October 14, 2012

such difficulties. Trying to move to another country to assist and volunteer to help others. The death of a dear friend who was the spouse of my other friend. Mexico wiping me out. Contracting an E. Coli bacteria that ravaged my digestive system and caused me to lose near 50 lbs (22 kilos). It's shown the need to be adaptable. Because this is reality. At times, you'll have moments and years like this in your life. Sometimes there can be confusion between being 'adaptable' and style drifting. Style drifting is absolutely horrendous, and should be avoided at all costs. It's as I said some time ago in the blog entry entitled Adapt or Die1, you have to know how to be adaptable in this industry, without style drifting. I know a hedge fund manager who runs an extremely large fund. He never hedges. Won't do it. He is directional in nature. Fundamental value guy, long or short. He runs his entire portfolio in this manner. That is his 'style', and he will not 'style drift'. My style is Risk Parity. That's the way I run my portfolio as a whole. I will never deviate from that for my overall theme. I will never, ever style drift from Risk Parity. I call my version of Risk Parity The Three Sisters. But the theory as a whole, is Risk Parity. But I have more than one methodology for the highest tier risk, or the trading account. Actually, in point of fact, I'm sort of in the process of trying to develop a brand new methodology for trading. I haven't even talked about it. That's one thing that I'm very thankful to Larry Williams for. He actually taught me how to build a methodology. I am now doing a bit of 'income trading' with options. It's a method. But am I style drifting? No. I hope all of the last 50 weeks has demonstrated: You need to be adaptable. But don't style drift. I love risk parity. It's absolutely, one of the greatest
1 Exact Link http://investorandtrader.blogspot.com/2011/07/airelonschallenge-chronicles-25-adapt.html

Aileron Market Balance

Issue 50
Visit Us: NoNonsenseTrading.com Email: aileronmarketbalance@gmail.com Twitter: @NoNonsenseTrade

Each

newsletter on Sunday that will contain my thoughts for the week ahead will have an audio file that accompanies it. The audio file that is associated with this PDF will contain my detailed thoughts moving forward into the next week. This PDF file is meant to serve as a rough, general outline to the audio file that many subscribers are finding more advantageous.

50 Weeks Balance:

of

Aileron

Market

Can you believe it? We've been publishing Aileron Market Balance for almost a year now. I wish the results would have been better. That's only natural. Better results mean more money in my pocket. That is, after all, what we're trying to do. Make money. But I am not interested in presenting pretty numbers. I am a professional investor and trader. I am interested in presenting the reality of trading and investing. This is, after all, a 'look over my shoulder'. Therefore, I am glad, not that I have had to undergo

October 14, 2012

methods of running a portfolio, I think can be found. It's something that I personally believe in. And although I've had a horrendous year? I believe it's the only way Can I find any institution, banks or otherwise where I could stick $15,000.00 and turn it into a 6.121% gain inside of 50 weeks? higher, yet at the same time, the U.S. Bonds remain elevated? It's what the Fed is aiming for. And I don't want to stand in the way of the Fed. I wouldn't be surprised to see the equity markets struggle until the end of October? At the end of this month I wouldn't be surprised to see a rally begin. This year has proven itself very true to seasonal norms to the tendency for Presidential Election Years. And typically, in a Presidential Election Year, the Market will rally from the end of October until the end of the year.

Investing Outlook:
Note: As a reminder. the share purchases of the Dividend Investing 'Sister' will be extremely small. It is my intent to demonstrate how to grow the size of these positions from 2 shares, to 300 shares using the three sisters portfolio management style. The Dividend Investing 'Sister' Account will also implement the Permanent Portfolio Method beginning in April 2012 with $1,120.00 of the cash dedicated towards it..

Specific Thoughts
I have mentioned for a couple of weeks now, that I have some room, in terms of capital allocation. In other words, I have the cash to make a purchase. I have mentioned that I was thinking of purchasing in the IDV E.T.F. I investigated the IDV, and I found that much of their holdings is in tobacco companies. I have a personal rule.
I don't invest with Casino's, Defense Contractors, Oil Companies and Tobacco companies. It's only 'my thing', or my personal beliefs. I don't care how much money is there to be made with such companies. But I don't want to invest my capital with them. So that is to say, that the IDV E.T.F. is out. I'm no longer considering adding the IDV to my portfolio. Is that to say that I have no thoughts of adding any company to my portfolio? No. There is a company that I'm thinking of adding back in. You may have heard of it. (I'm being somewhat sarchastic here). Seagate Technologies (STX). I have avoided a nearly 21% loss in the price of the stock, because we held this stock earlier this year, from the $25.00 region, and then we sold out at near the $35.00 region based on historic multiples. I have always believed in the long side of this company. I just saw the technicals, and wanted to avoid any retracet hat I believed the company would experience. We've done that nicely.

Looking at the equities market overall, I'm still watching the AUD/JPY markets, and the bond markets. We need to stay above 79 in the AUD/JPY, even though the AUD/USD has dived as well. In addition, I'm watching the Bond Markets. The TLT (longer end of the bond curve) has rallied. So I need to see, on the daily level, the TLT continue to rally, along with other risk currencies, such as AUD/JPY. Now that's all discussing my view of the larger markets. What is occuring when it comes to the large, macro, overall moves moves below critical support at 79.02 then yes we may be looking at a larger pullback in the equities market, or the stock market. We need a daily close in AUD/JPY above 80.84 or 80.76 region for me to believe we're leaning more into risk on to 83 or 84 in AUD/JPY. At this point, it's just about watching and waiting and observing. We've gotten a bit of a bounce in the longer term bonds, which honestly, I wasn't expecting. I have to give due props to Cosmosgato, we did hit 124 in the TLT E.T.F. I would like to see, if on the overall risk on / risk off view for both the AUD/JPY to head higher, and hold above 79, and the longer term bonds (TLT ETF for example) not to give up too much of their gains. That may sound mutually exclusive. Risk currencies head

October 14, 2012

This company, looking at it's intrinsic value, is probably worth near $200 a share. Even looking at it's historic P/E ratio for the last 15 years, is worth $70 a share. It's historic P/E ratio of the last 5 years has it worth near $43.00 to $50 a share (I'm using F.A.S.T.graphs for some of this data) For the A.M.B. portfolio, maybe only around 8 or 9 shares. But I have to watch the price, and see where we go from here. Ad let's not forget, the yield is absolutely fantastic. With Friday's close, the yield is around 4.50 %. I will watch the open Monday morning, watch the price trade throughout the day and if I make a move, I'll let you know.

Now let's talk about this 'downgrade' by Citigroup. This is the quote, I kid you not, straight from my brokers platform: Citigroup downgraded the shares [of STX] to sell from buy and cuts it's price goal to $25 from $37 Are you kidding? So let's understand this by really taking this 'apart' so to speak. Citigroup analysts were saying that at $34.00, this was a great buy to $37. Incidentally, as subscribers know, we sold our 11 shares from the value-dividend account of Seagate (STX) for a profit out at around $35.00 per share. Citigroup was still saying that $35.00 was a buy, with a goal of $37.00; which the market never reached. But when the stock sank to $29.00, after the stock has sank over 21% now Citigroup is saying it's a short to $25.00? Buying the tops, and shorting the bottoms. laughable. It really is. It's

Trading Outlook:
Note: By way of reminder, since the Model Portfolio has only $9,832.42 in the Commodity Futures and Stock Trading portion of the portfolio, there will only be ' brief day trades' at this stage of the game for Commodity Futures trading in order to escape the risk of over-leveraged gap opens in the commodity futures markets. Stock trades may last more than one day. There will be income trades as well, using stock options. This is an attempt to demonstrate how account size relates to trading style. As I mention in my methodology series2, as the commodity 'trading sister' approaches $30,000 I will graduate the account into 'swingtrading' and demonstrate how I would go about doing this. The Forex account has $69.45 and is considered a micro-forex account for the purposes of the model portfolio.

And when I saw that right off the bat, in the first 50 minutes of trading the volume on this stock spiked higher and higher all I was thinking was capitulation point. If you're new, when we say capitulation point, we're speaking of a market turning point. Generally, you see discouraged buyers 'give up', and sell out and 'capitulate' on their losses. It is usually at this point that the market begins to head higher. Especially when you see higher volume numbers post. While I cannot fortell the future as to the future price of Seagate Technologies (STX), we can look to what we do know. We do know that the market rallied from that point on, for the rest of the day, so that by the end of the day, the trade is no longer in negative territory, but is profitable by $25.50. I do know that as I mentioned earlier in this newsletter, this is an incredibly undervalued stock at the moment, and is trading approximately 500 % below it's intrinsic value. I am income trading, and will lock in around $300 to $400 dollars of profit before trying my next futures trade. It's a little slow. So it's a trade I will just continue to monitor. If someone did not own STX at all, but wanted to

The STX Income Trade

If you missed the discussion on the forums, or the twitter stream on Friday morning, Citigroup downgraded Seagate Technologies (STX). The stock itself then dropped substantially in pre-market trading, and volume shot up substantially. Is this a bad thing? The 100 shares were purchased at $30.45. At it's lowest at the open, STX was trading at around $27.10 This means that the 100 share position was down around $335.00 As described in previous issues, we have sold $263.50 in option premium. This means that when the market opened up, the total position was down by about $71.50. At it's worst.
2 Exact Link http://nononsensetrading.com/methodology.html

October 14, 2012

initiate a position, how could they do so? There are two ways to initiate an income trade. You can do as I do, and buy 100 shares of the stock, and sell at at the money call (Back when I bought 100 shares at $30.45 and sold one October 2012 30 Call Option for $211.50, and then locked in by buying out to close at $100.00). But there is a second way to initiate an income option trading position. I would say that for every $10,000 in the Trading account, one October 27.50 Put Option could be sold. At Friday's close, those were going for about 0.37, or $37.00. That means if you lose, you have to buy 100 shares of STX at $27.50 that you can use to start writing covered calls as soon as you own them. If you don't lose, then you get to keep $37.00 in your account. That's what I call a 'win-win'. Also, I mentioned a GLD Vertical Call spread on the Forums last week. That's turning out wildily profitable. An easy $146.00 for every $10,000 in the account.

Summary of the A.M.B. Model Portfolio

Note: In the beginning of this hypothetical portfolio, the share purchases of the Dividend Investing 'Sister' will be extremely small. It is my intent to demonstrate how to grow the size of these positions from 2 shares, to 300 shares using the three sisters portfolio management style. It is also understood that readers of this newsletter have a firm understanding of my 'three sisters' portfolio management system (See the Special Reference issue of Aileron Market Balance3 for an explanation of this system).

S&P 500 Year to Date: + 13.6 % AMB Total Portfolio Return Year to Date: + 2.232 % Investing Account Balance: $4,192.22 4 Positions have been sold YTD for profit on each ... 0.71 % Yield redistributed to other accounts year to date Return / Yield up + 4.053 % year to date Return / Yield up + 4.806 % since inception 8.081305 shares of WM (DRIP off Current Yield is 4.43 % Yield on Cost is 4.38 % )
8 shares at $32.39 on 12/22/2011 w/ $5.01 Commissions 0.081305 shares DRIP at $34.93 on 3/23/2012 $2.86 in Cash on 6/22/2012 Sent $1.43 to Sav. Side-Pocket $2.86 in Cash on 9/21/2012 Kept entire amount in Account Next Dividend: Not Yet Announced

6 shares of AFL (DRIP off Current Yield is 2.74 % - Yield on Cost is 2.93 % )
6 shares at $45.05 on 8/6/2012 w/ $5.00 Commissions $1.98 in Cash on 9/1/2012 Keeping full amount in Account Next Dividend: Not Yet Announced

6 shares of MDT (DRIP off Current Yield is 2.42 % Yield on Cost is 2.54 % )
6 shares at $40.94 on 8/29/2012 w/ $5.00 Commissions Next Dividend: October 26, 2012 Ex-Dividend Date: October 3, 2012

9 shares of JCI (DRIP off Current Yield is 2.78 % Yield on Cost is 2.63 % )
9 shares at $27.41 on 9/6/2012 w/ $5.00 Commissions Next Dividend: October 2, 2012 Ex-Dividend Date: September 5, 2012 (Not entitled To Oct Div)

Permanent Portfolio S $1,120.00 of cash I reserved for Permanent Portfolio Purchases Return from $1082.72 = + 4.45 % from 4/23/12
3 Exact Link http://www.scribd.com/doc/73238645/Aileron-MarketBalance-Special-Reference-Issue-Portfolio-Management

October 14, 2012

- 2 shares @ 156.12 of GLD ( $312.24 ) ( Currently $340.12 ) ( 30.07 % of P.P ) - 2 shares @ 139.58 of SPY ( $279.16 ) ( Currently $285.78 ) ( 25.27 % of P.P ) - 2 shares @ 118.17 of TLT ( $236.34) ( Currently $247.94 ) ( 21.92 % of P.P ) - 3 shares @ 84.45 of SHY ( $253.35) ( Currently $253.32 ) ( 22.40 % of P.P )

Total Trading Balance: $9,901.87 ( Return / Yield up + 1.689 % Year to Date ) Commodity Futures and Stock Balance: $9,832.42 Current Mark Included of Long 100 STX at $30.45 and sold 1 November 31 STX Call at 1.52 Already Profited One Oct 30 Call of 1.1150 profit on same position Return / Yield up + 1.729 % Year to Date Next Re-Distribution Goal: $10,700.00 Original 3% risk tolerance gives us approximately $282.54 for my drawdown tolerance ALREADY USED $ 288.10 available from Slush Fund The account balance current includes the floating trade we have on with STX ... Futures and Stock 'Sister' Account Year to Date

Remaining Cash: $2,025.76 ( 48.32 % )

Percentages of that Cash -$1,785.86 of this Remaining Cash I reserve for Hedging and New Purchases ( 88.16 % ) - Removing Cash Reserve to DCA Waste Management (WM) since plan is to sell of this stock when opportunity presents itself -$85.00 ( 4.76 % ) of this Hedging and New Purchases Cash I reserve to Dollar Cost AFL further in the future DCA Price w/ no fundamental changes on AFL $40 to $38 region -$80.00 ( 4.48 % ) of this Hedging and New Purchases Cash I reserve to Dollar Cost MDT further in the future DCA Price w/ no fundamental changes on MDT $37 to $35 region -$75.00 ( 4.2 % )of this Hedging and New Purchases Cash I reserve to Dollar Cost JCI further in the future DCA Price w/ no fundamental changes on JCI $22 to $24 region

$ 288.10 ( 6.872 % of this account ) available from Slush Fund Dividend Investing Sister Year to Date

We completed one portion of this STX trade. We bought back the October 30 Call and took $111.50 in profits (before commissions). We kept the 100 shares at $30.45, and then sold that November 31 Call at 1.52, the portion of the trade that is still 'on'. The Money Management Metrics in the larger trading account are as follows.

October 14, 2012

3 Units AUD/JPY at 80.34(0) on 9/3/2012 NZD/JPY current mark at 63.55(9) 4 Units NZD/JPY at 63.81(3) on 8/23/2012 2 Units NZD/JPY at 62.55(7) on 9/3/2012 INTEREST ADDED LAST WEEK: $0.01 on 10/8

Micro Forex Account Year to Date

As well as the Capital Graph for the Forex Account in Phase 3. Remember that the following graph does not include the unrealized gain / loss on the unfinished Carry Trades Micro-Forex Balance: $69.46 The totals for the Forex account do not include the unrealized gain / loss from the Carry Trades. It does count the interest earned from those trades. Capital up from January 1, 2012: + 3.502 % Return / Yield - 3.662 % Year to Date Return / Yield - 0.166 % in Phase 3 $ 288.10 available from Slush Fund There were no Micro-Forex trades last week. The Micro-Forex carry trade added one further penny in carry trade interest ...

Since there were no Micro-Forex trades last week, the money management stats remain the same. Remember, these stats do not include the unrealized gain or loss from the carry trade (yet)

CARRY TRADE POSTIONS AUD/JPY current mark at 81.34(1) 4 Units AUD/JPY at 83.35(3) on 8/16/2012 3 Units AUD/JPY at 81.95(0) on 8/23/2012

October 14, 2012

Savings Side-Pocket Account Balance: $1,824.01 Capital is - 10.08 % Year to Date. Yield Return on Capital + 1.1 % $288.10 ($217.04 owed to this Fund) $1,010.29 for a Base Savings
Percentages of that Cash: $814.29 of this cash reserved for Long Term Variable Capital PP - ( 80.60 % ) $120.00 of this cash reserved for CD Ladder creation ( 11.88 % ) - One $10.00 One Year CD purchased on 11/21/2011 at 0.60% - One $10.00 One Year CD Purchase on 12/21/2011 at 0.50% - One $10.00 One Year CD Purchase on 1/21/2012 at 0.50% - One $10.00 One Year CD Purchase on 2/21/2012 at 0.50% - One $10.00 One Year CD Purchase on 3/21/2012 at 0.50% - One $10.00 One Year CD Purchase on 4/21/2012 at 0.50% - One $10.00 One Year CD Purchase on 5/21/2012 at 0.50% - One $10.00 One Year CD Purchase on 6/21/2012 at 0.50% - One $10.00 One Year CD Purchase on 7/21/2012 at 0.50% - One $10.00 One Year CD Purchase on 8/21/2012 at 0.50% - One $10.00 One Year CD Purchase on 9/21/2012 at 0.50% $20.00 of this cash reserved for the first side-pocket purchase ( 1.98 % ) $20.00 of this cash I reserve for the second sidepocket purchase ( 1.98 % ) $36.00 of this cash I reserve for the hedging account ( 3.563 % )

$505.14 for Emergency Savings Getting Paid Fund: $20.48 Total Portfolio Breakdown Return Graph

October 14, 2012

Total Portfolio Balance: $15,918.10 - Total AMB November 2011 Inception to Date Return: + 6.121 % Return / Yield up + 2.232 % year to date) S&P 500 Year to Date: + 13.6 %

If you have any questions regarding my personal outlook, or any other comments, please feel free to contact us at aileronmarketbalance@gmail.com. Our twitter account is @NoNonsenseTrade. I will say that if you have questions about your own trading and you want to ask for my input? Please include your most recent money management performance statistics in any email correspondence.
Until next time, stay safe trade well, and remember that loving other people doesn't cost a dime.
Note: I, the author do not grant this work for wide distribution beyond any single individual subscriber as this publication is protected by U.S. And International Copyright laws. All rights reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means except as permitted under the original subscription agreement or with prior written permission. The above statements should not be construed as an investment or trading recommendation. Aileron Market Balance is a newsletter that allows subscribers to look 'over my shoulder' as it were, for my own personal specific trading and investing ideas and thoughts for the next week. But they are only thoughts as of the moment of publication, and are subject to change. There is no guarantee that I will enter, or have entered any of the trading or investing ideas that I discuss in this newsletter; as larger accounts may require a different strategy as the ones presented here. Any trades or investments that I discuss within this newsletter are simply my own thoughts regarding my own investing and trading outlook. I discuss which trades I take and do not take on the No Nonsense Trading Forums, as well as the Ventrilo Voice Server. Remember that entering any market is an individual decision. This newsletter simply contains my trading and investing thoughts for the next week. I personally only enter any market after watching and reading the tape and I trade using money management principles4. The losses in trading can be very real, and depending on the investment vehicle and market, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 16 years of experience in trading and investing in these markets. The Model Portfolio accounts are hypothetical accounts,with all of the inherent problems therein, which are used within this newsletter in an attempt to track the results of this newsletter, and is run for the education of other traders who should make their own decisions based off their own research, due diligence, and tolerance for risk. Any pictures used within this newsletter are believed to be public domain. Any charts that are displayed using the ThinkorSwim platform, and other pictures were obtained through Wikipedia's public domain policy.

Exact Link - http://nononsensetrading.com/MoneyManagement.html