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  1. phil

    True Rustle, but meanwhile:







The Monetary Politbureau and the Markets – A Game of Chicken

The Monetary Politbureau and the Markets – A Game of Chicken

Courtesy of Pater Tenebrarum of Acting Man

December FOMC Decree

Prior to the announcement of the FOMC decision on Wednesday, it was widely expected that the verbiage in the statement would be changed so as to convey an increasingly hawkish stance. Specifically, it was expected that the following phrase, which has been a mainstay of FOMC statements for many moons, would finally be given the boot and no longer appear:

“…it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time”  

It is inter alia this bizarre focus on little turns of phrase in the FOMC statement that has caused us to compare the analysis of the actions of the monetary bureaucracy with the art of “Kremlinology” of yore. The Committee is indeed reminiscent of the Soviet Politbureau in many respects. It is unelected, it is engaged in central planning, and its pronouncements are cloaked in an aura of mysticism, akin to decrees handed down from Olympus.

While it is fairly easy (and in our opinion, absolutely necessary) to make fun of this, it is unfortunately affecting the lives of nearly everyone on the planet. The only exceptions that come to mind are Indian tribes in remote areas of the rain forest, since they don’t use money and possess no capitalistic production structure.

yellen

Fed chair Janet Yellen: “A couple. You know, a pair. What the Russians call “dva”, although I hear the Russians are no longer as familiar with such low numbers as they once used to be. My dictionary says it means “two”. One less than the number one is supposed to count to before throwing the holy hand grenade of Antioch after its pin has been removed. Not one, definitely not five, absolutely not four and not three either. Two.”

Photo credit: Agence France-Presse / Getty Images

So what has happened to the above mentioned phrase? It has indeed been altered. Instead we got this:

“Based on its current assessment, the Committee judges that it can be


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Five Rare Birds Sing a Wise Tune

Five Rare Birds Sing a Wise Tune

By Dennis Miller

In the spirit of the holidays, I’m sharing a happy truth: many people do, in fact, retire rich. Who are these rare birds and what can they teach us?

Rich Retire #1—The Pension Holder. If you have a large pension in 2014, you likely are or were a government employee. Many government workers receive pensions equal to 75-80% of their working salaries. In some government departments, it’s the unwritten custom for department heads to bump a worker’s salary 20% or so when he or she is a year or two from retirement. This boosts the employee’s base for his retirement pay.

Of course, in the private sector, pensions have gone the way of the slide rule. So let’s move on.

Rich Retire #2—The Small-Business Owner. If a self-employed person builds up a small or mid-sized business that he can sell when he’s ready to retire, that can fund a comfortable lifestyle during his nonworking years. Sure, it’s not “retirement investing” in the traditional sense, but it’s a path that’s worked for many entrepreneurs.

Rich Retire #3—The exceptional investor. Investors who lock in large boom-time gains are a step ahead of most. Those who resist the ever-so-tempting urge to spend that extra dough can watch it grow, and just like that, a rich retirement is theirs for the taking.

Rich Retire #4—The exceptional saver. A friend’s dad used to tell him, “Save 10% of your pay once you start working and you’ll be a millionaire by your mid-40s.” This friend’s dad was wrong. It didn’t take him that long. Ultra-disciplined savers live their lives this way, setting themselves up to retire rich without a last-minute race to the finish line.

Rich Retire #5—The former debtor who pays himself now. Except for those born independently wealthy, many of us spend years paying down sizable debts, such as a mortgage or educational loans. The rich retire clears those debts as soon as possible, but continues to make those payments… to himself.

Paying off your mortgage is a golden opportunity. Say it eats up 30-40% of your income. After you write that last check to the bank, you can save and…
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Thrilling Thursday – And We’re Short Again!

SPY  5  MINUTEWheeee – what a ride!  

As we expected, the anticipation of the Fed doing something wonderful led to a big rally in the morning and the fact that the Fed didn't actually do anything at all wasn't enough to stop the party train once it left the station.  My comment in yesterday morning's post (which you can subscribe to HERE) was:

At the moment, we are expecting the Fed to keep things going and we're long on the indexes again at 17,100 (/YM), 1,975 (/ES), 4,100 (/NQ) and 1,135 (/TF) but with tight stops below and, if any two are below the line then none of them should be played. 

This morning, we are flipping SHORT at 17,500 on /YM (up $2,500 per contract from yesterday's call), 2,035 on /ES (up $3,000 per contract), 4,220 on /NQ (up $2,400 per contract) and 1,185 on /TF (up $5,000 per contract).  We think the run is officially overdone at this point and we also added some Jan TZA calls back to our Short-Term Portfolio to hopefully catch another nice move down into Christmas.  

Europe is up 2% and more on the Continent this morning as Putin gave a speech in which he assured his people that the country's economic troubles would pass in no more than two years.  How that's considered rally fuel is beyond me but it's Christmas – people want the markets to go up – so they do.  On the whole, it's all going according to plan.  As I said to our Members into yesterday's close in our Live Chat Room:

They want to spin Yellen's comments as bullish as possible to get Asia and Europe to buy so we may be higher at the open (from Futures) but then I expect a sell-off from there.  

So we're just following the plan and I drew up the lines from our 5% Rule™ on the Nasdaq to illustrate our expectations.  

We should see that 4,700 line tested and there we expect it to fail at which point the 140-pont run that got
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The Russian Enigma Unravels


Courtesy of Marc to Market

 

Winston Churchill famously said of Russian foreign policy that it was "…a riddle, wrapped in a mystery, inside an enigma."  What people leave out is what followed.  Churchill offered an answer:  "… perhaps there is a key. That key is Russian national interest."
 
And so it is.
 
Like most crises, the crisis Russia is experiencing is over-determined, in the sense there are several causes.  The actions in Ukraine, and particularly the annexation of Crimea, and the continued destabilization of East Ukraine spurred sanctions from the US and Europe.  The sanctions, especially the ban on access to the short-term funding markets in the US and Europe, are more significant given the other developments. 
 
However, other causes of Russia's difficult straits stems from two developments largely out of its control.  The first is the end of the international markets affection toward emerging markets.  The multi-year bullish EM phase was a function of a number of factors, like low and falling US interest rates, a weak US dollar, rising commodity prices, and a rapidly growing China, that no longer exist.   Russia, like many emerging market countries, did not take advantage of the commodity boom to diversify the economy. 
 
The second development that was largely outside of Russia's influence is the dramatic decline in oil prices.  Even if Russia did not antagonize Saudi Arabia by supporting the Syrian and Iranian regime, Saudi Arabia would most likely have responded to the challenges represented by the US shale producers, Canadian tar sands and other non-OPEC producers.  OPEC itself faces governance issues and enforcement challenges.. 
 
The economic crisis Russia is facing is severe.  However, talk of an imminent Russian default is misplaced.  Russia appears to have $380-$400 bln of reserves.   Not all of these are liquid.  Many in the blogosphere heralded Russia’s purchases of gold as a way to diversify away from fiat currencies.  Russia has more than 10% of its reserves in gold and it is cumbersome to use to intervene or to offset a currency mismatch.  Of course, it earns no yield either.  Another $170 bln of reserves are part


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Why College Is Necessary But Gets You Nowhere

Why College Is Necessary But Gets You Nowhere

Courtesy of Robert Reich

This is the time of year when high school seniors apply to college, and when I get lots of mail about whether college is worth the cost.

The answer is unequivocally yes, but with one big qualification. I’ll come to the qualification in a moment but first the financial case for why it’s worth going to college.

Put simply, people with college degrees continue to earn far more than people without them. And that college “premium” keeps rising.

Last year, Americans with four-year college degrees earned on average 98 percent more per hour than people without college degrees.

In the early 1980s, graduates earned 64 percent more.

So even though college costs are rising, the financial return to a college degree compared to not having one is rising even faster.

But here’s the qualification, and it’s a big one.

A college degree no longer guarantees a good job. The main reason it pays better than the job of someone without a degree is the latter’s wages are dropping.

In fact, it’s likely that new college graduates will spend some years in jobs for which they’re overqualified.

According to the Federal Reserve Bank of New York, 46 percent of recent college graduates are now working in jobs that don’t require college degrees. (The same is true for more than a third of college graduates overall.)

Their employers still choose college grads over non-college grads on the assumption that more education is better than less.

As a result, non-grads are being pushed into ever more menial work, if they can get work at all. Which is a major reason why their pay is dropping.

What’s going on? For years we’ve been told globalization and technological advances increase the demand for well-educated workers. (Confession: I was one of the ones making this argument.)

This was correct until around 2000. But since then two things have reversed the trend.

First, millions of people in developing nations are now far better educated, and the Internet has given them an easy way to sell their skills in advanced economies like the United States.


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The Coin of the Realm: How Inside Traders Are Rigging America

The Coin of the Realm: How Inside Traders Are Rigging America

Courtesy of Robert Reich

A few years ago, hedge fund Level Global Investors made $54 million selling Dell Computer stock based on insider information from a Dell employee. When charged with illegal insider trading, Global Investors’ co-founder Anthony Chiasson claimed he didn’t know where the tip came from.

Chiasson argued that few traders on Wall Street ever know where the inside tips they use come from because confidential information is, in his words, the “coin of the realm in securities markets.”

Last week the United States Court of Appeals for the Second Circuit, which oversees federal prosecutions of Wall Street, agreed. It overturned Chiasson’s conviction, citing lack of evidence Chaisson received the tip directly, or knew insiders were leaking confidential information in exchange for some personal benefit.

The Securities and Exchange Act of 1934 banned insider trading but left it up to the Securities and Exchange Commission and the courts to define it. Which they have – in recent decades so broadly that confidential information is indeed the coin of the realm.

If a CEO tells his golf buddy that his company is being taken over, and his buddy makes a killing on that information, no problem. If his buddy leaks the information to a hedge-fund manager like Chiasson, and doesn’t tell Chiasson where it comes from, Chiasson can also use the information to make a bundle.

Major players on Wall Street have been making tons of money not because they’re particularly clever but because they happen to be in the realm where a lot of coins come their way.

Last year, the top twenty-five hedge fund managers took home, on average, almost one billion dollars each. Even run-of-the-mill portfolio managers at large hedge funds averaged $2.2 million each.

Another person likely to be exonerated by the court’s ruling is Michael Steinberg, of the hedge fund SAC Capital Advisors, headed by Stephen A. Cohen.

In recent years several of Cohen’s lieutenants have been convicted of illegal insider trading. Last year Cohen himself had to pay a stiff penalty and close down SAC because of the charges, after making many billions. 

SAC managed so much money that it handed over large commissions to bankers on


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Comment by strether

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  1. strether

    Phil-- I held off buying SPY January calls, waiting for lower prices, which we now have. What do you think of the SPY Jan 203 calls here? Thanks, Strether







The First Casualty of a Bear Market

The First Casualty of a Bear Market

Courtesy of 

Nick Murray says “The ability to distinguish between volatility and loss is the first casualty of a bear market.”

I turned to one of my favorite passages of his masterpiece Simple Wealth, Inevitable Wealth this morning as turmoil from overseas and the commodity markets made its way through the headlines. Nick relays a great anecdote about how much money one investor personally “lost” during the last Russian Ruble crisis in the summer of 1998…

$6,200,000,000

Yes, that’s right, it’s six billion two hundred million dollars. A very large sum of money, wouldn’t you say? Now what, you ask, does it represent?

It is roughly how much Warren Buffett’s personal shareholdings in his Berkshire Hathaway, Inc. declined in value between July 17 and August 31, 1998. And now for the six billion dollar question. During those forty-five days, how much money did Warren Buffett lose in the stock market? 

The answer is, of course, that he didn’t lose anything. Why? That’s simple: he didn’t sell.

In July and August of 1998, I was doing time at a brokerage firm on Long Island as a summer intern. The brokers were panicking and the partners began yelling at them to get off margin and help maintain order in the Asia Pacific technology stocks in which the firm made markets. It wasn’t working, from what I could surmise. The simultaneous meltdown of several Far East currencies and then the toppling of the Ruble proved too much for US markets and eventually the contagion found its way here.

People forget that, in the midst of the massive late 1990’s bull market, we had this two-month bear market episode in which the S&P 500 dropped by a quick 25 percent. The giant Nobel laureate-run hedge fund, Long Term Capital, imploded as a result and Greenspan was forced to slash rates overnight while the New York Fed arranged a Wall Street-subsidized bailout. Things got back to normal by the end of the fall, but, for a minute there, the panic was palpable and it eventually slammed everyone.

I bring this up because there are some parallels between then


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Comment by phil

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  1. phil

    Of course RUSL is fun since it does have options and you can pick up the June $2s for $1.77 and sell the June $6s for 0.65 and that's $1.12 on the $4 spread that's $1.15 in the money.







 
 
 

Zero Hedge

The Annotated History of US Dollar Debauchery

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

With everyone and their pet rabbit convinced the US Dollar strength continues, we thought some longer-term context on the 'strength' of the dollar was useful...

Click image for large legible version

 

Here is Goldman Sachs' Noah Weisberger take on Lessons From History:

While the real-trade-weighted USD is now at its strongest level since 2009, having already appreciated about 7% since July, the move is still quite modest when put in the historic context of real USD moves in the post-Bretton Woods era, and, in p...



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Phil's Favorites

The Monetary Politbureau and the Markets - A Game of Chicken

The Monetary Politbureau and the Markets – A Game of Chicken

Courtesy of Pater Tenebrarum of Acting Man

December FOMC Decree

Prior to the announcement of the FOMC decision on Wednesday, it was widely expected that the verbiage in the statement would be changed so as to convey an increasingly hawkish stance. Specifically, it was expected that the following phrase, which has been a mainstay of FOMC statements for many moons, would finally be given the boot and no longer appear:

“…it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time”  

It is&nb...



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All About Trends

Mid-Day Update

Reminder: David 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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Insider Scoop

Evercore ISI Initiates Marriott International With Hold

Courtesy of Benzinga.

Related MAR Citigroup Sees Marriott International Benefiting From U.S. Growth, Hikes Price Target Benzinga's Top Downgrades Making Money With Charles Payne: 11/13/14 (Fox Business)

Analysts at Evercore ISI initiated coverage on Marriott International, Inc. (NASDAQ: MAR) with a Hold rating.

The target price for Ma...



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Chart School

Relief Bounce in Markets

Courtesy of Declan.

Those who took advantage of markets at Fib levels were rewarded.  However, this looked more a 'dead cat' style bounce than a genuine bottom forming low.  This can of course change, and one thing I will want to see is narrow action near today's high. Volume was a little light, but with Christmas fast approaching I would expect this trend to continue.

The S&P inched above 2,009, but I would like to see any subsequent weakness hold the 38.2% Fib level at 1,989.


The Nasdaq offered itself more as a support bounce, with a picture perfect play off its 38.2% Fib level. Unlike the S&P, volume did climb in confirmed accumulation. The next upside c...

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Digital Currencies

Chart o' the Day: Don't "Invest" in Stupid Sh*t

Joshua commented on the QZ article I posted a couple days ago and perfectly summarized the take-home message into an Investing Lesson. 

Chart o’ the Day: Don’t “Invest” in Stupid Sh*t

Courtesy of 

The chart above comes from Matt Phillips at Quartz and is a good reminder of why you shouldn’t invest in s...



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OpTrader

Swing trading portfolio - week of December 15th, 2014

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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Sabrient

Sector Detector: Energy sector rains on bulls' parade, but skies may clear soon

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

Courtesy of Scott Martindale of Sabrient Systems and Gradient Analytics

Stocks have needed a reason to take a breather and pull back in this long-standing ultra-bullish climate, with strong economic data and seasonality providing impressive tailwinds -- and plummeting oil prices certainly have given it to them. But this minor pullback was fully expected and indeed desirable for market health. The future remains bright for the U.S. economy and corporate profits despite the collapse in oil, and now the overbought technical condition has been relieved. While most sectors are gathering fundamental support and our sector rotation model remains bullish, the Energy sector looks fundamentally weak and continues to ran...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly.

Click here and sign in with your user name and password. 

 

...

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Option Review

SPX Call Spread Eyes Fresh Record Highs By Year End

Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...



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Market Shadows

Official Moves in the Market Shadows' Virtual Portfolio

By Ilene 

I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).

Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.

Notes

1. th...



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Pharmboy

Biotechs & Bubbles

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

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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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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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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