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Weekend Reading – Always in Progress!

Interesting report from Factset titled: "An Oil Bubble to Rival the Internet Boom."

It's got lots of stats and charts, very nice and the author concludes: "Technically speaking, the energy sector could outperform further in the months ahead, but the correction could be brutal, as is the case with cyclicals. We recommend neutrality on the sector, and sales in line with bad news on the economy."  These are guys who provide top-level reports for hedge funds but it came out last weekend and it seems everyone ignored it

I was saying in comments on Friday that the price of oil is much like the Terminator robot in the first movie – no matter what bearish fundamentals turn up to stop it, it just keeps coming and coming and it grinds and crawls and claws ever higher…  Here's the clip.


I was looking at copper (because of my BHP puts) last week and it went down hard on Friday, touching 370 again and it looks primed for a nice fall.  Far be it for me to bring up fundamentals but there was a 10% increase in stockpiles this month, the most since Aug 2005.  Apparently the Chinese have reached their limit as to what they will pay and have just stopped ordering and a strike that was supporting prices at record levels in Chile just ended (from 4/16).  Here's an interesting comparison of Copper, Gold and Oil.  Note oil has decoupled from everything – If oil is trading up on international tensions, why not gold?

Again, my premise is that Food, Metals and Oil are currently using ALL of the spare money in the world and for any of them to go up, other things must come down or WAGE inflation must start to really kick in to help us pay for this stuff.  China's PPI jumped 8.1% and their currency is UP 10% over the past year, which should have kept it down a bit.  They release CPI on May 12th, possibly close to the record 8.7% increase.  “The falling U.S. dollar exchange rate and interest rates and excessive global liquidity'' require China to take extra steps to safeguard financial stability, Vice Premier Wang said. “If we don't handle financial risks well, this could cause turbulence in the overall economy and undermine social and political stability.''  The PBOC's lending rate is currently 7.47% yet their economy grows at 10.4% and the government runs a surplus.  Is our country run by idiots or what?


Now, to get off the doom and gloom wagon, Forbes (Capitalist Tools, I think is their motto) says the economy is in better shape than we think and that companies are starting to spend again, something tech needs to make a big score this year.  Forbes is blaming macro funds for being too bearish on the current market troubles.  I'm sorry but I'm still staying 70% cash!  I do think the economy is in good shape but you could be in fantastic shape and a bullet will still kill you – $120 oil is that bullet!

If you're shopping for a house, think castle!  And, if you're just shopping – think Baghdad's fabulous Green Zone district where the Pentagon has a $5Bn plan to build a shopping center with luxury hotels around a brand new $700M US Embassy "whose total price tag will reach about $1 billion after all the workers and offices are relocated over the next year." “When you have $1 billion hanging out there and 1,000 employees lying around, you kind of want to know who your neighbors are. You want to influence what happens in your neighborhood over time,” said Navy Capt. Thomas Karnowski, who led the team that created the development plan.  This is one of those times I really wish I were joking!

"For the moment, however, it’s mortars and rockets — not investment money — pouring into the Green Zone, which includes the U.S. and British embassies, key Iraqi government offices and other international compounds. Militants have escalated their shelling of the enclave since Iraqi forces began a crackdown on Shiite militias in late March."

Yet another economic accomplishment of the Bush Administration – Welfare rolls are on the rise in 27 states, reversing decades of progress!  Bush has cut the welfare budget considerably with just $37Bn in food stamps (a whopping $1,870 per person for the 20M people living in abject poverty).  This is just over the amount of the welfare check handed to JPM/BSC last month to keep those poor people in Cristal and there is a $300Bn welfare bill caled the farm bill moving through Congress that will pay farmers record money at the same time they are charging record money for their food – nice way to buy an election…

Who needs tasers?  Certainly not the Philly police, who get caught beating the hell out of a guy the old fashioned way

Speaking of guys who need to be tasered – Ron Paul may be out but he's not down and his supporters are wrecking havok at the Republican primaries (yes, they are still having them).

Someone else who needs to be tasered:  5 ways Hillary can still win the election video.  Slate magazine has a Hillary deathwatch, now down to 2.5% chance of winning while Bush is stacking the FEC to make sure no one gives McCain any troubles.





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  1. Hi Phil,
    I am a partner in a software services consulting company with a national client base.  We’ve just recently started to see sporatic data points that things are are softening in the IT services / software sector.  Financial services companies have already cut back, but we may be seeing an impact in other sectors. 
    Have you seen any similar data points yet?  Since this data is very recent, I wouldn’t expect it to show up until next quarter’s’ earning, but it may be something to watch for.
    Also, if you know of any big ($5 Million plus budget) software projects in trouble, or a software company or project that need to be assessed, this is the type of work that we do.

  2. Good Morning Phil…since it is the weekend I guess slightly off topic is allowed….food and oil prices…and good old behaviour modification..I know this is a desparate situation for many, but strangely I find I am using way less gas and eating better because of it…simply by thinking a bit before starting the engine..I walk or ride my bike etc if I can…and not just blindly throwing items in a shopping cart , but taking a few minutes to think first… will love this,,,we have a talking head here in Canada suggesting that the "additional " energy costs" required to grow the extra food I will require to walk and ride my bike EXCEED the energy savings from my reduced consumption.of gas…this guy is a sure bet  to have his own show on CNBC soon..I may have to jump in my car and go to the corner store to buy my lottery tickets just so I have the time to watch him…
    Also…is their a cost/benefit analysis to suggest Public Transport should be free ???  I am not sure how much tax is applied in the USA to a gallon of gasoline..but could it not be rerouted to public transportation…maybe tax exemptions at the employer and /or employee level for transit passes…I would think that a lot of the people who rely on public transport the most  are the people who would really benefit the most from this increase in disposable income…
    Canada is looking at a "carbon tax"…but is saying it would somehow be revenue neutral as it would be offset magically by reduced personal taxation rates or creditsonce they figure out how much carbon each taxpayer is using to get a bench mark to reduce good is that…someone will now be comparing emmissions from charcoal briquets versus gas barbeques…but more to the point…it is another policy that seems to make water run uphill…the personal tax relief would go to the more affluent…many people below the $30,000 income level pay no income taxes as  it stands now…but consumption taxes up the whazoo…I saw a stat saying they spend about 15% of their disposable income on energy costs…and many of these people do not even own automobiles…                                                                              Sorry to babble and rant on a beautiful Sunday morning..but I have enjoyed your commentary and opinions on reducing consumption as the key to a solution and just wanted to add my 2 cents…which I would add immediately to the price of a gallon a gas to fund the public transit initiative…if gas prices could drop as a result of it, I do not think the 2 cents would be noticed on the way down..time to walk the dog…

  3. Check out this video…
    The production of HHO, from water and electricity. This guy is designing cars that will run on either water or gasoline.
    Pretty interesting!

  4. WT
    A few weeks back i posted several things about hydrogen on demand systems to improve the efficiency of gas and diesel engines.  Using sodium borohydride and electroysis you generate hydrogen and it improves the explosion in your cylinders.  Peope are claiming 25-40% improved mileage.

  5. Patrick – Of course you know IBM had very good numbers as did some other International software co’s, do you think the problem you see is limted locally or do you see your space as differing from IBM or are they kicking your ass or do you think they are neglecting to warn investors of the softening you see?

    I don’t know any big software projects and that in itself is a bad thing as usually there are enough going on for a few of them to be going badly…

    Levost – I see lots of behavioral changes, even in my fairly upscale area, most notably among kids, who are cutting back out of necessity indicating the parents aren’t whipping out the c-notes every time they want to head to the mall or whatever.  It’s interesting watching what happens to teenagers because even the nice, intelligent, hard-working ones have pretty limited earnings capacity so they are getting squeezed very hard by gas and food inflation since that is their main variable.  We just bought slices of plain pizza for $3.50 each last night at a regular place, that kind of took me by surprise (I’m pretty price oblivious usually) as that used to be what you did when you had no money.

    As to public transportation – I don’t think it so much has to be free as extremely competitive.  In NY, you can take the subway anywhere for $2, the same price as it costs just to step into a cab.  I do think they should make it free for kids under 16, again as it’s a burden on the parents and kids have limited ability to make money.  That’s what you don’t see in the subway is groups and families as once you have 4 people, you almost may as well take a cab.  In general, public transport is a major infrastructure issue and this country has never taken it seriously.  In most of the world, you don’t have to wonder if 2 cities are connected by train, you just go to the station and find out what time.  We can barely get from NY to Boston or Washington without a major hassle.  That’s would take decades to fix…

    That Canada tax scheme sounds bizarre, send me a link if you have one.  I think tax is a BS solution because it simply punishes the poor.  My plan is to encourage then mandate 35mpg by "taxing" cars that are under 25MPG by $1K per mpg and rebating cars that are over 25Mpg by about $1K per mpg and moving the midpoint up 2 miles per year until we get to 40.  That let’s people make a free-market decision, if you want to buy a Hummer, then pay the $15K penalty and help someone else buy a Prius for $15K less.  That will drive demand for fuel efficient cars immediately and, since we waste so much fuel driving low-mileage vehicles, starting there will have the most, immediate impact on our fuel consumption.

    Mass Transit is a great idea but once you’ve developed the bulk of the country to this extent, the idea of ripping it all up to put in trains is highly unlikely.  Europe and Japan already had low-speed trains and stations and towns were built around them and now they have upgrated tracks to accomodate high-speed trains that compete effectively with cars and planes but, even if you upgraded the few hubs we do have in this country, the spokes are an entirely different matter.

  6. Water for fuel – I hope that actually works but I am a bit skeptical that it can be that easy, mainly the problem is dying a horrible firey death a la Hindenberg.  It’s not too hard to separate hydrogen from oxygen but then you have one flamable and 2 explosive molecules, so you’d better be damn sure about your safeties or the Pinto will seem like a Volvo by comparison.  Also, you have to look at the net energy input of the system required to achieve the separation – often there are very high front end production costs that are not apparent on the back end.  We use gas because it requires very little energy  to break the bonds and unlock the burnable fuel.

    The sun strikes the Earth with 1,000 times more energy than we consume in a year and the land collects 25% of it and if we figure out a way to use 2% (10% efficiency) of our land to collect solar energy (think rooftops) and convert cars to electric, we would be able to power pretty much everying on earth forever with zero pollution or cost (other than the pollution and cost of solar cells!).   THAT’S a goal we should be pursuing because we do use 1.3Tn gallons of oil a year and if our solution is to start using 1.3Tn gallons of water a year, we could just be trading one shortage for another down the road…

    Here’s a good statistic:  The total amount of energy stored in all the coal in the world is equal to the amount of energy hitting the earth from the sun every 6 days – what do you think a rational society should be working on?

  7. Hello Phil.  Will you have a review of your long term portfolio this weekend?  I am having a difficult time finding your overall position.  Sometimes I read your comments and you sound like we are ready to fall off a cliff due to gross mismanagement of the Bush administration and runaway commodity prices.  But then I also sometimes see you point to other factors in the economy that are not so bad and look good.  You have many more calls than puts in your long term portfolio and more bullish custom spreads than bearish.  You have a lot of technology, big builder, retail, and financials.  So this seems like you are not looking for recession, no?  I know this is not simple yes no question, but as someone with 80% cash, I would like to know whether you think now is a good time to start building positions and where.
    Thank you for your time.

  8. Phil  – here is the Carbon Tax announcement British columbia introduced in the last budget: The tax brackets for BC are here:

  9. "THEY"
    I couldn’t help but think of our community as I was reading this column in the Houston Chronicle this morning.  Basically this is talking about a recent book by David Rothkopf called "Superclass:  The Global Elite and the World They Are Making".

    I won’t recount the whole article here, but here are a few quote I thought were interesting -

    "In addition to top officials, these people include corporate executives, leading investors, top bankers, media moguls, heads of state, generals, religious leaders, heads of terrorist and criminal organizations and a handful of important cultural and scientific figures. Each of these roughly 6,000 individuals is set apart by their power and ability to regularly influence millions of lives across international borders. The group is not monolithic, but none is more globalized or has more influence over the direction in which the global era is heading.

    Doubt it? Just look at the current financial crisis. As government regulators have sought to head off further market losses, they’ve found that perhaps the most effective tool at their disposal is what the president of the New York Federal Reserve Bank described to me as their "convening power" — their ability to get the big boys of Wall Street and world financial capitals into a room or on a conference call to collaborate on solving a problem. This has, in fact, become a central part of crisis management, both because national governments have limited regulatory authority over global markets and because financial flows have become so large that the real power lies with the biggest players — such as the top 50 financial institutions that control almost $50 trillion in assets, by one measure nearly a third of all assets worldwide."

    "They play officials in country X against those in country Y, gaining leverage that makes the old rules of trade obsolete."

    Since we seem to spend so much time lamenting the increasing concentration of wealth and power in our world today, I thought this article (and book) were amazingly on target and apropos to our ongoing discussion of the topic.  Note the interesting statistics that are remarkabe only to those who don’t read Phil’s comments on the subject regularly.

    Do fundies matter as much as reading the "tea leaves" about what these guys are doing?

  10. Hi Phil,
    The data points that we are seeing are fairly recent, in the last 4 to 6 weeks, so it may not have made it into IBM’s forecast.  Then again, IBM is diverse enough (especially in realestate, as I understand it) that they may be able to ride out some softening without a blip. We are in one of the spaces that IBM is in and we only compete in a narrow sense, as the majority of our business is services related.  Many of our clients do use IBM software in some form or fashion, though.  I think that, as Q2 progresses, I will get a better feel for the IT market in general, if we see softening reported elsewhere, there is a good chance that it could happen with Big Blue.
    Also, IBM is in the list of positions (from Thursday’s chat) that I was wanting to consolidate.  Did you get a chance to look at it yet?  The last week of down market has made me a little nervous – as the positions transition. 
    I have also been thinking about your suggestion to go long the SPY and sell calls for income as a lower stress alternative to picking stocks.  I want to explore this in more detail, but will make another post to do so…
    Thaks for all of your help

  11. phil- sweet oil research. especially the oil/copper/gold chart

    richard- very nice article, this story needs more circulation- thanks. this is the kind of thing the radical-left has been saying for decades- often, not very eloquently, but sometimes w/ piercing eloquence.

    the world is being pushed into the central/south american model of society. certainly, there r other examples, but cen/so america is where im familiar w/ that.

    pretty grim…

  12. nice article on crude futures trading. ICE traders don’t need to report anything to CFTC while NYMEX traders do. So, it is the disgusting bastards at ICE and not so much NYMEX that are screwing us.

  13. Phil – The total amount of energy stored in all the coal in the world is equal to the amount of energy hitting the earth (magnetosphere or ground?) from the sun every 6 days – what do you think a rational society should be working on?
    Phil are you suggesting that we’re running out of oil soon?
    If the sun is just a fusion reactor, is it more rational for a society to build their own, and harness the energy directly… Or is it more rational to catch photons with a net?
    The ability to collect energy decays with distance away from the sun. I think every sun-to-earth (AU) distance you move away, you recieve 1/4 less energy (E=1/4AU). Also our sun is one of the bigger suns in the universe (class G)… The most common gives the same energy to the earth from the distance of mercury (Class M).

  14. I’ll try to get on after dinner but check out, they are my favorite up and comer in solar, this is one IPO I will be buying into…

    Patrick, repost whatever you wanted me to look at and I’ll try to get to it later.

  15. Phil, what are your updated thoughts on WMT?  Do you think they have room to run.  Seems like they have already had quite a move  44 to about 59 at it highest this month?

    I continue to observe a lot of changes in the plastic surgery market. Many cancellations.  I think this summer will be interesting.  we’ll see if americans changes their vacation/driving habits.  I know my dumbass brother inlaw is still going to disney eventhough he can’t afford groceries.

  16. Patrickc, I don’t think IBM would have given such a bullish forecast followed up by a dividend increase if they even had a whiff of a softening envt in their business.  They are making a truckload just based on currency.  Even if the dollar rallies, it won’t be reflected in IBM’s earings for a few quarters.  In additon, they can just vary their buyback  to adjust their eps.  They seem to be a real solid LT play in my opinion.

  17. Phil:
    next Saturday expiration of options:
    remaining premium for ITM options will be very small on Friday,

    when do you usually get out of ITM options ?

    Did you watch this great golf tournament at Sawgrass ?  The ebst I have ever watched.

  18. nanosolar – I really like what they’re doing with solar. That’s a big step in a right way. If every roof on every house / corporate building was laid with this, it’ll help a lot. This theortically could make it possible. Good find.

  19. RMM
    I watched the last 4 days when i was not playing.  It was good. Too bad for grydos.

  20. Since we’re talking about solar, I stumbled across this today: they’re claiming they will be able to produce energy at 5 cents per kilowatt (and with 37% efficiency for those who care) and and available for commercial consumption in about 12-15 months.  If they really manage this the game should certainly change…

  21. Treasury Cash Avalanche Offers Respite for Bear Market in Bonds

    By Sandra Hernandez and Daniel Kruger

    May 12 (Bloomberg) — Treasury investors beset by rising debt sales and faster inflation are about to get a reprieve.

    Holders of U.S. government notes and bonds will be handed a net $71 billion this week from maturing debt and interest, a record, according to the research unit of Jersey City, New Jersey-based ICAP Plc, the world’s biggest inter-dealer broker. In all of last year, the Treasury returned $73 billion more to investors than it sold.

  22. Market Takes a Breather
    The market reached a very critical juncture last week and chose to take a breather. Neither bulls nor bears have stepped up to take control. The market seems confused. Here’s why:
    The Dow Jones Industrial Average broke out of its 2008 trading range on April 18 when it closed above 12,750. However, it was the only major index to break out and it took a week before anyone that bought that day to finally make any money. The spirit of a breakout, a sea change of mood from indifferent to excited was just not there.
    But since that time, the market has been moving higher. Most major indexes have also moved above their respective 2008 trading-range tops for a good confirming signal.
    But volume, the fuel that drives bull markets, has been falling over the entire rally. Falling volume means there’s little conviction by the bulls and that also diminishes the spirit of the breakout.
    But fund managers that sold some of their favorite holdings during the first quarter are now under performing the S&P and need to do some catchup buying.
    My advice to traders and active investors is to take it easy until the market makes up its mind. And while we wait, we’ll be looking for opportunities to buy the growth stories of this year which are not the Googles and Apples of last year, but are oil, gold, and (don’t laugh) potash, fertilizer and food. They’re calling it "Agflation" and the charts of participant stocks look very similar to those of CSCO, YHOO and EBAY back in the day. Stay tuned as we uncover some exciting trading opportunities in these and other growth areas of the market.

    Have a great week!
    -Anatole Raif,

  23. Phil,
    Apologies in advance for the book.  My wife has fired her broker, and I need to try to clean up the portfolio.  Hopefully, by next Monday, the shares will be transferred to the new account, and I will be able to liquidate and consolidate.  My premise for realigning the portfolio is:
    1. I think that there is at least one more big leg down to 10,000 in this bear market – maybe with a low in August or October, partially due to the recession and partially due to the financials terrible balance sheets. 
    2. I think that we are now in a choppy counter trend rally that may be ending now, but is just as likely to last 30 to 60 more days.  
    I want to take advantage of this rally to get out of positions that are likely to be hurt badly in the next leg down, and generally focus on:
    • Capital Preservation – hold stocks that are slightly to mostly defensive
    • Reduce the number of stock holdings to some reasonable number (maybe 5 to 10)
    • Maintain diversification
    And do this while taking the maximum advantage of the rally to target exit points for stocks that I want to sell, to get the greatest near term price (i.e. highest possible price within the next  +/- 30 days)
    Here are the positions in (approximately) the order that I like them.  From “add now” for the first couple to “Sell quickly” to the last couple.  I’d appreciate any feedback you could give me as to what to adds, holds and target exit points for the rest. Since I can’t touch these until Monday anyway, any time that you get a chance between now and then to look at these would be greatly appreciated.
    LPL – Forward PE is 5 (based on 1 analyst estimate).  Cost average in at 21 or add on break above 26.
    PG – Defensive stock.  Want to add at 66 to 67.
    UTX – Defense and defensive stock.  Add on break out above 82.
    BNI – Rails are doing nicely.  Add on dips to 20 DMA.
    MCD – Add on dips to the 20 DMA.
    ISH –No idea on a target price.  Swap out for BNI?
    IBM – How much upside is left? Sell at 124+?
    XOM – I know what you think about this long term!  Any chance it can retest the 20 DMA @ $92?
    ADP – I’d like to get 46 or more. Chances?
    EV – screaming back from a pummeling.  Can it break over 45?
    MCO – Currently above both 20 and 5 DMA.  Any chance this will last?
    PFE – Ugly.  Being rejected at the 20 DMA. Is this at all a defensive play if the market tanks?
    HIG – Double Ugly.  Any near term or long term upside?
    Thanks for all of your help.


  24. Hey Phil:  Maybe Nanosolar could create solar cell like sails hoisted up a mast on a boat?  Wind or solar power, now thats the ticket.  May not be fast, but would save a fortune on fuel.

  25. Phil – any chance of posting LTP review… please!

  26. Research In Motion Unveils Speedier BlackBerry, Beating IPhone

    By Ville Heiskanen

    May 12 (Bloomberg) — Research In Motion Ltd. unveiled a BlackBerry phone with quicker Web browsing and more room for songs and videos, getting a jump on a faster iPhone that analysts expect next month.

    The device, called the BlackBerry Bold, has a brighter screen and better Web browser than previous models, co-Chief Executive Officer James Balsillie said in an interview. The phone, which also has satellite navigation and a video camera, will start selling at AT&T Inc. for $300 to $400 this summer in the U.S., he said.

    The product sets up a showdown between Apple Inc. CEO Steve Jobs and Balsillie in the market for so-called third-generation phones, which offer speedier Web access and video downloads. Such phones are the fastest-growing part of the handset market, with users quadrupling to 400 million in the next three years, RBC Capital Markets estimates.

    “You need to provide faster networks, faster processors,” said Balsillie, 47. Consumers are using “more and more multimedia” and “there are lots of contenders out there.”

  27. AAPL, GOOG and RIMM Dominate the Nasdaq 100
    I have AAPL, GOOG and RIMM leaps and QQQQ shares. Will sell the QQQQs and buy some QQQQ puts as a hedge against all the three :-)

  28. wsj – oil speculation hearings:
    House Panel to Hold Energy-Speculation Hearings
    May 12, 2008
    A House committee has begun an investigation into speculation in energy markets, including the role of investment banks, and is planning to hold hearings in May and June, according to a Democratic aide and several people invited as witnesses.
    In particular, lawmakers are taking aim at hedge funds and investment banks, blaming them for playing a pivotal role in pushing crude-oil prices to record levels. Crude futures set a new record Friday, closing at a record high of $125.96 a barrel on the New York Mercantile Exchange.
    The House Energy and Commerce Subcommittee on Oversight and Investigations has scheduled a hearing for May 21 on gasoline prices, which will touch on the issue of possible market manipulation, according to the aide and witnesses. That would be the day after a planned Senate Energy and Natural Resources Committee hearing examining speculation.
    A larger, more in-depth House hearing on the investigation is being planned for June, the aide said. A spokesperson from the Energy and Commerce Committee couldn’t be reached for comment.
    In June 2006, the Senate Homeland Security and Governmental Affairs Subcommittee on Investigations released a report on the role of market speculation in oil and gas prices. The report said that as an increasing number of U.S. energy trades occur on unregulated, electronic exchanges or through foreign exchanges, the Commodity Futures Trading Commission’s oversight program becomes less comprehensive and needs strengthening.
    The Senate Democratic leadership has unveiled as part of its energy package to lower oil and gas prices two provisions that would raise the cash collateral needed to trade energy futures and would establish oversight of foreign markets operating with U.S. terminals.
    Both the New York Mercantile Exchange and the Intercontinental Exchange — the two major exchanges that operate energy trading — have criticized the proposals.

  29. Good Morning All

  30. Asia Market Summary, May 12, 2008
    (The following is from WSJ; please cross check with other sources to confirm.)

    BODY,DIV,TABLE,THEAD,TBODY,TFOOT,TR,TH,TD,P { font-family:”Norasi”; font-size:x-small }


    Hong Kong*

    DJ Shanghai*



    Baltic Dry Index (BDI)

  31. sorry about the messy post…little rusty. :-)

  32. Good Morning Ramana – welcome back

    UK up about 0.5%. Seems HSBC not as bad as everyone feared. Beats me

  33. Oh – Just caught up with the FDX announcement. Luckily I decided not to double down on Friday. Did their announcement leak ?  because they were certainly a lot weaker than the market Friday. Think I might just cut my losses here.

    Phil – what are you intending ? (Assuming you still have them)

  34. Strong Dollar Lifts Asian Markets, Japan Ends Higher

    Markets in South Korea and Hong Kong are closed for a holiday. They will reopen Tuesday.

    Asian markets closed mostly higher Monday, as a stronger U.S. dollar cheered investors and lifted exporters. Both Australia and Japan closed up with Australia gaining almost 1 percent. The dollar climbed back towards a two-month high versus a basket of currencies as signs of economic weakness in Australia and New Zealand showed the global slowdown spreading, a shift that is expected to help buoy the battered U.S. currency.

    Tokyo’s Nikkei 225 Average climbed 0.6 percent to its first positive close in three days, boosted by a retreat of the yen against the dollar that helped exporters and by gains of other oil-linked firms as oil hovered near record levels. Financials  lost ground on rekindled worries about the financial sector in the United States. Australian shares rose nearly 1 percent to 3-1/2-month highs as news Westpac Banking Corp was in takeover talks with St George Bank lifted banks such as National Australia Bank.

    China’s Shanghai Composite Index moved back into the black, closing 0.4 percent higher, despite fears that rising inflation might soon prompt officials to take economic cooling steps, after the release of consumer price data showing inflation rose to 8.5 percent in April. Property developers, which are most vulnerable to monetary tightening, fell. Vanke, China’s largest listed developer, slumped over 4 percent. Financial shares were mixed with Industrial & Commercial Bank of China, the country’s biggest lender, edging higher.

    Oil, HSBC Help Markets Bounce

    Volumes remained light due to partial holidays in some countries such as Germany and France.

    European shares gained ground early on Monday, making good some of the losses from the previous session, led by energy stocks on high oil prices, while banks inched up as HSBC posted mixed quarterly results.

    Shares in HSBC, Europe’s biggest bank, gained 1.9 percent after it said its quarterly profit was better than a year earlier as growth in Asia and elsewhere helped counter a $3.2 billion bad-debt charge related to its U.S. consumer finance business.

    The FTSEurofirst 300 index of top European shares was up 0.7 percent at 1,351.75 points.The index dropped 1.3 percent on Friday, hit by downbeat corporate results and inflation worries fueled by record oil prices.Energy shares were among the top positive weights on the index on Monday, with Total up 1.8 percent and BP up 1.1 percent.

    French luxury goods group Hermes surged 10 percent
    as traders cited market speculation of stakebuilding in the company.
    Around Europe, Germany’s DAX index was up 0.7 percent, Britain’s FTSE 100 index rose 0.5 percent and France’s CAC 40 was up 0.9 percent.

  35. Good Morning DB. Thanks

  36. Oil Eases Towards $125 on Stronger Dollar

    Oil eased toward $125 a barrel on Monday, as a stronger dollar and profit-taking put the brakes on a rally that took it to record peaks last week.

    U.S. light, sweet crude ] for June delivery fell, off Friday’s new record high of $126.27 hit on supply concerns and a rush of speculator buying. London Brent crude also fell.

    Crude oil speculators on the New York Mercantile Exchange hiked net long positions in crude oil to 63,218 in the week to May 6, up from 53,311 in preceding week, data from the Commodity Futures Trading Commission showed on Friday. Oil has jumped about 13 percent since slipping to $110.53 a barrel on May 1, as investors seized on supply disruptions in the North Sea and Nigeria, and galloping demand for distillate fuels, notably diesel.

    Oil’s runaway gains prompted talk last week OPEC could consider boosting output before its next scheduled meeting in September should crude oil prices keep rising..
    But oil ministers from Ecuador, Qatar and an Iranian oil official said there were no plans for an early meeting as soaring prices were out of OPEC’s control.

    Data released by China on Monday showed that crude oil imports fell 3.9 percent in April from a year earlier, the first decline in 18 months, after refiners slashed purchases from March’s record high and stepped up refined fuel imports. China, which is likely to overtake Japan as the world’s second-largest crude buyer after the U.S., bought 14.24 million tonnes or 3.47 million barrels per day of crude in April, down from an all-time high of 4.07 million bpd in March.

    Dollar Climbs as Stock Markets Rise Slightly

    The dollar rose on Monday, closing in on a two-month high against a basket of currencies as a slight rise in risk appetite and growing speculation that cuts to U.S. interest rates may soon end boosted the U.S. currency.

    Weak economic data suggesting that Australia and New Zealand may be heading for rate cuts pushed down the high-yielding currencies of both countries, as lower rates would trim their rate advantage against other currencies including the dollar. Market liquidity was thin however, with many European markets closed for holidays, and analysts said that this may aggravate currency moves.

    The euro traded lower against the dollar, hovering within range of a two-month low of $1.5284 hit last week. Against a basket of currencies, the dollar rose 0.4 percent to 73.428, pushing towards 73.895 touched last week for the first time since early March. The dollar rose to a session high of 103.80 yen, much of the gain having been made before news of China’s earthquake. The Australian dollar was down against the greenback, as was the New Zealand currency near a four-month low hit earlier in the day.

    Mounting signs that European growth is stumbling has stirred speculation the European Central Bank could tiptoe towards trimming rates.

    A string of poor economic data in the euro zone, along with the outlook for the Fed to keep rates steady, drove the dollar’s rebound to two-month highs against the euro and a basket of major currencies last week.

    Gold softens as dollar firms vs euro, oil dips from record highs

    Gold softened in early trade as the dollar firmed a touch against the euro amid expectations that interest rate differentials will shift in the months ahead, and as oil prices slipped from Friday’s record highs. At 10:26 a.m., spot gold was trading at $880.85 per ounce against $885.00 in late New York trade on Friday.

    Oil prices — a rise which is a key factor in higher overall inflation — remain very firm, albeit off their record highs, and the U.S. Federal Reserve has indicated that inflation is becoming an increasingly serious concern. Among other metals, silver slid to $16.74 an ounce from $16.84.

    Elsewhere, platinum dipped to $2,039 an ounce against $2,093, while palladium was trading at $435 against $440.

  37. Patrick – As I mentioned, I think your main problem here is not covering your stocks and I think you may have your premise backwards as I still think that the dollar rebounds from here and oil breaks at some point and we still have a rally after Q2 earnings turn out BTE.  As I mentioned in the wrap-up, I have a big concern this week and will continue to be worried until oil comes back below $120.  We get a lot of data this week so we’ll see how it goes.

    LPL – I like them for the same reason I like AUO but rather than buy 100 shares of stock at $22.79, I’d rather buy 2 Oct $15s for $8.30 (effectively paying $23.30) and sell 1 June $22.50 for $1.60.  That gives me control of 200 shares for $7.50 each with an effective price of $22.50, actually less than the current price yet I commit 66% less capital.  On the downside, I lose no more than I would if I had 200 shares of the stock and on the upside, I have limited my upside gain on 1/2 to 0 (of course I can roll the caller) but I get the full benefit of gains on the other half for anything above $22.50. 

    Realistically, I can roll the June $22.50 caller up to 2x the June $25s for .25, leaving me fully covered at $25 but clear to make $2.50 to the upside, more than 10% in a month.  If this is not as good as your average month, then pay no attention but if you get past this first month and then can sell July $25 for .60 and Aug and Sept, that’s $1.80 more paid against your Oct $15s, reducing their basis to $5.70, putting you at an effective $20.70 at October’s expiration.  If the stock is at $25, you make $4.30 going with this hedged strategy vs. $3.21 owning the stock. 

    To further confuse you.  Suppose you use this strategy to max out the use of the same dollars…  At $22.79 per share, 100 shares costs you $2,279.  And the most you could make on a $10 run is $1,000, while a $10 drop will cost you $1,000.  If instead I pick up 4 Oct $17.50s for $6.30 and sell 2 June $22.50s for $1.60, I’m spending $2,200 and I’m capping the gains on 1/2 of my contracts at $22.50 but a $10 move up will net me $2,000 (roughly) as I control 200 long contracts.  A $10 drop would knock my calls down to about the level of the Oct $25s (there are no $27.50s) which are $2, so we’re looking at a $1,200 loss to the downside but that is assuming the loss comes between now and June 20th because on June 20th we pick up another $320 selling July calls.

    These are just things all of you stock buyers should think about before you tie up all your cash in stocks.

    PG – I like them but what are you hoping to gain?  10%?  When?   Especially with a dead stock like PG, you can pick up Jan $50s for $15.85 that have just .60 in premium (4%) and you can sell June $65s for $1.55 (10%) so by the second month selling options you can make more money on a % basis than you would if the stock hit $72.50 (about the ATH).  You’d better be REAL bullish to tie up $65.21 here.

    UTX – I love UTX but you have to watch a slowdown of building in China to hurt Otis and Obama moving up in the polls against McCain to hurt both Sikorsky and the rest of their aviation division as all their commercial work is pretty much priced in already.  We bought these guys last July and they’ve gone nowhere since but we’re up 134% because our callers have reduced our basis and we sold the June $75s on the run up because we’re not greedy and that guy gave us $1.60 against our now $3.80 basis so the position is throwing off about 30% per month with 50% coverage.  How’s your stock doing?

    BNI – At what point do you ever take a profit?  I like the rails but not at 300% of ‘04 pricing. 

    MCD – I like them but it’s the same thing, where do you think they are going?   I like stocks like MCD and BNI because IF they go down, I’m willing to stick with them as I keep selling front-month calls but I do not see the booming economy that indicates you should be tying up a lot of money in this stock or BNI near the all-time highs.

    ISH – At least this one is at a low, rather than a high…  I don’t watch these guys but my attitude is that if they can’t make money in the recent commodity environment that has the rails and DRYS at record highs, then what will happen to them in a recession? 

    BM – IBM is in my retirement account, one of the few stocks I would never sell (but I do sell calls against them!).  In 5 years theyve gained 50% and they are just back to 1999-2000 levels now.  I think there’s a lot of resistance up here at $125 and they’re not going to break it without a big Nas move (even though they are not in the Nas).

    XOM – I think they need to get over the $500Bn hump ($94.50) before they can really go anywhere and I also think that if the POO drops on them, there is no way they can control their expenses, which gave them "just" $11Bn in profits on $116Bn in sales last Q.  If oil goes down 10% (avg $102 in Q1) that’s 100% of their profits less being collected for the same amount of oil.  There’s little danger of that this quarter as we’re averaging about $114 so far but watch their costs continue to rise and each time it’s going to be worse and worse if oil starts heading down.

    ADP – Probably not the best choice if unemployment starts to rise

    EV – No, they cannot break 45, you should be more concerned with can the break $37.50, then $35, then who knows…  They make most of their money rolling out new funds and if investors lose their appetitie for the old one, it’s going to be hard to push the new ones.

    MCO – Controversy, lawsuits, possible regulation – no thinks.

    PFE – At least they pay a dividend.  Long-term, they survive but, as with the rest, why would I tie up $20 hoping to make 30% (assuming they retake highs) in a year or so when the 2010 $15s are $5.17 with a .42 premium (.02 per month) and I can sell 1/2 the June $20s for .4

  38. Welcome back Ramana!

  39. Morning Phil….Meredith Whitney on Blomberg this morning….about 20 minutes spent kicking the crap out of C and suggesting it may be hugely overvalued at current share price..

  40. Ah Meridith, the thing that will not die…

    LTP Review – generally I do the review when I know what moves I want to make but by Wednesday regardless.  Of course the LTP is up today as of Friday’s close and, at the moment, I’m leaning towards the same heavily covered mode.  We are ready to fall off a cliff due to gross mismanagement of an otherwise robust econony.  Money is being sucked away from 83% of the S&P by the 17% that makes up the energy sector (was 8% 3 years ago).  When money is being taken away from long-term producers and put into something we burn – it’s a huge problem, one that threatens the fabric of American life far more than terrorists ever could yet nothing is being done about that.

    I am not looking for a recession though, the global economy is very strong or it would have died long ago and I don’t believe oil prices can be sustained at this level.  Oil prices going back to $85 would put $40 x 85Mb a day back into the hands of global consumers (not even including ancillary inflation), which works out to $1.2Tn a year that can find it’s way to the other 87% of the companies in the S&P 500 – that’s pretty bullish don’t you think?  If that doesn’t happen, we’re screwed…

    Carbon Tax – Thanks Marek.  It’s a shame they are working it into tax breaks and not funding alt-energy projects.

    THEY – Very nice Richard!  This is what I always say, it doesn’t have to be a "vast global conspiracy" when any one of these people can move markets by themselves.  Do fundies matter?  Well these guys are part of the fundamentals aren’t they.  Some of these guys are renting the tankers that have 200M barrels of crude parked around the world, they can speculate in a way that ordinary investors never could, paying $65,000 a day to store $200M worth of oil per tanker and the fundamentals are if they fail to gain that 1% per month they are paying for rentals and see their profit start to slip from the 50%+ it’s at now (we first reported on this nonsense last summer when oil was at $70) then these guys will make a very impassionate decision to dump the barrels at $100-$120. 

    This is one of the resons I think the analysts will be "shocked" at the relentless decline in oil, they can’t wrap their heads around the fact that some George Steinbrenner type, who isn’t really in the oil industry, just tossed $150M into a tanker last summer and is now looking at $220M less the $24M in rentals so that’s $196M or about 33% profit which, when oil flatlines, is declining by $2M a month in tanker rentals alone.  So it takes ridiculous calls like "OIL $200!!!" to keep those guys from dumping while the professional oil roaches weasle out of their positions before the big ameteurs realize they’d better get out and wash out the market.

    ICE/MJ –

    Magnetosphere or ground – I’m pretty sure that’s ground, in the atmostphere, if we could work out the transfer system, we could put up platforms that would produce nuclear plants worth of energy.

    WMT – I love them in a recession but only because they won’t go down and we can sell calls, as I said to Patrick, who wants to hold a stock to maybe, maybe make 10% next year? 

    Plastic surgery cancellations – Now THAT is scary!

    Expirations – I do most of my rolling by Wednedsday or Thursday except for things that I think are going to expire worthless or, possibly, if something is so in the money that I’m hoping for a drop but at that point, I may as well just roll to the same DITM of the next month and hope for the same drop.  Mainly I identify my intended rolls and keep track of whether the spread is moving for or against me and try to get a good price for the roll when I can.

    Sungri – Sounds to simple to be true.  It’s like "Duh, if you want more power from the sun, why don’t you use a magnifying glass?"  All a maginifying glass does is concentrate the sun’s strike over area X and concentrate it in area Y as the light energy is bent through the glass.  Of course there is the point that you may need more glass and less solar cells and the solar cells can be less efficient so it all depends on the trade-offs but, the bottom line is – there’s no free lunch – at some point you need a surface that is struck by the sun as a magnifying glass does not "create" energy, it only concentrates it so you replace the surface area of the cell with the surface area of the glass.  I won’t say Sunrgi is a con but it has all the elements of one…

    Good market advice Windy – Take it easy and let the market make up its mind!

    RIMM/FDX – Man I’m getting burned today!

    House panel on energy speculation.  I will be sending something along re. NYMEX trading and cancellations, hopefully it will send them in the right direction.  Of course the real crimes are committed at the ICE and hopefully they’ll slap some rules on the whole thing.

    FDX – yes I still have them and all I can do is roll down to the $90s and DD.  Their forecast is based on fuel alone, something they will work out of eventually.  Possibly I’ll roll back to if it’s cheap enough and sell the current $90s, just want to get even now but I love FDX as a new play.

  41. Citigroup CEO Pandit Faces an `Impossible Feat,’ Whitney Says

    By Margaret Popper and Josh Fineman

    May 12 (Bloomberg) — Citigroup Inc. Chief Executive Officer Vikram Pandit faces an “impossible feat” in turning around the biggest U.S. bank as it faces “seismic” costs to restructure, Oppenheimer & Co. analyst Meredith Whitney said.

    Citigroup will be forced to announce the sale of major businesses toward the end of this year or in early 2009, Whitney said in a Bloomberg TV interview today.

    Whitney, 38, warned on Oct. 31 that New York-based Citigroup may cut its dividend to shore up capital after mortgage-related writedowns. Her prediction helped send the shares down 8.1 percent the next day and contributed to a 2.6 percent decline in the Standard & Poor’s 500 Index. Citigroup, which lost $5.1 billion in the first quarter, has booked more than $40 billion of credit losses and writedowns since the subprime mortgage market collapsed last year.

    “I think it’s an impossible feat,” Whitney said. “They don’t have the revenue power, they don’t have the earnings power in so many of their businesses. Even Stephen Hawking could not pull this off.”

    Whitney said she expects Citigroup, which lost a record $10 billion in the fourth quarter of last year, to post “de minimus” profits during the next three to five years. She repeated her prediction that Pandit would be forced to lower the dividend again.

    Citigroup rose 1.7 percent in early New York trading, to $24.04 from $23.63 at the close on the New York Stock Exchange on May 9. The shares have lost 20 percent this year.

  42. AAPL- 185ish pre market

  43. Hi Phil,
    Same question for ADM and HIG.
    Is the commodity rally, AG, and ethanol dead – or is ADm still going up long term?
    HIG – is very soft right now and is probably going down a little more, but is most of the downside already priced in. or the same as EV…

  44. While we’re talking about solars, efficiencies approaching 43% (researchers at university of delaware) are currently the record at the demonstration scale. The concept is very simple actually – they use different materials for different wavelengths (each material is most efficient at a specific band) and the combination gives you more efficient utilization of the entire spectrum. No idea when this will go to market.

  45. CROX -  just read that they make them for semiconductor cleanrrooms!

  46. New post mostly up