Organic Food is Marketing Hype

Organic food is marketing hype. There I said it. It may not be in the western world as the regulators are quite strict with the classification of organic foods. But in Asia, it sure is. I have witnessed that farmers, especially in South East Asia, are riding the wave of organic food hype for the wrong reason. I have worked for chemical distributor company in Southeast Asia selling pesticides and fertilizers for these farmers. And I have witnessed their practice to be non-organic at all, yet their packaging is labelled as organic. They claimed organic products will sell faster with higher price than conventional price. People crave for organic foods. So aren't these farmers misleading their customers?

Organic food from production point of view is very inefficient. You wasted much more water and land space to produce organic food as compared to conventional food products. From taste point of view, very hard to discern the difference. Although psychologically, human will feel that the more expensive the food is, the tastier it is. Up to the point, it is healthier and contains more nutrition than conventional food. But is it? Studies have shown, that the health benefits of organic food is arguable. You can watch the debate of organic food hype here and pick your stand.

But the bottom line is: how can we make money out of this organic food hype? Wholefoods market is the largest organic food supermarket in the United States (US Ticker: WFM). It forms a head and shoulder pattern and is ready to break to the downside. We could place a directional short bet on WFM by buying May 85 puts for $2.85. If WFM goes to $70 by May expiration, we could profit for approximately $12. Not bad for 1 to 4, risk to reward ratio, in 2 months trade.

MLM Pyramid Schemes

At sometime in our lives, we have been or are likely to be 
approached by recruiters of Multi-Level Marketing (MLM) and Network Marketing (NM) organizations, promising a great new business opportunity that only takes a few hours a week and yet will eventually net you a thousand dollars a week to put you on the road to becoming financially independent. As many of us know, the biggest of these organizations is Amway, followed by many smaller copycats, each with their own variations, all trying to make you think they're better than the other. If the recruiter is a stranger to you, he/she will usually strike up a friendly conversation with you and then ask you if you like the work you're in, and go from there. Many of you have probably had this experience. There are even MLM's that strictly operate on the internet now. 
Even if you've never been approached by them in person, if you use the internet then you have probably been incessantly bombarded with junk email soliciting get-rich business opportunities that all claim they are better than the rest. Most of them are MLM's, pyramid schemes or chain letters in disguise. (As reference to them, I shall mostly use the term MLM rather than NM because it is more commonly known, although they are basically the same.) MLM's are notorious for presenting to you a barrage of smoke and mirrors that mislead you with hype and emotionalism that feeds on your deepest needs while subduing your reason and common sense. They usually start with catchy lines like "Are you tired of working for someone else?" and "Would you like to be your own boss?" followed by "How would you like to earn an extra thousand dollars a week in your spare time?" and "What if you could do this part time while keeping your regular job?" 

Fortunately, many now see through the smoke and mirrors, but as P.T. Barnum and others once said "There's a sucker born every minute." Those who buy into this hype don't think critically through all the smoke and mirrors enough to see them for what they really are.

Herbalife (US stock ticker: HLF), a story of nutrition company, a MLM or network marketing company, a short-squeeze battle between hedge fund titans

Herbalife (HLF) is a company which sells nutrition, weight management and skin products through a network of independent distributors; some of whom earn profit on product sales and additional commission from a multi-level-marketing (MLM) compensation structure. In 2011, the Commercial Court in Brussels, Belgium, has ruled Herbalife to be an illegal pyramid scheme. The company has been criticized by, among others, Bill Ackman of Pershing Square Capital, who claims that Herbalife operates a "sophisticated pyramid scheme". The story goes on by a challenge of another hedge fund titan, Carl Icahn. Icahn claimed that Ackman is using the public media to drive the stock down for personal gain. In defense, Ackman claimed that the motivation of his short position on Herbalife is to increase awareness of public of this "sophisticated pyramid scheme", which has hurt many people by misleading them to the so called "financial freedom, business opportunity, working from home" gimmicks.


The term "Lead Generation Systems" (LGS) is used within Herbalife to refer to distributor-developed promotional systems, including the use of mass mailings, Internet and telephone solicitations, sign-posting, sales scripts and other techniques designed to increase recruitment of new distributors.

The use and impact of similar systems in Amway, the largest MLM seller, has been documented in books such as Amway Motivational Organizations: Behind the Smoke and Mirrors and Merchants of Deception . These writers demonstrate how high level Amway distributors can make more money selling lead generation systems to their downlines than they make in the commissions paid by Amway. Of course, in Amway as in Herbalife, the vast majority of distributors lose their investments and drop out.



So, bottom line, who will win the battle? Icahn or Ackman? It is hard to tell just by looking at the chart as the stock as of now is in consolidation money. Is it accumulating or distributing consolidation? From the volume perspective, it is neutral; there hasn't been a significant change in the on balance volume (OBV). So as of now, the short wins the battle. Fundamentally, it is very hard to drive a short squeeze on a troubled company. It is not impossible to see the stock breaks the consolidation range to get rid of the weak short and then stalls at $65, before it drifts lower. So a good strategy is to place ratio put spreads on 35/30 strike (buy 2 contracts on April 30 strike, sell 1 contract on April 35 strike)  for 50 cents credit on a $4.5 margin of risk. 12% return on risk, not bad for a 30-days trade until the next expiration.

Investing vs. Trading

What is the difference between investing and trading?

Both trading and investing, after all, are at the most simple of levels, application of capital in the pursuit of profits.

If I buy XYZ stock, I expect to either see the price appreciate or earn dividends, or perhaps both. What separates trading from investing, however, is that generally in trading one has an exit expectation. This might be in the form of a price target or in terms of how long the position will be held. Either way, the trade is seen to have a finite life. Investing, on the other hand, is more open-ended. An investor will buy a company stock with no predefined notion of when he or she will sell, if ever.

As noted earlier, for many people trading and investing seem like the same thing. The mechanics of buying and selling are basically the same. Sometimes the analysis done to make those decisions is identical as well. It is the intention and definition of objectives which separate trading and investing, though.


It has to do with the manner in which the applied capital is expected to produce a return. In trading, the appreciation of capital is the objective. You buy XYZ stock at 10 expecting it to go to 15 and thereby produce a capital gain. If dividends or interest are paid out along the way, that is fine, but likely only a minor contribution to the expected profits.

In contrast, investing looks more toward income over time. That makes income production, such as dividends and bond interest payments, the major focal point. Do investors experience capital appreciation? Sure, but unlike in trading, that is not the prime motivation.

With these definitions in mind, consider what many people refer to as their single biggest investment, their home. Based our second definition of investing, however, a home is generally not an investment because in most cases, it does not produce any income. In fact, it produces considerable expenses in the form of mortgage interest payments, utility bills, and maintenance bills. If anything, a home is a trade. We buy it and hope for its value to rise over time, increasing our equity. And the fact that many people expect to move in only a few years and sell at that point makes it even more of a trade rather than an investment. Of course owning rental property can certainly be viewed as investing, unless one is flipping it, which would definitely be trading.

Trading tips

Hello all,

I would like to share some of the tricks that I learned trading e-mini S&P-500 futures and forex spot currencies.
You have probably heard many times the mantra of real estate business: location, location, location.
Similarly, in trading, location, location, location, is also the key. Specifically, location of entry price and exit price.
How to determine the correct location for entry and exit?
In my case, I use combinations of marketprofile numbers (PoC, HVN, LVN, Value Area, vWAP), Fibonacci numbers (50% retracements, 127% and 161.8% extensions), and momentum divergence/convergence (MACD 21,55,8).

Just as in the game of golf and tennis, the trade can be broken down into 3 steps: SETUP, TRIGGER, FOLLOWTHRU


SETUP constitute:
1. pattern recognition of price action at the S/R levels (marketprofile and fibonacci numbers)
2. momentum behaviors (exhaustion = divergence, continuation = convergence)
3. pace of tape (~ 10,000 in 1 min ES chart), room for loss and room for profit


TRIGGER constitute:
1. breaker pattern (taking out of swing high/low)
2. wave pattern (buying pullback on an Initiating Buying orderflow, selling pullback on an Initiating Selling orderflow)
3. 2 step setup (scaling in at Responsive Buying or Responsive Selling orderflow)


FOLLOWTHRU constitute:
1. scale out inventories at 3 ticks, 4 ticks, so on until they are depleted.
2. moving stops to break even at the potential tops/bottoms, scale in more inventories

Remember that confidence in following the trade plan would yield profitable trades. Profitable trades would increase confidence. Increase in confidence would result in discipline. And discipline would increase confidence.

CONFIDENCE --> PROFIT --> CONFIDENCE --> DISCIPLINE --> CONFIDENCE

Good luck trading!

‘Dot Corn’ Days

From Bloomberg

Has the whole agricultural story been overplayed? It’s starting to look like it. Given the recent pullback from outsized gains reaped by stocks of that ilk since 2003 (which, by the way, outstripped even those of the dot-com boom before the crash to end all millennial crashes) here’s why the chatter is picking up in earnest among those looking to finally throw in the towel.

This year's drop in agricultural stocks, whose rally since 2003 outpaced the gains in technology shares that preceded the dot-com crash, may deepen as the economic slowdown reduces profits, according to Citigroup Inc.

``Investors have been stung of late in farm equipment and fertilizer stocks, but more pain could be coming,'' Tobias Levkovich, Citigroup's chief U.S. equity strategist, wrote in a research note on Aug. 18. ``There are significant cracks in the agricultural economy story. We have been very anxious that investors had gotten carried away with the global growth theme.''

The Chart of the Day shows an index weighted by market- capitalization of five agricultural companies -- Monsanto Co., Potash Corp. of Saskatchewan Inc., Agrium Inc., Archer Daniels Midland Co. and Bunge Ltd. -- along with the Standard & Poor's 500 Information Technology Index.

Note the 842 percent rise in the agricultural index during the five-year period before its peak in June. That surpassed the 755 percent gain in the S&P 500 technology index from March 1995 to March 2000, when the industry and the rest of the U.S. stock market began a 2 1/2-year descent.

Levkovich wrote that he's ``worried about what has been dubbed the `dot-corn' stocks relative to the dot-com names of the late 1990s.''

Continued reading "Farmland Fever" on FT.com

Running a Hedge Fund Is Harder Than It Looks

From NY Times

Only a few years ago, it seemed so easy to start up a hedge fund. So easy, in fact, that Ronald G. Insana, then one of CNBC’s best-known anchors, tried to get in on the action with his fund of hedge funds.

But now that Mr. Insana has been forced to shutter his fund, his story is a cautionary tale for those who may be considering hanging their own shingle, Andrew Ross Sorkin writes in his latest DealBook column.

While Mr. Insana’s arrested foray into the world of hedge funds isn’t a large-scale flameout, Mr. Sorkin says, it’s an increasingly familiar storyline about the real hardships of running a hedge fund.

Running a Hedge Fund Is Harder Than It Looks on TV
By ANDREW ROSS SORKIN

Do you remember a time, only a short while ago, when virtually anybody could start a hedge fund? It seemed so easy: billions of dollars were being thrown around like confetti, even at first-time managers. You could make money with your eyes closed. Or so it seemed.

Ronald G. Insana was one of the people who chased that dream. Yes, that Mr. Insana — the man who spent more than a decade as one of CNBC’s most prominent anchormen, interviewing some of the biggest titans in business and trying to make sense of the daily gyrations of the market.

In March 2006, Mr. Insana left the network to try his hand at becoming one of those titans, setting up a fund to help investors get into hedge funds, a so-called fund of funds. Paul Kedrosky, the writer and investor, said at the time that Mr. Insana’s announcement “reminded him a little of Lou Dobbs going to Space.com at the peak of the dot-com bubble.” Mr. Dobbs’s adventure, you may recall, didn’t turn out well; he’s back on TV.

Two weeks ago, Mr. Insana announced that he was throwing in the towel. Though his career detour doesn’t rank on the flameout scale anywhere approaching the Space.com debacle, it is an unusually instructive and cautionary tale.

One of the big raps against hedge fund managers is that their fee structure is so rigged that managers can get rich even if they never make a penny for investors. Eric Mindich, the former Goldman Sachs whiz kid, left the firm in 2004 to start Eton Park Capital Management and immediately raised more than $3 billion. His firm charged a 2 percent management fee and 20 percent of the profits with a three-year lock-up — handing him a $60 million paycheck before he even opened the door.

But most hedge fund managers aren’t like Eric Mindich. They don’t start off with $3 billion and they don’t put out their shingle with a guarantee of riches. Instead, they’re like, well, Ron Insana.

If there was one thing Mr. Insana had built up over the course of his career in journalism, it was great contacts. He knew everybody in the hedge fund business, which is why, when he started Insana Capital Partners, he chose to create a fund of funds.

In his role as manager of Insana Capital Partners, he would act as a kind of hedge fund middleman, directing money to various hedge funds. The fund itself was grandiosely called Legends, which, while perhaps pretentious, made sense given the funds he could access. His clients would be invested in SAC Capital, managed by Steven A. Cohen; Icahn Partners, managed by Carl C. Icahn; or the Renaissance Technologies Corporation, run by James H. Simons, perhaps the most successful hedge fund manager on the planet. These funds are typically closed to the public.

In exchange for getting his investors behind the velvet rope, he charged a 1.5 percent management fee and took 20 percent of all profits. That may not sound like a bad deal — but consider that those fees come on top of the fees charged by the hedge funds themselves. (In the case of Mr. Simons, in particular, the fees are astronomical: a 5 percent management fee and more than 40 percent of the profits.)

Over the course of more than a year, Mr. Insana raised about $116 million. It was a respectable number, to be sure, but it wasn’t $3 billion. And here is where Mr. Insana ran into trouble.

As an investor, Mr. Insana didn’t exactly have the wind at his back. During the 14 months his fund of funds was up and running, the Standard & Poor’s 500-stock index fell more than 15 percent. While some hedge funds managed to eke out gains, many did not. Ultimately, Mr. Insana’s fund lost 5 percent.

In the mutual fund business, beating the S.& P. would be more than enough to survive, and even prosper. Mr. Insana would have been a hero. But the hedge fund business is far more cut-throat. For a small fund like Mr. Insana’s, it is imperative to make money regardless of whether the S.& P. is up or down — and because he didn’t, the 20 percent portion of his fee structure was worth nothing.

That left his management fee, which amounted to $1.74 million. (That’s 1.5 percent of $116 million.) On paper, that may seem like a lot of money. But it’s not. Like many first-time fund managers, Mr. Insana was forced to give up about half of the general partnership to his first investor — in this case, Deutsche Bank — in exchange for backing him. After paying Deutsche Bank, Insana Capital Partners was left with only about $870,000.

That would have been enough if it was just Mr. Insana, a secretary and a dog. But Mr. Insana was hoping to attract more than $1 billion from investors. And most big institutions won’t even consider investing in a fund that doesn’t have a proper infrastructure: a compliance officer, an accountant, analysts and so on. Mr. Insana had seven employees, and was paying for office space in the former CNBC studios in Fort Lee, N.J., and Bloomberg terminals — at more than $1,500 a pop a month — while traveling the globe in search of investors. Under the circumstances, $870,000 just wasn’t going to last very long.

Finally, most hedge funds have something called a high water mark. It requires hedge fund managers to make investors whole before they can start collecting their 20 percent of the profits — regardless of how long that takes. Hedge fund managers don’t get to start from scratch every Jan. 1 the way their mutual fund brethren do.

In the end, the rock was simply too heavy for Mr. Insana to keep pushing uphill. On Aug. 8, he sent a letter to investors explaining why he was closing shop. “Our current level of assets under management, coupled with the extraordinarily difficult capital-raising environment, make it imprudent for Insana Capital Partners to continue business operations,” he wrote. He said he planned to take a job with his pal Mr. Cohen at SAC. Mr. Insana declined to comment for this column.

In truth, there are thousands of Mr. Insanas desperately trying to raise money from nondescript little offices across the country. Some of them raised $10 million, some raised $100 million or more. And, as money has gotten tighter, and the bloom has come off the hedge fund rose, some have raised none at all.

Such was the case of Dow Kim, the co-president of global markets and investment banking at Merrill Lynch, who left the firm in May of last year to strike out on his own. With expectations of raising several billion dollars, he hired more than 30 people. Last week, he shuttered the business before he had even begun. In the coming months, Wall Street is going to be littered with such flameouts.

Although the big boys get most of the ink, Mr. Insana’s is a far more common story — and far more representative of what is happening in the land of hedge funds today.

Mr. Insana probably should have seen it coming. In 2002, he wrote a book called, “Trendwatching: Don’t be Fooled by the Next Investment Fad, Mania, or Bubble.” Oops.

ETF vs Index Funds

ETFs resemble index-based mutual funds in that both represent baskets of securities that track the performance of an index. However, there are key differences between ETFs and index funds, including how they trade, what they cost and what they can do.

In short, I am a proponent of ETF (Exchange Traded Fund).

Benefits:

1. Liquidity

Bid/ask spread is minimal and we can buy ETFs using intraday quote; whereas, Index Fund can only be bought/sold at the end of day price quote.

2. Cost 

Expense ratio of ETF is cheaper than Index Fund; for instance, the expense ratio for Vanguard's Total Stock Market ETF (VTI) is .07%, compared with an expense ratio of 0.19% for the firm's VTSMX Total Stock Market Index Fund.

In addition, ETFs have no minimum investment requirements and no fees for early withdrawals. If you are using discount brokers, the commission of buying/selling ETFs is cheaper than that of Index Fund.

3. Tax efficiency

ETFs are generally more tax-efficient than index mutual funds. When a large investor wants to cash out of a mutual fund, the portfolio manager often has to sell shares in the fund to raise the money. This generates a capital gain distribution, which is taxable to shareholders.

ETFs, though, are sold on the open market, so when an investor wants to cash out, he can just sell his shares without affecting other shareholders.

ETFs may, however, incur capital gain distributions if, say, the fund needs to sell securities when it rebalances. Because of the ETF structure, though, capital gains can often be minimized or avoided altogether.

Ken Fisher book review

The Only Three Questions That Still Count: Investing By Knowing What Others Don't

 Ken Fisher is the CEO of Fisher Investments with $30 billion under management. His father, Philip Fisher, is one of the pioneers in the field of growth stock investing. Ken Fisher is one of the permabulls in Wallstreet. Based on stock recommendations in his monthly Forbes columns beginning January, 2001, CXO Advisory Group as of April 28th, 2008 ranks Ken Fisher as tied for the second place with James Oberweis with an accuracy rate of 65%.

The book is about 3 questions that Fisher thinks matter the most in the stock market:

(1) What do you believe that is actually false?

(2) How can I fathom what others find unfathomable?

(3) What the heck is my brain doing to blindside me now?

As John F. Kennedy once remarked: "The great enemy of the truth is very often not the lie--deliberate, contrived and dishonest--but the myth--persistent, persuasive and unrealistic."
Fisher shows many examples of market myths and challenges the readers to frame historical data in different perspectives. I highly recommend this book as it reminds readers to be humble to the Great Humiliator (the market).

Another interesting point from this book is that one should be aware of the dilution effect of a particular trading/investing strategy. As crowd adopted a particular strategy (e.g., buy-and-hold strategy), the performance of the strategy will diminish as time progresses. Thus, any published strategies that have yielded great returns and been adopted by a large proportion of market participants will unlikely to yield great returns in the future. One should keep their working strategy in secret until the point where the performance rate is declining. This implies that one should not fall in the laziness of investing/trading but should keep researching and modifying strategies to beat the market.

I like this book although I differ with Fisher on market views. Fisher was still bullish on the market when S&P 500 fell 15% in 2008. Fisher still thinks the low cost money environment will keep the stock market from falling off the cliff. However, we have seen recently that the debt fueled economy started to crumble. Even bond king, Bill Gross, said that the deflationary spiral starts to hit debts because for an extended period of time the U.S. economy confuses debts as assets (I will discuss more about this on Robert Prechter's book). And as the Joker in the Dark Knight said, "When the chips are down, these civilized people, they will eat each other."

A Bull in China ?

I watched Ted Koppel's documentary on China few weeks ago. He interviewed the Hong Kong billionaire Vincent Lo. One interesting point I learned about the tax policy in China is that businessmen in China have bargaining power in deciding how much they are paying taxes. When the Chinese government hints that taxes will be raised, Chinese businessmen will go to the government and explain something like this. That their companies employ Chinese labors that represent 20-30% of population of certain regions, that these businessmen have enough money to live off their life without having to run these companies, that closing down these companies will create massive unemployment in China; thus, creating one more thing for the Chinese government to be worried about. Lo added, "If there is one country in the whole world that puts economic development into its main agenda, it is China." 

Trading/Investing Educational Reviews

Every trader, including myself, at some point in his/her trading career has been searching for the 'holy grail' strategies to make money in the market. In this pursuit, I stumbled upon many educational organizations that are selling basic educations about the market, trading systems with eye popping track records, charting software, personal coaching, etc. I will review several investing/trading education firms that I have personally experienced. 

You can actually see common themes with these firms. They offer free online webinars or introductory classes in hotels. In this event, they will tell you the big picture of the market, how it works, etc. They will introduce some misleading myths about trading the market and propose that they have the correct data/statistics about what is really going on in the market. 

So they will educate you with very basic and general information. And then, they will be sympathetic with your condition, e.g., how old retirees living in the U.S. actually ran out of their retirement money, how buying GM shares 50 years ago and holding it today will actually lose money instead of making money, etc.

They will then introduce their systems and the history of the systems. They will instill some hope in you to get you into the market by teaching several basic strategies that can generate big money without emphasizing the risk of the strategies. However, there are a few firms that will tell you about the risk of trading strategies. These firms tend to exaggerate the risk and instill fear in you to not trading by yourself by selling personal coaching programs, live trading assistance, etc. And all of the firms are up-selling their programs although some of them are claiming only charged one time fee for all strategies.

I have personal opinions on the following firms:
1. Spread Trade Systems
2. Options University
3. Optionetics
4. Red Option
5. Option Planet
6. Investools
7. Price Headley Big Trends

If you have questions about these firms, please feel free to leave your questions in the comments section. I will try to answer it as much as possible.

WELCOME !

Welcome to my blog !!