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Which Way Wednesday – Cliffmas Is Upon Us

Merry Cliffmas!

That's all the MSM is talking about but the markets are, so far, drifting along in the upper end of the year's range into this potential "fiscal disaster."  Perhaps the catastrophe is already priced in or perhaps it simply won't be a big deal to go back to pre-2000 tax rates and to force some spending cuts.  

If it's the former, a "solution" should rally the markets but, if the latter – fixing the Fiscal Cliff may actually weaken our markets as it puts the US on the continued path to endless debt through printing money.  

Of course Japan has continued down the path of endless debt through printing money and their markets have been on fire this week.  With the re-election of Helicopter Abe, who has vowed to weaken the yen by printing them by the Trillions, the Nikkei has jumped 2.5% this week – all the way back to 10,330 while the Yen falls to 85.36 to the Dollar – a 3-year low. 

Our own easy-money policy coupled with the refusal of the Banks to pass it along to the consumer have created record-high spreads between what the MBS the Banks pay the 30-year fixed rate mortgage rate they charge consumers.  Banks are now making spreads of 1.25-1.5% vs. less than 0.5% they managed to get by on in the early years of the 21st Century.

Despite making these usurious rates, they still offer the consumers less than nothing for deposits (as in, not enough to cover even "core" inflation) and they still can't attract investors, with the banking sector still down near half of where they were in 2007, when XLF was in the high $30s.  

House Republicans © Jimmy Margulies,The Record of Hackensack, NJ,House Republicans,Fiscal cliff,Speaker Boehner,Budget deficit,new year 2013Another cliff we hit on 12/31 is the end of FDIC's special Transaction Account Guarantee, which provided insurance for accounts over $250,000 and will affect $1.5Tn worth of accounts on deposit at US banks.  Banks, especially small ones, are scrambling to avoid losing this money and it will make for an interesting earnings season in Q1 as the banks step into the confessional and indicate how much faith their depositors really have in them. 

On the other side of the coin, the Obama Administration is looking to double the size of the popular Mortgage Refinancing Program, which helps modify underwater mortgages, by making it possible for non Government-backed mortgage-lenders to work with the program.  As it stands now, about 10% of the 12.1M homes that were underwater (10% of US homes) have been refinanced through the program.  This would provide yet another well-timed boost to housing for 2013 as that sector continues to look investable.  

With 10M Americans unemployed and under-employed in the Housing Sector alone, this is a great area of the economy for the Obama Administration to be focusing on.  As you can see from the chart on the left – hosing starts are still nearly half of their historic average after 3 years below the line.  Even if you assume we over-built in the earlier part of this decade – we've certainly worked off that excess inventory by now

From 2001 through 2005 (the last full year that home prices consistently increased), an average of approximately 1.3M households formed in the US, just a little under the 50-year average. In contrast, during the subsequent period of 2006 through 2011, an average of approximately 600K households formed, yet the population grew at largely the same rate.

Weak household formation is most likely related to high unemployment, as people have delayed moving out of their parents’ homes, getting married, or even getting divorced until their employment situations are secure.  Even with an unemployment rate that remains stubbornly high, there are recent signs that household formation has begun to normalize. The Census Bureau estimates that in each month of 2012 (through September) there were about 1 million more households on average than in the same month of the previous year. This is a significant change from 2011 when the average year-over-year change was about 635 thousand, and from the previous four years when the average was approximately 550 thousand.

Arming Teachers © Jeff Parker,Florida Today and the Fort Myers News-Press,State,lawmaker,legislature,legislators,arming,teachers,Northtown,mass,shooting,school,killings,protection,defend,guns,NRA,lobby,firearms,connecticut shooting, gun debate 2012, school violenceHousehold formation in 2012 is therefore approaching more normal levels, close to the historical average of about 1.3 million. Over the long-term, household formation is what drives demand for housing and for home construction. The current positive trends in household formation therefore suggest that demand for housing is starting to finally look healthy again.  This will be one of the investing trends we are going to follow in 2013.  In 2012 – we focused on HOV and they have generated huge returns for our Members as that stock climbed from $1.50 to over $6 (up 300%) in 2012.  In 2013, we will broaden our screens to include more potential winners in that sector now that we are more comfortable with the underlying Fundamentals.  

This is how you invest – you find macro fundamentals that are painting a long-term trend and then you identify medium and short-term opportunities that have that long-term Fundamental support.  If you learn to invest like that, you won't need to sweat over every rumor that runs past your screen on a daily basis.  These long-term trends are hard to establish and just as hard to break – taking the time to identify them is one of the best investments you can make!  

Looking forward to a very profitable 2013 with all of you.  


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  1. crussell14

    The HAMP program has been an utter failure

  2. ldm18

    PHIL – What is your current take on NLY?  I've been watching it for some time and wondering if now is the time for a buy/write.  Any suggestions?
    Thank you for another great year!

  3. phil

    Good morning! 

    I'm finally going in for scans and stuff tomorrow (still the kidney stones) and I won't be here at least until afternoon and maybe not then either depending on how long they keep me.  I do expect to have a morning post up but I won't be here for chat so behave yourselves please.  8)  

    Oil popping up to $90 and Futures up only slightly so no major excitement yet.  Not sure why oil is popping and inventories tomorrow so not playable at the moment – especially as we're now way early in the monthly cycle.  

    HAMP/Crussell – I'm not sure that it's HAMP per se that they're talking about but all those programs have done a lot in 2012 after getting a bad start in the previous year and it's one of the things that are helping to kick-start the housing sector, which is America's most important sector.  

    NLY/LDM – Although we do like them, they have simply not been in a good spot for a buy/write as they call premium sucks and they haven't been on a strike, where we could maximize our premium (they skip from $13 to $15 in both 2014 and 2015).  If you want to make an entry at this point, I'd suggest selling 2015 $13 puts for $2.50 as that's a net $10.50 entry, which is a 27% discount to the current price and is not much less than the $1.80 dividend you'd collect per year for owning the actual stock.  Since you don't have to pay to protect the short puts – overall, it's cheaper for you than the buy/write and TOS says it's net $1.75 in margin to collect $2.50 so very margin-efficient for an initial entry. 

    Wow, oil zooming to $90.50 now – glad we took money and ran on USO puts! 

  4. BruceE

    I love the housing premise, Phil.  HOV was very good to me this year and I look forward to more housing pick for the new year.  I know you've said $10 is your long-term target for HOV but do you see a pullback coming or straight up to $10?  

  5. yodi

    Hi Phil good luck hope they are gold stones so at least ba ba ba

  6. terrapin22

    Morning!   Phil what do you know about the new Google X phone using Motorola technology?  serious threat to Apple? also heard on radio today about possible Facebook phone out there.  I think this is 2nd time for this rumor.   I was pleased to hear a co-worker complain about his new Samsung Galaxy III S (too many bugs in the software he claims) the other day and he is switching back to Apple.  I am a Samsung Note user but loved hearing this since I am long AAPL.   Has anyone else heard stories of folks switching back to Apple after trying Samsung or another type of Android device?

  7. jabobeast

    great piece Phil!
    Hope you feel better soon.
     
    FU kidney stones!!!!

  8. jasu1

    Phil,
    Oil spiked almost $2.5…..They (the big boys) get intimation about a solution to the fiscal cliff??

  9. jabobeast

    do you have a link for that funny gun cartoon?

  10. crussell14

    Phil – it's good to see they are addressing HAMP but really it's four years late. Much of the damage has been done to people that could have been avoided. I know a lot of conscientious, honest people that were  hurt which could have been easily avoided had the program been addressed and fixed several years ago.

  11. crussell14

    Phil, take care and we hope you are feeling better. Dang kidney stones are no fun..

  12. Pharmboy

  13. mjjwo9b

    Phil, good luck with the testing tomorrow.  

  14. phil

    $91 Oil – This is exciting! 

    Housing/Bruce – No one can tell what will happen short-term due to the Cliff nonsense.  If we do take a dive – then HOV and other housing stocks should give us great entry points (not to mention the better VIX that should go along with it).  Until then, cashy and cautious is the way to play it into the New Year.  

    Gold/Yodi – If so, I'd eat a lot more calcium in the future.  

    GOOG/Terra – I haven't heard much about their phone but keep in mind that NOK, MOT, SNE and RIMM have been unable to make competitive phones and, as noted by you, even Samsung is getting some blowback as there's more to a phone than how cheap it is or what specs it has and AAPL seems to get that.  That's why IOS devices accounted for 18.5% of on-line sales vs. 5.5% for Android – even though android technically outsells them 4:1.  What does it matter if people buy a phone if they never use it?  Still, usage is a long-term thing and sales is what matters short-term and the threat of a phone from a major player is enough to spook investors – the same way Zune spooked people out of AAPL before, right up until it went on sale and people realized AAPL actually had nothing to worry about.  

    Thanks Jabob! 

    Oil/Jasu – Could be Assad, could be Iran, not seeing anything in particular and $91 sure is a tempting short line – especially as gold certainly isn't keeping up at $1,667.  

    Gun cartoon/Jabob – You can just right-click on the picture but it's: http://media.caglecartoons.com/media/cartoons/17/2012/12/19/124293_600.jpg

    HAMP/Crussell – Sure it was defective but still better than nothing.  Back in early 2009 I wrote "How to Solve the Mortgage Crisis Tomorrow" and I was invited to Treasury and met with Geithner and handed him a power-point on essentially that plan so of course I think what the Government has done has been totally half-assed and essentially a failure but it's all they could get approved against the much larger ambitions they had.  Would have been so easy to fix if the will was there in Washington. 

    Thanks Crussell, MJJ.  

  15. rperi

    Belated Merry Christmas to everyone!  Been travelling for the past few days for the holiday.  Thank you all for a great 2012, especially Phil, and looking forward to a profitable (money and learning) 2013!
    Best wishes to you Phil tomorrow and feel better soon.

  16. deano

    SPWR finally catching a bid this am – finally time to sell a couple calls

  17. phil

    At the open: Dow +0.14% to 13158. S&P +0.1% to 1428. Nasdaq -0.01% to 3012.

    Treasurys: 30-year +0.12%. 10-yr +0.08%. 5-yr +0.03%.

    Commodities: Crude +2.74% to $91.04. Gold +0.51% to $1667.95.

    Currencies: Euro +0.18% vs. dollar. Yen +0.5%. Pound -0.07%.

    10:00 AM On the hour: Dow +0.19%. 10-yr +0.08%. Euro +0.44%vs. dollar. Crude +2.62% to $90.93. Gold +0.41% to $1666.35.

    Since 1928, the S&P 500 has traded higher 79% of the time in the period spanning the last 5 days of the year and the first 2 sessions of the new year, according to Ari Wald. The average gain works out to 1.8%. Whether we see gains this year may come down to whatever happens in D.C. this week. 

    Early results suggest a weak holiday season for retailers, with MasterCard's SpendingPulse reporting sales just 0.7% higher than a year ago. "It's a lost season," says the group's Michael McNamera. Not too surprising, major discounting was common in the days leading up to the holiday, and even greater bargains are expected after.

    Redbook Chain Store Sales: +2.4% Y/Y vs. +2.4% last week

    Why Malls Are Getting Mauled (Jeff Jordan)

    Commerce Claus: The behavioral economics of Christmas (TNR)

    Oct. S&P Case-Shiller Home Price Index: +0.7% M/M vs. +0.5% expected, +0.4% prior (revised). +4.3% Y/Y vs. +4.1% expected, +3.0% prior (revised).

    More on Case-Shiller: Leading the gains is Phoenix, with prices 21.7% higher than a year ago. Lagging are Chicago and NYC, each with Y/Y losses of a bit more than 1%. Excepting Detroit and Atlanta, all of the 20 measured cities now have prices higher than those in the year 2000. (full report)

    More on Shiller Home Price Index: Loose monetary policy and low mortgage rates lifted home prices. Housing sector is gradually regaining health and home owners are regaining the housing wealth lost over the past recession. 

    December Richmond Fed Mfg. Survey: +5, vs. +12 expected, +9 previous.

    More on Richmond Fed: Expectations are lower across the board, particularly New Orders, which sunk to +12 from +25. Shipments 20 vs. 28. Backlogs 0 vs. 19. Capacity Utilization 4 vs. 12.

    The NJ Carpenters Pension Fund sues to block the sale of NYSE Euronext to IntercontinentalExchange, alleging a "hopelessly flawed process" preferential to ICE and designed to benefit NYXinsiders. For those counting, this is suit #2.

    The SEC pushes back an approval deadline for BlackRock's copper ETF just days after approving JPMorgan's offering. As with the JPM fund, lawmakers and those in the industry worry a physical ETF could draw inventory from the world supply, raising both the price and price volatility.

    Murphy Oil (MUR) reaches a deal to build gas stations at over 200 Wal-Mart (WMT) supercenters in the Midwest and South.  It expects the buildout to be finished within 3 years. In August, the companies teamed up for a gas discount promotion involving existing Murphy stations at Wal-Mart stores.

    Following a strong 2012, UAW officials have told members working for Ford (F) to expect profit-sharing checks that could be above $8K, the WSJ reports. For GM workers, the checks could reach $7K. When Detroit was on the brink of going under, the UAW negotiated higher profit-sharing payments in exchange for wage and benefit concessions.

    Starwood Hotels (HOT) expects to have opened 71 new hotels, representing approx. 18,500 rooms in 20 countries by the end of 2012. The company expects to have signed in excess of 125 new hotel management and franchisee agreements, an increase of 13% Y/Y in deal signing. (PR)

    Told you so!  The stars align for a nice bounce in Herbalife (HLF) as at least one satiated fund manager covers his short and Whitney Tilson – announcing his own short in the company - proclaims Bill Ackman's 342 page treatise on Herbalife "the most remarkable piece of investment analysis I have ever seen." Shares +2% premarket.

    A bear fund manager covers his big short in Herbalife. Too far too fast, says Ranger Equity Bear ETF (HDGE) portfolio manager Brad Lamensdorf, who notes the issues raised by Bill Ackman are nothing new. Lamensdorf returns his focus to what he calls a "target rich" short environment.

    Amazon (AMZN -1%) and eBay (EBAY -0.7%) slip a little after MasterCard's SpendingPulse tracker reports total holiday season retail sales rose just 0.7% Y/Y, and online sales a mere 8.4%. Also, ITG Research says its checks indicate Amazon's Q4 is tracking somewhat below a prior forecast. comScore issued rosier figures for online sales on Monday.

    Google Ventures in 2012: $300M, 150 companies, and one Nobel Prize (Venture Beat)

    Harvard Injury Control Research Center says results are clear: more guns = more homicide.

    Silencing the Science on Gun Research (Journal of American Medical Association)

    12 Facts About Guns in the U.S. (Washington Post)

    Scientists Report Faster Warming in Antarctica (NYT)

    Stores.org Top 100 Retailers

  18. ronnewton

    Phil,
    Good luck on the k. stones.  It will be much better when you get through this.  Been there – done that.
    Happy Holidays to the PSW community.
    Thanks Phil and everyone for the insights, recommendations and  resources that have resulted in 2012 being a good year and alot less $ frustrating than it would have been otherwise. 
    For many reasons I am a political and social conservative, although I grew up "poor". Again, Phil I owe you a big thank you, for your rational and humanistic approach to the issues in the US;  you have helped broaden my sensitivities over this last 1 1/2 + yrs, to the disadvantaged.

  19. stjeanluc

    Sorry for the late start – I was helping my dad bring in some wood for their furnace. Amazing how much of that they burn every year. It's a lot of work for a 76 year old guy… keeps him in shape though!

  20. stjeanluc

  21. stjeanluc

  22. phil

    Thanks Rperi! 

    SPWRA/Deano – They are attractive down here as a long-term investment but expect a bumpy ride.  Easy way to play them is the 2015 $5/7 bull call spread for .50, selling the $3 puts for .60 for a .10 credit and a net $2.90 entry as the worst case and a nice 2,100% profit on cash in the best.  

    Thanks Ron, very much so on encouraging words.  

    AAPL $513.76 – would suck if they lay here.  I think they are the ones sucking up all the retail money – not victims of it.  

    Oil holding just under $91.   Dollar 79.68.  Gold $1,663. 

    Indexes turning red – gotta watch those 50 dmas but volume ridiculous at 17M at 10:53 so hard to take it seriously when the 10 people trading decide to sell a few shares and drop the market.

  23. stjeanluc

  24. stjeanluc

    Good luck with the kidney stones tomorrow Phil… Hope it all goes well!

  25. stjeanluc

    Talking to people in France you get the impression that everybody is pretty much pessimistic about the future. A lot of people realize that the financial situation is dire on the entire continent and that public money is running low. One of my friends is an executive in a big logistics company in France and he told me that business in Europe is really bad now – no growth whatsoever and in many cases revenues are down. Thankfully they do business in Asia and N. America. Businesses are still laying off employees. And the social nets are being stretched thin – that same friend was telling me that the retirement funds are going to have to increase the contributions and lower the payouts to make it. And taxes are already high.

    Also, I just read an article in Germany where they mention that politicians are promising tax cuts now before the elections but privately they are already making plans to raise the VAT for foodstuff from 7% to 19% and also raise the retirement age to 67 and maybe higher. Cuts in the healthcare are also being considered.

    And in countries like France and Germany, they already collect over 45% of their GDP in taxes every year (all taxes considered) when in the US we only collect about 32-33%. But demographics especially in Germany will start catching up to them. Tough times ahead.

  26. rexx

    Merry Christmas and Happy New Year.  Phil, good luck with the kidney stones -  from my dad I know how hard it is.

  27. hemas03

    Good luck at the doctor Phil, hope it will be painless if possible.

  28. bai2r

    Phil – a play you have mentioned on the board (e.g.  AAPL, NOV) involve a BCS and short put, but you also mention selling short term calls against the spread.  Does this mean that the position now has uncovered short calls?  And isn't that a no-no (for newbies)?  thx

    hope everything goes well with tomorrow's medical appt!

  29. Pharmboy

    Phil – Kidney stones suck.  Hope it goes well. 

     

    I am not alone in my convictions that biotech and med device/cancer detection will be the hot areas next year.  Baby boomers will continue to fight for their lives…extending it to the brink of bankruptcy.  There are so many interesting things going on right now in the industry, but it is going to be very hard to invest, as many companies are private, but those that are public…..we will try to weed the garden and find the flowers that are out there.

    I am still looking at the conviction long list that was sent out a few days ago.  So far, not compelling enough for me, but ARRY and ARIA are attractive…..ARIA at these levels by selling puts OTM.  I am just afraid to enter any position until after the 'cliff' thingy is resolve.

  30. jacalynm

    Phil, Happy Holidays and hope you feel better soon.  I hear you need to stay away from caffeine/soda.  UGH I'd be screwed.  Any who I am a bit confused about Gift Cards.  I heard this am that they are counted by the store only when they are redeemed however statiscally, there is a large percentage of cards that expire without ever being used.  How can they be considered profitable for the companies if they are only counted when used?  And for the fact of the matter, someone spent the monery at point of sale, so where is that purchased considered in the retail numbers?  Is my explanation more confusing then the question?  Thanks for your clarity…

  31. dclark41

    Phil
    Good luck tomorrow with test.  Sucks being sick or not quite yourself during the holidays. Hopefully you will get some relief soon. 

  32. terrapin22

    Freeport-McMoRan Copper & Gold Inc. (FCX) declares $0.3125/share quarterly dividend, in line with previous. Forward yield 3.73%. For shareholders of record Jan. 15. Payable Feb. 01. Ex-div date Jan. 11. 

  33. qcmike

    Phil
     Your need to start down the road to feeling better and tomorrow is the first step.
     Good luck tomorrow .

  34. i zega

    Hey guys! Catching up after a couple of days off… Hope you all had a peaceful Christmas!!
    Phil, good luck with your stones, hope you recover soon!

  35. phil

    Thanks StJ – hope you are enjoying your trip (I know I would be!).  Fiscal situation sounds dire – when will they realize they need to inflate out of this mess, not deflate?  

    Thanks Rexx, Hemas.  

    No-no/Bai – It depends on how comfortable you can be with naked shorts.  Our FAS Money trade is an exercise in selling naked shorts on a weekly (usually) basis.  When you have a long spread to protect the downside in the naked short sale, there are a lot of nice ways to use naked call selling to generate additional income but, if the trading isn't second-nature to you – then it's one more thing to worry about on the way to your head exploding. 

    Thanks Pharm.  I think those sectors should attract a lot of hot money once it starts flowing but it remains to be seen which way we flow into the new year (or the afternoon for that matter).  

    Thanks Jacalyn!  Mostly it's calcium that's bad for me but then if I don't have enough calcium, my bones will crumble over time so, on the whole, I'd rather have the occasional kidney stone and keep the bones.  As to gift cards, they are a massive rip-off.  Bottom line is the companies collect the cash and then keep it when the cards expire worthless but it's all accounting tricks to avoid taxes as far as recognition of revenues go.  They book the cards as a future liability and then write it off down the road.  I think the number of unredeemed cards is closer to 10-20%, not "most".  Still, it's 100% profit when the consumers give you cash and ask for nothing in return – suckers!

    Thanks DC – had stones my whole life but never such a hassle before.  Will be really glad to be rid of them. 

    FCX/Terra – No surprise there but stock bumping up nicely to $34. 

    Thanks QC, IZega.  I feel fine actually, just gotta follow through and get cleaned out.  

    Markets still bouncy so far but another day drifting down is nothing to celebrate.  

    34M on the Dow at 1pm.

  36. Jordan

    terrapin22/AAPL – I have not, but don't underestimate the penalty for switching providers.   I know of a couple of people that recently got a phone, and they went AAPL, they previously had a month-to-month, no contract deal with an android device presumably.

  37. terrapin22

    Phil / FTE – still looking this one over after your prior recommendation.  you still like it?

  38. phil

    AMZN is the culprit today, with a drop all the way down to $248 (down 4%).  AAPL still just under $514 and that's down 1.25% but still sucks.  Nas taking it on the chin, down 0.77% and leading the indexes down and 11 points below 3,000 also sucks.  

    Doesn't mean much with this thin trading but not good if technicals don't hold, no matter what. 

    BIDU over $100 doesn't mean anything either but interesting to see.

    RIMM up 10% – also interesting.  

    11:00 AM On the hour: Dow -0.04%. 10-yr +0.12%. Euro +0.27%vs. dollar. Crude +2.56% to $90.88. Gold +0.15% to $1662.05.

    12:00 PM On the hour: Dow -0.29%. 10-yr +0.14%. Euro +0.25%vs. dollar. Crude +2.74% to $91.04. Gold +0.16% to $1662.15.

    1:00 PM On the hour: Dow -0.26%. 10-yr +0.14%. Euro +0.23% vs. dollar. Crude +2.19% to $90.55. Gold +0.13% to $1661.65.

    Dec. State Street Investor Confidence Index: 80.9 vs. 80.5 (revised) in Nov. 

    More on State Street Investor Confidence: North American institutional investors confidence increased 5.4 pt. to 77.8 from its record low of 72.4 in November. Asian ICI increased 3.8 pt. to 89.1. In contrast, European ICI fell 4.8 pt. to 95.2. 

    High-Frequency Trading Prospers at Expense of Everyone (Bloomberg)

    Many retail stocks are diving after MasterCard andShopperTrak release data indicating holiday season sales were light.SHLD -3.6%GPS -3%NKE -2.9%M -2.6%GME -3.2%AEO-3.6%LTD -2.7%ARO -3.4%.

    IDC sees global chip sales rising 4.9% in 2013 to $319B, a forecast that's nearly even with Gartner's 4.5%. However, the computing segment is expected to grow a mere 1.7%, as the PC industry's woes continue pressuring sales. The consumer segment is expected to grow a healthier 9.8%, as the tablet boom offsets slumping demand for consoles, DVD players, and other hardware. The communications segment is seen growing 6.5%, buoyed by surging 4G chip sales. (previous)

    Though its P/E is now well into the single digits after backing out cash, Apple (AAPL -1.3%) is having another tough day. Digitimes reported this morning Taiwanese supply chain sources expect Dec. quarter iPad Mini shipments to total just 8M due to continued touch panel shortages (previous); it sees shipments rising to 13M next quarter as panel yields improve. NPD recently reported Apple had raised its Mini display orders to 12M+

    Google Designing ‘X Phone’ to Rival Apple, Samsung (WSJ)

    For Republicans, it’s not about deficit reduction (Wonkblog) see also Weird Turn On Fiscal Cliff: GOP Plan Would Hike Taxes On Working Class So High-Income People Can Pay Less (Forbes)

  39. phil

    FTE/Terra – I like them as long as that dividend keeps going ($1.50 per year). Economy, as noted by StJ – totally sucks in France and may get worse so I'd look at this as a long-term buy/accumulate stocks – not something you're likely to make a killing on in the next year or two.  At $11, a conservative entry would be to buy the stock and sell the Aug $10 puts and calls for $2.20 for a net entry of $8.80/9.40, which is a very nice 14.5% discount if put to you, not counting the .75 dividend you'd collect as well.  Of course, the problem with any good dividend payer is the most likely reason the stock would drop is BECAUSE they pull the dividend so these are always dangerous to put too much weight in.  

  40. stjeanluc

    Trip / Phil – It's good to be with the entire family but I am not used to be with young kids anymore! Tomorrow we are going to visit my father's family in the mountains near Switzerland. One of my great uncles is over 90 and he has great stories about being a farmer in the old days. A different perspective for sure! 

  41. stjeanluc

    Here is the way of the future – 0% interest rates forever…

    http://economistsview.typepad.com/economistsview/2012/12/fed-watch-missing-the-big-japan-story.html

    But something much more significant is afoot – the possibility of explicit cooperation, albeit perhaps forced cooperation, between fiscal and monetary authorities. The loss of the Bank of Japan's independence to force the direct monetization of deficit spending is the real story.[...]

    Japan might very well be heading toward the end-game of permanent zero interest rate policy: Explicit monetizing of deficit spending. That is the real story here – it goes far beyond just inflation targeting.

  42. phil

    Perspective/StJ – That's what I love about visiting relatives.  A lot of them have such different lives than we do, it's great to share.  

    0%/StJ – Would be great if they extended it to people.  We could all pay off our debts by refinancing the old debts at 0%.  If we fail to pay that back – just borrow some more! 

    Today's Case-Shiller figures are providing a lift to mortgage insurers MGIC (MTG +7.5%) and Radian (RDN +3.8%). "Higher values of homes improve the ratio of borrowers that go into default because there’s less people with negative equity," observes analyst Jason Stewart. Radian rallied on Monday after Freddie Mac extendeda coverage writing deal for a Radian subsidiary through the end of 2013.

    Wheeee!  Herbalife (HLF +8.5%) says it's hired a strategic adviser and will hold an analyst and investor meeting next month in an effort to counter criticism by Pershing Square's Bill Ackman. The company also is considering legal action, though it wasn't immediately clear what direction that might take. Last week, Ackman disclosed he has been betting against HLF for months and built up a massive short position, which in turn appears to have turned the Street against the nutritional supplement marketer.

    Though many expected e-book prices to plummet after the DOJ coaxed top publishers to allow Amazon (AMZN), Barnes & Noble (BKS), and others to set their own prices, the NYT observes the impact of the DOJ settlement on publishers has thus far been muted.E-book prices haven't fallen "as broadly or drastically as anticipated," and the market's overall growth has slowed down. "At any given time about a third of e-book users haven’t bought a single title in the last 12 months," says industry analyst Michael Norris.

  43. rj_jarboe

    Phil/NYCB
    I was in this stock last year (thank you very much) and closed the position on the run-up. I watched the retest of $12.50 and I am interested again at this level. I want to watch the fiscal cliff for now, but would like your thoughts on this stock upon resolution. I am currently looking at a Jan14 B/W with the $13's.
    Good luck tomorrow!

  44. phil

    Dow volume 46M at 3pm. 

    NYCB/RJ – Congrats on that one!  Rough ride but they did well.  It's a good little bank and the 50 dma is at $12.83 and they do seem to be holding it.  As with most banks, they are undervalued in this environment and the regional banks more so than the large ones for the most part.  Nice note in Motley Fool lately on NYCB being the most efficient Regional Bank (at generating revenue) by a wide margin.  I love numbers like that because, if the bank goes down in PRICE, it only makes me want more.  NYCB dopesn't have 2015s yet so I'd wait for a nice entry but a nice 7% dividend ($1) means you won't get great option pricing at the best of times so not terrible to hit a buy/write at $13, selling Jan $13 puts and calls for $2.40 for a net $10.60/11.80 entry which, including the $1 dividend, has a worst-case 2x entry at net $11.30, which is 13% off – not thrilling but not bad for a small initial entry.  

    Be careful what you rent! (too late probably)  With the House and Senate having both passed a bill that will allow a user's rental history to be shared online (all that's left is for Pres. Obama to sign), Netflix (NFLX) says it will introduce "social features" to U.S. users in 2013. Canadian and Latin American subscribers already have the ability to share their Netflix viewing activity over Facebook. (previous)

    J.C. Penney (JCP +4.1%) is continuing its December rally on a day when many other retailers are slumping thanks to negative sales data. With 42.6% of the float shorted as of Nov. 30, there's a good chance some shorts are opting to take profits before year's end. Oppenheimer issued bullish comments on JCP on Monday.

    Marvell (MRVL -6.6%) dives after being ordered by a jury topay $1.17B in damages in a patent suit, the WSJ reports. The chipmaker has been sued by Carnegie Mellon over a patent allegedly infringed by its hard drive controllers. Marvell (current market cap of $4.15B), which has been claiming prior art, will undoubtedly appeal, and probably see that damages figure reduced by a judge. 

  45. phil

    ABX and other golds (GDX) finding a floor.  

    AAPL finding a bit of a floor around $512. 

    RIMM up 12%.

    Snowing hard in NJ. 

    Nas clawing back to 3,000.

    NYSE and RUT both right on the lines at 8,410 and 841 – lined up very nicely.

  46. rpme

    Buying some more MRVL now.

  47. jr_mints

    Phil, do you have a nice spread for GDX?

  48. newt

    Wow Phil I hope I goes well for you w/ the stones.  
    Anyone/ Risk: What is the best way to calc risk in an option based portfolio?

  49. phil

    MRVL/Rpme – A bit early perhaps.   Don't forget, in addition to the current very large fine (25% of their cap or 2 year's profits), this will also impact their future profits (if they still use the stuff).  They thought they would win this case – as it is, they were really smacked down to the point where an appeal seems certain to reduce the fine but, initially, I wouldn't count on it.  

    GDX/Jr – I'd sell the 2015 $35 puts for $3.90 and consider myself a happy owner at that price ($10 off) for the long-term and then you can afford to be a bit greedy by taking the $35/45 bull call spread for $5.50 and keep a $3 stop on it so you net in for $34 at the worst and you have an $8.40 upside on the net $1.60 spread, which is 525% on cash and TOS says net put margin is $3.50 so 164% ROI on cash+margin at $45 makes this a very nice 2-year play AND, as a bonus, with 20% upside to the current price – you can even sell a few calls as GDX gets back to $50.  This one is good enough to risk owning 2,000 shares in the Income Portfolio – (20 contracts at net $68,000 if put to us and $16,800 profit if not).  

    Risk/Newt – Good primer here

    Speaking of risk, selling off into the close with 15 mins left – Dow volume 53M. 

  50. biodieselchris

    Phil – interesting how close your call on HLF really was — you said 25 looked like a good floor, and it was below that for all of 30 minutes.

  51. jr_mints

    Phil,  Thanks, I like it!

  52. phil

    HLF/BDC – I don't think my valuations are that far off the mainstream.  At a certain point, we can usually count on value investors to step in and at least take a poke at something. 

    You're welcome Jr.  

    Very boring 80M on the Dow at the end.  Down a tiny bit overall but failing key technicals with Nas 2,990, NYSE 8,395 and RUT 839.  Another day like this and we're back for some TZAs, I think…

    TZA April $13/17 bull call spread just $1.10 and $1.12 in the money and there's no need to offset them unless the RUT goes up and, if it does, the April $12 puts are already .72 and the $11 puts are .35 so call a $2 move (15%) in TZA a 5% move in the RUT so simply plan is, if the RUT goes up 5%, you can sell the $11 puts for better than $1 and, if the RUT goes down 5%, your spread is over 200% in the money already – good deal?  

  53. rpme

    Well Phil, your the guy who taught me to buy when others are panicking, could be early but usually I am late and sell early. I like them here, 2b in cash, 8.74 book value, 600m in cash flow, and no long term debt. I am only at 30% of my allocation and did some buy writes for the original, short term so no where close to covering….

  54. newt

    Risk / Phil:  thanks. How do you determine the increase or decrease in a portfolios beta if options are in the allocation?

  55. 1020

    Hey Phil, Hope things go well tomorrow!

  56. jromeha

    Ill echo 1020s comment phil! Take care!

  57. stjeanluc

    Some damage done on the lines… But very low volumes!

  58. phil

    Good morning!

    Buying/Rperi – Good rule of thumb to buy when other are panicking but you do have to step back and let them panic a bit first.  Your attitude is fine for entering a long-term investment though and you don't have to thread the needle when your outlook is that long-term.  You cite their cash but keep in mind they just got fined almost all of that cash so make sure you still like them after they are forced to write a check (and settle their legal fees).  

    Risk/Newt – There are fancier ways to do it but I'm a big fan of simply learning by observation.  In other words, on a 100-point down day – how much do I lose and, on a 100-point up day – how much do I gain.  By fiddling with the mix you can get your beta to where you want it over time and smooth over your portfolio's performance but it does require constant adjusting when you are regularly selling short-term puts and calls and adjusting mid-term covers.  

    Thanks 1020, Jrom.

    Big Chart – We're right on those 50 dmas so watch closely today.  Even with low volume, we should be able to hold major technicals and the Dow (13,083) and the Nas (2,991) are right on their 50 dmas and those are lines everyone follows – when they break our 5% line – it gives us a signal but keep in mind those are private signals that we know about but aren't generally available to the public (or other traders) so those don't have the same kind of immediate market support 50 and 200 dmas have (or should have) although you will notice that, on the Nas, NYSE and RUT, the 200 dmas themselves are moving to match up to our Must Hold levels so, in the end, our 5% lines may be more powerful than the moving averages over time. 

    Obama and Congress are back today.  I don't expect an announcement this afternoon but, possibly, this evening or tomorrow if they are serious about not looking like they let the economy die.  We also hit the mystical debt ceiling on Monday so much silliness over the next couple of days but, if there is a rumor of a solution – the markets could jump very sharply so be careful.

  59. phil

    The U.S. will hit its $16.4T statutory debt ceiling on Dec. 31, Tim Geither warns in a letter to Harry Reid. Geithner says the Treasury will create $200B in "headroom" by means of "extraordinary measures," which he says would last the government two months in "normal circumstances." 

    “All eyes are on the Senate in the next 48 hours,” says Guggenheim’s senior policy analyst Chris Krueger. President Obama and Senate Majority Leader Harry Reid are putting together a scaled-down deal to blunt the fiscal drag scheduled after December 31, and it's going to take 60 votes – including at least seven Republicans – to clear a filibuster. Republican House Speaker Boehner says the House will consider whatever legislation the Senate passes.

     "God only knows" how a deal can be reached now, say Republican House Speaker Boehner of the 'fiscal cliff' talks. As the deadline fast approaches, talk turns to what will happen now if a deal isn't struck. Many feel that so long as both sides appear to be working toward agreement, the tax hikes and spending cuts could be held at bay for a few weeks, then repealed retroactively once an agreement was reached. President Obama, on the other hand, insists a bargain can still be struck. "Call me a hopeless optimist," he says.

     ""Ultimately, you must balance the budget … To do that, you have so much more work to do than this tiny little issue about 2% of the population," says Jeff Gundlach, who remains pessimistic about fiscal cliff progress being made. He also continues to predict the yen will collapse thanks to Japan's giant public debt, lifting Japanese exports and stock prices in the process, and considers inexpensive Chinese stocks a good hedge against global turmoil. (previous)

     

  60. williex

    Phil 
    AAPL Trade down here?  or is sell off thru the end of the year?

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