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…
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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


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ValueWalk

Build A Sandcastle, Get Fined $500, And Maybe Go To Jail

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

Bryant Rylee lives a seemingly simple life. Before the state intervened in his life, his Facebook page—which has a modest 591 friends—was relatively quiet. However, that was before a sandcastle built by his son caused the city of Panama, Florida, to threaten him with a $500 fine and up to 60 days in jail, a threat that caused his Facebook page to get its “fifteen minutes of fame.”

carolbifulcovasques / PixabaySandcastle

Sandcastles are the epitome of childhood innocence and the manifestatio...



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Zero Hedge

St. Louis Just Hiked Minimum Wage By 43%; Guess What Happens Next

Courtesy of ZeroHedge. View original post here.

Seemingly no amount of empirical evidence will ever convince progressives that raising minimum wages to artificially elevated levels is a bad idea.  Somehow the basic idea that raising the cost of a good ultimately results in lower consumption of that good just doesn't compute. 

And while roughly 50% of the country will promptly ignore it, below is yet another study, from Dr. David Macpherson of Trinity University and Dr. William Even or Miami...



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Kimble Charting Solutions

Strong markets struggling at breakout levels of late

Courtesy of Chris Kimble.

The S&P 500, Banks, Small Caps and Transportation indices continue to climb higher, as the long-term trend remains up. The two charts below, look at performance over the past month and how each index is testing long-term breakout levels.

The chart below looks at how the above mentioned indices have performed over the past 30-days.

CLICK ON CHART TO ENLARGE

These key markets are a little soft the past 30-days. The Power of the Pattern below looks at where this softness is taking pl...



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Phil's Favorites

Warmest February in Decades Spikes Pending Home Sales

Courtesy of Mish.

Economists are crowing over a huge and unexpected spike in pending home sales. The Econoday consensus estimate was a rebound of 2.4% following the 2.8% decline in January. Instead, the index spiked 5.5%.

Major improvement can be expected for existing home sales in the March to April period based on February’s pending home sales index which jumped 5.5 percent to 112.3. This is well beyond the Econoday consensus which was already calling for a sizable 2.4 percent gain. This index tracks initial contract signings and though winter months are always volatile due to seasonality and...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Pound Pares Decline as U.K. Officially Starts Brexit Process (Bloomberg)

The pound touched a one-week low against the dollar as the U.K. prepared to start the process by which it will leave the European Union.

Double-Edged Sword: Home Prices Keep Rising, Home Inventory Keeps Falling (Forbes)

You are thinking about selling your home. A similar place nearby sells for more than you thought it would. You list your home. This is how the housing market is supposed to work. As a result, over time, pric...



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Chart School

Rallies Come Through

Courtesy of Declan.

Bulls were able to deliver across the board gains, helping to position yesterday's action as a swing low. Weakness at this point would offer itself as a buying opportunity, but markets wouldn't tolerate more than a couple of days of losses if they were to go down this route.

The S&P is at resistance of the prior swing low and the 20-day MA, but today's action is looking good for an upside break tomorrow? Technicals are firmly in the red and need more than today's gain to fix them.



The Nasdaq did today...

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OpTrader

Swing trading portfolio - week of March 27th, 2017

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

More Natterings

Courtesy of The Nattering Naybob

[Click on the titles for the full articles.]

A Quick $20 Trick?

Summary

Discussion, critique and analysis of the potential impacts on equity, bond, commodity, capital and asset markets regarding the following:

  • Last time out, Sinbad The Sailor, QuickLogic.
  • GlobalFoundries, Jha, Smartron and cricket.
  • Quick money, fungible, demographics, QUIK focus.

Last Time Out

Monetary policy is just one form of policy that effects capital,...



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Digital Currencies

Bitcoin Tumbles Below Gold As China Tightens Regulations

Courtesy of Zero Hedge

Having rebounded rapidly from the ETF-decision disappointment, Bitcoin suffered another major setback overnight as Chinese regulators are circulating new guidelines that, if enacted, would require exchanges to verify the identity of clients and adhere to banking regulations.

A New York startup called Chainalysis estimated that roughly $2 billion of bitcoin moved out of China in 2016.

As The Wall Street Journal reports, the move to regulate bitcoin exchanges brings assurance that Chinese authorities will tolerate some level of trading, after months of uncertainty. A draft of the guidelines also indicates th...



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Mapping The Market

Congress begins rolling back Obama's broadband privacy rules

Courtesy of Jean Luc

I am trying to remember who on this board said that people wanted to Trump because they want their freedom back. Well….

Congress begins rolling back Obama's broadband privacy rules

By Daniel Cooper, Endgadget

ISPs will soon be able to sell your most private data without your consent.

As expected, Republicans in Congress have begun the process of rolling back the FCC's broadband privacy rules which prevent excessive surveillance. Arizona Republican Jeff Flake introduced a resolution to scrub the rules, using Congress' powers to invalidate recently-approved federal regulations. Reuters reports that the move has broad support, with 34 other names throwing their weight behind the res...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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Biotech

The Medicines Company: Insider Buying

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

I'm seeing huge insider buying in the biotech company The Medicines Company (MDCO). The price has already moved up around 7%, but these buys are significant, in the millions of dollars range. ~ Ilene

 

 

 

Insider transaction table and buying vs. selling graphic above from insidercow.com.

Chart below from Yahoo.com

...

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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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FeedTheBull - Top Stock market and Finance Sites



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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