Born on Halloween

I’ve admired people who started their own businesses.   I’ve always thought I’d like to start one myself.  And finally I have.  While I started this website this summer, the company Balhiser LLC was born this month… and I’ve been busy during evenings and my lunch hour (because I have a day job that often exceed 50 hours per week).

I opened a business checking account today.  I also received my EIN tax ID number.  Earlier this week I received paperwork from the state as well as stock certificates and legal papers, etc.  I’ve also got a logo.  Soon I’ll have business cards.

My goal is to see what I can accomplish with ~10 hours a week or so working to build my company.  I’ll try to blog more frequently.

Its been fun thinking of how to market my site and Balhiser LLC.  In fact tonight I’m dressing up for Halloween as the powerful executive I may someday become (at least in my daydreams).  I’ve even got some business slogans/taglines/etc. I may try out in the near future.

Then there’s the mundane and nitty-gritty work… like record keeping and accounting to deal with.  I’ve purchased a printer and a filing cabinet.  While blogging and marketing are fun for me, the day to day office work will be more of a chore.  But since its part of doing business, I’ll do what I can on that account.

There is lots to talk about on the investing front… but for today I’m digressing a bit.  I’m investing in Balhiser LLC.  Perhaps some [distant] day others will be able to invest as well (either banks in the form of loans, or partners in the form of stocks).

I’m off, soon, to a Halloween party.  And, in way, I can say Balhiser LLC was born on Halloween 2008.  Tonight I will be celebrating this new venture with friends.   I’ll also be celebrating the friends and of course my lovely girlfriend’s love and companionship.  Perhaps I’ll even grab some sparkling wine on the way over to the party.

Happy Halloween!  Don’t be afraid to buy stocks!

Best Investing wishes from,

The President of Balhiser LLC!

Update and Straddle Write

I paired my SPY 87 Nov Put write with writing a SPY 87 Nov Call.  Both are covered, the call with 100 shares of SPY, the put with cash.  The account value is down to $20,417 with -$1360 the present market value of the straddle.   Ideally SPY with stay within a small range of 87 and the straddle will expire worth very little.  The worst case scenario is that SPY falls like a rock and eats into my put.  I’ll keep things update periodically, regardless of how the market winds blow.

Bloggin’ from the Boondocks

Hi from the Montana via a blazing modem (@48 Kbps)!

I have to comment briefly on the VIX (CBOE Volatility Index).  Looks like it has hit another all-time high around 81.17.  It closed the day around 67.  I’m tempted to write a cash-covered put on SPY to exploit this situation if it persists tomorrow … if the super-slow internet here does not drive me too crazy.

Market Bottom?

I’ve had several folks ask me if we are at the market bottom… both in person and by email.  I’ll do my best to answer these questions.

I’ll start with disclaimer and an opinion.   The disclaimer is that I’m only about 50-60% confident in the following prediction.  The opinion is YES, we we at or very near the bottom on Friday with an inter-day S&P 500 level of about 844.

Here’s what I’ve done so far this week.  I bought 100 shares of SPY (SP500 ETF) Monday on the market open for $94.47 per share.  [BTW, this was a poor price for a market order place on the open… I think it should have cost me closer to $94.10 per share. I’ll have to talk to my online broker about the poor order execution.]    As of tonight I am up 5.57% on that purchase.  Secondly I wrote a covered Nov 102 SPY call Monday afternoon for $465.  These trades in my “play-money” account show me suddenly being a bit bullish, with the call write showing a bit of light hedging.

I might as well get specific about my play money account.  It started at about ~$17K in early 2005.  My oldest exact data shows was it was worth  $21,077  on Jan 1,2007.  As of today it is valued at $22,148.  Since I don’t add or subtract money from this IRA account it will be interesting to see how it fares in the months and years ahead 🙂

I feel compelled to note the VIX which hit a historic high on Friday of over 75.   Commonly called the fear index, the VIX measures the implied volatility inherent in the prices of S&P500 options.  The VIX was about 60 when I wrote my SPY call Monday afternoon.  The high VIX value meant I was getting pretty good “time-value” premium for my option.  The fact that I held SPY and wrote a slightly out-of-the-money call implied that I was slightly bullish on the S&P 500 for the next month.

So, yes, I believe that we are near a bottom.  Getting into the S&P500 for around 1000 (SPY for around 100) seems reasonable.  I’m doing so with my risk capital, but I’m hardly altering my larger accounts… neither doing much re-balancing nor changing my contribution elections.  I continue to max out my 401(k) contribution for the year (no change for the last 10 years… I always try to max) and I’ll max out my IRA contribution for 2008 (in 2009) before April 15 as I do my taxes next year.
Happy hunting!

To the Rescue: Black Swans and Moral Hazards

How many white swans must you see to prove that there is no such thing as a black swan?

That is a question put forward by one of my favorite financial authors Nassim Nicholas Taleb. It is even more interesting to learn that there are black swans, though most one us have never seen one.

Arguably, one such black swan is the current “mortgage crisis”. Some are calling this a credit crunch or an issue with illiquidity of assets. Most people, until recently didn’t expect such events to ever happen. If events like this were expected, few foresaw the magnitude of bank failures.

The thing about black swans is that they do show up occasionally. The other thing is that they are not entirely unexpected (at least by some). Black swans are why people buy insurance, and the relative rarity of such occurrences explains why insurance companies sell it.

I just saw the Senate on CSPAN pass the bailout rescue bill 74 to 25. This bill gives insurance claims to those that didn’t buy insurance in the first place. Oh, there is the raising of FDIC insurance to $250,000… and the banks have paid premiums to the FDIC, but that is more window dressing. As weird as it seems to me this bill appears to be a drastically amended bill involving, of all things, mental health coverage.

There are practical considerations for this bill and practical considerations against. The argument that sways my opinion against it is ideological. Simply put I this legislation crosses the line from regulating the market over to manipulating and attempting to manage the market. Secondly, it introduces a moral hazard. In this case it takes away (some of) the consequences of failure from banks and investors. In healthy markets failed ventures fail. There is a price for failure and that gives executives and business people pause and encourages prudence. If the congress takes away the consequences in full or part, doesn’t that just encourage more imprudent risk in the future?

Look, when Wall Street loses, often Main Street does too. Like it or dislike it, that’s the way it goes. But when the government puts $700 billion on the line… its our money on the line too. If all goes well the precedent is set. And if the economy goes south again, maybe 7 years from now, will there be another bigger bailout? How many times before the tax payers lose a big, big bet? This time, or the next, or the next?

Further, what if this bailout covers over structural flaws in the US (and global) financial industry? Perhaps these flaws should be allowed to continue to crack so that industry learns and adapts and emerges stronger.

My guess is that this bill will pass the House and become law in short order. My guess is that markets will like the passage and stock will bounce up perhaps 5-6%. I’m guessing markets open up 1-2% tomorrow morning (Thur, Oct 2). But I’m guessing that, long-term, this is merely a band-aid that covers up problems that will bite us in years to come.

My 2 pesos. Adios, amigos.