BAGAKOAA May 7, 2010 Man vs Machine
May 7, 2010 Man vs Machine
I stayed up last night watching to see how the Australian and Asian markets were going to react to “Mr. Dow’s Wild Ride”, and I could not get a clean message as to what one might expect on opening this morning. In the old adage of buy on the rumor and sell on the fact, when rumors of the Nokia Apple lawsuit started hitting in the afternoon, I though it would be a good buying opportunity in the opening as I figured most of the bad news was figured into the drop in Apple yesterday. I did get back into AAPL as mentioned and that did not work out so good today as it was down another 4 % today. So I bought more.
As the carnage was happening, yesterday, I was fortunate to have access to several forms of media and I must compliment both Bloomberg TV and Bloomberg Radio as they covered the event in a non-editorial manner and kept their speculations in check. Special Kudos should go to Kathleen Hays and Pimm Fox for not joining the banter from Fox Business, Fox News, CNBC and MSNBC that indicated it was cyber terrorists or a complete meltdown of the international banking system. Before it was discovered, Pimm Fox used his years of experience to suggest that the 997 point drop had all of the making of a program trading error and the automatic computer modeled trading that would immediately follow a huge programming trading error. That means for about 8-9 minutes yesterday, we had people watching machines asking what are the machines doing versus machines executing trades driven by human decisions. We have reached a point of binary codes superseding the human process of determining and establishing a value for an equity based upon it fundamental or intrinsic value. Quite disturbing.
Don’t get me wrong, The Salve Lucrum Portfolio did what it was supposed to do in this case as did most of the other portfolios I am involved in, but the volatility generated by the program trading cause a huge sell off in so many of our holdings, that stops got triggered with no fundamental value adjustments in the underlying stocks. It did generate some new taxes for the government next April as I had some nice unintended gains yesterday. Se la Vie.
Today was a day of nervousness and what should have been wait and see. To my surprise there was a lot of trading today. As of today the markets are now in the red for the year as the new year was kicked off at 10,500. So is the rally that I pegged on February 19 over? I honestly don’t think so, but we are very very close. We are right where we were at on February 19, 2010. And after the E ride is balanced out, we only have had a 7% adjustment to the market. If we drop another 3% next week I’d call this ride done and over.
Other noise in the market included a very good but not astronomically great jobs report, consumer credit numbers were up (people be spending), the Nokia AAPL war is in full assault mode, P&G and Kraft both reported nicely today, and a big Real Estate Investment Merger kinda imploded on itself today.
I think I am glad there was some cash generated yesterday, but I am really scratching my head as to what to do with it. VXX and SLV look worth adding to as does SBUX. Having spent a long time last night and tonight figuring out what to with the cash, besides SBUX, VXX, SLV, and GLD, only one stock in the whole S& P 500 looks approachable, FMC. Let keep looking and take a cleansing breath over this fine Mother’s Day weekend. I promise you some more ideas before opening on Monday. (Barron’s is in the driveway tommorow!)