Archive for 2009

Swing trading virtual portfolio – Week of July 27th 2009

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Preemptive Defaults

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Preemptive Defaults

debt, preemptive defaultsCourtesy of Mish

Many consumers, trapped in a whirlpool of debt, interest payments, and fees spiraling out of control, finally see the light of preemptive defaults and elect to walk away.

Please consider the New York Times article When Debtors Decide to Default.

Those on the front lines of the debt industry say there is a small but increasingly noticeable group of strapped consumers who are deciding they will simply stop paying. After loading up on debt eagerly provided by the card companies during the boom times, these people now find themselves trapped in an endless cycle where they are charged interest on interest and fees upon fees while the lenders get government bailouts.

They are upset — at the unyielding banks and often at their free-spending selves — and are pre-emptively defaulting. They could continue to pay for a while longer but instead are walking away. “You reach a point where you embrace the darkness of default,” said Adam Levin, chairman of the financial products Web site Credit.com.

“They’ve done the math on their account and they’re very angry,” said Corey Calabrese, a Fordham Law student who is an administrator of the school’s walk-in clinic for debtors at Manhattan Civil Court. Public sentiment is on their side, she added: “For the first time, Americans are no longer blaming the borrower but are looking at the credit card companies.”

According to a Quinnipiac University poll in February, 62 percent of those polled blamed lenders “who loaned the money to people who may not be able to pay it back.” Only a quarter blamed homeowners.

Like many who default, Ms. Birks first asked her credit card company to lower her 19 percent interest rate. No dice, Bank of America responded. After she tried to get the bank’s attention by skipping a payment, it immediately raised her rate to 25 percent. As Ms. Birks’ debt swelled, so did a sense of injustice mingled with helplessness.

Ms. Birks asked Bank of America about a settlement this spring. Since her account was up to date, she was told she didn’t qualify. She stopped paying, the bank started calling.

When Bank of America finally got her on the phone, it agreed for the first time to drastically reduce her interest rate. She did not take


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Calpers Rolls the Dice, Gambling that Riskier Bets will Restore its Health

Calpers Rolls the Dice, Gambling that Riskier Bets will Restore its Health

calpers rolls the diceCourtesy of Mish

Calpers, the California Public Employees’ Retirement System, is in deep trouble. Calpers got in trouble by not understanding risk. It still does not understand risk and thinks risk is the solution.

Please consider the New York Times article California Pension Fund Hopes Riskier Bets Will Restore Its Health.

Calpers, lost nearly $60 billion in the financial markets last year. Though it has more than enough money to make its payments to retirees for many years, it has a serious long-term shortfall.

Those problems now rest largely on the slim shoulders of Joseph A. Dear, the fund’s new head of investments. He is not an investment seer by training, but he thinks he has the cure for what ails Calpers, or the California Public Employees’ Retirement System, the largest in the nation with $180 billion in assets.

Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.

That’s right, he wants to load up on many of the very assets that have been responsible for the fund’s recent plunge. Calpers’s real estate portfolio has tumbled 35 percent, and its private equity holdings are down 31 percent. What is more, under Mr. Dear’s predecessor, Calpers had to sell stocks in a falling market last year to fulfill calls for cash from its private equity and real estate partnerships. That led to bigger losses in its stock portfolio.

Gov. Arnold Schwarzenegger, who is on the Calpers board, has called the fund “unsustainable.” He has specifically criticized a decision by Calpers last month to give California municipalities a break on their required contributions. Rather than stepping up contribution rates to 5 percent to cover investment losses, Calpers set a maximum increase of 1.1 percent — saving municipalities hundreds of millions of dollars.

Mr. Schwarzenegger called it a “pass the buck to our kids idea.” Calpers says municipalities, which pay 15 percent of their payroll — or about $11 billion a year — into the fund, needed the help.

In the end, Mr. Dear, who will get $408,000 to $612,000 in salary and can qualify for a


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Is The Credit System Broken?

Is The Credit System Broken?

Courtesy of Tom Lindmark at But Then What

credit system broken?

Cash strapped American consumers are increasingly walking away from their obligations. It started with houses that they couldn’t afford and now it’s spreading to other types of debt.

From the NYT:

Those on the front lines of the debt industry say there is a small but increasingly noticeable group of strapped consumers who, like Ms. Birks, are deciding they will simply stop paying. After loading up on debt eagerly provided by the card companies during the boom times, these people now find themselves trapped in an endless cycle where they are charged interest on interest and fees upon fees while the lenders get government bailouts.

They are upset — at the unyielding banks and often at their free-spending selves — and are pre-emptively defaulting. They could continue to pay for a while longer but instead are walking away. “You reach a point where you embrace the darkness of default,” said Adam Levin, chairman of the financial products Web site Credit.com.

The lending industry term for these people is “ruthless defaulters.” In a miserable economy where paychecks, savings and expectations are all diminished, their numbers will surely grow.

“They’ve done the math on their account and they’re very angry,” said Corey Calabrese, a Fordham Law student who is an administrator of the school’s walk-in clinic for debtors at Manhattan Civil Court. Public sentiment is on their side, she added: “For the first time, Americans are no longer blaming the borrower but are looking at the credit card companies.”

I shouldn’t think that this comes as a surprise to anyone. Americans have shown a willingness to walk away from their homes and the associated debt that most never believed existed. It was only a matter of time until that attitude spread to other forms of debt. The concept that one had a moral obligation to repay borrowed money vanished somewhere along the way and it’s taken a severe recession to bring that fact to light.

As they watch the banks they believe induced them to take on unreasonable debt receive serial bailouts and then argue about how many millions of dollars they should be allowed to pay their employees the cynicism grows. If them why not me becomes the rationale for default. Those pesky unintended consequences once again rear their…
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The Statistical Recovery

Courtesty of John Mauldin:  

 

A lot of bullish commentators are talking about a recovery being in the works, and they may very well be right. But it is not going to look like any recovery worthy of the name. This week we look at what I will call The Statistical Recovery. But first we take a look at what China is doing, as we continue our look at the rest of the world and ponder whether it is time to brace ourselves for an extended bout with the Muddle Through Economy*. (And yes, there is an asterisk.)

Can China Lead the Global Recovery?

China is growing by about 8% a year, which is amazing on the surface of it, as their exports are down about 20% (more in some sectors). How can that be?  I continually read about how China is going to lead the world out of its global funk. And 8% growth in GDP does seem pretty strong. But we need to look a little deeper.

If I told you that the next US stimulus package would be $4.5 trillion dollars, mostly given to banks that would be forced to loan out the money quickly, do you think that might jump spending and GDP in the short term? Would you start looking for a few bubbles to be created? What about the dollar?  That is the equivalent of what China is now doing. The volume of credit that is flowing into China is equivalent to one-third of their GDP. Banks that already have large problem-loan virtual portfolios are now lending even more, in a very short time frame. China has severe capacity-utilization problems, as trade has sharply fallen; and the US consumer is unlikely to return to anywhere near the level of consumption that was the case in 2006.

The Chinese stock market is up 85% this year, and commodity and real estate prices are rising. And no wonder: the money supply shot up 28.5% in June alone. That money is looking for a home. My friend Vitaliy Katsenelson has written a very perceptive essay for Foreign Policy magazine, talking about the nature of the current growth in China.

"But don't confuse fast


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WHAT’S ON TAP?

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WHAT’S ON TAP?

Courtesy of The Pragmatic Capitalist

This is the biggest week of the quarter in terms of earnings.  29% of the S&P 500 will be reporting and 750 companies in total report.  The docket is loaded with energy and materials firms.   Adding to this is a heavy slate of economic news:

  • Monday: New home sales
  • Tuesday: July Conference Board Consumer Confidence, S&P/Case-Schiller Home Price Index
  • Wednesday: June durable goods orders, Federal Reserve Beige Book, weekly crude inventories
  • Thursday: weekly initial jobless claims
  • Friday: Advance Q2 GDP, July Chicago PMI

The government is auctioning off an incredible $115B in short-term notes next week.  This could create the risk of higher yields and a skittish stock market.  At some point the demand for bonds is going wane and  yields are going to spike.

The risks in this market are rapidly increasing.  There is a deep feeling of complacency in the market.  The latest AAII sentiment reading came in at 38 – a fairly neutral reading, but up substantially in the last two weeks.  Meanwhile the recent rally has been on very low volume and very questionable fundamentals:

 

bberg

 

The rapid decline in the VIX and Yen also have me feeling a bit uneasy about the current move.  The majority of the strong tech firms and banks have released earnings.  Now we’re moving into the real economy names – energy, materials and consumer related names.  I don’t expect the news to be nearly as good as we get deeper into the earnings season.  We’re also moving into a seasonal period that is very weak for the stock market.  Investors always try to anticipate the scary month of October by getting out in September.  We could see a repeat this year, especially considering the disaster we saw last year.  This is a fast moving market.  I’ll adapt with it, but for now, I am standing pat on my bullish stance with the expectation of short sellers capitulating at some point in the next week or so.  That will be your chance to move to a neutral position or get short.  Stay tuned.

 


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60% of Those Unemployed Can’t Get a Job Within 1 Year

60% of Those Unemployed Can’t Get a Job Within 1 Year

Courtesy of Jake of Econompic Data

According to the Department of Labor, the Exhaustion Rate is: 

The exhaustion rate is equal to the number of final payments in a twelve-month period divided by the number of first payments in a twelve-month period that lags the period over which final payments are counted by six months (26 weeks). For example, the exhaustion rate for December 2004 is equal to the number of final payments from January 2004 to December 2004 divided by the number of first payments from July 2003 to June 2004. When charted, the exhaustion rate is much smoother than the simple count of exhaustions because each point represents twelve months’ worth of aggregated data, much like a moving average.

As I detailed in my previous post Exhaustion Rate Underestimates the Issue, the six months was applicable when unemployment insurance was… six months. That length has shifted to 12 months in November, thus the Exhaustion Rate (as listed by the DOL) is no longer applicable. Fortunately, I crunched the numbers and voila… we have the chart below.

Jobs:  Exhaustion Rate

And it is rather frightening. Of those that received their first unemployment benefits 12 months ago, 60% were unable to get a job AND are now no longer able to collect unemployment. This is a huge reason why the continuing claims number and unemployment rate underestimates the issue.

Source: DOL


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California Budget Resolution puts Band-Aid on Failing Dike

California Budget Resolution puts Band-Aid on Failing Dike

Courtesy of Mish

After months of political wrangling between Democrats, Republicans, and the governor, California Approves Budget, Sends Bills to Governor.

California Governor Arnold Schwarzenegger said he supports the plan the Legislature approved today to erase a $26 billion deficit that pushed the most-populous U.S. state to the brink of insolvency.

The Senate and Assembly passed the package of more than two-dozen bills though a marathon 18-hour session. Schwarzenegger told reporters afterwards that he will sign the budget reduction plan within days after using his line-item veto authority to trim spending and bolster state reserves.

The package cuts spending by $15 billion, including $6 billion from schools and community colleges, $3 billion from universities and $1.2 billion from prisons. It also raises $4 billion, in part by accelerating personal and corporate income- tax withholding and increasing the amount withheld by 10 percent.

The passage will allow the state to use $2 billion of local property taxes meant for cities and other local jurisdictions and some $1.7 billion earmarked for redevelopment agencies.

The deficit plan also shifts $1.5 billion between accounts and moves the last payday for workers this fiscal year to the next 12-month period.

Hollingsworth, the Republican leader, said he hopes that lawmakers don’t have to redraw the budget yet again should the state’s revenue keep falling.

Budget Incorporates Fiscally Unsound, Possibly Illegal Budget Gimmicks

For starters, the much ballyhooed budged is not even balanced. Borrowing money from local governments is fiscally unsound and possibly illegal.

Please consider California Cities Knock State Budget, Wary of Bonds.

California local governments criticized the budget deal struck last night and expressed doubts about plans to tap $2 billion of their property taxes to close the $26 billion state deficit.

McKenzie and Paul McIntosh, the executive director of the California State Association of Counties, said localities may file a lawsuit challenging the use of their gasoline tax and redevelopment funds, which they said violates the state constitution.

“They don’t want to cut spending and they don’t want to raise taxes,” said McKenzie. “They find it’s easier to steal the money.”

The Los Angeles County supervisors voted unanimously today to sue the state if $400 million of funds it expected are withheld, the Associated Press reported.

Numerous Unsolved Structural Defects

California has numerous unsolved structural


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WHY ISN’T THIS ON THE COVER OF EVERY NEWSPAPER?

WHY ISN’T THIS ON THE COVER OF EVERY NEWSPAPER?

not headline news FASB vs. financial industryCourtesy of The Pragmatic Capitalist

Okay, I can see how this story might not be a headliner, but we’ve heard practically nothing in the mainstream media about the upcoming battle between FASB and the financial industry with regards to accounting changes.  According to Bloomberg FASB is expected to expand the use of fair value accounting after the drastic changes that took place in Q1 – the same changes that have helped so many of the banks in the near-term.  FASB knows they made a mistake and got pressured by politicians and the Treasury to change the rules in the middle of the game.  Well, now they’re considering changing them back (kind of).  The rule change would have sweeping effects on the banks and as regular readers know, I believe would have an enormously positive impact on the long-term well being of the country.  Bloomberg reports:

The scope of the FASB’s initiative, which has received almost no attention in the press, is massive. All financial assets would have to be recorded at fair value on the balance sheet each quarter, under the board’s tentative plan.

This would mean an end to asset classifications such as held for investment, held to maturity and held for sale, along with their differing balance-sheet treatments. Most loans, for example, probably would be presented on the balance sheet at cost, with a line item below showing accumulated change in fair value, and then a net fair-value figure below that. For lenders, rule changes could mean faster recognition of loan losses, resulting in lower earnings and book values.

The board said financial instruments on the liabilities side of the balance sheet also would have to be recorded at fair-market values, though there could be exceptions for a company’s own debt or a bank’s customer deposits…

Differing Treatment

While balance sheets might be simplified, income statements would acquire new complexities. Some gains and losses would count in net income. These would include changes in the values of all equity securities and almost all derivatives. Interest payments, dividends and credit losses would go in net, too, as would realized gains and losses. So would fluctuations in all debt instruments with derivatives embedded in their structures…

Imagining the Impact

Think how the saga at CIT Group Inc. might have unfolded if loans already


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High Frequency Trading Is A Scam

High Frequency Trading Is A Scam

Devil in the machineCourtesy of Karl Denninger at The Market Ticker


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Zero Hedge

Medal Of Honor Recipient Warns: "It's Going To Come Here... Trump Must Release The Gates Of Hell" On Islamic State

Courtesy of ZeroHedge. View original post here.

Authored by Mac Slavo via SHTFplan.com,

With British Prime Minister Theresa May warning that another attack may be imminent, Medal of Honor Recipient Dakota Meyer says that it’s time to strike Islamic State strongholds with...



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Phil's Favorites

Ben Carlson on Market Breadth

 

Ben Carlson on Market Breadth (Video)

Courtesy of Joshua Brown, The Reformed Broker

Ben had a hit on Bloomberg TV last night talking about his recent piece on market breadth and why it’s perfectly normal to see the market being led higher by some very big winning stocks. His research shows that this is always the case during bull markets and that broader measures of the internals are healthy, not sick.

Check this out:

…and you can read his expanded thoughts on ...



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ValueWalk

Neil Howe Of The Fourth Turning - We Are In The 1930s; "Winter is coming"

By Mauldin Economics. Originally published at ValueWalk.

By Mauldin Economics From the Balkans to the US, walls are going up, not down, according to demographer and The Fourth Turning author Neil Howe.

Speaking to a packed crowd at Mauldin Economics’ Strategic Investment Conference in Orlando, Howe said we are reliving many of the same trends and changes of the 1930s.

Faith in Democracy Is Fading

“Worldwide, people are losing trust in institutions,” he said. “Trust in the military, small business, and police is still there. But trust in democracies, media, and politicians is dropping.”

“When was the last time we saw these changes and the rise of right-wing populism?” he asked....



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Digital Currencies

Bitcoin Is Crashing (Again)

Courtesy of Zero Hedge

While Bitcoin is still up 13% on the week (its 8th weekly ruse of the last 9), the dollar price of the virtual currency is collapsing again in US trading (after a big rebound during the Asian session)...

Just as with yesterday, there is no immediate news catalyst for the flush.

Meanwhile, the huge arb with South Korea bitcoin pricing remains, and as of this moment is still nearly $1000.

Today's drop ...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

U.S. stocks scale new peaks on retailer results; oil falls (Reuters)

Two top U.S. equity indexes scaled record peaks on Thursday after strong earnings reports from retailers, outpacing European shares which were little changed, while oil prices plunged after top crude producers extended output cuts for a shorter period than expected.

Hedge Funds Squeezed by World's Highest Rents Are Moving Out (Bloomberg)

Benjamin Fuchs raised eyebrows five years ago when he opened his hedge fund next to a place selling live chickens in Hong Kong’s hustling, bustl...



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Chart School

S&P Breakout on Higher Volume Accumulation

Courtesy of Declan.

While I expected the Dow Jones to be the breakout flyer, instead it was the S&P which led the charge on higher volume accumulation.  Technicals are all in the green with a return of the MACD trigger 'buy'.



The Dow did manage to break past 21,000 with a MACD trigger 'buy' but it's still contained by all-time high resistance at 21,200. The index is still well positioned for a larger breakout, but this is the sixth day of consecutive gains for the index so some pullback can be expe...

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Members' Corner

Robert Sapolsky: The biology of our best and worst selves

Interesting discussion of what affects our behavior. 

Description: "How can humans be so compassionate and altruistic — and also so brutal and violent? To understand why we do what we do, neuroscientist Robert Sapolsky looks at extreme context, examining actions on timescales from seconds to millions of years before they occurred. In this fascinating talk, he shares his cutting edge research into the biology that drives our worst and best behaviors."

Robert Sapolsky: The biology of our best and worst selves

Filmed April 2017 at TED 2017

 

p.s. Roger (on Facebook) saw this talk and recommends the book ...



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OpTrader

Swing trading portfolio - week of May 22nd, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Biotech

Beyond just promise, CRISPR is delivering in the lab today

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Beyond just promise, CRISPR is delivering in the lab today

Courtesy of Ian HaydonUniversity of Washington

Precision editing DNA allows for some amazing applications. Ian Haydon, CC BY-ND

There’s a revolution happening in biology, and its name is CRISPR.

CRISPR (pronounced “crisper”) is a powerful technique for editing DNA. It has received an enormous amount of attention in the scientific and popular press, largely based on the promise of what this powerful gene e...



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Kimble Charting Solutions

Brazil; Waterfall in prices starting? Impact U.S.?

Courtesy of Chris Kimble.

Below looks at the Brazil ETF (EWZ) over the last decade. The rally over the past year has it facing a critical level, from a Power of the Pattern perspective.

CLICK ON CHART TO ENLARGE

EWZ is facing dual resistance at (1), while in a 9-year down trend of lower highs and lower lows. The counter trend rally over the past 17-months has it testing key falling resistance. Did the counter trend reflation rally just end at dual resistance???

If EWZ b...



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Mapping The Market

Bombing - Right or Wrong?

Courtesy of Jean-Luc

I am telling you Angel – makes no sense… BTW:

Republicans Love Bombing, But Only When a Republican Does It

By Kevin Drum, Mother Jones

A few days ago I noted that Republican views of the economy changed dramatically when Donald Trump was elected, but Democratic views stayed pretty stable. Apparently Republicans view the economy through a partisan lens but Democrats don't.

Are there other examples of this? Yes indeed. Jeff Stein points to polling data about air strikes against Syria:

Democr...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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