Friday Virtual Portfolio Moves
by Phil - June 29th, 2007 6:59 pm
RIMM – oh sorry. If anyone was in on that spread from yesterday the least complicated thing to do is take the loss but you could also either A) buy out a few of your callers or B) wait for a top (maybe $200, maybe $195) and then sell the Augs and wait for a pullback to buy back the very dangerous, naked $165s. No matter what, it is unlikely that the $5 premium for the Aug $175s will last long and the caller has no premium. If you can afford it you can also roll your caller up to the $195s at $7 which is what I’m doing but it means taking a $23 hit which you can offset by rolling the Augs up to $200, now $11.80 when the premium there calms down a bit.
RIG – I held half and I’m thinking of getting back in here. If they can’t break $107 at $70.65 oil I’m back to my original premise that they are good to DD and roll.
BIDU could go on forever but I can’t chase them here. BEAV is always one of my favorites but also not a chaser.
Oil – logic will get you nowhere Z! BHI $85s are just $2.22 if you need an upside cover. XXX
DIA, a big gamble this close to expiration but fun. I said yesterday I think they will pin 13,500 and there seem to be plenty of sellers above there.
T – now you’re gamblin.’ How many subscribers will they report over the weekend and, more importantly, how many come from another carrier? I think Apple is scamming us and there are MILLIONS of these things ready to go as they are letting people in line buy 2, which makes no sense if they have a limited supply as most analysts believe. When in doubt sell half would apply here.
RIG having trouble up here. OIH may roll…
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DiggTGI July!
by Phil - June 29th, 2007 8:42 am
Wow, we made it through Q2 – congrats to all the survivors!
Actually it’s been a fantastic quarter but a very stressful one as we’ve gone from bullish to bearish so many times I’ve forgotten which side of the fence I’m on some mornings.
I’m not kidding, we’ve had the virtual portfolio so well balanced that some day’s the market has gone one way or another and I’ve cursed the thing out until I look at the balance and say – "Oh, I guess I DID want that to happen." This is probably not the sort of thing an analyst (and soon-to-be hedge fund manager) should admit, so forget I said that and just bask in my omnipotence – It will make both of us feel better!
I got my positioning statement out of the way last night so please read that, as I’m not going to get into it again this morning, but what I do want to get into is this article, brought to my attention by Trader Mike, possibly the only guy I know who reads more than I do:
“The losses are going to be phenomenal’‘ for funds worldwide holding subprime debt, said Peter Schiff, president of securities brokerage Euro Pacific Capital in Darien, Connecticut. “My guestimate in the subprime world is that the majority of loans are going to go into default. Not just 5 or 10 percent, but the majority.” This comment came as Caliber Global Investment, a $908M subprime fund had to shut down. Caliber will seek an “orderly return of all of its capital to investors over the next 12 months in order to maximize value for shareholders,” Caliber said in its statement.
As of March, about 11 percent of the subprime mortgages included in bonds were delinquent by at least 90 days, in foreclosure or already turned into seized property, the highest since 1997 and up from 5.37 percent in May 2005, according to a June 1 report from Friedman Billings Ramsey Group in Arlington, Virginia. Buyers of bonds backed by mortgages to people with poor or limited credit histories stand to lose as much as $75 billion, according to an April estimate from Pacific Investment Management Co., manager of the world’s largest bond fund.
Barry Ritholz is also on the warpath with this scathing comparison of CDO Hedge Funds to Enron.
So, in order for the markets to go…
Thursday Thump
by Phil - June 28th, 2007 11:35 pm
Well, we got exactly what we expected from the Fed:
"Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.
"Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.
"In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."
This was just what we were expecting, a Goldilocks view of the economy but tougher language on inflation. It was not what the markets wanted as most seemed to expect the Fed would continue to pretend that non-core inflation didn’t exist. What really bothers me about this statement is that Bernanke seems to have drunk the low expectation Kool-Aid as the GDP just came in a .7% and they are calling this "moderate growth." Gosh remind me to stock up the fallout shelter if we ever get into "low growth!"
Meanwhile it ain’t over ’till it’s over as we have a huge data day tomorrow with Personal Income expected to be up .6%, up from -.1% (inflationary) and Personal Spending expected to outpace it at .7%, up from .5% (imaginary) along with Core PCE Inflation expected to hold .1% for all you non-food, non-energy, non-consuming types.
The Chicago PMI comes out just after the market opens and has the low expectation of .58, down from 61.7 last month and May Construction Spending will sound good up .2% expected but look what we’re comparing it to:
They won’t tell you this on CNBC, they’ll just tell you how great it is that spending is picking up and try to get the builders to rally out of the pit they have fallen into but remember that when they are all trapped down there in the pit, sometimes the only way out is for them to step on each other – so watch out for a few casualties in the homebuilder industry at this point. Also at 10 am we get the fabulous Michigan Consumer Sentiment…
Thursday Virtual Portfolio Moves
by Phil - June 28th, 2007 6:23 pm
TASR – too dangerous here. I’ll be doing something with my leaps soon though.
T had a nice jump today.
Oil puts – I’m hoping for a nice run into inventory to start VERY SMALL positions which I will intend to DD, roll, DD, roll, DD, DD and roll. We could go a very long time without a pullback if they get oil over $70.
RIG – my basis is $1.24 right now so I’m certainly going to DD (just 15 contracts ATM). We still have 15 trading days to go and those puts were $1.80 yesterday so we don’t have to get that lucky with a .90 basis. XXX
DIA – if you’re in the June calls from yesterday you should be looking to get out – don’t forget they expire tomorrow!
Long oil – I just can’t do it. They are so massively overpriced I just can’t find any I want for a long…
Index puts – I don’t buy them every day but I tinker with them a lot. I just play them as great big momentum trades and, as insurance, what I do with them generally depends on how much I think my other positions need protecting. Don’t be misled by how well I’m doing with these – it’s just an accident of the volatile market, not a plan.
What happens is I will establish a position that protects about 1/3 of my anticipated losses on a 200 point dip, in this case that’s 350 DIA July puts. As a rule of thumb I find whatever contract is around $2 is usually the best mover.
Once I establish it I follow mattress play rules but I’ll usually spend .30 per 100-point down gain to roll them up to the next level but then follow the usual half out rules on a pullback. If the Dow goes up 300 points from where I buy the $135s for $2 I end up owning the $138s for about $3, when the Dow corrects 150 points I get half of…
Federally Funded Thursday
by Phil - June 28th, 2007 9:09 am
How low can rates go?
We’ve been living large off the Fed’s largess since 2002, half a decade of easy government money that started out as 9/11 disaster relief but turned into a multi-Trillion dollar entitlement program for corporations and the wealthy that has been fueling our economic boom.
This program has been so successful that last year the world’s top .15% (all 9.5M of them) added a staggering $4 Trillion to their assets, THAT IS THE GDP OF JAPAN, the world’s second largest economy! Wake up people – this is not you, you may think you are included in this priviledged group because you have assets of $1-10M but the vast majority of that $37Bn is actually in the hands of less than 1,000 people.
If you want to check your actual standing in the global pecking order, you can enter your salary here, but it breaks at the top 100,000.
Why do I say that low rates are an entitlement program? In simple terms, because the government does not make a profit lending money at these rates. Therefore they are running a charity at a deficit, which is a burden placed on current and future generations as other services (including defense) have to suffer in order for the Fed to keep making below market loans. Don’t all citizens benefit from this? Perhaps but you have to imagine that the benefit derived by 48M home renters who’s biggest loan is perhaps a $25,000 auto may be getting somewhat less than the benefit Steve Wynn (one of the 1,000) gets when he borrows $1.5Bn at 5.36% to build a casino that those other 48M people can’t afford to buy lunch in.
So it’s the easy money that’s fueling the Dooh Nibor Economy and the question is – how long can they keep it up? Maybe it’s easy to funnel the entire GDP of Japan into the pockets of 1,000 lucky people (it’s gone well so far) but let’s keep in mind that this year they’d like to do better. At 11% growth per year on $37T it’s only a matter of time before it will take the ENTIRE US economy, currently $13T, just to fuel the growth needs of the 1,000. That means they will need EVERY dollar, not just the ones you "waste" on discretionary purchases. They will need your rent money, your medical money, your food money, your…
Wednesday Wrap-Up
by Phil - June 27th, 2007 11:27 pm
What a nice recovery today!
Was it our man Paulson? He didn’t say much about the markets but he did let the Hedging community know he was on their side as he came out strongly in favor of the status quo (raping AND pillaging).
I know there was once a time when a public figure like Paulson would have recused himself from the discussion due to his long history and close associations with the industry possibly having just the slightest hint of conflict with his position AS TREASURY SECRETARY, but noooooooooo! Secretary Henry Paulson warned that raising taxes on hedge funds and buyout firms may have “unintended consequences’‘ and said Congress shouldn’t “single out” firms that go public, such as Blackstone Group LP. “I don’t believe it makes sense to single out one industry,” Paulson said when asked about proposed legislation at a conference hosted by the Wall Street Journal in New York. Senate legislation would force Blackstone to pay taxes at corporate rates of 35 percent instead of as a partnership, with a burden as low as 15 percent. “We need to be careful dealing with something like this piecemeal,” Paulson said.
Yes, going after the people who are actually causing the problem is no kind of policy for THIS administration!
And it’s a good thing too because, as we discussed 2 weeks ago, wealthy people put a substantial portion of their assets into hedge funds and we know they don’t like paying taxes (they prefer to give directly to charity I hear..). According to a brand new Wealth Report, there are now 9.5M people with over $1M in net assets who now control $37.2 Trillion of the World’s wealth (up 11.2% from last year!). For the first time, the 11th annual World Wealth Report detailed philanthropic giving, and estimated that high net worth individuals turned over $285 Billion to charitable causes in 2006.
That’s equivalent to someone worth $100,000 giving about $766 to charity, or 0.76 percent of their wealth. I guess charity does begin at home, but perhaps it begins in the wing that’s under renovation – you know, the one you never get around visiting as you’re only in that house from Labor Day through Thanksgiving and things are so hectic you just haven’t had time to even learn the names of the staff on that side of the house, yet alone organize a charity function and…
Wednesday Virtual Portfolio Moves
by Phil - June 27th, 2007 8:34 pm
Who is NOT down, that’s what we need to look at today…
POT/CROX… Money coming out of high flyers as people taking it off the table.
Big tech is working so far – AAPL, INTC, MSFT, SNDK, TXN…
From Drogon yesterday:
HOC July 70 puts@.90, stock@73.62 – missed it (genius call)
TSO July 57.50puts@2.15, stock@ 57.81 – damn, I hope you did that one.
RIG July 100 puts@1.40, stock@104.33 – GAME ON, now $1.62 XXX
MRO July 60 puts@1.55, stock @60.62 – missed it.
FSLR July85 puts or 80 puts@ 1.55, stock@87.65 – I like the $80s at $2 (in other words on momentum if it starts to fall but not here at $1.52).
“My favs yet to sell off are the ethanols and Agriculture plays though!”
MON, MOS, AGU, POT, BG – All Brilliant picks by Dragon yesterday afternoon! I’m very sorry I put them off until today but BG is the most playable one left with Aug $75 puts at $2.05 XXX
Great work Dragon!!!
Very strange, both my July DIA puts have lost value! VIX coming down a bit too.
BBY did a BBuYback.
SOX and Biotech and the Qs are holding up, here’s hoping for some of that rotation.
DIA July $133 puts active, tight stops on $135 puts (up 135%).
Let’s watch that $67.50 line. Back below that and SU should start to slide but right now I’m watching out for an oil run.
$10KP – time to roll down FWLT again!
Sorry been crazy busy – had emergency phone call then right to radio.
What did TRMP do wrong?
VLO – it’s a mo play, when you lose momentum…
Wary Wednesday Morning
by Phil - June 27th, 2007 9:26 am
The Fed begins thier 2-day meeting today but there will be no word from the governors until tomorrow’s 2:15 statement.
Hank Paulson will jump in to fill the talking head vacuum with a 1:30 speech at a NY Investing Conference and we may get some hints as to the official spin on subprime so let’s keep a close eye (ear?) on what he has to say. Also from the Treasury, we will get the result of a $13Bn 5-year note sale where we should finally find out what those things are worth after seeing them bounce up and down over a quarter point in the past week.
We already got some bad news from the MBA Mortgage Application Index which fell 3.9% last week, a 4-month low. This was expected by us as I predicted last week that higher rates would put a quick damper on lending activity. Sadly though, the last time we hit a level this low was February 16th and we all know how that month ended! Rising mortgage rates, falling prices and a record number of houses on the market may be scaring away prospective buyers, deepening the real-estate recession. A recovery will probably not take hold until 2008 at the earliest, economists said.
It should be noted that this index was BOOSTED by refinancing – the purchase index fell by 4.9%!
![[China's household bank deposits charts]](http://online.wsj.com/public/resources/images/AI-AJ772_SAVING_20070626134031.gif)
While Chinese locals continue to plow their hard earned money into the Shanghai A-shares (up 2.6% today), the rest of Asia had a bit of a sell-off with the Hang Seng trading down 98 points and the Nikkei off 216 points for the day. Money flew out of Chinese savings banks in April ($21Bn) and May ($37Bn) as investors there threw more and more of their savings into, according to our pumper friend from yesterday, the "irreversible uptrend." The back-to-back reductions marked the first drops in yuan household deposits in six years, and stand in contrast to the period from 2000 to 2006, when such savings ballooned by 2.5 times.
Europe is down about half a point ahead of our open and is likely waiting on our Fed as well so we’ll move right on from there.
Over here I think we may be heading for a more prolonged downturn as the SEC has turned it’s attention to CDOs, which means they will persist in the…
Tuesday Tear-Down
by Phil - June 26th, 2007 11:31 pm
That went about as expected.
Fortunately, in our morning sermon we were reminded to be led not into temptation and we were, in fact, sorely tempted as the Dow went up70, flat, up 50, down 10, and up 110 – all before lunch!
That last one almost got us but the President’s sound advice stayed with us and we were on top of this nonsense all morning taking up positions looking for a top. At 12:12, right at the top, we got our new favorite market indicator on CNBC as I said: "Uh oh – Pisani looks concerned again" and he was right on the button at the market fell 100 points from there.
Some people are saying that today’s crash was caused by the leak of my Fed statement, which I always publish for members the day before the official release (Ben and I were up all night!) but I tip my hat to Bill Gross, who joined my camp earlier in the morning with some chilling views on the subprime market that OptionDragon brought to our attention, causing me to say at 11:29: "Well that statement makes me want to cash out my virtual portfolio, sell the house, auction the art and have a garage sale!"
At 12:36 I was, as is often the case, annoyed by the television and I said: "Wow – CNBC guy says “pretty good rally for the dow” how does a herky-jerky ride to a 50 point lower high than yesterday constitute a pretty good rally? This is what I don’t get about them – don’t they want ratings? To get ratings you need to give good information, not spin."
We were, of course, thrilled by the breakdown in the oil sector but we took the opportunity to lighten up on our puts ahead of inventories but ZMan and I will address the Nation live tomorrow at 10:25 on MN1 with brand new picks. My live selections last week were 4 for 4 as I gave viewers OII $50 puts at .70, now $1; PTR $145 puts at $2.50, now $4.15; VLO $75 puts at $1.30, now $2; XOM $85 puts at $2.90, now $3.55 with a general comment that the gasoline inventories "were horrendously bearish" for the refiners.
As we were generally bearish we spent a pleasant afternoon on the site chatting about the IPhone (most…
Tuesday Virtual Portfolio Moves
by Phil - June 26th, 2007 10:28 pm
Much better thanks all.
Can’t say the same for home sales (down 1.6%, was up 12% last month) or consumer confidence (103 vs. 108% last month) but the new home numbers are skewed by the equally rated midwest which has the least amount of homes and had a 30% increase.
LEN’s earnings were a disaster and I can not imagine what is putting this market up right now.
FLIR/NILE/BW – see above, nothing is oversold until the market shows us that the bears are wrong. Bullish sentiment was close to 55% last week, that means there’s a ton of people who see every dip as “finally” a chance to get back into the market they missed since March. These people are called “bagholders” but they never know they are bagholders until it’s way too late and the sack is empty.
FTO – $45 puts are not a bad play at $1.77, doing a very slow fade.
CVX holding up a little too well. $80 puts just .45 could be fun if it breaks down but inventory is tomorrow.
MTU/Any DD – I’m very neutral right now and this insane bouncing up and down 50 points every 10 minutes does not instill me with the confidence to put fresh money to work in either direction. I’m very close to going another half cash, bringing me to around 80% cash.
LOL – I got up for a 5 min phone call and it’s down again – what a joke!
SIRI – ROFL! See – mission accomplished, they got the options to print, sold them and let the stock drop – what an amazing scam!
LFG – I’d be pleased but that is the death of the home market there!
Bill Gross – well that statement makes me want to cash out my virtual portfolio, sell the house, auction the art and have a garage sale!
GM – not ready to roll my putter to…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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