Archive for the ‘High Mailing Priority’ Category

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Courtesy of Joshua Brown, The Reformed Broker

This has been going on since before you were born, fam.

Cartoon via Stefan Cheplick

 





The BIS Warns on China

 

The BIS Warns on China

Courtesy of John Mauldin

I’ve been saying for the past couple years that the next recession here in the US will probably be triggered by an external macro event or cascade of events, coming out of Europe or China. Today’s Outside the Box sharpens our focus on China, which had already got quite a lot sharper with Michael Pettis’s piece in Outside the Box on Sept. 2.

Today’s post comes from Ambrose Evans-Pritchard of the London Telegraph. He is commenting on the recently released quarterly report of the Bank for International Settlements (“the central banks’ bank”), in which the BIS repeats Pettis’s warning that China faces escalating risk of a major debt and banking crisis.

The BIS is also rightly concerned about spillover from China to the global economy. After noting that outstanding loans in China have reached $28 trillion – as much as the commercial banking loan books of the US and Japan combined – Ambrose adds, “The scale is enough to threaten a worldwide shock if China ever loses control. Corporate debt alone has reached 171pc of GDP, and it is this that is keeping global regulators awake at night.”

Total Chinese debt reached 255% of GDP at the end of 2015, a jump of 107% in the past eight years – and still rising fast. Every year, China’s leadership promises to rein in debt growth, and every year the growth just keeps accelerating. That is because China’s GDP growth is fueled by debt, and that debt is becoming increasingly inefficient in producing GDP.

Does China still have the resources to deal with this issue? The answer is a qualified yes – but then there may not be the resources to deal with the other little items on China’s shopping list. The New Silk Road that China seems to be actually in the process of building is estimated to cost $1 trillion, and that’s without cost overruns. Plus, the Chinese leadership has promised massive spending on the interior part of the country to bring up the quality of people’s lives there.

One trillion here and one trillion there, and pretty soon you have run through your reserves and are getting into monetization problems; and then you have all sorts of…
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Janet Yellen’s “Footnote 8″ – The Negative Rate ‘Smoking Gun’ That Everyone Missed

Courtesy of John Mauldin at Mauldin Economics

Yellen’s Jackson Hole speech was widely reported, so I’ll spare you the summary.

What wasn’t widely reported was her Footnote 8. Yellen cited approving a mathematical formula that could put interest rates on autopilot. The Fed hasn’t yet followed the rule, but its presence in Yellen’s paper suggests its use is on the table.

Footnote 8 lays the groundwork for negative rates

For Yellen to adopt any fixed rule would be a major strategy shift. She has declined to use the so-called “Taylor Rule” favored by some economists, claiming the Fed should be flexible but “data-dependent.”

The rule described in Yellen’s Footnote 8 uses variables like core PCE inflation, the Fed’s inflation target, and the unemployment rate to calculate an optimal Federal Funds rate target. If the Fed had been following the rule during the last recession, they would have dropped rates to -9%.

Yes, you read that right, -9%.

As a point of reference, the ECB right now is at -0.4%. Europe is now experiencing all kinds of bizarre consequences.

Yet, here’s our own Fed chair bringing up a method that would send rates far lower.

To be fair, Yellen didn’t say she endorses this idea or wants to adopt it. She concedes it would have been impossible to drop rates that far in 2008.

So why even bring it up?

A generous interpretation: Yellen wanted to demonstrate that the Fed’s control over interest rates has limits as a tool for stimulating economic growth. And in her speech, she does go on from there to talk about other policy tools.

Still, it was no accident that she mentioned the rule for autopilot rates. This was another in a series of small nods to the idea that negative rates might be appropriate in some situations.

The Fed’s muddled assumptions

The Yellen Fed’s mental status gets clearer every day. They think that their crazed ideas—ZIRP, QE, Operation Twist, and the rest—are what brought the economy back from the brink of collapse. Last December’s one-and-done rate hike was the victory lap. They think everything is fine now and


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EBITDA: Sniffing Out the Truth

 

EBITDA: Sniffing Out the Truth

Courtesy of Wade of Investing Caffeine

Sharp eyed soft nosed cow, with shallow dof

Financial analysts are constantly seeking the Holy Grail when it comes to financial metrics, and to some financial number crunchers, EBITDA (Earnings Before Interest Taxes Depreciation and Amortization – pronounced “eebit-dah”) fits the bill. On the flip side, Warren Buffett’s right hand man Charlie Munger advises investors to replace EBITDA with the words “bullsh*t earnings” every time you encounter this earnings metric. We’ll explore the good, bad, and ugly attributes of this somewhat controversial financial metric.

The Genesis of EBITDA

The origin of the EBITDA measure can be traced back many years, and rose in popularity during the technology boom of the 1990s. “New Economy” companies were producing very little income, so investment bankers became creative in how they defined profits. Under the guise of comparability, a company with debt (Company X) that was paying high interest expenses could not be compared on an operational profit basis with a closely related company that operated with NO debt (Company Z). In other words, two identical companies could be selling the same number of widgets at the same prices and have the same cost structure and operating income, but the company with debt on their balance sheet would have a different (lower) net income. The investment banker and company X’s answer to this apparent conundrum was to simply compare the operating earnings or EBIT (Earnings Before Interest and Taxes) of each company (X and Z), rather than the disparate net incomes.

The Advantages of EBITDA

Although there is no silver bullet metric in financial statement analysis, nevertheless there are numerous benefits to using EBITDA. Here are a few:

  • Operational Comparability:  As implied above, EBITDA allows comparability across a wide swath of companies. Accounting standards provide leniency in the application of financial statements, therefore using EBITDA allows apples-to-apples comparisons and relieves accounting discrepancies on items such as depreciation, tax rates, and financing choice.
  • Cash Flow Proxy:Since the income statement traditionally is the financial statement of choice, EBITDA can be easily derived from this statement and provides a simple proxy for cash generation in the absence of other data.


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Slow Moving Disaster In The European Banking System Revealed

Courtesy of Lee Adler of the Wall Street Examiner

This report is a condensed version of the Macroliqudity Pro Trader European Banking Report, a service of the Wall Street Examiner Pro Trader. 

ECB data on bank deposits for the Eurozone shows total bank deposits down sharply in July, breaking the uptrend in force since the low in 2014. That’s shocking considering that the ECB just boosted its money printing QE programs. Deposits should be rising steadily in concert with the amount of QE, not falling. But cash extinguishment and capital flight are increasing faster than the ECB can print.

We continue to see evidence that funds are fleeing the European banks for the relative “safety” of the US. My long running thesis that the US is and will be The Last Ponzi Game Standing is still well supported by the data. The looming problem is that all Ponzi schemes eventually collapse. The only question is the timing, which we deal with in other reports.

The charts below show that the European banking system is in a slow moving disaster. Only smoke, mirrors, and the unwarranted confidence of most Europeans in their banks and the ECB are keeping the system afloat.

The source of all European bank data in the charts that follow is the ECB Statistical Warehouse.

7/1/16 Money printing in the form of the ECB’s asset purchases should cause a euro for euro increase in deposits, but that has not occurred. Sorry to be repeating this, but it’s because a substantial portion of the ECB’s newly printed money flees the Eurozone to avoid the NIRP tax.

Euro Area Deposits - Click to enlarge

The problem grew worse in July when bank deposits in Europe actually contracted in spite of €70 billion per month in QE.  Deposits contracted by €95 billion in July and are down by €112 billion since April. Over that span the ECB printed €284 billion. The net effect was that all of that, plus another €95 billion was either extinguished or fled the European banking system. Imagine that!  €379 billion gone! Poof! You have to hand it to Super Mario. That is some disappearing act.

Bank deposits should increase euro for euro with the amount of ECB purchases.  When the


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George Friedman: Italy Is the Mother of All Systemic Threats

Courtesy of George Friedman of Mauldin Economics

Italy has been in a crisis for at least eight months, though mainstream media did not recognize it until July. This crisis has nothing to do with Brexit, although opponents of Brexit will claim it does. Even if Britain had voted to stay in the EU, the Italian crisis would still have been gathering speed.

The high level of non-performing loans (NPLs) has been a problem since before Brexit. It is clear that there is nothing in the Italian economy that can reduce them. Only a dramatic improvement in the economy would make it possible to repay these loans. And Europe’s economy cannot improve drastically enough to help. We have been in crisis for quite a while.

Banks were simply carrying loans as non-performing that were actually in default and discounting the NPLs rather than writing them off. But that only hid the obvious. As much as 17 percent of Italy’s loans will not be repaid. This will crush Italian banks' balance sheets. And this will not only be in Italy.

Italian loans are packaged and resold, and Italian banks take loans from other European banks. These banks in turn have borrowed against Italian debt. Since Italy is the fourth largest economy in Europe, this is the mother of all systemic threats.

Bail-Ins, Not Bail Outs

The only way to help is a government bailout. The problem is that Italy is not only part of the EU, but part of the eurozone. As such, its ability to print its way out of the crisis is limited. In addition, EU regulations make it difficult for governments to bail out banks.

The EU has a concept called a bail-in, which means the depositors and creditors to the bank will lose their money. This is what the EU imposed on Cyprus. In Cyprus, deposits greater than 100,000 euros ($111,000) were seized to cover Cypriot bank debts. While some was returned, most was not.

The bail-in is a formula for bank runs. The money seized in Cyprus came from retirement funds and payrolls. Rome wants to make sure depositors don’t lose their deposits. A run on the banks would guarantee a meltdown. A meltdown would topple the government and


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New Study Finds Taxpayers Are Fleeing New York, Illinois and California

Courtesy of ZeroHedge. View original post here.

A new demographics study, posted on newgeography.com, found that more tax filers are fleeing the state of New York than any other state in the country.  Frankly, we're shocked people wouldn't want to live in a state with the highest cost of living, highest home prices, highest state income tax rate and highest property tax rate…what about the cultural benefits?  We guess the bankers and hedgies have finally figured out that they can conduct their business from pretty much any location with an internet connection and then visit New York when/if necessary. Per the same study, Illinois lost the second highest number of taxpayers and California was not far behind in third. 

Does anyone think it's purely a coincidence that the darkest areas of the following maps seem to overlap and represent the states that people are fleeing at the highest rates? If so, we assume you probably also think it's a coincidence that those very same states have been Democratic strongholds for decades.

Cost of Living

Source:  Economic Policy Institute.

State Tax Rate

Actually, the Albany Times Union was able to find at least one person who thought that people were fleeing from NY for reasons other than oppressively high costs of living and burdensome tax rates. Ironically, that person was non other than Richard Azzopardi, of Governor Cuomo's office, who said:

"The fact is that under this administration, New York has a record number of private sector jobs, an unemployment number below the national average, and passed reforms that led to the lowest middle class taxes in 70 years, the lowest corporate tax rates since 1968 and the lowest manufacturing tax rate since 1917 and a property tax cap."

While we appreciate the data from Azzopardi, we're not sure that linking New York's excessive tax rates to its own historically higher excessive tax rates is the right comparison. Our guess is that your citizens (or ex-citizens) probably consider New York's current tax rates versus the current tax rates of other states as the more relevant comparison. But that's just a hunch. 





Weekend Reading: Volatility Returns With A Vengeance

Courtesy of Lance Roberts of RealInvestmentAdvice.com

Ironically, last week I titled the reading list “Market Stasis” with respect to the 43-days of sideways market action with relatively minor price fluctuations. That publication marked the respective end of that complacency.

This past week has been anything but complacent as the volume in volatility trades have exploded simultaneously with wild swings in market price from spectacular declines to surging rebounds.

sp500-marketupdate-091616-3

This corrective action, which I have warned about repeatedly over the last month (see here) may be different than the standard “buy the dip” correction. The market has already violated both initial supports (the bull trend line and previous highs) which brings into focus the bull trend support line from the February lows. A violation of the latter will likely see the markets retest the 2020 level on the S&P 500.

sp500-marketupdate-091616-4

One thing the sell off this week showed investors is what happens when correlations across asset classes become extremely high. When the selling begins, there is no “safe place” to hide. As my partner, Michael Lebowitz, noted earlier this week:

“The truth of the matter is that blind diversification does not work simply because it does not take into account the effects of volatility on asset prices. Chris Cole from Artemis Capital, one of the clearest thinkers on the importance of volatility as an asset class, highlights this point in the following graphic.”

720global-diversify-091316

“Contrasting the perception of a well-diversified portfolio with the reality of embedded volatility, the graph reflects enormous concentration risk in short volatility. Importantly, this risk matters most at the exact point in time when one expects – hopes – their strategy of diversification will protect them. Unfortunately, the well-diversified portfolio (left side) turns into the short volatility-concentrated portfolio in periods of extreme market disruption. Mr. Cole’s analysis may be best summarized with the popular statement that correlations on many assets go to one during a crisis.”

Let’s put it this way. If you didn’t like what happened to your portfolio this week during a mere 3% decline from recent peaks, just imagine what you will be feeling when a correction of some magnitude eventually occurs.


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PhilStockWorld.com Weekly Trading Webinar

 

PhilStockWorld.com Weekly Trading Webinar – 9-14-16

For LIVE access on Wednesday afternoons, join us at Phil's Stock World – click here!

Major Topics
 
00:01:27 Checking on the markets
00:02:24 Oil Report
00:05:43 Checking Futures on the markets
00:08:26 Future Trade Ideas
00:11:26 Market Data
00:12:18 Trade Ideas: APPL, Dow
00:18:19 5% Rule
00:24:12 Calculation of 5% Rule: APPL
00:32:02 Smartphone sales 2016
00:35:01 Trade Charts
00:36:55 Trade Ideas
00:39:04 Ideas on Gold, Silver and Miners
00:41:12 SPY Charts
00:46:33 S&P Returns
00:47:01 Trade Ideas
00:52:04 Checking on the markets
00:53:21 SPY Trades
00:57:32 SPY Trade Ideas
01:01:26 5% Portfolio
01:03:55 SPWR Trades
01:06:12 5% Portfolio
01:08:35 Trade Charts
01:09:26 TZA
01:10:55 More on 5% Portfolio
01:18:05 USO
01:21:50 Poverty Level
01:28:40 More Trade Ideas
01:37:27 Dow Charts
01:40:35 DX
01:41:36 Russell Trade Ideas
01:48:05 ABX
01:53:04 More Trade Ideas
 

Phil's Weekly Trading Webinars provide a great opportunity to learn what we do at PSW. Subscribe to our YouTube channel and view past webinars, here. For LIVE access to PSW's Weekly Webinars – demonstrating trading strategies in real time – join us at PSW — click here!

 




Negative Rates Nail Savers

 

Negative Rates Nail Savers

Courtesy of John Mauldin, Mauldin Economics

“You shall not crucify mankind upon a cross of gold.”

– William Jennings Bryan, July 9, 1896

“You shall not crucify the retiree and saver on a cross of negative rates.”

– John Mauldin, September 14, 2016

The Economy Is Rigged

As is now the practice on many college campuses, I should preface this week’s newsletter with a trigger warning. What you are about to read could give you serious heartburn, especially if you are an economist or a central banker. Or a retiree or just someone who has lived life playing by the rules, and now you find yourself getting no return on your savings, forcing you to save even more and work even longer. Let me be careful to point out that I am not including all economists in my rather sweeping indictments. But if the shoe fits…

I also know that this special letter is a little longer than the average. But I think the topic requires a whole-cloth approach rather than yet another two- or three-part series.

Before we jump in, I want to note that economic chaos is not my only concern. We face a whole different kind of chaos on the geopolitical front. To a considerable degree it overlaps with the economic problems I’ll discuss today. George Friedman has been calling the Eurasian landmass a “cradle of disorder.” It’s home to 5 billion people, and it’s floundering in a sea of accelerating crises.

Regular readers know that George doesn’t exaggerate. He may be the most fact-driven person I’ve ever worked with. He looks at good evidence and draws sound conclusions. And right now he sees evidence in Eurasia that looks chillingly similar to what happened in the years leading up to World War II. I know that’s a strong statement. George doesn’t issue it lightly. He is genuinely concerned – and I am, too.

We decided the best way to share George’s conclusions with you was visually. So, we’re making a short documentary film titled Crisis & Chaos: Are We Moving…
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Zero Hedge

New Gallup Poll Shows 57% Of Americans Want A Major 3rd Party

Courtesy of ZeroHedge. View original post here.

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

There’s good news and bad news in the latest Gallup poll on Americans’ desire for a major 3rd Party.

The good news is that at 57%, this is the highest demand we’ve seen
during any recent Presidential election year. The...



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Phil's Favorites

Has The Fed's Policy Decisions Propped Up Equities?

 

Has The Fed's Policy Decisions Propped Up Equities?

Courtesy of The Fat Pitch

Summary: The stock market rises on days when the FOMC releases its policy statement, probably as a result of some uncertainty being removed for market participants. This pattern has existed for more than 30 years. The Fed's ability to "jawbone" the market higher is no more exceptional now than it was during any prior bull market. 

* * *

Morgan Stanley's chief economist this week stated ...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Atlanta Fed trims U.S. third-quarter growth forecast to 2.4 percent (Reuters)

The U.S. economy is on track to grow at a 2.4 percent annualized rate in the third quarter, the Atlanta Federal Reserve's GDP Now forecast model showed on Friday, following the latest data on inventories, trade and consumer spending this week.

Satellite Data Show China May Have Stored More Crude Than Estimated (Bloomberg)

...



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Mapping The Market

Sad Clown

A thought from Jean-Luc:

Every day that goes by brings more shady deals from Trump's past – now Cuba, more stuff about his foundation, his taxes! No wonder he doesn't want to release his taxes either – who the heck knows is buried in there.

In the meantime, Trump gets up at 5:00 AM to tweet about Alicia Machado! What a despicable coward little man-child!

Atrios sums up my feelings:

Sad Clown

I admit I find it hard to keep up the sense of humor about things these days. We laughed a lot during the Bush years, didn't we, my fellow pony aficionados. Trump should just make me laugh and laugh and laugh and laugh. But with Bush we could sorta pretend that people voted for him because they didn't quite see him for what he was. There's no doing that with Trump. Trump is Trump. He won't win, but a lot of...



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ValueWalk

LOTE: You Are Not Morally Obligated To Vote For The Lesser Of Two Evils

By The Foundation for Economic Education. Originally published at ValueWalk.

LOTE: You Are Not Morally Obligated To Vote For The Lesser Of Two Evils

“If Hitler were to invade Hell, I would at least make a favorable reference to the Devil in the House of Commons.” — Winston Churchill.

In Churchill’s estimation, Stalin was less evil than Hitler. Hence, the Allied Forces’ brief friendship with the Soviets: a marriage of convenience formed in Hell.

Image source: Wikimedia CommonsLOTE Dilemma The Right to Complain.

Every four years, Americans face the so-called lesser-of-two-evils (LOTE) dilemma: “Both major-party presidential candidates are lousy, but I’m duty-bound to vote. Free people get to co...



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Kimble Charting Solutions

Commodities attempting triple breakout, says Joe Friday

Courtesy of Chris Kimble.

Below looks at Commodities ETF DBC over the past decade. Since the highs in 2008, DBC has been a great asset to avoid. Is it time to start paying attention and potentially own this hard hit ETF? Check out the rare price situation below in DBC.

CLICK ON CHART TO ENLARGE

The CRB (Commodities Index) has been down 5-years in a row, this has never happened in the history of commoditi...



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Chart School

RTT browsing latest..

Courtesy of Read the Ticker.

Please review a collection of WWW browsing results.



Date Found: Saturday, 26 March 2016, 02:36:15 PM

Click for popup. Clear your browser cache if image is not showing.
Comment: ZH: Its a BULLARD market, the FED jaw boning is keeping the market up!



Date Found: Sunday, 27 March 2016, 02:31:30 PM

Click for popup. Clear your browser cache if image is not showing.
Comment: RTT: World trade near 2008/09 lows. SP500 near all time highs. PLACE YOUR BETS! Roll up! Roll up!



Date Found: Tuesday, 29 March 2016, 02:42:11 PM

Click for popup. Clear your browser cach...



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OpTrader

Swing trading portfolio - week of September 26th, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Members' Corner

Market Liquidity and Macroeconomic Bullshit

 

Market Liquidity and Macroeconomic Bullshit

Courtesy of The Nattering Naybob

STJL - "Apparently macroeconomics is all bullshit – ROFL! Paging Naybob now… Famous Economist Paul Romer Says Macroeconomics Is All Bullshit."

The Nattering One muses... Macroeconomics as practiced by academics and those in charge is pure voodoo. Better to chant over goat blood, bird feathers and scattered entrails...

As for reality, overnight CNH HIBOR (...



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Digital Currencies

Gold, Silver and Blockchain - Fintech Solutions To Negative Rates, Bail-ins, Currency Debasement and Cashless

Courtesy of ZeroHedge. View original post here.

By Jan Skoyles

I was so pleased yesterday by the announcement that I have joined the Research team at GoldCore as it meant that I could finally start talking about it and was back in a role that lets me indulge in my passion by researching and geeking out on all things gold, silver and money.

...



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Biotech

Epizyme - A Waiting Game

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer.  One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."

Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.  

Genetic components are the DNA sequences that are 'inherited.'  Some of these genes are stronger than others in their expression (e.g., eye color).  Yet, some genes turn on or off due to external factors (environmental), and it is und...



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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Promotions

PSW is more than just stock talk!

 

We know you love coming here for our Stocks & Options education, strategy and trade ideas, and for Phil's daily commentary which you can't live without, but there's more!

PhilStockWorld.com features the most important and most interesting news items from around the web, all day, every day!

News: If you missed it, you can probably find it in our Market News section. We sift through piles of news so you don't have to.   

If you are looking for non-mainstream, provocatively-narrated news and opinion pieces which promise to make you think -- we feature Zero Hedge, ...



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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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