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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 S&P dropped 50% in one day Buffett would be
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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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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!

 
 

Option Review

Sizable Call Spread Trades On Orexigen

A large call spread initiated on Orexigen Therapeutics, Inc. (Ticker: OREX) on Monday morning looks for shares in the name to rally approximately 30% by September expiration. The September expiration is noteworthy as the company awaits the results of the FDA’s review of its resubmitted New Drug Application (NDA) for NB32, an investigational medication being evaluated for weight loss, after the review was extended for three months back in June. The upcoming Prescription Drug User Fee Act (PDUFA) date is September 11, 2014, according to a press release issued by the company. Shares in Orexigen today are up roughly 0.40% at $5.34 as of 2:15 p.m. ET.

...

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Zero Hedge

Turkish PM Cuts Ties With US, Mulls De-Dollarization With Russia

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

As Turkey's graft probe continues (which the Prime Minister believes is a conspiracy - fact or not - created by The West), AP reports that Recep Tayyip Erdogan has said he no longer holds "direct" telephone conversations with U.S. President Barack Obama, suggesting a rift between the leaders who were once close. What is perhaps even more concerning is Turkey's recent de-dollarization discussions with Russia to move to settlement in local currencies. It appears 'allies' are falling by the way-side quicker than many thought...

 

Turkey shuns Obama... ...



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Phil's Favorites

Thom Hartmann: The Crash of 2016

Thom Hartmann: The Crash of 2016

Courtesy of Jesse's Cafe Americian

This is a view of how we got here and where we are going that you are unlikely to hear from the mainstream media.

...

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Chart School

A Long-Term Look at Inflation

Courtesy of Doug Short.

The July Consumer Price Index for Urban Consumers (CPI-U) released this morning puts the June year-over-year inflation rate at 2.07%, fractionally off last month's 2.13% 19-month high, but well below the 3.88% average since the end of the Second World War and 13% below its 10-year moving average.

For a comparison of headline inflation with core inflation, which is based on the CPI excluding food and energy, see this monthly feature.

For better understanding of how CPI is measured and how it impacts your household, see my Inside Look at CPI components.

For an even closer look at how the components are behaving, see this X-Ray View of the data for the past six months.

The Bureau of Labor Statistics (BLS) has compiled...



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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

NQ Mobile Shares Plummet After Announcing Dismissal Of PwC

Courtesy of Benzinga.

Related NQ Investors Focus On Earnings Rather Than Geopolitical Tensions NQ Mobile In Possible Short Squeeze; Muddy Waters Sticks To Guns

Shares of NQ Mobile (NYSE: NQ) dropped as much as 24 percent in Friday's pre-market after the company announced that it has dismissed Pricewaterho...



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Sabrient

Sector Detector: Bulls remain unfazed by borderline Black Swans

Courtesy of Sabrient Systems and Gradient Analytics

Despite a highly eventful week in the news, not much has changed from a stock market perspective. No doubt, investors have grown immune to the daily reports of geopolitical turmoil, including Ukraine vs. Russia for control of the eastern regions, Japan’s dispute with China over territorial waters, Sunni vs. Shiite for control of Iraq, Christians being driven out by Islamists, and other religious conflicts in places like Nigeria and Central African Republic. But last Thursday’s news of the Malaysian airliner tragically getting shot down over Ukraine, coupled with Israel’s ground incursion into Gaza, had the makings of a potential Black Swan event, which in my view is the only thing that could derail the relentless bull march higher in stocks.

Nevertheless, when it became clear that the airline...



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OpTrader

Swing trading portfolio - week of July 21st, 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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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 the latest Stock World Weekly. Please use your PSW user name and password to log in. (You may take a free trial here.)

#452331232 / gettyimages.com ...

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Market Shadows

Danger: Falling Prices

Danger: Falling Prices

By Dr. Paul Price of Market Shadows

 

We tried holding up stock prices but couldn’t get the job done. Market Shadows’ Virtual Value Portfolio dipped by 2% during the week but still holds on to a market-beating 8.45% gain YTD. There was no escaping the downdraft after a major Portuguese bank failed. Of all the triggers for a large selloff, I’d guess the Portuguese bank failure was pretty far down most people's list of "things to worry about." 

All three major indices gave up some ground with the Nasdaq composite taking the hardest hi...



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Digital Currencies

Bitcoin Vs Gold - The Infographic

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While Marc Faber has said "I will never sell my gold," he also noted "I like the idea of Bitcoin," and the battle between the 'alternative currencies' continues. The following infographic provides a succinct illustration of the similarities and differences between gold and bitcoin.

Please include attribution to www.jmbullion.com with this graphic.

...

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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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Promotions

See Live Demo Of This Google-Like Trade Algorithm

I just wanted to be sure you saw this.  There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.

If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.

Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.

Follow this link to register for their training webinar where they’ll demonstrate the tested and proven Algorithm powered by the same technological principles that have made GOOGLE the #1 search engine on the planet!

And get this…had you done nothing b...



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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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