In the words of Warren Buffett’s mentor Benjamin Graham:
“Investing does not require genius.What it needs is, first, reasonably good intelligence; second, sound principles of operation, third, and most important, firmness of character”
Since the first item on Graham’s list – “intelligence” – simply means the ability to read, add and subtract, we can skip quickly to “sound principles of operation”.This is where most investors come to a grinding halt and with good reason.Survey the financial landscape and you will be bombarded with a plethora of investment vehicles including stocks, bonds, options, futures, forex, treasuries, municipals and so forth. Not only is it a challenge to figure out where to begin but, within each choice, the challenge is to figure out what system to apply!So how do you choose?
Follow those that have successfully traversed the rugged terrain already!Even the man considered to be the greatest investor of all time, Warren Buffett, had a mentor!At PSW, we love to educate as well as enrich.In numerous comments and articles, Phil expounds “sound principles of operation”, meaning a system of trading that has consistently worked for him.The reason the system has been successful is it evolves with the market!Although this is a simple concept most fail to trade this way.Most investors simply sell losing positions and suffer from emotional trading.In contrast, the approach Phil and I take is to modify our positions as necessary to account for changing trends or unexpected surprises.We had a great conversation recently about how so many will simply “give up” on a position when in reality there is just no need.With a little patience, positions can often be turned around and virtual portfolios made profitable.
While the goal of the short-term virtual portfolio is often to make attractive gains over the short-term, Phil’s contingency should a position move against him is to offset an unexpected trend with appropriate options in order to salvage a trade.Irrespective of what happens then, he knows that his year will be a good one if he knows…
And you may ask yourself – What is that beautiful house?
And you may ask yourself – Where does that highway go?
And you may ask yourself – Am I right? …am I wrong?
And you may tell yourself – My god!…what have I done? – Talking Heads
Letting the days go by / let the water hold me down
Letting the days go by / water flowing underground
Into the blue again / in the silent water
Under the rocks and stones / there is water underground.
Is the market truly operating under a new paradigm or is today’s situation simply "the same as it ever was"?
I love doing the wrap-ups as they are a great exercise in perspective and when I went back to the August wrap-up I was struck by the similarities. We had just come off our August 16th lows and the Dow had risen from a low of 12,500 (spike down) all the way back to 13,400 in just 6 sessions, a Hang Seng-like effort. At the time I didn’t want to get too excited as we had just barely made it back to the month’s open, which were also pretty much the July lows.
Here we are 30 day’s later and we’re just about back at the July highs, where I first posted this cartoon:
While we KNEW there was no good reason for the July run to 14,000 at least we can point to our latest 7-day, 600-point rally and say: "Oh, well that was because the Fed lowered rates." Of course the fact that they lowered rates to avert a potential melt-down in the finance sector as Trillions of dollars of poorly constructed loans began to backfire is generally what history would consider closing the barn door after the horses get out but, since we’re all living in the moment, we’ll continue to pretend that it was some brilliant strategic decision. There will be plenty of blame to go around later!
I know I should just shut up and enjoy it but I just watched The Grapes of Wrath on AMC and holy cow is
Members can lock in the old rates today, which will last until they expire, so if you wish to switch to an annual subscription a just $799, you can do that at: http://www.philstockworld.com/amember/member.php . If you need any help, just drop Jared a line at admin@philstockworld.com but my understanding is that if you cancel your current subscription, then add an annual one, that should lock you in at the current rates and your annual subscription won’t start until your current quarterly or monthly one expires.
On a go forward basis, nobody who is currently a member will ever pay those rates anyway. I am a big believer in rewarding loyalty and I’ve come up with a system I think is very fair for all.
Original 2006 members will get a 20% discount on the new subscription prices and 2007 members will get a 10% discount. As of Jan 1st, all members bump up 10% in discount category and will continue to do so annually through 35%. This is a good way to reward people who’ve been with us from the beginning as anyone who is a current member and renews through ’08 at $799 would get at least a 30% discount in 2009, which would make the current annual fee (it will be more by then) just $910.
In addition to this I’ve come up with a structure to address the needs of those who would like to pay even less, since most of us have either time OR money, but rarely both, there are now 3 ways to get your subscription for free in exchange for some of your valuable time:
#1 - Refer people to the premium site. Every active member you bring in that is referred by you will get you a 10% discount on your next renewal. That means that anyone who is currently a member and refers just 8 people over the course of the next year will have a free membership in ’09. These discounts remain in force as long as the members you refer remain active.
#2 – Refer people to the paid newsletter. As of Jan 1st, the majority of our content will no longer be available on the free site. There will be a subscription for that content, probably $39/month, $99/qtr, $299/yr and each…
Oil sector showing continued strength, probably not a good short for the day but I’ll be shorting some into the close.
FXI posting ATH, about time with China at 27K
Let’s watch that S&P 1,530 for the big breakdown as well as the Nas, which looks strong this morning but SOX are still right at 500 and will lead the Nas lower and 2,700 is critical. The dollar is getting crushed in Europe so our market gets cheaper and cheaper.
VLO taking off and the $70s make a nice mo play, when those stop out it will be time to consider oil puts so I like the $70s at $1.27 with a .25 trailing stop as a mo play. XXX
FWLT went nuts, sold the $135 puts for $6.30 to cover my $125 puts, will roll my puts up to $130s for + $1 to cut my risk to $3.50 ($4.80 net basis less $6.30 collected on a $5 spread) if it falls back from $132.
FXI – rolled my Jan $180s to 2x Nov $178 puts at $10.67, offset with sale of 1/2 $174 puts at $5 XXX
TSO – holy cow that whole trade is down .30! Really you shouldn’t play these things if you are going to stress out like this. We wanted TSO to go down, and it went down – just a little faster than we thought it would… If you want to duck out now you can roll the Nov $50s to 2x the Jan $45s at $3.70 for + $2 and roll your caller…
I thought I got all my complaining off my chest in last night’s article but now I wake up to more nonsense!
Sorry, I’m trying to stay positive but… Well, come on:
"The days of cheap grain are gone," says Dan Basse, president of AgResource Co., a Chicago commodity forecasting concern. This year the prices of Illinois corn and soybeans are up 40% and 75%, respectively, from a year ago. Kansas wheat is up 70% or more. And a growing number of economists and agribusiness executives think the run-ups could last as long as a decade, raising the cost of all kinds of food.
American families, which spend 9.9% of their disposable income on food, are facing the fastest-rising food prices in 17 years. The consumer’s cost for everything from yogurt and popcorn to breakfast cereal and fast-food french fries is climbing. In U.S. cities last month, the average retail price of a pound loaf of whole-wheat bread was up 24% from a year ago, according to the Bureau of Labor Statistics. Whole milk hit $3.807 a gallon, up 26%
"We’re in uncharted territory," says Christopher Fraleigh, chief executive of the food and beverage division of Sara Lee Corp., which earlier this month raised its bread prices 5%. To cope, General Mills is shrinking the size of its breakfast-cereal packages, effectively raising the price per ounce. At a Dominick’s supermarket in suburban Chicago, a 15.6-ounce box of Wheaties recently cost $5.16, more per ounce than the round steak London broil at the meat counter. Grain typically has accounted for a small part of the cost of packaged products like bread and ready-to-eat cereals.
That’s the creeping "shadow inflation" we get at the early stages of an inflationary cycle. The cereal box is smaller, the restaurant cuts back on bread, the Whopper shrinks, the car has less features, the movie has less special effects… This is how an economy can collapse all around you and you don’t actually realize it until it’s too late to do anything about it.
For instance, making fuel out of food is MONUMENTALLY STUPID and is causing more inflation than it cures. While it’s great for DE, MON, DD and the Midwest farming constituency (big Bush contributors) it is devastating for…
Today we got TERRIBLE news, it seems home sales are now off 8.3% – SINCE LAST MONTH! That is almost double the expected 4.6% decline but, even worse, the median price of homes fell from $243,900 last year to $225,700, a 7.5% decline. The rate of new home sales dropped 21% since last year.
Despite all the bad news, the market went up, a move we caught right at the beginning of the afternoon rally when I noted: "Strong demand for treasuries – 4.25% for $13Bn, huge buying interest probably based on fears the Fed will continue to lower rates but the demand is a surprising and good sign that foreigners (including China) are willing to support the Fed move. That should goose the markets a bit, now we’ll see if refiners can recover.. " What is going on is that the dollar is now so low that people are starting to play it like it’s some stock that’s going to bounce. This is based on a global premise that fundamentals are meaningless in trading. Investors are rushing back into the carry trade, borrowing Yen at low interest rates and then using them to purchase dollar-denominated assets hoping to make money off both the interest they collect as well as a return of the dollar to "normal" levels.
Brazil’s Real is at the highest level it’s been against the dollar in 7 years, the Columbian Peso is at an all-time high and that means, in addition to the record high corn, wheat an soybean prices we are paying, we can look forward to price hikes in textiles, bananas, sugar, coffee and cocoa (and cocaine). It is very important to note that Columbia and other South American countries have been operating under capital controls that were implemented last year to curb the appreciation of the Peso to the dollar but IT DIDN’T WORK! Our currency cannot be saved by the intervention of foreign governments.
"Currency controls are a risky, stopgap measure, but some gaps desperately need to be stopped." – Paul Krugman
And what is the net effect of a declining currency? Why…
Please note I’ve added several additional $10KP and $25KP plays from yesterday’s Dow post in case you’re following those virtual portfolios and that the Happy 100 HXL play is moving to the Jan $22.50s for +.25 XXX
Rolling is simply trading positions. If you have an option-friendly broker, there should be a function in your account where you set up a simultaneous buy/sell for a specified spread. If not, you can call your broker and say “I’ld like to roll the HLX Dec $22.50s to the Jan $22.50s for .25, good until cancelled” and once they make a match, they charge you a quarter (and, hopefully a reasonable commission) and you have a new position without all that messy buying and selling.
Yes nu2- you roll for .25 debit, you don’t care what the price of either is when they match it.
We didh’t quite make my Nasdaq (missed by 1) or S&P (missed by 5) levels but we’re just 122 points from 14,000, where we will either break on through to the other side or crash and burn – this is so exciting!
Deus Ex Buffett was used to lift the financials, which had been struggling (other than GS, of course) all day. There is nothing sexier in the markets than when Mr. Buffet smiles upon a sector and, whether the rumor is true or not (I think not) it sure does get people to take a serious look at the many undevalued financials.
We’ve been in the BSC calls since they hit my $100 target that I set way back on August 6th when I said: "GS – I think BSC is a better value right now. Hopefully they sell off to some extreme as I feel strongly that $100-$110 is a fair bottom for them. I’d be looking to begin setting up a nice ‘09 or maybe ‘10 play, perhaps the $110s with a 3/4 sell of current $10 out of the moneys."
Our BSC Jan ’10 $120s are in very good shape and we’ll be repositioning them if the stock keeps heading higher but Buffett or no Buffet, I expect them to meet some strong overhead resistance at $140 before moving on to test new highs, still miles away at $172. In the end, we went with GS too and the Jan $220s are in great shape, already up 30% with the $220s sold against them at $3.60. We’re far enough ahead to let GS test $220 before we roll our caller but, if the Buffett rumor is true, we need to pull them on momentum and resell whatever level we run out of gas at.
Japan jumped 396 points as financial mania swept Asia and the Hang Seng added (yawn) another 634 points, breaking the 27,000 mark just 2 days after breaking the 26,000 mark after gapping right through 25,000 on the 19th (over a week ago!). That puts the Hang Seng up 35% for the year and almost exactly 10,000 points higher than last September, when we thought the 1-year run from 14,000 to 17,000 was bound to end "soon."
If you wonder where the money will come from to support this madness – well, you…
GM sold the $35 calls for $3.30, we’ll see how it goes.
I’m sorry I sold those XOMs but I have tons of XLE $74 calls so I’ll manage. Tempting to sell the 9/30 $75s for .77, I think at $1.25 I’ll sell them to cover, depends on inventory of course. They were $1.50 on Friday but they expire in 3 days now…
FNF – no I do not stop out on a 90-day out call 24 hours after I enter it! K1 – please drop some links on scaling into positions when you get a chance…
CHK – You’re covered and you have 3 montht, relax.
AMGN – I bought my guy out and luckilly didn’t replace him yet but the $57.50 is my target.
Oh if you missed the radio, there was a surprising build in oil but it was caused by low refinery utilization so not that meaningful but it still takes the wind out of the sails of the energy sector. Don’t know if I can blame that sector for the S&P fall off but the OIH group is taking a hit and XOM is in a power dive. We took the COP $85 puts…
All aboard the market train as the GM strike ends, oil prices rebound (XOM, another Dow component) so we’re in for a retest of 14,000. I’m going to dispense with the news today as it doesn’t seem to affect the market anyway and let’s take a look at our 30 Dow components – perhaps we can find some bargains as the tide of index buyers lift all ships (plus they are nice and liquid so we can get our when it all hits the fan!).
Just for fun I’m going to make a Dow page, as it should be a fun group to watch if the global market catches fire. We can allocate $3K per position in a $100K virtual portfolio and see how it goes. These are plays for a Dow rally, with the assumption we are going to break and hold 14,000, otherwise we take the money and run:
AA – I don’t understand why the dumped China’s Chalco for $2Bn, perhaps they were guessing the top of the market… Earnings were 7/9 and the company jumped from $42 to $48. My pal Icahn owns 3.5M shares and the stock has taken a beating in Q3 and their forward p/e of under 11 is a good 30% below historical averages. Did not buying AL put them at a huge disadvantage? I say they’re still worth $40+ but let’s give them time and go long with the Jan ’09 $35s for $7.40, selling the current $37.50s for $1.30.
AIG – Hmm, no hurricanes and they are still going down? I suppose the concern was that they tie up a lot of their reserves in mortgage-backed securities but as long as everyone seems to have forgotten about that, we should too. I like the May $70s here at $4.10, if they can’t break $73 by the month’s end we can consider selling calls against.
AXP – People keep confusing these guys with a credit card company but the majority of AXP’s revenues is purely transaction based. I simply don’t remember these guys having a bad Q3 (last year was a 3% beat) and I think estimates are low here. The Apr $60s are $4.70 but we’ll be out by January and we can sell the current $60s if they hit $2+ (now $1.20) as $62 has been tough resistance so it will be good to have…
Why isn't the U.S. economy in a depression right now? The number one reason is because the federal government has stolen more than five trillion dollars from future generations since Barack Obama was elected and has used that money to pump up our grossly inflated standard of living. Whether the federal government spends money wisely or foolishly, the truth is that the vast majority of it still ends up in the pockets of the American people who then use it to buy the things they need for their daily lives. If the U.S. government had not borrowed...
The full set of DTCC data is in (that is the repository for reporting CDS data) and reading between the lines provides us with some significant color on what was occurring at JPM's CIO office. For the Cliff Notes' version - see the summary at the bottom...
First things first, the position does not appear to have any HY9 tranche involvement at all, but a modest short HY credit index position was unwound in mid-Feb (we suspect related to the IG9 tranche unwind - since the d...
The following are the M&A deals, rumors and chatter circulating on Wall Street for Tuesday May 22, 2012:
SAP to Expand Cloud Presence with Acquisition of Ariba
The Deal: SAP AG (NYSE: SAP) and Ariba (NASDAQ: ARBA) announced that SAP's subsidiary, SAP America, has entered into an agreement to acquire Ariba, the leading cloud-based business commerce network, for $45.00 per share, representing an enterprise value of approximately $4.3 billion. The acquisition will combine Ariba's successful buyer-seller collaboration network with SAP's broad customer base and deep business process expertise to create new models for business-to-business collaboration in the cloud.
ETFs flatten after slight correction yesterday and continued Facebook face-plants.
US indexes and ETFs finished mixed and flat today, as investors continue to scratch their heads regarding a possible China stimulus, European Armageddon, and Facebook face-plant. Today’s flatness comes on the heals of a correction yesterday, and the outlook still looks grim so long as Europe continues to smolder.
The SPDR S&P 500 ETF (NYSEARCA:SPY) gained .17% while the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) gained .02%; the PowerShares ...
The carryover from yesterday's rally in the S&P 500 dove for cover in the final hour of trading on news that Greece's former prime minister mentioned contingency planning for a Greek exit from the Euro. The index had reached an intraday high, up 0.95% during the late morning, faded through the afternoon, and sold off during the final hour when the Greek news began circulating. A rally during the last 10 minutes of trading lifted the index out of the red to a 0.05% gain at the close.
The index is now up 4.69% for 2012, which is 7.22% off the interim closing high on April 2nd.
From an intermediate perspective, the S&P 500 is 94.6% above the March 2009 closing low and 15.9% below the nominal all-time high of October 2007...
EXPR - Express, Inc. – Shares in apparel retailer, Express, Inc., dropped nearly 30.0% today to a new 52-week low of $16.38 after the company projected full-year earnings below those expected by analysts. Options on EXPR are far more active than usual today, with overall volume on the stock currently at 4,460 lots, up nearly 2,000% over the stock&rsq...
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
It is still very early in the conversation but the fact some European leaders are seriously considering a region wide bond is definitely a sea change. This news came out yesterday and while Germany will resist, it will be interesting to see if over the next 6-12 months the idea of a "eurobond" gains momentum. The bond would obviously help protect the weaker countries in the region (letting them borrow at rates they otherwise would not) and be a penalty for the stronger countries (namely Germany). So Germany has to consider if its worth the cost and/or if this is a cheaper way to maintain a flawed system in a current form R...
Top 5 RisersStockRatingAnalysisAIGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make AIG a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.WDCSTRONGBUYWestern Digital is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.NCSBUYNCI Building Systems has s...
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
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Here is this week's test version of the latest newsletter. We apologize for some formatting issues that need to be worked out. Please tell us what you think.
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In this article, please revisit an article written two years ago titled, "The Calm Before the Storm." This article focused on the patent cliff that was looming in the pharmaceutical industry, that was later picked up by the New York Times and several other bloggers! Subsequent articles were written about big pharma company's revenue streams, and the pros and cons of of their later stage pipelines. Other articles have also attempted to identify smaller biotechs with the potential to reap big reward...
My last weekend update is dated from January 30 so after a long hiatus, here is an update of our virtual portfolio. Since the last update, we have closed the AA Money portfolio due to a lack of enthusiasm (and activity) and I have stopped tracking the FAS strangle as the low VIX makes it hard to get rewarded for the risk! But we have added a small $5KP virtual portfolio which does not use any margin.
FAS Money
We have had to recover from a big move up by FAS and a low VIX which keeps option prices low. But the portfolio has gaine about 10% since the last update.
Last update P&L - $5499.00
IWM Money
Not a lot of activity in this portfolio where the main focus is on the large IWM BCS. But the portfolio has grown over 20% since the last update.
Last update P&L - $1998.00
$5KP Portfolio
This is the virtual portfolio that replaced the AA Money portfolio. It does not use margin and we will keep holdings under $5K.
AAPL $50K P...
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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Here we are 30 day’s later and we’re just about back at the July highs, where I first posted this cartoon:
This is the weekend we raise rates.
#1 - Refer people to the premium site. Every active member you bring in that is referred by you will get you a 10% discount on your next renewal. That means that anyone who is currently a member and refers just 8 people over the course of the next year will have a free membership in ’09. These discounts remain in force as long as the members you refer remain active.![[Grain]](http://online.wsj.com/public/resources/images/P1-AJ137A_Grain_20070927231239.gif)
I thought I got all my complaining off my chest in 
Did you hear that sound today?
Brazil’s Real is at the highest level it’s been against the dollar in 7 years, the Columbian Peso is at an all-time high and that means, in addition to the record high corn, wheat an soybean prices we are paying, we can look forward to price hikes in textiles, bananas, sugar, coffee and cocoa (and cocaine). It is very important to note that Columbia and other South American countries 
Yesterday was another pretty good day!
If you wonder where the money will come from to support this madness – well, you…
Whee! Here we go again!
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(