I’ve started reading and I think I am leaning against short selling stocks. I think I’m going to look for ways to make money on stocks going up. Try to latch onto stocks on the up and grab profits where I can. 

Honestly, I don’t betting stocks will go down is not comfortable for me. Maybe I’ll learn the benefits of it but I have been following C for a couple of months now and have done pretty well. Bob and I have been talking lately and it seems like the short sellers have it in for C. Citigroup has not been participating in rallies lately and their stock is stuck. I know it happens but it doesn’t make a whole lot of sense when other bank stocks are going up (the sector is up for the day) and C is stuck and often down. There are benefits to shorting stock, I’m sure. I cannot say I’m for sure about what they are so it’s hard to get excited about shorting when, one, your personality is not really suited for it, and two, you don’t fully understand it. It sounds to me like a recipe for losing money.

Sold out for a tiny gain on AIB. I am learning the range on this stock as a trading vehicle. As I type this, I realized that it could have reached my original target of $1.79. I’ll take the $64 gain with little risk to feel a little more comfortable in trading this. On a percentage basis, the trade was good. The amount of capital at risk was small ($1690).

1,000 shares @ $1.69

The financials are where the volatility is with this market. AIB is an interesting play and should make for a decent trade. Many who play AIB are also playing IRE. I don’t have any personal opinion on the latter.

In the case of AIB, they own about 20% of MTB.  The value of their MTB holding exceeds the market cap of the company.

Looking for a short term trade on 2,000 shares of Citibank at $2.83. Limit order going in now @ $2.93ish.

Out of Citibank (C) at $3.09 this morning. Looks good so far. As of 9:56, that is the high of the day. Use limit orders to your advantage. These were the 2k shares purchased at $3.01 yesterday. For the past 2 weeks or so, the swings in the financials are crazy. If you can play the patterns, there is plenty of wiggle room.

Trading account all cash right now. Bob’s trading log (top menu) tells the story.

As a small business owner, here’s how I see what happened to make America, and the world, for that matter in the tough spot we’re all in…

1. Oil 
When oil went up, people didn’t have as much discretionary income. While gas prices have always been high in other parts of the world, when it hit America, it created an impact. Americans, already stretched thin and living beyond their means,  just couldn’t pay all their expenses. Those who could, started borrowing more money. Those who couldn’t started falling behind on their mortgages.

The other side was how oil affected business. Tons of products have oil(petroleum) in them. raw material prices went up dramatically because the price of oil was affecting these prices. Then, the prices of finished products started going up even though America was not ready for higher prices. 

The price of oil also really affected the transportation business. Once oil went up, the price to transport products also went up. Small business owners started to deal with the higher costs of products and higher transportation costs. Consumers, however, weren’t interested in paying the higher prices. 

2. Bad mortgages
To many Americans were given mortgage loans they couldn’t afford. That is painfully obvious now. So much has been written on this topic, I’ll spare you more of it.

But, the connection between the two is what, I think, led to the House of cards falling down.

If we can reduce our dependence on foreign oil and start living within our means, I think we will be much better off.

I have an IRA that I almost never touch.  I glanced at it yesterday and realized that I had some money in QQQQ which is an ETF that is essentially like buying the NASDAQ 100.  Not a bad long term play, but I wanted to take a little bit of money and buy a potential winning lottery ticket.  I sold enough QQQQ to purchase 500 shares of BAC.

Bank of America could be that lottery ticket.  By absorbing Countrywide, BAC owns much of the mortgage market.  Our government is doing whatever it can to make the mortgage arena a profitable one for companies playing there.  If things truly have bottomed in housing, as recent data might suggest, this ticket could pay off big.

500 shares won’t change anyones life.  But I could see the QQQQ to BAC trade being a 5 bagger in a couple of years.  To top it off, I got out and in at pretty good prices.  Sold QQQQ at $30.59 and bought BAC at $7.44.  I sold the Q’s at market and placed a limit order on BAC.  The tumble in financials after the treasury auction allowed me to get a good price.

I have been watching the banks over the past couple of weeks to see if rates will come down. They started to then have inched back up again. With the real estate market in the toilet and the government giving them money, I really don’t understand how rates aren’t at all-time lows and why they aren’t staying there for the time being.

Banks are accepting bailout money and holding onto it. They are also using money to buy more bad loans at pennies on the dollar so they can turn around and sell those assets at a profit and/or go back to the homeowner and offer a smaller mortgage but a mortage much higher than they just bought. Here is the example Bob gave me…a bank, like Citigroup (C), is supposedly buying bad mortgages at pennies (30 Cents) on the dollar. Let’s say C buys a $200,000 mortgage for $60,000. Then they call the homeowner who has the $200,000 and offer him a new mortgage for $150,000. Great deal for the homeowner right? Sounds great to me. How about for Citigroup? They paid $60,000 for a mortgage, then turned around and created a $150,000 mortgage.  A $90,000 profit! Not bad with Taxpayer funds they should have been using to lend to the American public, shore up financials, etc. 

It’s really amazing to me banks are doing what they are doing. Banks who have not accepted bailout money can do what they want. But the banks who have accepted bailout money just don’t have a moral compass. How do you take money from taxpayers which has been earmarked for lending (which will make the bank money) and use it to try and take advantage of what you helped create? These banks are attempting to hit grand slam home runs with taxpayer money instead of helping main street. Maybe, at the end of the day, our government plan is encouraging this type of behavior. Maybe they are almost putting it in their laps. Hey bank, “Here’s the bailout money and here are some opportunities to make massive amounts of money.” Those of us who are trying to do the right thing under tougher circumstances better just keep our heads down. America is counting on us because those who say they are helping aren’t. It’s just that simple.

AIG had two alternatives right?

1. GO Bankrupt

2. Get bailed out

In scenario #1, if AIG goes bankrupt, then bonuses probably cannot be paid. They have no money and creditors are lining up to get pennies on the dollar. There isn’t any money to pay “valuable employee” a bonus…contract or no contract. So all of these guys who got paid bonuses are looking for new jobs without the benefit of getting a bonus.

In scenario #2, AIG gets bailed out by the government so everybody gets paid?? But they would have gone bankrupt! There are no bonuses if they go bankrupt because there is no money. But bailout funds mean somehow these employees are entitled to their bonuses.

I really, like most Americans, cannot believe how this has been handled. At the end of the day, whomever handed out the money should really be in a tough spot. There should have been a really easy way to attach strings to the money given AIG. “You can have this bailout money if it goes to shoring up the balance sheet” or something else. Some many govenment officials are acting tough when they handed the money to AIG with no strings attached.

So frustrating and such a waste of taxpayer money.

Catalysts for the next market move. Post 3/25/2009

Get rid of mark to market and install the uptick rule and we move up.   Probably move well beyond realistic levels given the state of the economy.