Hopefully Ben finally got the message.

The markets were NOT happy with another rate cut.  Today’s Fed announcement led to a 150-point plunge as commodities rallied on the continued idiocy of Ben Bernanke, who says inflation is "under control" while knocking another 20% off the Fed Funds rate, reinvigorating the oil market where each $1 per barrel costs US consumers $7.3Bn a year in crude alone - add refining costs and factor in oil’s effect on other prices and we’re closer to $15Bn per $1 rise in crude that the Fed is fueling in order to increase the loan crack spread for the banks (after 3% of cuts we’re STILL paying 6% for a 30-year fixed mortgage - who is benefiting?).

Nonetheless, I can’t be too mad at Ben as my total lack of faith in him gave us a fantastic day as my 12:27 comment to members was: "General - I’m moving to mostly 3/4 covers ahead of the Fed, essentially with 1/2 covers that means buying the covers I would want to roll my lower covers into.   This gives me some money to roll the original 1/2 covers up to a higher strike if the Fed is good and, of course, gives me a little more coverage if they disappoint."  That gave us plenty of time to cover up our positions ahead of the plunge.

We also grabbed the very cheap GOOG $560 puts at $9, which made a quick 33% in 60 minutes - Not that’s day trading!  It was almost a perfect day with all of my market calls working and we even added oil puts on the morning’s pointless rebound (but I did chicken out of most of the front-month XOM puts).  I also called the day’s moves in AAPL and FSLR to the penny, very helpful when you’re playing options!

Just after the Fed, my take was: "Oh a cut!   They suck!  And another cut in the discount rate…  Very negative outlook.  "Expect inflation to moderate" but they are going to cut like fiends while they wait.   At least they say they are concerned about inflation and there were two dissenters so it is possible they will stop here but the discount window cut was ridiculous, more taxpayers bailing out banks."  We played accordingly, and by 2:39 I was ready to call the top on the Dow as we bought back the puts we sold and rolled our June puts up to higher strikes.  I’m satisfied with the 150-point sell-off but I remain concerned that a sober assessment of the Fed will send oil further down and crash commodities taking the markets down even further initially.

Hopefully the Dow can hold 12,750 tomorrow.  Our callers have done their jobs so let’s keep tight stops on the lower callers, we can always re-cover but if it’s just XOM and CVX dragging down the Dow, then we’ll be BUYBUYBUYing on the dips!

On yesterday’s earnings calls:

• AKAM had a beat but traded down, good for GOOG though.
• I was wrong about CTX, but I think they recover so let’s sell 1/2 the $20s and more if they don’t perk up.
• IRBT is perfect for us, good growth but disappointing, should give us a good entry.
• JDSU - Beat but lower guidance!  These guys may be worth a look at $12..50 (good one for CNBC challenge).
• MUR was a beat but will it justify the price?  Not looking good for the puts though.
• OII - A penny beat but it’s not enough to justify $67, this could be good for our OIH puts.
• SBUX - Like I said, hard to be worse than expected but they were as bad as expected and that’s pretty bad!

No picks today, we have enough to worry about with our current positions!  It’s all about XOM and economic data tomorrow.  If XOM misses, my world-view will be shaping up in much better focus!

Fed day, party time, excellent!

Hopefully the free money party has come to an end.  Can Helicopter Ben change his evil ways or will will this groundhog continue to see a recessionary shadow and throw more money down the hole, giving us 6 more weeks (until the June meeting) of high inflation?

I ran down my expectations on key earnings in the Wrap-Up so we’ll move right along to the good stuff (and I’m way behind this morning so I’ll keep this short).  CMI came through for us, and, as predicted, FSLR had blow-out numbers and gave good guidance so we’ll ge our shorting opportunity as planned (but let’s stick with Cramer as he sticks another load of bag-holders with this one this evening!).  GRMN I was wrong on as they had a miss but profits are up 6% so we’ll stick with them and sell more calls.  GM ONLY lost $3.3Bn in the quarter against their $12Bn market cap so they are, of course, up 5% pre market.  HES had good numbers and I’m back to being glad we were too scared to short them.

NOV did well but not well enough to worry me on the June $60 puts with a penny beat on record prices.  Woe unto these companies if revenues fall off with costs at this level!  PG, SI and KFT all did well - what kind of recession is this?  TWX was not good but they are spinning off the cable unit and maybe AOL if they find a buyer so they are still flattish, which was our bet. 

Actually it turns out we’re NOT in a recession so the pessimists can say we have further to fall but, as I’ve been saying since last Summer, if we can have a $400Bn mortgage crisis and all it does is knock growth to 6%, then everything these bozos in the media are saying is wrong and there are Trillions of dollars on the wrong side of this bet and we could be heading right back to 14,000 (my prediction from 12/31 was a pullback below 12,000 and 14,500 by year’s end).  If anyone wonders how we make money, just re-read those predictions when you have the chance and think how much money anyone can make when you get a call that right!

Asia had a mild pullback and the BOJ held rates steady at 0.5% (and the Japanese have the world’s highest savings rate!).  Generally, they had the same commodity driven sell-off that we did yesterday and we love those so everything looks good over there.  Europe perked up considerably on our GDP report and GM’s bright spot was - small cars, which makes global automakers happy and should continue to worry the oil bulls.  Only 25% of the mergers in Britain last year were preceded by suspicious stock trading, which sounds awful unless you look at the shenanigans that go on ahead of 75% of our deals while our SEC gently sleeps.

Nothing really matters until the Fed this afternoon but we are muscling back to Monday’s opening level in pre-market so let’s see what sticks.

Have fun out there!

Another day where not much happened.

This is pretty much as we expected ahead of the Fed.  I had said we will revert back to Monday’s open and Monday we went up to 12,932 and today we went down to 12,806 and we closed at 12,831, down about 60 points from Friday’s close.  I’ll be surprised and worried if we break below 12,750 ahead of the Fed and holding 12,800 will be a good sign tomorrow.

A quick review of my earnings picks from last night:

• ADM - Made their money selling food and those prices are in doubt with costs up.  Right on with that one.
• BP - Huge earnings overcame falling prices, still at $72.  Totally wrong there.
• GLW - Great Q, I was right about GLW but it’s not rubbing off on AUO, who we had to DD on at .80 ($1 basis).
• MA - Wow!  Way BTE, even so our butterfly is still up a bit so no panic yet but time is not our friend if they stay high.
• X - Perfect for us, earnings great but costs up and they didn’t go far which is perfect for our put spread.
• VLO - This was exactly what I said it would be.  I still like the XOM puts into earnings but we took them off the table because we were too far ahead yesterday to take the risk (although still in the LTP as a put).
• BXP - Perfect!  Also, very encouraging for the overall economy.  This makes me think I may not be crazy and we really are at the bottom…
• BWLD - Very nice!  The Sept $30s should do quite well!
• DWA - Another encouraging consumer signal.
• LFG - Also perfect.  Man am I on a roll!
• PNRA - I should have been braver but those June puts were free money to sell!

We don’t know Wednesday morning but let’s look ahead to later Wednesday although the Fed is going to change everything so I’m not keen to make fresh picks without GDP and Fed data.

Wednesday evening:

• AKAM - These guys may affect GOOG so let’s watch them.  An indication of web growth.
• CTX - I’m not guessing a builder’s earnings but if they don’t lose a TON of money they will go up.  I think with 20% of the float still shorted down 75% from it’s highs, I have to pick up some Jan $30s for $2.25, just for fun.
• IRBT - This was one we used to play in the fall and boy are we glad we got out but I still like the company.  I want to see real progress before getting back in though as they are relying on military contracts that may not come if McCain doesn’t get a chance to bomb, bomb, bomb - bomb, bomb Iran.
• JDSU - Oh yipee, real tech earnings!  They’ve been on a nice recovery path and it won’t take much to continue it.  They had one-time charges so earnings should be way up but let’s see if they can break $400M in sales, that would be bullish.
• MUR - A nice oil to short as anything less than 300% earnings growth will disappoint and outlook better be stunning too!  These guys are up 100% from Jan ‘07 and May $85 puts are a good gamble at $1.18 but it’s an all or nothing bet.
• OII - They will be a good indicator of OIH performance.  We had fun shorting them in the fall but they never recovered enough to make an interesting put.  They may be one of the first service cos to have a major breakdown.
• SBUX - Can it really be worse than expected?  We’re in the Jan $15s at $4.39, now $2.88, just hoping for the best.

Thursday Morning:

• APA - Another oil that’s up 100% and better not miss.  If they don’t have a 100% gain in earnings they are heading to $120 fast but the options are too pricey to risk.
• BCK - MCD is doing great, but the home of the Whopper is getting no respect.  They should do good for the same reasons as MCD and management should be motivated to put up a good number off their recent IPO.  July $30s are cheap at $1.05 but don’t expect a big pop unless we get good GDP to back it up.
• EK - An old favorite of ours, now down on their luck.  If they don’t lose money I may be tempted to get back in but $20 is far away for these guys.
• XOM - A miss from the Big Kahuna will tank the sector.  We’re still in our XLE puts and I’ll get back into XOM $90 puts if we can get them for $1 again on a silly oil run (might get it if GDP is better than .5).
• MRO - another oil co leading the charge down.  I was just saying to Sage that oil bulls need to look at the CROX weekly chart to see how wrong your valuation of a company can be!
• OSK - Should be good.  Worth a stab at the Oct $40s at $4.20.  This should be a 20% entry with the intention of rolling down to the Oct $35s on a miss with a DD because they may have incentified customers to take deals and cut into this Q’s profits but, overall, they should roar back with the economy.
• RSTO - How dead is the home market?  High-end fixtures are soooo discretionary.
• WNR - Are these guys still in business?  VLO may be buying them soon.
• XMSR - I wouldn’t play it but will be interesting.  If they do well then satellite radio has moved out of being an option and is really taking hold (we do have SIRI).

So lots of fun to keep us occupied while we wait for the Fed, which could change everything…

New post!

We’re just waiting on the Fed.

I said to members yesterday that we should just sort of drift into tomorrow afternoon as we wait on the Fed, even though it is very doubtful they will do anything surprising, that’s just the time the final cards are dealt and the big boys will start to push their chips around the table.  Until then it’s a penny-ante game while we wait.

Another thing we wait for is oil to get real.  Just last night in chat, Xian pointed out yet another Bloomberg article pumping oil in what is becoming a concerning pattern for what used to be considered a reliably unbiased news service.  This latest load of BS is from Deutsche Bank’s CHIEF energy economist Adam Sieminski (and I will now make sure we know who these people are and who they work for so you know where to move your money away from when they are spectacularly wrong) who wrote a report on the 25th that became news on the 28th because oil still needed a push.

Mr. Sieminski says "There is a huge risk that the oil price simply continues to escalate until it gets to some level ($200 a barrel?) when demand finally collapses because ordinary people can no longer afford to burn as much energy as they are burning now.”  Yes, that’s right, what happens in a demand curve is that people use the same amount at $80, $120, $140, $160 but at $200, THEN demand just suddenly collapses as people say "Hey, I can’t afford $200!"  I mean REALLY, that’s their CHIEF energy economist?  Oil prices are up 82% in 12 months, you don’t think that is impacting demand already???

We talk about the PR activity of oil manipulators (hyenas) when they are trying to push prices over a critical level and let’s take a look at these amazing coincidences in publishing that occurred last night:

Analysis: Sky is the limit for oil prices This is Money
No end in sight for costly oil bubble Times Online
Oil nears $120 a barrel, may reach $200—Deutsche Bank Manila Standard Today
Supply side to blame for high oil prices San Francisco Chronicle

It is almost as reliable as predicting a Nigerian Rebel attack when oil goes down to predict a slew of peak oil articles when they are trying to avoild putting in a double or triple top at a new breakout.  Kudos to the London Times, who hit the nail on the head with their headline: "Oil speculators push price to £5 gallon" in which Lehman Brothers joins me in estimating that fuel is 30% overpriced due entirely to an influx of speculators.  Lehman "believes that hot money accounts for between $20 to $30 of the recent increase in oil prices and that about $40 billion (£20 billion) has been invested in the sector so far this year — equal to all the money pumped into oil last year."

£5, by the way is about $10 per gallon - ready to change your behavior yet?  Europe has always paid more than us for fuel but imagine the change in your life if you had to fill up at $10 per gallon!  I defy you to find mention of Lehman’s analysis in the US press though, the energy companies have already co-opted the US mainstream media.

In fact, the the on-line WSJ’s top two headlines at 8:55 am is "Oil Prices Pump Up Shell, BP" and "Oil Nears $120 on Nigeria Unrest."  REALLY Rupert?  Still going with Nigeria 72 hours after the fact as your lead story?  This is obviously some version of "Fair and Balanced" in which balance is achieved by presenting just one side of a story until everyone starts believing your point of view - wouldn’t it be terrible if the conservatives got a hold of a TV station and started doing this?  Perhaps Mr. Murdoch is simply running tomorrow’s headline today since a pre-market drop in oil is sure to have some energy executive on the phone to Rent-A-Rebel this morning, ordering up some mayhem ahead of tomorrow’s inventory report.

We are, of course, heavily short on oil as we called shenanigans early at $110 and pressed our bets on the way up but I’ve decided to point out how the news is being manipulated, hopefully to save some people from being victimized by the next bubble they try to stampede you into.  News just crossed the wire (9 am) that Bush is going to hold a news conference at 10:30, so I will issue both an oil reversal and market plunge alert ahead of his speech:

So nothing much matters until the Fed and I’ll wrap this morning up quickly (make sure you check my massive earnings preview from last night) with a quick review (for me anyway) on the global markets:

Asia was mixed, India surprised us with a tightening of reserve requirements to reign in inflation so we need to watch our IBNs but I think they’ll be OK.  Europe is dead flat and DB (the ones with the not too clever Chief Energy Economist) reported their first loss in 5 years including trading losses (probably in energy) of $3Bn and $5Bn in write-downs.  This was all in-line with very low expectations for DB.

In the US it’s earnings, earnings, earnings but we also have data like Q1 foreclosure filings up 112% since last year while home prices are down 12.7% in the same period with 17 of 20 metro areas surveyed showing record declines.  MA and V had good earnings (and we have both!) but let’s make sure we’re covered as the Fed and other regulators are looking to pull the plug on this party.   MA is still in our safety zone and we’re not going to adjust our butterfly there unless they break over $270, which I very much doubt.

Also, airline tickets are up 10.2% last month and the airlines are hoping to merge as quickly as possible so they can charge you MORE money.  The rush to merge is driven by the flight of the lame duck as it is very unlikely a Democratic President is going to greenlight the formation of an even bigger monopoly in yet another vital service industry.

Looks like an exciting day ahead!

Take a look the data due to be released over the next few days….

Tuesday: Agco (AG), Archer Daniels Midland (ADM), Arris Group (ARRS), Avon Products (AVP), Bemis Company (BMS), British Petroleum (BP), Buffalo Wild Wings (BWLD), Burlington Northern Sante Fe Corp (BNI), Corning (GLW), Countrywide (CFC), Daimler AG (DAI), Domino’s (DPZ), Energizer (ENR), Express Scripts (ESRX), General Cable (BGC), Medco Health Solutions (MHS), Office Depot (ODP), Panera Bread (PNRA), Under Armour (UA), US Steel (X), Valero (VLO), Waste Management (WMI).

Wednesday: Akamai (AKAM), Centex Corporation (CTX), Colgate-Palmolive (CL), Cummins (CMI), Dean Foods (DF), First Solar (FSLR), Garmin (GRMN), General Motors (GM), HESS Corp (HES), IAC (IACI), Ingersoll-Rand (IR), International Paper (IP), Kellogg (K), Kraft (KFT), Murphy Oil (MUR), National Oilwell Varco (NOV), OfficeMax (OMX), Proctor & Gamble (PG), Prudential (PRU), SAP AG (SAP), Starbucks (SBUX), Sunoco (SUN), Symantec (SYMC), Time Warner (TWX).

Thursday: Administaff (ASF), Annaly Capital Mgmt (NLY), Automatic Data Processing (ADP), BEBE Stores (BEBE), Burger King (BKC), Cabelas (CAB), Callaway Golf (ELY), Cardinal Health (CAH), Cephalon (CEPH), Chesapeake Energy (CHK), Cigna (C), Clorox (CLX), Comcast Corp (CMCSA), Comscore (SCOR), CVS Caremark (CVS), Dominion Resources (D), Dynamic Materials (BOOM), Eastman Kodak (EK), Expedia (EXPE), ExxonMobil (XOM), Investools (SWIM), Marathon Oil (MRO), MetLife (MET), Monster Worldwide (MNST), Noble Energy (NBL), Nymex (NMX), Sun Microsystems (JAVA), Tyco International (TYC), Wyndham Worldwide (WYN), Wynn Resorts (WYNN).

Now ask yourself if you really want to be fully invested without hedging with this plethora of data still to come!

At Stock and Option Trades, we made the easy money in April since our bottom call in the middle of the month, closing out all of our April trades profitably within days of opening them thanks to big moves and good timing in the FXI, EEM and FCX.  And our latest trade is risk-free through May, yet can profit in any number of directions.  Innovative and profitable strategies is what we strive for!

We’re not the only ones happy to have some cash built up through April.  Phil is back to 70% cash in his Complex Spreads portfolio.  We fully expect this volatile Year of the Rat to continue to surprise when surprise is least expected.  We do believe a little more upside is possible, but as April comes to a close, we’ll be sitting with a heavy cash pile while our remaining positions will be heavily hedged. 

The chart above reflects a fairly flat NASDAQ (up 1.47 points! ~ 0.06%).  The Dow was down just 20 points (-0.16%) and the S&P 500 was down just 1.47 points (-0.11%).  But don’t expect the week to continue as it began.  The fireworks are in place (earnings and economic data due to be released), the fuses have been lit (results are in!) and all seems calm before the show begins.  Make sure you question every position in your portfolio before the show begins because nobody likes it when the show ends and the fireworks fizzle.

Have a great evening!

Stock and Option Trades

That went about as expected.

My thanks to Stock and Options Trades for saving me the trouble of running through the remaining earnings for the week so I’ll just make a quick wrap-up here and concentrate on the earnings we REALLY care about.

Tuesday: 

• ADM - It won’t get much better than this for them as we have a perfect storm for profits in agriculture (they bought low and prices went crazy) so we expect ADM to make close to 50% more than last year’s .51 and Q2 should look good too.  After that???
• BP - We never got our puts as they were $5 for $65 puts with the stock at $69 (I was actually tempted to sell them for that price!) so we’ll see how they do.
• GLW - Premiums were too high and we went with AUO (the Chinese GLW) June $20s instead, I think we got a nice entry at $1.20 but let’s watch these earnings carefully (should be up just over 50% from last year’s .28.
• MA - We took a butterfly assuming no big move off $240.  If it pops more than 10% one way or the other, we’ll have to scramble!
• X - We shorted the May $145 puts against our July $145 puts, I really think costs are going to hurt these guys.  Foreign steel companies are doing well but they have a stronger currency to buy coke and other costs with and a stronger local market and a lot less distance to ship.
• VLO - This will be our best clue to XOM but no matter how well VLO does, they will be a mile from the $1.86 they earned last year (analysts are looking for .29, down from $1.35 expected for this Q after their last earnings).  I think they might beat that but the headline is still going to be "VLO earnings off 75% on high oil prices."

After Hours Tuesday:

• BXP - I am VERY concerned with this one as I invest in commercial real estate so I’m more concerned with their occupancy trends than anything else.  These guys never miss so a miss would be shocking but a beat would be even more shocking so I like selling the overpriced $105s for $2.40 against the also ridiculous July $110s for $3.40 just playing for the value crush on the Mays.
• BWLD - I wish we had bought these guys at $20, now at $26 they seem expensive but they are a 20% grower with a forward p/e of 16, exactly the thing you do want to own in this environment.  Maybe if they miss, we could pick some up but the Sept $30s at $2 are a fun gamble with 29% of the float shorted in a thinly traded stock.
• DWA - Are people buying DVDs? 
• LFG - You can’t buy a mortgage without title insurance but what happens to these guys when no one is buying mortgages?  I simply cannot get to $36 a share with these guys and all those titles they did insure are getting foreclosed and LFG has liabilities on any unpaid liens that didn’t show up in due diligence, so we can expect claims to climb, especially on the past two years as more and more taxes went unpaid.  I consider the Jan $30 puts to be a good gamble at $3.95 as it is VERY unlikely they will break past $40, costing us less than $1 but it is very possible they will fall more than $5 and give us a near double.  FAF is 5/1 and FNF already was off 67% from last year but they are a much better company than FAF or LFG.
• PNRA - How is a break/sandwich company going to do well with wheat prices at record levels?  I love these guys and I’m hoping for a miss to buy them on and I wish I had bought them at $35 so I have no reason not to sell the June $40 puts naked for $1.50.

Wednesday Morning:

• BHP - This is key to our OIH puts (which are now fully covered so we’re not sure what we want anymore).
• CMI - We have the June $55s from last week, already up 50%.  They went up so fast I never got to fill the position but I think I’ll take half off and sell 1/2 the $57.50s for $3.30 against my remaining June $55s, which we bought for $4 so that’s a 20% profit off the table and a free spread left over for earnings.
• FSLR - Soooo tempting to short but the premiums are crazy.  They are going to put up stunning numbers, no doubt and they are going to give good guidance because they are full of crap so I guess I’m hoping for a beat and a frenzy (which Cramer will be all over) and THEN we can short the hell out of them.  Meanwhile, we may want to look at a butterfly if we’re bored today as the $290 puts and calls offer up $39 in premium. 
• GRMN - We got out on yesterday’s run.  I’d love to get back in if they sell off today.  My premise for these guys is they are down on TomTom’s poor earnings so we have another 20% grower with a forward p/e of 10.  I think, barring a crazy sell-off below $45 which gives us a good price on the June $45s (maybe $4) I’d like to take the Jan 2010 $40s at $17 with a $10 premium and work off $1.50 of it right away by selling 1/2 the June $50s for $3+. 
• GM - Will someone not stop this thing?!?  Hurry, hurry - step right up and watch this company lose the entire GDP of several 3rd World countries in a single quarter!  It’s amazing, it’s astounding yet the management actually got a bonus last year.  That’s right ladies and gentlmen it is possible to lose and average of 29% of your revenues for each of the past 5 consecutive years and still be considered a Dow Jones Industrial component.  Hurry, hurry folks, you may never see the likes again!
• HES - I knew we should have shorted them last week!  Of course earnings will be great, they are an oil company, but up 120% from last Q1 great?  I don’t think so…  Again, I’d rather see them go up in a frenzy and then short them than take a chance on the crazy expensive puts.
• IP - They should do well but I’m not sure I like them this year.
• K - Shoud be interesting, also big costs issues. 
• KFT - Ditto.
• NOV - I really think they miss.  Last Q they barely held it together but got a big boost but now they are 10% over that boost so the June $60 puts are a fun gamble at $1.40 as they are down about 1/2 on a miss but better than  a double if they miss.
• PG - Big deal like GE
• SI - Big deal like GE
• TWX - We have the July $13s which have been flattish since Feb at $2.35 and we sold 1/2 the May $15s at .49, now .65.

So let’s strap in and see how these go.  Every new report we get gives us clues to the next round.  More fun tomorrow night as we do Wednesday night and Thursday morning.