Monday Meltdown – Global Edition
by Phil - September 12th, 2011 6:54 am
108%!
That’s how much Greece is paying today to borrow money for a year! In theory, if you lend Greece $10,000 today, next year they will pay you back $20,800. In THEORY that is because, at 108% – IF they actually borrowed at that rate, you could be very sure that they would not be around to pay you. That’s the joke of this whole thing – we have these insanely unrealistic prices being set on bonds, which only hurts the people who have outstanding ones and need to redeem them as Greece doesn’t actually borrow money for even double-digit interest rates. It’s all a silly, artificial construct that is only useful in spreading panic among investors.
Unfortunately, investor panic is all you need to really destroy the Global economy – as we proved in 2008. As you can see from the chart on the right, we are currently mirroring the same path we took 3 years ago as we head into October and, in fact, our financial sector is performing WORSE than it did when we had ACTUAL major bank and minor country failures – not just rumors of them.
On Friday, Greece’s finance minister, Evangelos Venizelos, blamed “organized rumors” for renewed speculation that Greece would default, and said the country intended to comply with all terms needed for the bailout that European countries agreed to in July. But the fact that the details of the deal have yet to be locked down has unnerved some investors.
In a speech this week, Josef Ackermann, the chief executive of Deutsche Bank, said it was not justifiable for politicians to demand that European banks raise more capital, as Christine Lagarde (DSK’s evil replacement), the head of the International Monetary Fund, had done. “It’s obvious,” he said, “that many European banks would not be able to handle writing down the sovereign bonds they hold on their banking books to market levels.”
But, he said, it would “risk undermining the credibility” of European bailout packages “if politicians were to now send out the signal that they do not believe in the success of those measures.” And, he argued, forcing banks to raise capital now would anger investors by forcing the dilution of current shareholders.
"Risk undermining the credibility of European bailout packages?!?" Is this guy freakin’ kidding? Greece is being "bailed out" and the market rate on their debt…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggWhipsaw Wednesday – What Us Worry?
by Phil - September 7th, 2011 8:25 am
That was easy!
Only 3 days of panic and we’re back to manic already – I’d say that was a record but our last panic only lasted two days, on August 18th and 19th, when we dropped 600 points before bouncing back 800 points the next week so this last 3-day, 600-point drop was gentle by comparison. That, of course, did not stop the usual round of Doomcasters from declaring the end of the World (especially the European section) as we know it but that was all so yesterday morning and now it’s 24 hours later and the Dow is up 300 from that bottom in the pre-markets.
Pre-market yesterday we were bullish but cautious, going long on Dow (/YM) futures at 11,000 (now 11,227 – up $1,135 per contract) and Russell (/TF) Futures at 666 (now 688, up $2,200 per contract) and our bullish EWG spread from the morning post should be going gangbusters already as the DAX pops 3% this morning!
We also laid out new hedge ideas on EDZ and GLD but the point of those was, wisely, to take the money and run on our old hedges as they bottomed out in the morning (max profit), trading in our well-ridden horses for fresh ones that have more time to expiration and lower deltas to snap back on a bounce is all part of our range-trading strategy – we may need those hedges again, just not now….
By the time the market opened, things looked too good not to play bullish and we ended up picking 19 bullish plays in yesterday’s Member Chat with not one bearish one. My comment to Members in the 9:44 Alert, where we took a very aggressive upside play on the Dow was: "Damn, and I said I wasn’t going to get too bullish. Oh well, what can you do?" As I have been pointing out in our Range Trading posts – sometimes you just have to go with the flow…
Just 18 minutes later, I put up 6 long-term trade ideas on CAT, DIS, HOV, JPM, SKX and T as we took advantage of low prices, a probable bottom and a high VIX. The nice thing about our buy/writes is that they have a built-in 20% discount (see "How to Buy a Stock for a 15-20% Discount") and can usually be scaled in to ride…
FHFA Friday – Potential Lawsuit Tanks Banks
by Phil - September 2nd, 2011 8:18 am
$30 Billion – that’s bound to get their attention!
According to the WSJ, the Federal Housing Finance Agency is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble. The suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.
The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims arguing the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.
Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers. In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.
Tim Rood, who worked at Fannie Mae until 2006 and is now a partner at the Collingwood Group, which advises banks and servicers on housing-related issues, agrees with what I told Members in last night’s chat:
"While I believe that F.H.F.A. is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”
In other words – MADNESS! What was the point of spending Trillions of Dollars bailing out the Banks if you are going to turn around and sue them for $30Bn and drop their stock price another Trillion, causing them to need another bailout?
Perhaps this is the denouement of a week of scary market rumors that seem to have been designed to stop the markets from breaking too high. We were speculating on this last night in Member Chat before this…
Hedging For Disaster – 5 Plays that Make 500% if the Market Falls (Members Only)
by Phil - August 11th, 2011 7:30 am
We took our last round of disaster protection back in early July and almost all of those trades are well in the money.
Since you know I am a big fan of taking cash off the table in either direction, let’s not be greedy and look at ways to "roll" our downside protection into new downside plays so we can set SENSIBLE stops on our now deep in the money short plays (very similar to our Mattress Strategy). Keep in mind that this is the biggest market decline we’ve had since last Summer, so adding a layer of protection here doubles our returns if this is the first leg of a major sell-off, or it gives us a smaller hedge that we can roll up later while we take our bigger hedges off the table. As I have to say WAY too often to members – It’s not a profit until you cash it in!
Hedging for disaster is a concept I advocated during another "recovery," in October of 2008, where we made our cover plays to carry us through a worrisome holiday season and into Q1 earnings – "just in case." That "just in case" saved a lot of virtual portfolios! The idea of disaster hedges high return ETFs that will give you 3-5x returns in a major downturn. That way, 10% allocated of your virtual portfolio to protection can turn into 30-50% on a dip, giving you some much-needed cash right when there is a good buying opportunity. At the time, I advocated SKF Jan $100s at $19. SKF hit $300 around Thanksgiving and those calls made a profit of over $280 (1,400%), so putting even just 5% of your virtual portfolio into that financial hedge would give you back 75% of your virtual portfolio when you cash out.
Keep in mind these are INSURANCE plays – you expect to LOSE, not win but, if you need to ride out a lot of bullish positions through an uncertain period, this is a pretty good way to go. We cashed out our bullish $25KP positions by July 28th, (our active virtual portfolio) with the S&P at 1,340 and, since then, I’ve had a very hard time making long-term bullish picks. I want top put up a Buy List but it’s still too risky – this will be step 1 though – protect first, then buy! Once we cash…
Which Way Wednesday?
by Phil - August 3rd, 2011 8:29 am
Wheeeeeeeeeeeee!
I love the smell of capitulation in the morning (illustrated nicely by David Fry). It smells like — opportunity. We haven’t had a good bottom-fishing expedition in ages and it’s amazing to think that less than two weeks ago I was having to tell our Members NOT to BUYBUYBUY at the top. On Friday, July 22nd, when Jimmy Cramer was crowing Thursday night over "29 of 30 Dow Stocks" closing higher as if that meant you should buy everything that wasn’t nailed down, I was warning that the new EU rescue fund only indicated things were worse than they seemed. My comment that morning (7/22) was:
I like shorting the Futures here: S&P (/ES) at 1,346, Nas (/NQ) 2,415, Dow (/YM) 12,720 and Rut (/TF) 842.6 – as long as 74.20 hold on the Dollar, we should get a bit of a sell off so these are levels to look for as the Dollar heads back over that line but we can scale into position between 75.20 and 75.10 but, below that, too dangerous! Oil is good too below $99.50 with tight stops (now $99.66 so a patience game) – couldn’t quite get back to $100 ahead of the EU open.
I was wrong (so far) on shorting gold as our GLL Aug $22 calls have fallen from .50 to .10 (we rolled down to the $20s but those are not faring much better at the moment) but that was much more than made up for with the MASSIVE gains on the short futures as well as huge winning spreads like that morning’s Alert to Members, where my trade idea was to buy the SQQQ Aug $21/24 bull call spread for .90 and sell the AAPL weekly $375 puts for .80 for net .10 on the $3 spread. Of course the AAPL puts expired worthless and SQQQ is now at $25.29 and the spread is $1.85 so up 1,750% so far (and half off the table with stops on the rest at this point, of course).
THAT’s why we love our disaster hedges – they really help balance out your virtual portfolio in the event of an actual disaster with every $1,000 hedged paying $17,500 on that play. We then turn around (like today) and cash out that money and use it to buy more longs or roll our existing long positions.…
Fully “Fixed” Friday – Extend and Pretend Edition
by Phil - July 22nd, 2011 8:22 am
All fixed!
Greece is getting another $229Bn at 3.5% with about 30 years to pay it from the EU (ie. Germany and France) and private bond-holders will share about 1/3 of the pain by "voluntarily" renegotiating their own notes. Sounds like a really great offer, right? BUT WAIT, THERE’S MORE! Another $630Bn of already promised emergency aid has now been places into a very slushy fund that will now allow the EU to throw money at any nation that so much as sneezes – WHETHER OR NOT THEY ASK FOR ASSISTANCE. This will allow them to play economic Whack-A-Mole, putting out all the little Euro-zone fires until that money runs out (about 6 months at the EU’s current burn rate).
All this fantastic news from Europe has sent the Dollar down to test the 74 line and that was down from 75.37 just ahead of yesterday’s open and that’s a 1.8% drop so we would expect our indexes to go up at least 1.8% – BUT – none of them did. In fact, the Nasdaq only gained 0.72% and the Russell was up 1.07% and the Dow was up 1.21% and the S&P was up 1.35%. The NYSE, which had been our perennial laggard, did the best yesterday – gaining a close, but still no cigar 1.57%.
Will we make it up today or is this an indication that things may not be quite so good as they seem? After the close yesterday, I did a news round-up for our Members and there is still plenty to worry about and we took a stab at some SPY Weekly (today) $135 puts at .79 for our aggressive $25K Virtual Portfolio on the off-chance they "fix" the US debt ceiling and accidentally make the Dollar strong again. At the moment, we are still playing our short lines in the futures, where we’ve been scalping nickels and dimes since my 3:23 am Alert to Members (if you are not a Member, you can sign up here), where I said:
I like shorting the Futures here: S&P (/ES) at 1,346, Nas (/NQ) 2,415, Dow (/YM) 12,720 and Rut (/TF) 842.6 – as long as 74.20 hold on the Dollar, we should get a bit of a sell off so these are levels to look for as the Dollar heads back over that line but we can scale
…
Tempting Tuesday – Murdochs Testify to Parliament
by Phil - July 19th, 2011 8:29 am
NWS is down 20% of late.
Today we hear from the Murdoch family, owners of the venerated Wall Street Journal as well as Dow Jones, Inc., who will be explaining how their company allegedly broke the rules, lied, threatened and/or bribed almost everyone, engaged in cover-ups, slandered anyone who got in their way and callously ruined the lives of innocent people – all in the name of profits. Already Sean Hoare, the reporter who blew the whistle on Murdoch has been found dead inside his London apartment. "The death is currently being treated as unexplained, but not thought to be suspicious. Police investigations into this incident are ongoing," said a police statement.
Would that be the same British Police Department that’s had two high-level resignations over accepting bribes from Murdoch’s organization? The Daily Mirror newspaper quoted an unnamed friend as saying Hoare "thought that someone was going to come and get him, but I didn’t know whether to believe half the stuff he was saying." In other words, Hoare was poor and intimidated by NWS (he was refusing to testify against them) while the Murdochs are rich so every possible benefit of the doubt is being given to them just like Rebecca Nalepa was found with her hands and feet bound with a rope around he neck hung off a balcony in a San Diego mansion and the police there are thinking "suicide."
As F. Scott Fitzgerald once said: "The rich are different than you and me – they have more money." As Bill Domhoff pointed out this weekend, when we talk about the rich, we don’t mean the top 1% – people who "only" make $1.6M a year or more. Sure those of us in that group may have a "get out of jail free" card for when we speed and we may get our buildings approved quicker than most and we may get a local ordinance passed here or there but, when you move up to the top 0.1% ($36M or higher per year income) or the top 0.01% ($450M or higher annual income), where Mr. Murdoch lives – not only do you get both national and international laws rewritten to suit your needs (like taking over 100% of the UKs satellite broadcasts), but the other laws don’t even apply to you.
This lack of accountability leads to increasing bad behavior, as evidenced by our…
Monday Market Madness – Gold $1,600 Edition
by Phil - July 18th, 2011 8:28 am
As we expected on Friday morning, the EU stress tests were not good.
My comment to Members at 3:41 on Friday, as we had an "incredible" (as in NOT credible) rally into the close was: "Notice how we went down on very heavy volume but we went up on two massive spikes – one at 2:45 and on at 3:05 and the rest was just suckers being reeled in to follow the move who got sold right back into. I’m still liking SQQQ, Aug $22/23 bull call spread is .55 now and you can sell the $21 puts for .50 for net .05 on the $1 spread. LOL – CNBC is surprised. Bill says "Hey, look at that, a rally in the last 20 minutes!" It’s only surprising when there isn’t one…"
After the bell, we discussed the fact that you can still trade the index puts after hours and the QQQ weekly (7/22) puts at .70 looked attractive too. That left us a bit bearish going into the weekend (as planned) so last night (yes, Sunday) I sent out a 10:16 Alert to Members to with trade ideas to go long on the Futures (Down, S&P, Nasdaq and Russell) while taking the short position on oil (/CL) at $97.50 and gasoline (/RB) at $3.15. By midnight we had our highs for the morning and at 2:49 am I commented it was time for the 3am trade (bullish on markets as the Dollar pulls back) and we set our stops at 4:46 and went back to bed and the market topped out 20 minutes later and gave us yet another bullish reload back at our levels – NOW, at 8am.
What were the bullish levels? Today there were for futures crosses above 12,375 on Dow futures (/YM), 1,306 on the S&P futures (/ES), 2,345 on the Nas (/NQ) and 623 on the RUT (/TF). We’re not to proud to make the same play over and over and over again – as long as it keeps working, right? This is the great thing about futures trading – it lets you make little adjustments to your virtual portfolio LONG before the rest of the market is in play. Had the markets gone straight down – we would not have needed to chase as we took the aggressive puts into the close but, as they found a floor…
Make Billion$ With StockTwits (and Win a Free Quarter!)
by Phil - July 9th, 2011 4:34 pm
Billions!
That’s right, if you followed Philstockworld on Stocktwits this past month and followed our trade ideas, you could have made Billions of Dollars. Not bad but that’s only a tiny portion of what you get at PSW every day. Needless to say, we’ve had a good month but it’s no fun being right if nobody knows it so let’s review a month of Tweets and also make it worth your while to send others to Our StockTwits Link and follow us there.
For the month of July, every new follower will be entered in a random drawing and one will be selected to win a free 1-year subscription to the PSW Report – our twice-daily Email that gives you access to all of our non-Premium posts as well as Stock World Weekly. If you are already a paying PSW subscriber and win this drawing, we will give you a 3-month extension of your Current Membership Level instead added to your current subscription.
If you are a Member and your friends subscribe and tweet us your name – one of those named members will also be the winner of a 3-month extension of that member’s current level. The more friends you have, the better the chances to win!
We’re doing this because we need to build up our social networking presence so I’ve been tweeting more in June. You can go to our StockTwits site and see all 45 Tweets posted since June 1st (there are many also before that) but I’m just going to review the ones that were less generic (we auto-tweet my posts) to give you an idea of what kind of value your friends can get out of this free service:
philstockworld Phil Davis
…
Vacation-Proofing Your Virtual Portfolio
by Phil - June 25th, 2011 7:55 am
Option Sage Submits:
When driving a car and some object appears on the road ahead do you usually run right over it or do your best to avoid it?
Don’t we all take action in real-life based on the new information we receive that changes the old paradigm? Take the first two guys in this video: Who would you rather be, the first or the second guy? While the second gentleman reacts and looks ridiculous in so doing, he’s the guy that is more likely to survive when real disaster hits because he’s reacting to new information. In fact he doesn’t even know what’s making everyone else react, he just knows that when 99% are moving one way in panic, it’s best not to fight the crowd or he will be trampled. It’s no different in the market. Pride, ego and old theses have no place when new information directly contradicts an existing trade.
This week, we used DIA and QQQ puts and calls to "react" to quick changes in the market while we waited for better information before making more permanent changes in our positions. This gave us the benefit of the
…
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(