Next Meeting - Wed, Feb 13th - BobbyQ's Westport

Greetings: We had another great meeting and discussed a variety of ideas from macro-economic to industry-trends to individual stock selections. Mark Juviler presented for the last 30 minutes of the meeting (we ran out of time at 8PM and were booted out by the poker players eager to throw their money on the table). Mark presented on "How to design a trading system" and showed the three month results of one intraday trading system in the Dow Jones e-mini futures. Six of us stayed to have dinner and enjoyed a delicious variety of BobbyQ's finest meals.



Thank you everyone for your participation and I think that this month will be very interesting to see how our "Round-Table" ideas shape up.



Here are the guesses:

Mark Juviler - Short the DJIA - no reason discussed.

Casey Allen - Long the DJIA - market is oversold and due for a rally.

David Brandman - Long ETFC (E-Trade Financial Group) - They have cleared off $3 billion from their balance sheet.

Randy Shapiro - Buy Gold - based on front month Feb futures, buy on a cross of $900 OR on a drop back to $850. Risk $30 if buy at $850.

Ernie Arnow - Buy POT (Potash Corp) - It takes five years to develop a mine and they have the biggest mine operating now.

John Wellbourne - Buy AEGG (American Energy Group) - [If we had a poll from last meeting, then John would have won the contest with the gain in AEGG from last meeting to this meeting.] John updated us on the news on AEGG and what news would need to hit in order for the stock to advance. If the company gets a "reserve report" then it would be ready for a big move up.

Jim McCarthy - Crude Oil has been advancing on bearish news. This is bullish. Buy Crude Oil. 95.00 last basis March. Buy a drop of 50c.

Herb - Buy Natural Gas. Natural gas has lagged the rally in crude oil. (UNG is the natural gas e.t.f. that buys and holds various futures contracts) (USO is a crude oil e.t.f. that holds crude oil futures contracts)

Rolf Olson - Buy MBI (MBIA - Municipal Bond Insurance) - "I'm a sucker for catching a falling knife and I believe you should buy the news and sell the news. " With MBI in the news lately and the stock down from 76 to 13, there is an opportunity to buy. They cut their dividend to save $80 million and they have a $1 Billion line of credit established. Their goal is to maintain their triple-A rating. They have a bond issue that will take precendence over all other bonds issued. Also, Marty Whitman of the Third Avenue Value Fund is buying the stock. NOTE: Most responses/questions revolved around "Why not wait for the stock to bottom before buying?" or "Why not wait until the price moves back up over $20/sh?". Response: Rolf, feel free to post your reply to this question here.

Peter Afif - Buy DBA (Commodity e.t.f.) - Global warming is causing the price of food to advance at a time when we have a foolish policy in place to encourage corn consumption. Buy commodities.

Ken McCue - Buy SP500 on January 22nd close. Cycles are pointing lower until then and a low risk buy may present itself at that time.

Tim West - Sell Short Long Term Treasury Bonds - (use TLT for stock accounts, or USH8 for futures traders). The price of gold and the price of bonds generally do not move together but they are now. They are both benefitting from the move to "safe" instruments. However, the central banks have been injecting massive amounts of liquidity (over $2 trillion) into the system and this will turn into an inflationary spiral in the not-to-distant future. M3 is growing 16% yoy while the M2 is only showing 6%-7% annual growth. Inflation is likely running at 6%-9% and not the low 3% they are reporting right now. Interest rates will likely start rising sharply once people stop lending their money at these extraordinarily low, negative-real-rates of return. Gold is telling you to sell out of bonds - it is a matter of time until bonds come undone. I will be wrong if we go into a deflationary depression, so use stop losses equal to 3 average ranges. There were many questions relating to this position: "What if the Fed eases again? How will that affect your opinion?" "What about the deflation going on in housing?"

The next step for the contest is to collect the opening prices of each of the ideas above. I will post the symbol, price, etc, and 10-day average range. The 10-d.a.r. is the divisor for the movement in the market. Example. If Bonds fall 1.5 points and the average range is 0.75 pts, then my call would be correct by a # of 2. (1.5 correct movement/0.75 avg range = 2 avg ranges).

The next step is to build a portfolio of all of these ideas and give the same $risk for each position. We want to have each idea be equally-weighted, therefore, we will weight it according to its volatility. Our portfolio is $1 million and there are 12 ideas. If each idea were to move 3 average ranges against the portfolio, then we will design it so that we lose 10% or $100,000. So each position can risk $8,500. Therefore, we can put on whatever position size so that the risk equals $8,500. This may involve using some leverage, as you'll see.

The next post will go into the finer details.

Please feel free to reply to any idea and add comments to your forecast or to post a question. I can try to answer any questions that come in or relay those questions to the correct person.

Happy Trading,

Tim 1:01PM EST Friday, Jan 11, 2008