buyback of his Class A and B shares.

I owned the Baby Berkshire shares when the first appeared a couple of years ago. Held them through a couple of options cycles and picked up some decent premiums, but never found the reason to repurchase shares once they were assigned from me. That's not typical for the way I manage my holdings. I like buying shares back, albeit at lower prices.

The controversy comes as one school of thought chimes in that Berkshire must be a roaring buy now that Buffett has put out the buyback plan and demonstrates confidence in his company, which itself is just a mirror of our own economy.

The other school thinks that this is a really bad sign, since it means that the famed value investor isn't seeing any other good values out there.

Initially ignored were the two caveats. Shares would not be purchased at a price greater than 10% of Berkshire's book value and no repurchases would take place if cash on hand fell below $20 billion.

Also overlooked was that the last time Buffett announced a buyback about 11 years ago, there was no buyback.

He did get shares to move up nicely today, though.

Corollary disconnect? Sure, some people can nuance the truth and not be called on the carpet for misleading others.

On the international scene much ado was made of the fact that the royal Housee of Saud, the ruling family of Saudi Arabia announced that women will be given the right to vote and run for elective office.

What they didn't say was that there was still no way for them to get to the polling place, unless their husbands provided appoval and transportation.

Also, women can't run for King.

Disconnect between expectations and reality. Have you seen that one before.

For me, the biggest disconnect was a very pragmatic one and has me as perplexed as those on the floor of the NYSE were at the opening bell.

For yet another day, gold and silver were brutalized. Gold had another of those $100 round trips today.

Remember when gold and silver were so easy to understand? Remember when they obeyed that inviolate 35 to 1 ratio?

No more. They more in opposte directions all the time and that ratio is a thing of the very distant past.

If you've been reading the blog, you know that I hold shares of the ProShares UltaShort Silver ETF (ZSL). The one that moves inversely to the price of silver and is leveraged to boot, at about 2 to 1.

A month ago, I started to wonder if the price of silver were to soar would the relationship between the Silver tracking ETF (SLV), which actually holds silver bullion,  and the UltraShort breakdown. Afterall, the price can't get less than zero for the UltraShort, while the metal can keep soaring forever.

Funny thing. That didn't happen.

Instead today, as silver fell, a reasonable personwould have expected ZSL to move in the opposte direction and by twice the amount.

Instead, there was a little  disconnect between SLV & ZSL pricing. By little, I mean big. SLV went down 0.7%, and ZSL went down 5.1%.

Wait that must be a typo. I must have meant that ZSL went up by 1.4%

If only it was that easy. Whatever happened to perfect pricing?

I posed the question on Twitter and one responded that it was related to the hike in margin requirements that was announced this past Friday.

Sounded good, until I check back to May 2011, the last time the margin requirement was increased. On that day the moves were big, but perfectly in line with the script. Silver fell big and ZSL climbed even bigger.

But the day's trading had even more examples.

Eddy Elfenbein, of Crossing Wall Street, pointed out that at one point in the trading day the VIX, a measure of volatility that rises as the market falls, was rising, even as the S&P 500 was soaring.I don't recall the precise text, but his usual tone is one of humor and fact, a nice, but rare combination.

Also known as a disconnect.

Of course you can have Disconnect #3 applied to that disconnect. All you need is to find an analyst who recognized the incongruity between a rising VIX and rising S&P and state that he believes that the VIX is a more reliable measure.

And you know, that wasn't hard to do, because people will say anything to get air time, especally knowing that no on remembers anything said more than a fruit flies half-life ago.

"I'll go with the VIX', after which point the S&P nearly doubled and the VIX decided it was the mixed up one and finally corrected its course to close down nearly 5%.

Helping to restore my faith in correlation was the market's action upon hearing news that the EU and ECB were diligently working on the European debt crisis.

Upon release of that news, the market showed the VIX who was Queen for a Day.

Of course, the market's reaction to that news would indicate that the fact that they were working diligently on a solution, was in itself a surprise.

So what does this all mean?

To me it means that the individual investor is just as likely to read the market correctly as the guys from Bernstein. The difference is that the individual investor cares more and is more tentative in making decsions and taking actions, because for them, it's not play money. It's the real thing and it's theirs.

Today I just took the opportunity to pick up more shares of Freeport McMoran and Halliburton. I also sold call contracts on some of my Freeport, Textron and Sallie Mae shares.

Then I used the premiums to pick up more Sallie Mae shares and promptly sold calls on those, as well.

That's the real meaning of all of this, making Einstein's observation that the greatest miracle in life is that of compounding.

Amidst the confusion and the lack of rational thought, some things are just universally true.

Twitter and Nepal

I'm not really certain which Tweet it was, but I got my first website hit from Nepal, as a result of Twitter on Sunday.

For no meaningful reason I check my various sites analytic reports to see where visitors are coming from, how long they stay and whether they return to the site.

I don't have great aspirations for selling tons of Option to Profit copies in Nepal, but I love seeing the website visits, especially when people linger and come back

Seeing the Nepalese flag icon appear on the analytic report was very inspiring to me. In fact, in my completely incapable of detecting similarities in shapes portion of my mind, one of the Nepalese flag symbols looks just like the TweetDeck icon.

It's that kind of difficulty in interpretaion of visual cues that excuses Eddie Murphy's solicitation of LA transvestites.

Honest mistake.

Also explains the difficulty I have with those on-line IQ tests.

Back when I ran the original iteration of the Szelhamos Rules blog in 2007-8, I had a daily dedicated reader from Vietnam.

The very idea always amazed me. What was it that the reader could possibly find interesting enough to come back day after day. I felt a very tiny pang of guilt when on the first anniversary of the blog, I ceased its publication.

But not too big of a pang. My final blog re-directed readers to a new site called "Csokolj meg a seggem," which was a Hungarian expression that was one of Szelhamos' favorites. If you're too lazy to try a translation program, you can visit the "Rebus Puzzle" page.

Now, in its second iteration, that Vietnamese reader hasn't returned.

Is he still alive? Has his life changed? Maybe for the better? I'll never know.

But now, in the second iteration, I also hold you, the dear reader in higher esteem.

Not high, just higher.

I also don't know if the Nepalese reader will be back, but I'll try to make the blog more Nepalese centric. More and more each day would be my aim, but don't worry, I'm used to failed expectations.

It's also amazing where inspiration can come from. Ultimately, if your eyes are open widely enough and you suspend rational thought processes, inspiration can come from anywhere.

Coming off a horrible week in the markets, with the worst weekly loss since late in 2008, I received inspiration from an unlikely source.

Silver.

Back in 1978 or so, a friend had convinced me to buy a silver bar, just prior to what would become an incredible rise in price that eventually bought an ounce up to $50, back when the Hunt Brothers tried to corner the market.

That bar sits somewhere in the basement, I suppose, unseen for the past 30 years.

Following a brief time playing with commodity futures in the very early 80's, I've completely ignored metals, not wishing to repeat some costly mistakes.

But for some reason, probably because I remembered the hysteria of 30 years ago, I was in disbelief of gold and silver prices. But that disbelief just kept getting discredited.

In fact, my oldest son took my advice and sold 3 of his five gold coins that he received as his collegfe graduation gift. The advice was a bit premature at about $1500 an ounce, but it's hard to let a 70% profit ride on irrational pricing. Still, there was that pang of guilt again.

My disbelief finally manifested in buying those leveraged silver short ETF's.

The first iteration of those were at about $17 and had 12% options premiums. I was assigned when silver went down to about $35 and the ETF went to $20 back in May or June.

Since then, as silver started its bizarre and unwarranted climb back, I've been slowly re-assembling the ETF holding. So much so, that very quietly it became nearly 10% of my portfolio. Given that I typically own about 20 stocks, a 10% share is a little out of proportion, especially since this one is more than a bit speculative.

And I don't like to speculate.

Normally, I buy and sell shares of stocks with conviction and arrogance.

All at once.

That's often not a good idea, but I like spending my money and limiting the number of different holdings to about 20.

But the short silver ETF was different. Everytime I got some extra options income, I just plowed it into more shares of the ETF. When I got some more Option to Profit royalties? Same thing, more ETF shares, as silver just kept rising.

So after this week, as the market and metals both plummeted, I am still breathing, thanks to the metals that I swore to eschew years ago. Although I didn't take profits, instead selling enriched call options, it was like getting a big royalty payment.

I guess that being short, and leveraging to boot, is consistent with the earlier stance.

Come Monday, instead of being shell shocked, I'm ready to do battle, thanks to the anti-silver, almost like Kryptonite, except that anti-silver stopped evil.

Instead of writer's block, I have inspiration from an unknown reader in Nepal.

Well, that's all fine and good for yesterday, but we'll just have to see what will bring inspiration in time for tomorrow's blog.

Like an addict needing more and more to get the same effect, I may need something a lot more exotic than Nepal.

Maybe something like getting Paul Kedrosky or Jane Wells to follow me on Twitter, or even write a guest blog when I'm away.

But then what?

And that's exactly the problem. That's the human condition. Maybe if I went to Nepal and hiked up some lofty mountain to seek spiritual meaning, I might find some. I might find that inspiration comes from within and that we don't need to enslave our souls by seeking inspiration outside of our souls.

Spirituality sounds great.

Nah.

My guess is that upon meeting my spiritual mentor wannabe and being proposed the deeper benefits of meditation, I'll be pleased to find that my specially chosen mantric phrase is "Csokolj meg a seggem"

Thank you Twitter.