Posts Tagged ‘Stiglitz’

Weekly Wrap-Up – Buffett’s Daring Derivative Deal Does Well

I was going to talk about Buffett's annual letter to investors.

Fortunately, I procrastinated and other people did some detailed reporting like Ravi Nagarajan, Andy Fry, Scott Patterson and Joe Del Bruno – who does a great job of pointing out that Berkshire's 4th quarter results were propped up by Buffett's $1.05Bn gains in derivatives betting (something Buffett himself once called "weapons of mass financial destruction" but, as we well know – if you can't beat them…), which accounted for 1/3 of Berkshire's $3.06Bn profits

Buffett's biggest bet was selling a put against the S&P 500 back in March – a move I said at the time was BRILLIANT and Buffett himself now says about his own options trading:  "We are delighted that we hold the derivatives contracts that we do.  To date, we have significantly profited from the float they provide. We expect also to earn further investment income over the life of our contracts."  

What did Buffett do?  Exactly what we teach you to do here at PSW - he took advantage of an irrational move in the markets and SOLD INTO THE EXCITEMENT, getting a fat premium from some sucker that bet the S&P would not hold 666 5 years from now.  Buffett effectively sold $5Bn worth of puts that expires worthless at S&P 700 between 2019 and 2027, putting $5Bn in his pocket and holding aside $1Bn in margin, which is how much he's already ahead on the bet.  Like a good options trader, he has a plan and he's trading his plan, making sure his investment is on track and patiently letting time do it's work as it eats away at the put-holder's premium. 

What about the risk?  Well I can't speak for Buffett's stop-loss technique but we're talking about a company that has (had) $40Bn in cash using their excess margin to make a $5Bn bet that the S&P would not stay below 700 for 10 years.  Buffett and I both tell people – NEVER buy a stock (or sell a put against one) that you are not willing to own for 10 years.  The S&P was 5% below at the time and would have had to drop, perhaps, 20% more to cost him $1Bn so let's call the stop 550 on the S&P where Buffett risked 2.5% of his cash against a posible 400% gain on his $1Bn risk allocation over 10+ years.  While it is true that if the
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Thank GDP It’s Friday!

Wow, a 6% GDP!

I’m guessing as it’s only 7:30 but WOW!  What an amazing economy this must be in the fantasy-land where they concoct these numbers.  Let’s see, we have 138M working people so we must have added 8.6M jobs, right?  NO???  Well, then the people who are working must be putting in a lot of overtime, right?  No?  I know, everybody must be making 6% more money than last year!  No?  Well, then it must be coming through in benefits, right?  No?  Hmm, this is a hard game isn’t it?  I KNOW!!!  Housing prices – with China-like GDP growth our housing market must be red hot and surely our homes are up 6% in value!  No?  Damn, I feel like I’m playing deal or no deal and I picked the case with the penny

Just like our discussion about what total BS the CPI was – GDP is no different.  GDP is the sum of Consumption, Investment, Government Spending and Net Exports which means a combination of inflation and government spending can boost our GDP even as real consumption falls and the rising dollar papers over export losses.  In other words – I buy $100Bn worth of Toyotas (5M at $20,000 each) from Japan with the dollar at 85 Yen.  Now the dollar rises to 93 Yen and I’m "only" buying $90Bn worth of Toyotas (5M at $18,000 each) and our GDP for that segment is up 10%.  Wow – FANTASTIC! 

Are we happy?  Are more Americans working?  Is there more shipping?  Are there more sales at the Toyota dealership?  No.  Is Japan happy?  Not at all, they are getting less money for the same cars.  Another group that hasn’t been happy are the oil exporters, who shipped us an average of 10.5 Million barrels a day at an average price of $60 last year ($630M) and are now shipping us just 8.5Mbd at $80 last week ($680M).  Sure they are still getting their $680M a day by choking off production and creating false supply shortages, but they miss the days when they were able to charge us $100 for 11Mbd. 

Don’t worry my OPEC pals, JPM and the other oil manipulators are working very hard to make sure you once again have Billions of more American dollars that you can funnel to terrorists and this Democratic Congress turns the same blind eye to the shenanigans as the previous administration did so happy days will soon be
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Wednesday Rejection Weakness

So close but yet so far!

We set our bounce levels way back on Jan 25th and just yesterday I posted up the WEAK BOUNCE levels we need to see before taking our bullish betting to the next level but we have only skimmed along our lines, finishing yesterday at Dow 10,296 (down by 2), S&P 1,103 (down by 2), Nasdaq 2,190 (down by 10), NYSE 7,001 (up by 1) and RUT 614 (down by 6).  This may be seem like some pretty amazing targeting 10 days in advance but, actually, we could have predicted this move last year as it’s nothing more than the same 5% Rule levels we’ve been using since the middle of last year.

That is why, we are not in the least bit impressed by close.  Close, as they say, is no cigar!  Don’t forget those are the natrural dead-cat type bounce levels off the drop from the top that we are trained to IGNORE as they are meaningless in the grand scheme of things.  What is meaningful is when they we retake those levels and that means we found a true floor at 5% (see weekend chart)  NOT taking back AND holding our retrace levels means we are very likely to see phase 2 of our leg down and hit 10% drop levels of Dow 9,630, S&P 1,035, Nasdaq 2,088, NYSE 6,660 and Russell 585 so we will now become much more concerned by failure or those lower levels (10,058 on the Dow etc) which MUST HOLD.

We’re not there yet, we MAY be consolidating along the 5% lines and that would be good, but unnerving.  We have our disaster hedges in place and we got our commodity rally so we can on some oil puts (what a joke at $77.50 already with yet another inventory build to be announced today) and perhaps even some gold puts as we test $1,130 (GLL $9 puts have very little premium at .90).  Our favorite hedge of the moment is once again EDZ, who are back to $5.50 thanks to a nice move up in Asia today.  March $5 puts can be sold for .45 and that’s a very nice way to collect premium as EDZ has to fall 20% before you even owe the putter a nickel but the July $4/6 bull call spread at .85 pays $2 (up 135%) should emerging markets falter…
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Singing “Davos Done and We Need Another Loan”

Debt-O, debt-uh-oh
Interest come and we need another loan
Debt-O, debt-uh-oh
Interest come and we need another loan

Work our lives just to lose our homes
Interest come and we need another loan
Stack default swaps till they come undone
Interest come and we need another loan

Come on Economists, tell us some more BS
Interest come and we need another loan
Come on Economists, tell us some more BS
Interest come and we need another loan

6%, 7% – it’s a credit crunch
Interest come and we need another loan
6%, 7% – it’s a credit crunch
Interest come and we need another loan

Debt-O, debt-uh-oh
Interest come and we need another loan
Debt-O, debt-uh-oh
When interest comes we’ll need another loan
 

It was the best of times (with the IMF predicting 3.9% Global growth) and the worst of times (with Roubini saying we’re all doomed) at Davos this week as the men who rule the world gathered to divide the spoils over card games while vying with each other for podium and TV time so they could talk their various books from the safety of the Swiss mountains.  Davos, a tiny village perched on a mountain with just two main streets, lacks the protests of other Global gatherings.  During the annual meeting, the town is taken hostage by thousands of police.  “Anyone who looks like a protester can be thrown off the train,” says Marco Leutholz, head of the local Socialist party (and that train often overlooks steep cliffs!).  Sir Howard Davies (director of the LSE) writes:

The mood is certainly better than last year, when the world was ending, but it is worse than at the beginning of last week. Alessandro Profumo of Unicredit acutely observed that Davos is likely to accentuate whatever mood you arrived in, rather as alcohol does, I guess. So those who arrived nervous about the economic prospects are leaving even more jittery. If you arrived feeling pessimistic, you will leave somewhere between suicidal and homicidal.

The market background has not helped. Anxiety about Greece has grown over the past three days. In the circumstances, it was strange to see both the Greek prime minister and his finance minister here. Maybe the subtext was to show that there can be no crisis if they are munching muesli in the mountains, but though some may have been reassured, more people asked who was at home minding the taverna.


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ValueWalk

Berkshire Hathaway 2014 Annual Letter - Annotated

By VW Staff. Originally published at ValueWalk.

A note to readers: Fifty years ago, today’s management took charge at Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B). For this Golden Anniversary, Warren Buffett and Charlie Munger each wrote his views of what has happened at Berkshire Hathaway during the past 50 years and what each expects during the next 50. Neither changed a word of his commentary after reading what the other had written. Warren’s thoughts begin on page 24 and Charlie’s on page 39. Shareholders, particularly new ones, may find it useful to read those le...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Hedge Funds Boost Bullish Treasury Futures Bets to Two-Year High (Bloomberg)

As oil prices tanked, hedge-fund managers and other large speculators increased bullish bets on Treasury securities to the most in two years, even as the Federal Reserve moves closer to raising interest rates.

Crude Tumbles Near $46 Handle As US Oil Rig Count Rises For 2nd Week (Zero Hedge)

After last week's surge in total rig count, this week saw a modest 2 rig drop to 874 total rigs. However, oil rigs rose...



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Zero Hedge

Paying In A Broken World

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Tom Chatham via Project Chesapeake,

It is a common reaction to ask, how much is that, when we see something we want or need. The question is answered with some monetary figure that people will recognize and use to determine if they can afford it. But what happens when the monetary system we know becomes so dysfunctional that common monetary values mean little.

This could happen due to massive inflation, currency collapse or a frozen banking system that prevents you from accessing your funds. If you have no way to pay for something, it does not matter how much or l...



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Phil's Favorites

Rude awakening for those who ignored the energy markets' warning signs

 

Rude awakening for those who ignored the energy markets' warning signs

Courtesy of Sober Look

Back in February (see post) numerous equity investors refused to believe that a crude oil recovery is likely to be unsustainable. Many viewed this as a buying opportunity - just as they did in 2011 when such "bottom fishing" strategy worked. "Look at the declines in oil rigs" many argued - US crude production is about to dive. Even some in the energy business were convinced that crude oil recovery is coming and we will be back at $70/bbl in no time. It was wishful thinking.

There is no question th...



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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

MagneGas Conducts Demonstrations for Fossil Fuel Division of Major NE Utility

Courtesy of Benzinga.

MagneGas Corporation (NASDAQ: MNGA) this week completed metal cutting demonstrations with over 40 representatives from the Fossil Fuel division of a major northeast Utility. The Company believes the demonstrations were successful as they have received multiple requests for fuel as a result of those meetings.

The Utility is one of the ten largest in the United States with over $35 billion in assets and large volume use of acetylene. Multiple company officials and representatives from the Fossil Fuel Division of the Utility were in attendance. This particular division is the largest user of acetylene and propane at the Company. The test used MagneGas® to cut 2 inch steel plates and resulted in very little pre-heat time with clean cuts. Officials have indicated an int...



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Chart School

Markets Remain Near and Above, Yesterday's Highs

Courtesy of Declan.

Tech indices finished strong after they overcame the opening half hour of selling. The Fed statement was greeted favorably, although market breadth is not looking pretty. The Nasdaq still has a distance to travel to make back all of its losses, but has done well to hold up against Semiconductor weakness.


The Semiconductor Index is struggling to make inroads against past losses as the Nasdaq and Nasdaq 100 push respectable gains. I find it hard to see how this scenario can continue, ...

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Kimble Charting Solutions

Travel indicator being put to critical tests

Courtesy of Chris Kimble.

The American Economy is driven a good deal by the consumer.

The table below reflects that nearly 70% of GDP is based consumption.

CLICK ON CHART TO ENLARGE

The 4-pack below looks at consumption with a focus on the travel and leisure sector, by looking at Avis (CAR), Hertz (HTZ), Expedia (EXPE) and Priceline (PCLN).

CLICK ON CHART ABOVE TO ENLARGE

While many seem to be occupied by the news abou...



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Sabrient

Sector Detector: Lackluster earnings reports put eager bulls back into waiting mode

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

Courtesy of Sabrient Systems and Gradient Analytics

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.

Corporate earnings reports have been mixed at best, interspersed with the occasional spectacular report -- primarily from mega-caps like Google (GOOGL), Facebook (FB), or Amazon (AMZN). Some of the bul...



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OpTrader

Swing trading portfolio

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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Digital Currencies

Gold Spikes Back Above $1100, Bitcoin Jumps

Courtesy of ZeroHedge. View original post here.

Gold is jumping after the overnight double flash-crash...testing back towards $1100...

Bitcoin is back up to pre-"Greece is Fixed" levels...

Charts: Bloomberg and Bitcoinwisdom

...

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Pharmboy

Baxter's Spinoff

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

Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).

The Baxalta Spinoff

By Ilene with Trevor of Lowenthal Capital Partners and Paul Price

In its recent filing with the SEC, Baxter provides:

“This information statement is being ...



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Mapping The Market

An update on oil proxies

Courtesy of Jean-Luc Saillard

Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself. 

Since...



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Promotions

Watch the Phil Davis Special on Money Talk on BNN TV!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene

 

The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here (discussing the macro outlook for the markets) Part 2 is here. (discussing our main trading strategies) Part 3 is here. (reviewing our pick of th...

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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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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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