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June 7th, 2010 at 11:34 am
CGA/Yodi – So you were in at net $7.82/13.91 (an extremely aggressive entry) and now they are at $10.06. What else can you do but take the assignment and sell the Dec $10 puts and calls at $3.90 to drop your net on 2x to $10/10.01? Getting even after staring at a 28% loss is a win at this point! Since you are going to be down about $4 on the assignment of 1x, you could also consider cashing it and just selling 2x the Dec $10 puts for $2, which also gets you even without worrying about another DD.
Worst case/Sean – It means we don’t buy a 2nd round until Dow 8,000 but we are doing some fishing here (see Buy List). Obviously (I would hope) if the market firms up and heads higher, we will do some buying there too but, right now, it’s MUCH smarter to sit back with our cash and see which way things shake out. Remember, Buffett’s Rule #1 is: "Don’t lose money!" After you master Rule #1, then you are ready to work on your returns but not every minuter of every year is going to be investable and if you don’t learn how to be patient, then you are a compulsive gambler and you will end up playing under poor conditions and taking risks that endanger your principal and losing 10% one year means you need to make 30% the next year just to get back on track while making 4% in a bad year and 20% the next year still winds you up to 124.8% over 2 years so can you learn to be patient or do you want me to tell you to throw money at things to chase returns that would outperform the current market by 30%?
$100 Oil/Terra – No way. The Global economy can’t afford it. That’s pretty simple. At 85Mbd, a rise from $70 to $80 is a Trillion dollars a year, not even including refining mark-ups (100%) or cascading inflation (another 200%) so we’d be needing to dig up $3-4Tn to pay for $100 oil. Only in some form of hyper-inflation are we going to get there…
Speaking of oil, they couldn’t even hold $71 and I’m now wondering if that guy’s 7:30 statement was just some BS manipulation that was the only reason we caught a good run this morning in the first place.
Gold flying to $1,235 now, so don’t blame the dollar for crushing oil – this is all about demand destruction but I still think we get back to $75 by July 4th. After that I wouldn’t touch it….
Trichet/Customz – I think he’s actually done a great job of managing the EU during the crisis. Don’t forget how difficult it is because he has to spend 90% of his time getting consensus to make a move but he is a non-nonsense, tough realist and he was dead right that lowering rates was a terrible idea but then he was forced politically to go along with it and BOOM – down goes the Euro.
DIA/Amatta – If you own them, I’d take the money here, if you sold them, I’d wait for the EU to close in 10 mins and see if we get back up or not.
RIMM dragging the Nas down single-handed this morning! AMZN is actualy up 1%, V up 1%, OIH up 1%… VIX is only up 2.28% to $36.29 so people are less worried here than they were 2 weeks ago but that can change quickly.
One failure on oil futures costs .05 so if you are scaling in you can go 2x on this round (crossing over the $70 line) and then cash 1/2 at .05 and you are back to scratch with a 1x play. That’s how you can really stretch those line bets.
Shell game/Kwan – I think it’s been going on for about 500 years..
Fear/Eric – I agree we could have a similar slide but I think it would be followed by similar action which would lead to a similar recovery. I do have an overall fear that this merry go round will run out of free money but you don’t hear a peep from China anymore complaining about Western devaluations as they now got a taste of how fast demand can drop if we don’t have our phony dollars to spend. I said a few weeks ago that if I’m the bank in Monopoly and I keep handing the little girl who plays with my daughters $500 once in a while, that the game can keep going virtually forever and will not stop until one of the players calls shenanigans but, if everyone wants to keep playing – the game never has to end. On a World stage, it’s not enough if one kid yells shenanigans because the other kids will say "if you don’t like it, just take your toys and go home" and then they can keep playing because they are all "rich."
As Kwan points out, if China doesn’t want to build our stuff anymore we can go to Vietnam or wherever – they don’t have anything we need BUT cheap labor so they’ll either take our phoney dollars or they can rebuild their wall and refuse to play with us. It’s more of a concern if OPEC decides we have to pay them in gold but that’s where the demand destruction game comes in to play. So, like it or not we all have to keep playing the game and the first one who throws a temper tantrum will be the loser – even if they are right.