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Testy Tuesday – Trichet Talks Tough at High Noon

Anti-Claud is coming to town!

You’d better not print, you’d better not ease you’d better not contract or your wages will freeze - Jean Claude Trichet is coming to town…  The EU’s Central Banker has a lunch meeting at the NY Economic Club and there is no one who knows better when Bernanke’s sleeping and when the recovery is fake, so we’d better pay attention, for the country’s sake!  THIS is the most powerful banker in the World, not the hollow Bankster puppet we have setting US policy, and Trichet has fought easy money tooth and nail -even as the US embraced it this year.  

As you can see from the Chart on the right, Europe is a bigger (slightly) trading partner of China than the US and a MUCH bigger buyer of US goods than China by a factor of 3.  The strong Euro lowers Europe’s trade imbalance as they have to send less Euros to both the US and our peg-partners in China for the same amount of goods they bought last year while the same goods they sold last year ship out in exchange for larger amounts of foreign notes.  

With the Bank of Japan this week boosting its asset- purchase plan and the U.S. Federal Reserve mulling a similar shift, Trichet said last week that ECB policy makers are in the “same mood” as a month ago and for now remain committed to phasing out their unlimited lending program.  That boosted the Euro back to $1.40 for the first time since February.  The ECB and Fed compose “two different schools of thought,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “The ECB is looking at their own economy and seeing some signs of a revival. They’re very concerned about going down the line of the Fed.”  Now Mr. Trichet will attempt to school us this afternoon – not coincidentally, on the same afternoon that the Fed Minutes will be released and QE2 mania is likely to peak out.  

As noted yesterday by Zero Hedge, "While risk assets may hit all time highs courtesy of free liquidity, the economy, also known as the middle class, will be stuck exactly where it was before QE2… and QE1."  The article does a great job of outlining my long-standing premise that money simply cannot be printed fast enough to overcome a drop in velocity and, as indicated by this chart, the drop is precipitous:

      

50% WORSE than the cumulative decline of the Great Depression!  That would be BAD.  Even worse, the idiotic policy of pumping free money into banks who don’t lend other than to corporations who don’t hire (and, in fact, have been using the money to buy each other out which leads to consolidation and more firings!) has grossly distorted the economy and the markets and, Dahling, in economics, it is NOT better to look good than to feel good

According to the UK’s Telegraph: "A depression may have been averted, but nothing has been fixed. This is the depressingly downbeat message that came across loud and clear from last weekend’s annual meeting of the International Monetary Fund.  The destructive trade and capital imbalances of the pre-crisis era are back, banking reform appears stuck in paralysing discord, public debt in many advanced economies remains firmly set on the road to ruin, and the spirit of international co-operation that saw nations come together to fight the crisis has largely disappeared."

Jeremy Warner sums it up, saying: "I don’t want to belittle the difficulties faced by some of the peripheral eurozone nations, but in the scale of things they are a sideshow alongside the malaise which has settled on the world’s largest economy.  The house price collapse means people can’t sell and move to economically stronger parts of the country, as they’ve tended to in past downturns. High US unemployment – already at 9.7pc and getting on for double that on some wider measures – is becoming entrenched."

US Treasury forecasts, both for growth and the public finances, continue to be based on delusionally optimistic use of "the Zarnowitz rule", which posits that deep recessions are followed by steep recoveries. Regrettably, it’s not happening this time around.  There’s no political appetite or will in the US for the long term entitlement reform and tax increases necessary to bring the deficit under control. Nobody believes US Treasury forecasts that public debt will be stabilised by 2014. Much more believable are IMF estimates which see gross US debt rising to well in excess of 110pc of GDP by 2015.

"So what’s left?" Warner asks.  "The Fed can act, by pouring more money into the economy (QE2), but the Hill is paralysed. A second fiscal stimulus of any size is blocked by political division. More monetary stimulus is all very well, but it’s a blunt instrument which struggles to get through to the job creative bit of the economy – small and medium sized enterprises – and threatens new bubbles in emerging markets as abundent liquidity chases yield." 

Nonetheless, the markets are in the throes of QE fever with commodities spiking up over 10% in the past month, driving Global Inflation out of control with UK CPI clocking in at 3.1%, forcing BOE Governor, Mervyn King, to write his 5th letter of the year explaining to Treasury why he can’t keep inflation under control – AGAIN!  King is required to write an explanatory letter when consumer inflation misses the 2% target by a full percentage point in either direction, then once every three months that inflation remains outside the target by more than a point.  

If only our own Fed were somehow held accountable to the people of this country – even symbolically…  

Meanwhile we are left to read the tea leaves of todays Fed Minutes (2pm).  The door was opened to QE2 at the last meeting and now traders will be looking to take the measure of the madness that is the Fed and Treasury’s policy of devaluing $30Tn held by US citizens (see yesterday’s post) by $3Tn, in order to borrow $1.5Tn more, most of which we ship overseas to fund our massive trade imbalances.  This will come right on the heels of today’s $32Bn 3-year note auction, just a small fraction of what we’ll be needing to get by in October.  

Consumer Confidence is at 10 am along with the IBD Economic Optimism Survey and the Employment Trends Index so let’s watch that for some market direction this morning.  We already had a reasonable ICSC Weekly Retail Sales Report (up 0.4%) and the Redbook Chain Store Sales Report declined only slightly at +2.5% vs last week’s +2.7% – a minor disappointment.  

Tomorrow we have Morgage Applications (not good), Import/Export Prices (probably bad) and Crude Inventories.  Despite record inventory builds in the US and Europe and prices that are up 15% since the end of summer driving season, OPEC has RAISED the demand forecast for 2011.  The Global Cartel predicts 3.6% growth in global GDP in 2011 despite the fact that the US will slip from 2.6% to 2.3% and Japan will fall from 2.8% to 1.3% and Europe will slip from 1.2% down to 1% in 2011.  Even China (9.5% to 8.6%) and India (8.2% to 7.7%) are forecast to decline so it’s a little hard to see where our Saudi Masters see +1Mbd of usage next year but it is good news in that this should keep them from calling for production cut-backs at their next meeting.  

Like all runaway commodity assumptions, OPEC sees a never-ending flow of bailout money supporting flagging demand and rules out the possibility of a double-dip recession simply because the rulers of the West are far too wise to let anything like that happen.  Notice the OECD demand goes to zero but never below – it is unthinkable to OPEC that we would cut back, even though – according to their own projections – we are a good 2 years away from even getting demand back to where it was in 2008.  

Never let it be said that lack of actual demand ever got in the way of a good commodity story.  GS reversed what was looking like an ugly global pullback in metals this morning by raising their target on Gold to $1,650 12 months out.  That turned Europe around from a very poor open and dropped the floor out from under the dollar, which rescued the US futures from what was looking like a very bad open with the Dow down to 10,875 at 4am on the futures.  Don’t worry, everything is back to normal now and the Yen has bounced back from 82.35 to the Dollar last night all the way to 81.85 (it’s always 0.5) just ahead of the US open.  

This move did not please the Nikkei, which fell 2.1% (200 points) back to 9,388 and the rest of Asia was down mildly except the Shanghai Composite, who are still catching up from their vacation.  Copper was very happy as it lept from $3.72 to $3.78 and gold came of the $1,340 line back to $1,355 with oil jumping from $81 back to $82.25 so a very exciting morning already and tons of data to keep things lively through the day.  

We’ll be testing our watch levels for real today and we’ll be looking to hold Dow 10,950, S&P 1,160, Nasdaq 2,400, NYSE 7,450 and Russell 690 if the markets are going to impress us.  Below there are the 7.5% lines at Dow 10,965, S&P 1,146, Nas 2,365, NYSE 7,280 and Russell 672 and if those fail, it’s a quick ride back to 5%.  Our morning plays yesterday were shorts on the DIA and the QQQQ weeklies and, at 12:09, I sent out a special Alert to Members outlining 4 very high-reward spreads on QID and FAZ heading into earnings so we are still expecting things to slip (we even cashed out last week’s aggressive SSO trade yesterday with a nice-enough 800% gain out of 4,000% possible (see this week’s Newsletter for details on the trade) – not bad for 3 days on a hedge we didn’t really believe in!  

 


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  1. Phil / Roller coaster ahead?   So, we get QE2 soon, maintains the mkt as already built into pricing?  Then Republicans take House seats = gridlock, probably mkt positive short term.  This gridlock, assisting by a growing foreclosure crisis and bank implosion leads to a quick slide from recession to depression, mkt collapses.  Then gridlock ends with panic massive fiscal stimulus in 2011, probably mkt positive, so big bounce.  But, limited job creation without mercantalist approach to the trade deficit with China, so trade war begins, mkt negative, so another collapse.  How’s this for a 12 month ‘roller coaster’ prediction?  Any insights on timing of these phases to aid an investment approach?


  2.  Lflanthamen – Are you around today? I decided to give the bull half-spread strategy a shot this week. I didn’t have the confidence to buy AAPL calls on Friday with the weekend ahead, but I did pick up AAPL Nov 300 calls on Monday, and sold 1/2 covers of the Oct 300′s short. As long as Apple continues to march higher (slowly), this strategy looks great. I know you set limit orders to buy back your short calls at a 50% gain. Do you ever wait longer than this? For example, say Apple rises to 298 by Thursday, would you wait to see if these expire worthless?


  3. Phil, just got back from France and from what I can tell, the difference between Europe and the US is not the will to do things, it is the political system! We now have a system that encourages paralysis in this country. In France, for example, they are currently taking steps to reduce the deficit in the health system by reducing the reimbursement for various medicine and procedures. They just passed a retirement reform law and they are raising taxes left and right (not directly but by closing various loopholes). And all that rather quickly! Because the system is quite different, the opposition (in this case the left) has almost no recourse. The only option is for unions to calls for strike against the retirement reform. This might lead to more negotiations, but the retirement system will be reformed one way or the other. But you don’t hear huge clamors against new taxes or less money for the health system. It seems that people have a semi-fatalistic approach that things are bad and sacrifices are needed at some levels. Amazing what a simple majority rule and a more adult discussion will do!  


  4. Phil,
    on the long term SPY and sell put and calls.strategy..  spy 166 and sell calls and puts at 115 example would you make adjustments at any particular point say a move down/up in SPY by 10% or 15%?  I assume entry point doesn’t matter e.g. what is the logic for 116? 
    I want to provide my doubting friends with advice or show them but I wanted to get all of the facts straight first – thanks


  5. From le Monde yesterday (translated with Google Translate as I don’t have time…):
    The Exchange has it become a big mess? At the opening of the annual meeting of market participants, the World Federation of Exchanges (WFE) in Paris, Monday, Oct. 11, the finding was the appearance of professional concern. "The stock market has become a giant casino. Except that the operation of a casino is more transparent and easier to understand," summarized Thomas Peterffy, founder of Interactive Brokers, in his opening speech. He said the electronification trade, liberalization of markets and the intense acceleration of transactions has created chaos in the stock market.

    A powerful message and all the more disconcerting that Mr. Peterffy founded in the late 1970′s electronic brokerage firm that has contributed to the modernization of trade today criticized. "When I created my company, I saw only the positive side of the arrival of technologies on the market, I was wrong," he acknowledged. 


  6. Good Morning,
    Phil, Pharma, Thinking of selling 15 Nov calls in the exsitment any thoughts on this thks


  7. Sorry looking at KG


  8. Hey all,

    We have one new position for today so far. We are looking at a Buy in Direxion’s Daily Bear Energy ETF (ERY). 

    Check out my analysis and more here!

    Good Investing! 


  9. Good morning!  

    I will not be here tomorrow until afternoon.  Tomorrow we have Morgage Applications (not good), Import/Export Prices (probably bad) and Crude Inventories but hopefully we get a good sell-off today so we can all relax a little bit.  

     

    Levels are the same and I’m still looking to see if we hold those 5% lines into expirations.  The critical test levels above 7.5% are Dow 10,950, S&P 1,160, Nasdaq 2,400, NYSE 7,450 and Russell 690 - THREE RED, after being all green yesterday which was, as I said, a BS, low-volume day.  Our other levels on the way down are:   
    • Up 7.5%Dow 10,965, S&P 1,146, Nas 2,365, NYSE 7,280 and Russell 672
    • Up 5% (must hold)Dow 10,710, S&P 1,123, Nas 2,310, NYSE 7,140 and Russell 666 
    • Up 4%Dow 10,608, S&P 1,112, Nas 2,288, NYSE 7,072 and Russell 660
    • Up 2.5%: Dow 10,455, S&P 1,100, Nas 2,255, NYSE 7,000 and Russell 650

    We took full advantage of yesterday’s open to get shorter and now it’s just a watch and wait to see what sticks kind of day.  If you rolled or doubled down – DON’T BE GREEDY – try to get back to 1x even or better and keep tight stops, especially on weekly puts like the DIA Oct $108 puts, which are heading to .30 and the QQQQ $49 puts, which are still .22 – we are too close to expiration to take chances!!!  

    There’s no volume to this morning’s sell-off so far but we have a lot of data still to come and the Fed minutes will be a real market-mover this afternoon so expect a very active Chat session today!  


  10. Good morning,

     

    IWM  66.56, 67.09, 67.31, 67.92, 68.14, 68.33, 68.65, 68.97, 69.24, 70.18, 70.54 and 71.62


  11. BIIB – the Nov $55s are now on the downward slope of the 5d MA using Opts methods as an FYI.  I sold the $57.5s for protection the other day, but now am going to get out for a small gain and reenter after OPX for a long position in them.


  12. JRW- out with +25% and 12.5% on IWM & SPY puts respectively – from last Friday  – thanks for the tip/head up.


  13. 1020
    typed in your email address and it still bounced


  14. Hi Phil QID — is Nov 13/15 bull spread and sell Jan 13 put still good today to add more position or should I raise strike to Nov 14/16 bull spread with sell pf jan 13 put same time. thx


  15. Wow WYNN is unstoppable.


  16. Phil forget about KG nothing in it


  17. Roller Coaster/Tusca – Wheeeeee is the word!  I think if we don’t sell off ahead of the election then we are due for a massive correction after.  This is simply not a sustainable move up based on observable fundamentals and one day the piper must be paid.  

    France/Stj – Very good point.  I am so sick of the workings of Government in this country.  It is shameful that other Western nations have 4 or 5 thriving political parties in power yet they are able to accomplish far more by way of compromise than our 2-party system.  

    SPY/DD – Well yes, you should make an adjustment whenever a trade goes off track.  Before you initiate you should know what you expect, and set a tolerance for where it’s too far behind OR AHEAD and you need to adjust.  I’ve got 2 crazy days ahead of me but after hours Thursday or the weekend, I’d be happy to run through the whole logic on a trade for you. 

    GMCR with a nice pop against the grain this morning.  

    "The stock market has become a giant casino. Except that the operation of a casino is more transparent and easier to understand,"

    That’s a keeper Stjean!  

    KG/Yodi – This is an acquisition by PFE, not a rumor so it seems like a very good sale but it looks to me like the premiums are already squashed (worth noting by all how quickly this happens when something is real). 

    LOS ANGELES (October 12, 2010) – The IBD/TIPP Economic Optimism Index increased 1.1 points, or 2.4%, in October posting 46.4 vs. 45.3 in September. The index is 0.2 points below its 12-month average of 46.6 and 2.0 points above its reading of 44.4 in December 2007 when the economy entered into the recession, and 4.3 points below its all-time average of 50.7.

    Damn, WYNN is STILL going up!  Just hit $103. 


  18. Jbur
    sorry i missed your post the other day--i was traveling-the book i was talking about with 1020 was about how to get a second passport not about offshore trusts--i do have some info on establishing a cook islands trust, know the names of some attorneys who are supposed to be excellent --a book that i have not read so i can’t recommend it--but it was recommended to me is the lifeboat strategy, by mark nestmann--if you are interested in the cook islands info send me your email and i will get it to you--


  19. datuu – Good morning. I’m not sure why it won’t work. I am receiving E-mails. Please try this one: RRDABBERT@GMAIL.COM Thanks!


  20. Tuesday’s economic calendar:
    1:00 PM Results of $32B, 3-Year Note Auction
    2:00 PM FOMC minutes

    At the open: Dow -0.18% to 10990. S&P -0.16% to 1163. Nasdaq -0.2% to 2398.
    Treasurys: 30-year +0.05%. 10-yr +0.01%. 5-yr -0.04%.
    Commodities: Crude -0.13% to $82.10. Gold -0.18% to $1351.90.
    Currencies: Euro -0.24% vs. dollar. Yen +0.2%. Pound -0.31%.

    10:00 AM On the hour: Dow -0.6%. 10-yr +0.07%. Euro -0.39% vs. dollar. Crude -0.74% to $81.60. Gold -0.39% to $1349.10.

    Market preview: Stock futures point to a lower open, as investors take a bit of risk off the table ahead of minutes from the FOMC’s September meeting and Intel earnings. S&P benchmark -0.3%. Weaker commodity prices and a stronger dollar contribute to the negative tone for equities. On the calendar: employment trends.

    ICSC Retail Store Sales: +0.8% W/W, vs. -0.8% last week. +2.6% Y/Y, vs. +2.4% last week. The increase keeps the four-week average steady at +3% Y/Y.

    Redbook Chain Store Sales: +2.5% Y/Y vs. +2.7% last week. The steady growth in sales puts October on target for +0.2% growth M/M, a bit below the earlier +0.4% target.

    Sept. Employment Trends Index: 97 vs. revised 97.3 in Aug. "While continued slow job growth remains the most likely scenario over the next several months, The Conference Board ETI suggests that the likelihood of another episode of job losses is increasing."  YAY more FREE MONEY is sure to come now!!!

    Once the Fed finally makes its plans for money injections clear, it could set the stage for this year’s mother of all sell-the-news moments if it fails to live up to expectations. A CNBC survey points to a $500B QE program, but that may fall short of what’s needed to buoy stocks. "If it’s half a trillion, you’ll see a 10% correction for sure," a strategist says.

    Low interest rates can contribute to financial bubbles even if they are not a primary culprit, Janet Yellen said in her first speech as Fed vice chair. The comments suggest that Fed officials are cognizant of the risks to its zero-rate policy.

    Baby bear: The major issue for banks this quarter is that core earnings are going down for the industry and that’s where investors will be focused, Dick Bove tells CNBC. “What you’ll see is a lot of gimmickry and a major effort to lower compensation cost to offset the fact that revenues just are not going to be there."

    Investment banks and regional banks are headed in opposite directions, Scott Rubin writes. The business models of Goldman (GS), JPMorgan (JPM) and the like are under pressure from a dismal trading environment and investment banking atmosphere. But regional banks are benefiting from increased asset and credit quality while mostly insulated from trends affecting investment houses.

    Momma Bear: The downside risk for stocks is nearing its highest level in a year, Doug Kass writes, given the sharp rise in equities and "especially if I am correct that QE2 will be a dud." Quantitative easing, he says, "will not meaningfully move the needle of domestic economic growth" and will have only limited impact on jobs, housing and confidence.

    Poppa Bear:  Already bearish, the National Association for Business Economics cuts GDP growth forecasts for this year and next, to 2.6% each year, from 3.2%. Holiday spending will see an "especially weak" 2.5% gain and the group expects the jobless rate to hang around 9.5% through mid-2011 and then decline to 9.2%.

    Goldilocks!  Investors should buy stocks and sell cash and bonds because governments are printing too much money and may create a new “credit bubble,” Marc Faber says. Global markets are heading for an “important turning point” as interest rates begin to rise within about three months and the U.S. dollar gains, he says.

    Penny foolish and pound even more foolish:  Budget-broken California is selling 24 government office buildings to a group of private investors for $2.3B. After paying off bonds on the building, the state says more than $1.2B will go into its general fund, but reports suggest the sale could end up costing the state $5.2B in rent over twenty years.

    Three "overextended" stocks John Dorfman would sell right now: Las Vegas Sands (LVS), Sirius XM Radio (SIRI) and OpenTable (OPEN). But he likes three "unglamorous" stocks: Ross Stores (ROST), World Fuel Services (INT) and National Presto Industries (NPK).


  21. Phil:
    What trade would you do on WYNN now? Thanks for your help on my DNDN trades. Thank you for the scolding!. Unfortunately, some of my past remains alive. Slowly and surely I am changing the way I trade. Thanks again.
    dclark41


  22. Isn’t it funny how the markets snaps right back to Phil’s levels?  Completely programmed.


  23. Phil/California 24 buildings  I think this will be a new trend. Politicians, under pressure to "do something" will do what’s easiest. SELL STUFF! (really, the S.F. civic center?!)  Why these morons do not understand cash flow is beyond me…..


  24. Phil,
    Your post above from Dorfman has a buy recommendation on INT. It appears it is starting to get some love. The May 25′s are $6.50, do you think it is worth a look for a May buy/write?


  25. QID/Gucci – Didn’t we just take that spread?  It looks good for a massive gain IF YOU JUST LEAVE IT ALONE!  If we break down to the next level, then we will find other spreads and if we don’t break down – then you’ll be glad you didn’t put more money into this one.  

    WYNN/DClark – Same as yesterday, selling Nov $105 calls for $5.50.  ALWAYS sell into the initial excitement.  Don’t worry, you are making good progress…

    Levels/Kinki – What’s amazing to me is I still have to have arguments with people who think I’m just paranoid and that the markets couldn’t possibly be rigged.  Usually the logic is that there are too many participants but the one that makes me laugh is when they say "it’s against the law."  

    Cali/1020 – It’s like Christie in Jersey killing a project that’s been planned for 20 years and had already started to add a new tunnel between NY and NJ – we need it desperately!  A million people spend 2 hours in traffic each day, even at minimum wage that’s $5Bn a year in productivity costs alone….   He’s been trying to sell our race tracks and some beach property but can’t find buyers at prices that won’t have lynch mobs forming so instead he’s killed the tunnel project, which frees up $2Bn for him to give out to his pals for other construction jobs.  Of course, we are experts at construction in NJ..

    INT/RJ – I think they are a nice stock.  I’m not sure if the shipping end of their business is really back yet but that’s the argument for getting in now if you believe in the recovery.  They have good premiums to sell so I do like an artificial buy/write of the May $20/25 bull call spread at $3.50, selling the $22.50 puts for $1.60 for net $1.90 on the $5 spread and worst case is you own them for net $24.40, about 10% down from today’s $27


  26. drcraig/Trading AAPL:     As I mentioned in a post from, I believe, Friday, I am now in November 300 calls only (no  covers).  My reasoning in NOT buying covers so far this week is that APPL reports earnings on Monday, and we MAY see a pretty good pop later this week, before earnings.  I don’t want to reduce earnings potential with the 1/2 covers.  Any other week but THIS week I would have sold the 1/2 covers, but this is a special situation and I believe best to hold only the long calls.  I’ll decide at week’s end whether to hold these through earnings, get out, get partially out, or lay on covers.  Hope that helps.


  27.  Lflanthamen – thanks for your input. I got lucky with the drop this morning and bought back my covers at 50%. I sold another round around where we are now. I was going to go fully covered into Friday, but you’ve convinced me to 1/2 cover max. If I get a chance to buy back at a profit later today, I will. 


  28. Phil – Just imagine if we have a T.P. landslide in November. The T.P’ers will be cutting, halting and selling everything and the weak-knee dems will just stand by at be witness to the HORROR!  Idiot America will be satisfied that their voices have been heard and America’s been saved……


  29. Phil -
    UNG – still waiting for that hurricane
    +20 Jan6C basis 1.59 now .38
    -20 Jan6P basis .35 now .68
    Do I adjust now or continue to hold
    Thanks


  30. Phil--do you still like SVU at this level--own some at $11  but was thinking of adding more by doing a buy/write and short put--any thoughts on strike price etc
    Tx


  31. If the dollar stops falling, everything else should stop going UP !!


  32. RE: Two party system
    We do not have a two party system. It’s a one-party system, the party of Incumbency.  
    As for  the United States vis-a-vis France, a country that is 1/6 the size of the United States in population, on a land mass about equal to  two of our larger states, with a heavy concentration of population in one city, Paris, only the most desperate of commentators would attempt such meaningless comparisons. 
    We will never be a France or other podunk European country, in spite of these attempts to convince us that our totally ungovernable country (because of its size and diversity) would adopt policies that they experiment with. 


  33. Bank of Japan Governor Masaaki Shirakawa head came this close to exploding

    Go go AXP

    Hoenig raining on the parade


  34. drcraig…..excellent move on taking your profits on those 1/2 AAPL covers.  That’s exactly how I do it.  And you can do it more than once in a week!    It’s just extra cash sitting there waiting to be taken, and as long as you have your "disaster stop" in place it can be very profitable. 


  35. Landslide/1020 – Not all that many running to make a difference but the same will happen if Republicans win.  

    UNG/Edro – It does not look like it’s happening.  They have underperformed other commodities by a mile.  A single storm could still throw you into the money but, other than Paula (which is small) hitting Mexico right now, there doesn’t seem to be anything on the near-term horizon.  Rather than lose them, the Jan $6 calls can be rolled out to 2012 for .70 more and you can sell the $8 calls for .60 to pay for most of it or just wait and hope but not much else to do at this point. 

    SVU/Savi – I think they are good to $13 but not as good now as when we picked them.  It’s a nice 3% dividend so I do like the idea of committing to DD by buying more at $12 and selling the 2012 $10 puts and calls for $4.60 for net $7.40/8.70, which is conservative but you should be conservative on a 2x entry, right?  

    Europe closed flat on FTSE and DAX with CAC down 0.57%.  CAC was rejected at 3,750 and FTSE is 5,666, which pops up way too often in these markets!  

    France/Flips – Seriously?  France is the World’s 5th largest economy so what are you saying – we are not allowed to compare the USA to ANYTHING that doesn’t please you?  Other than France you have Germany, Japan and China (France is bigger than the UK) and after that you have to go off-planet, which should be good for you because I hear that aliens are completely against anything that smacks of socialism, so you should feel right at home…  Of course we’ll ignore the fact that the European Union is full of countries like France and they have a 15% bigger GDP and 60% more people but we do have them beat on square miles with almost double so you can hang your hat on that one next time you need to wave your flag.  Does it occur to you that only the "most desperate" demagogue would rather hide behind quick characterizations to dismiss examples that counter his beliefs than engage in rational (and polite) discussion of facts in which he might actually learn something that may change his opinion?  


  36. lflan
    Thanks for your help!
    Learnin, learning, hopefully!


  37. By the way Flips, don’t take that the wrong way.  I did not intend to suggest that you would either learn something or change your opinion in a political discussion – I’ve long since given up on that!  8-)

     11:00 AM On the hour: Dow -0.28%. 10-yr -0.01%. Euro -0.31% vs. dollar. Crude -0.72% to $81.62. Gold -0.35% to $1349.70.

    A very modest increase in small-business optimism in September doesn’t lift it out of the "recession zone" it’s been planted in for two years, the NFIB says. Its index rose 0.2 to 89.0; while hiring remained weak and sales expectations slipped, the subindex for six-month business-condition expectations rose five percentage points to -3%. 

    Wall Street pay is on pace to hit a record high for the second straight year, a WSJ survey says, as 35 of the top publicly-held securities and investment firms are set to pay $144B in salary and benefits this year. Revenue is expected to grow 3% from last year, less than the 4% rise in compensation growth.

    Companies sold a record $70B in high-yield debt in the third quarter, Thomson Reuters reports – and have issued over $11B so far in October. Year-to-date junk sales over $187B have blown through last year’s full-year numbers.

    As investors scrounge for yield, a rush into emerging markets means not only a flow of foreign investment but a ramp-up in credit-card debt in places like Brazil and China – which could ultimately be destabilizing. 

    FCX thinks things are priced too high!  Freeport-McMoRan Copper and Gold (FCX) says it’s looking "aggressively" at investments, but that it may explore ways to return cash to shareholders, as acquisition targets are "very limited." Bernstein pegged FCX – the largest publicly traded copper producer – as a target itself, but says the cost may deter bidders.


  38. Phil/landslides  Just being a little dramatic. What I meant is: Biblical Proportions  ;)


  39.  JRW – What do you make of this RUT action today? Do you think we hold or fail 69.24? 


  40. Wow, so few comments ….
     
    Have I said how much I hate this BS Robot Market lately ??


  41.  flips/party of Incumbency – that’s why in recent years so many people have joined the Anti-Incumbent Party.


  42. Phil- Robosigning will be the excuse for the market collapsing- the banks will spend BILLIONS defending themselves against fraud and we will have to bail them out AGAIN!


  43. Phil: I would really appreciate your thoughts on one of my positions. Have a large block of VZ stock, cost 28.97/share. Bought Jan 32 puts last week for 1.71 b/c  I thought VZ was getting toppy. Am thinking about selling calls at this point, however, I am not attached to the stock (even though dividend is great). I’m thinking the stock may go down to 30 or so. Ditch the stock? Sell the calls? How would you approach this? Thanks much.


  44.  Fool us once… twice.. every single time. Watch all these bubbles get popped through earnings. Will Google be the canary in the coal mine? I’ll be buying Google puts on Thursday. 


  45. JBUR- you will get a chance to buy it cheaper- telecom stocks have gotten froggy!


  46. Phil:
    Thanks to your earlier heads up, I exited the DIA108Ps and QQQQ49Ps w/small profit.
    MOS Nov57.5Ps: when’d be a right time to roll to Jan57.5Ps per your earlier comments?
    … I guess it’s worth considering selling the Oct $62.50 puts for .60 and then plan would be to roll out to the Jan $57.50 puts (now $2.95, + $2) and sell maybe Nov $60 puts (now $1.55) to pay for the overall roll to the spread.


  47. It a riot to watch some of the bank defenders come on TV and say "what fraud ?  i don’t see no fraud "


  48. Phil- any thoughts on YRCW, they have gotten hit pretty good


  49. @ Phil
    I have learned a lot about the desperate measures folks take in trying to change the entire U.S. character to the failed socialist model (which even France and Norway are discarding as fast as they can) What you don’t seem to learn is that the U.S. will NEVER be a France. And comparing the U.S. Europe, which is made up of many countries, each with a distinct character, constitution, and culture, is naive if not outright idiotic. But go ahead and hope for it.  In vain.
    This country needs, however, to be broken up if your remedy is to have any hope of success. And the likelihood of that is nil.
    You make a further mistake in  taking my criticism of those who compare the U.S to France, England, Canada for one or two things that YOU think they do right, for endorsing the direction of the U.S. Nothing could be further from the truth. I despise the directionless meandering this country takes to solving problems.
    But at least I recognize that they will not be solved but marginally as long as the U.S. is remains as 51 states, is guided by Incumbents who are owned by invesment bankers on Wall Street and Fleet Street in England, and continues to be "Amusing itself to Death", with endless bread and circuses.
    You have much to learn  all the while that you think that others need to learn from your politics or from,  jesus, France.


  50. Bought a new momentum play today – INFA ( Informatica )  buying 1000 shares and will add a spread tomorrow. This company is the worlds #1 independant provider of data integration software.- Big customer base – over 4000, including almost all of the Fortune 100 companies, and government agencies throughout the world.. Last quarters earnings jumped 32% on a 33% increase in sales. Another high tech company that is doing its best to keep California afloat, inspite of the fiscal destruction in the state.


  51. Phil
    what was the reverse split on YRCW?
    and what rmm12 asked
    thnx


  52. drcraig,

    Well, "they" had the perfect opportunity yesterday and let it fail; right now they are trying to get over an ascending trend line now at IWM 69.49, if they can we go up if not we just keep drifting up. I think it depends on the FED minutes and to a lesser extent the 3 yr auction. If the FED says "we are prepared to do whatever is required" I think we go up; if they give out a number, it will probably be too small and we’ll get a pull-back. We are still in the channel (68.37 to 70.43 today) that we have been in since late August; when we break out, either way, it should be fun 8-)


  53. Hey all,

    **Note: Can you leave comments on my page so we can avoid extra traffic to this page**

     

    I have finished the $5 List we have been discussing for the past week. It features 45 companies on it. These are all companies that are currently less than $5 that have potential of being bought up if they reach $5, which is typically a buying benchmark for mutual funds, IRAs, and institutions. They do not buy anything under that because of associations with risk. So, we want to take advantage of this and create a watchlist of companies that would be attractive at $5 and above. I will monitor this, and when they break $5, we can enter them as trades.
     
    The list has several criterions that I used to help limit the number of companies. First off, I wanted companies that were at least $3 in share price. We have a few under $3, but the majority are above that benchmark. Stocks at $3 would still have to increase 66% in order to hit $5. So, stock below that level have a long way to go till $5 and present even greater risk. Additionally, the stocks had to have market cap of at least $100M. Most, though, I wanted above $200M. This is a risk aversion technique that just allows us to deal with companies that are more established in the market. Further, I wanted stocks with at least 300,000 average volume. A couple exceptions were made, but this is the level that I have found that has more legitimacy attached with it and has less large swings in price. 
     
    I used EditGrid to make the list. This allows the chart to be sortable. You can sort by price and see which stocks are coming up to $5 very soon. You could sort market cap, P/E, average volume, and industry. 
     
    From this point, I will be doing daily updates and monitor these stocks in the same way I do with Longterm Ratings. I don’t intend to do any detailed financial analysis.
     
    Finally, if you see any stocks that have ventured into no man’s land below $5 that are not on the list that are of interest to you, and you believe would be of interest to me and others…please let me know.
     
    Without further ado, here is your $5 List.
     
    Good Investing!
     

  54. 1020 / Biblical Proportions
    Ha – The best way to start a trading day is with a good laugh… that way you do not make a joke of some of your trades !


  55. gel,
    Informatica’s product line is very impressive.  Recently sat in on product demos from an Informatica sales team.  High quality, very well-integrated.


  56. A tidbit on WFR: It’s a new purchase in Third Ave. funds’ latest Q report which I would think is a (LT?) bullish sign notwithstanding its recent spectacular run up --besides dollar strength, and a whole host of other usual suspects.


  57. Phil, what do you think about an artificial buy/write in BAC, buying the Jan 2013 10 call for 5, selling the Jan 2013 15 call for 2.31 and sellin the Jan 2013 10 put for 1.51, for a net 1.23 in the BS already in the money?


  58. Biblical/1020 – Ah, that certainly clarifies it!  

    VZ/JBur – Someone said something bad about them today, that’s all this is.  I don’t know what you were thinking with the Jan $32 puts – what possible benefit is there to paying all that premium?  If you are willing to get back in later in life, you can clear VZ off the table now and just take up the 2013 $25/30 bull call spread for $2 and sell the $25 puts for $2.90 and you make $5.90 more over 27 months if they hold $30 (at a cost of about $5 cash and margin) and the worst-case is VZ is put back to you at net $24.10.  It’s a nice way to cash out but keep a finger on some upside.  

    MOS Oct 8/Rez – They are starting to look hopeless but that’s probably the best time to press them.  The roll from the Nov $57.50 puts (now .60) to the Jan $57.50s is now $1.75 so that’s the way to go and then wait hopefully for a pullback to sell a cover into.  It’s a very tough spread as high grain prices are killing us.  

    YRCWD/JMM – That’s what we expected off the reverse split.  I think I decided $3.50 would begin to get interesting but they just look pathetic, don’t they?  

    France/Flips – So I agreed France did something good and now I worship it as a God?  Oh well, I can’t argue with that logic…  Of course we can’t compare 50 highly diverse states each with their own constitutions, legislative bodies and taxing authorities to the different countries in Europe – that would be idiotic.  To even suggest that the culture of NY or California is different than that of Alaska or Louisiana would be just as ridiculous, right?  So I will not waste your time since, as you say, any attempt to do so would be in vain.  

    YRCWD/Maya – They did a 1 for 25 reverse split from .25 to $6.25 a share.  They have since dropped down to $4.11, which is like .16 per old share and we had liked them at .14, which is $3.50.  I will point out that you can sell the Jan $4 puts for $1.17 but I still don’t find them all that appealing until they show some kind of strength.  

    $5 List/David – Nice Job!

    12:00 PM On the hour: Dow -0.27%. 10-yr -0.02%. Euro -0.12% vs. dollar. Crude -0.61% to $81.71. Gold -0.41% to $1348.90.

    More movement toward (the general direction of) draining liquidity: The New York Fed announces more reverse-repurchase tests, this time with a larger group of counterparties, including money-market funds. Should come in handy if the balance sheet gets $500B bigger or so… (previously

    KC Fed President Thomas Hoenig: Markets are far calmer than in 2008 – and risks of QE2 now outweigh any small benefits. Trillions are already idle; dumping more trillions in would do little to spur investment and "we have no idea" where inflation might settle afterward. Economy’s slowed, but "it has not faltered."

    Three lunchtime reads:
    1) Three weeks that will rock wall street
    2) The final end of Bretton Woods 2?
    3) Who’s saving where?


  59. Holy Canoli ( Italian term ) …. INFA is starting to move…. must be Cramer reading PSW again. I added a short March straddle ( 37.5 ) to my stock purchase, and converted it into a Buy/Write giving me a 22% discount on the stock purchase.
    Thanks, boobearsdad for the confirmation – makes me a lot more confidant of the play !


  60. @Phil
    The difference, as you well know, between Californica, as a state within the United States, is overseen and governed by a massive central government operating out of the dungeons of Washington D.C.  The money we send in taxes from Pennsylvania goes to Californica or West Virginia based on a ridiculous system based in  the trade Union philosophy of seniority, not merit.   A bridge to nowhere under Ted Steven’s aegis in Alaska gets paid for by citizens in Rhode Island. And so the merry-goround goes, as these Incumbents game the Federal budget. Try that in Europe and see how far you get.
    This, as you also well know, is not the case with France. To compare them once again, in spite of their incomparability is more than a desperate stretch. Give it up. It doesn’t and can’t work here UNTIL the U.S.  breaks itself into a European model in substance. And that possibility is as likely as lefties giving up on an idyllic socialist state.


  61. I can’t find anything official from NY but this is what I hear Trichet is saying and it was published on ForexPros (linked):

    • International community must say no to protectionism, beggar-thy-neighbor policies
    • Sees second-half growth slowdown in EZ, moderation in 2011
    • Confident trend toward fiscal sustainability will continue
    • Inflation expectations firmly anchored

    WFR/Reza – They are an excellent long-term stock. 

    BAC/CMSosa – I am not comfortable with BAC’s potential risks.  I think C is far more likely to do better over time but they are both risky, of course.  What I prefer about C is you can buy the 2012 $2.50/4 bull call spread for $1.01 and sell the $4 puts for .66 for net .45 on the $1.50 spread and worst case is you own them for $4.45 but b/e is $3.48 above the $2.50 call.  Your BAC spread makes $3.77 at $15 (+13%) and requires more cash and margin than 3x the C play, which makes $3.15 on a 5% drop and has another 13% buffer to the downside before it loses.  If we assume BAC and C move generally in the same direction, the C play is way better

    INFA/Gel – Good one!

    Yes Flips, I do give up….

     


  62. 01:00 PM On the hour: Dow -0.39%. 10-yr -0.15%. Euro -0.07% vs. dollar. Crude -0.61% to $81.71. Gold -0.46% to $1348.20.

    BAD NOTE AUCTION – TBT Flying TLT DROPPING – Very strange with QE2 and the Fed coming up at 2

    The Treasury sells $32B in three-year notes at 0.569% (.pdf). Bid-to-cover ratio of 2.95; indirect bidders take 29%. Direct bidders take 11.9%. Treasurys are moderately lower: the 30-year yield +0.02 to 3.77%; 10-year +0.01 to 2.4%; 5-year +0.02 to 1.13%; 2-year +0.02 to 0.367%. 

    As ECB’s Trichet urges calm and international cooperation on economic direction, the bank’s Axel Weber says now’s the time for ECB to phase out bond buys "permanently." The hawkish tone doesn’t sound too much like Trichet’s stance just a week ago.

    "Together we must say ‘no’ to protectionism and ‘no’ to beggar-thy-neighbor policies," ECB President Jean-Claude Trichet says in warning against trade and currency wars. He expects moderate inflation in 2011. Basel III "strikes a good balance."

     Goldman Sachs still likes gold, raising its 12-month price target to $1,650/ounce (and $1,525 in six months) on the back of expected quantitative easing. Now: futures -0.49% to $1,347.70.


  63. Hi Phil ; what do u think of NOK at this level?


  64. Phil: Thanks for reply on VZ. What I was doing was setting up the first leg of collar on VZ. However, I have not had much luck with this type of trade. Seems like it is difficult to ever get enough premium back by selling calls to pay for the puts.  By the way, I rarely pay premium anymore thanks to you.


  65. Phil- If your last name was Bernanke- do you force rates lower and risk Jimmy Carter inflation all over due to the 10% increase in commodity prices we have had or do you bite the bullet and force rates up= interesting food for thought! Which one does not tank the market?


  66. Phil/YRCW
    thank you!
    I think I will wait for it to come to me, perhaps around $3.50 before selling some puts
    Or may get in a 1/2 position


  67. Bad note auction, have you ever witnessed such distorted markets? How can you have a weak currency and such high demand for treasuries? Bernanke..


  68. Hi Ho Silver !!! – Just executed a nice Buy/Write on SVM ( Silvercorp Metals ), buying stock and selling a short March straddle @ $9.00. It gave me a very nice 26% on the stock purchase on a down day.



  69. kustomz / Auction
    The Fed can absorb only so much Treasury debt, but they have not yet discovered this yet, and what is even more amazing is the number of naive that think they are safe with this junk…. What will happen to them when the Fed changes their policy?    Hmmm


  70. Jbur--just wanted to make sure you saw my response to you today at 10:09--


  71. Hello Phil,
    What do you think about specialy chemicals sector, in particular, CE, SCL , FOE, ROC?


  72. gel – Holy Canoli!  I thought only my family says that!  :)


  73. From Tim Duy:

    Put simply, the Federal Reserve is positioned to declare war on Bretton Woods 2. November 3, 2010. Mark it on your calendars.

    Consider the enormity of the situation at hand. The Federal Reserve is poised to crank up the printing press for the sake of satisfying their domestic mandate. One mechanism, perhaps the only mechanism, by which we can expect meaningful, sustained reversal from the current set of imbalances is via a significant depreciation of the dollar. The rest of the world appears prepared to fight the Fed because they know no other path.


  74. datuu
    Thanks for reply. And, yes, I would appreciate receiving some info on Cook Islands. My emai is:   burgess-jim@excite.com.
    I looked up several books by the author you mentioned, and they look intriguing. Have a good day.


  75. Tx Phil on SVU--


  76. NOK/Dflam – I don’t like them because their strategy was too dependent on giving everyone in the World a cheap $49 phone but that’s kind of shot right now and I don’t see them doing a quick turn.  We’ll see how they handles the 200 dma at $11 but I wouldn’t be surprised to see them fail here.  

    Speaking of failures – FSLR still having a rough time of things.  

    Collar/Jbur – Ah, not my favorite kind of play.  

    Bernanke/Jthom – Well if I were the Fed chair I’d be a toady to the banks and I’d flood the market with cash in exactly the stupid way he’s doing it so banks have all the money and they can force sales of the assets as they inflate and, after they go back to cash, THEN I would make money more valuable by tightening up, throwing yet another round of homeowners onto the streets.  If I were me and you gave me the reigns of the Fed, I’d prioritize bringing 30-year notes down to 1% so businesses, banks and even homeowners could refinance and free up cash.  While doing that I would drain as much other liquidity as possible to make short-term money more expensive than long-term money.  Also, to keep housing prices in check despite low rates I could continue buying homes from banks but quickly turn them around and dump them at auction.   THEN, on a date I telegraph years in advance, I would begin to raise rates 0.25 per quarter back to 2% and then I’d really tighten up money so the dollars people have become valuable and that would take the sting out of rising home prices and keep a lid on commodities and lowering the cost of exports (lightening our trade imbalance).  

    Meanwhile, 10 mins to minutes!

    YRCWD/Maya – Yes, I think they will be great to look at IF we have a big pullback – hopefully we’ll see where the floor really is on them.  

    Notes/Kustomz – It’s nutty.  A total charade but everybody’s willing to play so the game continues.  

    SVM/Gel – Sounding like you have many metals…

    Bretton/JRW – Oh, I forgot to mention today, we are pushing the envelope of what middle America can afford as evidenced by huge increases in people who walk away from their prescription medications at the counter (now 10%) because they simply can’t afford the medicine anymore.  

    Many are for drugs crucial to people’s health, such as antibiotics like Levaquin, and Nexium for bleeding ulcers, but customers balk when told their share of the price, Mr. Tucker said.

    "They just say, ‘I can’t afford it. I can’t get it.’ And they turn around and walk away," he said.

     

    Fed minutes:

    • QE2 is a reality, only a question of when and how much.  

    This is what they wanted should give us whatever boost they can manage but I’m pretty sure it’s all baked in and this should be the last of the excitement until the actual announcement.  

     


  77. Is there anyone else on the site that is short C Oct 4 calls? If so, what are your thoughts, roll to Nov 4′s or just buy them back at a loss? Banks are acting a little exuberant right now ahead of the meeting.


  78. Phil… Yes, my precious metals are Gold, Silver, Palladium, and Plutonium… The plays on these metals are diversified by holding ETF’s, mining stocks, and bullion, as well as a few others that are related to the underlying stocks ( options etc. ) All of the plays are following a central theme, but diversified as much as possible.
     
    Did you see today where JRW had Lloyd give an upgrade to Gold, in the not too distant future ?…. thanks, JRW !


  79. HERO- up 10%- deep water drilling ban lifted- what the heck, I’ll take it.
    http://www.bloomberg.com/news/2010-10-12/u-s-said-to-lift-ban-on-deep-water-drilling-imposed-after-bp-s-oil-spill.html


  80. Is there anything market moving in the minutes? It seems very uninformative…        


  81. Watch gold ($1,350) and copper ($3.80) and oil ($82.50) – why are they not happy enough to get over those lines?  

    Fed Minute Highlights:  

    Developments in Financial Markets and the Federal Reserve’s Balance Sheet
     The Desk conducted 12 such operations over the intermeeting period and purchased about $28 billion of Treasury securities, with maturities concentrated in the 2- to 10-year sector of the nominal Treasury curve, although purchases were made across both the nominal and inflation-protected Treasury coupon yield curves. In addition, the Desk continued to conduct small-scale tri-party reverse repurchase operations using MBS collateral with the primary dealers, and it published a list of money market mutual funds that have been accepted as counterparties for reverse repurchase operations. The Manager also discussed plans to publish a new set of criteria that would allow a broader set of money market funds to become eligible counterparties. There were no open market operations in foreign currencies for the System’s account over the intermeeting period. By unanimous vote, the Committee ratified the Desk’s transactions over the intermeeting period.

    So they are STILL expanding the list of people they will give FREE MONEY to.  

    Staff Review of the Economic Situation
    The information reviewed at the September 21 meeting indicated that the pace of the economic expansion slowed in recent months and that inflation remained low. Private businesses increased employment modestly in August, but the length of the workweek was unchanged and the unemployment rate remained elevated. Industrial production advanced at a solid pace in July and rose further in August. Consumer spending continued to increase at a moderate rate in July and appeared to move up again in August. The rise in business outlays for equipment and software looked to have moderated recently following outsized gains in the first half of the year. Housing activity weakened further, and nonresidential construction remained depressed. After falling in the previous three months, headline consumer prices rose in July and August as energy prices retraced some of their earlier decline while prices for core goods and services edged up slightly.

    The labor market situation continued to improve only slowly. The average monthly increase in private payroll employment over the three months ending in August was small and was less than the average gain earlier in the year. Moreover, average weekly hours of all employees were little changed, on net, in recent months after rising during the first half of the year. The unemployment rate ticked up in August and remained close to the level that has prevailed since the beginning of this year. The labor force participation rate moved up a little in August but was still low. Initial claims for unemployment insurance remained at an elevated level over the intermeeting period. In addition, other indicators of labor demand, such as measures of hiring and job vacancies, did not improve.

    Don’t forget, more red economic data is good as they WANT the Fed to be worried about jobs and have an excuse for QE2

    Industrial production increased solidly in July and then rose more moderately in August. Manufacturing production was boosted in July by a pickup in motor vehicle assemblies as automakers replenished lean stocks at dealers. However, the production of motor vehicles was pared back in August. More broadly, the output of high-technology items and other business equipment expanded at a solid pace in July and August. The output of utilities declined over the past two months after it was boosted by unseasonably hot weather in the preceding two months. Capacity utilization in manufacturing ticked up further in August from its mid-2009 low, but it was still substantially below its longer-run average.

    Real personal consumption expenditures rose modestly in July, similar to the average increase over the preceding two months. Data for retail sales and the sales of light motor vehicles pointed to a moderate gain in real consumer spending in August. Real disposable personal income declined a bit in July after increasing at a solid pace in the second quarter. The personal saving rate edged down in July but remained near the high level registered in the second quarter. Indicators of household net worth were mixed; home prices moved down in July, while equity prices inched up, on balance, over the intermeeting period. After falling back in July, consumer confidence remained downbeat in August and early September, with households more pessimistic about the outlook for their personal financial situations and general economic conditions.

    Wow, kind of bleak, isn’t it?   

    Housing activity, which had been supported earlier in the year by the availability of homebuyer tax credits, softened further in July. Sales of new single-family homes remained at a depressed level. Sales of existing homes fell substantially in July, and the index of pending home sales suggested that sales were muted in August. Starts of new single-family houses in July and August were below the low level seen in June, and the number of new permits issued in August appeared to signal that little improvement in new homebuilding was likely in September. House prices declined modestly in July after changing little, on net, in recent months. The interest rate for 30-year fixed-rate conforming mortgages remained essentially unchanged over the intermeeting period at a historically low level.

    Whuck?!?  So our buying premise is things are so awful that the Fed prints free money and we use it to buy stocks that inflate even though they have truly awful fundamentals – NO THANKS!  

    IWM Oct $71 puts have little premium at $1.61 so a stop at $1.50 and we see how things go is the way to play the close

    More to come….


  82. So in reading the Bretton Woods II article…basically, Ben’s giving the rest of the world, especially the emerging markets, the finger by hitting them with a firehose of dollars.
    Wow..that can’t end pretty.  So how’s the song go…."So where do we go from here…."


  83. JRW / Fed easing
    We all must remember, that the Federal reserve is controlled by a guy ( surrogates included ) that believes in inflationary measures to jump start the economy. This was his thesis in graduate school, and he still believes in the theory, albeit somewhat out of touch when comparing our problems today to those that prevailrd in the 30′s. Inflation can cure many ills, such as sectors in the economy that are suffering from deflation ( real estate for one ). This cure is like many medications in medicine, they must be very carefully metered out, or the result can be very toxic, and kill the patient. Personally, I believe our Congress would be a better source for a cure through proper fiscal and regulatory revisions, BUT we can forgrt that – they are not qualified to understand the problem or the revisions necessary, and like we all know they can not agree on ANYTHING ! Thanks, JRW for the link.


  84. gel / GS upgrade of gold

    Lloyd always manipulates in His own self-interest; selling into the excitement in anticipation of a dollar bounce, IMHO 8-)


  85. Gel1 / Plutonium:  Ha ha, I’m guessing a Freudian slip there. Platinum perhaps?  I am a big fan of nuclear energy (hence CCJ spreads and sold naked puts as you have) but have never been able to find Plutonium as an investable metal!  :)


  86. Pstas / HERO
    Nice, eh !  Does this move have legs? – Wondering about short covered calls.


  87. hoss… my take is this… the dollar will surely drop, and all of the emerging markets will try to adjust their currencies to get in line with the USD ( classic race to the basement ) – great for precious metals !


  88. Oh, we need the clip from Pacino in Scarface…."I’d like to introduce you to my little friend…."


  89. Phil- You want the job- anyone could do better than BEN- he has a situation that has no winning hand!


  90. gel / Congress

    I completely agree; we need a National focus, like the space race (going to the moon). Focus on energy independence, a new electrical grid, infrastructure and to set up the next generation to succeed !! I only hope it is not too late.


  91. neverworkagain - LOL.. Got my "p’s" mixed there. I meant platinum. Plutioium is precious ( very, if you are in the Iranian government , I guess )


  92.  David/List – Thanks for the list, and keep up the good work!  I haven’ been as active reading the forum the last few days, so pardon my ignorance.  My questions are: What is the time line for the stocks listed?  IE: How long would we hold them for?Do we sell after certain % gain, also do we execute buy/writes on them as well?  Just wondering.


  93. Phil;  Dell
    M. Dell said to be preparing to buy the company, any thought?


  94. JRW / GS
    I do agree… that is why they are #1… I also noticed your reverence, by capitalizing " His " – LOL


  95. Classic DR:  This is a market completely based on hope. Throw fundamental investment principles out the window. It’s now all about how the Fed can manage to inflate asset prices now that fiscal policy has tested its limits with the voting public. But where does this renewed faith in the Fed come from? Is this not the same Fed that took the funds rate from 5.5% to near- zero? The same Fed that tripled the size of its balance sheet in QE1? The same Fed that thought the housing and mortgage crisis would stay “contained” back in 2007? The same Fed that confused a credit contraction with a liquidity squeeze? The same Fed that believed, in the summer of 2007 when the crisis first broke that we would see 2.5-3.0% real GDP growth in 2008? The same Fed that was contemplating its exit strategy just a short six-months ago and believed it could start to shrink its balance sheet last spring? The same Fed that investors have so much faith in, and is the same Fed that passively tightened policy with a 25 basis point hike in the discount rate to 0.75% back on February 19th. The same Fed that just trimmed its forecast three times in the past four months, and is this not the same Fed that investors now have “faith” in? The question is, the “faith” to do what?


  96. On the the road can anyone give me an update on gold oil Dollar please


  97. Pharm,

    It gives one comfort to be able to remain calm in these troubled times  8-)


  98. Gel- HERO- legs? Near term, I don’t know. I am  trading around a core position as a longer term value play and selling puts/calls as conditions warrant for income and accumulation under $2.50/share. Earnings coming up later in Oct (28th?) and they usually "beat" so looking to sell Nov calls into that. If not, will sell more puts on a pull back. This is still a good little company that no one seems to like but I am patiently waiting for the ship to come in.


  99. JRW/Focus  I’m afraid it’s too late.  In order to have focus, you would need agreement and cooperation towards a common goal.   What we need is a Monarchy  ;)


  100. Pharm… yes the same Fed ( with the help of Greenspan ) that gave us a 50% depreciated dollar over the last 20 years.


  101. JRW- The only hope I have for a 5 year hiatus is we develop renewable energy commercially tomorrow!


  102. JRW – patience and a little $$.  Our house of cards is about to fall. 


  103. Pstas / HERO
     
    Thanks, I agree with your strategy and targets. I am also bullish on oil long term, and the Gulf is a strategic necessity for oil production, IMO.


  104. pharmboy- the banks will lead us down once again!


  105. 1 bank, jthoma…1 bank.


  106. Phil--what do you think of selling the SLB 2012 $50 puts for $5.00? thanks


  107. Achou -

    Well, I wouldn’t buy any right now. What I am going to do is monitor the list for times when they become attractive. Most of them will become attractive at the $5 level. It will sort of be the signal to buy most of the time. Once they hit $5, if the stock is attractive to institutions and mutual funds, they will load up on them. 

    I will alert you when to buy. I don’t know much about playing them with options, so I will recommend stock buys. Perhaps, you can ask Phil or another user for the option strategy on them if that is the route you want to go.

    Hope that helps!


  108. Pharm… The house of cards is suffering from a life threatening problem, and the doctors are ill prepared for the task. I hope you are keeping that Kansas bunker ( undisclosed location for security purposes ) in a "ready to occupy" condition.


  109. Gel, I buy HERO 2,15 and sel 2012jan 2,5 C 0.75 month ago.


  110. english- Are they giving away SBUX coffee with all NFLX movie rentals now?


  111. Fed Minutes – Part II:

    Real business spending on equipment and software appeared to have slowed in July after expanding rapidly over the preceding three quarters. Both new orders and shipments of nondefense capital goods excluding aircraft dipped in July. Moreover, survey indicators of business conditions softened further in August. Incoming construction data indicated that business investment in nonresidential structures decreased in the second quarter but at a slower pace than over the preceding year. Increases in spending for drilling and mining structures were more than offset by continued declines in outlays for other types of nonresidential buildings. Despite some indications that the difficult financial conditions in commercial real estate markets might be stabilizing, credit was still tight and vacancy rates for office and commercial space remained high. In the second quarter, businesses appeared to build their inventories at a faster pace than earlier in the year, but ratios of inventories to sales for most industries did not point to any sizable overhangs.

     

    Inflation remained subdued in recent months. Headline consumer prices rose in July and August as energy prices rebounded after their decline over the previous three months. At the same time, prices for core goods and services moved up slightly. At earlier stages of production, producer prices of core intermediate materials moved down, on net, during July and August while most indexes of spot commodity prices increased. Survey measures of short- and long-term inflation expectations were essentially unchanged.

    What a crock this is!  Consumer prices are up and core prices are up but Producer Prices are down and commodities are up so the Fed is pleased with the "balance".

    Unit labor costs at the end of the second quarter remained below their level one year earlier, as labor compensation continued to increase only slowly and labor productivity stayed near its recent high level. Hourly labor compensation--as measured by compensation per hour in the nonfarm business sector and the employment cost index--rose modestly during the year ending in the second quarter. More recently, the year-over-year change in average hourly earnings of all employees in July and August remained subdued. While output per hour in the nonfarm business sector declined in the second quarter following large increases in the preceding three quarters, productivity was still well above its level one year earlier.

    Purple because it’s great for business but sucks for humans.  

    The U.S. international trade deficit narrowed in July after widening in June. The rise in exports in July more than offset their decline in June, as overseas sales of capital goods rose sharply. Most other major categories of exports were little changed in July, although exports of automotive products posted their first decline since May 2009. The narrowing of the trade deficit in July also reflected a broad-based decline in imports following their large increase in June. Imports of consumer goods fell substantially in July, while imports of industrial supplies, capital goods, and automotive products also moved down. In contrast, imports of petroleum products remained about flat in July.

    Increases in foreign economic activity were robust, on average, in the second quarter. In particular, gross domestic product (GDP) grew strongly in the emerging market economies, even though gains in China apparently moderated. Among the advanced foreign economies, Europe posted a notable rise in economic activity in the second quarter; rapid expansion in Germany more than offset weaker outcomes in other euro-area economies, particularly those experiencing financial stress related to concerns about their fiscal situations and potential vulnerabilities in their banking sectors. In Canada and Japan, the rise in real GDP slowed noticeably in the second quarter. Recent indicators of foreign economic activity for the third quarter, including data on exports, production, and purchasing managers indexes, generally pointed to a slowing in the pace of expansion in economic activity abroad. Headline inflation rates in foreign economies generally were restrained in the second quarter by a deceleration in food and energy prices, but prices appeared to be rising a bit more rapidly of late.

    Conditions in short-term funding markets continued to improve following the recent stresses related to concerns about financial stability in Europe. In dollar funding markets, spreads of term London interbank offered rates (or Libor) over those on overnight index swaps fell further at most horizons over the intermeeting period. Spreads on unsecured financial commercial paper were little changed at low levels. In secured funding markets, spreads on asset-backed commercial paper remained narrow, and rates on repurchase agreements involving various types of collateral held steady. In the September Senior Credit Officer Opinion Survey on Dealer Financing Terms (SCOOS), dealers indicated, on net, that they loosened credit terms applicable to several important classes of counterparties and types of collateral over the past three months amid increased demand for funding for most types of securities covered in the survey.

    Broad U.S. stock price indexes edged up, on balance, over the intermeeting period, and option-implied volatility on the S&P 500 index was little changed on net. The spread between the staff’s estimate of the expected real return on equities over the next 10 years and an estimate of the expected real return on a 10-year Treasury note--a rough measure of the equity risk premium--remained at an elevated level. Bank stocks underperformed the broader equity market and continued to be more volatile, while credit default swap spreads for large banking organizations edged up. The greater volatility in bank stocks reportedly reflected, in part, the effects of domestic and international financial regulatory reform efforts.

    It’s interesting to see what kind of things they are watching….

    Commercial real estate markets continued to face difficult financial conditions, although some further signs emerged that this sector might be stabilizing. The prices of commercial properties appeared to have edged up in the first half of the year, and the volume of commercial real estate sales rose again in August. A few small commercial mortgage-backed securities (CMBS) deals were issued over the intermeeting period and were reportedly well received by investors, consistent with an easing of conditions and renewed interest in the CMBS market since the beginning of the year that was reported in the SCOOS. Nonetheless, the volume of CMBS issuance in 2010 remained quite low compared with the levels seen before the onset of the financial crisis, and total commercial mortgage debt continued to contract amid further increases in delinquency rates on commercial mortgages.

    For households, record-low mortgage rates supported a relatively high level of refinancing activity, but many borrowers reportedly remained unable to refinance because of insufficient home equity or poor credit histories. Consumer credit declined in the second quarter and appeared to contract further in July. Issuance of consumer asset-backed securities in August proceeded at a moderate pace that was similar to that posted in July. Spreads of interest rates on consumer loans relative to the yield on the two-year Treasury note were little changed on balance. The credit quality of consumer loans continued to improve; delinquency and charge-off rates for most types of loans dropped further in recent months, although they remained elevated.

    Could be signs of a bottom finally, but a rough one

    In foreign markets, concerns about the global economic outlook prompted substantial drops in equity prices and benchmark sovereign bond yields in many countries in August, and the dollar appreciated broadly on safe-haven demands. In September, however, as better economic news led to some improvement in investor sentiment, equity prices and bond yields moved back up, and the dollar retraced its earlier appreciation. Yield spreads relative to German bunds on the 10-year sovereign bonds of Greece, Ireland, and Portugal widened to near-record levels over the period. Moreover, euro-area bank stock prices fell on continued concerns about the condition of some troubled institutions.

    With the yen at a 15-year high against the dollar in nominal terms, Japan’s Ministry of Finance intervened in currency markets on September 15 to buy dollars against yen, and the Bank of Japan (BOJ) noted that it would continue to provide ample liquidity. In reaction, the yen depreciated about 3 percent against the dollar, essentially reversing its rise over the preceding part of the intermeeting period. The European Central Bank (ECB) said that it would continue to provide term liquidity by offering several more full-allotment three-month refinancing operations through the end of the year. In contrast to the continued accommodative stance of the ECB and the BOJ, the Bank of Canada increased its target for the overnight rate by 25 basis points to 1 percent, its third hike since June. Several other central banks tightened monetary policy over the intermeeting period, including those of Chile, India, Indonesia, Sweden, and Thailand.

    Staff Economic Outlook
    In the economic forecast prepared for the September FOMC meeting, the staff lowered its projection for the increase in real economic activity over the second half of 2010. The staff also reduced slightly its forecast of growth next year but continued to anticipate a moderate strengthening of the expansion in 2011 as well as a further pickup in economic growth in 2012. The softer tone of incoming economic data suggested that the underlying level of demand was weaker than projected at the time of the August meeting. Moreover, the outlook for foreign economic activity also appeared a bit weaker. In the medium term, the recovery in economic activity was expected to receive support from accommodative monetary policy, further improvements in financial conditions, and greater household and business confidence. Over the forecast period, the increase in real GDP was projected to be sufficient to slowly reduce economic slack, although resource slack was anticipated to still remain elevated at the end of 2012.

    So, if companies start coming out with good earnings reports – what happens to this whole QE2 thing?  

    Overall inflation was projected to remain subdued, with the staff’s forecasts for headline and core inflation little changed from the previous projection. The current and projected wide margins of economic slack were expected to contribute to a small slowing in core inflation in 2011, which was anticipated to be tempered by stable inflation expectations. Inflation was projected to change little in 2012, as considerable economic slack was expected to remain even as economic activity was anticipated to strengthen.

    Participants’ Views on Current Conditions and the Economic Outlook
    In their discussion of the economic situation and outlook, meeting participants generally agreed that the incoming data indicated that output and employment were increasing only slowly and at rates well below those recorded earlier in the year. Although participants considered it unlikely that the economy would reenter a recession, many expressed concern that output growth, and the associated progress in reducing the level of unemployment, could be slow for some time. Participants noted a number of factors that were restraining growth, including low levels of household and business confidence, heightened risk aversion, and the still weak financial conditions of some households and small firms. A few participants noted that economic recoveries were often uneven and were typically slow following downturns triggered by financial crises. A number of participants observed that the sluggish pace of growth and continued high levels of slack left the economy exposed to potential negative shocks. Nevertheless, participants judged the economic recovery to be continuing and generally expected growth to pick up gradually next year.

    What a schitzo bunch!  

    Indicators of spending by businesses and households were mixed. Several participants observed that data on retail sales had been a bit stronger than expected over the intermeeting period, although business contacts indicated that shoppers remained very price sensitive. There were some reports of retailers cautiously boosting inventories ahead of the holiday season by somewhat more than they did a year ago. Households were continuing efforts to repair their balance sheets by saving more and paying down debt. Participants noted that elevated uncertainty about employment prospects continued to weigh on consumption spending. Many businesses had built up large reserves of cash, in part by issuing long-term debt, but were refraining from adding workers or expanding plants and equipment. A number of business contacts indicated that they were holding back on hiring and spending plans because of uncertainty about future fiscal and regulatory policies. However, businesses also indicated that concerns about actual and anticipated demand were important factors limiting investment and hiring. Businesses reported continued strong foreign demand for their products, particularly from Asia.

    Participants noted that the housing sector, including residential construction and home sales, continued to be very weak. Despite efforts aimed at mitigation, fore-closures continued to add to the elevated supply of available homes, putting downward pressure on home prices and housing construction.

    Where exactly is the investment opportunity here???

    Financial developments were mixed over the intermeeting period. Banks remained generally cautious and uncertain about the regulatory outlook, although investors appeared confident that U.S. banks could meet the new international standards for bank capital and liquidity that were announced over the intermeeting period. Improving household financial conditions were contributing to better consumer loan performance, and credit problems more broadly appeared to have mostly peaked, although banks continued to report elevated losses on commercial real estate loans, especially construction and land development loans. Credit remained readily available for larger corporations with access to financial markets, and there were some signs that credit conditions had begun to improve for smaller firms. Asset prices had been relatively sensitive to incoming economic data over the intermeeting period but generally ended the period little changed on net. Stresses in European financial markets remained broadly contained but bore watching going forward.

    A number of participants noted that the current sluggish pace of employment growth was insufficient to reduce unemployment at a satisfactory pace. Several participants reported feedback from business contacts who were delaying hiring until the economic and regulatory outlook became more certain. Participants discussed the possible extent to which the unemployment rate was being boosted by structural factors such as mismatches between the skills of the workers who had lost their jobs and the skills needed in the sectors of the economy with vacancies, the inability of the unemployed to relocate because their homes were worth less than their mortgages, and the effects of extended unemployment benefits. Participants agreed that factors like these were pushing the unemployment rate up, but they differed in their assessments of the extent of such effects. Nevertheless, many participants saw evidence that the current unemployment rate was considerably above levels that could be explained by structural factors alone, pointing, for example, to declines in employment across a wide range of industries during the recession, job vacancy rates that were relatively low, and reports that weak demand for goods and services remained a key reason why firms were adding employees only slowly.

    Inflation had declined since the start of the recession, and most participants indicated that underlying inflation was at levels somewhat below those that they judged to be consistent with the Committee’s dual mandate for maximum employment and price stability. Although prices of some commodities and imported goods had risen recently, many business contacts reported that they currently had little pricing power and that they anticipated limited, if any, increases in labor costs. Meeting participants noted that several measures of inflation expectations had changed little, on net, over the intermeeting period and that analysis of the components of price indexes suggested disinflation might be abating. However, TIPS-based inflation compensation had declined, on balance, in recent quarters. While underlying inflation remained subdued, participants saw only small odds of deflation.

    A big case for QE2, or at least a justification for it.

    Participants discussed the medium-term outlook for monetary policy and issues related to monetary policy implementation. Many participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate or if inflation continued to come in below levels consistent with the FOMC’s dual mandate, it would be appropriate to provide additional monetary policy accommodation. However, others thought that additional accommodation would be warranted only if the outlook worsened and the odds of deflation increased materially. Meeting participants discussed several possible approaches to providing additional accommodation but focused primarily on further purchases of longer-term Treasury securities and on possible steps to affect inflation expectations. Participants reviewed the likely benefits and costs associated with a program of purchasing additional longer-term assets--with some noting that the economic benefits could be small in current circumstances--as well as the best means to calibrate and implement such purchases. A number of participants commented on the important role of inflation expectations for monetary policy: With short-term nominal interest rates constrained by the zero bound, a decline in short-term inflation expectations increases short-term real interest rates (that is, the difference between nominal interest rates and expected inflation), thereby damping aggregate demand. Conversely, in such circumstances, an increase in inflation expectations lowers short-term real interest rates, stimulating the economy. Participants noted a number of possible strategies for affecting short-term inflation expectations, including providing more detailed information about the rates of inflation the Committee considered consistent with its dual mandate, targeting a path for the price level rather than the rate of inflation, and targeting a path for the level of nominal GDP. As a general matter, participants felt that any needed policy accommodation would be most effective if enacted within a framework that was clearly communicated to the public. The minutes of FOMC meetings were seen as an important channel for communicating participants’ views about monetary policy.

    So, what they are saying is if they baffle us with BS, rate/inflation expectations will rise and spur people (who have no money and no jobs) to buy.  So the stimulus they are leaning toward is nothing more than a trick to squeeze a few more bucks out of consumers, without solving any of their actual problems

    Committee Policy Action
    In their discussion of monetary policy for the period immediately ahead, nearly all of the Committee members agreed that it would be appropriate to maintain the target range for the federal funds rate of 0 to 1/4 percent and to leave unchanged the level of the combined holdings of Treasury, agency debt, and agency mortgage-backed securities in the SOMA. Although many members considered the recent and anticipated progress toward meeting the Committee’s mandate of maximum employment and price stability to be unsatisfactory, members observed that incoming data over the intermeeting period indicated that the economic recovery was continuing, albeit slowly. Moreover, the data had been mixed, with readings early in the period generally weaker than anticipated but the more-recent data coming in on the strong side of expectations. In light of the considerable uncertainty about the current trajectory for the economy, some members saw merit in accumulating further information before reaching a decision about providing additional monetary stimulus. In addition, members wanted to consider further the most effective framework for calibrating and communicating any additional steps to provide such stimulus. Several members noted that unless the pace of economic recovery strengthened or underlying inflation moved back toward a level consistent with the Committee’s mandate, they would consider it appropriate to take action soon.

    With respect to the statement to be released following the meeting, members agreed that it was appropriate to adjust the statement to make it clear that underlying inflation had been running below levels that the Committee judged to be consistent with its mandate for maximum employment and price stability, in part to help anchor inflation expectations. Nearly all members agreed that the statement should reiterate the expectation that economic conditions were likely to warrant exceptionally low levels of the federal funds rate for an extended period. One member, however, believed that continuing to communicate that expectation in the Committee’s statement would create conditions that could lead to macroeconomic and financial imbalances. Members generally thought that the statement should note that the Committee was prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate. Such an indication accorded with the members’ sense that such accommodation may be appropriate before long, but also made clear that any decisions would depend upon future information about the economic situation and outlook.

    Wow, this is a tough one.  What has the data really been since Sept 21st?  Generally better I think and that’s — Bad...

     

    At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:

    "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to maintain the total face value of domestic securities held in the System Open Market Account at approximately $2 trillion by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability."

    The vote encompassed approval of the statement below to be released at 2:15 p.m.:

    "Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.

    Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

    The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.

    The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

    Voting for this action: Ben Bernanke, William C. Dudley, James Bullard, Elizabeth Duke, Sandra Pianalto, Eric Rosengren, Daniel K. Tarullo, and Kevin Warsh.

    Voting against this action: Thomas M. Hoenig.

    Mr. Hoenig dissented, emphasizing that the economy was entering the second year of moderate recovery and that, while the zero interest rate policy and "extended period" language were appropriate during the crisis and its immediate aftermath, they were no longer appropriate with the recovery under way. Mr. Hoenig also emphasized that, in his view, the current high levels of unemployment were not caused by high interest rates but by an extended period of exceptionally low rates earlier in the decade that contributed to the housing bubble and subsequent collapse and recession. He believed that holding rates artificially low would invite the development of new imbalances and undermine long-run growth. He would prefer removing the "extended period" language and thereafter moving the federal funds rate upward, consistent with his views at past meetings that it approach 1 percent, before pausing to determine what further policy actions were needed. Also, given current economic and financial conditions, Mr. Hoenig did not believe that continuing to reinvest principal payments from SOMA securities holdings was required to support the Committee’s policy objectives.

    It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, November 2-3, 2010. The meeting adjourned at 1:10 p.m. on September 21, 2010. 


  112. Volume is just 97M on the Dow at 3:15 – very low.  Crazy low for a Fed day!

    Chemicals/Alik – Not my thing but I’d be happy to take a look on the weekend.  

    AAPL shooting up to 52-week highs, that’s keeping the Nasdaq moving.  Russell still reporting wrong % increases, very annoying.  

    Fighting the Fed/JRW – I’m wondering if it can be done.  Keep in mind it’s only the EXPECTATION that they are madmen who will flood the World with money – the minutes show a slightly more balanced view.  CPI and PPI numbers will be critical and, keep in mind that oil is up more than 10% since that meeting and that’s going to bump up prices, along with food.  So, if the Fed boys have a shred of human decency – they would go very easy on the QE.  It’s a big if….

    IWM puts right on the line, $1.55 now and it looks like a stick in the making so a nickel/.06 loss and running since things didn’t work out is a good idea.  


  113.  Hoenig is the only smart one in this committee


  114. 1020 / Italia

    If you have relatives there, get a letter or two saying they need you, take it to the Consulate and let them do the work; that should save you a great deal in legal expenses !!


  115. One of my favorite momentum plays ( ICE ) is still doing what is expected. With the recent upward moves, I am setting a new stop @ $97. to lock in profit. I still believe this stock has the fundamentals to climb far further, particularily after their next earnings announcement.


  116. Hey all,
     
    Here is the online version of the Longterm Ratings list. I will add to this each time I do a report. 
     
     
    You can view that from now on when you want to see the ratings ideas.
     
    Good Investing,

  117. Jbur
    It is a bit late to respond on you question on C I rolled the Oct 4c to Jan 5c and sold 1/2 Jan 4 p for .23 moving up like a snail.


  118. Metals/Gel – If the Fed officially announces QE2, I will join better late than never.  Clearly there are many willing to pump this market higher and higher at the moment and a real scarcity of sellers.  

    XLF taking off, almost testing $15!  

    Minutes/RN – See comments.  It’s enough talk about easing that the bulls can hang their hats on it.  

    Interestingly, TBT finally punched through $32 – lets see if they hold it.

    HERO/Pstas – Nice trade! 

    Looks like they are going for AAPL $300

    Getting tedious but DIA $112 puts are now interesting at $1.65 with a $1.50 stop or stop at Dow 11,051 (4 points up).


  119. This is extremely painful..


  120. JRW – Great Idea!  Hopefully they want me…..  :)   Thanks!


  121.  Any interest in playing Intel $20 puts overnight?


  122.  Q’s/Phil,
     
    Have you done anything wth the Oct 49 Q’s you rolled into from last Friday?


  123. 1020,

    Hopefully you won’t have to buy a "villa" and make a rather sizable bank deposit  8-)


  124. So… are we all supposed to hope for bad economic data now?  Or taking it to an extreme how about terrorist attacks and stuff.  Wouldn’t that necessitate more easing?


  125. Gel thanks for SVM, followed you on that.  Now have small positions in EGO, SVM, ABX and NEM, so covered on miners.  Still thinking about soft commodities.
    If QE2 doesn’t come, yikes! 


  126. Phil / FED

    Remember Ben’s charge is to ensure the well-being of the Banks, NOT the People !!


  127.  David/Achou – I think it’s best asking those questions on David’s $5 post – that way the conversation is useful to all.  Thanks. 

    DELL/42L – I agree with him, it could be run much better but he already returned as CEO and didn’t help it much so I don’t know what more he will accomplish as an owner.  

    LOL Pharm – Great summary of our Fed!  

    Kustomz:  Oil $81.80, Gold $1,353.30, Copper $3.812, Dollar right on the 77 line.

    Buy program stopped dead at 110M on the Dow at 3:37 – Strange….  No momentum at all to the move so they’ll have to run it again to get interest (if there is any).  

    SLB/Datuu – I like that a lot because they are a great company and that would be a great entry.  

    INTC/Dr.C – I think you are better off with SQQQ calls or QIDs as a poor INTC report will shock the Nas.  

    Qs/Newbie – Puts?  Puts were a "sell into the excitement" this morning.  If you mean the calls, I don’t even remember them but I’d sure take the money and run off this move!  

    More easing/Kinki – Terror, global warming, record unemployment, oil shortages, war, asteriods, super bugs – all bullish for the market under the new rules!  8-)


  128. Phil,
    I was looking at the NOV VIX options and they have a very weird Prob of expiring… The market has priced in a major move up in the VIX. $19 Calls at 5.60 and $19 puts at .30…. Is this a sign? I don’t understand the mismatch other than a strong bias for the VIX to move up dramatically… Can you enlighten?


  129. Phil / Bull — what’s bearish in this market? What a bunch of BULL!


  130. Hoss,

    Never fear, QE II will come; it has to, as who else will buy our paper in sufficient quantities !!


  131.  Ben/JRW – Don’t I know it!  What a freakin’ disaster this is for America and all the happy talk about it on CNBC is just so grating.  

    AAPL $299.46 – does everyone have their $300 hats?

    Wow, these analysts on CNBC actually believe the Fed policies will put money into the hands of consumers.  It didn’t happen with the first $2.5Tn, why will the next $500Bn do the trick when they are applying it the same way?  All it’s really doing is decreasing the amount of money Americans get paid for saving money but, as the Fed said right in the minutes – that’s just the kind of choice they want to force on the consumers:  No point in savings and expectation of things getting more expensive in the future will force them to BUYBUYBUY with what little they have left.  All the more to send the repo man to get back down the road

    VIX/Novice – It’s an indication that a whole lot of put buying is going on for Nov expiration.  That’s in line with my expectations of a correction either now or soon after the elections.  

    MEANWHILE, A LITTLE PERSPECTIVE PLEASE – WE ARE ONLY 3 S&P POINTS OVER MONDAY’S OPEN.


  132. $1.35 on the day, 2 1/2%; add that to yesterday’s 12 cents and it makes me wonder why I get up so early  8-)


  133. Hoss…. Good luck to us. I am not much worried.  I believe the Fed action ( or inaction ) is not the catalyst long term. All of my metal plays are targeting the inevitable, that is being created by a consortium of causes. There are so many other countries that are easing that will fill in the gap. You might want to consider GG – they are a big player in this scenario, and are a low cost ( relatively ) producer.


  134. Here’s the second weekly newsletter, 10-10: http://ilene.typepad.com/ourfavorites/phils-stock-world-weekly-newsletter.html.

    Feedback welcome. 


  135. Novice….careful…read
    http://www.philstockworld.com/2010/10/11/musings-on-a-unified-risk-theory-correlation-vol-m3-and-pineapples/
    It’s kinda mind bending, but be patient with it…he really clarifies the steepness of the Volatility Horizon currently.  Basically, his supposition is the correlation of the markets, and it’s continuing increase due to QE2 expectations, creates increased risk and that has to be reflected in VIX.  Phil can probably explain much better, but this was VERY enlightening article for me. 
    Correlation may not be a good thing in a recovery…..


  136. correlations/hoss: Nassim Taleb posits a similar theory in his book "Black Swan". I am paraphrasing from memory, but that rapid increase of complexity and interconnection between assets and markets creates incredible unpredictable risk — the proverbial "Black Swan".  ABS’s, CDO’s, CDS’s, ETF’s, Monetization of Commodities etc, all create a complex "diversified" global web in which the failure of anyone aspect can set off a chain reaction.   The diversification has a "moderating" effect, but it also hides catastrophic risk at the tails of the bell curve.  Which is why he suggests buying OTM puts to hedge against Black Swans (or make money off of them).  Similar is Phil’s "Disaster Hedges". 


  137. ilene – not sure if it is adobe or my computer, but the newsletter keeps crashing Chrome, Mozilla and IE….


  138.  Newsletter opens fine on my pc.


  139. Phil/Others:
    A bit off topic question:
    Would appreciate explaining why (foreign??) buying of a country’s sovereign bonds, in large amounts, would cause that country’s currency to, relatively, [at least]  not go down/strengthen?


  140. Newsletter opens fine on my Mozilla (PC not Mac)


  141.  > a poor INTC report will shock the Nas.
     
    Is the inverse also true? INTC at $.52 EPS beat estimates ($0.50); probably finding a lot of easy money in exports right now.


  142. Adobe 9.4…..hummm….that’s the problem child.


  143. Intel – Renewed buying was driven by price cuts and may not last through year’s end, said Tristan Gerra, an analyst at Robert W. Baird & Co.  “There was a significant rebound in the PC supply chain in the month of September and it looks like it continued in October,” said Gerra, who has a “neutral” rating on Intel shares and doesn’t own any. “We don’t believe that this rebound is sustainable. Inherently there are weaknesses.” 

  144. The ‘whisper number’ (whispernumber.com) for Intel was for earnings of $0.55 which compares to $0.52 actual and $0.50 estimate.  According to their logic, beating the estimate but not meeting the whisper number should be negative for the stock so it will be interesting to see how they do tomorrow.


  145. Phil:
    Does it make sense to roll the Oct 16 65 sold OPEN calls (in at 1.53/now 2.00) to Nov 70′s for 3? Thanks.
    dclark41


  146. Phil,
    When you have an opportunity, could you provide some guidance on how to hedge gold and silver bullion positions?  I have ~$50k in gold bullion after some very sizable capital gains, and I’d like to keep the position, but I’m concerned about rapid 5-10% pullbacks in the coming months.  I’ve been playing around with various GLD put spread scenarios, but honestly I am baffled as to the ideal sizing, whether the long put should be ITM, or 3-5% OTM.  Best I have come up with for each $10k in bullion is +3 GLD Nov 129P / -3 GLD Nov 124P, with the intent to roll up or down 2-3 weeks prior to OpEx.
    Any advice/suggestions would be greatly appreciated!


  147. Well at least the DIA puts were winners ($1.92 on close).  That makes up for the IWMs.  That’s why stop disciplines are so important – you can take a pause, look for another opportunity and get on the next horse…

    Poor JRW!  8-)

    Bonds/Reza – That’s a confusing question but the simple answer is that buying bonds denominated in dollars requires you, the foreign country, to get dollars to pay for them.  So you have $82Bn Yen and you want to buy $1Bn worth of bonds – what happens.  1st, you must exchange your Yen for $1Bn – that is fine as they are both "in circulation."  Next you swap $1Bn of cash for a piece of paper that says Uncle Sam owes you  $1Bn in 10 years (boy are you gullible!).  You have taken your $1Bn US Dollars OUT of circulation and exchanged it for a piece of paper, thus reducing the overall supply of available US dollars by $1Bn, making the remaining ones more valuable.

    When the Fed buys bonds, however, they create money by writing a check.  Rather than decrease the money supply they artificially lower the interest rates that are paid for money (by bidding low at Treasury auctions) and cause all the people who have real money to get paid less for the use of it.  That is how the Fed robs you every time they write a check.  They don’t "create money out of thin air," they create money by devaluing all the other money that exists by whatever small percentage – a crime so small you don’t report it but it’s done to you on weekly basis!  

    INTC/JVest – I don’t know if it can pop the Nas higher but it sure should give us a good view of the top.   There are just such huge expectations built into things right now, it’s hard to imagine how earnings will end up.  

    And what lotter said (thanks!).  

    OPEN/DClark – I agree with that short.  They are only at $65.69 with 3 days to go.  I don’t think you want to pay that premium ahead of time.  Just make sure your net $1 collection for the roll doesn’t get away from you (maybe at .50 you execute before it’s too late).


  148. Yodi, thanks for response. I was gone the last 2 hours of the market today, and was not able roll C Oct 4′s before I had to leave. Ouch.


  149. Social Security … no increase in benefits again.  0% for 2010; 0% for 2011.
    Way to screw over the seniors DC !
    That’s one way to try to hold down the deficit without doing any "cutting".
    Unfortunately, seniors have to cope w/ very real food and energy inflation and no COLA on Social Security.
     
    This will also hurt consumer spending, as Zero Hedge is pointing out.


  150. Confusing question/Phil – Thanks for your helpful explanation. However, I think your explanation has this hidden assumption:
    The dollars to be exchanged for Tbills are taken out of circulation: what if these $s are part of the fx reserves of the foreign gov ($s as reserve currency)? OR maybe I misunderstand the meaning of "in circulation"?
    My question goes back to the many recent reports of Chinese officials buying JGBs in large quantities thereby strengthening the Yen. Hence, forcing Japan officials to intervene devaluing the Yen.
    If Chinese exchanged Yens for JGBs where did these Yens end up, sounds like not back in circulation?, that caused the Yen to rise?
     
    Thanks again Phil!


  151. reza99  check out this link: it discusses the effects of China’s purchases on the rise of the yen  (very little effect)
    http://www.besternews.com/article/Bester_News_-_Top_News/Q%252BA%253A_Is_bond_spat_brewing_between_Japan_and_China%253F/


  152. Thanks Humvee!
    This article helped.


  153. The Foreclosure Fraud issue explained
     
    http://www.businessinsider.com/why-foreclosure-fraud-is-so-dangerous-to-our-system-of-property-rights-2010-10
     
    This is a huge freaking mess – Barry Ritholz explains
     
    The fraud that has come to light are primarily occurring in steps 4, 5, 6 and 7. The verification of the specific data that is mandated legally is not taking place by bank executives. Reviewing a file can take anywhere from, 20 minutes to well over an hour. Yet some bank employees are testifying that they have signed off on as many as 150 per day (Wells Fargo) or 400 per day (Chase).
    It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than  one note holders are suing on the same property that is being foreclosed.
    This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED).
    The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION).
    Law firms preparing the legal documents are not doing their job of further verifying the information. And, it seems certain states such as Florida have foreclosure mills who were set up from the outset as fraudulent enterprises. (EVEN MORE PROSECUTION NEEDED).
    Lastly, some service processors are not bothering to do their job. This is the last step in the foreclosure proceedings that would put a person on notice of the errors (YET MORE FRAUD).

    —————
     
    So what does Obama’s wizard David Axelrod do ?  He goes on Sunday talk shows and says, well, we just want this fixed, fixed the paperwork and we hope that gets done quickly.
     
    YEAH RIGHT !!   Millions of mortgages rife w/ document fraud and these will just be "fixed" overnight … what is this dude smoking ??  (sounds like someone wants this problem to just go away – quickly).
     
     
    Me thinks this is gonna brew into a major major cirsis ….


  154. Cap- thanks for the article. I am shocked and saddenned that this would happen in the US.


  155. Bonds/Phil: What I have got is that the more financial assets of a country is held by foreign capital inflows, the higher its currency relative to those foreign currencies; details be darned.


  156. Good morning! 

    Hedging Gold/Wass – First of all, you need to consider what you REALLY need to protect.  2 weeks ago, gold was $1,300 and now $1,360 so a 5% pullback will only put you back to two weeks ago – you don’t want to spend $5,000 to protect against a $2,500 pullback, right?  That’s a mistake people often make with hedging – they over-hedge.  Hedging is giving up a portion of your profits to protect what you believe is an opportunity to make a longer-term gain.  Your idea for a GLD hedge spends $366 to get $1,500 worth of protection if gold falls $80 (6%).  6% of your $50K is $3,000 so your ratio is good (mitigating 1/2 the expected loss) but you have to assume you lose at least 1/2 each month as you roll so your cost of insurance is roughly $200 per month.  

    But what is gold drops 10% or more?  Not likely to do more in a day but I worry about your ability to cash out physical gold so make sure you have a plan to add more shorts at certain levels.  

    Now, consider this.  You are going to spend $200 a month to offset a 5% drop but you can, instead, buy 5 GLD March $145 puts for $16.10 ($8,050) and sell 5 March $135 puts for $9.10 ($4,550) and that’s net $3,500 to make $10,000.  Now you have $1,500 of downside protection IF GOLD DOESN’T GO UP.  If gold does go up, you don’t lose any money until GLD is past your break/even point at $141.5 so let’s call that $1,415 gold (not an exact match) and you have 50 ounces so that’s up $3,250 from here BEFORE you begin to lose money on your hedge.  

    So if gold goes down, you make money (up to 5%).  If gold stays flat you make money and if gold goes up 5%, you begin to lose money but not more than you make on your physical gold and, of course, you have no upside limit on your gold and you can, of course, stop out the hedge or roll the hedge before you have a total loss.  This is a very good way to hedge a position that you feel has a strong upside and what you are doing is creating a "profit gap" to the upside but you are not wasting the money on premiums and you are not limiting your upside gains.  

    Meanwhile, you don’t need too much of a hedge if the Euro is over $1.40 so watch that line.  I did point out that Platinum was a better buy than gold a couple of months ago and I think now they have topped out now at $1,700 so that’s a good thing to watch, especially as Platinum has more industrial uses so it’s a little more tied to real demand.  

    We still have our XLF play to the upside, which is good for a 20x return.  I won’t be around today so let’s look at a couple of others – ALTHOUGH I WILL SAY AGAIN I DO NOT HAVE A LOT OF FAITH IN THIS RALLY:

    I see the futures popping on some rumors the Fed will BEGIN with $500Bn in asset purchases and ramp up to at least $1Tn from there also China just admitted they are up to $2.65Tn in reserves, indicating they will never stop buying our monopoly money despite what they say publically.  I think we should start a rumor that the Fed will buy $15Tn worth of Treasuries at 0.5% to pay off our entire debt and just get it over with!  There is something very, very wrong when something that is written by one person from one IBank at 3am can add $1Tn in PRICE (not value) to the global markets in 3 hours.

    So the main reason we want upside hedges is to fund the rolls of our aggressive short positions.  Maybe we don’t get a crash and our longs go up and up but, if we do, it could be a whopper of a crash and we don’t want to be caught with wimpy protection.  

    First of all, I like a downside play on the RUT:

    TZA Apr $23/33 bull call spread for $2, selling 1/4x Apr $20 puts for $4.  That’s net $1 on the $10 spread that’s on the money now so a play for RUT failing 700.  Obviously, the short puts can be rolled along much lower – they don’t even have significantly lower strikes right now so you have to have faith they will make them but you can risk being assigned 500 shares at $20 ($10,000), which is 20% lower than here (about 6% up on the RUT to 742) so selling 5 puts and buying 20 calls for $2K of your own cash plus the putter’s $2,000 gives you $20,000 of downside protection.  TZA was at $32 on Sept 1st so, in a $200K portfolio, you can protect all of September’s gains by risking a 5% assignment of a hedge that’s not bad to have anyway.  

    Now that we have that covered, what can we play to the upside?  Keep in mind we have a big move up this morning so focus on the net of the spreads, not the exact prices:

    UNG – Yes, that’s right, UNG.  It’s a commodity, you know and they are down to $5.81 and you can make your entry net $4 by selling the 2013 $5 puts for $1.  Now, if your gas bill at home is $3,000 a year, you can certainly risk owning 1,000 shares of UNG for $4 since you’ll save $1,000 a year on your gas bill if it’s assigned to you!  So selling 10 of the 2013 $5 puts and buying the April $5 calls for $1.20 is net .20 on calls that are .81 in the money and were $2.30 in the money on Aug 1st.  If you kill the calls when they lose .50, then your net entry on UNG goes up to $4.50 if it’s put to you.  

    XLF can be set up in a similar way as you get paid $1.10 for selling the 2012 $12 puts (net margin .68) and Nov $14 puts are just $1 and .85 in the money so your worst case is you own XLF at net $11.90 and you get all the upside on the financials.  Also, the same escape, if you lose .50, your worst case becomes owning XLF at $12.40 – still liveable.

    The Dow is our lagging index so we want to play them up and you can show your faith in the Dow by selling the DDM Apr $39 puts for $2.50.  That’s 20% below the current price so about 10% down in the Dow before they get assigned.  That $2.50 buys you the Jan $46/50 bull call spread which is already $3 in the money and you can push it to the $52 callers for $1 more, which puts you in the $6 spread for $1 that’s $3 in the money.  Even as I write this though, I have to restate that I have no upside faith in the indexes over our 10% lines.  

    So there’s 3 plays for a sunny day.  This morning is better spent rolling those downside plays, including the Mattress play as you should be able to move up to the DIA Jan $112 puts at about $5.25.

    Speaking of levels, I finally capitulated and ran the 10% numbers, which are:

    • Up 10%Dow 11,220S&P 1,177, Nas 2,420, NYSE 7,500 and Russell 700
    • Up 7.5%: Dow 10,965, S&P 1,146, Nas 2,365, NYSE 7,280 and Russell 672
    • Up 5% (must hold): Dow 10,710, S&P 1,123, Nas 2,310, NYSE 7,140 and Russell 666 

    On the RUT and the NYSE, we rounded up as those psychological levels are very significant.  We should be all green except the Dow at the open based on the futures up 0.5% (6am).  I still like the speculative put plays like the DIA Oct $110 puts, which should be down around .30.  Very dangerous of course but if you don’t buy them on upside spikes with days to expiration – when would you?  

    It looks like it’s going to be a fun day – sorry I’m going to miss it!