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Bad Calls

Bruce Krasting's picture




 

 

Pot Stocks

 

So last Monday morning you take a flyer on MDBX. You plunk down four grand for a thousand shares. By the close on Thursday, the shares are worth over $200k (5000%). It’s tank city on Friday however. The stock opens $100 lower, and settles down 90% on the day.

 

 

MDBX makes vending machines for marijuana. That might prove to be an okay business some day. But for the market cap of the company to go from $500m to 24B in four days is absurd. The CEO of MDBX agreed, he said so, and that was the cause of Friday’s rout:

 

"We temper investor expectations at present price points."

 

MDBX trades in the Pinks, and there was not much volume (a few million shares did change hands in the fray).

 

I think this story is funny, but it’s no joke. $24B was created out of thin air for a few days. Most of the paper gains were vaporized on Friday. That’s Madoff sized money. I’m thinking pot smokers shouldn’t trade stocks.

 

 

FB Shorts

 

Face Book had a great week. Up 23% in a down market. I’m sure that some folks will feel better when they look at their statements this weekend. Some will be thinking, “FB must be making progress on that mobile problem”. Actually, the move in the stock has nothing to do with the fundamentals at all.

 

800m shares of FB got freed up this week; a bunch of money was positioned short in the stock waiting for some new sellers to appear. Of course when everyone knows all this well in advance, and CNBC is talking it up non-stop, the opposite has to happen. So the shorts got creamed, and I got a laugh.

 

I have no idea what the right price for FB is. I do know that the current price is a composite of these factors:

 

- A significant amount of the current float is still held by retail accounts that own it from the IPO at 38. They all hate the stock.

 

- At $23 a share, and a big float, FB is perfect trading fodder for all sorts of players:

 

+Day traders

+Short interest

+Momentum guys

+Hedge funds

+Robots

 

Generally speaking, that crowd of actors is bad news for the widows and orphans.

 

 

Apple Sauce

 

Apple's losses since 9/21 are now at a massive $163B. That’s equivalent to the annual GDP of Pakistan or the state of South Carolina. The market cap loss is greater than the value of either Wells Fargo or Coke. The loss is equal to the combined values of Walt Disney and McDonalds. That's a hell of a loss.

 

My thinking is that AAPL never deserved to be a $700 stock. The price move from $500 to $700 was not justified. So now that we are back to the starting point, what's next?

 

I’ve listened to the touts on TV for the past several weeks. Damn near every one of them has been long, and doubling up all the way down (if you believe what they say). One guy was screaming that it was a “generational buy”. Maybe. The bets still seem to be lined up on one side.

 

I’m going to stay away from this name for a bit longer. The stock is way too “loved”. After all, it’s just a phone, an expensive one at that.

 

 

Computers Gone Wrong

 

I’m always happy to see evidence that the collective “we” are not as smart as is thought. The best and brightest climatologists (and their big computers) missed a big call on global weather patterns this fall.

 

This chart plots the expectations for the progress of El Nino as of July. The spaghetti strings are all over the lot, but the consensus was for a return to El Nino conditions sometime in October.

 

 

The evidence for this developing shift gave cause for NOAA to issue alerts starting in July.

 

 

 

The news media jumped on the forecast:

 

 

 

The El Nino alerts continued through October:

 

 

But it did not happen. Mother nature fooled the computers. There is no El Nino, and the odds for one developing have fallen substantially. The latest status report from NOAA, and more spaghetti strings:

 

 

 

 

 

Does it matter if the scientist had it wrong? Not really. What has happened in the past month with weather would have happened regardless of the accuracy of the forecasts. But it would have (probably) made a very big difference if the forecasts had happened to be right.

 

When there are El Nino conditions, tropical storms tend have their “tops” sheared apart by winds that blow east. In addition, storms are pushed out into the Atlantic before they make landfall. This pic tells the story:

 

 

So if we had been in El Nino conditions on October 29, Sandy would never have gotten as big as it did, and might just have blown out to sea. What a difference that would have made.

 

++

I think that smart guys and gals should continue to use big computers to forecast the future. It’s helpful to look ahead with some rational expectations of what should happen next. That’s true for weather, stock prices and macro economic trends/performance.

 

But we should also look askance at what the computers and sages are telling us. The machines, and their operators, are consistently wrong. The bad news is that unanticipated events almost always have negative outcomes. The good news is that we can't foretell the future; if we could, it wouldn't be interesting at all.

 

 

 

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Mon, 11/19/2012 - 11:39 | 2995876 DR
DR's picture

With age comes wisdom, at least we hope!

 

But the future is a bubble....

 

"The FSB, a global financial policy group comprised of regulators and central bankers, found that shadow banking grew by $41 trillion between 2002 and 2011"

http://www.bloomberg.com/news/2012-11-18/shadow-banking-grows-to-67-tril...

 

 

Forty one trillion in assets in less than a decade? lol....

 

Sun, 11/18/2012 - 20:13 | 2994685 Trimmed Hedge
Trimmed Hedge's picture

MDBX 52-week range:

0.0287 to 215.00

Sun, 11/18/2012 - 17:38 | 2994376 radicall
radicall's picture

Can we also chastize ZeroHedge for all those predictions on Soybeans which are down 4 bucks since the big Deep fried Black Swan scare?

Sun, 11/18/2012 - 13:42 | 2993783 monad
monad's picture

People are fucking stupid. 

Mon, 11/19/2012 - 11:35 | 2995871 old naughty
old naughty's picture

No, we are not stupid. We are created by God.

We are only foolish to think we are smart, to ignore the rules.

Sun, 11/18/2012 - 13:21 | 2993715 Downtoolong
Downtoolong's picture

Day traders, Short interest, Momentum guys, Hedge funds, Robots - Generally speaking, that crowd of actors is bad news for the widows and orphans.

Exactly. When you see this crowd dominating action in a stock, the best trade is no trade, and the best position is no position.

 

Sun, 11/18/2012 - 13:20 | 2993714 b_thunder
b_thunder's picture

"I’m thinking pot smokers shouldn’t trade stocks."  - EXACTLY!  That's why probably 80% of Wall St. are  "coked out" of their mind...   The best business going forward is nose replacement surgeries.

Sun, 11/18/2012 - 16:04 | 2994169 The They
The They's picture

Most probably don't smoke pot, but rather snort cocain

Sun, 11/18/2012 - 12:47 | 2993663 magpie
magpie's picture

Any prediction, attempted manipulation of future or even past events etc. is only a part of making rational decisions in the here and now.

Sun, 11/18/2012 - 13:01 | 2993683 Gordon Freeman
Gordon Freeman's picture

Hold on, Bruce!  If the computers and operators are consistently wrong, why in the world would you want to encourage such a wooly-headed approach???

Mon, 11/19/2012 - 10:56 | 2995749 masterinchancery
masterinchancery's picture

Any serious study shows that the world is far more random and chaotic than we egomaniacal humans will ever admit. Great article Bruce!

Sun, 11/18/2012 - 12:45 | 2993655 ptoemmes
ptoemmes's picture

Mother Nature is NEVER wrong.

If you don't like the weather wait for tomorrow - it will change.

If you don't like the climate, wait 1,000 years - it will change.

Sun, 11/18/2012 - 12:28 | 2993626 SheHunter
SheHunter's picture

Your blogs are great Bruce.  I have a Ray Bradbury quote on a corner of my work desk  "I was not predicting the future. I was trying to prevent it." 

Keep on keepin' on.

Sun, 11/18/2012 - 12:43 | 2993651 willwork4food
willwork4food's picture

He did. Asbestoes is not usually used in clothing anymore...

Sun, 11/18/2012 - 12:35 | 2993638 Orly
Orly's picture

The Butterfly Effect of The Illustrated Man...

Of course P. K. Dick did the same with "The Minority Report".

Let's just all hope it never comes to that!

Sun, 11/18/2012 - 12:18 | 2993601 Earl of Chiswick
Earl of Chiswick's picture

always look forward to your weather prognostications overall your track record has been as good as any of the  so called pros

notwithstanding

http://www.zerohedge.com/contributed/2012-16-18/down-trickle

and speaking of other bad calls I thought for some reason this face from the past was in a hospice somewhere dealing with prostate cancer but I guess he recovered

http://www.mpaa.org/about/ceo

Sun, 11/18/2012 - 14:01 | 2993835 Bruce Krasting
Bruce Krasting's picture

I write that a drought is coming back in April.

The fucking price of corn goes from 500 to 800 as a result of no rain.

How many bushels did I own? Not a fucking kernel.

No looking back.

Sun, 11/18/2012 - 20:16 | 2994695 hbjork1
hbjork1's picture

I did well with corn in storage from the previous year but, of course,  sold a little too soon.  The sharecropper on the land, who had previous years storage in his bins, BOUGHT DEPRESSED CATTLE!  He is feeding with the good corn and has sold this years bad corn for what he could get.

That is workiing out well for him. 

 

 

Sun, 11/18/2012 - 12:11 | 2993595 q99x2
q99x2's picture

If computers are still running windows XP and most people that would own an iPone already do and income for the people that already own an iPhone is decreasing or stagnant and competitive forces are increasing then this is a Dell like company on a world wide level. Fraud will only carry it so far not to mention that the Jobs is no longer around. The middle men will run AAPL into the ground at this point.

Sun, 11/18/2012 - 12:10 | 2993592 bank guy in Brussels
bank guy in Brussels's picture

Some wisdom perhaps in a great line from the final episode of 'The Tudors', that 2007-10 series about King Henry VIII

An older aristocrat (Charles Brandon, Duke of Suffolk) is asked if he will take sides in the latest political conflict schemes around the King

He replies like this:

There's an old French saying -

Praise the God of all

Drink the wine

And let the world be the world

Sun, 11/18/2012 - 12:09 | 2993589 disabledvet
disabledvet's picture

striking an optimistic tone i see. always appreciated. my personal philosophy is based on "attempted balance" by which i mean "always have something good to say." ironically most people construe this "optimism"...which i will take of cburse...but i think the tell on me is that this philosophy is in actuality considered "oppositional." in short "whatever view you take disabledvet seems to take if not the opposite view then certainly something oppositional"...which i would regard as a statement of TRUTH. (for what is truth if not oppositional?) no...what i know is that negativity trumps reality everytime...and if the best one can offer is a forlorn hope then offer it the puny human will. But oh how much he misses when he does not offer more! Apple...and the comment above ("a toy company") stands as a perfect point of what i've been saying oh these many years...and makes commenting here such interesting fodder. you see "we all have opinions here"...and of course the one opinion that stands out most is "all of them are wrong." so while modeling the future is in fact important the fact that "we cannot predict it" really tells us nothing. SAYING something is to say "i can model the future and it will true." But there i go again...being..."oppositional." Mr. Nat Gas, Mr. North Dakota, Mr. Long Equities, Mr. Phuck Debt, Mr. "there's loads of inflation", Mr. Kill your God of Killing. Numbers...probability...they can take us FAR into the future...but no nearly so as the nature of the human beast. He can take us forward WITH PRECISION. Simply acknowledge hate and injustice and the TRUE aim of mankind and you will do well with your DIVINING rod.

Sun, 11/18/2012 - 17:00 | 2994299 Walter_Sobchak
Walter_Sobchak's picture

we are become death, destroyer of worlds.  god exists and he's american.

Sun, 11/18/2012 - 12:00 | 2993571 kaiserhoff
kaiserhoff's picture

Nice post, Bruce.  The sun also rises.

As Taleb points out, humans are lousy at predictions, we don't realize how lousy we are at it, and the more important the issue, the worse our predictive ability tends to be.  Such is life.

Mon, 11/19/2012 - 13:06 | 2996136 BraveSirRobin
BraveSirRobin's picture

"Nice post, Bruce. The sun also rises."

Unfortunately, it also sets with alarming regularity.

Sun, 11/18/2012 - 12:07 | 2993570 Orly
Orly's picture

All in all, this is still consistent with human nature, even if it takes the UNIVAC to tell you: the crowd is almost always wrong.

Does that mean EURUSD to 1.368?  I dunno.  Maybe.  Everybody and their brother says it's going to 1.19, so what does that tell you?

Hmmmmm...

Of course, that's not to say that contrarianism should be the new religion.  It just says that there is very often more than one way to look at things and, through another fallacy of human nature, people, in their laziness, tend to not analyse anything but take at face value whatever an expert says.

First, this gives them an opportuntiy to watch Dancing With The Stars (and I cannot believe Gilles Marini got voted off!  What a rip-off!), plus it gives them an excuse to lay blame when the prediction is wrong.  This, of course, is another foible of human beings: their penchant to say, "Wadn't me."

:D

Mon, 11/19/2012 - 13:11 | 2996151 BraveSirRobin
BraveSirRobin's picture

"the crowd is almost always wrong"

Didn't the crowd just vote for Obama?

Sun, 11/18/2012 - 11:57 | 2993559 jayman21
jayman21's picture

The weather thing might be more man made than we all think.  Have a look at the Haarp project and chemtrails.  Most of what I have read seems to be classified as conspiracy right now.  We have seen more and more conspiracy turn fact the past few years.  You can trace the money back to weather derivatives.

Sun, 11/18/2012 - 12:13 | 2993600 economics9698
economics9698's picture

We will be praying to the Aqua Buddha God.

Sun, 11/18/2012 - 13:34 | 2993750 jayman21
jayman21's picture

Aqua Buddha God = Goldman's derivatives desk?

 

For the the down arrows:  The idea is simple.  Spray weaponize heavy metals in a concentrated area and then focus radio waves at that area.  The heavy metals stay floating just like weaponized Anthrax, and warm up.  It would not take much to alter a weather pattern.  The idea is not far fetched the implementation is another.  The radio technology is already in use with submarine communication.

 

If you trade weather derviatives, you should at least know about this.  Would someone do this if they could?  Do you know people who like to win at all costs?

Sun, 11/18/2012 - 20:03 | 2994666 Orly
Orly's picture

Actually, it does take "much" to alter a weather pattern.  The actual contrail conspiracy you speak of has nothing to do with HAARP and nothing to do with chaging the weather.  It is a radar technique; nothing more, nothing less.

Over a battelfield, a plane can spray barium into the air and a ship on this side of the horizon can reflect its beam to the other side of the horizon and receive the signal back.  This essentialy makes a commanders line-of-sight infinite because he can "see" on the other side of the world.

Anthropogenic Global Warming is the funniest thing I have heard of in my life and I am sure Mother Nature gets a big chuckle listening to the little pseudointellectual "humans" think they can alter the weather of a planet, even on a cloud-by-cloud basis.

You fail to realise how truly puny we are and your American scientists are no bigger and no punier than you are.  Men can alter the weather of planets!  Ha!  Keep trying...

:D

Mon, 11/19/2012 - 11:24 | 2995832 jayman21
jayman21's picture

Orly - have you heard of the bullwhip effect?  Mother nature is a complex adaptive system with unintended consequences.  Short-term, it would not take much, long-term or over a season, I agree with you...no way.  We are puny and George Carlin has the best rant about this.  He does not talk about HAARP, but he does talk about plastic.

 

Thanks for the extra information on the practical use.  I found it interesting.

Sun, 11/18/2012 - 11:44 | 2993535 Water Is Wet
Water Is Wet's picture

Re: Facebook -- Justin Timberlake bought MySpace for $35 million.  FB is trading at $51 billion.

Re: Apple -- It is still the largest company by market cap on the planet, at $496 billion... for a toy company.

Sun, 11/18/2012 - 11:54 | 2993557 falak pema
falak pema's picture

sesame of the future, or so google like to think; pretending it can see better around the corner than apple..up in the clouds where a click clocks more bucks than at walmart or starbucks ! 

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