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Weak Dollar Wednesday – Charging More for Less

Over $1.50 for the Euro this morning!

The Pound ran up to $1.675 and, as soon as the Nikkei closed (up 40 points), the dollar dove to just 87.5 Yen.  That sent gold flying up to $1,180, copper to $3.18 and silver to $18.80 but oil couldn’t get back over $76.50, which is strange because the last time the dollar was this low oil was $140 a barrel.  Why have the commodity speculators abandoned oil and moved on to metals?

For one thing, energy trading is now under Congressional scrutiny – as well it should be, since it is a forced tax on every man, woman and child on the planet.  Copper prices don’t affect anybody since no one is building anything anyway and pennies sure aren’t worth saving since you need 5 of them just to buy a piece of gum these days.  Silver has industrial uses but there’s not much industry with Industrial Production at less than 80% capacity so no one is complaining (are there any workers left to complain?) about that price and gold consumption is off 34% from last year so the 43% rise in price since last year isn’t tapping more overall global dollars – speculators are just getting much much less for much much more.

Oil collapsed last year because, when push came to shove, people simply couldn’t afford to buy barrels of oil for $140, or $100, or $80.  The problem with trying to manipulate the oil market is 86M barrels more come out of the ground every day, whether you want it or not and if people stop consuming then it has to be stored and that can get expensive.  As it is now, global stockpiles of crude products are at record levels and it is possible that the US is literally out of room to store natural gas despite massive production cutbacks from cartel members like CHK, XOM and EOG. 

So manipulating the price of oil and natural gas gets tough as demand falls off but only 800 tons of gold were consumed in all of Q3, down from 1,206 last year, when gold averaged $825.  In India, the world’s largest consumer of gold, demand fell about 50% from 271.2 tons to just 137.6 tons.  China picked up the slack as the government stockpiled metals (just another speculator) and demand there went from 116.9 tons to 128.6 tons so a 10% increase in Chinese demand to WOW the investors into thinking there is no stopping this train.  

If no one is actually buying gold (a proxy for all our metal speculation) then how does the price go up?  Would you be surprised if I said speculators?  To keep things simple, we aren’t going to talk about China’s stockpiling or India’s recent $200Bn purchase or the sudden craze to buy gold coins (but really people, does no one remember the last gold craze?) – let’s just talk about one of the many, many speculative ETFs out there – the SPDR Gold Trust (GLD).  Out of the 2,400 tons of gold purchased this year (1/3 less than last year) GLD has bought 500 tons of it.  This checks out as if we take that 500 tons out of the rest of global demand, we see that only 1,900 tons have been bought outside the ETF, so the whole world’s consumption is down 50%, roughly the same as India’s. 

$10Bn has poured into GLD in the past 12 months, causing the ETF to purchase 10M ounces of gold – more than India’s total annual consumption and the year isn’t over yet.  That gold has no industrial or consumer use and none of the people trading the bits of paper (if they even have the paper) with GLD stamped on it or staring at GLD on their computer screens have any intention at all of ever owing the gold themselves.  One would think, logically, that a stockpile of 1,100 tons of gold that nobody really wants may cause a problem at some point down the road – but only if people ever wise up so nothing to be too concerned about I suppose….

This is not an essay on gold, it’s just an example of all the idiocy that’s going on in the commodities pits at the moment.  Demand is way off but the producers of gold cut back production and the holders of gold encourage speculation to spur demand and the brokers on Wall Street see a way to get another speculative bubble going so they can make a quick buck and PRESTO! – we have the same irrational behavior that wiped out investors last year only this time it’s shiny bits of metal nobody actually wants instead of sticky black goo that nobody actually wants so it must be different.  Last year oil was going to $200 because demand was infinite and supplies were falling.  This year gold is going to $2,000 because the money supply is infinite and demand for gold is rising

It’s the same old story again and again but, as PT Barnum used to say, there’s a sucker born every minute.  But PT Barnum said that in the early 1800′s, when there were only 1Bn people on the planet.  That means there are now 6.5 suckers born every minute and that’s 9,360 suckers a day and 3.4M brand new suckers every year – more than enough to account for 10M ounces of gold purchased by GLD speculators - problem solved!

So things seem to balance out quite nicely, there are plenty of suckers to pick up the slack when real demand fails us.  Imagine if PT Barnum had CNBC at his disposal - he’d be unstoppable!   Sadly, there was no energy or commodity futures market at the time for him to exploit but his book was the roadmap for what modern day hucksters set up in his wake.  Playing the commodity markets is fine but keep in mind what Barnum said about speculation in his day:

"A man who is all caution, will never dare to take hold and be successful; and a man who is all boldness, is merely reckless, and must eventually fail. A man may go on "’change" and make fifty, or one hundred thousand dollars in speculating in stocks, at a single operation. But if he has simple boldness without caution, it is mere chance, and what he gains to-day he will lose to-morrow. You must have both the caution and the boldness, to insure success."  

We were bold ourselves last week and took some speculative upside plays in gold and yesterday we used a little caution and put in an order to cover with a bullish spread on GLL (April) as well as offering .50 for 5 GLL Apr $11 calls in our $100K Virtual Portfolio.   We didn’t get filled yesterday but hopefully today and, once those are filled, we’ll look at a possible upside play on UGL, as we will have our defenses in place.  Just because we think the move is silly, doesn’t mean we aren’t willing to make money on it!   While people buying GLD for $114 per share may hope to make 50% if gold goes to $1,800, we’ll be looking at the UGL Jan $49/53 bull call spread for $2 ($200 per contract), which will gain 100% if gold goes to $1,250.  Speculation is all well and good, but you don’t have to be an idiot about it…

The buyers came out in force on the Hang Seng this morning (once the sellers quit after lunch) and drove that market up 188 for the day, reversing an early morning 200-point dip in the last 90 minutes of trading.  You see a lot of 8′s in the finishes of the Hang Seng because 8 is considered auspicious so finishes like up 188 points encourage the numerologists to invest the next day.  Is the auspicious suspicious or just another one of those happy market coincidences?  The Shanghai composite hit a low of 3,188 but then turned around and finished up 66 points for the day (2%) or at 388 on the Dow Jones Shanghai Index.  The NIkkei, as I mentioned above, gained 40 points for the day, holding the 9,400 line on the dips

Europe is up about 1% at 8:30 as banks continued to be weak with news that state-controlled WestLB is negotiating with the German government about offloading assets from its balance sheet into a "bad bank" type model.  Interestingly, the panic going on in the banking sector (many Greek banks are in trouble too) is boosting the Euro as it causes many of the weaker [Euro-zone] banks to have to repatriate assets from abroad, cutting the size of their balance sheets, which provides Euro support ahead of the year end.  Once the repatriation flows dry up, the euro could fall hard according to BNP currency analysts.  

The major threat to the repatriation theory, as BNP Paribas’ analysts concede, is that it’s not just Europe’s banks that are feeling the heat. Earlier this week, Chinese authorities got tough on their banks’ capital requirements — a development that shoved Chinese equities and risk sentiment lower across the board.

The International Monetary Fund also warned this week that only around half of global bank losses have so far been disclosed.  In addition, ratings agency Standard & Poor’s has raised concerns about the financial strength of a number of key banks from around the world. In the end, if banks everywhere ramp up their repatriations, then the net effect on currencies should be pretty much neutral, assuming all countries are affected evenly. Still, it’s well worth keeping a close eye on WestLB and its Greek peers for now.

Meanwhile, we have mixed data ahead of our own pre-market, pumped up open with Personal Income up 0.2% (good for you, bad for corporate earnings) and Personal Spending up 0.7% (fueled by fuel inflation) while PCE Prices gained 0.2% and "only" 466,000 more people lost their jobs this week, the least since last September.  According to Bloomberg:  "After slashing more than 7 million jobs in the past two years, companies may have little margin to cut further without threatening their capacity to ramp up production as the economy recovers. The government may report next week that employers in November shed the fewest jobs in 20 months."  

Durable Goods Orders, unfortunately, fell off a cliff – down 0.6% vs up 0.3% expected, which is the usual 300% miss you expect from the usual economic forecasters these days.  Ex-Transportation was just tragic at -1.3% vs up 0.5% expected by the same geniuses who get on TV and tell you how they forecast the economy is turning around and gold will hit $2,000 an ounce due to a never-ending supply of suckers.  CNBC is even going so far this morning as to blame aircraft orders for the poor durable goods numbers when clearly (to people who actually read the report) it was aircraft that saved it. 

We already decided to remain short into yesterday’s close so we’ll see how it plays out. A weak dollar is no reason for us to decide to start buying US stocks but if $1.50 to the Euro is sustained and $1.68 to the Pound is broken over – it will be time for us to do a little speculating of our own but I think the collapse of confidence in the Greek banking system will put the brakes on the dollar slide as there aren’t enough Euros to go around even if investors were confident that a Greek banking crisis won’t spread to already weakened Italy and Spain (and has anyone heard from Russia lately?). 

Mother Teresa once said, “We cannot do great things on this Earth, only small things with great love" and some song said "Celebrate the happiness that friends are always giving, make every day a holiday and celebrate just living.”  Robert Flatt said: "Thanksgiving like contentment is a learned attribute. The person who hasn’t learned to be content we will not be thankful for he lives with the delusion he deserves more or something better."

Have a happy holiday, we may all soon be thankful that our assets are in dollars as the supply of suckers dries up and the lack of demand comes home to roost!



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  1. jcmcn5

    Phil — what do you think of the UUP Jan 22′s we spoke about last week?  I own them at 0.46 (looks like 0.40 at the opening and dollar looks like it’s breaking down again?

  2. balancenv

     Good morning Phil,
    Please advise on the TIF Jan 43/45 put spread, sell the 45 put and also sell 46 or 47 calls to make it a strangle, or wait until the excitement is gone.
    Today’s /ES is more ‘logical’… even with $DXY is down .72%!

  3. Phil

    Good morning!

    UUP/JCM – I like a roll down for .60 if it’s available, other than that, see the comments by BNP above. 

    TIF/Balance – I’m confused.  Are you in the $43 puts and you sold the $45 puts?  I like TIF but they seem like they may have topped out here. 

  4. aclend

    Here are today’s upgraded price targets from GS:

    Rating Changes
    Price Target Changes








    Allied World Assurance Co. Hldgs. Ltd.






    $125.00 Inc.







    Atwood Oceanics, Inc.







    International Paper Company







    J. Crew Group, Inc.







    Packaging Corp. of America







    Scripps Networks Interactive, Inc.







    Temple-Inland Inc.







    Transatlantic Holdings, Inc.







    Warner Music Group Corp

  5. aclend

    GS upgrades:

    Rating Changes
    Price Target Changes








    Allied World Assurance Co. Hldgs. Ltd.






    $125.00 Inc.







    Atwood Oceanics, Inc.







    International Paper Company







    J. Crew Group, Inc.







    Packaging Corp. of America







    Scripps Networks Interactive, Inc.







    Temple-Inland Inc.







    Transatlantic Holdings, Inc.







    Warner Music Group Corp

  6. aclend

    GS raised AMZN price target to $146 from $125

  7. Phil

    Keep in mind this open (barely up) is off a 0.5% top in the futures at 8:30, before the data kicked in. 

    The levels don’t change as we bounce around between them:

    25% (up from July base) was: Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600.  As usual, it’s the Russell that gives us problems but the Nas isn’t over yet either so let’s see what happens.

    Watch last week’s highs for a re-test (but doubtful we’ll break any without all 5 indexes over the 25% line) at:  Dow 10,471, S&P 1,113, Nas 2,205, NYSE 7,266 and Russell 605.

    When you see that much red, there is nothing to get excited about.  Volume will be low today and I’m leaving at 1pm so I doubt I’ll be shifting off my 60% bearish stance because, even if Friday is an up day, I would only be shorting into the weekend anyway. 

    It’s a little scary to short gold but you can sell UGL Jan $52 calls for $3.40 and buy UGL Apr $54 calls for $5 for a $1.60 net on the – $3 spread and if you do 2 and 2, you can add a long if gold breaks higher and quickly flip it bullish as a momentum play.

    Oil is power-diving ahead of inventories, down to $75.80 so the best way to day-trade the market higher is probably ERX and I like the $42s for $2.10 as upside protection.  They were $3 on Monday. 

  8. ephmen85

    CHK   With the huge supplies of nat gas is CHK now just a trading vehicle, or is it worth a put sell at these (or lower) levels in hope of getting it cheap as a long-term hold?

  9. wiiboxer

     is the market open Friday?

  10. EricL

    wii, I think it’s a half-day.
    Man, another day of drifting meaninglessly would be sweet. I’m going to be giving thanks for a collapsing VIX and overpriced Dec. options, lol.

  11. eben22

    wiiboxer – market will be open a half day on Friday

  12. eben22

    wiiboxer – half day means mkts close at 1pm eastern

  13. EricL

    Getting seriously tempted to short GLD now that Phil is turning bullish on gold. :)   I think we’ll get some signs when it’s ready to break though, possibly a few days of erratic swings.

  14. Phil

    Barron’s Bob O’Brien sounds a look-out-below warning for agricultural commodities, noting price jumps of about 20% in corn and soybeans, even as farm production has been stellar, with near-record harvests. Investors can play a downturn by shorting ETFs PowerShares DB Agriculture Fund (DBA) or Market Vectors Agribusiness (MOO).

    In an op-ed, World Bank chief Robert Zoellick warns central bankers to heed the danger of asset bubbles: "The revival of John Maynard Keynes should not lead us to ignore Milton Friedman: where will all that money go? For a hint of the future, look to Asia, where a new risk is emerging: asset bubbles."

    Toyota (TM +2.2%) to replace accelerator pedals on 3.8M recalled U.S. vehicles to address problems with the pedals becoming jammed in the floor mat. As a stop-gap, Toyota will have dealers shorten the length of the pedals until replacements are ready in April.  Told ya so!

    Two more publishers say they may yank stories off Google’s (GOOG) search engine and hand them exclusively to Microsoft’s (MSFT) Bing, following Rupert Murdoch’s (NWS) lead. MediaNews Group Inc., publisher of the Denver Post, plans to block Google when it starts charging readers for online content next year. And Morning News owner A.H. Belo (AHC) says it may start charging online subscription fees and block Google.  This is getting interesting….

    Initial Jobless Claims: -35K to 466K vs. 495K expected. Continuing claims -190K to 5,423,000.

    Oct. Personal Income: +0.2% vs. +0.1% expected and flat in September. Spending: +0.7% vs. +0.6% expected and -0.5% prior. PCE core price index +0.2% Y/Y vs. +0.1% expected and +0.1% last month.

    Oct. Durable Goods: -0.6% vs. +0.5% expected and +2% in September (revised from +1.4%). Ex-transport -1.3% vs. +1.8% prior (revised from +1.2%).

    Mortgage applications decline. MBA’s weekly measure of mortgage loan application volume decreased 4.5%, led by a 9.5% drop in refinancing. 30-year fixed mortgage rates inched down to 4.82% from 4.83% last week.

    S&P admits its damning ranking (.pdf) of banks’ capital strength, which sparked concerns over low rankings at UBS (UBS) and Citigroup (C), failed to take into consideration actions banks have taken since June to clean up their books. Insiders say S&P will issue a supplementary statement in the next few days.

    That makes it as good a time as any to buy C 2011 $5 calls for .69, 20 in $100KP.

  15. balancenv

    I was say I have TIF 430/450 bear put spread (you recommended a while back when GS upgraded them). I was worrying about TIF running high so I asked if the way to fix it is to turn the put spread into a strangle by selling the long 45 put and also sell 46 or 47 calls. 

  16. EricL

    How could S&P have ‘failed to take into consideration actions banks have taken since June’? Someone twisted S&P’s arm.

  17. josiah

    Hi everyone! Been reading, but no chance for posts lately. Hope that everyone is well.

    Phil/GLD- Was speaking to my former neighbor yesterday who just purchased physical gold recently at $1,130. He was planning to buy more when it goes UP (yes, up), even though the only investments he has previously owned are the mutual funds in his 401(k). Your article just affirmed my opinion that his move sounded bubble-ish.

  18. EricL

    Possible they try to push to a new high today on the light volume. Bought a small number of deep ITM Dec. calls in case. Out by the close.

  19. tradansh

    C/Phil – OMG, the call OI is over 1M. Is that normal?

  20. josiah

    GOOG/NEWS – The Denver Post shouldn’t be making headlines. They’re seriously struggling, even as the only paper in town. I think that partnering with Newscorp in this is more a case of them grasping at straws for any new direction they can get. They’re willing to try anything, is my guess.

  21. b1ll

    phil, did you talk about BRCD the other day or do i have my sources mixed up?

  22. Cap

    short COF …. only area holding market up today.

  23. pstas

    C- I assume this is a quick play on a S&P "update" per above. So, explain a bit, please- buying premium with the Jan 11 calls. Not interested in owning C by selling puts?

  24. yodi

    Hi Guys
    Still having a hard time with the WSS portfolio Bought this morning the C play 2011 5 c via TOS but put it in WSS portfolio is an other thing  C1121a5 no go Still have no answer from WSS how to place option plays filled by TOS to enter in their portfolio system any one has simular problems or am I just stupid?

  25. EricL

    Obviously not looking good for a new high today. Covering those calls on the next pop.

  26. Kwan

    Confession – I don’t understand why these news publishers are considering blocking their content in one search engine so that it only exclusively shows up in another (lesser) search engine.

  27. bgbigelow

    FCX – Dec 85′s – Phil I have those left over from your play last month.  You leaving those alone, or would you sell the dec and roll to Jan?

  28. ken88

     Phil AMZN, I have been out a few days. I m still  short Dec 110 calls. Could you please advise on what is suitable roll etc. Margin getting tight. Thanks

  29. Pharmboy

    Interesting chart on the divergence of the # of stocks above their 50d MA and the $NYA.

  30. aclend

    Sorry about the post. I wasn’t sure how it would format and then it didn’t look like it went through so I re-sent.

  31. jcmcn5

    I own the DIA Dec 103 puts at $1.21.  Would you sit tight, or do something else?

  32. tchayipov

    could you pls explain logic of C trade, do you plan to leave it naked?

  33. Phil

    CHK/Eph – Too scary to put.  I like shorting the nat gas sector at $9 and buying it at $3, other than that, I stay away. 

    Friday/Wii – Market may be open but bonds closed or some other nonsense.  I’ll be on-line but with just my laptop so flying blind relatively. 

    Gold/Eric – I’m not bullish but I don’t know when the spike will end, the last couple of blow-offs took 2 weeks to fail.

    TIF/Balance – To some extent they benefit from a combination of high gold prices (they mark up the same % either way) and Wall Street Bonuses (what’s $1,200 an ounce when your bonus is $3M?) but if this cycle blows off, they drop so you can buy back the Jan $43 puts at $2 and spend $1.40 to roll to the $47 puts.  If you get worried, you can still sell the Dec $44 puts for $1.70 and those can roll back to the Jan $42 puts and end you up in a wider spread but I would just go naked for a bit to give it a chance to pull back.

    Twist/Eric – Oh for sure.  Now that the ratings agencies are being sued by various states, they are probably being threatened on both sides (wheras before a cash payment from the banks was all they needed to sway a rating). 

    Bubbl/Josiah – As a rule of thumb they say when your taxi driver tells you to buy gold, it’s time to get out. 

    Dollar is $1.6666 to the Pound now.  $1.5065 to the Euro but BOJ jumped in and we’re up to 87.66 Yen, still pathetic

    Nov. Reuters/UofM Consumer Sentiment (final): 67.4 vs. 66.8 expected and 66 initial. Expectations 66.5 vs. 68.6 prior. 12-month inflation forecast 2.7% vs. 2.9% prior.

    Oct. New Home Sales: +6.2% to 430K vs. 398K expected and 402K in Sept. Median price -0.5% to $212,200.  That’s a huge turnaround!

    Freddie Mac weekly mortage survey: 30-year mortgage rates drop to 4.78% from 4.83%, equalling the lowest rate on record. 15-year rates fell 0.03 to 4.29%, the lowest on record.   Maybe this is why.

    The White House is considering a bipartisan panel to tackle the swelling U.S. deficit, with the hope of bringing Republicans and Democrats together to make tough decisions about how to cut costs or raise revenue in areas including Social Security, Medicare and taxes.  One would think this would support the dollar but one would be wrong

    C/Trad – Not normal at all, that’s 100M shares of C on that call but it is a good deal and limits downside risk so why wouldn’t a lot of people buy it.  If C jumps up, we can maybe sell the $7.50s for .50 and have a really cheap call spread. 

    GOOG/Jos – I don’t know, it’s about time content providers put their foot down.  This is a long-term broken system if content creators can’t get paid for their content.  How do you expect the NY Times to employ 9,000 people and spend $2.6Bn putting out a newspaper if GOOG just jumps in and aggregates their content for free every day.  We already see the quality of MSM news going down the toilet as free is the most people want to pay for their information, quality isn’t much of an issue (as Fox demonstrates) and big business sure doesn’t miss hard journalism so they’re not going to fight for it when it only costs them a $5,000 ad to get Matt Drudge to write anything they want….

    BRCD/B1 – I liked a buy/write on them, selling Jan $7.50 puts and calls, now $1.25 for net $6/6.75.

    C/Pstas – Yes, the idea is to ultimately sell the $7.50 calls for .50+ and just ride the spread out.  If we sell C 2011 $2.50 puts for .24 and they go in the money – then we don’t want them.  If we sell C 2011 $5 puts at $1.45 (.60 premium) and they go in the money, then we don’t want C (as it’s below $4 a year from now) so we like the calls as we have 6 months to see a move up that gives us a nice profit before they really start falling apart (the June $5s are .35). 

    C/Yodi – The call on WSS is VRN1122A5 – you can’t assume leaps have the same underlying symbol.  Maybe as they issue new ones they will conform to the new system over time. 

    News/Kwan – They have to start somewhere and, if it’s going to end up in court, they have to face GOOG eventually so why waste time?

    FCX/Bgb -  The Dec $85s are down 50% from $5.55 and it’s a tough call but I’d rather roll up to the $90 puts for $2.60, as they are $3.50 in the money and then we can sell Jan $85 puts if we have to (now $4.40) for $4 (assuming FCX breaks up) and that will pay for a roll over to the Jan $90 puts, now $7.  This is not a winning strategy but a strategic retreat at the moment!

    AMZN/Ken – Yes, I can imagine!  Well you can thank GS for giving you a nice pop to sell into.  At $23, you can roll the callers to the Apr $125 calls at $17.70 and the Apr $115 puts at $6.40, that’s an even roll but $15 higher on the call side. 

    EIA Petroleum Inventories: Crude +1M vs +1.5M consensus. Gasoline +1M vs. +0.3M consensus. Distillate -0.5M vs. consensus of flat. Jan. crude still flat at $76.05. Capacity utilization 80.25% vs. 79.7% consensus.   Pretty in-line report not a good enough reason to hold onto ERX so asking for $2.25 to get out

  34. gel1

    Demand for steel in Asis keeps going up. My PKX positions are up over 35% in 5 months and I see nothing in the future to dampen demand, particularily in China. I did a Buy/Write today on a China Steel manufacturer that has great strategic positioning in this market….. GSI ( General Steel Holdings) Bought the stock and sold a short straddle – March 5 p & c for a 40% discount. Because of the discount, I oversized the straddle 150% vs stock position. PS – sold all of my X positions for geographical arbitrage positioning.

  35. Phil

    Chart/Pharm – That is strange but so is this whole rally.

    Ags are all moving up of course on Barron’s call to short them… Everything makes sense if you just do the opposite of whatever seems logical!

    Mort Zuckerman backs the Fed as systemic-risk regulator, saying there’s "no other institution – certainly not Congress – with the sophisticated understanding and detailed knowledge to monitor the financial health of the banking firms." Should Congress undermine the Fed, he says, we could face a world-wide collapse of confidence in the dollar.  AS OPPOSED TO WHAT?!?

    Format/AC – Yeh, those don’t work very well and any time you put more than a few links in one post, the system holds it for moderation.  Just let me know if that happens and I can release it (on of my very few admin skills).

    C/Tch – see above. 

    Reflecting on the emerging News Corp. (NWS) / Microsoft (MSFT) / Google (GOOG) content/search war, The Economist wonders if Tim O’Reilly is right for dreading the war for the web: "A handful of well-funded and robust platforms locked in heated competition could be better for consumers and generate more innovation than Mr O’Reilly’s vision of an internet made of many ‘small pieces loosely joined’."

    If you want to momentum trade short, this is a good spot (10,450).  Rolling DIA March $106 puts up to DIA March $107 puts for .50 but, other than that, I’m bearish enough considering I’m leaving in 2 hours and they can still stick this thing back to 10.500.

    Dow volume at 11 am just 38M – 50M is normal for a program trading day so they have expended no effort so far. 

  36. gel1

    Having just survived a brain re-wiring, I have been looking into everything wireless. Found a great company that is on the move, and wireless is their game. They just entered into a big contract with VZ to have distribution in 2800 stores. The company is Novatel – NVTL. I did the Buy/Write, buying the stock and selling March 10 P & C for a nice 29% discount.

  37. jomptien

    Bought 200 BMY for 21.98, Sold: 4 June 2010 22 C for 1.71 and 5 June 2010 22 P for 2.12.
    Should I have sold more puts, adjust, or not sweat it.

  38. stevenparker

    Kwan, it’s the similar reason many online retailers don’t give you USPS as a choice. They want new more effective ways of picking your pockets, and revenue sharing agreements are a wonderful thing.

  39. EricL

    Yeah Phil, the S&P thing is such a joke (from the article: "S&P’s move to placate the banks followed fevered lobbying over the past couple of days"). I don’t work in that industry, thank god, but does anyone there take this crap remotely seriously?
    It’s like some Three Stooges routine. Oops! S&P hits itself in the forehead for forgetting to check the banks’ balance sheets since June (!). S&P knocks itself backwards into Fitch, who was stooped over trying to raise its rating on some  BAC preferred shares. Fitch stands up to see what happened, and gets hit in the face by another line of RMBS downgrades from Moody’s, who had been swinging them around wildly all year.

  40. gel1

    C and GE are on my SELL list, and will do so on the next uptick opportunity. I think there are too many better ponies to ride. I believe it is better to bet on an "up and comer" as opposed to companies that are trying to emulate a "second coming" Like big ships, it takes much longer to turn them around. The risk-reward ratio is skewed in favor of smaller companies that do not have so much negative baggage. (end of editorial )

  41. Phil

    NVTL/Gel – That sounds good.

    BMY/Jomp – You are in for net $13.26 (I think) with a call away at $22 (+$7.64) but you are obligated 2x above $22 so every dollar over costs you $2 and right now you owe $6 of your $7.64 profits to the callers.  If you add 100 calls for $25.60, you raise your net basis to $17.37 on 300 and you drop the obligation to 1.3x over $22, which means you can break even up to $28.50.  Of course then there are rolls an such but I’d say adding more stock is a safe way to go.  You can also add 2 2011 $25s at $2.75 as you can’t really lose (since your June $22 callers are $3.80 already) and it stops you from going red with less commitment. 

    Stooges/Eric – Good imagery!  If it wasn’t a joke before, it is now.  Of course if we had allowed the major financials to collapse, the ratings agencies would have been sued out of existence and this would never happen again (well, not until we’re old an no one pays attention to us when we tell our grandkids how stupid it is and they laugh at us because they think they know better).  It reminds me of my Grandfather, who kept his money in 12 different banks because you never knew which one was cooking the books.  He lived through one depression and was not going to get fooled again. 

    The yuan is too weak, says Japan’s finance minister, joining calls from Europe and America for China to let the currency appreciate. Hirohisa Fujii was making his first real comment about the yuan since his August appointment; he declined to weigh in on Japan’s currency, after his earliest comments spurred a yen rally.

    Obama is pardoning a turkey, which is heading off to Disneyland to lead the parade.  They are taking 2 other turkeys down to a homeless shelter in DC to feed the poor.  Obama made a good joke that they have "saved or created 4 turkeys" but does it not occur to anyone that the cost of flying 2 turkeys to Disneyland (with, we presume, a handler) could feed everyone in that shelter for a month?  I guess this is status quo though – government spending programs in a nutshell! 

  42. mrmocha

    Pharmboy, HEB is turning, anything interesting going on there?

  43. EricL

    Most big banks are looking weak. Regionals too.

  44. Phil

    V, MA, COF, AXP – all heading higher on consumer spending.  I think that’s fine for V and MA but COF and AXP have to actually collect that money – the fact that consumers are charging doesn’t mean they’ll be able to pay…

    Gold hitting $1,190.  Oil ramped up to $77 but pulled back off that.  Copper at $3.19, silver is trailing at $18.79. 

    Volume coming into noon now 51M so only 13M in past hour (52 mins), about 1/2 "normal," which is 1/2 the old normal.  On the whole, I’m fighting the tempation to short everything…

    Upside level check:  Dow 10,471, S&P 1,113, Nas 2,205, NYSE 7,266 and Russell 605.  Oops…

    Downside level check: ow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600.    Hmmm….

  45. stevenparker

    Hmmmm gas build is over ?!?!? :)

  46. mrmocha

    HK: Fully covered mine here, expecting a pause for the holidays.

  47. EricL

    Bought a very small starter short position in GLD with two March 110/105 put verticals for 1.46. If there is weakness ahead I’ll add, but out of any gold shorts if /GC starts closing over $1200.

  48. Pharmboy

    I think I noted a few weeks ago the data from Abbotts Niaspan vs. MRKs Vytorin.  Well, the number of scripts says it all… Going to go long and short MRK here, I think they lower their dividend soon…..
    Last week, all eyes were on Merck’s cholesterol drugs. How did Zetia do in that much-anticipated study pitting it against Abbott Laboratories’ Niaspan treatment? Well, the American Heart Association meeting has come and gone, and while the study favored Niaspan, the even-handed media coverage pointed out the trial’s shortcomings as well as its top-line results. Analysts and investors appeared relieved.
    But one big question remained: How would doctors and patients react in the real world? Now we have that answer: They pulled back from the Merck meds. Both Zetia and the Zocor-Zetia combo drug Vytorin suffered last week, with Zetia scrips dropping by 8.5 percent week over week to 151,100 and Vytorin declining 5.2 percent to about 163,600, Dow Jones reports. Meanwhile, scrips for the Abbott drug grew. Total Niaspan prescriptions rose by 2.6 percent week over week to 107,360.
    "There’s a lot of switching taking place," Timothy McGee of the SDI market research firm told Dow Jones. And SDI pointed to two stats that even more clearly indicate that last week’s study debut changed people’s minds. Niaspan scrips among new patients who weren’t using cholesterol meds over the previous 12 months rose 33.8 percent week over week, while Zetia scrips among those patients dropped 24 percent and Vytorin scrips fell 16.8 percent. Among patients with new scrips who had used cholesterol meds in the past year, the difference was even more marked: Up 45.6 percent for Niaspan; down 27.4 percent and 23.7 percent for Zetia and Vytorin.
    Merck downplayed the scrip data, saying that it’s too soon to gauge just how the Arbiter study will affect prescription trends.

  49. ken88

     Phil, GLL. I am short the GLL 12 Calls (up 55%) and long the GLL$11 calls (down 64%) , April Maturity in a 1:1 ratio. Any suggested adjustments? Thanks Again.

  50. Phil

    Gas/Steve – They ran it up ahead of inventories (which I didn’t hear).  Today’s the day no matter what the facts are..

    Gold/Eric – Good plan but I’ve got my GLL calls, looking for 100% quick.

    GLL/Ken – Yes I suggest taking the money and running on the callers.  Up 64% in one month with 5 to go means you can only make 10% more per month so your 64% one month gain becomes 37% a month and then 28% a month and then 23% a month – even if all goes perfectly for you.  I agree it’s unlikely you get called away but you can pocket that money and roll to the Jan $9s at .55 (I just filled them for that) and those are just .50 out of the money and you can still cover with the $10s at .30 if you get worried to drop your basis down to about .60 right?

  51. judahbenhur

    Pharmboy, You follow SNTS?  It’s a small company with basically one product and I’ve followed it only because it has a patent case that is about to be decided in a suit against PAR.  They also have a couple of pending applications before the FDA with decisions possible in December.  I’ve been in the stock since $2 plus and the stock hovers around $4 now.  Just curious if you know about the company and think the pending FDA applications will move the stock.

  52. gel1

    Obama pardoning turkeys ????? He doesn’t have to go to S Carolina to find one …. most of them are right there in DC, a few blocks away.

  53. Pharmboy

    SNTS/juda – interesting little company here in SD.  Had not heard of them, and I live here – shows you how vast the biotech space is….scientifically – pipeline is moderate. There are many competitors in the space for ulcerative colitis and travelers diarrhea, but lucrative markets if they are successful.  The diabetes and GERD drugs are generic, and one can take both OTC, but they seem to have increasing revenue, little debt and plenty of cash and just turned a profit last Q.  Insiders own 33% of the company, so they WANT it to succeed.  Seems like a good bet in small proportions, too bad there are no options…

  54. dflam

    Hi Phil: On MHP, I bought 15 Jan.2011 $17.50calls at $8.45 (now $13.40) & sold 12 Jan. 2010 $25 calls at $2.35 (now $6.15).I’ve got a nice profit ,but not sure what to do next since the $25 calls have very little premium left. Should I sell the Jan. 2010 $30 puts for $1.20? Thank you

  55. harip

    What is your opinion about buying april 75 puts  on xom or march 75 puts on cvx?? Looks like xom and cvx are being dragged up since dow is going up more than oil reasons

  56. Phil

    Wow, should have just played the oil futures!  Banged up to $77 now.  Gold $1,188 but the Nas and RUT are none too excited about it. 

    EIA Natural Gas Inventory: +2 bcf vs. consensus of +3-7 bcf. Natural gas futures +5.9%, to $5.047.

    BNP Paribas (BNPQY.PK +0.5%) and Deutsche Bank (DB +0.5%) separately sue Bank of America (BAC -0.9%), saying they lost hundreds of millions because BofA breached obligations on $1.6B in asset-backed commercial paper.

    Woo-hoo – just look at that leadership – Basic Materials, Aerospace (saved the durable goods report from disaster), Oils-Energy, Autos (???) and Construction (on the housing report).  So I guess higher energy and materials costs are good for construction – OK, strange but since it’s the exact opposite of logic it must be right for this market…

    Someone made a good point to me.  It’s better to invest in lead than gold because if everything hits the fan the way gold bugs think it will, you will be better off being able to make bullets than jewelry. 

    MHP/Dflam – Good job on the partial cover!  You can roll up to 2x (30) the 2011 $30s at $5.60 and take $2 off the table and roll the callers up to 2x (24) the Feb $30s at $2.80, which will cost you about .70.  If you put a $5 stop (.50 trail) on your extra 6 leaps, that’s another $3K to take off the table if things pull back and you would be left fully covered. 

    Time for me to go.  Volume in last 45 mintutes was 11M more, not even worth paying attention to.  Possibly there will be some volume selling into the close as people don’t feel like letting it ride over the holiday but finish back at good old 10,400 (a big nothing) is the most likely path. 

    Have a great Thanksgiving everyone (although I’ll probably check in chat tomorrow).

  57. judahbenhur

    Pharm, Thanks. SNTS also moves both up and down about 5% a day, so I’ve made a habit of buying and shorting modest amounts on a nearly daily basis.  It has been like a cash machine for me this year.

  58. Phil

    IYT $70 puts at .90 – fun trade.

  59. jomama

     bought back vz long term puts for nice profit and increased position of spwra puts.   spwra is reminding me of mhp a few months ago.

  60. kustomz

    "Basic Materials, Aerospace (saved the durable goods report from disaster)"

    Phil that shouldn’t be surprising if you had looked at the chart below

  61. samz3700

    Anyone know what the call on the DIA covers – naked?
    Thanks Sam

  62. jlui_tx

    Hi Phil, would you recommend to roll the following positions:
    CAL Dec $15 put sold @$1.6
    FXP DEC $7 bought @$1.35
    EDZ JAN $6/8 call spread bought @1.00
    PSQ JAn $50 call bought @ $2.75
    TASR DEc $5 put sold @0.73

  63. Pharmboy

    Sam – 1/2 cover with 104 or 105s, order in for roll up to 107 Mar10s for 50c or 108s for $1.  I think Phil is naked on the DIAs as am I, but when in doubt, sell 1/2.

  64. yodi

    Hi Phil close shop get out of it  and enjoy a happy thanks giving

  65. tchayipov

    I’m 1/2 covered, but only because I have too many short positions

  66. tchayipov

    VLO saved portfolio for today

  67. jromeha

    Phil, do you believe Barron’s Bob O’Brien comments about agriculture or were you just sharing his comments with us? Everything I read seems to point to that being a bull market for many years. We’re not talking about corrupt banks making gambles with free taxpayer $s, retail stores like ANF that sell overpriced products, or gas being bid up when we are swimming in it,  people have to eat! Our food production is not increasing at the same rate as world population, your thoughts?

  68. EricL

    Amazing lack of action in AMZN. Trading desks seem to have a complete strangehold on it. There is still $640 of extrinsic sitting on the Dec. 130/135 strangle for anyone brave enough to bet that they keep it up.

  69. qcmike

    what does this mean ?:
    Latest News Headlines for Poniard Pharmaecuticals Inc

    Poniard Pharmaceuticals (PARD) Mkt On Open Buy Imbalance: Shrs 61770
    Tuesday 11/24/2009 9:28 AM ET – T

  70. cwan120

    Hi, Pharmboy,
    I have some MRK stock, haven’t sold any options yet.  How do you suggest for me to protect, if they drop their dividends?

  71. EricL

    qcmike, I don’t think it means anything. There were 61K more shares bid than offered at the open, but this trades 3M a day, so it’s a drop in the bucket.

  72. gel1

    I believe there will be a bull market for years to come in ag products. Population is increasing and appetites for better food is on a trajectory upwards – most notably in Asian countries (except NK where the govt. thinks people need to be four ft. tall and 75 lbs.). China has 1.3 bil population and 300 mil are entering middle class status – result is they want much better food. I have DBA in my 401K as a permanent cornerstone.

  73. qcmike


  74. ajaytoo

    TBT Mar 42/26 bull call spread back to $2 finally.

  75. Peter D

    Happy Thanksgiving everyone!
    Looks like I’ll move the December positions (I have very few) to January’s next week as there is not much premium left to sell for December options, given the low VIX.

  76. Pharmboy

    cwan – MRK has a ton of support in the 30-32 area, so a dividend cut of a few cents would drop them to there.  They look very toppy here, and I am looking at that range in the next few months.  I would cover with the 36 Jan10 and sell a few P at the 32.5 Jan10 range.  The 36s can be rolled out to 39 Apr10s and you can get more aggressive with the Ps if the chart looks like it will follow through to the up side.  JMO.

  77. cwan120

    Hi, Peter, Happy Thanksgiving to you, too!
    When you move Dec to Jan, do you do horizontal roll?  Or do you roll up for short calls and down for short puts?

  78. XLF'd

    Phil & the gang,
    Since our economy is clearing "turned the corner" :-) I was thinking about selling a few XLF JAN11 "ITM" strangles.  I’m looking at selling the 12.0/17.50 strikes – total credit $7.50; initial margin requirement is $300 to make $250.  The break even points are 9.50 – 20.00.  Any thoughts…

  79. cwan120

    Thanks, Pharmboy, especially the "possible next step" part.
    I really have to learn to keep myself 1 or 2 steps ahead.  No wonder I am not a good chess player.

  80. Pharmboy

    PCU is a beast.  Copper doesn’ t move for the past few weeks much, and they are right back up the to their highs…..gonna have to flip to the dark side here and go long if they keep this up.

  81. Pharmboy

    Anyone know what the copper price index is in TOS?

  82. CaFords

    Pharm – Copper /HG

  83. gel1

    I have concerns with this ETF. Many of the XLF components are the larger banks. During last years financial catastrophe everybody thought the large banks were toast, HOWEVER, the largest received the Tarp money and as a result had the best near term recovery (BAC as an example), so, IMO I believe the ETF is a sideway play as I do not see robust health for some time in this sector. Smaller individual banks would seem to me to be better plays, assuming they have limited exposure to the toxic environment that is still in existance.

  84. kustomz

    GS could not break 169.30 on the last pump (that’s where it broke down earlier today), I’m inclined to believe we sell off this afternoon if they cant get past the number

  85. jromeha

    Gel1 – you might want to check out jjg for your 401K as well.

  86. cwan120

    Hi, Team,
    What are your outlook for Friday?  Do you 1/2 cover EOD?

  87. Pharmboy

    Welcome HK to the party…..

  88. Pharmboy

    cwan – Friday will be light trading….can’t remember the date on the last "holiday", but the volume was horrible and the market moved 100 UP.

  89. JRW III

    1/2 cover is official, Phils gut is naked

  90. mrmocha

    Bought some DIA 104 puts in case Phil is right about a close at 104. Dime stop in case I’m wrong, out at close.

  91. JRW III

    I think you may be right, I have a boat load of TZA from Monday @ 10:05 and I’m thinking of selling here and buying back near Fridays close for the weekend.

  92. mrmocha

    HK – Pharm, it IS the party today, nothing much else happening in my portfolio except that one!  I fully covered at 23 though to the party is slowing…

  93. gel1

    I believe the "trend is your friend" when investing, regardless of the contrarian evidence that prevails with the fundamentals as they exist in today’s market. I have been long precious metals in a big way for some time, and have accumulated bigger profits than anticipated. Greed is a very negative emotion, and recognizing this, I am putting very tight stops on these positions. When the inflection point is reached, the drop will be quick and steep. In the meantime, I’m staying with the trend, untill I see people start to melt down grandma’s jewelry.

  94. cwan120

    I’m going to follow what Phil did Monday, 1/2 cover with Dec $ 105 puts (now at $1.88), a little more bearish than Dec $106 puts (now at $2.45).

  95. cwan120

    Hi, Gel1,
    Are you into gold and/or gold mining stocks?

  96. Pharmboy

    GLD vs OIH for 5 yr chart

  97. EricL

    GLD IV has been going up all day. Put prices are gaining as the stock moves higher. Interesting.
    Also interesting that banks and REITs are so weak today. Tech also limp. Consumer and commodity stocks driving everything.
    Finally, dollar getting killed but the Dow is only up 30 points. That correlation has definitely been weakening, imo.

  98. kustomz

    Gobble gobble everyone have a great Thanksgiving

  99. Pharmboy

    Happy Thanksgiving all.

  100. EricL

    Likewise. Happy Thanksgiving all. Remember to sell short turkey farmers at the open Friday.

  101. cwan120

    Happy Thanksgiving!
    I plan to be around Friday, if my wife allows me.  Could be an interesting day.

  102. gel1

    As in most households, my wife has the only gold in physical form. I have lots of the gold and silver miners as well as the usual ETF plays. on the metals and miners – a mix of stocks and options.I have no interest in owning the physical stuff, as I like to leverage and hedge with the options, as well as sell in moments, which is hard with the physical gold. Eventually we will experience the final spike upwards ( Peter Schiff says $5,000 per oz.) but who can count on just numbers as emotion determines this anyway. When people are visiting their dentist to exchange the gold fillings for composite material, then I would look at closing out all gold positions.
    Have a wonderful Thanksgiving !

  103. cwan120

    So, Gel1, can you recommend some gold mining stocks?  I haven’t paid much attention to them.  I kept wait for a good-sized pullback.  But they just kept going up…
    KGC recently pulled back a bit.  I hesitated.  And then it recovered quite quickly.

  104. Phil

    Good morning!

    Well, it doesn’t take much does it:  Stocks Slump, Bonds Rise as Dubai Roils Markets; Credit-Default Swaps Soar

    I just had a revelation this morning – I only have one screen and I wanted to find out what was happening and I chose Bloomberg over the WSJ, that’s an interesting change in my habits….

    Anyway, so it seems as though Eric nailed it with his note on the dollar correlation weakening.  Today the dollar is even lower but China fell about 2% and Europe’s looking down about 2% (5am) and our futures are down a point or so. 

    I also noticed today that platinum is only at about $1,400.  That’s kind of interesting as it’s just as rare as gold AND it has serious industrial uses (it’s used in emission-control systems) which, of couse are down but  the price of platinum (which was $2,200 last year) makes no sense if the global economy is turning around (Chinese auto sales are a huge factor).  So I’m sorry I didn’t get into that in the above post because it does put how ridiculous gold is into perspective. 

    Loans to households and companies in Europe posted their second straight annual decline in October as the economic slump curtailed demand for credit and made banks more reluctant to lend.  Loans to the private sector fell 0.8 percent from a year earlier after a drop of 0.3 percent in September, the European Central Bank said today. On the month, loans slipped 0.2 percent. M3 money-supply growth, which the ECB uses as a gauge of future inflation, slowed to 0.3 percent in October, the lowest rate since records began in 1981, from 1.8 percent in September.

    Japanese Finance Minister Hirohisa Fujii said the government is watching currencies “very closely” after the yen advanced to a 14-year high against the dollar, threatening the country’s export-led recovery.  “If currencies make abnormal movements, we may need to take appropriate action,” Fujii told reporters in Tokyo today. “Now we’re at the stage where we need to closely monitor movements in currency markets."

    "This yen strengthening is caused by dollar selling rather than yen buying, so this is not something Japan can handle by itself," said Mizuho Securities senior technical analyst Yutaka Miura. "This trend will continue unless the Japanese government takes action, in cooperation with the U.S."  News of Dubai asking for a creditor standstill at Dubai World and Vietnam’s currency devaluation increased investors‘ aversion to risk.

    The new investments funded by China’s stimulus plan may swamp world markets and lead to a surge in trade conflicts, an international business group said, in a sign of the rising concerns over the side effects of the government’s drive to support growth. The European Union Chamber of Commerce in China, in a report released Thursday, said a combination of easy credit and other incentives for Chinese companies to expand has led to the construction of many new factories in areas like steel, aluminum, cement and chemicals. The increase in industrial capacity – at a time of global economic weakness – could drive down profit margins worldwide and lead to a backlash from other countries, the chamber said.

    Russian authorities on Wednesday escalated their campaign to discourage speculative investments, which have been flooding the country and risk driving up the value of the ruble and destabilizing the economy.  The Russian central bank said it would to boost its intervention in the currency markets, increasing ruble sales in a recently tightened trading range.   "We, like many other markets, have received a large influx of short-term speculative capital from the world markets," Mr. Kudrin said. "At these levels, the [stock] market is overheated by speculative capital." Russia’s RTS stock index has climbed by over 65% since January, with the ruble rising 20% against the dollar in the same period.

    Another example of global economists being ridiculously wrongAustralian business investment unexpectedly fell in the third quarter as a decline in spending by manufacturing companies offset increased mining outlays.  Capital spending declined 3.9 percent from the previous quarter, when it rose a revised 2.1 percent, the Bureau of Statistics said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a 1 percent advance.

    Woops – London halted the FTSE!!!  Due to ongoing technical difficulties, the exchange has placed all order-driven securities in to an auction call period,” the exchange said on its Web site today. “The length of this period has not yet been decided and will be scheduled following resolution to the issue. All quote driven securities should be considered indicative at this time.”

    What a crazy day – so glad we stayed bearish – makes it much easier to enjoy the day doesn’t it?

    Have a great Thanksgiving,

    - Phil

  105. Phil

    Sorry Eric but that turkey short isn’t going to work out:

    Looking just at the change in the price of gold in 2008, using the data we found in Kitco’s historical gold price charts, we find the average price of gold in 2008 to be $871.96 and the average price of gold from 1 January through this point in 2009 to be $954.33. That works out to be an average annualized increase in price of 9.4% for the precious metal.

    That’s less than the 11.8% increase in price we’ve calculated for whole, frozen turkeys for the period from January 2008 through September 2009, which is really impressive considering that gold is now near its highest values for the year.

    So we find that turkeys have outperformed gold as an investment over much of the past year. Who would have ever thought such a thing was possible?!

  106. barfinger

    As this year winds down, I discovered (once again) the truth about option investing. Principle one: NEVER permit an option you wrote to be exercised. This appears to be in doubt when a stock gets called away from you and promptly collapses, or a stock gets put to you and rallies, but this is not the norm. Further, the average forgone profit on a call-away and the average loss after a put roosts on you far outweighs the gains when things work out. In general, stocks that rally continue to rally and stocks that drop do so for a reason. Hence, the concept of a "trend".
    Option trading is a wonderful income generation mechanism, but in general, you are better off rolling an option that comes in the money than allowing exercise.

  107. Phil

    FTSE testing 5,250 – I’d say we should watch it but there’s not much to be done about it even if we did…

  108. pstas

    George Washington’s 1789 Thanksgiving Proclamation

    Whereas it is the duty of all nations to acknowledge the providence of Almighty God, to obey His will, to be grateful for His benefits, and humbly to implore His protection and favor; and Whereas both Houses of Congress have, by their joint committee, requested me to "recommend to the people of the United States a day of public thanksgiving and prayer, to be observed by acknowledging with grateful hearts the many and signal favors of Almighty God, especially by affording them an opportunity peaceably to establish a form of government for their safety and happiness:"

    Now, therefore, I do recommend and assign Thursday, the 26th day of November next, to be devoted by the people of these States to the service of that great and glorious Being who is the beneficent author of all the good that was, that is, or that will be; that we may then all unite in rendering unto Him our sincere and humble thanks for His kind care and protection of the people of this country previous to their becoming a nation; for the signal and manifold mercies and the favorable interpositions of His providence in the course and conclusion of the late war; for the great degree of tranquility, union, and plenty which we have since enjoyed; for the peaceable and rational manner in which we have been enable to establish constitutions of government for our safety and happiness, and particularly the national one now lately instituted for the civil and religious liberty with which we are blessed, and the means we have of acquiring and diffusing useful knowledge; and, in general, for all the great and various favors which He has been pleased to confer upon us.

    And also that we may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations and beseech Him to pardon our national and other transgressions; to enable us all, whether in public or private stations, to perform our several and relative duties properly and punctually; to render our National Government a blessing to all the people by constantly being a Government of wise, just, and constitutional laws, discreetly and faithfully executed and obeyed; to protect and guide all sovereigns and nations (especially such as have shown kindness to us), and to bless them with good governments, peace, and concord; to promote the knowledge and practice of true religion and virtue, and the increase of science among them and us; and, generally to grant unto all mankind such a degree of temporal prosperity as He alone knows to be best.

    Given under my hand, at the city of New York, the 3d day of October, A.D. 1789.

  109. EricL

    Dubai cruel World.
    Apparently lots of European banks are very exposed there. If true, it’s surprising the Euro is holding up this well.
    Assuming they can get their ‘technical difficulties’ sorted out, it will be interesting to see whether they hold the ship together tomorrow. If not, then the headlines in the U.S. tomorrow will read "Global Markets Plunge", which should put everyone in the mood to shop.
    That’s amazing about turkeys vs. gold Phil. I was going to say ‘short poultry futures’, but then realized that there aren’t any.

  110. EricL

    By "they" I meant Europe, of course.

  111. Phil

    Washington/Pstas – Interesting, I never read that one.

    Dubai cruel World/Eric – That is funny!  You need to consider writing some posts.  Meanwhile, I’m stealing that excellent title for tomorrow’s if you don’t mind…. 

    FTSE failed 5,250 in the end (note the 3hr flat-line as they halted trading) and tried to pin 5,200 into the close but failed that as well, down 3% for the day.  Dax gave up 3.25% finishing near the LOD at 5,614 and don’t forget we now need 5,750 there to get back to a bullish international stance.  CAC dropped 3.4% and gave up the 3,700 line, finishing at 3,694. 

    As far as I can tell, the Dubai thing hit the wires AFTER Asia closed so this story has legs into tomorrow’s open for Asia.  We could get a global 5% rule dip before we even open tomorrow.  Of course, this is pretty much what I’ve been expecting to happen some weekend for weeks now so it’s good to know I’m not crazy (or at least not too crazy).  It didn’t have to be Dubai (and it isn’t just Dubai anyway), we’ve been expecting a major bank or minor country to fail for months and the closer we get to the end of the year – the more accounting nastiness hits the fan.

    As we learned from watching "Men in Black":  "There’s always an Arquillian Battle Cruiser, or a Corillian Death Ray, or an intergalactic plague that is about to wipe out all life on this miserable little planet, and the only way these people can get on with their happy lives is that they Do… Not… Know about it!"   That’s our burden as we discuss the market fundamentals while others party in blissful ignorance – we are the men in black and we do know what’s really going on in the world… 

    Credit default swaps are up almost 20% today, a whip like that is going to lead to much bigger problems than Dubai’s $50Bn default if it doesn’t reverse quickly as there are still many trillions of CDS paper out there. 

    Moody’s Investors Service and Standard & Poor’s cut the ratings on Dubai state companies yesterday, saying they may consider Dubai World’s plan to delay debt payments a default.  Gulf region default swaps jumped, with contracts linked to Bahrain adding 29 basis points today to 223.5, the biggest increase since Feb. 18. Contracts linked to Abu Dhabi added the most since February yesterday, climbing 36 basis points to 136.5 and were another 23 basis points higher at 159.5 today, according to London-based CMA. Qatar default swaps rose 13 basis points to 117, adding to yesterday’s 11 basis-point increase.  “Dubai is the most indicative of the huge global liquidity boom and now in the aftermath there will be further defaults to come in emerging markets and globally,” said Nick Chamie, head of emerging-market research at Toronto-based RBC Capital Markets.

    The dollar is picking up steam already and it will compound this tragedy if the dollar snaps back sharply and sends commodities off a cliff into the weekend. 

  112. Peter D

    Happy Thanksgiving!  Hey, I had a dream of buying 100 SPX 1070 PUT and that the market could drop 8% before Dec expiration, and I get 5x back on my speculation.  Looking at the future this morning (/ES down 24), my dream came true, but there won’t be profit as those PUT would get a lot more expensive on Friday.  The market may recover completely, in that case I’ll see how much the SPX Dec 1070/1060 vertical would cost as a speculation.

  113. Phil

    Mike Shedlock responds to Marc Faber’s "gloomiest prediction yet" – which, among other cheery events, includes the collapse of capitalism: "Capitalism will not collapse, because we are not practicing capitalism. Instead, we are practicing a perverse blend of corporate fascism, socialism, corruption, and padding of the pockets for and by those running the country. Yes, that will collapse."

    Newsletter writers, for one group, are as bullish as they’ve been since the March lows.

    This might be bearish even for Elliott Wave’s Robert Prechter: a recommendation to go 200% short on stocks.

    The Economist’s Buttonwood does some spreadsheet crunching on how to play the yield curve in a time when cash is yielding near zero, and concludes the prospect of good bond returns is poor.

    In a world where one man must fight to keep from being buried in debt … Now appearing before your holiday movies: the Fed. The central bank is paying for 45-second ads to appear in 12 metro theaters, encouraging responsible credit-card use in the holiday shopping season.

    Obama will rise and fall with the dollar: The electorate is only as happy as the value of the greenbacks in their pockets.

    That last one is an important point.  Are voters actually aware of the value of the dollar?  If they are, then we know there are things that the government can do to boost the buck and if that suddenly becomes more important than propping up the markets – then we could have the government suddenly working against the investor class (or at least the speculator class, who are running the show at the moment). 

    Well, I’m off for the feast – Have a good one all, tomorrow should be interesting to say the least.

  114. tchayipov

    Hi guys,
    happy Thanksgiving,
    Do you know if market will be opened tomorrow?

  115. Peter D

    cwan, now we have an answer to your rolling to January question.  There is no rules, just that we want to roll to the strikes where we are most comfortable.  We could be looking at a sizable drop on Friday and next week as this kind of problem is serious.  So for the SPX Dec 1150 short CALL, the roll is at least horizontally to Jan 1150 short CALL.  The Dec 975 short PUT is in good shape as it’s still way OTM.  When the downward momentum slows, we can roll to Jan 950 PUT or so.

  116. Cap

    It will open & it will be down large on Dubai debt payment default/delay news … be ready.

  117. tchayipov

    I know that and fully prepaired  (65/35 bearish) hope it will be payed out tomorrow (finally)

  118. tchayipov

    Just need a plan how and when get cash from our short positions

  119. Cap

    Obama’s falling poll ratings leading to desperate measures.  the Obamas look to Oprah for help; Oprah to host an informercial show to save Obama..  Either that or Obama is looking past 2012 to replace Oprah on her retirement (would be a much better fit for him).
    Coming next on Obama’s book club … Rules for Radicals.  Next week, Hu Jintao will be on promoting Mao’s little red book.

  120. Cap

    Happy Thanksgiing everyone.

  121. Zuko775

    Can someone tell me why the ask oni SRS is 285 today?  Is that just some wierd Holiday thing or amI going to cry tommorow because I just liquidated a l’ arge postion yesteday to try and get to cash before TG. Hmm.  

  122. cwan120

    Hi, Peter D,
    Thanks for your suggestions.
    If SPX does drop 25 points on Friday open, how much do you think the 1150 calls will drop?  If it gets to my 50% profit point, I am thinking it may be time to cash out, and then sell Dec puts, eg 975 or 950.  Why bother to roll to Jan?
    Friday will be interesting, for sure.

  123. Peter D

    cwan, the Dec 1170 CALL is $1.925, so the Dec 1150 CALL can drop from $4.3 to $2.5 or so as VIX would be higher.  It’s up to you whether you want to play the Jan’s or not.  If the market continues to drop (-5%), the Jan 1150 CALL could be as low as $3 (was $12 on Wednesday) in a week’s time.  When you get around to play the Jan’s at the end of next week, you don’t get as much credit as you would by playing it tomorrow.  Again, there are many many scenarios, just take your picks.

  124. JRW III

    Happy Thanksgiving, SoTHE QUESTION is: What do we do Friday at the open ? 
    WHAT WILL GS DO ?????

  125. chenboy83

     Hi everyone, hope you’re all having a good thanksgiving.  
    (pretty much unrelated to stocks/options but…)
    Noticed Phil mentioned platinum in his comment.  I’ve been thinking about getting some precious metal bullion as part of just general diversification of my current cash.  Anyone have any experience / tips / pitfalls I should look out for?  I’m specifically looking at some American Eagle bullion coins, maybe the platinum variety (but obviously open to looking at other options, no pun intended, really).  I did some Google searches and tried to see what info’s out there, not sure what I can trust / rely on, but I assume info from an official-ish source like usmint can be somewhat trustworthy.

  126. gel1

    This is a day for giving thanks…. have to include you Phil, and the many contributors at PSW for making this year one of the best for me. You all made it possible …. Many, Many Thanks!!!

  127. Pharmboy

    Interesting SPX chart…..

  128. gel1

    I missed your earlier post re my positioning on gold… At present I have ABX, GG, AUY, EGO, NEM, HMY, stocks and options – both short calls & short puts on these positions –  weighted by order starting with ABX. I also have some long calls on ABX and GG (my favorite stocks). I was in KGC earlier on, but closed out because I felt they were not keeping up.The ETF positions are GLD and GDX – all bullish. My silver positions have really been cranking of late – they are SIVR, SLV. I have looked into PTM (palladium ETF) but no options available, so will pass. I still think palladium is a good play at this time, because there are some terrific  industrial uses that will increase as the economy advances. -catalytic converters and computer disc drives, not to mention medical & dental needs. The Chinese also like platinum jewelery and their rising middle class will create more demand.. If gold is truly overpriced today, then platinum is maybe fairly priced  for this market, but if the price is right, for gold today, then platinum will soon move upward as the market will notice the imbalance between the two, and the historical pricing ratio will be restored..

  129. balancenv

    Happy Thanksgiving to all too. There’re some local restaurants offering special turkey feasts but otherwise much less celebrating atmosphere here in Asia. 
    Shanghai and HK are all 3 and 2% off, on top of Thur’s 3% and 2% off each early into the session, we’ll see how it goes for the days.
    A general question is, when will the initial holiday shopping results be out next week? 

  130. cwan120

    Hi, Peter D,
    Thanks for the tips.  That’s a nice piece of advice!  I didn’t think that far ahead.
    Following your advice, I am now thinking maybe I can begin to sell Jan calls, while waiting to cash out the Dec calls.  I have sold only a few Dec calls.  So, I can afford to sell a few Jan calls, while waiting for Dec calls to decay more.
    It really depends on what happens tomorrow.
    See ya in the morning!  Thanks again a lot!

  131. cwan120

    Hi, Gel1,
    Thanks for the information.
    Do you think that it’s too high to enter gold related investments now?

  132. gel1

    I personally do not think gold investments are too high, but I’m sure many members of the board would probably think I’m nuts for that statement. My reasoning is as follows: Gold is priced in US dollars, and the dollar is undergoing a barrage of government policies that will continue well into the future, that will weaken its value. The Fed is following a policy of quantitative easing which dilutes the value. There is absolutely no effort within the current administration to restrain the record deficit spending, and as a matter of policy their belief is that the reckless spending is beneficial – not detrimental. Further, I do not believe US will have a robust economy for many years to come, all due to government policy that is politically driven and ignorant of conventional economic wisdom. The demand for gold at the moment is also driven by the concerns of governments around the world relative to the long term stability of the dollar, as I believe gold is being bought by them as a hedge against the falling dollar. They are holding US treasury debt, and concerned the payback will be in depreciated dollars. Inflation will follow this reckless dilution and the dollar will fall further. My gold positions are in my portfolio as long term holds, and I am protected with tight stops and covered calls.I guess you have to weigh the risk/reward based upon your convictions of what the consequences might be should this play out the way I have outlned what I believe is in store for us.

  133. thatway

    So where does the money flow? Into treasuries and commodities? Does this Dubai thing explain the post on zero hedge last week bout yields going negative and certain comments saying last year when this happened it was somebody was too scared bout a major bank going under. Similarly a post in aug/sept time frame had said major brokerage houses went long dec gold. Looks like some had connections at IMF and Dubai. What happens if Americans just go window shopping. Is duabi issue bigger than the CIT failure. Don’t they thier own w buffet to “help” the lil guys out? The guy from mcclean osscilatar family was on discplined investor pod cast menitioned their osscilator predicted small correction with dates of dec 10. forgot if it was start or ending. But the guy said it would be small. Said there is something also with 9 month cycles. Or us this just another nothing to see here folks please xontinue to max out your cc as congress aproves global wArming and bamacare package.

    Does the Greek issue play into shippers and does that play into transports.

    And on a deeper note, what would Paris do?

  134. magret

    Gel I have some SLV , PAAS and other miners ( eg ABX buy / writes $37.50 (Jan P/C)) . The calls will obviously be exercised against my stocks. Do you think i should roll the calls to a higher / further out option. I still think it’s worth holding the stock for the long term. Thanks.

  135. Phil

    Good morning!

    Wheee, this is fun – futures are down around the 2.5% rule but commodites can’t wait and are closer to 5%.

    The Hang Seng dropped 1,000 points so 5% rule there too and the Nikkei split the difference with a 3.2% drop. 

    There is a lot of buying in Europe into the morning gap down so we may get the same if it holds up but that’s 5 hours from now so nothing to get too excited about at 4am.  Keep in mind that investor sentiment was pretty insanely bullish so there are going to still be tons of dip buyers out there regadless. 

    We are only open until 1pm and volumes will be very thin. 

    If you are bearish and expecting to be well ahead at the open, as long as the FTSE holds 5,150 then you can cover what’s looking to be a good open with a bullish position on the Dow futures at 10,200.  That can be the stop line as well but the FTSE is more important as it indicates a lot of dip interest.  That would be good to ride up for maybe 100 points (with sensible trailing stops) which is, of course, huge money in the futures… 

    Direction/JRW – As above, we follow Europe’s lead. 

    Platinum/Chen – I mentioned platinum as an indicaion that gold was totally ridiculous in price, not that I thought platinum was itself a good buy at $1,400.  As you can see, gold is taking a nice dive in the futures (woo-hoo on the GLLs!), which is what you expect to see when something gets that bubbly. 

    Thanks/Gel – Well thanks to you guys too as I really enjoy the opportunity to do something I’m passionate about for a living!  I hope you are well-hedged on all those golds – I would have taken the bull money and ran of course (just in case the above article wasn’t a hint enough).  Silver is back to the $17s again so watch that as well.  You can not believe in the long-term stability of the dollar all you want and yes, gold is a good hedge (I was gung-ho bullish on gold at $800 for that exact reason and told people it should be 10% of the portfolio (GLD Jan $85s at $7 was our last buy-in, so a 10% investment returned 400% as a hedge and that boosts an entire portfolio 40%) but, as I said above, there is a time to take the money and run and we are past it.  

    In order for the dollar to collapse, the global economy has to collapse and we just saw what happens when the global economy collpses last year and again in March and neither time did people say (gosh, the global economy is collapsing, I’d better put all my money into gold and oil).  When it really hits the fan, people run to cash, they cash stocks, bonds, TBills and commodities and that creates a demand for dollars (how many US investos call their brokers and say "sell all my Google and change it into Euros"?).  While you can look for a long-term trend to eat away at that cycle, any short-term major market moves are still going to be governed by it.  The dollar is in a trend just like everything else and, right now, the dollar is at the low end of their range and commodites are at the high end of the range.  It’s a lot easier to play for a return to normal than to bet the farm on a historical breakout. 

    Shopping/Balance – It is going to be all about the Retail numbers and we’ll probably get some kind of estimates over the weekend and I’m sure CNBC et al will have cameras stationed at key places to give play-by-plays of the turnout.  I was with a pretty large group of middle and upper-middle class Texans yesterday and not one of them had any intention of going shopping tomorrow.  The general impression is that the stores will have sales but they’ll have better sales later – since that’s pretty much what happened last Xmas, people seem to expect that to be the new pattern.

    Money/Thataway – On the whole there is nothing happening here that we (we meaning PSW, not the rah-rah market cheerleading crowd) didn’t expect and it is, on the whole, not such a big deal by itself.  The problem is it’s probably only the first crack to form in the stimulus dam that’s been trying to hold back a flood of global defaults through various stupid bookkeeping tricks only the dam is built so high that we won’t know how much water is behind it until it breaks and starts spilling out.  Hopefully, much of the real financial damage has receeded and there won’t be too many major failures.  With any luck, another $1Tn handed out to stave off failures and all is well – a drop in the bucket compared to letting the globabl markets drop give back half or more of the $40Tn they’ve gained since March.  Certainly none of the global governments want to give the top 1% and the IBanks the chance to write off gains before they pay their 2009 taxes…

  136. magret

    Phil I have been applying your arsenal (matresses, Edz plays, Ugl verticals etc.) to my gold holdings . So a big thank you for ‘teaching me how to fish rather than giving me the fish’……

  137. Phil

    Thanks Magret – I’m so glad to hear that!  I know it’s annoying to be cautious at times (especially in a runaway bull market) but, inevitably, something like this happens to remind us that gains can be fleeting – and even more so if not protected…


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