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Testy Tuesday – Gotta Hold Those Lines!

Well, we can't say this was unexpected.  

As I noted in yesterday's post, we didn't think much of the Spanish bailout and began shorting the Futures Sunday night.  Amazingly, we still opened well above Friday's close and that gave us a great opportunity to cash out our longs and flip bearish.  My comment in the Morning Alert to Members was:  

As I mentioned above – this was a nice pop and shame on you for not taking bullish profits and running back to cash and we can wait patiently for the next obvious entry on whichever side we end up on.

AAPL is over our expected $580 target off our $555 entry so GREED not to take that and run at $586.  They have their conference today and great expectations are always a good time to get out – see my note on AAPL at the end of Friday's chat. 

Cash, cash, cash, cash is the way to play this mess.  If they Dollar doesn't stay below 82.25 then there's nothing to be bullish about this morning as it means the Euro is going weak again just hours after a huge bailout – which makes perfect sense from a macro standpoint because $125Bn does nothing at all for Italy, Greece or anyone else or, as I said above – band-aids on bullet holes is all we have and the blood keeps flowing…. 

SPY 5 MINUTEOur bearish play for the morning was TZA at $20.70, selling the July $19 puts for $1.25 and buying the $20/25 bull call spread for $1.30 for net .05 on the $5 spread.  TZA popped up to $22.30 at the end of the day (up 7.7%) and the puts fell to .80 while the $20/25 spread finished the day at $1.80 for net $1 – a 1,900% gain on cash in a single day.  

In practical terms buying 50 of the spreads would have cost $250 and netted $5,000 but keep in mind you create an obligation to buy 5,000 shares of TZA for net $19.05 ($95,250) and the margin requirement is roughly $12,000.  This is why we like to be mainly in CASH in a choppy market.  Having spare margin on the sidelines let's you make little trades like this during the day.  

Even if you don't have a Portfolio Margin Account, there are other ways to sell short puts to offset the margin requirements and, of course, you can "just" buy the bull call spread, which had no margin requirement at $1.30 and finished the day at $1.80 for a straight 38% gain on the day.  Up 38% in a day is a very nice way to hedge a 2.5% drop in the Russell.  If you have $100,000 in longs that drop 2.5% ($2,500), then 40 of those hedges at $5,200 would have paid back $7,200 for a $2,000 gain on the day and that's all insurance is supposed to do – mitigate the damages!  If you have margin to spare – then you can commit less cash and drastically increase the net gain (also increase downside risk, of course) but, if not – these are still spectacularly profitable ways to protect yourself.  

IWM WEEKLYWe love playing the Russell but it's not for the feint of heart.  As you can see from David Fry's chart, 5 consecutive days where the net move was practically zero but each day we had roughly 2% swings.  Working this trade with ultras like TZA and TNA gives us 6% daily swings yet, looking at our Big Chart above – we can see that the Russell is generally well-behaved within our 5% Rule.  

Also, once you put a nice hedge like that in place – THEN you can go bottom-fishing and we had 5 bullish trade ideas we liked yesterday as the market pushed back down to test the 1,310 line on the S&P, which we thought would hold but we ended the day at a disappointing 1,309, which kept us from going fully bullish at the end of the day.  

If we look at the Multi-Chart, we see that EVERYONE is testing their 20 dmas – which are all in decline EXCEPT the Dollar, which is testing it's rapidly rising 50 dma from above and it's already bounced off that this morning and plowed back to 83 – cutting the Futures back sharply with a 0.6% gain.  That's the "increased gravity" we talked about last week that drags all stocks and commodities lower – as they are priced in dollars – but it also gives us the potential for a nice pop if the Dollar pulls back today – especially if it's coupled with an AAPL rally, back off $570 at yesterday's close.  

The charts DO NOT look encouraging.  Keep in mind that our only bullish premise is stimulus and, failing to get that – these ships of state may be sinking fast.  Have I mentioned how much I like cash lately?  TARP was nice, according to Andrew Ross Sorkin, but the unsung hero of staunching the post-Lehman bank panic was the government's quick move to raise the FDIC deposit insurance limit to $250K and fully backstop the money-market industry. Unless Europe does something similar, the €100B Spanish bailout is doomed to fail, he says.  

Mario Monti hits the wires to call "totally inappropriate"comments from Austrian finmin Fekter that Italy "too will need support."  What Monti did not say was that the comments were "totally untrue" –  just inappropriate for one country's Finance Minister to point out how totally screwed another country is

As you can see from the poster on the left, tensions are running high in Italy, with the Communist party blaming Merkel for Italy's troubles.  "Say no thanks to paying the IMU Banks through the EU," "European Union, Dictatorship of Banks and Monopolies," and "Control the European Union with Socialism" are roughly the headlines of this poster and, of course, the image of Merkel in that kind of uniform is meant to invoke a visceral response in Italians – very nasty stuff so let's not go around thinking Europe is in any way "fixed" as things are actually heating up to the boiling point.  

Last Summer, we had the "Arab Spring" and this summer, with 50% youth unemployment in much of Europe (and America) we may see large segments of the populations taking to the streets – especially if Europe continues to employ all stick and no carrot policies.  

So that's our bullish premise – Merkel doesn't want posters like this to be her legacy.  Obama doesn't want to be a one-term President and, SURPRISE, Congresspeople aren't prepared to lose their jobs this Fall either – so stimulus it will be and we'll continue to do our bottom-fishing until we are FORCED to give up all hope of a recovery but, for now – this is just some healthy consolidation on the way to the inevitable QE3.

I hope we're right – because the alternative is very ugly…


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  1. exec

    Phil/DMND

     
    It's back down…..what do you think….take another swipe selling those July 19 puts for $2.30?

  2. stjeanluc

    TZA Spread / Phil – TOS still has not fixed its paper trading application and it doesn't show the correct margin requirements. Selling 50 Jul TZA 19 Puts to pay for the spreads you outline above uses about $84,000 of Reg-T margin because it's a 3x ETF and they require generally 90% of the price as margin. For PM, it varies based on the brokers, but when I talked to TOS to see why it was much more than I thought they told me that they it's usually 45% (once again, because of the 3x ETF) so it would still be something like $40K of margin.

    I wish they would fix that because it's misleading for people that want to learn to trade paper money and eye these juicy premiums on the 3x ETF only to be disappointed when they start trading real money!

  3. stjeanluc

  4. stjeanluc

    Economic Numbers:

    Japan Tertiary Industry Index (MoM) / -0.3% (0.3% expected)
    Great Britain Industrial Production (YoY) / -1.0% (-1.0% expected)
    Great Britain Manufacturing Production (YoY) / -0.3% (0.4% expected)
    Great Britain Industrial Production (MoM) / 0.0% (0.1% expected)
    Great Britain Manufacturing Production (MoM) / -0.7% (-0.1% expected)
    US Small Business Optimism / 94.4 (94 expected)
    US Price Import Index (YoY) / -0.3% (-0.6% expected)

    Not much data this week compared to last week!

    At 10:00 AM we have the Great Britain GDP estimate. At 11:00 AM, the ECB releases its Financial Stability Review (probably should rename it "Instability Review") and 11:30 we have Fed's Tarullo speech.

  5. Pharmboy

  6. Savi

    making tea—and dilly dallying missed the /RB call   :-(
    Good Morning

  7. angelcur

    no carry over of yesterday's weakness…set to gap slightly higher this morning…. would prefer to be a buyer on a decline this morning… we may get a drift lower after the opening (similar to yesterdays fade)….. still a lot of headline risk out of Europe….i think we are lining up for a good rally for the second half of june.

  8. lionel

    Managed to get 70c on CLN2 up to 83.23
    Now using PP as a support. Watching DX as an indicator to get back in for a test to R1 ($2 higher!)

  9. Pharmboy

    Questions from yesterday:

     

    CRM/jtom – puts, u betcha!

    LYB/sns – sorry, not my area of expertise.

    BMRN….rumors……of a GSK buyout….now, SGEN, that is the one….come on!

  10. Pharmboy

    Spain's bond yield is now 6.7%.  This is going to get fuggly……

  11. stjeanluc

  12. stjeanluc

  13. threeputt

    Wheels coming off GOOG

  14. boltdude

    Barfinger (or anyone who can answer) – I was doing some homework, reviewing the Friday May 18 and weekend discussion about scaling and trade management, and saw your post mentioning your consistently profitable weekly SPX strangle strategy.   Is this the same thing PeterD is doing?  If not, could you articulate your approach or point me to the day's chat wherein you discussed it?

  15. stjeanluc

    Only some Hail Mary position left….

  16. jthoma

    pharm- good job- looks like market is finally causing some people to question multiple and continous lack of bringing revenues to bottom line!

  17. Phil

    Good morning!  

    As long as we hold the line on the Big Chart (the line that goes out to the left of the V from mid-May), we are consolidating for a move up on QE News.  So the left side of the blow-off bottom (we hope!) is about the range we can expect for the right side and that means we're bullish off Dow 12,400, as usual and RUT 750 (/TF) in the Futures, which is 755 on the index and 1,310, of course on the S&P but we must get the Nas back over 2,850 to get more confident on the bull side and, to do that, we need AAPL to get off the ropes.  

    At the moment, X is $17.72 and that's just SAD.   ZNGA is making new lows and I played Zinga poker on my IPad yesterday and I can see why – their business model is to get you to buy things like virtual drinks for the table and other idiotic stuff and, of course, chips when you lose but I won the first tournament I played so I won't be needing those…

    You would think it's a great model as the house can't lose.  They give you some virtual chips, wait for half the players to be wiped out by other players and then sell them more virtual chips.  So on-line gambling is illegal but on-line charging people for fake chips to gamble with is not – how stupid is that law?  Anyway, it seems to me that all you have to do is create a new account and sign back in to get more chips so I can't see this as a very productive business model – not to mention there are hundreds of other poker sites and theirs isn't even the best one.  

    Anyway, back to the markets.  So OPEC meets tomorrow and Thursday and oil is $83 at the moment and that's really pathetic.  I mentioned playing nat gas and gasoline bullish earlier this morning but chasey now as they are both moving up.  I'm still liking those AMZN puts, of course and MA and V still have miles to fall if we get a real crash and the MA Oct $315 puts are $6.50 while the V Sept $97.50 puts are $2.10.  These are Long Put insurance you EXPECT to lose on but should pay very well if we crash – that's a good way to place a little hedge as they should be slow to drop as well.  

    DMND looks like they are holding $18.30 and I like the Sept $17.50/20 bull call spread at 0.90, selling the $13 puts for .70 for net .20 on the $2.50 spread that's $1.40 in the money (up 600% to start!).  Nice way to play them bullish.

    I'll update the TWIL list later as we're still doing some hopeful bottom fishing but be ready to hedge if we can't hold 1,310 on the S&P and 12,400 on the Dow and 7,500 on the NYSE is a good bull/bear indicator but it's going to be very hard to get traction with the Dollar over 83 and no one has any confidence in the Euro so keep in mind that, despite the fact that I like to pick a trade here and there – CASH IS STILL KING.  

    This situation will resolve itself over time – we just don't know which way yet….

  18. Phil

    AONE has come up with some very good, new battery tech.  You can sell 2014 $1 puts for .60 for a net .40 entry on the $1.16 stock and I like that a lot and you can sell 10 of those and buy 20 of the Jan $1.50/$2.50 bull call spreads for .10 and then you have a still good net .60 entry on the stock and the possibility of making $2 more if AONE takes off into the end of the year.  

  19. stjeanluc

  20. stjeanluc

  21. pstas

    What?? Oh My.
    9:25 AM Rosie is turning, "getting enthusiastic about the future," with what's looking like major pension reform in California a big catalyst. "If Canada could pull back from the brink of fiscal insanity in the early 90s, (so can the U.S.) … I'm so excited, I just can't hide it," he says, quickly adding he's keeping his powder dry for now

  22. qcmike

    Phil
     I'm still liking those AMZN puts,
    Is this a trade  ? 
    thanks

  23. pstas

    Rosie- forgot my pertinent point- He gets misquoted/ out of context a lot. Anyone have access to his paid material to flesh this out?

  24. bobhu

    stjeanluc/MoMo Money, PCLN is $665 Call.

  25. pstas

    YMI- Pharm, I know you like this long term and I have refused to chase. Put in an order to sell some 13-Jan puts. Perhaps it retrace a bit more. I don't mind sitting on it for  a while but need to get in cheap or let it pass.

  26. sparky123

    pstas zh has Rosie's  letter he is thinking he will keep his powder dry until Thanksgiving

  27. lionel

    EUR/USD touched 1.245 almost.
    AUG Crude oil on $83 line – Going long

  28. Phil

    DMND/Exec – See above, I like any bullish play on them at the moment but July is cutting it close as that's when they are supposed to re-state Financials.  I prefer being in Sept, after all the rumors are put to bed but you can always roll.  

    Margins/StJ – Good point.  As I said, you can use other offsets if you don't have the margin (whatever they charge you) but, if you are sitting on a lot of unused capacity – why not put it to work to reduce cash outlays?  I sure don't mind tying up $20,000, $40,000 or even $90,000 to make $5,000 in a day!  Also, of course, you can simply buy 100 of the spreads for $13,000 and then making 38% is $5,000 also so the max margin I would pay to play is $13,000 as it accomplishes the same goal as 50 of the .05 spreads – it's just a question of what you have more of laying around – cash or margin.  

    Dilly dallying/Savi – I'd rather have a nice cup of tea.  You didn't miss much – all reversed already as Euro fails $1.25.

    Dollar 83.13 – not good!  

    Lining up/Angel – I hope so.  Tempting to imagine Big Chart will be nice and symmetrical.  

    Oil/Lionel – Very dependent on stray comments from OPEC ministers – very tough time to play it.  

    Rosie/Pstas – I see signs of recovery in America, it's the rest of the World that's freaking me out. 

    AMZN/QC – That was from a week ago, wouldn't want to chase them.  MA and V are fresh horses.  

    WFR still adding pennies each day.  VLO a monster lately, up 15% for the month.  

  29. ariveraA

    Hi Phil – Any thougts on MCD?

  30. kevinb63v

    Phil,
      I have sold XRT Jun $57 Calls. In this choppy market, would rolling  to the Sep $62s about even make sense, or to a lower strike for a small credit? I'm kind of surprised retail isn't weaker. What's your perspective (every time I see the word now it make me think of Anton Ego in Ratatouille, another exceptional Pixar movie,  asking the bewildered waiter for some fresh perspective)? 

  31. stjeanluc

    MoMo / bobhu – Thanks. I have the wrong strike but the correct price…

  32. stjeanluc

    Margin / Phil – 5% on margin per day is indeed pretty good return… But I am sending an email to TOS (again) about showing the correct margin requirements in Paper Money as it's really ridiculous at this point!

  33. yodi

    kevinb63v 
    XRT One of the most popular for Phil I roll that sucker 4/5 to Sep 12 58 for 5.76 now 2.73 still have my teeth in it to die!!!

  34. diamond

    Interesting …

  35. yodi

    Market looks like an other North Korean rocket today

  36. Inkarri19

    Morning All – Phil, I agree with you that certain parts of our country are recovering but that report of middle class Americans having an average net worth of $77k is discouraging.  Any thoughts?  TIA

  37. lionel

    Go Merkel!
    She is great when she tells the Markets to stuff their Euro bonds where they belong … in GS buttocks.
    We definetly need more female political leaders.
    They seem to be the only ones with cojones :)

  38. Savi

    Thanks Phil—can buy my muffins to go with the tea on the /NG trade

  39. yodi

    lionel
    seem to be the only ones with cojones 
    you must be kidding?

  40. jthoma

    lionel- agreed and if people think the Germans care about anyone as much as they do about themselves they are living in a fanatsy world. They are not going to suffer for the fiscal irresponsibility of thers and I love the fact she told Obama to stuff it. She doesn't really care whether he gets reelected or not and he hasn't figured that out!

  41. lionel

    Nice buying volume on the Euro close.
    Someone is trying to scare the sheeple out of their positions… We should see more of this week.
    Half off on oil for 80c

  42. Savi

    iflan—I have the aapl 350/650 Jan bcs—would you uncover now and wait to cover later hopefully at a better price?
    Thx

  43. jromeha

    Phil, do you like HES here?

  44. Inkarri19

    Anybody know if any news may have caused this nearly 100 point spike on the Dow?

  45. lionel

    Dear Yodi,
    My comment was made in the context of political leaders lacking courage (like in tener cojones)
    Next time I will make sure to use a similar French expression to not offend you with my poor Spanish :)

  46. jthoma

    Inkarri- only thing I have seen was rumor of the day- Charles Evans- Bank of Chicago President said he would favor more stimulus- good for 100 points

  47. yodi

    Phil I must congratulate you on you eagle eyes on AONE

  48. Phil

    MCD/Ariver – Not cheap.  Worries in Europe and Asia are not good for them as that's their growth area.  Down the road, their ability to lock in cheap leases will be a big plus but I'd be a lot more comfortable with a net $70 entry than $85.  

    Gold shot up to $1,610 – maybe some QE action somewhere.   Half hour to Europe close worth a bullish play here:  

    XLF June (Friday) $14s are not bad at .12 for a fun play.  July $12/14 bull call spread is $1.50 and the $14 puts can be sold for .60 for net 0.90 on the $1.50 spread – that's fun too.  

    XRT/Kevin – We had huge headaches with those guys a couple of months ago – they are very annoying to play.  It takes very little to pop them and then they don't fall for ages when it seems obvious they should but now that WMT is done going up, I think they will behave a bit more normally.  You sold June $57s and they expire on Friday – you should be able to get an even roll to the July $60s if you wait a bit (now .85) as the June premium wears off – why run all the way to September?  

    TOS/StJ – Good luck, been like talking to a wall since Ameritrade took over.  

    That is interesting Diamond.  

    Middle class/Ink – Long term:  Very bad.  Short-term, recovering.  Make money, leave the country = good plan…

    LOL Lionel.  

    You're welcome Savi, nice play.  

    HES/Jrom – They seem cheap but people have been running from them for a while as they've been underperforming and diving oil prices spell trouble for many producers so I'd look at them as a very long-term recovery and enter carefully but it does seem like a good spot, maybe with selling 2014 $37.50 puts for $6 for a net $31.50 entry.  You can be aggressive and add $35/45 bull call spread for $5.30, put a $2 stop in the spread and your break-even is still $33.50 but now you have $10.70 of upside at $45.  

    News/Ink – We don't need any stinkin' news!  

  49. terrapin22

    Phil – nice call on AONE.  I got in near the day's low. 

  50. Phil

    Maybe this is why we're rallying?  

    Fitch downgrades another 18 Spanish banks following its three-notch cut for Spain last week. CaixaBank, bailed-out Bankia and Banco Popular Espanol are among the affected firms, with the latest move following downgrades for Santander and BBVA yesterday.

    I don't see anything else other than the EU closing but wasn't there supposed to be an announcement at 11 – that must be it.  

  51. Pharmboy

    Nice BS short squeeze again….unreal. 

  52. angelcur

    lionel… conserve-le dans ta coulotte

  53. bobhu

    What happened? I went out for half and hour and the market made a 180 degree turn. :-)

  54. Pharmboy

    YMI/pstas – one of my favorites.  I am selling a few more puts and buying back my calls from July.

  55. jthoma

    buy sheeple buy!

  56. Phil

    AONE – Don't be too greedy if you just grabbed the stock – that's a hell of a pop!  '

    Thanks Yodi – I was very surprised it wasn't moving more – the danger is it might be us moving it up so hard to tell what's merited.  

    Good job Terra!  Seems to be gaining traction with very big volume at the moment ($1.65).  I'm very psyched about the long spread but worried about holding the stock on a 60% one-day move.  

  57. ariveraA

    MCD - Thanks Phil. 

  58. bdonnelly713

    Pharm – which series of YMI puts are you selling?
    Thanks,
    Brian

  59. lionel

    Angel/ I will meditate on your precepts and consider your ways (Psalms 119:115)

  60. Phil

    2nd chance to go bullish at $2.65 gasoline Savi!  (/RB)

  61. yodi

    Phil AONE still dreaming of my first electric car and plug the same in to a solar cell system and sell calls on XOM for the suckers

  62. Savi

    merci Phil—got it this time

  63. revtodd64

    Northampton – Any PSW members live in the Northampton, MA area?  I'm moving there in July.  I made a mistake in my post last night on my new job website.  It is http://www.firstchurches.org, not .com.  I don't know what that God on Facebook thing is.  

  64. Pharmboy

    YMI/brian – October 2.5.  I am also in the July 2.5s, but that was from a long, long time ago, in a galaxy far…far…away.

  65. Phil

    AONE/Yodi – This tech advance is a nice leap toward that goal.  Also, to rational people, it proves beyond a shadow of a doubt that Obama's program to fund these companies can pay off 1,000-fold over time and the occasional failure of a Solyndra is nothing compared to the potential benefits of saving Americans some part of the $3Tn a year we spend on energy (mostly in Dollars we send out of the country to constantly weaken our currency).  That's why it so sickens me when people try to turn these things into political footballs – sacrificing our Nation's future for short-term political gain.  This is the kind of thing that used to make America great – constant innovation by small companies.  

    Unfortunately, big companies don't like small innovators because they already have a 5-year marketing plan for their existing products (just like China!) and they'd rather destroy the innovators than have to adapt their own models or, even worse, risk losing market share in a changing environment.  That's how Big Business and their Republican pets have become the enemies of Capitalism as well as the enemies of progress, innovation and our own environment and national security – anything it take to maintain their little fiefdoms the way they are.  

    $250M is all it took to give this company a chance (and the new rules have cut that to 1/2 so far) and they came inches from being shut down in the Solyndra aftermath – its ridiculous and if we don't make big changes in the R&D structure in this country – the rest of the World is going to eat our lunch.  The problem is – the multinationals don't care if that happens – the S&P now does more business outside the US than inside and in another decade, they'll be down to 1/3 US and then we'll be the foreign competition they want to keep a lid on with our cheap labor and lack of environmental regulations….

    Congrats Rev – I'm sure you can get God a few more followers on his Facebook page if you work on it.  ;)  Meanwhile, I hope you noticed the current pastor refers to God as "She" – must be a Smith College thing…  Hopefully, when you get there, the calendar won't just say "Worship, worship, worship…"  They need to do something fun once in a while!   Speaking of fun, it says on the web site that you were married in 2009 but you have a 24 year-old daughter – wassup with that?  I'm not sure if you want that to be the hanging question asked by all your new parishioners…

  66. jerconn

    PHil,Yodi/Big advance – What is the big advance in battery tech that AONE pulled off?  Those who write on the subject in SA (Tom Konrad, John Petersen) claim that Li batteries are inefficient and that it's incremental improvements in the old lead battery technology that will play the biggest role…

  67. sns1

    Pharm- thanks for fedback..Other question for you…i'd like to familiarize myself with your latest picks on healthcare (broadly defined) stocks (both longs and short/avoid)…i went through the Pharmboy tab, but was looking for something current…any specific posts you can point me to? Much appreciated.

  68. jthoma

    Phil- You are an inspiration to us all :)

  69. jromeha

    Dang Rev, you are wayyyyyyyyyyyyyy out there! Im stationed outside of Boston but I do go to Worcester (pronounced wurster dont ask me why!) every once in awhile on the weekend. Or at least I will go when I get back from my nice paid vacay in December.  I know Deano and a few others are also in the Boston area… Dont know of anybody from the west side of the state though.

  70. revtodd64

    Phil, its Northampton in the 21st Century.  :)  They can handle a divorced and remarried pastor.  I mean, if Newt can run for President as a darling of the religious right after three divorces and long-standing affairs and asking for an "open marriage," I'd say the door is open on this sort of thing.  He's my trailblazer!   Its three blocks from Smith, so yes, I will often be referring to God as "She" but if it makes you feel better, they still say the "Our Father" and sang "This is My Father's World" on my first Sunday last week.  If more people are going to "like" God on Facebook, somebody has to start getting the GLBT, divorced, tofu-eating, low carbon footprint crowd to take an interest in the dusty old books.  Its a "Great Banquet" kind of thing.  The Catholics have closed four of the five churches in Northampton, and just one left, thanks to hiding pedophiles and not getting out of the 12th century.  Only the bingo players are now left.  I'm going for the "no outcastes, no exiles" approach.   I agree on the website.  Its a disaster.  

  71. revtodd64

    jromeha – Many have told me I'm way out there in more ways than one!  I have a son in Sherborn and my wife's family is in Westborough, so I will head over towards Boston often.  

  72. Phil

    At the open: Dow +0.26% to 12444. S&P +0.25% to 1312. Nasdaq +0.4% to 2821.

    Treasurys: 30-year -0.52%. 10-yr -0.23%. 5-yr -0.08%.

    Commodities: Crude +0.51% to $83.13. Gold +0.4% to $1603.25.

    Currencies: Euro +0.02% vs. dollar. Yen +0.11%. Pound -0.41%.

    10:00 AM On the hour: Dow +0.36%. 10-yr -0.31%. Euro -0.02% vs. dollar. Crude +0.31% to $82.95. Gold +0.42% to $1603.45.

    11:00 AM On the hour: Dow +0.32%. 10-yr -0.25%. Euro -0.20% vs. dollar. Crude +0.8% to $83.36. Gold +0.8% to $1609.55.

    11:39 AM Europe closes mostly marginally higher, as big gains gave way to big losses, and a nice bounce late cleared the air. Stoxx 50+0.3%, Germany +0.3%, France  +0.1%, Italy -0.8%, Spain +0.2%, U.K. +0.8%. Spanish and Italian bond yields continue to sky, but also gained back ground near the day's end. 

    12:00 PM On the hour: Dow +0.8%. 10-yr -0.25%. Euro -0.04% vs. dollar. Crude +0.3% to $82.94. Gold +1.32% to $1617.85. 

    Market preview: Europe's higher and so are U.S. stock futures, with the S&P benchmark +0.6%, but nothing much has changed since the Spanish bailout joy fizzled out yesterday. And as with yesterday, yields on 10-year Italian and Spanish bonds are up sharply, perhaps providing a better reflection of reality. Back home, Michael Kors surges 12.2% following a very good FQ4 report. Later: IBD/TIPP Economic Optimism, Treasury Budget 

    Cash makes up an average 5.3% of fund manager portfolios, the highest level since January 2009, finds a BAML survey. "Hopes expressed last month of a (Fed) policy response have now become expectations," says BAML's Michael Hartnett of the worried survey respondents (a majority believe monetary policy is "too restrictive").

    The IBD/TIPP Economic Optimism Index fell by by 1.8 points, or 3.7%, to 46.7 in June, vs. 48.5 in May. "Consumer confidence declined as the high unemployment persists," IBD's Raghavan Mayur says.

    Some attribute the late-day bounce in European equities to the ECB's Financial Stability Report which calls banking union an "integral part" of EMU, and suggests the establishment of a European deposit guarantee scheme.

    The ECB's Jozef Makuch says he could imagine the central bank's policy rate at 0%, but adds such a move would have a "very limited effect." The current 1% rate has been seen as a bottom due to institutionalized ECB hawkishness and technical concerns the bank has about a rate less than that.

    If you look at European stocks dropping and peripheral bond markets tumbling and think German yields are sinking anew, you'd be wrong. Ten-year Bunds are 10 bps higher to 1.4%, and even the 2-year Schatz – in negative territory last week – is yielding 8 bps. At some point the bill for all of these bailouts must land in Berlin, no?

    Bill Gross takes note of the rise in German yields today, saying there are very few scenarios in which Bunds will perform well. "Only (a) German exit favors Bunds."

    Fitch downgrades another 18 Spanish banks following its three-notch cut for Spain last week. CaixaBank, bailed-out Bankia and Banco Popular Espanol are among the affected firms, with the latest move following downgrades for Santander and BBVA yesterday.

    Spanish bond yields continue to fly higher, the 10-year up about 50 basis points since the "rescue," and hitting 6.74% – the same level as during November's panicky days. It's nowhere near an all-time high for Spain on an absolute basis, but the spread to German paper is at a record level.

    Italy is not Spain, suggests Fitch MD Ed Parker, noting the country has smaller budget and current account deficits, and a banker sector not saddled with bad real estate (no, but it has plenty of government paper). Fitch's main scenario continues to be Italy not needing a rescue, he says.

    Yields on 10-year Spanish and Italian bonds continue yesterday's climb, which came after the euphoria over Spain's bank bailout had dissipated. Spain +15 bps to 6.65% and Italy +10 bps to 6.13%, although Monument Securities' Marc Ostwald argues that the two countries aren't comparable. "Italy is in fact rather like Japan rather than…Spain, Ireland, Portugal, let alone Greece."

    The easy trade of the year's first 5 months was to sell Spain (EWP) and buy just about anything else. With Spain "solved," and markets moving to the next weak link, the trade for the next few weeks may be to sell Italy (EWI) against a long in another index. 

    And the dominoes keep falling: Cyprus said yesterday it urgently needs European financial aid to shore up its banking sector, becoming the fifth eurozone economy to seek help. At least this is a small domino, with any possible bailout expected to be capped at a relatively meager €3B-4B ($3.8B-5B). 

    The Swiss government raises 2012 GDP expectations to 1.4% from 0.8%, but lowers its GDP forecast for 2013 to 1.5% from 1.8%. "There is no early end in sight to the recession, particularly for the countries of Southern Europe… Even the robust German economy will be unable to fully escape these difficult conditions un-scathed."

    The Bank of Japan should pursue "powerful monetary easing" to increase the chance of meeting its 1% inflation goal by 2014, says the IMF, urging the central bank to boost purchases of corporate bonds, equities, and highly-rated securitized loans to small- and medium-enterprises. Japan should also implement a consumption tax of at least 15%, higher than current proposals of 10%.

    India's industrial output was surprisingly weak in April, coming in at +0.1% Y/Y vs. expectations of +1.7%. The reading, though an improvement from March's 3.5% annual contraction, supports the case for a sharp move from the Reserve Bank of India, with some economists pointing to either a 50 bps repo rate cut or a 25 bps cut paired with a reduced cash reserve ratio

    While President Obama was hounded for his remark that the "private sector is doing fine," he may have been on the mark if corporate profits are anything to go by. At $1.9T last year, profits accounted for a record 12.9% of GDP, or $6,500 for every U.S. citizen. That's well above the $3K during a peak year of 1999.

    The hedge fund industry could more than double in size over the next five years to more than $5T in assets, according to a Citigroup survey. Hedge funds may be able to lure as much as $2T in new money to investment vehicles traditionally associated with mutual funds, while pension funds may become larger clients as they grow more comfortable with risks associated with hedge funds. 

    Was this part of the TARP agreement? Bank of America (BAC) announces a goal to make $50B in loans over the next 10 years to green businesses. (PR)

    With OPEC is already pumping oil at levels not seen since 2008, Saudi Arabia Oil Minister Ali Naimi says his country won't ask OPEC to increase production at this week's meeting, apparently contradicting his remarks yesterday.

    Chesapeake Energy's (CHK -0.5%) target is raised to $28 from $26 at Canaccord, which says CHK's midstream divestitures put it in a strong position to meet its debt covenants and potentially hit its sales target of $9.5B this year. The firm sees CHK’s net debt slipping to $14.7B from ~$18.5B at the start of the year.

    The Nevada Gaming Board reports April Las Vegas Strip revenue rose 7.5% Y/Y to $459M, with statewide revenue +6.2% Y/Y to $856M. Casino stocks (BJK +1.1%) trade higher: MGM +0.1%,CZR +1%WYNN +0.7%LVS +0.2%

    A123 Systems (AONE+40.3% after introducing a "breakthrough" lithium ion battery that optimizes performance in extreme temperatures. The nanophosphate EXT cells will be produced next year, and the technology will reduce the need for systems in electric cars to maintain a consistent battery temperature, helping solve a major cost issue.

    Overlooked in Apple's (AAPL) long list of Mac and iOSannouncements yesterday was the company's release of several iOS features aimed specifically at Chinese users. The features include not only the expected addition of Baidu (BIDU) search, but also the integration of Sina's (SINA) Weibo and merging video sites Youku (YOKU) and Tudou (TUDO), as well as Chinese-language support for Siri. Apple's China sales soared 3x Y/Y in the March quarter to $7.9B, and made up 20% of its sales.

    Three lunchtime reads:

    1) Target a REIT portfolio that stays inside the circle

    2) The 200-day moving average – not as important as it once was

    3) Fed officials amplify concerns over Europe

  73. NF**X

    FTE AH Question – Phil (or anyone) – any non-urgent thoughts on FTE?  Naturally, the div yield is extra fat these days with the sorry stock price, but we've accumulated over the years and don't have any near-term desire to sell.  Any current thinking on FTE as a longer-term income stock?  

  74. zeroxzero

    "Italy is not Spain"!!!  Actually, I'm pretty sure that Italy is Spain.  What I'm not sure about is why the U.S. market is so effervescent, given that the dollar is going to end up being the currency du jour for most of the civilized world [wherever that is] any minute now.
    "The benchmark Spanish 10-year bond yield hit 6.81% [it's Euro-era record high], as optimism about the weekend's Spanish bank bailout continued to evaporate. Italy's 10-year bond yield rose to 6.28%, a rate not seen since January, as concerns about its finances rose. The interest rates are seen as unsustainable in the long run for two countries weighed down by huge debts." http://www.bbc.co.uk/news/business-18405729

  75. lionel

    It must be so hard to be a IB robot after Europe closing. Nothing to do but drifting around like an erring soul.
    So hard to buy a lot of shares on no volume without moving the markets up too much…
    Thankfully there are three more days to fill up your shopping bags!

  76. Phil

    AONE/Jerconn:  

     

    Unlike lead acid or other advanced battery technologies, Nanophosphate EXT is designed to maintain long cycle life at extreme high temperatures and deliver high power at extreme low temperatures. According to the testing performed to date at the Ohio State University's Center for Automotive Research (CAR) and the very low observed rate of aging, cells built with A123's Nanophosphate EXT are expected to be capable of retaining more than 90 percent of initial capacity after 2,000 full charge-discharge cycles at 45 degrees Celsius. CAR has also starting testing the cold temperature performance of Nanophosphate EXT, which A123 expects will deliver a 20 percent increase in power at temperatures as low as minus 30 degrees Celsius.

    "Based on our analysis, the performance of A123's new Nanophosphate EXT at high temperatures is unlike anything we've ever seen from lead acid, lithium ion or any other battery technology," said Dr. Yann Guezennec, senior fellow at CAR and professor of mechanical engineering at the Ohio State University. "Nanophosphate EXT maintains impressive cycle life even at extreme high temperatures without sacrificing storage or energy capabilities, especially as compared with the competitive leading lithium ion technology that we used on our head-to-head testing. If our testing also validates the low-temperature power capabilities that A123's data is showing, we believe Nanophosphate EXT could be a game-changing battery breakthrough for the electrification of transportation, including the emerging micro hybrid vehicle segment." 

    By enabling increased power at low temperatures, Nanophosphate EXT is expected to substantially improve the cold-cranking capabilities of A123's lithium ion 12V Engine Start battery. This would eliminate what has historically been the only performance advantage of lead acid in starter battery applications, and is expected to considerably increase the value proposition of A123's Engine Start battery as a lighter-weight, longer-lasting alternative to absorbent glass mat (AGM) and other lead acid batteries. This is expected to reduce TCO for micro hybrid applications, which represents a growing subset of the global electric vehicle marketAccording to Lux Research, the worldwide market for micro hybrids is projected to reach more than 39 million vehicles in 2017, creating a $6.9 billion market for energy storage devices.

    A123's solutions charge about six times more quickly than lead acid, which significantly reduces generator run time and lowers fuel costs by 30 percent or more. At cell towers in extreme temperature environments, Nanophosphate EXT further reduces operating and maintenance costs by minimizing or eliminating the need for air conditioning or heating. In higher-temperature climates, for example, the cost of installing and running the air conditioning necessary to properly cool the lead acid batteries can represent up to 50 percent of the total power consumed at each cell tower site. A123 believes that Nanophosphate EXT has the potential to significantly expand the global addressable market for its telecommunications backup solutions to more than $1.2 billion by 2016. 

    LOL, thanks Jthom!  

    Divorce/Rev – I'm sure they can but don't you think it should either be addressed or the 2009 deleted until you have a chance to meet people?  Hell, you're married to a woman, that's very old-fashioned for Northampton…  As to the Book – that's what I was saying yesterday – it's time for a new one.  Even JK Rowling can only sit on her laurels for so long before people want something new – you guys only find one writer every couple of Millennium to tell a new story and then you milk it for 2,000 years but at least after the first 2,000 years there was a "new" testament – don't you think 2,000 years later it's time for another?  

    FTE/NF – Aren't they in Europe?  I think they are fine if you're looking for decades and don't mind doubling down in a collapse but I don't think any immediate catalyst is coming.  Rotten option prices because of the dividend but still, at $12.23, selling Nov $12.50 puts and calls for $2.10 is a very nice net $10.13/11.37 net entry while you wait for those IRREGULAR but huge dividends (about .60 per Q normally). 

    Italy & Spain/ZZ – Yes, more to the point, the US is Spain and China is Spain but at least none of us are Japan yet.  

  77. lionel

    Oil long at 83.25 on CLQ2 hoping to get 30 to 40c

  78. zeroxzero

    Elaine was right after all. http://www.thetimes.co.uk/tto/news/world/australia-newzealand/article3443070.ece

  79. aaronc

    Phil/AAP- Phil, go easy on me here, this is my first option trade construct and the value is really in the education. But I want to short AAP. I used the advice you gave me yesterday from SWI as a template for constructing this set up. What do you think about writing 3 AAP July 65 puts at .62 and purchasing 4 SEP 70 puts at 3.80? Versus just shorting the stock.

  80. zeroxzero

    Congrats, Rev Todd.  Popeye Doyle will be devastated.

  81. boltdude

    AONE – OptionsXpress does not show strikes below $2 for any expiration.  However, Etrade has strikes down to .50 for June, and as low as $1 for ever expiration thereafter.  Why is that?

  82. bobhu

    PCLN/MoMo money, I rolled PCLN $640 Put to 2X $630 Put for this morning when PCLN was this level.  You can get $1.80 credit now according to TOS.  I think it's a good roll.  FYI.

  83. yodi

    Talk about solar and charging batteries FSLR up 18%%%%%%

  84. bobhu

    PCLN/MoMo money, I rolled PCLN $640 Put to 2X $630 Put for $2.25 this morning when PCLN was this level.  You can get $1.80 credit now according to TOS.  I think it's a good roll.  FYI.
     
    Sorry, mistype.

  85. rperi

    congrats RevTodd!  Been in Northampton a few times. When I was living in Boston I headed out there each year for the Northampton Fair thoroughbred racing meet. After 150 or so years they shut down the racing program in 2005.  Not all too far from the big city ~

  86. Pharmboy

    sns – picks.  Well, my last write up was in April, and I am preparing for another this month, with most being the updates from my Storm article.  I have been less active on writing main posts b'c: I don't like this market, healthcare should hold up well, and thus those are the few companies that I have chosen to focus on.  There is only so much to say.  I am not one to just tout companies because I have a newsletter (aka, Patrick Cox), but I do follow their picks and pans.  Penny pharma companies are many, and I have lost more playing those than the bigger picture ones (I think Mr. M can attest for that one – cough cough). 

    So, my main plays stay pretty consistent, and I look into ones that others come across. 

    "Biotechs" – YMI (pseudo penny stock), SGEN, BMRN, CRIS, INFI, GTHP (penny stock), EXEL, ZLCS (penny stock), ONTY, CLDX, DEPO, PLX are all ones I own.  ARIA not in right now, but I do like them.  Same for IRWD.  I have highlighted my favorites in blue bold.

    Big Pharma: GSK, BMY and MRK.  I avoid AZN, FRX, LLY.  I would short any of these, and all are on the hunt for acquisitions.

    There are others of course, TEVA, HSP, etc. but those are my focus for myself and this board.  Hope that helps.

  87. lionel

    And out

  88. boltdude

    Go WFR! :)

  89. jerconn

    Phil, thanks for that long article on AONE's new technology.  But it does sound as if it's still in the laboratory stages, sort of like Phase 1 for a biotech…it may be a long time before it comes to commercial production.  I'll look forward to hearing what the Lead Acid people say about it…

  90. pat_swap

    Phil,
    What's up with Oil today? How does the USO June 31/32 BCS for 0.50 looks like for a small bounce in oil?
    Thanks.

  91. NF**X

    FTE – Thanks, PD, thats a nice play to take advantage of lousy options premiums.  And, yes – the crazy qtr div is over a buck now.  To be reduced next year tho.  

  92. scottmi

    TLT/Phil – still holding some sept puts, just a couple pennies above cost (out on friday and monday, so missed exit on hte popping vix). question is.. what do you expect to happen to TLT if dollar becomes a surging monster before we have QE3?

  93. Lincoln

    Revtodd:    Who knew?  Phil is willing to reach out and consult on improving pastoral performance at churches.  :)

  94. Lincoln

    Phil: Did you go to Amherst?

  95. lionel

    Greece out of the Euro (Soccer Cup)…a preview of Sunday elections?

  96. Inkarri19

    So the US records the 2nd best May for tax reciepts but still manages to run a $125 deficit in May?!  And we also went from a $58B "surplus" in April to a $125B deficit in May….things that make you say "hmmm"….

  97. jerconn

    Phil – lol on the "book" comment to Revtodd…some of us (and I'm not of the same persuasion as R' Todd) just keep finding more new stuff in the "old book" so that every day it's like new…layer upon layer, you know…

  98. Inkarri19

    Jerconn/book – Yup, same here.

  99. zeroxzero

    Angel:  Putin doesn't like seeing movies where ruthless dictators are overthrown.  With or without Russian pilots or "advisors" flying them?  

  100. escohen5

    TLT — what just happened?  Bad auction?

  101. sagemm1

    yes bad auction

  102. Phil

    Easy/Aaron – I think that's just lovely. 

    AAP/Aaron – I wouldn't short them in the first place as they just dropped 30% and are recovering right under the 200 dma and may pop over and you're not selling anywhere near enough premium there to protect yourself and, in fact, are buying a massive amount of premium with the out of the money puts.  On the SWI trade, yesterday, the sale of the July puts ELIMINATED the premium from the Sept puts, which were in the money – you are not at all doing the same thing by buying a ton of premium and offsetting less than 20% of it.  

    Options Express/Bolt – You'd have to ask them, the options are there on my systems (not OXPS). 

    Gold pulling back like the stimulus rumor has been disproven ($1,606 and falling).

    AONE/Jerconn – They say production first half of next year.  As to lead-acid – due to Peukert's Law you generally need to carry about 2.5x the usable energy to get the same result and the recharge cycles are then about 1/3 of Lithium so you're looking at a 7:1 disadvantage at least to lead and that's BEFORE this major advance (and others that I'm sure will be coming) so I don't really see lead as the answer long-term without a significant advance (which is doubtful on such old tech).  While lead batteries may cost less – there's no actual cost benefit to actually using them in practical designs.

    Oil/Pat – As I said earlier today, it's a very bad time to play it with the OPEC meeting the next two days.  It will be driven up and down by rumors so you're paying for a coin flip.  

    TLT/Scott – That's why we ditched them.  I don't really have any go forward expectations.  When TLT was at $130 – that was too high.  If it goes down to $110 – that is too low.  In between – there are other things to bet one that are much easier to call. 

    Consulting/Lincoln – I used to get paid for consulting on all sorts of things…  And yes, UMass at Amherst, not Amherst College. 

    Hmmm/Ink – Hmmm.

    Layers/Jerconn – I'm sure some do but, if you want to reach the masses – you need some new content.  Richard Dawkins gives us a nice start with 10 New Commandments:  

     

    1. Do not do to others what you would not want them to do to you.
    2. In all things, strive to cause no harm.
    3. Treat your fellow human beings, your fellow living things, and the world in general with love, honesty, faithfulness and respect.
    4. Do not overlook evil or shrink from administering justice, but always be ready to forgive wrongdoing freely admitted and honestly regretted.
    5. Live life with a sense of joy and wonder.
    6. Always seek to be learning something new.
    7. Test all things; always check your ideas against the facts, and be ready to discard even a cherished belief if it does not conform to them.
    8. Never seek to censor or cut yourself off from dissent; always respect the right of others to disagree with you.
    9. Form independent opinions on the basis of your own reason and experience; do not allow yourself to be led blindly by others.
    10. Question everything.

    Russia/Angel – Probably true, they are one of Russia's biggest arms customers.

    TLT/Esco – Yep, bad auction.

    The Treasury sells $32B in three-year notes at 0.387%. Bid-to-cover ratio of 3.53, vs. a recent average of 3.52; indirect bidders take 27%, vs. a recent 35.9%. Direct bidders take 12%, vs. a recent 8.1%

    Treasury prices that had already turned south add to losses after an uninspiring auction of three-year notes - the 30-year yield now +0.035 to 2.745%; 10-year +0.05 to 1.64%; five-year +0.05 to 0.73%. A 10-year note auction follows tomorrow, and a 30-year bond sale on Thursday.

  103. mrmocha

    AGNC - thanks to whoever posted about this one around May 15, I picked up some JUN 33 calls for .11, just closed them for .35.  Mind-bending ROI when annualized 8) .

  104. boltdude

    AONE – Is it not strange that on such a big pop in the stock the Jan13 $1.50 strike is unchanged?  Either bankruptcy is around the corner, or this is a steal.  

  105. Phil

    Speaking of Russia – Big anti-Government protests continue despite Government throwing leaders in jail:  

  106. scottmi

    AONE – got burned by this all last year. now holding long dated calls and short puts. if you got in this morning and have a 20% or greater return in the day.. TAKE AT LEAST HALF!  a new technology to be released 6+ months from now is what we called in the software industry "vaporware."

  107. diamond

    From Springheel Jack: The opposing H&S patterns forming on SPX

  108. Winston

    Phil/TLT bought puts/Taking Profits: A June 1 recom from your goodself was buy TLT Sep 12, 115 puts (god how I hate buying premium!). Buy price was $1.29, current price $1.71; which is a 10 day 30% profit. I think I can map out your response:
    Greedy bas***d, when did you last make 30% in 10 days
    Sell half, how long have you been hanging around on this board not to know that
    Or, would it be a more subtle response like 'the risk on trade is now back in favour, and if you can't have the patience to let the trade play out, then you are eligible for a membership refund'
     
    Precautionary ear plugs ready for deployment.

  109. jabobeast

    Also, I think Dawkins stole that 1st one ;-)

  110. boltdude

    Jabo, nothing wrong with "borrowing" what works, right? :)  

  111. jabobeast

    maybe if he does it while standing on one foot …

  112. Lincoln

    Phil: Dawkins
    Thanks for that link to Dawkins.  Provided a nice diversion today for a Jesuit educated atheist, so I'm not tempted to "overtrade".

  113. morxlntway

    a lot of new stuff has been written but getting folks on board it tricky. Mohamad succeeded and Joseph Smith. We are an independent lot and once we settle in we aren't likely to move much.
    jabob – i did think i recognized a few of them from somewhere a bit earlier! :)

  114. Pharmboy

    OK, first there was an ascending wedge, now descending…triple top.  They need to break this up, otherwise, bu bu bu bye….

  115. jthoma

    jabobeast- you have been so quiet lately I thought perhaps you had booked a trip to Spain- om priceline of course :)

  116. jabobeast

    better Spain than Syria ;-)

  117. aaronc

    Phil/AAP –  Thanks as always, I'm going to put a sign by my computer that says "Premium, Don't Buy It." Cheers.

  118. jabobeast

    Actually, I shouldn't joke around like that.. The Syria situation is very scary..

  119. Phil

    AGNC/Mr. M – I was only advocating selling Jan $30 puts for $2.40 as an entry, those are down to $1.80 so far and "on track" with AGNC at $33.30.  

    AONE/Bolt – That is kind of strange.  Spread still .10 and I still like it.  

    Taking half/Scott – I agree with that, today was a huge pop, about what I expected over the quarter on that news.  Well off $1.65 now.  

    1:00 PM On the hour: Dow +0.72%. 10-yr -0.24%. Euro +0.02% vs. dollar. Crude +0.51% to $83.13. Gold +1.01% to $1612.95.

    2:00 PM On the hour: Dow +0.82%. 10-yr -0.41%. Euro +0.13% vs. dollar. Crude +0.48% to $83.09. Gold +0.96% to $1612.05.

    3:00 PM On the hour: Dow +0.99%. 10-yr -0.49%. Euro +0.14% vs. dollar. Crude +0.8% to $83.36. Gold +0.77% to $1609.15.

    Why are stocks rallying when "Europe’s crisis is completely unresolved?" asks MarketBeat. The "most important reason" is computerized short-term trading – fundamentals "don’t matter to the tradebots." Also, "the market’s playing headline roulette," traders need to make up for losses yesterday and the stocks have hit a bottom of some sort.

    BIS warns global lending contracting at fastest pace since 2008 Lehman crisis (Telegraph

    Have we arrived at a financial singularity? (Finance Addict)

    The World Bank slightly cuts its 2013 outlook for world GDP growth, and makes a slightly higher reduction in its emerging markets forecast. The group notes a "spectacularly large decline" in gross capital flows to developing countries, -44% in May.

    Bill Gross boosted the share of Treasurys in his total return fund to 35% (from 31%) in May, the first increase since January. He did this in part by reducing slightly positions held in MBS, emerging-market debt, and high yield corporates. 

    Family Net Worth Drops to Level of Early ’90s, Fed Says (NYT

    Workers Lost Ground During Recession As Bosses Gained (Bloomberg)

    America’s Class War (New Yorker)

    America’s Hidden Austerity Program (Economix)

    The Fiscal Legacy of George W. Bush (Economix)

    The Wrong Austerity Cure (Project Syndicate)

    The ever-diminishing returns from Europe’s bailouts (Reuters)

    European elites can’t stop themselves crashing their own project (Chatham House)

    China’s Key Economic Data (Dr. Ed’s Blog)

    Senators introduce legislation that would "create thousands of jobs" by lifting cold-war restrictions on trade with Russia ahead of its impending entry into the WTO. The Senators plan to incorporate provisions that would punish Russia for human rights violations, against the wishes of the White House.

    "We've probably done more strategically in 3-4 years than most corporations of our size do in 30 years," says Morgan Stanley (MS) CEO Gorman, noting the bank has 10 more executive committees overseeing risk than it did in 2009. So adding more layers of committees is a good thing? (full presentation)

    After 74 years, another venerable Wall Street name – Smith Barney – is falling by the wayside, as Morgan Stanley plans to rename it Morgan Stanley Wealth Management. MS is in a multi-year process to buy the unit from Citigroup. 

    More on the Morgan Stanley (MS) presentation: The bank is "maniacally focused" on cutting non-compensation costs, says CEO Gorman, with the goal of reducing expenses by $1.4B annually. It sounds as if Gorman is building a lean, well-capitalized, risk-avoidingmachine. Now what about revenues?

    New statistics reveal a mystery about Chinese carbon emissions: National-level statistics say emissions grew at a 7.5% annual pace since 1997, while provincial-level figures point to an 8.5% pace. No big deal? The gap between the two comes to ~1.4 gigatons in 2010, equivalent to all the carbon dioxide Japan put into the air that year. 

    The U.S. cattle herd shrinks to the lowest level in more than half a century, forcing meat prices higher even as domestic demand declines to a 2-decade low (while global consumption rises). Consumers from Costco (COST) to Wendy's (WEN) to Chipotle (CMG) have all recently warned investors to expect beef prices to continue climbing.

    Berkshire Hathaway's (BRK.A) Omaha World-Herald adds a small Texan newspaper to its stable of titles as Warren Buffett continues his strategy of scooping up newspapers that have strong ties to their communities. 

    Starbucks (SBUX -0.8%) slips a little after guiding at a William Blair conference (presentation - PDF) for FQ3 (June quarter) EPS of $0.44-$0.45 and FY12 EPS of $1.80-$1.82, below Street estimates of $0.45 and $1.85. Starbucks adds it continues to be affected by Europe's troubles and expects high coffee costs to weigh on 2H results, but expects to receive a tailwind from declining prices in FY13. The company's FY12 Asia-Pac op. margin is expected to be a whopping 30%-35%.

    Safeway (SWY +0.7%) becomes the newest competitor to Green Mountain Coffee (GMCR -0.6%), as the retailer says it will launch under its own store brand five types of filtered coffee pods compatible with Keurig brewers; Kroger made a similar moveyesterday. GMCR sells the Keurig brewers but makes most of its profits from the K-Cups that go with it.

    Though off the day's highs, A123 Systems (AONE +36.5%) is still posting huge gains on account of its battery tech announcement. Short-covering is likely driving the rally (23.5% of A123's float was shorted as of May 15), as may hopes that the cash-strapped company's breakthrough will allow it to avoid bankruptcy. Technology Review notes A123's tech could both reduce the cost of an electric car battery pack by 10%-20%, and replace lead-acid batteries in conventional cars.

    "We all live in an ATTizon duopoly now. And they will do with us what they please," writes Tero Kuittinen after looking at Verizon's (VZVODshared data plans. He sees the plans, which increase the minimum a smartphone user looking to upgrade has to pay to $90/month from a current $70/month, as an attempt to prevent voice/text revenues from being eroded by mobile apps (previous), and thinks they're fueled by a belief "Sprint and T-Mobile are now so weak they offer no effective competition." (also

  120. Phil

    Very good presentation:  

    CVB Booklet Pt2 r5-Web

  121. zeroxzero

    So is the Syriza situation, depending how you're positioned this weekend.

  122. Phil

    Jack's chart:  

  123. jthoma

    Phil- Any thoughts on whether King Jamie's testimony having an affect on the banks tomorrow or a non-event?

  124. Pharmboy

    Credit Suisse…bonuses are continuing to be given in the form of derivatives…..That cannot be a good thing….as it means that the balance sheets need to be purged of crap.

  125. lionel

    We need a stick to get some volume today and it is stick time!

  126. boltdude

    Pharm — I notice you did not mention VRTX in your earlier post; what are your thoughts on it currently?

  127. Pharmboy

    Bolt – I love them but I cannot afford them any more…..margin is too intensive for my little account.  Selling some way OTM puts is always good….July 43s for instance.

  128. Pharmboy

    CELG is another, but they are over that $10/15B cap.  After that, things become large, bitter pills to swallow.

  129. morxlntway

    Re DMND from this morning, .90c seems pretty far off. The put is about what you called but the spread is more like 1.25 with DMND at 18.22. What do you think? Still a good entry?
    thanks

  130. boltdude

    VRTX/Pharm – wow, that is WAY out of the money.  I was thinking of selling the July 50 puts.  However, this is your area, so why are you so much more cautious than I?

  131. Pharmboy

    bolt – look at the chart….there is a BIG air gap there, and gaps are meant to be filled.

    AVEO is another I am in, and I like them as they are selling off.  July 10 Ps for 60c or better.

  132. Phil

    TLT/Winston – When you buy premium, you should NOT be inclined to "let it play out" as you have nothing of value – especially when you are out of the money.  You have to think about WHY the puts went up – because of a relatively rapid drop in TLT over a relatively short period of time that is now being extrapolated by others to mean this trend will continue and now they are willing to pay 30% more than you did for the same target.  

    As with any limited data set – these projections always seem good until you add another point to the graph and another and another and THEN you have a trend.   So the faster you get a move (less data) in your favor that's larger than what you would have expected by being "on track" which, in the case of TLT would be a drop of $15 over 18 weeks or about $1 per week – the more anxious you should be about the trend reverting to the norm and the gains evaporating on you.  

    The simple way to summarize the above is "ALWAYS sell into the initial excitement."  Yes, you can scale out – take the 30% profit for 1/2 and set a 10% trailing stop on the other half to lock in a 25% overall gain and even if the remaining half goes up 100% – you're still up an average of 65% on the whole thing so what are you really missing by being sensible?  Compare the number of times you'll kick yourself for not making another 35% to the number of times you'll kick yourself for being a dumb-ass and letting a 30% profit slip through your fingers and you'll begin to get a little religious about taking the profits…

    Also, if you really love them and you sell half (Rule #2:  When in doubt, sell half) at $1.70 and they break below $124 or whatever line you think is support – then you can always buy half again for $1.90 and all you've done is raise your net buy-in from $1.29 to $1.39 but now the option is at $1.90 and you can still set a stop on all at $1.75 and you make .36 on 100% anyway, which is only 0.06 less than you're up now if you cashed out so you're risking .06 of your entire potential profits to lock in a 25% profit.   

    Of course, you don't generally want to run in and out of things like that but hopefully you get the idea – CASH IS KING!!!  You can always buy the same position or another position or whatever if you are "wrong" and the stock/EFT keeps going lower – what you can't do is get the 30% that is being offered to you today if it reverses on you tomorrow.  

  133. jabobeast

    look at the volume on FB… wow

  134. mrmocha

    Found it, the AGNC reco posted May 15 was from yshenhar, thank you sir or madam!

  135. kevinb63v

    Phil,
      John Petersen (Seeking Alpha) had a recent article regarding Lithium Ion batteries in general, and AONE in particular, that is most convincing in terms of the negligible prospects for L/I powered electric cars that suggests mitigating the enthusiasm over AONE's recent success. Among other deficiencies, an analyst  points out that it costs A1 $1.57 for every $1 of sales revenue, a rather daunting hurdle to traverse.

  136. revtodd64

    Phil – I have heard you quote that old book to good effect many times, and you know it better than many preachers.  It may be old, but what needs to be updated about "love your neighbor as yourself"  or "Do justice, love mercy and walk humbly with your God?"  The real issue is putting it into practice, right?  Actually it would be intriguing to have more of a Midrash that keeps expanding.  I'd vote for excerpts from Martin Luther King's "I Have a Dream" speech, excerpts from Bonhoeffer, Martin Luther's 95 Thesis, some Thomas Merton and many other important works.  It would probably take a generation of argument to get a new canon put together and the first one only came about because the Roman Emperor Constantine wanted it done and enforced it at spear point.  
     
    You would be welcome up in Northampton at any time.  I could set you up to do a lecture on "A Hedge Fund Managers View of the economy, environment, social justice and prospects for change.   Or whatever you are interested in that day.  I can seat 900 in downtown Northampton.  Or we could just have dinner too.

  137. Pharmboy

    What a manufactured move off that PP…..Set it up boyz….waiting for a star to fall.

  138. Winston

    Phil/TLT: I stand in awe of your nanosecond turnaround of a comprehensive reply. I am no longer the proud owner of those TLT puts – my cash account thanks you for it. It feels good to be decisive. And I just realised that the 10 day profit was the price of another year's PSW subscription. Poetic justice all round.

  139. zeroxzero

    Be careful about the dinner, Phil, they kill and eat hedge fund managers in those parts.

  140. Pharmboy

    So yesterday we lose 260 points off the open and finish red, today we are up 160.  That is volatility for you.  Cash and remain with your conviction, and mine is all down…..in the ground, to get out of the rain.


  141. lionel

    Very disappointing stick but 35M volume out of 103M!!!!
    Someone is buying…
    Two days in a row

  142. Phil

    Dawkins/Jabob – It worries me that you have those handy…  ;)  

    New stuff/Morx – That's what I'm saying – how hard can it be.  Get that David Blaine guy, he loves running around performing miracles.  Get him to turn Prophet and hire a couple of good writers and, before you know it, we can have the next hit religion.   

    Signs/Aaron – I put post-its on the boarders of my monitor.  

    JPM/Jthom – Unless he really screws up, I can't see it mattering much.   Maybe a bit of a relief rally once it's over.  This is where these guys really earn their money – they chew up Senators and spit them out.  

    Purge/Pharm -  Plus ça change, plus c'est la même chose.

    DMND/Morx – I wouldn't chase it.  The bid/ask got very wide on the $17.50s but $2.25/2.65 means $2.45 is the mid and the $20s are $1.35/$1.55 so $1.45 so paying more than $1 is silly.  If you are looking at a spread and giving up 20% of your potential upside just to get in – walk away – nothing is that much of a sure thing.  

    AONE/Kevin – That's true of many start-ups.  AONE has backing by GM and other auto makers, they are not a fly by night.  They had a recall on their product this year and that killed them (exactly why I warn people to be cautious with TSLA) but, as a long-term prospect, they are pretty exciting.  

    See Rev, you can alredy envision getting a new book together!  I'm telling you it needs to be done – could be the biggest seller since King James…  I'd love to come up and pound the pulpit – as well as some Porter at the Northampton Brewery.  You can count on my in the fall as I love that drive when the leaves are changing.  

    Very nice finish – up and up all day long!   Lame volume though, 110M on the Dow.  

    TLT/Winston – You are very welcome.  Good to get some perspective once in a while, very hard to do in the middle of a trade until you have your 10,000 hours and are better able to maintain that professional detachment.  

  143. exec

    Phil/DMND

     
    I sold some Sept. 19' puts for $3.50.  What's up with the wide spread?

  144. zeroxzero

    Euro gazing:  I came across quite an interesting comment in response to an article today.  It really does call into question when, or how, the Euro Peripheral fiscal crises can be tranquilized. From Thomas Hsu:
     
     "There seems to be an interesting gap between the underlying issues and proposed cures. Spain's growth was built on an unsustainable increase in real estate "value". Italy and France's economy are overloaded with regulations and a costly public service. Greece simply cheated it's neighbours throughout years. And Germany was happy too to increase debt beyond agreed levels when needed. So where is the solidarity aspect which has been so oft brought up by the EU leaders? It seems that in this UNION, everyone has been (and will be) maximizing their local interests.  If this is the underlying problem, it is hard to believe that either austerity or the growth "concept" will be a sustainable solution. This crisis is an example to the thesis that in the real world, fiscal and monetary union are two parts of the same coin."

  145. zeroxzero

    And here's a U.S. article on the antithetical nature of immediate fiscal stimulus and long-term debt reduction, and why fiscal stimulus rather than austerity] makes sense and will work. http://www.cnn.com/2012/06/12/opinion/bivens-debt-economy/index.html?hpt=hp_t3    I'm still wondering at what point one of the U.S. presidential candidates will propose a 21st Century "New Deal."  And what it might do for basic materials prices if or when it comes up.

  146. Phil

    At the close: Dow +1.34% to 12577. S&P +1.28% to 1326. Nasdaq +1.19% to 2843.

    Treasurys: 30-year -0.88%. 10-yr -0.5%. 5-yr -0.24%.

    Commodities: Crude +0.83% to $83.39. Gold +0.97% to $1612.35.

    Currencies: Euro +0.19% vs. dollar. Yen +0.07%. Pound -0.58%.

    Market recap: Stocks pushed to session highs as dovish comments from the Fed's Evans offset worries about Spain’s banking system. Today's move wiped out yesterday's losses, and volatile trading likely will continue ahead of Greece's key election this weekend. Crude oil rose for the first time in four sessions. NYSE gainers led losers nearly three to one.

      U.K. Chancellor Osborne makes friends on the Continent, calling this weekend's Spanish bailout plan "depressing," and suggesting it may take a Greek exit to convince Germany of the need for banking union and commonly issued debt. Political gaffe: Accidentally telling the truth.

      The pension deficit for U.K.companies soars to £312B, with 86% of the schemes in deficit. It points to yet another unintended consequence not showing up in BoE (and Fed) models – super-low interest rates actually force more saving. In this case, companies in deficit are forced to siphon money from their businesses to add to their pension funds. 

      BlackRock (BLK) looks to step into the vacuum left by vacating banks, raising money for a EU commercial property lending fund. "This could be a terrific opportunity for the next half-decade," says Jack Chandler, the firm's head of global real estate. BlackRock is also looking to get into the landlord business – buying single-family homes to let. 

      JetBlue Airways (JBLU -3%) slides after posting slightly weaker than anticipated May traffic results. Traffic in May increased 7.4% Y/Y, on a capacity increase of just 4.6%.

      T. Boone Pickens admits he's moved money out of Chesapeake (CHK -1%), but he's still a fan of the company and Aubrey McClendon: "The board has changed – things will clear up… You get nat gas a few dollars higher, Aubrey will be a home run hitter again." But right now in energy, Pickens likes CLR and PXD, noting oil supply remains tight and prices should hold or rise in coming months.

      Stocks of for-profit educators slide on rumors of renewed U.S. Senate interest in a ban against the schools' use of revenue from federal financial aid toward advertising, marketing and recruitment:APOL -3.4%CECO -3.2%DV -3.4%STRA -3.4%COCO -1.5%,EDMC -2%ESI -1%

      Arena Pharmaceuticals (ARNA +9.8%) and Vivus (VVUS+2.9%) both move higher today after Five Star Equities issued apress release highlighting their weight loss drugs, saying they may be the first in a lucrative market.

      Dell (DELL+3% AH after initiating a quarterly dividend of $0.08/share. That's good for a yield of 2.7% at current levels. Until now, the company has focused on returning cash to shareholders via massive stock buybacks that have failed to keep its stock price from flagging. The dividend announcement comes ahead of Dell's 2012 analyst meeting (webcast). (PR

      NetApp (NTAP) CEO Tom Georgens remains pessimistic about Euro demand for his company's storage gear, stating the weakness seen in periphera EUl countries is now spreading to Germany and the U.K. He's more positive about Asia-Pac, but adds U.S. public sector sales remain soft. NetApp plunged last month following its FQ4 report thanks to poor FQ1 guidance – the company blamed the aforementioned issues, and became defensive when asked about share loss.

    • morxlntway

      pretty blue rectangle. but is it art?

    • Pharmboy

      I love it….from Marketwatch:

      U.S. stocks rallied Tuesday to recoup much of the prior day's steep drop, with a range-bound market on the prowl for signs of central bank action and any developments related to Europe. "The volatility of the past few weeks is probably going to be be with us through the summer,"

      Stimulus hopium….

    • microflux

      Hello Phil did you look at the TWIL list ? you said you might look at them and republish the modified list. thanks and have a great day

    • stjeanluc

      Man, these Euro 2012 matches sure take a lot of my day….

    • stjeanluc

      Very lame volume on the Dow!

    • stjeanluc

      As usual, good article from Bruce Bartlett:

      http://economix.blogs.nytimes.com/2012/06/12/the-fiscal-legacy-of-george-w-bush/

       

      Putting all the numbers in the C.B.O. report together, we see that continuation of tax and budget policies and economic conditions in place at the end of the Clinton administration would have led to a cumulative budget surplus of $5.6 trillion through 2011 – enough to pay off the $5.6 trillion national debt at the end of 2000.

      Tax cuts and slower-than-expected growth reduced revenues by $6.1 trillion and spending was $5.6 trillion higher, a turnaround of $11.7 trillion. Of this total, the C.B.O. attributes 72 percent to legislated tax cuts and spending increases, 27 percent to economic and technical factors. Of the latter, 56 percent occurred from 2009 to 2011.

      Republicans would have us believe that somehow we could have avoided the recession and balanced the budget since 2009 if only they had been in charge. This would be a neat trick considering that the recession began in December 2007, according to the National Bureau of Economic Research.

      They would also have us believe that all of the increase in debt resulted solely from higher spending, nothing from lower revenues caused by tax cuts. And they continually imply that one of the least popular spending increases of recent years, the Troubled Asset Relief Program, was an Obama administration program, when in fact it was a Bush administration initiative proposed by the Treasury Department that was signed into law by Mr. Bush on Oct. 3, 2008.

      Lastly, Republicans continue to insist that tax cuts are highly stimulative, often saying that they add nothing to the debt, when this is obviously ridiculous.

      Conversely, they are adamant that tax increases must not be part of any deficit-reduction package because they never reduce deficits and instead are spent. This is also ridiculous, as the experience of the Clinton administration clearly shows. The new C.B.O. data confirm these facts.

    • stjeanluc

      And Ezra Klein argues that austerity is already implemented in the US:

      http://www.washingtonpost.com/blogs/ezra-klein/post/public-sector-austerity-in-one-graph/2012/06/11/gJQAv89NVV_blog.html

      Since Obama was elected, the public sector has lost about 600,000 jobs. If you put those jobs back, the unemployment rate would be 7.8 percent.



      But what if we did more than that? At this point in George W. Bush’s administration, public-sector employment had grown by 3.7 percent. That would be equal to a bit over 800,000 jobs today. If you add those hypothetical jobs, the unemployment rate falls to 7.3 percent. [...]

      Without this hidden austerity program, the economy would look very different. If state and local governments had followed the pattern of the previous two recessions, they would have added 1.4 million to 1.9 million jobs and overall unemployment would be 7.0 to 7.3 percent instead of 8.2 percent.

    • scotbraze

      Phil,
       
      I meant to post over the weekend, but I was busy having fun :) .  Last week was a very nice week for me, and I wanted to thank you for all that you do.  I am pretty much back to cash and really feel like I am learning.  I have out performed the $5kp by a very large margin.  Thanks again for the service you provide.
       
      I do have one question if you have a moment to address it.  Being as it's the week to be rolling contracts, I have a question on how to best maximize 'the roll'.  Here is a specific example.  I have the Jun DIS $45 calls sold against my 2014 $30 calls.  They were sold for $0.85, and were 'on track' to the high side, but, hanging right around the break even area (high 45's).
       
      I looked at the roll this morning, and, I could have rolled to the July 46's for a $0.32 credit.  As the day went on, that roll got to be less of a credit and closed at around a $0.10 credit.  In hind sight, I should have rolled this morning.  In the future, how do I determine when it's best to roll?  It would appear, based on this one event, that if the stock is trending up, roll, and if down, wait.  Of course, this one incident might be a total fluke :) so any insight on when to roll to maximize effect would be appreciated.  
       
      In the long run, I suspect it really doesn't matter, but, it would be nice to get your perspective.
       
      thanks scot.

    • boltdude

      Pharm and Phil – appreciate your responses to my questions today.  Didn't do much new, but sold some CELG puts and bought some AONE on the cheap….still can't believe how the Jan13 calls were unchanged for a good part of the day; managed to get 50 contracts at .15.  They could go bankrupt, but it's fun to by a lotto ticket once in a while, especially when I like the back story.

    • boltdude

      Um…buy not "by".  Sorry, I went to a state U!! :)

    • boltdude

      StJeanLuc — which teams are you pulling for?  My father's from Denmark, so a soft spot for the Danes, but I'm born and bred USA, so tonight's qualifiers have my attention.  As much as I may pretend to resist, I will no doubt submit to the travesty of $30 pay-per-view in hopes of seeing our team beat up on some Guatemalans tonight. 

    • stjeanluc

      Euro 2012 / Bolt – France first… if they don't qualify for the 1/4 finals, I'll see who is left! Denmark did well in their first game. I like that team – not huge stars, but they play well together!

    • scottmi

      fonts/phil – weird stuff happening with the fonts on the page…

    • zeroxzero

      What are the limits of Eurozone credit?   It occurs to me that there exists a possibility that Germany doesn't have the wherewithal to backstop enough Peripheral country credit to keep long rates at sustainable levels in those countries, i.e., rates that don't lead to inevitable default.  It's not as if the rest of the world can't wait to loan to Europe in order for the EU to maintain it's current slice of global consumption.  Implicit in current measures to bail out Italy, Spain and its smaller companions is that it possible to do so.
       
      But the deteriorating global economic situation, as weakness spreads among export-intertwined countries in Europe, Asia and the U.S., may increase the risk of further European government borrowing on global markets to the point of pushing rates to levels that cannot actually amortize the debt based on any credible revenue projections, even with a full faith & credit German backstop. And in that case, the Germans can't and won't.  Bye, bye, Eurozone, hello pesetas & lira.
       
      Impossible?  That might depend on how long the Germans wait to step up to the plate. Certainly "austerity" is whacking away at already-anemic Eurozone GDP.  If Germany doesn't throw itself on its sword and back a Eurobond, the Euro currency will end up taking the hit, and truly reflect the extent to which Europeans are now poorer, measured in global goods and services. And if the the U.S. launches another round of QE, which seems likely in the event of further European deterioration, that would just suck away even more savings from Europe, as the dollar falls in response.
       
      At present, the U.S. long bond rate of 1.7% is the cost of borrowing on behalf of all 315 M Americans. The current German long bond rate of 1.4% applies only to Germany's 81 M people out of the 332 M in the Euro currency area.  France, with 65 M pays 2.5%; Italy, with 61 M  pays 6%, and Spain with 40 M over 6.6%.  That comes in at a weighted average of 3.77%, more than 75% in Euros than the U.S. pays on borrowing dollars.  That's a lot of debt service in the aggregate, and it's going up as Peripheral rates rise and the Euro sinks.  
       
      I feel there is a touching faith in the strength and ability of Germany to shoulder the Eurozone debt burden in the aggregate if Germany would only drop its stubborn resistance to a joint Eurobond —   an implicit assumption by investors that Germany will stand with the Peripheral nations if the very survival of the Eurozone is at stake.  But according to my primitive and amateurish calculations, the time frame within which that is even possible may be quite limited.

    • Phil

      Dollar back over 83 – nothing fixed this evening I take it.

      As the European debt crisis continues to weigh on sentiment, investors are heading for cover at a faster clip than any since the depths of the financial crisis. Cash now makes up an average 5.3% of portfolios, the most since January 2009. Oddly however, it's the U.S. that appears to sparking the most concern. Expectations for growth in the U.S. fell 25%, compared to only 5% for the troubled euro zone. 

      Don't trust this rally, it's a major bull trap, says currency analyst Christopher Vecchio. Pressures on global financial markets are too intense to support a sustained run in stocks right now. All it will take is just a few gusts of negativity to derail the entire train.

      "An era can be said to end when its basic illusions are exhausted," writes Syriza head Alexis Tsipras, quoting Arthur Miller in a FT editorial. Not dropping his call to redo the bailout terms, he reiterates his party's commitment to keeping Greece in the eurozone. "The new era begins on Monday."

      Greek politicians ♥ Spanish bank bailout (FT Alphaville)

      How many years have I been saying this?  Everything you know about traditional economics is wrong. Dead wrong, says MarketWatch's Paul Farrell. Why? Because it's all based on the absurd Myth of Perpetual Growth – endless growth, ad infinitum, forever, till the end of time. That's hard to justify on a planet of finite resources. Eventually, the view of traditional economists will be superseded by the eco-economist and a world of no-growth economics, but, Farrell says, it won't come without a collapse first.

      "We do believe this to be an isolated event," says Jamie Dimon (JPM) is his prepared testimony for tomorrow's Senate hearing. "We will lose some of our shareholder's money … no client, customer, or taxpayer money was impacted by this accident." He expects "solid profitability" for the bank in Q2. "Our fortress balance sheet remains intact."

      Viewing Financial Crimes as Economic Homicide (DealBook) 

      Kelly Evans reports it's looking increasingly likely that this week's OPEC meeting could end in a stalemate or a repeat of last June’s meeting when no statement was issued and no agreement on output levels was reached. A possibility: a special late-summer or early-fall meeting on hopes for greater clarity on global demand and Iran’s nuclear program. (earlier)

      Oil doesn’t belong at $83 and won’t stay there for long, MBF's Mark Fisher believes: “Either it goes back to $100 or it drops to $65, but we’re not staying here." Oil's decline largely has been orchestrated by Saudi Arabia, he says, adding that "historically, the first move oil makes out of the OPEC [meeting] is the wrong move"; the bigger move will be in the other direction.

      Murdoch demanded I change policy: John Major (AFP)

      U.S. government to use ‘drones the size of GOLF BALLS to spy on AMERICAN citizens’ (Mail Online)

      United States of Walmart cartoon

    • sparky123

      ZZ
      They at least need to inject capital directly into the Spanish banks and get the soverigns out of it. In many ways this last bailout just made the situation worse. Depending on which EU acronym administers it Spanish bondholders may be subordinated. This last act is totally what I would expect from an episode of "The Three Stooges".  Italy and Spain could be alright given enough time and low enough interest rates, but the only thing that can lower interest rates is credibility, and the EU acronyms are still throwing away their credibility with both hands. 

    • Phil

      New Deal/ZZ – That's what I expected Obama to do on day one.  He blew it.  We could have pulled it off in early 2009 as we were still in a crisis that would have forced Congress to back it up but he hesitated and he who hesitates is lost.  It seems to me that politicians don't know their history these days.  So many great leaders to study from over the years but these guys all think they are middle-management guys – Churchill would shoot modern politicians on principle, have a few drinks and then go say something nasty at their eulogy too…

       

      Study history, study history. In history lies all the secrets of statecraft.

      A man does what he must – in spite of personal consequences, in spite of obstacles and dangers and pressures – and that is the basis of all human morality.

      It is no use saying, 'We are doing our best.' You have got to succeed in doing what is necessary.
       
      Success consists of going from failure to failure without loss of enthusiasm. 
       
      To build may have to be the slow and laborious task of years. To destroy can be the thoughtless act of a single day.
       

      The best argument against democracy is a five-minute conversation with the average voter. 
       
      You can always count on Americans to do the right thing – after they've tried everything else. Churchill  

      TWIL/Micro – No, I forgot.  I'll forget again tomorrow if someone doesn't remind me!  

      Big Chart looking as expected but RUT still weak – need a big day tomorrow and for NYSE as well.  

      Bartlett/StJ – That article should be mandatory reading for all Americans.  

      Austerity/StJ – Another thing you can't get Conservatives to understand – we've already made drastic cuts to Government, there's really not too much fat there left to cut. 

      You're welcome Scot!  When to roll is a bit of a guess if you are trying to optimize it.  You have to constantly be thinking about what that stock is likely to do between now and expiration day and, of course, then you need to track actual movement against your premise so you know if things are on track or not.  If you notice, with FAS Money and IWM Money – I rarely make a roll until the premium is completely burned.  You may be right and you may be wrong in an early roll and the only thing I know for sure is that if I get that last .10 of premium 12 times a year – I'm going to be $1.20 better off than if I had not done it.  Looking at DIS in particular – They are now at the top of their range and are somewhat a "safety stock" and last expiration day they were at $43.50 and in April it was $42 so $45 does seem like a logical place more so than $46.50 so I would not be so quick to take the loss but I would keep an eye on the July $46s (now $1.55), which are about a dime roll in your favor.  If you get paid even just .10 to roll up $1 each month – you'll pocket $1.20 a year and have a $58 caller in 12 months – so not too much to worry about as long as they stay under $46.50 ($46.63 was the spike high so far).   As a rule of thumb, once your caller/putter burns 75% of his premium (the position is 75% intrinsic) it's time to start looking at your rolling options but you need to do so in the context of what you think the stock will do over the new time-period.   BUT (and it's a Big But) if your mission is to just sell premium and roll up – then why worry about it?  Some months you will win and you only "lose" when your long calls go deeper in the money although I will point out there's no point to owning the 2014 $30 calls for $17.80 when the $35s are $13 and you can take $4.80 off the table and be in just as good a position.  

      AONE/Bolt – I agree.  Now they have a story and they are interesting again – if that's not worth a toss, what is?  

      Fonts/Scott – Happens sometimes when people cut an paste.  

      Limits/ZZ – I'd say the limits are Germany's ultimate credibility, which is better than ours but won't be for long (or maybe we'll get worse fast enough to keep them on top).   It's all just can-kicking.  We have $60Tn of obvious global debt and something like $1Qd of unfunded liabilities – it's pointless.  At some point, either through hyperinflation or massive Global default – we need to just punch the reset button and start again from scratch.  That being the case – no point in anyone suffering now when (as Ireland is finding out) they'll turn out to be the only suckers who actually tightened their belts in a misguided attempt to make good on their debts.   

      Think about the entire system – we're all in debt and we're all buying each others' ever-expanding debt while we borrow more money to finance our own expanding debt – it's idiotic!  Of course it's going to blow up one day – it's just a ponzi scheme and they all blow up eventually.  We're finally getting to that part of the pyramid scheme where things fall apart because 1 person needed to recruit 10 suckers and 10 suckers needed to find 100 more and then 1,000, 10,000, 100,000, 1M, 10M…  and we're up to $60Tn in debt to 6Bn suckers and all we need to do is find 60Bn more people to put up $1,000 each and —- oops…

      This game will last as long as we are all willing to extend and pretend but, ultimately – it will all fall apart.  

      In fact, I  just had a meeting this evening with some Banksters and this is where it may begin to hit the fan:

      A mortgage firm backed by a number of prominent West Coast financiers is pushing local politicians in California and a handful of other states hardest hit by the housing crisis to use eminent domain to restructure mortgages that borrowers owe more money on than their homes are actually worth.

      San Francisco-based Mortgage Resolution Partners, in a presentation reviewed by Reuters, says condemning so-called underwater mortgages and taking them out of the hands of private lenders and bondholders is "the only practical way to modify mortgages on a large enough scale to solve the housing crisis." 

      Under the ambitious proposal, Mortgage Resolution Partners would work with local governments to find institutional investors willing to provide tens of billions of dollars to finance the condemnation process to avoid using taxpayer dollars to acquire millions of distressed mortgages.

      What's the upshot of this?  They are going to force banks to mark to reality and that's something they certainly can't afford to do.  It's a great idea but it could collapse the entire Financial sector but the interests of local Government are not aligned with Federal here as the local Government has empty housing developments and commercial properties that are paying no taxes and generating no commerce in the community while sucking up resources (police, fire, water, sewer, etc.) which makes them "blight" and blight can be processed under eminent domain.  

      I love it – it's very exciting stuff but the repercussions can be nasty.  

    • zeroxzero

      Fascinating, Phil.  It really is Alice-in-Wonderland like.  A sort of consensual illusion-building.  When governments can make a critical mass of people believe something, it conditions their behavior and becomes true  -- up to a point. Determining that point is the entertaining part.

    • bdonnelly713

      Pharm – thank you for the reply!

    • Phil

      Good morning! 

      Asia was happy (up about 1%) and Europe started out up but fell a bit below flat since the open.  Simply needs more stimulus, as near as I can tell…

      Our futures are down a bit with Europe despite a Dollar dip back to 82.74, which is also doing little to boost commodities.  

      Euro $1.2537, Pound $1.557, 79.60 Yen to the Dollar with Nikkei at 8,585 and you know where EUR/CHF is…

      Oil $83.18 and that's really poor during an OPEC meeting – might totally crash if lack of OPEC resolve leads speculators to give up.  Gold $1,612 so someone still believes in the stimulus fairy, silver $28.90, copper $3.36, nat gas $2.19 is pathetic and gasoline is back to $2.6483 after topping out at just $2.67 so a pretty boring run off $2.65 but still playable on the way up (/RB) with oil inventories at 10:30.  I also like playing nat gas over the $2.20 line (/NG).  

      Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,500,000 barrels versus a -111,000 barrel decline the prior week. Distillate inventories are estimated to rise by +1,175,000 barrels versus a +2,253,000 barrel gain the prior week. Gasoline supplies are expected to rise by +1,400,000 barrels versus a +3,346,000 barrel rise the prior week. Finally, Refinery Utilization is estimated unch. versus a +1.9% gain the prior week.

      The eurozone crisis helped oil prices shave off around 20%from their 2012 highs as the supply/demand ratio narrowed, according to the latest IEA report. The slump accelerated in May, with downward pressure also stemming from a slowdown in China and excess supply from some big producers. Crude futures +0.1% to $83.42.

      If you want to be bullish you need to clap your hands for the stimulus fairy!  

      Wednesday's economic calendar:

      7:00 MBA Mortgage Applications

      8:30 Producer Price Index

      8:30 Retail Sales

      10:00 Business Inventories

      10:30 EIA Petroleum Inventories

      1:00 PM Results of $21B, 10-Year Note Auction 

      6:00 AM Overseas: Japan +0.6%. Hong Kong +0.8%. China +1.3%. India +0.1%. London -0.2%. Paris -0.5%. Frankfurt -0.5%.

      Eurozone industrial production -0.8% M/M in April and -2.3% Y/Y, nothing to write home about but still better than the expected -1.2% M/M and -2.7% Y/Y. March figures revised to -0.1% M/M and -1.5% Y/Y. The largest decreases were in Portugal, Italy and, notably, Germany (-2% M/M). (.pdf)

      Japan's core machinery orders rose 5.7% in April, widely beating a +1.5% forecast and a sharp turnaround from March's 2.8% decline

      Pimco's Total Return Fund increased its exposure to U.S. Treasury-related securities to 35% in May from 31%, and raised its leverage on the $261B portfolio.

      The Federal Reserve's Policies Ruined Any Chance We Had Of Cleansing The Economy.

      Biderman On Central Banks: "In The End, They Will Get What They Deserve".

      Debt crisis: Bundesbank scuppers all talk of EU banking union. Germany's central bank has shot down EU proposals for a European banking union, warning categorically that eurozone liabilities cannot be shared without a fundamental shift towards fiscal and political union.

      Fears rise over EU handling of debt crisis. "The crisis is deteriorating at an ever-increasing pace," said Mark Schofield, a senior strategist at Citigroup. "Investors are increasingly pricing in either of the two tail risks — full eurozone break-up or fiscal union."

      Spain's Record Yields Show Italy Bailout RiskSpain’s benchmark borrowing costs climbed to a record yesterday, raising the specter of sovereign bailouts for the government in Madrid and then Italy that would stretch European Union finances to their limit. The yield on Spanish 10-year government debt rose for a third day, touching 6.83 percent, the highest since 1997, after Fitch Ratings predicted that Prime Minister Mariano Rajoy will miss budget-deficit targets he’s made the foundation of his economic policy. Italian 10-year yields rose to the highest in almost six months. The bond rout wiped out the effects of 1.1 trillion euros ($1.4 trillion) in official funding for euro-region banks that has held yields in check since December. Spain’s 10-year yield is close to the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts. Italy, the second-biggest sovereign borrower in the euro area, may need to seek a rescue within months, said James Nixon, chief European economist at Societe Generale SA (GLE) in London. “The crisis will inevitably roll on to the next domino, and that’s Italy,” Nixon said in a telephone interview. “The southern European economies are effectively in free-fall and market appetite for southern European debt is rapidly drying up. I can’t see anything to turn that dynamic around.” European policy makers face a series of hurdles in the coming days as bond investors spurn the 100 billion-euro rescue package for Spanish banks that the European Central Bank said yesterday would bolster financial stability. Italy is due to sell as much as 9.5 billion euros of bills and bonds at auctions today and tomorrow while auditors are due to report on the extent of Spanish banking losses from next week.

      Seeds of Next Crisis Sown as Repressive Loans Bite: Euro Credit. European banks have stuffed their balance sheets with domestic government bonds, compelled by rules on capital and tempted by cheap central bank loans, sowing the seeds for the next stage in the sovereign debt crisis. "We're seeing the increasing balkanization of finance," said Toby Nangle, who helps manage the equivalent of about $49 billion as head of multi asset allocation at Threadneedle Asset Management in London. "It represents the single-currency project in reverse gear."

      Bailout in Spain Leaves Taxpayers Liable for the Cost. Many details of the banking bailout remain to be resolved — including which of Europe’s rescue funds will supply the money. The one thing that is clear is that even though the money will be funneled to the banks, the government in Madrid will ultimately be responsible for guaranteeing that $125 billion, adding to the Spanish government’s already rising debt load. That fact, more than any other, probably explains why there was heavy selling of Spanish government bonds on Monday and Tuesday.

      Threat Spreads Across Europe. Borrowing Costs Rise Across Continent as World Bank Sees Global Impact From Crisis. Borrowing costs for Italy and Spain continued to surge on Tuesday, escalating calls for bigger steps from euro-zone leaders amid a new warning that the crisis is dragging down even the world's resilient emerging economies.

      Did Fitch Just End Europe's Hope For LTRO3?

      Berlin's Ballooning Bailout Bill. A billion here, a billion there, and soon you are talking real money. A true fiscal union may still be a distant prospect. But each round of the European sovereign-debt crisis has seen Germany make financial commitments that have raised the cost it would bear if the euro failed. This week's Spanish bailout will raise its exposure to financially stressed countries by as much as €25 billion ($31.2 billion) or so. Is Germany now in too deep to risk the single currency collapsing?

      Greece's big banks have seen combined daily deposit outflows of €500M-800M in recent days, according to senior Greek bankers, an accelerated outflow rate ahead of this weekend's elections on concerns the nation may move closer to abandoning the euro. Smaller banks have seen outflows of €10M-30M. 

      Here's a little incentive for Greece to default (actually we should all default!):  Iceland's central bank raises its key rate by 25 bps to 5.75%. "The economic recovery is broadly based, and the growth in domestic demand is robust. Signs of recovery in the labour and real estate markets are steadily growing stronger." (statement)

      Hong Kong’s incoming leader, financial secretary and top central banker all pledge their commitment to the city’s currency peg after former monetary chief Joseph Yam called for a review of the link to the dollar.

      This quote is a great summary of why I hate Chinese companies:  Worst of China Slowdown Seen in Wenzhou as Stimulus Limited. Jiang Xiangsong has 18 days to pay a 2 million yuan ($314,000) bank debt or his suitcase company in eastern China will go bankrupt. He's close to tears as he realizes his last hope, a government-backed office, won't help. "This is totally useless: If I had any collateral, why the hell would I come here?" he yells at an official in Wenzhou's state-run loan service, set up to help small businesses after rising bankruptcies and suicides prompted Premier Wen Jiabao to visit in October and pledge support. Wenzhou's more than 400,000 businesses make everything from shoes in dusty side streets to synthetic leather in dilapidated factories, much of it financed by unregulated lenders that spread during China's record 2009-10 credit boom. The decline of so-called shadow banking in the city, triggered by Wen's move to rein in a national property bubble, has left Wenzhou bearing the brunt of the country's economic slowdown.

      More evidence of a serious slowdown in China:  Traffic jams in Beijing have eased to an average 55 minutes during weekdays in the first quarter, from 75 minutes a year earlier.

      Very interesting:  Ahead Of Tomorrow's Dimon Hearing, Presenting JP Morgan's(JPM) 93.5% Historical Winning Trade Perfection.

      Very scary:  Bank Of America's(BAC) $67 Trillion In Derivative Positions Explained.

      The shale boom in the U.S. will create 455K jobs from 2010-2015, an industry backed study predicts, although half of those new jobs will be in just four states: Pennsylvania, Colorado, Louisiana and Texas, which will benefit the most due to its expertise and supply chain. One possible flaw is that the study assumes gas prices will more than double.

      These guys have just way too much money:  Philip Morris (PM) announces a new three-year share repurchase program of $18B, to be initiated August 1, 2012. The company also declares a quarterly dividend of $0.77/share. (PR)

      The Justice Department has reportedly launched a broad antitrust investigation into whether cable companies are acting improperly to suppress competition from online video. DoJ officials have spoken to several online video providers, including Netflix (NFLX), and are said to have questioned Comcast (CMCSA), Time Warner Cable (TWC) and others about issues like data caps.

      Sounds like a buy to me!  CBS (CBS) has reportedly attracted around $2.7B in upfront ad sales for the TV season that starts in September, similar to last year. The network leader enjoyed an ad rate increase of 8%-10% but sold less inventory. All the major networks are now believed to have mostly completed their upfront dealings, gaining CPM increases of 5.5%-9%.

      This Chart Shows The Bilderberg Group's Connection To Everything In The World.

    • zeroxzero

      Oil was falling on a falling dollar.  Now it's falling faster on a [temporary?] dollar reverse.  SCO is sweet.

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