After a long dry spell, the Box came up with two ideas for Thursday, January 31 — one in Big Blue and a very interesting setup in a Small Cap. If you want the details on these ideas, just email me.

Here is the deal on the Box’s ideas becoming a subscribers-only service. Since Chinese New Year is starting next week, and I will be away on vacation until the middle of February, I’ve decided to start charging beginning March 1st instead of February 1st. This will give folks a few more weeks to review the ideas in real-time, three month’s worth of spreadsheets with complete details on all trading ideas (December, January, and February) , and enough time for me to write a short guidebook for prospective subscribers. All this should give people enough information to make an informed decision.

Although I have a huge number of people signed up who are willing to pay me nothing, I expect only my dozen old friends will open up their wallets in the end. That’s OK, I’d rather be of service to 12 subscribers than to 1,200 freeloaders. :)

The management of my apartment development has my cellphone number. They either sold it or gave it to their friends who work in the real estate business, so I get a lot of “unsolicited” text messages, i.e. spam, from these monkeys. Text messaging is much more popular in Asia than in the US, I think. Spam text messages are a big problem, but they can be useful as indicators of the mass mood through both their tone and volume. Let me explain.

Six months ago I got a lot of text spam begging me to sell or rent our apartment. The agents had lots of desperate buyers and renters, and could I please please please consider selling or renting the apartment.

The tone of the text spam changed a couple months ago … there were still buyers but they didn’t sound as desperate. Now the worm has turned and I get lots of messages about distressed sellers who will do anything to get rid of their apartments. Not a word about buyers.

China Mobile, since they’re monitoring the content of messages anyway, should make up some real-time stock and real estate market indicators based on text spam content and volume. I’m serious! :)

Related posts which are darned interesting:
Comrades in ARMs
Sample Beijing Apartment Sale and Rental Prices
A Sense of Belonging
Beijing Property — Haves and Have-Nots
Guangzhou R&F Properties Co., Ltd.

The Box has drawn a blank for five days in a row now (and eight total for the month of January). Thanks for your patience during this time. I believe it has become confused by the extreme volatility of late. AYI was the last idea that it came up with… here are the details for last Wednesday’s trade as sent to list members (if you’d like to join the list, just email me):

Long AYI above 39.32
Protective Stop below 36.33
Initial Risk ~$2.99 (7.60%)
1x Initial Risk covered at 42.31 (move stop to breakeven)
2x Initial Risk covered at 45.30 (begin trailing stop below lows of up bars)
Target 1.0: 45.36 (15.36%) (2.0R)
Target 1.1: 46.98 (19.48%) (2.6R)

AYI already moved 1x the initial risk, so the stop has been raised to breakeven above 39.32. I’ve been thinking about better ways to trail a stop and using volume at price is one idea that intrigues me (see earlier post). When you merge the price and volume bars you get a very clear picture of the trading, which should allow for better stop placement. Anyway, study the chart below and let me know what you think.

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And just for fun, here’s a look at the past 20 days of spot gold, again with a volume at price chart. You have a much better picture of support and resistance when you merge price and volume.

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Related:

Using Historical Price Volume Data for Entry/Exit Points, by Lisa Erdmier
Using Volume at Price to Trade Gold, by Lisa Erdmier

Looks like the market is expecting a 50 bps cut. If the Fed gives less, the market will probably sell off; if they give more (very unlikely), it will probably rally.

These probabilities are calculated using Fed Funds options and futures data, last calculated 1/29/08 settlement:

Click to enlarge (Source: Bloomberg)

These probabilities are calculated using Fed Funds futures data, last calculated 1/30/08 6:14 (Beijing time):

Click to enlarge (Source: Bloomberg)

Related:

Federal Funds Implied Probability (12/11/07 FOMC)
Federal Funds Implied Probability (10/31/07 FOMC)

Fees on 401(k)s Rock Boomers Facing Flawed Disclosure, by Darrell Preston and Gary Matsumoto

“Since its introduction 30 years ago, the 401(k) has become the fastest-growing form of retirement savings plan for U.S. workers … From 1985 to 2006, the number of active 401(k) participants climbed fivefold to 50 million. Assets in the plans soared more than 19-fold to $2.97 trillion.

… most workers don’t know that fees, rebates and revenue-sharing agreements among employers, 401(k) administrators and mutual funds — many of them buried in the fine print or not disclosed at all — are slowing the growth of their nest eggs. The amount ceded to fees widens as investors lose the benefit of compounding returns during decades of working.

Legislation introduced in the U.S. Senate last year would aid consumers in making better sense of their 401(k)s. The proposal requires that investors get more information on fees. The new law would disclose revenue sharing and other relationships between parties with financial interests in the retirement plans.

Analyzing 401(k) plans to unearth hidden fees is daunting. One set of clues can be found in the annual returns 401(k) plans must file on Form 5500 with the Labor Department. This form requires information on some fees, although not all. Administrative costs, which aren’t noted on investors’ financial statements, must be listed in 5500 filings.

To find the fees in his company’s own 300-worker 401(k), Jeff Acheson reviewed more than 20 documents, including mutual fund prospectuses. Schneider Downs cut total fees half a percentage point to 0.75 percent from 1.25 percent, Acheson says. ‘They’re hidden in the legalese that you have to be able to interpret,’ he says. ‘It’s very challenging even for those that have some degree of background in the financial services business.’”

Disgusting, isn’t it? The world’s greatest skimming operation fleecing clueless working folks. Clear, comprehensive disclosure of all fees is a must.

Related: Multi-layered Feeder Fund and Fund-of-funds Structure

At 91, Walter Schloss is still picking stocks (and borrowing his son’s copy of Value Line)

“Schloss screens for companies ideally trading at discounts to book value, with no or low debt, and managements that own enough company stock to make them want to do the right thing by shareholders. If he likes what he sees, he buys a little and calls the company for financial statements and proxies. He reads these documents, paying special attention to footnotes. One question he tries to answer from the numbers: Is management honest (meaning not overly greedy)? That matters to him more than smarts.

Schloss doesn’t profess to understand a company’s operations intimately and almost never talks to management. He doesn’t think much about timing–am I buying at the low? selling at the high?–or momentum. He doesn’t think about the economy.

It’s been two years since he bought Superior Industries (SUP), and the stock is down a third. But [he] is philosophical and confident this one is worth book at least. ‘How much can you lose?’ he asks.”

Well, you can lose everything, but I know what he’s saying. :)

– via controlledgreed.com –

Here’s the 2008 home loan repayment schedule for our apartment in Beijing. As I’ve mentioned before, there are no fixed-rate home loans available in China. You can see that we borrowed RMB1,550,000 from ICBC for 15 years in October 2005, originally paying interest at 5.814%. I believe the loan will reset in February 2008 to 6.65% (I’m eyeballing it), which means the monthly payment will jump by RMB464.52 ($64.43). Comrades in ARMs, I feel your pain. :)

Click to enlarge

I just had a bad shopping experience at Tabletools.com that I’d like to share with my readers and the Google spider, thus creating a top-ranked search result for the terms Tabletools.com and awful shopping experience. (Piss off a respected blogger and watch what happens to the search results for your business.)

Tabletools.com recently sent me an email announcing a store-wide 40%-off sale including a coupon code. I visited the site yesterday, browsed around, and then ordered several things after making sure that they were “in stock.” I filled out the shipping address and credit card information forms, and placed the order successfully. The whole operation took maybe half an hour of my very valuable time.

Today I get an email from Tabletools.com saying that my order has been cancelled because nothing I ordered is in stock. What is this, some kind of cheap bait-and-switch thing? What an unprofessional outfit. I urge everyone never to shop at Tabletools.com.

Funniest thing I’ve read (so far) this morning (emphasis mine):

“… a French lawyer acting for 100 small shareholders said he had sued Société Générale over the way it had unwound Kerviel’s fraudulent share deals last week, Reuters reported.

The lawyer, Frederik-Karel Canoy, said the bank should have informed markets about its pending losses before embarking on a selling spree from Jan. 21 through Jan. 23 to unwind the €50 billion of risk exposure built up by Kerviel.”

Yep, they should have shouted from the rooftops, hey! we’re stuck long $73 billion in the Eurostoxx, DAX, and FTSE; we’re already sitting on $2 billion in losses; do you guys wanna buy some from us? :)

Details on the exposure from this W$J article (emphasis mine):

“As of Jan. 18 — the day Mr. Kerviel’s ruse went astray — Société Générale had €18 billion of exposure to the DAX, €30 billion exposure to the DJ Euro Stoxx 50 and €2 billion to the FTSE 100 Index in London, according to Mr. Mustier. All of these exposures were established this year in a short period of time, he said.”

Presumably after Jerome received his insulting €1500 bonus.

Here’s a look at the Eurostoxx 50 futures, which apparently made up the biggest part of Monsieur Kerviel’s $73 billion position, during the three days of unwinding. This 30-minute candlevolume chart is good for showing blasts of volume. See those three massive down bars on Monday, the 21st? I’m guessing they’re probably the handiwork of the bald and perspiring young men at SocGen trying to cut Kerviel’s already massive losses that terrible morning. There’s no graceful way to exit $73 billion of anything quickly.

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