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Weekend Reading – Mopping Up Liquidity Already?

Is it time to tighten already?

Volker Kauder, the head of Germany's leading Parliamentary group thinks so, saying: "I hope that the ECB acknowledges its limits and quickly rakes in the money later."  Mr. Kauder's warning follows similar comments made by Ms. Merkel at the most recent summit of European leaders on March 2. Responding to warnings by Brazil about a "tsunami of cheap money" flooding global markets, Merkel said during a news conference that she was certain that the ECB had now ended its program of issuing cheap 3-year loans to banks. Merkel also reassured critics that the ECB would not repeat such measures again.

The ECB's balance sheet is now nearly 1/3 of the Euro-Zone economy, 50% worse than the Fed's 19% stake in the US and even the Bank of England has "only" pumped their balance sheet to 21% of the UK GDP.  On Friday, through some interesting number juggling, Germany's Federal Statistics Office announced that the country's deficit plunged in 2011 and, at 1 percent, is now well within EU limits.  They are now ratcheting up the pressure for other nations to follow suit.  As pointed out by Mish:

Spanish prime minister Mariano Rajoy has already announced his own budget target of 5.8% of GDP in 2012, ignoring the EMU mandate of 4.4% on the way to an alleged 3% in 2013. Rest assured 4.4% will not be met, nor will 5.8%.  Last year's deficit was 8.5% and with Spain heading into a monster recession, 7.0% might be a more reasonable expectation for 2012.  

This may all be just internal noise to placate the hawks in Germany or it may be stage one of panic over the 2.5% plunge in the Euro last week – despite Greece being "fixed" again.  The bottom line is, without similar balance sheet inflation from the BOE and the Fed next week, the Euro still has a long way to fall and we know how a bouncing Dollar plays havoc with the markets.  

Portugal is already showing a 2.8% CONTRACTION in GDP for the final 3 months of 2011, 1.3% worse than Q3 and no one thinks it's getting better in Q1.  Their statistics agency said domestic demand and investment fell sharply, while growth in exports slowed.  Portugal's largest export partner is Spain, who are just beginning their own austerity program and will be ending Q1 with a National Strike.  

"Spain and other European markets for Portuguese trade are contracting also, so we are not slowing down because of a vicious circle of austerity, but because external demand is weaker than previous forecasts showed," Pedro Passos Coelho told reporters after meeting Sweden's prime minister.  Whuck??  Isn't that the same thing?  The government recently downgraded its forecasts for economic output this year, to a contraction of 3.3% from 3% previously.  

The WSJ has a nice "Euro-Zone Crisis Tracker" – a great read for whenever you are having too nice a day and feel the need to depress yourself…  Notice Fitch found 5 countries to downgrade on Friday and none to upgrade.  Is our crisis really "fixed" if we're still going downhill?  

We have massive inflation readings from India (6.7%) as well a Egypt (9.2%), where food and beverage costs are up 12.6%, accelerating from 11.2% in Jan.  It was inflation less than this that sparked the riots last year.  Those prices never came back down – these are just higher.  

Egypt has requested a $3.2 billion loan from the International Monetary Fund, part of support sought by the government to boost an economy struggling to recover from a year of unrest in the wake of the uprising that ousted Mubarak last February.  Egypt’s central bank on Feb. 2 left the overnight deposit rate unchanged at 9.25 percent and the overnight lending rate at 10.25 percent.

Importing expensive oil gave China it's largest trade deficit in 22 years ($31.5Bn) with imports rising twice as fast as exports.  Japan has similar issues as they export more to Europe than the US and, as pointed out last week, they may have backed the wrong horse betting the Euro.  We had the EWJ April $10 puts at .20 from Thursday morning's post and we'll see if 9,850 can hold this week on the Nikkei or not.  


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  1. Phil

    If I missed any comments, feel free to re-ask here as I'm doing a lot of reading and won't be inclined to check older posts at this point. 

    Thanks.

    I hope everyone had a lovely weekend and is ready for a very exciting options expiration quadruple-witching, end of quarter blow out! 

  2. pstas

    U.S. rail carloads totaled 1,410,992 in February 2012 (the five weeks ending March 3), down
    1.9% (27,555 carloads) from the same period in 2011. U.S. carloads averaged 282,198 per
    week in February 2012, down from February 2011’s average of 287,709 carloads per week.
     
    Coal was the main problem in February. U.S. railroads originated 592,316 carloads of coal in
    February 2012, down 70,583 carloads (10.6%) from February 2011. That’s the biggest yearover-
    year monthly percentage decline for coal since January 2010. U.S. rail carloads excluding
    coal were up 5.5% (43,028 carloads) in February 2012 over February 2011 (see the charts in
    the middle of page 11). For more on coal, see page 8.
    ? Commodities showing carload gains on U.S. railroads in February 2012 included motor vehicle
    and parts (up 14,995 carloads, or 22.1% — see the charts on the bottom of page 13); petroleum
    and petroleum products (up 9,347 carloads, or 28.7% — top of page 13); steel and other
    primary metal products (up 8,833 carloads, or 18.1% — middle of page 12); crushed stone,
    gravel, and sand (up 7,715 carloads, or 10.9% — middle of page 13); and metallic ores
    (overwhelmingly iron ore — up 3,297 carloads, or 15.7% — top of page 14).
    ? In addition to coal, commodities with carload declines in February 2012 included grain (down
    8,009 carloads, or 7.0% — see page 10); nonmetallic minerals (down 1,966 carloads, or 8.5%);
    and farm products excluding grain (down 514 carloads, or 11.3%).
     
    http://www.aar.org/~/media/aar/railtimeindicators/2012-03-rti.ashx

  3. stjeanluc

    For those interested, I have updated my volatility studies. There are now 3 tabs in the spreadsheet:

    https://docs.google.com/spreadsheet/ccc?key=0Asgfso25VaEPdHdfTDV3VzE2ZVItSWNiZ2xXM0FFM0E

    The first tab is the study I did on the weekly options as of Friday 3/2 so valid for last week. I have added 3 columns to show where the week ended and if the stocks ended up outside the predicted strangle using colors. I have used the 50 week volatility average when possible since it seemed like a reasonable sample.

    I have added another tab for this week, using Friday's close as the basis for the calculations. And finally, I have added another tab for monthly calculations. This will be more useful after this Friday since it's monthly expiration week so if you sell monthly strangles, this will be more relevant. But I am looking for feedback on the stock list now. If you need me to add some, let me know.

    The explanation on the spreadsheet can be found at - http://www.philstockworld.com/2012/03/08/fake-out-thursday-dollar-sacrificed-on-an-alter-of-lies/#comment-1784811

    Let me know if you have any questions. I'll try to track the weeklies at end of days to see what is cheap or expensive as compared to expectations.

  4. stjeanluc

    And here are the Top 30 in volatility with weekly options over the last 10 weeks with the predicted range:

  5. stjeanluc

    So, for example, based on the last 10 weeks, we could expect FAS to between $89.32 and $97.96 by Friday. TNA should be between $56.36 and $62.56.

    Once again, these are not exact predictions, they are just statistical studies, but might be helpful guidelines.

  6. peedlew99

    Hey Phil,
    If you answered this already please excuse… but I couldn't find it.
    I shorted the Yen, as you advised when it was at 76.30.  I got out around 81.  While I was tracking the trade I realized I didn't really understand exactly what the BOJ was doing.  Yes, I get that they're selling yen… but are those freshly printed Yen, akin to QE?
    Will the Fed and the ECB ever fight back against the BOJ?  Does the BOJ have a target?
     
    Thanks, and thanks for the trade!

  7. morxlntway

    St Jean  -  what process do you use to find the volatility? Do you use a stock screener or just pick one and find the high and low…?
    Craigzooka was interested in stocks that were at least twice the volitility of the S&P500 for the IRA portfolio. I messed around with a few but was never quite sure of what if what i was looking at was what he was talking about?
    thanks for all you efforts.
    Also, can one match certain ETFs on your sheet to the index? i.e. IWM, SPY, etc.

  8. kallenjr

    Phil,
    In selling into the excitement, do you know if rolling a call up is more profitable (buying a lower call ITM selling a higher ATM call) when the underlying id going up quickly? Or does it matter as far as gaining an advantage.

  9. jmm1951

    Morx/volatility
     
    I can't speak for Stjeanluc, but if you look up stocks on finviz.com on the basic screen in the right hand column it will show the volatility as a percentage for the week and month and also the beta for the stock. The beta for a stock is a measure how how closely its volatility matches the market.
     
    You can compare any stock to SPY to compare it to the S&P 500. The beta of SPY is 0.99 (surprise, surprise), but to meet Craigzooka's test, you would need to screen for stocks with a beta of at least 2. If you run that screen looking for large cap stocks you come up with a couple of dozen names including a few Phil faves like MT, F, AA,SCO and a whole stack of banks and insurance companies. CBS is also in there.

  10. zeroxzero

    pstas:  If you care to comment, why did coal / BTU et. al. decline so much?  They seem to have a higher correlation to coal prices than major oil producers do to oil.  And they went opposite ways, coal following natural gas downwards, but a lot of nat. gas showed up in the market, yet I didn't notice the supply of coal changing much..

  11. zeroxzero

    Recent ex-head of Mossad speaks publicly, an unusual move: http://www.cbsnews.com/8301-18560_162-57394904/the-spymaster-meir-dagan-on-irans-threat/

  12. zeroxzero

    In another life, Phil could have been this guy.  I think he has one of the finest senses of irony I've encountered in a long time.

  13. dclark41

    EIA/ For the week ended March 03, 2012:

    • U.S. coal production totaled approximately 19.6 million short tons (mmst)
    • This production estimate is 1.7 percent lower than last week's estimate and 10.7 percent lower than the production estimate in the comparable week in 2011
    • Coal production east of the Mississippi River totaled 8.3 mmst
    • Coal production west of the Mississippi River totaled 11.3 mmst
    • U.S. year-to-date coal production totaled 182.5 mmst, 3.0 percent lower than the comparable year-to-date coal production in 2011

    Possible reasons?
    By Robert Gordon
    "Six months ago, most thought major coal producers would be doing well. What many did not foresee was a collapse in coal prices. There are two broad types of commonly mined coal: Thermal, which is usually used for energy production; and metallurgical coal, typically used in the steel making process. Historically cheap natural gas, EPA rulings and environmental concerns are turning U.S. energy production increasingly toward natural gas, causing thermal coal prices to fall. Europe's economic struggles have limited metallurgical coal demands, damping that market segment as well. In this harsh business climate, continued consolidation is likely. A thoughtful discussion of coal prices is found here. I will look today at four major coal producers to see how the price squeeze has affected their businesses, and how they are set up to prosper in 2012 and beyond."
    http://seekingalpha.com/article/420891-2-coal-kings-to-consider-2-to-avoid-in-2012?source=yahoo
     
    "The two biggest threats facing U.S. coal companies are the low price of domestic natural gas, which is making thermal coal a less-attractive fuel for their utility-customers, and the shaky economic picture in Europe, which is damping exports of metallurgical coal."
    http://blogs.wvgazette.com/coaltattoo/2012/01/24/looming-coal-crisis-will-w-va-leaders-do-anything/
     
    "U.S. natural-gas prices are in a “stable” range low enough to encourage power generators to switch from coal and high enough to keep gas producers from cutting production, according to Goldman Sachs Group Inc."
    http://www.businessweek.com/news/2012-02-21/u-s-gas-low-enough-to-boost-switch-from-coal-goldman-says.html

  14. angelcur

    stahl what a dreadful interviewer morley must have been travelling w jane

  15. dclark41

    ZZ:
    Thanks for the story (ex-head of Mossad a.k.a. Superman).  He speaks about the complexity of such an attack. And he also states his belief that Iran will eventually have nuclear capability.  He does not agree with Netanyahu.  Perhaps it will tame some of the nonsense about an preemtive attack on Iran. On second thought, probably not.

  16. stjeanluc

    FYI – Europe has not changed time this weekend so the time difference between western Europe and EST is only 5 hours. The 3:00 AM trade is at 4:00 AM EST and European markets will close at noon EST.

  17. Phil

    Good morning (or still good night as StJ points out).  

    Asia down about 0.2% across the board and I guess they are closed, maybe not India as I assume they keep time with UK and they are turning up.  

    Our Futures are down 0.3% so far, but off their lows, so it looks like global lock-step bot trading so far this evening.  Dollar at 80.01, was 80.16 at top.  Oil bounced off $106.50 to $106.75 at the moment, gold $1,706, silver $33.90, copper $3.83, nat gas $2.28 and gasoline $3.32 so no break for consumers there.   

    We have $32Bn worth of 3-year notes to sell at 1pm so our Fed is not likely to be heavily motivated to kill the Dollar today or for tomorrow's 1-month and 10-year, and Wednesday's 30-year.  Fed meeting is Tuesday and Bernanke has a speech Wednesday at 9am so last chance to say QE3 comes ahead of the 30-year and I doubt he'd do that. 

    Retail sales is 8:30 on Tuesday and, as I've noted, we had an extra day this Feb so 3.3% improvement is beat in plus inflation (unmeasured by the Fed but bumping up prices), plus very high gas costs plus huge improvements in auto sales should equal a very good sales report pre-market Tuesday so, if we do fall off today, it might be good to make an overnight bounce trade.  

    Consumer Sentiment and the NY and Philly Fed ends the week and I suspect those will all turn sour but those NY and Philly Feds keep surprising up so far.  

    If anything, I'd think we're going to rally into Europe open and oil (/CL) is a good play over the $106.75 line but super-tight stops as I still don't believe in it but if they get the Dollar below 80, could be a big mover.  

    Monday's economic calendar:

    1:00 PM Results of $32B, 3-Year Note Auction

    2:00 PM Treasury Budget

    3:32 AM Asian markets are mostly down, though India has eked out gains after industrial output growth beat expectations. Japan -0.4% to 9890. Hong Kong -0.2% to 21042. China -0.2% to 2435. India +0.5%to 17593.

    With Friday's non-farm payroll number showing an improving employment picture, the Fed is most likely to remain on the sidelines when it meets this week, says economist Mark Zandi. "Something fundamental is going on here. Businesses are finally increasing their hiring," Zandi notes. "There’s nothing in the jobs data that suggests they need to ease further at this point.”

    Enjoy it while it lasts. Alongside the latest hopeful jobs report, a spiking trade deficit prompted several downgrades of Q1 GDP growth estimates to 1.5%-1.8%; growth is expected to slog along at 2%-2.5% for the rest of 2012. After Q4 GDP rose 3%, job growth has averaged 245K over the last three months. Based on reduced GDP estimates, slower job growth seems certain. (also)

    As earnings season draws to a close, the blended earnings growth rate is a respectable 6.1%, but growth falls to a mere 1.2% when stripping Apple and AIG out of the equation. Results aren't expected to improve for a while: Analysts predict earnings will decline by 0.4% in the current quarter, followed by at least two quarters of single-digit gains.

    This is what I keep worrying about:  Fed Said to Balk at Bank Payouts Over Loan-Loss EstimatesThe Federal Reserve is pushing back against some banks’ proposals to pay dividends and repurchase shares, after concluding that the lenders are underestimating the potential for losses on consumer debt in a severe economic slump, according to two people with knowledge of the situation. Executives and Fed examiners have been wrangling in recent weeks over the central bank’s stress-test process as the March 15 deadline for results approaches. The Fed hasn’t yet given banks a ruling on their proposed payouts or told firms how much higher its estimates are for losses on mortgage loans and credit cards, the people said. Examiners are still fine-tuning calculations, which may change. “If the Fed fights back and disagrees and is more aggressive in their stance on cards and mortgages, it would mean banks wouldn’t be able to pay out as much,” missing investors’ expectations, said Glenn Schorr, a senior bank analyst for Nomura Securities in New York. Investors expect banks will pay out 50 percent to 60 percent of earnings this year, he said.

    The Fed's Manipulation Of The Market Is Driving TrimTabs' Charles Biderman "Even More Nuts Than He Already Is".

    Dow Theory Converging With Bonds as Transports Signal SlowdownTransportation and industrial shares are diverging in the U.S., a signal that equity investors are starting to agree with what the bond market already knows: this economic recovery will remain sluggish for months to come.

    Global liquidity peak spells trouble for late 2012. The global liquidity cycle has already rolled over. Assuming that no fresh action is taken, world economic growth will peak within a couple of months and then fade in the second half of the year – with grim implications for Europe’s Latin bloc.

    China posts a $31.5B trade deficit in February, surging past estimates of $4.9B (and whispers of $28B) as imports jumped 39.6% Y/Y vs. exports at 18.4%. For about the 10th week running, analysts caution against reading too much into the data thanks to the Lunar holiday. Whatever. China and Japan are posting trade deficits – the world is changing.

    Unopened China High-Speed Rail Section Collapses After Rains, Xinhua SaysA 300-meter section of an unopened high-speed railway collapsed in central China’s Hubei province following heavy rains

    BRICs Fastest Inflation Accelerating Puts Subbarao on Hold: India Credit. Indian inflation, the fastest among the biggest emerging markets, is poised to accelerate as oil costs rise for a nation that depends on imports for 80 percent of its energy requirements, interest-rate swaps show. The cost of locking in rates for five years rose to 7.49 percent in Mumbai on March 9, the highest in almost five months, according to data compiled by Bloomberg. Wholesale prices rose 6.69 percent last month after increasing 6.55 percent in January, according to the median forecast of economists in a Bloomberg survey before data due on March 14.

    India's industrial production rose 6.8% in January from a year earlier, the fastest pace in seven months and significantly higher than the +2% expected. December's figure was revised up to +2.5% from +1.8%. However, economists doubt the sustainability of this high IP growth, as it was driven by a thus far inexplicable 92.6% jump in the food and beverage sector. - Er, perhaps it's 6.7% the INFLATION!!!

    Should high-yield bond investors trust absolute rates – near all-time lows, suggesting limited room for gains – or risk premiums to Treasurys – at 611 basis points, far higher than the record low of 241? "A very peculiar position," says BAML. Thanks to ZIRP, junk remains the best game in town, but further capital gains from here may be asking too much. 

    New City Bank in Chicago becomes the 13th U.S. bank failure in 2012 and the second to fail in Illinois this year, according to the FDIC. The bank was closed by Illinois regulators but the FDIC was unable to find another bank to take over operations so it will mail insured depositors their checks directly. At the end of 2011, the bank had $71M in assets and $72M in deposits.

    All the major U.K. banks, including HSBC (HBC), Barclays (BCS), Lloyds (LYG) and RBS (RBS), are facing legal action that could result in billions of pounds of damage payments, according to a report in The Sunday Telegraph, with small and medium-sized businesses claiming the banks profited at their expense by pushing them to buy complex interest rate derivatives. 

    It appears likely that Portugal will be the next to restructure its debt and exit the euro zone, says economist Nouriel Roubini. Greece should be gone by next year, and with several other euro-zone countries in trouble, including Italy and Spain, Roubini sees Portugal as the weakest and next to fall. 

    Portugal Yield at 13% Says Greek Deal Not Unique: Euro Credit. The good news is Greece won't default on March 20, and 10-year borrowing costs for Spain and Italy have dropped below 5 percent. The bad news is similar-maturity Portuguese bonds still yield more than 13%.

    The IMF plans to contribute €18B, or 14% of the €130B 2nd rescue package for Greece. This is less then the 27% contribution to the 1st bailout as the agency tries to balance between staying involved while limiting its exposure to a country almost surely needing either another rescue, default, or both. (The PR says €28B, but this includes €10B from the first rescue not yet disbursed). 

    A Much Worse Greek Default Is Yet To Come.

    Mauldin: There Will Be Contagion…

    Germany's Schlesinger Tells Welt Tenders Make ECB 'Inflexible'. Helmut Schlesinger, former president of Germany’s Bundesbank, criticized the European Central Bank’s policy of injecting fresh money into the market in an interview with Welt am Sonntag. The ECB’s most recent tenders in December and February, in which banks were awarded more than 1 trillion euros ($1.3 trillion), made the institution “completely inflexible,” Schlesinger was quoted as saying in an interview to be published by the Berlin-based newspaper tomorrow. “It can really control only 5 percent of the money it has spent.” Schlesinger also said he’s concerned over “giant” imbalances in the bank’s Target 2 securities settlement service, the newspaper said.

    Encumbrance 101, Or Why Europe Is Running Out Of Assets.

    "The situation can't remained unchanged," says Iceland PM Sigurdardottir, telling party members the country will either adopt the euro or drop the krona and unilaterally hitch to another currency. A vote – maybe coming in early 2013 – on joining the EU faces an uphill battle, with polls showing 26% in favor, 56% against.

    "We can't just drill our way to lower gas prices when we consume 20% of the world's oil," President Obama says during his weekly address. Obama took the opportunity to advocate for his "all of the above" strategy, that relies less on foreign fossil fuels, and more on: "solar, wind, natural gas, biofuels, and more."

    Two Fresh Warning Signs That Gas Prices Are Starting To Bite.

    Oil Drops From Highest Price in a Week on Concern Economic Growth to SlowOil fell from the highest price in more than a week in New York on speculation fuel demand will falter after Chinese export data signaled an economic slowdown. Futures slid as much as 0.5 percent. China had its biggest trade deficit in at least 22 years last month, a March 10 report by the customs bureau showed. 

    India decides to kill a one-week old cotton export ban following protests from farmers and traders. The move will allow growers to get a market price for their product instead of being corralled into selling domestically for less. The ban had led to a spike in cotton prices, which has since reversed.

    Barbara Kollmeyer highlights five of the cheapest dividend stocks from key global industries – stocks that may not be the biggest multinationals, but sport significant dividends and value: MTFTE,DCMSU and WBK.

    There's tasty growth expected out there for some stocks – but it comes at a price (P/Es of 30, 40 or much more for stocks like CMG and ISRG, vs. 13 for the S&P 500). A few hints on what to look for to see if your stock will keep growing: organic growth, sustainability via return on invested capital, and using measures like relative valuation to see which shares are too pricey. 

  18. Phil


    LOL, not GMCR!  
    LLYAPCEBAYSPGACN, and SBUX are joining the S&P 100 as of the close of trading on March 16. The companies will replace ETRXRXWYAVPS, and A.

    In case you had any doubts about inflation:  McDonald's (MCD) is yanking small drinks and fries from the Dollar Value Menu and replacing them with cookies and ice cream, as the restaurant chain hopes consumers will step up to its new, slightly pricier Extra Value Menu. The new menu, which debuts March 26, mostly is a repackaging of various current products, but everything will be priced above $1.

    The fastest growing bank in the U.S. is Facebook (FB), writes Shamir Karkal, who says the company accepts deposits and provides means for payment – "pretty darn close to being a bank." So-called "deferred revenue and deposits," rose 114% last year to $90M – a puny amount – but rapid growth looks likely for years to come, and all without being subject to bank regulation.

    Facebook's (FB) U.S. traffic may be nearing its saturation point, if comScore's latest data is any evidence. Page views/day rose only 0.3% M/M in February, after dropping 0.8% in January. Total U.S. visitors fell 2.9% M/M to 158.7M, though that's partly the result of a shorter month. With Facebook already accounting for as much as 1/6 of all U.S. web usage, keeping page view growth strong could be a challenge. (previously)

    The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly (BoomBust Blog)

    Apple (AAPL) says it has already sold out the supply of new iPads set aside for pre-order, and will push back their ship date to Friday, which is the official launch date. Apple had previously told customers they would receive their pre-ordered iPads the same day the tablet goes on sale in stores. 

    Well-connected startup sage Paul Graham says a Steve Jobs-less Apple (AAPLwill not be able to innovate beyond its current pipeline. "Apple's revenues may continue to rise for a long time, but as Microsoft shows, revenue is a lagging indicator in the technology business." (via)

    Shootings Fray Afghan Ties. A U.S. soldier walked off his base in Afghanistan and opened fire on local villagers Sunday, Afghan and U.S. officials said, killing 16 people in a shooting spree that further complicates American efforts to end its longest foreign war.

  19. Phil

    Testing time fix. 

  20. Phil

    Oil isn't holding it, should have stuck with shorting maybe but, since it's not doing what we think – best to just say out until we see what the Dollar is doing. 

  21. Phil

    Oh damn, there goes the Dollar, I got head-faked!  $106.80 now so game on above $106.75 and below 80 on the Dollar. 

  22. Phil

    Euro bounced right off $1.31, Pound working to get over $1.57 again, 82.20 Yen to the Dollar and you KNOW where EUR/CHF is. 

  23. Phil

    That was pointless.  Dollar looks like it's going to hold 80 or at least not give it up without a fight.  Makes sense around auctions.  Yen not happy and dropped quickly to 82.14, if the Euro breaks below $1.31 – BIG TROUBLE! 

  24. stjeanluc

    Volatility / Morx – I have a script in my charting software that I can run against a set of stocks and generate a report. I can change a couple of parameters like for example the periods for the averages. And I modified it to display the prices to be considered for a possible strangle.

    As Jmm indicated already, in your case you only need to search for stocks with a beta of 2 to match twice the S&P500 volatility. Of course, on the one hand you will be rewarded with higher premium, but on the other hand, corrections will be much more painful. Something to keep in mind when you setup hedges. Maybe Phil could expand on that one day – how to take beta in consideration in your hedges.

  25. jromeha

    Phil- long oil!?!? Say it ain’t so!!! I figured they still have to roll almost 200k contracts by the end off this week, Israel saying they won’t attack Iran(at least for a few weeks), and the auctions this week should add up to a pretty sh!tty week for oil and equities…

  26. pstas

    ZXZ- sorry, no insight on coal prices. The consensus seems to be a trade off of natural gas/coal which makes sense.
    Obviously,  rail shipping data is a  useful track for general economic trends. Particularly interesting is continued positive trends  petroleum; metals; sand/gravel. Movement of very basic stuff leads to someone , somewhere making something – leading indicator.
    A sort of leading indicator of leading indicators is scrap-
    February 2012 was up 2.2%
    over February 2011 and up
    8.7% over February 2010.
    The headlines are all euros and Ipads. Meanwhile, crushed stone; sand; gravel – Feb. 2012 was up 10.9%
    over Feb. 2011 and up 20.2% over Feb. 2010.
    Still well below the 2006 peak volumes but moving in the right direction.
    You can get on the mailing list for this report- send an email to: Beagney@aar.org

  27. newbie

    Phil,  Is this going to be the monday thread, or will there be a separate monday morning article, followed by the usual daily thread?

  28. Savi

    Good Morning
    newbie—the latter

  29. Phil

    Rail Carloads/Pstas – Thanks for posting that.  Let's keep in mind that we are suddenly EXPORTING about 10Mb/week so that's adding to the count somewhat (12,500 carloads using 750 per car which would be liquid max)  and motor vehicles, I'm sure, are driving everything as those numbers are through the roof at the moment.   As we've been saying for quite a while, the growth story is all AAPL and Autos – not sure we can base an economy on that long-term but it sure it better than nothing.  

    Volatility/StJ – So, in a vacuum, we'd be looking to see if selling puts on GMCR makes sense or calls on MCP.  GMCR has accounting issues and an SEC investigation, so no, MCP is a Momo darling but I'd want to see them much higher than $30 before daring to short as one China rumor can send them flying in either direction.   Not sure how helpful it is to say FAS or TNA will be within a 10% range on Friday.  Actually, that's only a 3.3% move in the underlyings so not impossible. 

    Yen/Peedle – Yes, the BOJ is not shy about telling people they are printing Yen to buy Dollars and Euros because they WANT their currency to be weaker.  The problem for Japan is that they are huge exporters with a dead internal economy so there's a strong demand for Yen all the time (to pay their export companies) and, even worse, Global investors tend to diversify to Dollars, Euro, CHF, Pounds and Yen but the Pound has fallen out of favor, as has the Euro and there are 10x more Dollars in the world than Yen but a Russian Billionaire isn't likely to buy 10x more Dollars than Yen to keep the balance in the Global economy, instead they may go 1/2 Dollars, 1/4 Euro, 1/4 Yen and that causes a disproportionate demand for Yen.  Finally, you have the 0.1% loans from the BOJ – also a demand for Yen by carry traders.  So a lot of factors keeping the Yen strong – all of which ignore the massive debt Japan has been able to run up because, like us, they have a very popular currency which creates its own market.  As to target – I'm sure they want the Dollar over 80 and that's 82 Yen but I think they WANT 90 Yen to the Dollar, and that's a tall order.  

    LOL – I just realized I haven't heard anything disparaging about Obama all morning and then I remembered to switch to CNBC from Bloomberg…

    Hussman/Jabob – Sure I agree with him.  That's why I pulled in the Income Portfolio as we're in a very dangerous spot here.  If we hold up this week and next (real end of quarter), I'll feel better but the Fed neglecting to ease on Tuesday could knock us back pretty hard and I'm simply not seeing the data to support the markets.  As noted above (and by me for a while), take out BAC, AIG and AAPL and the ENTIRE S&P has negative earnings.  That's including AAPL suppliers and including auto makers and their suppliers.  

    This is a rally based on ignorance and we have a lot of ignorant people but, eventually, even they run out of money.  If the media starts pointing out some negatives, tone can change very, very quickly and why on Earth would we believe that there will suddenly be any kind of volume of buyers to come in to relive the people who want to cash in their 20% gains at the top?    That goes back to my car lot model – we've marked up the entire market based on not even 10% of it being bought and sold and we KNOW 80% of the buying and selling is Robots gaming the system who don't even hold their shares for more than a few milliseconds so now we're down to basing a $10Tn move in now $40Tn market on 2% of the shares being actually transacted.  That's some pretty dangerous leverage to base valuations on. 

    Rolling/Kallen – You need to roll while you still have premium so no, it's not good to roll into a big move up because the further out, higher call you roll to will have very expensive premium.  If it's a short call, THEN you would be doing the right thing but if you bought an AAPL $545 call for $10 and now it's $7 and you want to roll it to the April $580 call at $7.50, then you are just the sucker we LOVE to sell premium to, right?  So the simple answer is – why they hell are you buying calls in the first place?  I HOPE they are the bottom of bull call spreads, where your caller paid the premium but, even so, you'd better be selling more premium than you're buying or, eventually, the math will get you.

    Coal/ZZ – Utilities are highly motivated to substitute nat gas for coal as it's cleaner so they do when nat gas is below $6.  So this is a sustained long-term lack of demand for coal that's really backing it up in the US.  

    Oh, and what DC said!  

    Cool interview ZZ but now I'm late for writing my post!  

    Long/Jrom – I was expecting the usual nonsense pre-market but they failed.   As we're already super-short oil otherwise, covering a long move was prudent but, fortunately, unnecessary.  I'm still pulling for $102.50 this week.  

    Monday/Newbie – Yes, this is just weekend reading, as it says.  Now I MUST make a new post.  

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