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Testy Tuesday – Kan Keeps His Job, Yen Makes New Highs

Japan has the same Prime Minister!

That is big news after having 5 different ones the past 4 years.  With the last PM lasting just 9 months, word was Kan was going to challenge the record for shortest term after being forced into this election just 3 months after being elected the first time.  When we talked about this yesterday, the race was considered "too close to call" but the incumbent Mr. Kan ended up winning 60% of the vote – kind of makes you wonder how far off our own pollsters are with their early election calls

Now the stage is set for the Oct 4th meeting of the BOJ, where action must be taken to get the Yen under control.  Ozawa was clearly better for the Dollar, as he favored strong intervention to bring the Yen down including a program of both QE and stimulus and they Yen blasted to 15-year highs on the result of this election, now at just 83 Yen to the Dollar, down from 120 in 2007 (30%) with a 15% move up since May.  This is TERRIBLE for Japanese exporters, who get paid relatively less for everything they sell but it’s good news for commodity pushers, who get paid in devalued Dollars.  

To what extent is Japan’s deflation simply a function of their currency appreciating an average of 10% a year?  If their deflation rate is 2% then doesn’t that mean it’s really an 8% INflation rate masked by a too-strong currency?  Perhaps that’s why the people of Japan, who get paid in Yen and shop with Yen, strongly preferred Kan, who was only really opposed, in the end, by Parliament, where he won 206 to 200 – the Japanese version of the US Senate.  This means that, like Obama, it will be very difficult for Kan to get anything done despite his popular support and, also like our own Senate: "Having witnessed the shaky ground he stands on, opposition parties are licking their chops to begin their attacks on Mr. Kan," said Koichi Nakano of Sophia University.  

Doesn’t it make you feel good to know that, despite our cultural differences, politicians around the World are all the same – just a bunch of power-hungry, vindictive bastards who put their own interests ahead of the people who they are supposed to represent?  Like Obama, Kan still faces difficulties navigating what the Japanese call a "twisted parliament," where the DPJ has a minority in the upper house, following a drubbing—under his leadership—in July elections. This gives opposition parties power to block most types of legislation, much like our own filibuster-plagued Senate..

The Nikkei only fell 22 points this morning but we’re done with last week’s EWJ play, which was a gamble ahead of the election and, since the premise of the election change is gone, it’s no longer interesting.  The rest of Asia doesn’t mind a strong Yen – it means they get to sell more stuff to the Japanese.  The Hang Seng and the Shanghai were flat but the BSE jumped another 138 points (0.72%) to 19,346, still the World’s leading index.     

Not only did the Yen hit new highs but the Yuan moved up against the dollar on rumors that the Chinese will allow their currency to appreciate to head off talk of trade sanctions from Washington.  “China doesn’t want to see the relationship with the U.S. get hurt because of the currency issue,” said Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch. “There will be more space for yuan appreciation also because signs show the economy will have a soft landing.” 

Europe is flat ahead of the US at 8:25 and we’re waiting for retail sales reports as our indices are all hovering around 5% gains for the last 30 days, but already well over 5% off the late August lows, where everyone was panicking and my commentary on the sell-off on the 31st was: "I still think it’s all BS.  I’m still more in favor of buying off these levels than selling but I am getting VERY lonely over here."  Fortunately, the move since then has given me that hope we were looking for:

Russell 650 was the key to happiness we were looking for, now we’ll see if they can hold it!  Our 2.5% watch levels were Dow 10,455, S&P 1,100, Nas 2,255, NYSE 7,000 and Russell 650 but one day does not a breakout make although the NYSE already popped the 5% mark with the S&P testing yesterday so happy days may finally be here again if we can get over the 5% hump at: Dow 10,710, S&P 1,123, Nas 2,310, NYSE 7,140 and Russell 666.  That 666 line on the RUT has been very ominous for us al year so we will be hedging up at these levels, using the 3 of 5 rule on the 5% line to flip back to bullish. 

Retail sales are up a better-than-expected 0.4% for August.  Well, BTE than economists but not better than we expected because we pay attention to hard data, not the nonsense that’s spewed by the MSM.  The Beige Book was pretty clear on the matter last week and just yesterday, one of our Members asked me if I thought it was a good idea to short BBY and I said:

BBY – I don’t know, I think electronics are selling so I’d go for the Dec $35s at $2.30 to give yourself a little room in case they do take off.  You stand to make $1.20-$3 if all goes very well and you risk a $2 move up that costs you about the same.  I like the idea better if they have a big run up (200 dma is $38.50) and there’s excitement to sell into but not so much as it is now.

As it turns out, BBY’s earnings are up 60% on a 3% increase in sales and the stock is up 10% in pre-market trading, looking very good to hit the $38.50 target.  Not all retail sales are sparkling though.  Gasoline sales were up 1.9% (go VLO!) but, as also mentioned in the BBook, durable goods dragged us down with furniture sales off 0.5% and appliances down 1.1%.  Still, core retail sales (ex-auto) were a huge relief – up 0.6% vs. up 0.3% expected by those expert economists.  Notably, the rise in retail sales exactly mirrors the 0.3% increase in wages in the August Employment Report, once again proving that nothing is better for the economy than hiring people and paying them well enough to shop. 

Of course, this is not the plan of the GOP or the Tea Party for 2011 as the Tea Party Express called for a repeal of Health Care Legislation yesterday, saying: "Unfortunately we will not be able to pass repeal legislation until there are 60 amenable senators to avoid a filibuster and a Republican president to sign it.  By the time such a majority is secured, Obamacare will be well on its way to becoming another entrenched, immortal entitlement program.  Therefore, a more immediate and comprehensive strategy is in order to ensure this train wreck of a law doesn’t leave the station.”

This repeal tactic is similar to the one planned for Social Security.  As Conservative pundit Karl Denninger pointed out last month, the attack on Social Security payments can be based on the 1960 Supreme Court decision of  Flemming .v. Nestor, which held that Congress reserved the right to alter, amend or repeal any provision of the Act.  According to Denninger:

There is no "debt" owed to those receiving entitlement benefits through these programs.

They are legally welfare programs which Congress can modify or even eliminate at any time without triggering any sort of Consttutional or "full faith and credit" problem, or any other legal obligation to those who have allegedly "paid in" to them over their working lives.
That is, your FICA and Medicare taxes are in fact a simple tax and your Social Security and Medicare benefits are in fact a simple welfare program. 

So the eyes are clearly on the prize this fall as Republicans look to fund those tax cuts by going after the $800Bn annual Social Security obligation…. oh, excuse me, welfare program but I wonder what will happen when that $800Bn is removed from the economy and what will happen to the $2Tn of assets that were paid in… oh, excuse me, taxed by the retirees and what  will happen to the $4Tn the government borrowed… oh excuse me, stole from the fund (lock box)? 

It’s going to be an interesting election season – be very careful out there!  

 

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rn273- you get double prints with buyer and seller on Nasdaq stocks so more likely about 1/4th

pahurik
Thanks re MAIL just like to calculate better to sell the shares tomorrow or hold on for the div.

Phil- as long as you are looking at banks- SAN- business must be off the charts in Chile. Up 40% since June ; up 10% + the last 30 days. 5.5 x book? Anyone have any idea what this is all about?

I think we’ve topped for this go ’round.  Banks say game over.

Pharm – 1/2 float turned?

Phil/ BWLD.  Accidentally closed the sell 35 Sep P vs Buy Sep 40/45 Call Spread today. 
I paid 52 cents.  Unwound for 4.48 (after accidentally hitting the lousy market bid on the call spread – I could have bought the 45 Put for .10 but only got 4.60 for the $5 spread)  + 850%
(And that’s before I doubled up the puts, but you’re not a DFG).
THANKS.

BDC/  JNK     I’m thinking about this.  Do you know of any other Junk Bond Funds with options?  There is some liquidity here but I’m just scouting for both more data and other ETFs.  I could only go back 2 years with JNK.  No rush as I must buy junior a guitar.

yodi / MAIL
Have been in meetings so no reply. Pahurik has said it well. I think I will sell my shares tomorrow, prior to them going x-div, as I expect a pullback after that date. I did not enter this trade for a long term hold – just a dividend play!

Thanks gel I think I will do the same

69M shares and 310,000 options changed hands today on ARNA, 10x the average volume of options. It will be interesting to see how much the open interest changed. Tomorrow should be fun to watch.

Gel – what do you think of going long USD/CAD?

Phil,
XOM Sept 57.5 Puts sold 8/31 @.62. .  I have a very heavy position in these contracts.  Instead of buying to close, I was thinking that I would like to ‘own’ the stock for a few hours/days since they will be put to me at 57.50 and then I can sell them at the current market at expiration.  I’m pretty confident that XOM will hold at least 60 this week.  So my question is would you recommend this strategy if one has the capital to make a round trip like this?  I think that it is somewhat speculative albeit a way to profit twice from the position.  Look forward to your comment.
DD

Phil, I really appreciate you taking the time to explain your rationale on the C trade. What a great learning experience.

MA announced 1b share buyback, If they would have announced this a week ago MA would have traded to 215/220 range, but the dead money call and the recent market move makes me think 210 possible if markets can hold
http://www.marketwatch.com/story/mastercards-board-of-directors-approves-10-billion-class-a-share-repurchase-2010-09-14?reflink=MW_news_stmp

jromeha
I am not at the moment trading the USD/CAD…. One of my chart services likes it for for  a 23 pip profit – Buy at 1.0270, stop @ 1.0223, and limit target of 1.0293. Good luck!

Pharmboy:
Your take on ARNA? What do you think happens next? Thank you.
 
dclark41

Anyone have an explanation why Chase’s on line banking site has been down for nearly 24 hours; cyber attack ? 

ARNA/dc – I am holding on by my fingernails.  Like I said, I am long spreads, will be out tomorrow b’f close.  The risk is very high, and it is up to the politics that be.  I sold a bunch up at >7, but kept others, knowing that the attack one way was coming.  Phil is right, it is a craps shoot, and biotechs live and die by their blood, sweat and tears.  Look at SVNT today!  Look at DNDN, ITMN, VVUS, etc.  Do I think they get approval….well, they met 1 of 2 endpoints, and that is all they have to do.  Cancer, sure, a risk, but not seen in the monkeys at 12mo tox studies.  Is it mouse/rat specific?  Not sure, but many drugs cause cancer in rodents after high, long dosing regimens.  I am not worried about the heart problem at all.  So, again, it is a crap shoot.  Are the hedgies hitting it, absolutely….70M shares, come on…..

 

Again, DCTH and now ARNA.  These are high risk trades that many need to be happy to be out of when up 10, 20, and 50%.  Yes, I was and am high on ARNA, but caution should always be heeded when FDA and data comes rolling around.

Ed/ Trading AAPL:    I’m buying October 280s, but not a lot yet.  Would like a pullback, but a big pullback may not come, as the stock remains under accumulation.   Hope to be able to work the weeklies a lot in October before earnings.  Expecting a blowout report, as usual, and more upward movement.  Depends some on the overall market movement.  Best case scenario would be a retreat to 260 before earnings.  We could really load up then!  As you may know, with my AAPL portfolio I sometimes just sit in cash for days or weeks and wait for an opportunity, then come out with a huge options block purchase, looking to ride the wave.  I don’t see that right now, not this week.  Probably pin 270.  So just a few Oct 280s to keep me interested, and wait for the right moment.  
And doesn’t ARNA have a whole lot of people torqued up !!!   I know a bit about those FDA types.  They are a strange breed, frequently illogical, often unpredictable.  Trying to figure what they will do is like trying to figure out what my wife will bring home if she gets hold of my credit card.  Pharmboy is right.  It is a total crap shoot.  My play on ARNA?  Go to cash and watch from the sidelines.  That causes the least coronary spasm of all ARNA trades.   

Good Cop, Bad Cop?
A little sparse on details, but:
Charlie Munger on US Economy: Pain Not Over
 
A day after Berkshire Hathaway’s Warren Buffett made headlines about his views on the economy, his long-time business partner Charlie Munger is weighing in.

Munger, Berkshire’s vice chairman, said the job market is likely to stay "lousy" for an extended period, and that he doesn’t see anything that would prompt employers to hire in the immediate future.

Munger also warned that the pain is not over in many sectors, citing timber and commercial real estate as two sectors where there is "more pain to come."

lflantheman
Hi I see you are looking already to buy APPL 280 c long. I am still holding the 280 jan 11 c short I trust you think that stk will run up to 300. Your thoughts pls. thks

More fake jobs #s on the way ?
http://www.nypost.com/p/news/business/are_poll_workers_being_used_to_inflate_wPjTGS93ODzN8BXLg568iI
John Crudele suggests Gov’t may try to count (for the 1st time) 1-day election workers as "new jobs" in time for the last jobs report before the elections.
Yay Obama.

 yodi/AAPL…..Well, I’m just dabbling in the Oct 280s right now.  Yes, I think AAPL sees 300 within 6 months, maybe sooner if the overall economy rebounds.  You are short Jan 11 280 calls?   Naked?  I think you would lose on that play, if that is what you have.  I’d rather sell Jan 11 280 puts.      

 lflanttheman,
thanks for APPL update. really appreciate, please keep AAPL posts coming, your gut feelings so far are very precise. Thnx

FX markets are going bonkers, looks like BOJ has stepped in

Buffett / Munger …. could be attributed to senility  (of either or both)    😀

Chase:  yeah Dimond has already apologized but its website is now down for almost 30 hours; its unbelievable, but points are that there are real vulnerabilities in our systems.  Perhaps an inside job by disgruntled employee, or outside via cyberattack.  I’m surprised its flying under the radar of MSM; might turn JPM into a short term sell. 

Thanks phils

Phil
Thanks  for taking the time to look at the banks.
Sounds like one of those good ideas that just sound good.
Mike

 ARNA–if you want to play the name into these binary, play the volatility crush. did this with SVNT and based on AH price action, it should work out.  I did a 20/10 Sept/Oct double calendar.  Will enter something on ARNA with similar strategy tomorrow morning.  Just look at the IV and theta on the front month options vs back month.  Plus the fact that OpEx is the next day.
Loving this dump on the Yen.  While I didn’t make a fortune on the way down, I’m doing okay playing the bounces.  Looks like a sleepless night for me.

3-4 am trade on the Yen? What is the max currencies usually appreciate in one day? Thinking of going long Yen futures for an overnight trade

jr…

"Now, suppose Japanese officials believe that intervention is required regardless of the G-20. Presumably, they will give US Treasury Secretary Timothy Geithner a phone call to at least keep him in the loop, if not to receive his implicit consent. One wonders if Geithner will recognize what he would be consenting to: Japanese intervention, if it occurs, means that Chinese authorities managed to get Japan to acquire their Dollar reserves for them. Instead of buying Dollars, China buys Yen, which in turn induce Japan to buy Dollars. This maintains the artificial capital flows to the US while allowing China to escape accusations of being a "currency manipulator."

http://economistsview.typepad.com/timduy/2010/08/renminbiyendollar-collision-course.html
 

jromeha… I just went long on the Yen @ 84950, with a tight stop. I hope there will be some shorts that are in need of cover as the Asian markets get the jolt.

Oops, I meant whats the most a currency usually DEpreciates in one day?

kustomz…. Do you know the size of the intervention by the BOJ ? Possibly the MOF might have also announced some fiscal changes in addition.

Cool, then Im in with you gel! I went long Yen futures…..

gel, If this was a coordinated move there could be more downside in the Yen and the amount would most likely be much less without help from China or our Fed.

Im out, thx for letting me know that you were in Gel! It gave me the confidence to pull the trigger. Made a nice, QUICK profit. Owe you a beer whenever we have that PSW get together in Vegas!  

jromeha / YEN
I was just stopped out – had a tight stop – not sure where it will go from here.

Good morning Phil,
APPL hearing lflantheman advice I would like to have your opinion on the complete deal sold originally the APPL spread Jan 5x 280c/175p 9.48/14.49  subsquently I rolled 3 of the Jan putters up to 220 for a further credit of 3.00.
 
I am thinking of rolling the 280 caller to 310c costing me the same what I received for the caller and possible rolling the putters still higher. The 280 jan putter as lflantheman  sugested looks very high to me as I expect they will get some more competition from RIMM and Nokia. Just to give this spread further protection I hold as well 2 x jan 185 putters short which I sold for 17.12 . Thanks for you opinion.

Phil these are 2 x Jan 12 putters at 185

Full Text Of BOJ Governor Statement
 
TOKYO(Nikkei)– Full text of the statement issued by Bank of Japan Governor Masaaki Shirakawa follows.
"There has been growing uncertainty about the future, especially for the U.S. economy, and foreign exchange and stock markets have been unstable. In these circumstances, the downside risks to Japan’s economy warrant attention.
The Bank of Japan strongly expects that the action taken by the Ministry of Finance in the foreign exchange market will contribute to a stable foreign exchange rate formation.
The Bank will, while pursuing strong monetary easing, continue to provide ample liquidity to the financial markets."
 
They are very open about their currency manipulation.  I guess all the pretense and charades goes out the window when you start getting desperate.

yodi/AAPL…..I should have put a smiley face next to my comment about selling the Jan 11 280 putters.   What I meant to say was……..If someone backed me up against a wall and said that I MUST sell either the 280 callers or the 280 putters (naked), then I would sell the putters.  Truth is, I probably wouldn’t do either, as there are better plays.   I’m pressed for time right now but will come back on this later. 

 Phil,
What do you think about  ATHR?  Fundamentals seem very solid. I can sell the Jan 11   24 P for 2.10 and effectively get an entry at 21.90 which seems cheap.
Thanks

lflantheman
 
Thanks for the smiley

Becaful of those Chinese ADRs: yesterday was DYP, today is UTA.

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