Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

The Amazon Channel

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Let me preface this by saying I think Amazon is a fantastic company. My household does an ungodly amount of business with them – I won't tell you the figure – and every aspect of my interaction with them is top-notch. They deserve every morsel of their incredible success.

Having said that, I will say that the stock price looks on the very high end of what appears to be a pretty regular channel. Indeed, the stock even fell today – which borders on incredible, considering the market as a whole.


Pessimistic on Optimism

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In spite of today's bull-love-fest………..I read an interesting article today on ten reasons not to be optimistic about 2010. Here they are:

1. Global bank balance sheets remain loaded with toxic assets. The real banking crisis has not started. Government bailouts have delayed the day of reckoning, not eliminated it.

2. Stock markets rebounded ‘too far, too fast’ in 2009 and are overdue for a big correction, see the Bradley forecast.

3. Chinese exports fell around 20 per cent in 2009, and have not recovered. Global trade continues to reel from the worst crash since the 1930s.

4. US consumer and commercial lending is sharply down. The banks still are not lending for spending.

5. Property values continue to deteriorate around the world putting new financial pressure on owners and banks. US mortgage resets are the sub-prime crisis part two.

6. A double-dip recession like 1980-82 is the most likely scenario with a further leg down in the second half of 2010. The 2009 downturn was too short following a major financial crisis.

7. Emerging markets like India and China are faking their growth – Chinese exports for example are in a deep depression. These markets are anyway too small to lead global recovery.

8. Oil prices are too high, and generally depress economic activity.

9. The record gold price indicates that smart investors are expecting the worst.

10. In past major global financial crises a bond market crash has always been the final phase, and we have not seen that yet. This will bring much higher interest rates, and a boom in the gold price.

Krugman on 1937

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Many times over the past year I've mentioned my "1937 to 1942 analog". The market's rally is starting to exceed the bounds of this analog, but I'm still watching closely.

That's why Paul Krugman's article in today's Times grabbed my attention. Here's an excerpt:

The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.

But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.

This shouldn’t be happening. Both Ben Bernanke, the Fed chairman, and Christina Romer, who heads President Obama’s Council of Economic Advisers, are scholars of the Great Depression. Ms. Romer has warned explicitly against re-enacting the events of 1937. But those who remember the past sometimes repeat it anyway.

Very Interesting URE Development

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There are few chart events as interesting to me as failed patterns – that is, clearly defined patterns that are supposed to do one thing but crackle into doing something else.

The ultra-bull real estate ETF, symbol URE, is doing this right now. Because, here we are, on the first day of the new year, with the bulls stampeding all up and down America. Indexes are exploding higher. Happy days are here again.

But URE, in spite of an initial lift, is actually down over 1% as I'm typing this (and, in turn, SRS – everyone's favorite widow-maker – which I bought earlier today – is up over 1%).

For real estate to be moving so contrary to the market as a whole is terribly interesting.


Up Down Or….? (by Dave)

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All quants please stop reading
now. This is a base primer on iron condors with myriads of detail to be joyfully
omitted. Options are funny that way, they can preoccupy the mathematically
inept (
moi`) and PhDs alike. And though in the hands of wrong intentions they quickly become weapons of mass account destruction, options were actually invented
control risk and protect assets.

Popular mantra goes something
like; “iron condors have a high probability of making a little profit”. To that
I would say please quantify a “little”.
I find 30% profit on amount risked to be frequently obtainable. That’s
typically a 60 day or so trade which annualizes at a piddling 180% give or take… Well
maybe I’ve set my sights too low but that works for me. Likely you’ll also hear
about the bothersome maintenance of adjustments, but the only “adjustment” I
ever make is to simply close the position.

Market neutral trading means
avoiding sharp or prolonged surprises and trading indices helps me accomplish
that.  I sell RUT iron condors 90 to
120 days out and buy them back before they become front month. To explain why necessitates an intro to a couple “Greeks” so here’s the shortest
most over-simplified one you’ll ever get:

Theta (time value you sell then
collect) is your friend.

Gamma (the condor’s sensitivity to RUT price fluctuations)
is the enemy.

The closer to expiration the condor spread gets the more daily theta is
collected but the higher gamma risk becomes. Eventually the reward isn’t worth
the risk so I close and move on to the next trade. I want at least $3.00 premium to write a
$10.00 RUT spread and I'm looking for approximately that ratio on any iron condor I sell. As mentioned I never adjust my spreads but merely close
the entire trade if things get unruly. I use both broker software and good old
fashion TA to place then manage my positions and once opened I manage
only for risk never for profit.

Here's what an iron condor looks like on a chart


…and on a risk graph


Spread trading is as much art
as science. It can fill in a lot of gaps– from softening the sting of a
directional guess gone wrong to quietly generating income in the background without eating up excessive buying power. Nobody should write an iron condor based on what little information
I’ve provided but hopefully some will be nudged into further exploration.

Tired of the old up or down? Venture beyond directional guessing and you’ll find an excitingly profitable
world that isn’t nearly as complicated as you might fear. Quants may now