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Wednesday Wrap-Up

An Apple a day makes Dr. Bernanke go away apparently!

We have one happy group of traders at PSW as Apple is one of our "core" holdings and we've been loading up on this recent dip.  While we are not yet ready to declare victory (that comes at $150) we are certainly in a very good mood seeing them make a huge turn today.  The big move came after hours today as Tim Cook (COO) made a presentation at the GS Technology Investment Symposium and effectively negated all the BS that's been used to take the company down the past month.

Companies like Apple and Google that have policies of not talking to the press between official releases are favorite targets for hyenas, who have no such restrictions and spread rumor and innuendo with impunity as people like Bill Ackman can be spectacularly publicly wrong in their attacks knowing that they will still be invited on CNBC and treated like an expert the next time they want to assasinate a company they are short on and they can sleep soundly in their beds knowing the SEC is also asleep at the wheel.  Even a blatant fraud like Henry Blodget (who was rated the #1 Internet/eCommerce analyst by TheStreet.com in 2000) is still treated like a venerable analyst by the media but, then again, so is Cramer.

Speaking of CNBC, I love the Fast Money Recap from Tuesday night: "Google GOOG fell today on news that clicks on its site, a source of revenue for the company, were flat or down. Macke predicted that the next CEO will reduce headcount. He added that Apple AAPL hasn't been working. He advocated avoiding the two stocks.  Adami noted that Google at $513 has typically been a good level to trade around. He cited a new algorithm as a potential catalyst and called it a value stock at 18 times forward earnings. Najarian said he'd wait to see institutional money in the name." 

Yes, by all means, don't buy until everyone else does!  With advice like this it's no wonder traders are losing their shirts this month.  If you listen to the media when they tell you to panic on the dips and wait until everyone is back on the bandwagon to buy again then you are, by definition, selling low and buying high.  While they may be able to get away with that schlock advice during a massive bull rally, in a choppy market this kind of trading can shred your virtual portfolio.

We have made very few trades in the past two weeks because IT'S NOT A GOOD TRADING ENVIRONMENT – that's not complicated is it?  When it snows we don't go to the beach and when it's 100 degrees out it's usually not worth a trip to the slopes but why is it people feel compelled to trade no matter how harsh the conditions are?  Are we compulsive?  In 5 posts this week I made one pick – GS $180s, which doubled today.  There are plenty of opportunities if you wait for them…

The GS trade worked because this morning I said: "At $1.50 to the Euro, we can expect a lot of M&A activity from across the pond – this was the logic in taking BX in the first place.  Meanwhile, GS is down but not out as they still have their fingers in the same pot.  This morning’s drop will give us another shot to pick them up at $170, so I’ll be adding some $180 calls at the bell for a quick mo play."  By taking a FUNDAMENTAL view that GS was falling for no good reason, we were able to pick up the calls at $4 while the stock was going down – you need to make a stand in order to make real money!

We took the money and ran, of course – how could you listen to Bernanke and NOT be worried about the financials?  The Fed Chairman was full of doom and gloom today, listening to his statements I looked at the TV and was surprised he wasn't wearing a T-Shirt with "STAGFLATION NOW" printed across his chest.  The dollar dropped to yet another new low as he spoke, finishing the day down at 74.17 as the Euro gained another point and the Yen edged another 2 towards the magic 100 Yen to the Dollar mark.  Let's not forget that Japan is a country with a 0.5% interest rate that's been in a 20-year recession AND THEY ARE GAINING ON US! 

According to the Chaiman: "The economic situation has become distinctly less favorable since the time of our July report.  Strains in financial markets, which first became evident late last summer, have persisted; and pressures on bank capital and the continued poor functioning of markets for securitized credit have led to tighter credit conditions for many households and businesses.  The growth of real gross domestic product (GDP) held up well through the third quarter despite the financial turmoil, but it has since slowed sharply.  Labor market conditions have similarly softened, as job creation has slowed and the unemployment rate--at 4.9 percent in January--has moved up somewhat."

"The risks to this outlook remain to the downside.  The risks include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further. Consumer price inflation has increased since our previous report, in substantial part because of the steep run-up in the price of oil.  Last year, food prices also increased significantly, and the dollar depreciated."  OK Ben, you can stop now, we get it!  Despite Bernanke's dire statements, the markets held up fairly well but I predicted we would test 12,750 this week and I stand by my prediction that failing that mark will be a good reason to short next week.

Of course our man Ron Paul got right to the point – what the hell are we doing about the dollar?  "Inflation comes from the unwise inrease in the money supply, not higher prices…  If we continue to purposely debase the value of our currency it destroys the incentives to save and puts more pressure on the Federal reserve to create (air quotes) capital out of thin air in order to stimulate the economy which only goes towards misdirected investment of the type that caused these bubbles in the first place."  Is Ron Paul the only guy in Washington who gets this?  Here's a great video that shows you where Bernanke gets his BS excuses from!

It's all very sad but, as I keep saying, all very priced in at this point.  The real thing to watch is a move by China to close factories ahead of the Olympics in an emergency effort to cut down on pollution.  This move in itself is huge as the 6 provinces under order to curb production are larger than France, Germany and Italy COMBINED but the real impact will be on future growth targets for China as it's finally obvious that an economy can't grow at 11% a year indefinitely – something has to give and, in this case, it's people's lungs…

Among plants closed are a number of steel mills, which explains the runs in that sector,  High polluters like chemicals (good for DOW, DD, XOM) cement (CX, EXP, TXI) are also being shut down which will translate to a drastic slowdown in construction (bad for CAT?) with the Olympics still over 5 months away.  In Beijing, there also are plans to curb the use of autos and halt construction before the Games to clear the air.  Part of the city's massive construction works could also stop as early as May, according to people in the industry.

 


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  1. Asia Markets : Thursday, February 28, 2008

    (The following is from WSJ; please cross check with other sources to confirm.)

    Japan*

    13925.51
    -105.79
    -0.75%

    Hong Kong*

    24591.69
    107.85
    0.44%

    DJ Shanghai*

    485.87
    -1.66
    -0.34%

    S.Korea*

    1736.17
    15.28
    0.89%

    India*

    17838.08
    12.09
    0.07%


    Baltic Dry Index (BDI)
    -13 7299

    * at close
    Sources: Dow Jones, Reuters


  2. morning all

    Can anyone check the Links in the K1 article if they are work correct?

    at the k1 Project – Core Strategy I – Fundamentals

    The posts from Sage the first 3 Links don´t work.

    How to Hedge Your Portfolio
    Phil’s Stock World – A Users’s Guide – Important points in this post about how to use PSW effectively, learn to be a better trader, and become part of the team
    Don’t Just Stand There, Do Something – to be successful, you need to be able to think a couple moves ahead, and know how to react to the moves that might come at you.

    Thanks


  3. Economic Concerns Drag on Asian Stocks
    Asian markets ended mostly lower Thursday as worries about the sickly U.S. economy were exacerbated by a falling dollar, which could prop up U.S. firms at the expense of Asia’s exporters. The only two exceptions to the market selloff were Hong Kong’s Hang Seng index and South Korea’s KOSPI index.

    Prices for commodities from gold to oil remained near record highs on supply concerns and as investment funds looked for assets expected to outperform in an environment of slowing growth and rising prices.

    Japan’s Nikkei 225 managed to pare back the morning’s sharp losses to close 0.8 percent lower, as weaker-than-expected industrial production figures plus the strong yen sank exporters. Market players said shares didn’t fall as much as might be expected from the line-up of negative factors, with investors seeming to pin their hopes on another rate cut from the Fed. South Korea’s KOSPI closed 0.9 percent higher. Australian shares extended early losses to close more than 2 percent lower as selling in banking stocks intensified after strong domestic investment data raised the prospects of an interest rate hike next week.

    Hong Kong’s Hang Seng Index swung back into the black after a negative start, ending up by 0.4 percent. China’s Shanghai Composite was lower by 0.8 percent at the close. It opened higher and briefly rebounded into positive territory during the afternoon, but spent most of the day lower. China’s Shanghai Pudong Development Bank rebounded after the Chinese lender announced a plan to raise 25 billion yuan ($3.5 billion) by selling new shares, much less than it previously indicated.

    U.S. Worries Trump European Earnings
    Big-name profit reports couldn’t help European markets overcome trepidation about how big the U.S. economic slowdown will be, with most major indexes easing at the open Thursday.

    French insurer Axa and German drug maker Bayer fell more than 3 percent after updates that disappointed investors, while mining group Xstrata slid 4.5 percent on newspaper reports that Vale’s bid for the group had run into trouble.

    Mining shares were the biggest drag on the broader markets, with the Dow Jones STOXX basic resources index slumping 0.9 percent.

    Deutsche Telekom rose 1 percent after reporting quarterly profit about in line with expectations and confirming its outlook for 2008 results. And Spain’s Telefonica rose 1 percent, saying profit rose thanks to strong mobile growth. Royal Bank of Scotland, Britain’s second-biggest bank which last year led a takeover of ABN Amro, fell initially but then rose 2 percent after posting in-line earnings and raising its dividend.

    FTSE : -0.6%
    CAC : -0.71%
    DAX : -0.74%


  4. Oil Falls Towards $99 on Increase in US Inventories
    Oil eased towards $99 a barrel on Thursday, retreating further from a record high, as bulging fuel stockpiles in the United States added to concern over its slowing economy.

    U.S. light, sweet crude [ 99.28 -0.36 (-0.36%)] fell, having hit a record high of $102.08 on Wednesday. London Brent crude [ 98.05 -0.22 (-0.22%)] traded lower. Oil remained within a few dollars of the inflation-adjusted peak of $102.53 reached in 1980 and was supported by the dollar’s slump to an all-time low against the euro.

    Expectations that the Organization of the Petroleum Exporting Countries will not raise production at its meeting on March 5 limited oil’s decline, as did winter fuel demand in the United States and Europe.

    OPEC’s president, Chakib Khelil of Algeria, said on Tuesday members would not raise output, in part because of concern about a demand slowdown.

    Investors have pumped cash into commodities in recent weeks, seeking a hedge against inflation and betting on signs the U.S. Federal Reserve will keep cutting rates to prop up the economy.

    Dollar Holds Near Record Low as Rate Cuts Seen
    The dollar held near a record low versus the euro on Thursday after a sharp drop in durable goods orders and home sales fueled recession fears and Fed Chairman Ben Bernanke signaled a readiness to cut interest rates again. In contrast, the euro was supported by comments from ECB Governing Council member Axel Weber, who said on Wednesday that market expectations for the European Central Bank to cut rates failed to take into account the dangers of higher inflation.

    The German economy is solid and the euro zone economy is only likely to slow to just below its long-term potential rate this year, Weber said. The ECB would act if long-term inflation expectations seemed to be rising significantly, he said. This took the euro to a record high versus the dollar, breaking above the $1.50 barrier on Wednesday from below $1.48 on Monday, but investors seem to be pausing for breath having broken through a key psychological level.

    The euro [ 1.5096 -0.0022 (-0.15%) ] eased against the dollar, just off a record high of $1.5144 struck on Wednesday. The dollar index, which tracks its performance against six major currencies, was little changed at 74.257, just above a record low 74.070 hit on Wednesday. The dollar
    [ 106.42 -0.02 (-0.02%) ] was little changed against the yen after dipping below 106 yen on Wednesday.

    All 15 Wall Street dealers surveyed in a Reuters poll on Wednesday expected a March rate cut and saw the Fed bringing interest rates lower than previously thought. The market showed a muted reaction to remarks by Bank of Japan board member Atsushi Mizuno, who expressed doubts about the effect that any interest rate cut might have in supporting the Japanese economy, which he said was at a standstill.

    Traders were eyeing German unemployment data for February due at 9 am London time, with analysts predicting the jobless total will be down 50,000 on the month. A source familiar with Federal Labour Office data told Reuters German unemployment fell by a larger-than-expected 75,000 on the month in February in seasonally adjusted terms.

    Investors will also look to U.S. GDP data and weekly U.S. jobless claims for further confirmation that the U.S. economy is heading for recession.

    update:
    The number of jobless people in Germany in February fell by an unadjusted figure of around 42,000 to 3.617 mln from 3.659 in January, the Labour Office said. The unadjusted jobless rate in February fell to 8.6 pct from 8.7 pct in January. The number of jobless people in Germany fell by an adjusted figure of 75,000 from January. The total number of jobless people on adjusted terms was at 3.336 mln, with the adjusted jobless rate down to 8.0 pct compared with 8.1 pct in January, the Labour Office said.

    Gold down after yesterday’s record as investors pause for breath
    Gold fell after setting a record yesterday as investors paused for breath, but analysts said bullion could well rally again on safe-haven purchases, inflation fears and on more dollar weakness.

    A weak dollar, which today remained close to record lows seen yesterday, encourages US investors to turn to gold because the metal is known for holding its value. It also encourages foreign investors to buy the dollar-denominated metal, because the cost is not as high for those with stronger currencies. Higher oil prices, meanwhile, spur investment into the metal as an inflation hedge.

    At 9.45 am, the precious metal was trading at 956.60 usd per ounce against 958.50 usd in late New York trade yesterday. Yesterday, gold rose to a record of 964.73 usd per ounce. Several analysts are now calling for gold to hit the key psychological 1,000 usd per ounce level.

    Elsewhere platinum was lower as the market waited for news on South Africa’s power shortage. The crisis, widely expected to hammer mine output, has seen the metal rise almost 50 pct since late January. Both platinum group metals have risen sharply since the end of January, when state power utility Eskom caused a five-day closedown of mines after warning it could not guarantee electricity supply unless usage was cut.

    Platinum fell to 2,089 usd this morning from 2,130 usd yesterday. Its sister metal palladium, which yesterday reached a 6-1/2-year high of 560 usd an ounce, fell to 537 usd this morning against 529 usd in late New York trades yesterday.

    Silver was down at 19.13 usd from 19.23 usd per ounce yesterday.


  5. Well congrats to whomever was holding S puts.


  6. AAPL – Hold stock with basis around $120 naked. Are Mar 125 or Mar 130 Calls a better bet for protection?

    I cannot trade much during the day from now to next week, so cannot quite observe and decide, but would appreciate input so that I can place a quick trade during lunch time(s).


  7. EOG – Wow is that gonna hurt!!!!