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Book Reviews

"This is a great book for novice and experienced traders. Soaking up its wisdom distilled from experience and introspection will help you become more successful. And that's true even if it doesn't make you a penny." --Aaron Brown, AQR


More money has been lost reaching for yield than at the point of a gun.” — Raymond Devoe

With financial repression in full gear, investors desperate for yield are paying up for assets with no regard for risk.

Pay 178 dollars for 100 dollars in bonds (78% premium to NAV) and you are going to lose money. Pay 178 dollars for 100 dollars in LEVERAGED bond portfolio and you are going to get killed. As many closed end fund investors have learned over the past three days, as the premiums to NAV have collapsed from the high 70’s to the high 30’s.




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Total Run Time 14 minutes.

Frank Clements is a longtime friend of mine. He has spent 24 years trading, mostly on the floor of the NYMEX in Natural Gas. The last few years he’s been a partner of Meridian Energy Brokers with my other good friend Barry McAuley.

In this podcasts, we speak about the week it was in WTI Crude Oil (CL) and Natural Gas (NG). We briefly mention my interview with T. Boone Pickens at the Milken Institute’s Global Conference in May of this year (below).

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Podcast Length: 31 minutes

Today I spoke with my good friend John Del Vecchio about his new book What’s Behind The Numbers: A Guide To Exposing Financial Chicanery & Avoiding Huge Losses In Your Portfolio.

Although John runs the Active Bear ETF (Ticker: HDGE), this book is not really about short selling. Long-only investors will benefit greatly from John’s insights and especially how to get out of their losers quickly just by following a few simple fundamentals on the balance sheet and income statement.

One of John’s most impressive skills is that he spends his days as a forensic accountant looking for the chicanery that is a lot more prevalent that you may care to believe. Then there’s the fact that he’s a short seller in the face of QE “infinity”, but that’s besides the point.

One of his biggest shorts (below) is Green Mountain Coffee Roasters (Ticker: GMCR). They are offering big discounts to generate revenue and as we mention in the podcast, that’s robbing Peter to pay Paul. As he states, “eventually there will be an earnings shortfall, like there always is with companies like this, and the stock will tank.”

Green Mountain Coffee Roasters

Green Mountain Coffee Roasters, Weekly Prices

The WSJ just ran a story a few days ago called Coffee Standoff Tests Growers’ Grit that discussed Brazil’s coffee producers hoarding physical until prices rise.

If coffee prices rise, and GMCR is offering discounts, they are going to have their top line revenue growth squeezed in a vice, especially if they don’t hedge by purchasing coffee futures contracts to offset higher prices. You can’t pass on higher costs to the clients in this regard and concurrently offer them discounts.

GMCR had this to say about their basis risk in their most recent 10-Q: “At June 23, 2012, we are exposed to approximately $73.5 million in un-hedged green coffee purchase commitments that do not have a fixed price as compared to $119.9 million in un-hedged green coffee purchase commitments that did not have a fixed price at September 24, 2011. A hypothetical 10% movement in the “C” price would increase or decrease our financial commitment for these purchase commitments outstanding at June 23, 2012 by approximately $7.4 million.”

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You should know if you trade commodity futures what the contract expiration dates are.

After all if you are trading Lean Hogs and you forget you could end up with 40,000 pounds of carcasses on your door step – which is not my idea of a good day.

Actually you would have to work pretty hard for this to happen. Your broker keeps a very close idea on your open positions and will likely inform you to exit your position or roll over your contract so as to avoid exactly this delivery issue.  Remember if you were short you would need to actually have to have the required quantity and quality of the deliverable commodity on hand.

I like to play it safe and make sure that I am fully aware of the expiration dates.

Well in a funny turn of events a Hedge Fund had taken delivery, somewhat forcibly, of a ship as payment! That’s right Elliott Capital Management took control of the ARA Libertad, a training ship owned by the Argentine navy, whilst it was docked in Ghana.

Argentina have been avoiding paying for a 2001 bond and after a recent court hearing Elliot Capital Management went all pirate and seized the assets.

So even if you are a Sovereign State know that the debt collectors will find you.

More on A Hedge Fund Has Physically Taken Control Of A Ship Belonging To Argentina’s Navy

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1) If you do two things at once, one of them will be done wrong

When you trade, focus on your methodology. Do not check your Twitter feed, reply to E-mails and chit chat on IM while you are trying to make decisions. Without exception, multi-tasking takes away from your ability to focus, as well as from the ability of your subconscious mind to properly store patterns and information, and from your ability to access your inner voice.

2) Everything that isn’t your main purpose should be either delegated or dropped

Speculation is a business, treat it like a business and you’ll have a chance to succeed. That means that anything that is not part of your core business should be delegated. Outsource the nonsense in your life and focus on your core business activities, the price you pay for outsourcing will be the best trade you ever made.

3) Pay attention to what’s vulnerable, not just what’s strong

Trade from the short as well as the long side. Markets go up the stairs and down the elevator. Try to balance your emotional system so a trade from the short side is as easy as a trade from the long side. The ability to trade from both directions will smooth the volatility in your account and your income. In doing so, you’ll make your business more robust and your emotional stress more manageable.

4) Take some time to do absolutely nothing

Professional athletes in ALL sports do not operate at a high level 52 weeks a year, they take extensive periods to rest, relax and do nothing. Speculation is an intense mental sport which also requires periods of total relaxation. Take the time to do absolutely nothing.


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