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Tuesday Morning – The $70Bn Housing Solution

On Sunday Alan Greenspan said "This is the Worst Economy I’ve Ever Seen."

That’s a pretty bold statement from the guy that built it!  Greenspan noted that the government was left with tough decisions: which institutions are "so fundamental to the functioning" of society that they demanded a federal safety net? Earlier in the week, the former fed chairman noted that such choses extended to tax policy as well. In an interview with Bloomberg Television, Greenspan argued that the country couldn’t afford the tax cuts being proposed by John McCain without an equally massive reduction in spending.  "I’m not in favor of financing tax cuts with borrowed money," he said. "I always have tied tax cuts to spending."

 It will be interesting to see what Bernanke has to say today in the FOMC minutes, clearly we can’t just keep throwing more money at this problem but that’s never stopped this administration before which is why we are favoring some hedging in gold, in case our government’s solution is another $250Bn or so tossed onto the fire.  It is shocking that, still, no one seems to be addressing the actual problem – people cannot afford their mortgages.  2.2M home foreclosures were filed last year and close to 3M homes will get filings this year.  Every home that is foreclosed and dumped back on the market by the bank devalues the homes around it, causing problems for the remaining homeowners and it spreads like a disease.

Mr. Potter - Winner of the Hank Paulson look-alike conterst5M US homes carry an average mortgage of $200,000 each, that’s $1Tn and their loss causes a write down of at least $400Bn, probably $600Bn.  That write-down is future tax revenues not collected so the government is eating $200Bn whether they help or not.  Since those foreclosed properties also cause additional performing asset write-downs, the losses can quickly double or triple.  How much is the mortgage on $1Tn worth of homes?  If those homes loans were backed directly by the government, paying every single one of them off in their entirety at 5.75% interest (and the government should be able to do better) would be $5,835,730,000 a month.

That’s right, $70Bn a year to fix every bank in America at once, to put value back on the books, keep American families in their homes, maintain home prices and give the country a chance to take a collective breath.  Is that an outrageous idea, the government already took over the GSEs, effectively backing the loans of $5Tn worth of properies but that does nothing to stop the properties from failing.  Politicians like to say they have a plan to fix the economy – then why don’t they have enough faith in it to lend the voters a few bucks while their plan works its magic?  Penalties for accepting government aid would have to be harsh to prevent people from taking advantage (signing over all equity, agreeing to a workout schedule) but if we can at least forestall 1/2 of the foreclosures it would be a tremendous benefit to the financial markets.

It’s a shame that something so simple isn’t even being attempted, the government already dumped $160Bn worth of stimulus checks on the market and they had very little effect and foreclosures are accelerating as the economy worsens.  The program could be enacted with a pen-stroke – just tell the banks to forestall any existing foreclosure action for 90 days and the government will pick up the tab ($17.5Bn) while we begin a case interview process to make sure we are identifying actual families living in their primary residences.  Figure we can assign 100 homes to each case worker over 90 days and that’s 50,000 jobs created and they will be proportionally in the most affected areas (another $2-$3Bn a year in salaries). 

This is a cheaper solution than my $13.5Bn a month plan to stop the housing crisis back in April and it helps a lot less people directly but, after wasting so much cash on things that help nobody, we need to scale back our expectations.

Expectations are certainly scaled back for the market today as we are down 50 points pre-market (8am) as we wait for the CPI report for August as well as GS and MS earnings.  The WSJ has a useful article today called "How to Handle a Market Gone Mad" with a good overview of the psychology that is gripping investors this week.  WM was downgraded to junk status last night and AIG has been downgraded to near-junk and may unwind quickly if they can’t raise capital (a lot of it) or get government backing.  AIG holds $1Tn in assets, that could be one hell of a fire sale!

[Tokyo's Nikkei 225 Stock Average fell nearly 5% on Tuesday.]Asia was hit hard this morning, catching up from being closed yesterday, with the Hang Seng dropping 1,052 points (5.4%), the Nikkei falling 605 points (5%) and the Shanghai Composite fell 4.5%.  If you want to make a bullish bet early in the day, the FXI tracks 25 Chinese stocks and may respond well on the off chance the Fed cheers us up later today.  At 33(ish) it’s over 50% off its highs of last November and yesterday and the day before and the day before that they jumped over 2% off their open.

On the whole, there is not much to be bullish about.  Europe is off about 2.5% but BCS is back in the game, looking to pick up a large chunk of LEH’s US operations now that they can take them away without picking up the attached toxic loans.  The overnight Libor rates shot up from 2.146% on Friday to 3.106% today, indicating banks are not willing to lend to each other.  I’m very concerned about our future as investing in the US has become less appealing with only GS or MS to choose from.  That level of asset concentration makes foreign lenders nervous and it’s a big World out there to invest in.  England is also feeling the wrath of foreign banks:  "We dislike the U.K. banks. They were the ones, along with UBS, buying up the subprime, and they, like the American banks, had the problem with accounting for risk," said Gianmaria Bergantino, head of asset manager at the Rome office of Bank Insinger de Beaufort NV.

Speaking of GS and MS – Goldman reported a small beat at $1.81 per share ($1.71 expected) but that’s off 71% from last quarter.  "This was a challenging quarter as we saw a marked decrease in client activity and declining asset valuations," Lloyd Blankfein, Goldman CEO, said in a press release.   MS does not report today, it turns out they report tomorrow so we do have one to wait for.  GS shares fell off and a lot of emphasis will be placed on the 11 am conference call, especially relating to how they are valuing assets.  We’ll have to keep an eye on the SKFs around to $140 line to see which way things look to be going.

Oil is racing to $90 despite a hefty 2% pullback in the dollar over the past 2 days.  Today’s Fed decision will mean a lot but I’d rather bet gold up than oil up as a reaction to Fed easing.  It looks like we will be opening back at the July 15th lows but it’s unlikely we’ll turn up without further capitulation as it’s now 9am and there has been nothing encouraging from our "leaders."

 


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  1. James

    If the FED cuts rates I think we will see a nice bump in GLD/NEM/ABX which could use it.  FCX is looking very cheap down here because copper is still around $3/LB.

    AIG could be down to $2.00 this morning and I’m will to go for about 1000 with a turnaround to sell at $3.  Wouldn’t hold them to long, though.

    Looks like a HSY deal isn’t going to happen this week which is fine with me since I sold 2/3 covers and didn’t get the 45s at .10.  I suspect a few buyouts are going to wait and see how much rates drop inthe next week.  My bank tells me I can get a $300K mortgage at 5.5% but I’ll bet it drops to 5.25% shortly.  That’s cheap money.

  2. Ryan Payne

    8:24 *FED FUNDS RATE DROPS TO 2%; FED FUNDS HAD OPENED AT 3.75%
    8:23 *FED ADDS $50 BILLION IN RESERVES WITH OVERNIGHT REPOS
    8:16 *AIG HAS A DAY LEFT, NEW YORK GOVERNOR PATERSON SAYS ON CNBC
    8:15 *GOLDMAN 3Q EPS $1.81; ANALYST EST. $1.71 :GS US
    8:11 *NEW YORK FED `STANDS READY’ FOR FURTHER OPERATIONS TODAY
    8:11 *NEW YORK FED TO ARRANGE `LARGE’ OVERNIGHT REPO `SHORTLY’

  3. James

    As the chinese say, this should be a very INTERESTING open.  Looks like the DOW is under 10800 and that means I’m buying those DIA puts but man, are they expensive.  I think the 108s will go of at $2.40

    CAL still showing green.  Who’s gonna be able to fly anymore?

  4. rampage09

    dow index pre-market at 10,692 but the DIA’s are trading at 107.90 – why is there such a big disconnect?  It’s usually 10 cents, not $1…

  5. crisz

    Thinking of buying some Apple on the gap down for a trade.  I think I will sit this one out though.

  6. Phil

    Oh yeah, forgot to mention DELL with bad guidance, that was no help!  IM also cut outlook.

    Wow, Mark on CNBC just said "We’re live from what is still the financial capital of the world but I’m not sure for how much longer…"   Shows how fed up everyone is.

    AIG – Tough call, they look very scary right now.   Look at Ryan’s news, $50Bn and no help at all, this is a deep pit to fill.

    AAPL with a big gap down to $133, nice entry in a normal market!

  7. patrickc

    Maybe a partial open?

  8. patrickc

    Look at TLT!  100.71!

  9. James

    AIG filled at $1.75.  Hope it doesn’t go down the toilet.

  10. patrickc

    If anyone is thinking about refinancing, and if you are already queued up, conventional rates should be at 5.5% or lower today…

  11. Phil

    Airlines doing well, GOOG with a really fast bounce, PNC, TEVA, BA, MDT, GE coming off the flool.

    Solars getting hit again, oil sector a disaster, gold had a nice open dip (profit taking I guess). 

    On the whole, people are buying stuff – ags are moving.

  12. James

    DIA 108′s got ‘em at $2.10 but only 1/2.  Too expensive.

  13. James

    VIX almost at 34!  SHLD still green and so is CAL and AMAT.

  14. RMM

    Phil:
    I am getting dizzy.

    AAPL:  with 59 % to 80 % gain on covers ? what to do ? will it drop even lower ?

  15. James

    BUD is under 64!  BUDderfly is going to pay off!

  16. Phil

    AIG – Nice fill James but isn’t $1.75 already the toilet?

    Refinancing – yes, I checked out FAF’s rise yesterday and it’s anticipation of refis boosting title insurers.  Word is that the Treasury is going to use FRE and FNM to hand out some lower priced mortgages soon but it would be nice if they actually announced something firm.  If FAF can beat the 200 dma at $31.68 and hold it, it means something is probably coming down the pike.

    DIA – When you pick up a put and get worried you paid too much (especially if you are scaling in) then you can sell 1/2 of the higher put (more in the money)  so you don’t get caught on a bounce and, if it heads lower, you use your putters money to double or triple up.

  17. Phil

    AAPL/RMM – Are those Sept covers?  If they are Oct, they have already outlived their usefulness.  Also, I really like AAPL down here and you know the rule is take 80% off the table for sure.

    BUD – cool

    FXI turning up already.

  18. James

    Rolled my VLO SEP 32.50 putters to OCT 34s for $2.25 credit.  AIG at $2.50.  I’ll settle for $2.75 and out.

  19. scobe

    Per Phil’s wrap-up of Monday-- isn’t one sign of capitulation having mutiple major newspapers reporting financial catastrophe on page 1 above the fold??

  20. crisz

    gave in and picked up some Apple 135 at 3.90.  Things are just a little too negative, the sun will still rise in the east tomorrow.

  21. Kwan

    does anyone know why BUD is off 2 pts this morning?

  22. RMM

    Phil:
    I have AAPL sep 150 and oct 150 covers.

  23. Phil

    VIX nice and angry still.

    RIMM very much not getting bought.  GLW making new lows.  STX new lows (Dell effect).  LXK very bad.

    AMGN having a decent run off a huge flush.

  24. James

    I’m out of AIG, got my $2.75

  25. patrickc

    Bought some FXI.  Added to my other loings.  (Took profits on my market short yesterday)

  26. Phil

    AIG – great play James!

    Above the fold/Scobe – yeah they do say that but it’s a tough call right. 

    SKF – Well below the $140 line now, good protection that seems to have run its course for the moment.

  27. patrickc

    BTW – my brothers says that we have made a short term bottom, and that there are some great reasons for the market to rally through the end of day Thursday, not the least of which is that max pais is about 1260 on the S&P.  If the market makers can’t get it back there by (index) options expiration, then there will be a lot more margin calls!

  28. RMM

    Phil:

    my SKF jan 140 is protective for financials,
    At what point do you take gains,
    its up 36 %.

  29. DanW

    Got some GOOG 460′s at .60 for giggles.

  30. patrickc

    Looking to re-enter a gols short today.  Target to re-enter DZZ is 36 or below.  (now at 36.9)

  31. RMM

    Phil:
    everyone is focussed on Financials,
    yet
    my biggest looser is always AAPL.

  32. patrickc

    TD Ameritrade has a very short time-out this morning

  33. DanW

    GOOG – Out of the 406′s at $1.00

    Too bad it was only 10 shares (cause I have no cash left after rolling down on everything else).

  34. Phil

    AAPL/RMM - The thing I don’t like about holding beaten up covers is they have less to lose than you do.  In the case of the .41 Sept $150s, they can only lose .10 per day whereas the Oct $150s drop about the same so you need to look at what you are paying for your own premium in relation to the protection you have left.  I count premium, in the case of say the Apr $150s as the $14.55 they cost plus the $22 out of position they are so that’s $36.55 or $5 a month.  .41 is not a lot of protection for a position that costs .17 a day to maintain.  It’s not good to roll too far down in case it keeps dropping but it only cost $4 to roll down $10 to the $140s and the Oct $140s are $6 so that’s not too bad and you only need to do a 2/3 sell to pay for the whole roll down. 

    SKFs – Well we’re not out of the woods yet and you can sell the $140s for $8.70, is that better than 36%? 

    TD – Man, these broker outages are ridiculous.

  35. acton88

    C a buy at this price or more to fall?

  36. Phil

    Builders on the march.  MS coming on strong. 

    C way down at $15 is very interesting on Patrick’s brother’s call, Oct $17.50s are $1.35.

    FIG still flying.

    SU got the smackdown this morning. 

    SIRI way down at .79!  I’ll wait for Dan, he’s got the timing on these…

  37. crisz

    I’m out of my Apple trade at average 4.50.  I would love to buy a ton of Apple for my port down here but I’m not doing LT buys at the moment.

  38. RMM

    Phil:
    have bought back the sep150 covers for 42 cents,
    did not understand your comment about rolling, roll what, the oct150 cover to 140 for a credit ?

    SKF: what a change, opportunity gone.

  39. Phil

    Here comes ABX.  Options are a real rip off on them but stock is near ’06 lows at $27 and the $27.50 calls are $1, that’s not a bad price to get called away.

    Dow heading green.  Something is up, too many things acting like something is going to happen.

  40. Phil

    AAPL/RMM – Depending on your long, it’s a shame not to do a half sell that pays for you to improve your own position, that was the point. 

    Just because we had a run up does not mean we won’t go down again (in fact the Dow bounced off even pretty hard).

  41. acton88

    Hi, Phil:
    Which VIX call to sell? OCt 22 3.6/4; Oct 25 2.25/2.6; Oct 27.5 1.5/1.65?

  42. DanW

    Got some C Sep 15′s at .94 for more giggly fun.

  43. RMM

    SKF dropping hard.
    something improving with financials ?

  44. DB

    GOOG $440 and MA $210s have a stuff load of premium left. Odd given recent falls.

  45. Singapore Steve

    With the VIX up and the market the way it is some of my long calls have actually increased in value even the the stock is down.

  46. PharmBoy

    UNH fell off a cliff….

  47. Phil

    Seems CY/SPWR got caught up in LEH fever, maybe CY is not a bad gamble with the Oct $25s at $1.35. 

    Now RIMM turns up, maybe they are a good bottom indicator.

    POT finally having a good day. 

    VIX/Acton – Naked selling?  See I like that the Jan $30 puts are $8.90 and the Oct $30 puts are $5.50 since $20 is really low for the VIX and, of course, if you take the longs first and wait with a stop at $5 on the sell of the $5.50s (which would hit if it heads back up) then maybe it makes enough that the Jans can just be cashed with a nice profit. 

    V heading up, MA heading up, looks a bit like a wide-spread rumor that better be confirmed at some point.

  48. lindsay

    phil, what do you think about the vol. on the OIH jan ’09 puts ?

  49. RMM

    Phil;
    AAPL Long calls; have jan150 and apr 145, would like to roll down but very costly,
    have oct150 shorts, cover is 40 %.
    your comment was; roll down the longs (debit)
    or
    roll down the shorts (credit).
    Which was it ?

  50. harvey

    Phil,  I know you said you stopped the "XXX" indication but are you still going to mention plays or stocks that you like?  Are you going to post your plays?

  51. acton88

    Phil: Thanks.  May be I just buy put.  I thought about buy call first and sell Oct call.  VIX will not stay here.

  52. Phil

    VIX and Longs – That’s why it’s good to roll down to less premium when the VIX is high, you know you don’t deserve your value and the premium is actually less for in-the-money calls.  Of course that exposes you to more downside…

    UNH – that’s strange, broke 50 dma at $28.06 probably on new rules governing sales but seems a little harsh as it’s a level playing field (but I guess they were taking good advantage when it wasn’t).

    OIH puts/Lindsay – That’s a tough one.  They are pretty beaten up down here but I like it if oil fails $90, no telling where the bottom will be for the whole industry but keep in mind they have been leading the decling, the stocks are falling faster than oil.

    AAPL/RMM – I think you don’t want to let the Jan $150s fall too far away and they cost $6.70 to roll down to Apr $145s and Oct $145s can be sold for $4.40 so not too bad as a partial cover. 

    SKFs may come back in fashion if they hold $130, a lot of this financial positivity is from 4 hours to Fed meeting with 70% bets that they cut .25-.5. 

    Posting plays/Harvey – Well they are posted here of course, I may compile them somehow, we have to look into it but always feel free to ask about whatever you are interested in.

  53. Phil

    Oh no, super volatility now – Fed is talking about bailing out AIG.  If it doesn’t happen, that can be very disappointing.

  54. DanW

    Out of those Sep C’s at 1.2. Was out smoking so missed the initial excitement.

  55. Highlander

    phil,
    remember cy is selling (distributing to shareholders of record) its spwr class a shares (9 to 1 voting rights) and many consider that spwr regular shares (will later be renamed class b shares) will outperform the class a’s due to mkt being long cy and short spwr. cy p/e is equal to spwr already both @ 113 !!

  56. tooearly

    Phil
    Thanks for the suggestion of SKF/QIDs as portection. I’m very short except for gold and those recent puts (have to do the reverse) are saving my profits and then some. So far.

  57. Phil

    Check out BAC!  AIG of course heading up too.

    BA got a nice flush. 

    CY – just a quick trade as they got too cheap. 

    Things to hold:  Dow 11,000, S&P 1,200, NYSE 7,700, Nas 2,000 (not yet), SOX 315 (not yet). 

    Thanks too – glad they helped.  We should keeep an eye on $125, $120 and $115 to see if perhaps people are losing faith as this is a pretty sharp reversal (lesson learned, it seems the SKF puts can make big money on the turns too).

  58. xian

    USO- shorted the SEP 75 ps yesterday, so help me will oil above 93…thanks.

  59. RMM

    AIG:
    now CNBC speculates that taxpayermoney will be used to save them,
    private bailout does not seem to work,

  60. Bronek
    G’Day

    Phil – Ref JRCC ($23). I am getting skinned and it hurts. I dropped the ball and didn’t close this trade at 200% gain now I have >50% loss (I am going to lash myself AH)  on the more that full position. My situation is proportional to +7Dec30Call and -1Sep30Caller. My outlook is JRCC is at, or very close to, the bottom, so I would like to hold to this issue for few more months. My plan is to roll down 7 Dec30C to 3Dec 25C @ 1.2 Cr, Sell 3 Oct30C. Please help. Thx

  61. Phil

    USO $73 puts/Xian – that’s a nice payoff for oil to hold $90 for 3 days!

    Rallies still getting sold into, caution advised.

  62. RMM

    P_hil:
    you talk now about SKF puts ??
    If one has SKF calls and you are concerned about a drop, why not cover with shorts ?
    what will be the difference to SKF puts/??

  63. hp

    Phil,

    Is it too late to buy puts on XLE??

  64. DB

    MA jumped 2% in the green and gave it all back in 2 minutes !

  65. ramana

    CY – That means, we (as in holders of CY stock) still can expect 0.27 shares of SPWR for each CY share we hold, right Highlander ? Please tell me yes…. :-)

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  66. edro

    Phil
    One of your greatest teaching tools has been the play by play details on how  to select a trade, enter it, adjust it and exit.
    I remember my panic on our first Applyfly but after trading along with you it turned out to be a great learning experience.
    I encourage you to come up with a way we can follow a trade from beginning to end.  The adjustments and escapes are why I like your site.  Recommendations with no followthrough, just advice really, can be found on thousands of sites.
    If the rest of you feel as I do, please let Phil know …..
    Edro

  67. ramana

    testspan.jajahWrapper { font-size:1em; color:#B11196; text-decoration:underline; } a.jajahLink { color:#000000; text-decoration:none; } span.jajahInLink:hover { background-color:#B11196; }

  68. DanW

    I suppose if you were restricted to paper-trades, then after a position is suggested/recommended, you could take the average fill of the members who entered into the position to form a baseline.

    But, whatever. I’m here for trading ideas and strategy, though I have followed many of the plays mentioned here (mostly at a loss, but I would rather blame the markets — and myself — for the failures rather than any individual) .

  69. xian

    MCD- is in its own world….

  70. RMM

    Phil:
    BA:
    airplanes are big investments and financing is key,
    with the credit situation in combination of economic slowdown, cancellations could come about.
    I have feb 60 calls, sep 65 covers, 1/2 cover, the cover has 25 cents premium,

    WHAT to do if anything ?

  71. Phil

    JRCC/Bronek – Make sure you leave at least one visible scar on that lashing or you might forget…  I still don’t like them you know.  Check out BTU and ACI in comparison and, of course, there is the train wreck that is PCX.  If nat gas falls below $7, then it’s a better buy than coal for utilities and those that can switch to clean gas will choose it over coal.  Dry shipping is down so we can infer demand for coal won’t be so hot internationally. 

    See, rumor got a hole in it and everyone bailed.

    SKF/RMM – Yes, it was a good idea to cover with the $140s if you already had them (as you can ride out that little dip in style without getting in and out of longs) but at the same time I thought the selling the $140 calls was good, naked puts would have worked really well. 

    XLE/HP – I still like the SKF calls better, they are 2x movers which is good if your goal is protection.

  72. DB

    UK markets just closed down -3.48% – perhaps the last minute activity caused that buy/sell peak we just had ?

  73. Highlander

    ramana,
    yes it is cy current intention to distribute 0 .27 spwr class a shares to actual stock holders of record on sept 17. total worth about 3 b $

  74. xian

    GOOG…..maybe its cheap, even in at the end of days

  75. Bronek
    Phil – Ref JRCC. I have an impression that you stopped to provide specific trade advice, am I correct? Will you now assume a position of a consultant (On one hand …, on the other hand ….., it is your decision)? Please say it ain’t so Phil or we will lose a talented advisor/teacher. Thx.
  76. RMM

    Phil:
    are any stockoption covers expire ITM this week ? I doubt it. Maybe MCD.

  77. RMM

    Phil:
    often OPEX Friday either is a day which ends way down or way up.
    What is in the cards for Friday ???

  78. Phil

    Damn Ramana, what is that stuff that’s following your comments?  Are you pasting from something or on a PDA?

    Edro – We used to have weekly educational articles where we posted up a sample play and followed it through.   No saying I can’t do those on a regular basis.  Then we can go back to the post and comment there on progress of each trade for people who are following up maybe.  Might be a little complex but I’m sure we can come up with a nice quick way to keep track if we think about it.

    BA/RMM – AIG has big plane leasing unit.  BA already sold those planes so the issue is about go forward financing of planes and I’m sure there are plenty of people who would love to get into that juicy business.  Will the market get flooded with used planes?  Possibly but BA still saves you 20% of fuel costs with the Dreamliner and that’s really all they plan to build.  1/2 cover sucks but that’s why the general rule is take out a cover you beat by 70% and then do something about your position.   No matter now though, it’s an AIG issue and it will pass quickly if someone substantial buys the aircraft leasing co and that was the number one thing they thought they could raise quick money with, which is why I still like BA down here.

    CY – Wow, maybe that’s the scam.  Jam down CY and SPWR to ridiculous levels and then get a nice 2 for 1 deal buying CY ahead of the bounce…  You have to be a little suspicious when things time out like this.

    JRCC/Bro – Oh no, I was just saying its an awful long and I’m not very sure I like doing anything with it at all.  Sorry, it’s your call but obviously the Sept $30 caller is pointless and you are down $2.50 so the question is, how are you going to get $2.50 back?  You can sell Dec $30s for $2.60 and that pays for you to roll to March $25s so you have a $5 and 4 month advantage over the callers or you can be more aggressive and roll to Jan $25s (for .50, it’s silly not to buy a month) and sell the current $25s for .70 and hopefully the Oct $25s for $2.50 but this is all based on your more bullish premise on this one.  These guys have crazy premiums, not bad to play if you don’t let the rolls get away from you.

    ITM covers/RMM – damn few I’m sure but the week is young.  Before AIG and LEH and MER died, I did have a theory that we were being flushed into a big end-of-month run…  To get there though, we need strong action from the Fed, if they let AIG die, I don’t see how there can be a big recovery, that goes for Friday too.

  79. Quarryman

    VMC!
    Yes, the QUARRYMAN is back.
    Did you see Vulcan Materials bounce off 70 back up to 71 just now?  [No, because you guys don't watch it that is why I point it out]
    This is a remarkably resilient stock in this market.  Also, the SEP calls are carrying a lot of premium for 3.5 days.
    I’m in Sep 70 calls for a quick trade to see what happens and will seriously consider a calendar spread of SEP/OCTs or longer.
    Gotta get VIX below 30.     Q.

  80. Bronek
    Phil – Ref JRCC. Phew!!. You really scared daylight out of me (I would understand it, though). Thx.
  81. contingent

    Mosaic is being taken to court for price fixing:
    http://www.startribune.com/business/28269894.html?elr=KArksUUUU

  82. Phil

    VMC – Hey Quarry, been a while since we looked at them.  They did hold up amazingly well. 

    You can’t like the SKFs getting back through $130 as a sign for the financials.  

    MOS - doesn’t seem to be bothering the companies but I kept telling you guys those prices were ridiculous.

  83. xian

    ok…im crazy so i rolled er’thing (LEAPS) down strikes….and picked up some cheap double inverse protection

  84. Quarryman

    Hi Phil.
    Bought in at 70.5 into the SEP 70s.  Waiting for 73 if we get an announcement, and I’ll take profits.
    Also, WLT check it out today!
    … two of my faves.
    Q

  85. stratdaddy

    Long term trend: s&p 50% retrace for 2003-2007 bull market  = 1175

  86. stratdaddy

    I think a fed cut would be nice here. Dollar could probably stand it at this point, and commodities won’t complain. Govt made its point with well enough letting LEH fail.

  87. xian

    fed cut- there’s a ton of commentary all over the world that markets have failed and they’re not working or whatever…BUT isnt this what markets do when complicated stuff needs to get settled and bad bets need to b accounted for?

    the downside is that if banks take their medicine and r purged of any moral hazard, then loans and mortgages and lending of all types will b much more scarce, which would slow economic growth…UNLESS there is innovation in hedging risk and information/transparency.

    shiller was on an excellent podcast yesterday (recorded 2 weeks ago) and he has some pretty good ideas on that front.

  88. Phil

    WLT/Quarry cheap and looks like it’s going to get much cheaper.  I’m just not too hot on the coal sector right now but I’ll love them at $30 if that helps…

    Fed cut – better for the economy if they don’t.  The government controls the GSE’s now so rates can be pushed down through their policy there.  I would not like to see another commodity boosting dollar dump.  Every $1 oil goes up costs Americans $7.3Bn a year just in oil.  Then there’s nat gas, food, building products etc – probably about $15Bn per $1 per barrel so if they drop rates an oil is back at $100, they may as well just ask for the stimulus checks back.  As I said before, $360Bn pays the morgage of every home in America so our goal should be knocking another $20 off oil and everything else can take care of itself.

    90 minutes to the Fed.

  89. RMM

    Phil:
    I have a situation which I cannot figure out,
    I made a trading error, set it up the wrong way.
    I wanted to buy USO puts but instead sold the put.
    Now I have:
    USO PUT oct 78 SHORTs, base 2.74$, now 6.3$, real bad,
    WHAT could be done ?

  90. stratdaddy

    But like always on FED days, a 1-2% round trip in the indices is easily in the cards. This could spike the VIX, and retest the 1170 area for a double bottom confirmation. That’s a lot of prediction, but it certainly fits the data to date.

    So 1170 bottom this morning is a 3 year low support point, a 50% bull retrace (over 6 years), and at the bottom of the mean bear downtrend, similar to mid july, mid march, and all the way back to last august. Jan 22nd low dipped a little lower than this trend line, but 2 more recent lows have maintained it.  Its also pretty close to some long term fibonnacci MA’s…the 89 month, and 377 week.

  91. stratdaddy

    I hope for lower oil too, and I think it will continue to drop even if we we’re to take a small dollar hit today. I ws just thinking a temporary commodities boost could bring the averages up too. Its not like July anymore where rising oil drives the market down. I guess is CNBC style thinking, but I think temporarily it would help put the bottom in. We need support, and a nice squeeze…a catalyst for buyers.

  92. Emotrader

    Phil,
    What would be a good play outside financials for each situation. if the FED left things the way they are or if they cut .25 or .50?

  93. stratdaddy

    of course, good old fashioned VIX = 50, s&p < 1000 panic would put the bottom in too, but I’m not sure that’s better than a little dollar weakness and commodity support.  Interesting to see what happens…

  94. RMM

    The chicken game is going on.
    cut rates, keep rates, bail me out, give me credit.

    THE TAXPAYER MONEY GIVE AWAY HAS TO BE HALTED. stop.

    iS THE USA NOT ENOUGH IN DEBT ????

  95. kustomz

    What in the world is keeping SHLD up, i dont get it. 
    The market usually drops quick before most Fed announcements
    HPQ up way too high considering the DELL news

  96. kustomz

    F, GM don’t have a chance without financing in the near future..will they get a bailout? GM lucky if they have funds to get through middle of 09 same for F and even if they do get a huge loan its just a bandaid on a badly run business with lots of overhead.

  97. stratdaddy

    I think the important point is the end game of turning the economy around. Taxpayers, and especially investors, can handle a little more debt if its the fastest way to turn things around. What I don’t want is a depression where there’s 0 economic momentum for years because we let things fall into a complete tailspin.

  98. biodieselchris

    BAC buys out every pig I am short. When does this failure strategy come home to roost for them? MER at 50 bil???? Should’ve waited a week and got it for 10.

  99. Phil

    Here goes BA finally.  Hopefully they can hold $61 and get back over $62 at least.

    USO/RMM – Damn, that would have worked great if you got it right.  Generally you want to roll them to more premium if you have the cash for it, like 2x the Oct $74 puts and you can cover that (assuming you are still bearish) with the $82 puts, which gives you this according to OXPS calculator:

    Buy 10 USO OCT 2008 82 Put (.UNAVD) $9.20 $9,200.00
    Sell -20 USO OCT 2008 75 Put (.UNAVW) $4.60 ($9,200.00)

    Price Profit/Loss
    $68.00 $0
    $71.50 $3,500
    $75.00 $7,000
    $78.50 $3,500
    $82.00 $0
    $85.50 $0
    $89.00 $0

    Its a pretty wide payoff and you can add more puts for yourself on the way down (as you automatically are more protected by your putters) to fix up the ratio.  If you have the capital, you can keep upside stops on your own puts and leave the others naked when there’s a bounce and re-cover (covering with your $82s, their position is there to burn premium) if you feel it’s toppy.  You cannot be lazy with these as there is a big downside once you cross $68 but that’s $85 oil… 

    Commodities/Strat – What we need is full rotation out of commodities, it would be nice if they go back out of favor for 20 years and we can get back to building things for reasonable prices.

    Fed cut/Emo – Today it’s a tough one becasue a Fed cut may be seen as a sign of weakness.  I still like gold on any government giveaway, GLD or ABX are the way to go there.  Those beaten down coal plays should get a boots.  Retailers are probably good in a cut until they sober up  I kind of like JWN if they can get back over the 200 dma at $33.50. 

    BTU is the best of breed and next month $50s at $3.55 could do well on a pop and current $50s can be sold against them for $1.20, not a terrible spread if you keep good stops on the Septs. 

    DELL may have been a bit of an overreaction.  That’s another one where it could be fun to play Nov $17s for $1.05 if sentiment picks up as they can add .50 pretty fast on a $1 bounce.  HPQ said business looks good to them, they are just kicking Dell’s ass so a Dell bet is a bet on a recovery though.

    Yes, depression would be bad. 

    Good to see who’s attracting bets ahead of the Fed:  VNO, FDG, FFIN (new high), MET, SPG. GOLD, RIG…

    Check out CEG, that’s a BS panic drop but you can’t tell people not to panic in this market.

    BAC/BDC – I am worried they are overextended but they did a very good job absorbing CFC.

  100. kustomz

    Strat, you have times of economic growth and contraction, we went through the growth now its time for contraction. Credit markets are dead, guess its going to take time for that to settle in. I cant see this market rallying 500 points and it being sustainable. I need to see signs to the contrary before i come out of my bear cave. Trillions of dollars have just gone up in smoke. Lots of wealth has been wiped out, We all know oil prices were very much inflated by speculators, that are now losing their shirts. You cant wipe away those losses without any type of negative effect. its certainly a positive for the consumer.

  101. kustomz

    Strat…."Taxpayers, and especially investors, can handle a little more debt"
    Debt is why everything is so disfunctional at the moment. I doubt we can handle anymore of it.

  102. Phil

    Damn, whole utility sector getting chopped.  Back to SKFs I guess…

  103. kustomz

    CNBC…..GM…They cant make it to 2010 without money from the federal government.

  104. Phil

    USO making a turn up, if they break $92 they may get somewhere but this is probably in anticipation of a cut. 

    Yep, gold turning up too, that’s what it is..

  105. NH

    Phil, what do you think of GLW.. Jan 2010 15 @ $3.1 and sell the Sept 15 call for .45?  Do u think GLW is oversold?

  106. Grant

    When is Fed announcement?

  107. chemistry

    The premiums on SKF are so huge, there must be a quick play on that premium with opex so close.

  108. Ether

    FOCM announcement is due at 14:15 ET

  109. kustomz

    CEG once a 30 billion dollar company, started the day worth 10 billion now worth 5 billion…more uncertainty

  110. Bronek

    FYI – LINE (Oil & gas MLP w/>11% yld)  recommended by Cramer a week or two ago is getting disseminated.  Unfortunately, I bought the stock in Apr. as my LT trade. I road it slowly up and I am taking a plunge down. Now I am only at 15% loss, b/c in May I bought Oct 20 puts. It seems that LINE reached correction level, so soon I will be selling my puts and buying calls. Is anybody else on this BB trading this issue?

  111. David

    Since the topic of gold keeps coming up I just can’t help but re-post this article.  It is a summary of the performance of gold stocks during the great depression.  Kind of a surprise in a deflationary environment.  Since it is based on one stock, (Homestake) anyone with the ability to post data from other miners during the Great Depression will be appreciated.  
    http://www.gold-eagle.com/editorials/great_crash.html

  112. stratdaddy

    All good points, folks. Appreciate the dialog on this board. Re: recovery, the question is have we had enough pain. Is the blood in the streets deep enough?

    Now let’s see if my latest TA call vanishes in a puff of Bernanke-speak, or not. Big day!

  113. patrickc

    Picked up some CEG for a trade.  They are still available at about $23 (down from $46)

  114. Phil

    GM – I odn’t know how they can make it to Thursday with this balance sheet!  They have gone about $3Bn a month further in debt this year, Thursday will cost them another $200M.  Notice they have $22Bn in "inventory" – I’d love to know what mark-to-market is on 2M 3-year old Hummers coming off lease is?  Not to mention the true value of $47Bn worth of plants and equipment that make cars that lose $3Bn a month….   263,000 employees makes these guys the scariest company in America.

    GLW/NH – I used to love them but they have been serial disappointers and they just warned but this does seem overdone on a less than 10% reduction in projections for a company with a p/e of 8.  It’s certainly a nice stock to sell Oct $15s against for $1 as long as you intend to average in over the long haul, that’s 7% a month when you can pick up the dollar.  The problem with the long spread is the caller kicks your butt on delta and can bury you in a rally.   For the same $3.30 you can take the Feb $12.50s and sell the Oct $15s for $1 and you have a $2.50 position advantage in addition to the time burning less premium (.16/month) than the 2010s (.22/month).

    SKF/Chem – premium huge because it could easily go either way fast.  Double diagoal/Butterfly is not bad on these:

    Buy 1 SKF JAN 2009 135 Call (.SKFAT) $26.40 $2,640.00
    Sell -1 SKF SEP 2008 130 Call (.SKFIU) $8.60 ($860.00)
    Sell -1 SKF SEP 2008 130 Put (.SKFUU) $10.30 ($1,030.00)
    Buy 1 SKF JAN 2009 125 Put (.SKFMR) $26.50 $2,650.00

    $98.49 $0
    $115.00 $1,865
    $120.00 $2,430
    $125.00 $2,995
    $130.00 $3,638
    $135.00 $3,285
    $140.00 $3,013
    $145.00 $2,742
    $195.53 $0

    Gold – to be clear, I do not like gold or gold stocks if the Fed does not dump money on us.  Gold does sell off with everything else in a real slowdown.

    CEG – here they go now…

  115. stratdaddy

    Long term s&p view. Channel, and 50% retrace from 2002 bottom.
    http://3.bp.blogspot.com/_WjNGsxlk8NA/SM_1tyyiXnI/AAAAAAAAACI/uzwfllGhKVY/s1600-h/sp_9_16_bottom_big.bTool.jpg

  116. patrickc

    Ok – that was a quick 27%!  Who said that you can make money trading stock!
    Thanks Phil!

  117. acton88

    Phil:
    How about CCJ?  a keeper?
    Thanks

  118. RMM

    Good, no change in rates.

  119. alf

    rate unchanged

  120. xian

    unchanged..thats the right move…..horay for ballls!!!!

  121. Phil

    SKF – OXPS calculator seems wrong.  Net cost is $3,400 and I suppose if you dead wipe out callers and retain $5K in value you gain $1,600, not $3.600. 

    No Fed change.  Gott love the SKFs!  CEG seems to like it for some reason…

  122. Phil

    Not good for oil or gold of course!

  123. Phil

    POT $155 puts are only $5.80

  124. kustomz

    Hey the Fed finally did something rite

  125. xian

    brief…

    For immediate release
    The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

    Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

    Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

    The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner.

  126. DB

    Obviously the right decision yet the market doesn’t like it. No wonder no one makes money out of trading !!!!!!!!!

  127. RMM

    Phil:
    basic question:

    for protective options: when they have a gain, what criteria apply to take the gain ?
    I assume when one believes that the protection is not needed anymore.

  128. Phil

    CCJ/Acton – terrible performance with the rest of the commodities but Uranium is a lot more rare than oil over time and CCJ controls a big chunk of it (close to 35% I think).  They got burned in June when the DOE sold 200 tons of uranium to drive down prices, which had doubled and, of course, they have mine issues.  Long-term, there’s no getting around this demand issue and everyone is approving new plants and $2Bn nuke plants don’t use enough uranium to worry about price.  Hard to call a bottom on these guys if commodities are determined to die though as uranium is what they sell but looooong-term, you just have to be there for the next big spike.

    Thanks for statement Xian!

    Man, they are lucky the NYMEX is closing or they might be testing $90 today.  Tomorrow is the pre-hurricane inventory report where we can expect ships rushing to get barrels in and people gassing up for the weekend so maybe long on VLO for tomorrow but a risky bet.  The $31s are $1.15 but keep in mind they expire on Friday!   SUN is a great mover with crazy premiums, not good this close to expiration.

  129. Malai

    phil,
    I know you bought SIRI.  Now the credit conditions have deteriorted since then.  Do you still think SIRI is a good buy at this price?  My concern is that they might not be able to get the loan extended or have to pay a higher fee to refi.  Any thoughts?
    Thanks.

  130. RMM

    Phil:

    SKF Butterfly:
    I already have the callside,
    so: after all what is happening or has happened, you would add PUTS as there is NOW a chance financials do well and SKF might drop,???????????????????????????????

  131. kustomz

    MET on fire loving it

  132. DB

    Boy am I getting delayed data from etrade !

  133. fotoaddict

    streetwide nasdaq pricing issues..

  134. RMM

    DOW: green again, the rate decision is swallowed.

  135. rampage09

    a bit of a short squeeze? Quite a little run

  136. Grant

    What just happened, markets suddenly jump?

  137. xian

    fed considers giving AIG loan package "person says"

  138. David

    Just a story that the Fed will structure a loan to QIG.

  139. stratdaddy

    A squeeze, or a really big total market buy, or both…

  140. RMM

    Phil:
    is the jan 2009 125 PUT strike NOT too high, 115/120 might be better.

  141. BonVivant

    Where do you see oil ending up by end of Sept?  Will we get to 85, 80, maybe even 75?

  142. mark bradley

    whats with XOM being up now ?

  143. RMM

    CRAMER says: AIG must be saved otherwise the market will NOT open tomorrow.

  144. acton88

    Phil, thanks.-- CCJ

  145. Phil

    Protection/RMM – That’s one of the really tricky things because it depends what’s happening.  Like yesterday you asked about cashing out SKFs in the afternoon and they were up a lot but then what is your overnight projection with AIG issue still up in the air.  This morning we did not drop 300 points so it made sense to cover at $140 because THAT was a good run, the caller paid $8 and you still have good protection (you don’t pay the caller back until $148 and by then you are well ahead on the longs).  Generally with long protection, you buy it to allow you to be more bullish, leave things uncovered etc – they are not generally bought to be profit centers but, like everything else, when you get a decent profit and you don’t feel you would buy them from scratch, it’s a good time to at least take some off the table.

    Strange combination of things going up, lots of solars, PALM (are they still in business?), THOR making new highs, YHOO (now we know it’s weird), LM, GRMN, Airlines still, SCHW?!?  Wow, very interesting…

    SIRI – I think it’s a bear raid and Mel agrees with me.  He’s really pissed and banging the gong with investors, something about GS and other preferred holders wanting to do a roll at good prices and screwing them over.  It’s like buying cable companies when they ran out of gas for a while, good long, long term things to hang onto (hopefully).

  146. xian

    PALM- was green yesterday….a big buyer looking to make a move?

  147. kustomz

    AAPL refuses to go positive

  148. mark bradley

    XOM rocket

  149. David

    This has to be the most nervous market that I have seen.  My screen snapped from down 85 on the Dow to up 100 in one second on AIG rumor, then a fade to up 23, now back up over 120…  Wow what a ride. 

    Welcome to Whipsaw City!

  150. Phil

    SKF/RMM – I think as long as AIG is in flux the main risk is of SKF going higher (so selling puts is good as long as they are covered).  How likely is it we get an all clear and they drop $25?  The key to that trade is you pick up $19 in premium by Friday against your $53 in long calls.  As long as you can get another $30 in premium from any October strike combination (now $39 at $125) you’ll have collected $49 of $53 paid for the longs.

    AIG flying!

    Oil/BonV – tough call with 2 hurricane inventories and still hurricane season.  I doubt we get to $80 before Nov and they haven’t had a bounce yet so watch out for one.

    XOM wow!  They are, of course, a big refiner…

  151. RMM

    Well: no cut and Doe gets even greener.
    It was time to make a clear statement.
    Of course, AIG still needs help from private sources.
    Look at financials: SKF dropping fast.

  152. kustomz

    Someone must know something about AIG, we may be getting some positive news but what baffles me is why would they wait to help AIG especially after a downgrade. Its only advantageous to the lenders….maybe thats the reason. Yea thats the reason.

  153. Phil

    Keep in mind that every rally has been sold into for quite a while, we’re hoping for that to change but not counting on it!

  154. xian

    AIG calls…im in. the precipitous decline started at 19ish, so thats when im thinking the insiders knew it was a failing ship for real.

    if that "failingness" gets removed, then it goes near there..at least 1/2 way

  155. RMM

    Sharon Epperson from CNBC is a great headache, her loud voice always suggest panic.

  156. DB

    Covered MA now. Phil – Being brave yesterday worked for a change :-)

  157. fpremjee

    lehman has been halted…

  158. Phil

    LOL Kustomz – what has happened since Paulson took office that hasn’t been advantageous to the lenders (well, CERTAIN lenders)?

    I’d feel better about the rally if the XLFs were weaker. 

    MA – that must have been a tough morning DB!

    Forgot X – they are a good mo stock when we get an all clear.  Good premiums to sell in front moths so Jan $90s with the intent to sell against is a good mo play at $22.

  159. DB

    SCHWAB up 10% today. Nice to see my broker in the money :-)

  160. RMM

    Phil:
    now my SKF shorts have more gains than the longs, 40 % gain on longs is gone.

  161. Emotrader

    I doubt that we are going to close above  11,100

  162. DB

    MA – A very tough morning. Sold and bought back cover 3 times today which offset losses upto the FED and went naked again after. It very rarely plays out like that but I thought they were oversold , waiting for a catalyst.

  163. Malai

    Anyone,
    What is causing this rally?
    Thanks.

  164. xian

    15:14 *DODD WELCOMES FRANK’S IDEA TO CREATE AN RTC-LIKE AGENCY
    15:14 *DODD SAYS FDIC ALREADY PLAYING ROLE OF RTC
    15:14 *DODD: `NOT SURE’ AID FOR BEAR STEARNS BUYOUT WAS NECESSARY
    15:14 *DODD CALLS FOR PRO FORMA SESSION OF CONGRESS

  165. Phil

    There go the SKFs, low of the day, people seem happy again. 

    SKF/RMM – what position are you in now?

    Rally/Malai – I think the lack of a Fed cut instilled some confidence that they feel the finanical situation is manageable without going to extremes.  Also, I can’t be the only person in America who thinks lower commodity prices are good for the economy.

  166. RMM

    Phil:
    sometimes one has to go by one’s hunch:
    I hoped the Fed would not cut,
    they did not,
    I expected that this sends a message to the market,
    it did,
    I expected the financials to benefit,
    they did.
    OPPORTUNITY gone and thousnad not collected.
    Conclusion; Protection is first for the case of a big drop.But if the gain is mighty high, take it.

  167. xian

    barclays buying LEH

  168. RMM

    Phil:
    if one believes that financials will stabilize now, the SKF downside protection is not needed, except the AIG has to be cleared up. So there is still a good risk.
    I am in Calls jan 140 and sep shorts 130, cover is 1/2.

    Now things are reversing again. There are fast players out there.

  169. xian

    RMM- for money-literally- AIG is getting fixed…this was a double shake down- as per barclay onto LEH

  170. xian

    that’s "for MY money"…..

  171. RMM

    Phil:
    SKF: I could sell more sep125/130.

  172. xian

    i just went thru edgar and found C is pzena’s biggest holding (as of JUN 30) w/ 4.4% of assets (also, JPM 0.8%, BAC 2.5% & WB 2.5%)…that’s about 10%, across 4 names and all big money center banks- out of 120+ names in the portfolio.

    http://sec.gov/Archives/edgar/data/1027796/000105821708000078/0001058217-08-000078.txt

  173. Phil

    BCS – we knew that in the morning post.

    SKF/RMM – You do know its not good to give a caller position advantage like that right.  On a 1/2 sell not so terrible but you have to be careful with those.   As to selling more, using the Oct $135s for 1/2 cover is better, it’s $10 more and they can be rolled to 2x the $160s easy enough if things take off and you can always sell more if they don’t (or roll them to 2x the current $125s if you decide we are really going down (on SKF).  It all depends on if you are doing this for coverage or a stand alone trade…

  174. Phil

    Almost 1/2 of AIGs shares traded today.  CNBC upgrades them from a glimmer of hope to a ray of hope…

    JPM having a nice day now.  GS well recovered.  Don’t forget MS earnings in the morning so we still could get shocked!

  175. Phil

    Ags really taking off now, XOM at 5% rule – crazy finish!

  176. DB

    MS is going to PRE_ANNOUNCE this evening !!!!!!!!!!!

  177. Bronek
    Darn! My JRCC sell mid-day order filled @.8, option closed @$1.5! Why it always happens to me! OK, now I feel better.
  178. DB

    Good results from ADBE – Might lift Apple. ORCL on Thursday. Always a good bet.

  179. DB

    Link to MS announcement about Pre-Announcement :-)

  180. fpremjee

    MS prelim $1.32 vs $0.78 First Call consensus; revs $8.0 bln vs $6.32 bln First Call consensus

  181. kustomz

    With all the crap hitting the fan and being scooped up on the cheap, i think we can expect earnings on most financials to begin moving in the right direction. Since there are less of them today the riches will have less distribution and more concentration on a few large financials.

  182. Phil

    Wow, check out sudden move on SIRI.

    JRCC/Bro – The stock is only at $25, doesn’t matter what the call thinks it’s worth, on Friday at that price it’s worth zero.   When you sell a call this close to expiration, you need to think of it as a pair of sells.  You wanted to sell the $25s for .80 and then the Oct $25s for $2.50 or better, now the Oct $25s fetch $3.30 or you can roll your $25 caller to the Oct $30s even, that’s a 20% gain in a month and you were going to be happy to get even right?  Meanwhile, you have $1.50 of overnight protection – none of that is terrible.

    MS numbers really good (compared to really bad expectations).  I guess that’s why they’re still alive.  I wonder to what extent pending earnings forced MER and LEH out – maybe they were so bad they didn’t want to report them anyway…

    Financials – yep, like I said yesterday – There can be only one.

  183. xian

    their can only b one- i think i saw bove on bloomberg and he said these things (or maybe it was in refernce to only MER acquisition) r going to b mad accretive to earnings b/c of the cheapness

  184. xian

    financial/BAC- considering theyve DD’d on bad loans and scary debt w/ CFC and now MER, i think the credit markets r indeed 1/2 confidence and 1/2 accounting.

  185. xian

    C- did not breach JUL 15 low of 14.04 (we saw 14.10)

  186. kustomz

    Heres an article from May 08 about AIG and where the problems stem from
    http://findarticles.com/p/articles/mi_m0EIN/is_2008_May_8/ai_n25401981

  187. vicky

    Futures seem to be down considerably…..any particular news?

  188. Phil

    Futures – AIG looking bad again. 

    BAC – If things go bad from here, they are going to blow up big.

    AIG – It’s scary how easy it is to take down a $100Bn company with $1Tn in assets.  

    Holy cow, did you guys see SNDK???  Samsung’s proposal hit.  Might be good for the SOX tomorrow at least…

  189. Peter D

    AIG – from bloomberg
    Treasury Said to Be Considering AIG Conservatorship
    http://www.bloomberg.com/apps/news
    It’s a jittery market.  Convervatorship is only an "option", look at the sell off after hours …

  190. Bronek

    Phil – JRCC – Thx! Still, when I will learn how to read the day patterns, I will be smart enough to wait. So much to learn – so little time in a day.

  191. Phil

    AIG $85Bn "emergency rescue" – No wonder they couldn’t afford a rate cut!  That is going to send us nicely up tomorrow if it actually happens I think, even though it shows how close they came to a massive crash so yay, I guess….

    NIce AIG by the numbers summary.

  192. kustomz
    MetLife Inc. (MET) said its capital and balance sheet have not been hurt by its investments in Wall Street firm Lehman Brothers Holdings Inc. (LEH) and insurance giant American International Group (AIG).
    "MetLife has a strong balance sheet, substantial capital and remains very well-positioned to fulfill its obligations," the insurance company said Tuesday evening.
    The company said it is continuing to assess the recoverability of the investments, which have an aggregate book value of about $800 million, including $10 million in common stock. In addition, MetLife made secured loans to affiliates of Lehman that are fully collateralized.
    Lehman filed for bankruptcy Monday, and AIG is facing a severe cash crunch after ratings services cut the company’s credit ratings, forcing it to raise $14.5 billion to cover its obligations.
    Both companies are the latest to fall victim to a crisis that began with falling home prices and went on to engulf Wall Street.
    MetLife’s shares rose 5.9% to close at $56.89 on Tuesday. There was no after-hours trading.
    -By Kathy Shwiff, Dow Jones Newswires; 201-938-5975
  193. xian

    The two-year loan will “assist AIG in meeting its obligations as they come due,” the Fed said in its statement. The federal lifeline will allow AIG to sell assets in an orderly fashion rather than at distressed prices, said a person familiar with the agreement.

    “The loan is expected to be repaid from the proceeds of the sale of the firm’s assets,” the Fed said. The U.S. government has the right to veto the payment of dividends to common and preferred shareholders.

  194. xian

    …i hope that means i can sell my calls tomorrow…..

  195. xian

    Kass: 10 Rumors on Wall Street

  196. Bronek

    Xian – Thx for your posts.

  197. Phil

    Oh they have to be kidding!  SNDK already rejects Samsungs $5.8Bn offer – they couldn’t even think about it for one lousy day?!?  There should still be a nice boost but lucky to get to the low $20s now.  "SanDisk rejected the offer, saying it "undervalues" SanDisk and constitutes an "opportunistic attempt" to take advantage of the company’s depressed stock price."  Well, duh!

  198. DB

    Good Morning everyone.

    UK up 1.3% this morning, Not a great reaction to the AIG loan but better than the kicks taken the last two days. Lots of ground to make up FTSE at 3 year lows yesterday.

  199. DB

    FTSE already given alll back. !!!!!!!! Now down -0.2%. Not sure what happened.

  200. David

    Looks like the spike in Oil, drop in dollar and futures was caused by a blast outside the U.S. Embassy in Yemen.

  201. Phil

    HBOS fell apart so fast they had to rush to announce merger with Lloyds, which is now looked at as a save an not necessarily a great thing.  Oil’s up a lot too, that’s never a help.

    Let me know what you think of new trading post, might be a good solution.

  202. David

    Lets not forget that General Petraeus has been replaced in Iraq.  He now will take over "Central Command"  in the Middle East.  The next surge is to be Afghanistan.  Lets watch political events in the region closely, escalation is likely.

  203. xian

    no problem bro….

    U.S. House Passes Energy Legislation to Expand Drilling, Taxes

    Sept. 16 (Bloomberg) — The House of Representatives passed a Democrat-sponsored energy bill that would expand U.S. offshore drilling and increase taxes on oil companies by $18 billion.

    White House officials threatened a veto of the 290-page measure, which was approved on a 236-189 vote, largely along party lines. New revenue would be used to fund alternative energy development.

    The bill would retain part of a drilling ban set to expire Sept. 30 and prevent drilling outside three miles off the U.S. coast. The measure would allow drilling on the Outer Continental Shelf beyond 100 miles. States could permit drilling between 50 miles and 100 miles.

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