Archive for July, 2008

“No End In Sight”

Courtesy of Vinny Catalano’s Musing on the MarketsAlternative Title:  Spokane, Jan. 2008

What To Do With ‘No End In Sight’

U.S. bank stocks may be staging another suckers’ rally.

-- Reuters, July 31, 2008

From time immemorial the four most dangerous words in the investment language have been “This time is different”. Today, however, a new phrase seems destined to join the dreaded phrase group – “No end in sight”.

If an investor assumes that the IMF is correct, then the bank loss write-downs could reach $945 billion. If hedge fund investor extraordinaire John Paulson is correct, the number increases to $1.3 trillion. If Bridgewater Associates is correct, the number rises further to $1.6 trillion. And the top end of Nouriel Roubini’s disaster scenario range is a cool $2 trillion.

At under $500 billion in losses taken thus far, “no end in sight” is an apt phrase.

But, to quote the Joker, “Why so serious?”

Investment Strategy Implications

While the relief certain investors may feel due to Merrill’s (MER) actions may be premature, investment strategy considerations drive the current portfolio decision-making process. For, if an investor has been fortunate enough to have produced alpha thus far this year – for example, portfolio and investment strategy decisions made in the Model Growth Portfolio [MGP] have yielded over 300 basis points of alpha [i.e., the excess return over the market] thus far this year – then the real risk may not be the next plunge in equities (that’s coming) but the danger in not exploiting the near-term momentum game courtesy hedge fund momentum players and thereby losing valuable alpha in any short-term bear market rally.

Therefore, the appropriate current investment strategy appears to be largely a market neutral one. With an undervalued market and no sustainable and exploitable trends or themes at work, being fully invested – yet with no particular tilt from a sector perspective* – seems most appropriate. It’s only from a style and size perspective that a modest tilt toward the Smids [Small and Mid Caps] and growth (as opposed to value) remains advisable**.

So, when Warren Buffett declares that the financial crisis due to “financial weapons of mass destruction” is “far from over”, investors should heed the warning. For those who are paid to exploit near term market moves, however, an undervalued market dominated by hedge fund momentum
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Long-Term Virtual Portfolio Status

It’s been a rocky week.

First we’re under-covered, then over-covered, and now under-covered again as there just was not enough time to cover into that drop after I called it at 11:01.  We’ll have to see what tomorrow brings but, on the whole, I’m not buying Greenspan’s doom and gloom scenario but it doesn’t do me any good if I’m the only one so we have to go with the flow tomorrow, even if it flows downhill.

This is another one with too many positons over time so I have to use the annoying format.  I can’t even imagine having to re-enter all these into a new virtual portfolio (and I’d lose all my notes):



Alerts Issue
Description Qty Trans
Age Net
Issue Price/
Total Change
Curr. Price/
Change Today
Gain/Loss Market
  APVAJ Jan 2009 150 CALL [AAPL @ $158.95 $-0.93] 40 7/23/2008 (170) $72,010.00 $18.00 $6.95 n/a     $24.95 $-0.65 $27,790.00 38.6% $99,800.00
  AJIAI Jan 2009 45 CALL [AIG @ $26.05 $-0.71] 50 11/2/2007 (170) $2,510.00 $0.50 $-0.30 n/a     $0.20 $-0.12 $-1,510.00 -60.2% $1,000.00
  AXPAI Jan 2009 45 CALL [AXP @ $37.12 $-0.42] 80 9/4/2007 (170) $10,400.00 $1.30 $0.70 n/a     $2.00 $0.00 $5,600.00 53.8% $16,000.00

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Butterfly Collection Review

ELN blew all our profits!

It’s worse now as they just got more bad news on Tysabri as two more patients got PML in a study and that was the fear that originally killed the drug and knocked the stock all the way down to $3 and change a couple of years ago.  So total disaster on those now and we’ll probably make a killing plaing it in the DTP but not in this portflolio, where we’re just screwed.  Coming down from $35, I’m not sure a full butterfly would have fared much better and I’ll give some thought to taking long puts in the morrning to begin a leg where we can sell puts but if we can get out with $3K ($1.50 per share), I think we should just walk away from this one.

AAPL is fine and BIDU is high but either they are wrong or GOOG is wrong so we’ll see.  FSLR flwe down into the close, back at $284 and on track after all that.   We’re still up 75% on the puts and they are still a rip-off to buy out.  MA we did buy out the caller of and now we’ll wait, hard to say they didn’t bounce when the whole market tanked:


Description Type Cost Basis Opened Sale Price Closed Days Gain/Loss $ %
4 Aug 2008 160.00 AAPL CALL (APVHL) SC $ 1,960.00 7/24/2008 $ 2,590.00   7
$ 630.00 24.3 %
4 Aug 2008 165.00 AAPL CALL (APVHM) SC $ 1,810.00 7/23/2008 $ 2,830.00 7/24/2008 1
$ 1,020.00 36.0 %
6 Oct 2008 160.00 AAPL CALL (APVJL) LC $ 9,700.00 7/21/2008 $ 7,200.00   10

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Day Trading and Stocks Review

Day Trading is another one I’m ready to purge.

At least it’s easy to review – We have 100 BA Nov $60s that are down almost 50% and we discussed in comments today about rolling them into a Sept vertical but I’m not too keen on that as it’s just money laying there so I’m thinking it over.  We have 50 FIG Sept $10s that are up 83% and looking good and then we have the 40 GOOG $470s, that finished poorly but then popped back up in after hours so we’ll see tomorrow.  That’s it.  The DTP is up 196% since 5/19 and has $169K in cash as I’ve gotten back to more pure day trading and less long holds (BA being the one old one we’re stuck with).

Stocks are up very nicely for a 10 day-old portflio at 7%.  Lots of sold puts and just our naked SIRIs and the HOVs with those puts sold as well.  The only put I’m worried about owning is C and I’m not worried about that because I don’t mind owning C for $17.40 if it does get put to us:


Description Type Cost Basis Opened Sale Price Closed Days Gain/Loss $ %
20 Aug 2008 22.50 AKAM PUT (UMUTX) SP $ 1,700.00 7/31/2008 $ 1,890.00   0
$ 190.00 10.1 %
Total Gain/Loss for AKAM
$ 190.00 11.2 %
20 Aug 2008 30.00 BAC PUT (BACTF) SP $ 1,940.00 7/25/2008 $ 4,990.00   6
$ 3,050.00 61.1 %
Total Gain/Loss for BAC

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$25K Virtual Portfolio Status

I have to use this ugly format because there are way too many positions to run the history.

I think when I have some time (perhaps 2016) I’ll purge this virtual portfolio and start fresh as it’s a real pain for me to reformat this just to get it to be this ugly!  As with the $10KX, the GOOGs are getting worrysome but everything else is fine.  Great example of why we do not move butteflies around just because the market goes up or down 200 points – you just have to wait a few days and, often as not, you are back on target:


Alerts Issue
Description Qty Trans
Age Net
Issue Price/
Total Change
Curr. Price/
Change Today
Gain/Loss Market
3 Long Calls


  FIGIC Sep 15 CALL [FIG @ $11.86 $0.45] 40 4/28/2008 (51) $5,250.00 $1.31 $-1.11 n/a     $0.20 $-0.05 $-4,450.00 -84.8% $800.00


  GOPHU Aug 510 CALL [GOOG @ $473.75 $-8.95] 10 7/24/2008 (16) $4,510.00 $4.50 $-2.00 n/a     $2.50 $-1.60 $-2,010.00 -44.6% $2,500.00


  QURIB Sep 10 CALL [TASR @ $5.04 $-0.09] 80 4/23/2008 (51) $8,560.00 $1.07

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$10KXtream Review

OK, that was an annoying day! 

I felt very much like Rocky as Greenspan was talking, watching our portolios take a serious beating but thinking all the while "Come on Greenspan, is that all you’ve got?"  It’s going to be a tough call into the weekend and I’m going away ahead of the market close tomorrow so if things don’t turn up, I may want to move to cash or covers, we’ll have to see how the morning treats us.

We were up over 20% for a while this morning but now up just 14% but still not too bad considering how awful the market is looking.  Those GOOG $510s are killing us of course but now that we ditched the AAPLs we have cash ($6,937) so we can make an adjustment if we have to.  At this point, I do not believe we’ll get a very big gain from GOOG in time to take the risk to hold it as premium erosion hits us too hard starting next week so we’ll have to be careful there.


Description Type Cost Basis Opened Sale Price Closed Days Gain/Loss $ %
10 Aug 2008 175.00 AAPL CALL (APVHO) SC $ 810.00 7/25/2008 $ 1,560.00 7/28/2008 3
$ 750.00 48.1 %
10 Aug 2008 165.00 AAPL CALL (APVHM) LC $ 3,830.00 7/25/2008 $ 3,790.00 7/31/2008 6
$ -40.00 -1.0 %
Total Gain/Loss for AAPL
$ 710.00 15.3 %
5 Aug 2008 9.00 FRE CALL (FREHL) SC $ 350.00 7/30/2008 $ 490.00  

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Biotech options active on back of ImClone news

Today’s tickers: IBB, DNDN, SQNM, HGSI, MOT, GRA, IP, CDE, EMC, HOLX

IBB, - News of Bristol-Myers Squibb’s bid to acquire ImClone excited traders about the many and varied possible M&A configurations in the sector (and helped the sector shake off yesterday’s killjoy Alzheimer’s drug data from Elan and Wyeth). Shares in the iShares Nasdaq Biotech Index – which numbers biotech heavies Amgen, Gilead, Teva Pharmaceuticals, and Celgene among its components – rose 2.7% to set a new 52-week high at $89.49 as options traders appear to be jockeying for a break of $100 and beyond by year’s end. With more than 12,000 options trading, we saw fresh and heavy buying pressure in December 100 strike calls, which traded at more than double the open interest at $1.35 per contract – this reflecting about a 1-in-5 chance that the index can break $100 by December 19. Fresh longs at speculative call strikes extended into the January contract at the 105 strike, which traded nearly 3,000 times at 65 cents – the options market currently prices in about a 13% chance of that occurring. The fact that traders are buying into these odds suggests many feel liberated to wager on higher highs for the sector as a whole into 2009.

DNDN, - Elsewhere, option traders seem to be favoring long collar strategies designed to protect gains on an underlying stock position. This was the case in Dendreon, the developer of antigen-identifying drugs for cancer treatment, whose shares rose 2% to $5.80 along with the broader sector. Implied volatility on all Dendreon options ticks in at 79.7% – some 26 percentage points above the historic level of volatility that’ Dendreon stock has already charted – and this elevation can be explained in some measure by the fact that Dendreon is due to report earnings next week. Today’s volume shows traders largely bypassing the front month and turning to the November contract, where a 20,000-lot long collar was put on at the 2.50 put line and the 12.50 call line. When entered in connection with an underlying stock position, the long put position protects the stock against an undue decline (…in this case, as it involves the $2.50 put strike, a catastrophic one), while the short, out-of-the-money call represents the price at which the trader would be willing to unhand the stock at a significant premium to current levels. While the short…
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Psychoanalytical Interpretation

Here’s an article by Eric J. Fox, Stock Market Prognosticator, discussing the bubble, and its subsequent deflation, from a psychoanalytical perspective.  – Ilene 

A Psychoanalytic Interpretation of Stock Valuations and its Application to the Oil Market

I recently came across a paper by David Tuckett and Richard Taffler entitled "A Psychoanalytic Interpretation of Stock Valuations." I believe it can shed some light on the current situation in commodities.   

The two authors examined the academic literature on the boom of the late 1990′s from a psychoanalytical perspective and came up with five stages: Emerging to View, Rush to Possess, Psychic Defense, Panic Phase, and then finally Revulsion. These stages can be applied to Commodity Investing in general, and oil in particular.

Emerging to View

It is during this stage that an investment first comes to the attention of investors, usually due to the efforts of financial analysts and the Media. As interest builds in these investments, they become "alluring phantastic objects." For the Internet Bubble, the authors identify the Netscape IPO in 1995 as the starting event that kicked it off. Other seminal events that come to find were the $1000 Amazon (AMZN) price target prediction, the IPO, and many others that have been lost to history.

For oil, it is hard to come up with a starting event. Doug Terreson’s piece on the "Golden Age of Refining" comes to mind, or perhaps the publication of Matt Simmons tome on peak oil, or T. Boone Picken’s almost psychic predictions on the price of oil, but it doesn’t seem like there was one dominating event to kick it off. It was more of a gradual process.

Rush to Possess

The second stage is called the "rush to possess." During this stage a stampede of sorts begins as investors engage in compulsive behavior. The key to this stage, according to the authors, is the introduction of the idea that some sort of "new world" is starting. For the Internet boom, it was the emergence of a "new economy" where old ways of doing business were no longer valid. Remember when no one was going to shop in malls, or read newspapers or bank in person. Get ready we are told, don’t be left behind.

We are toward the end of this stage for oil as we have been

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Merrill’s CDOs, Temasek’s Deal

More on Merrill’s CDOs, by Greg Newton of NakedShorts. RPG

Those 2007 Merrill CDOs in foole

30 CDOs issued, 29 (and probably 30) in trouble

Derivatives consultant Janet Tavakoli landed an RPG on Merrill Lynch’s we-sort-of-got-the-garbage-off-the-books party yesterday, in a client letter strongly suggesting that more biohazards may be…ahem…lying in the weeds.

So, how did the CDOs that Merrill Lynch brought to market in 2007 perform? As expected, they are dreadful…As of June 10, 2008, of 30 CDOs totaling more than $32 billion in notional amount, 19 have declared an event of default, are in acceleration, or have been liquidated. Ten others are “toast,” as evidenced by downgrades of their “triple A” tranches to junk status, yet I could find no record of a declared event of default (EOD). The remaining CDO has “triple-A” tranches downgraded to junk, but the two topmost tranches are still rated investment grade (the topmost is Aa1 neg/ AAA neg and the formerly “triple-A” tranche below that is Baa2 neg/ BBB+ neg). The EOD may be undeclared due to documents that avoid that declaration so that investors cannot trigger acceleration or liquidation (or the declaration may be pending).

While the main point of Tavakoli’s missive was to point out that the securitization market will remain becalmed until investors regain some trust in the investment banks and CDO managers that gorged at the trough, the assay of Mother Merrill’s 2007 bowel movements is eye-watering. Two things:

  • Merrill Lynch said that the stuff it loosely characterized as having “sold” to Lone Star was “US super senior ABS CDO, the majority of which comprises older vintage collateral – 2005 and earlier.” Interesting, as those older vintages were solid gold (although 2005 was probably only 9 ct) compared with the bags of wet newspapers issued in 2007.
  • It’s impossible to tell from Merrill Lynch’s entirely legal but deliberately and utterly Delphic disclosures how much of that vintage 2007 vintage is still on the books, and where it’s marked. Good luck, Temasek,** especially now you’ve given up the death spiral part of the earlier deal! 

Dead Calm: No One Trusts You
(Don’t miss the table on Page 3)
by Janet Tavakoli
Tavakoli Structured Finance Jul. 30 2008

Merrill Lynch Announces Initiatives to Further Enhance Capital Position
Press release
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Ouch – the GDP came in lower than expected at 1.9%.

1.9% would be good but not when the government gave away $168Bn to get it there.  Q1 GDP was revised down to 0.9%, down 0.1% from what was previously reported.  The personal consumption price index was up 4.2%, increasing from 3.6% last quarter but the PCE, excluding food and energy (which no one who matters needs) fell to just 2.1% from 2.3% last quarter so mission accomplished boys!

Of course, with this government, it’s always worse than you think and the Commerce Department is NOW ready to admit that Q4 GDP was ACTUALLY MINUS 0.2%, not the plus 0.6% previously reported.  Revisions like that damage the credibility of our government and cause foreign investors to lose faith in our economy and our currency.  You cannot play games with facts for political ends!  Forecasts for this quarter were for a 2.3% GDP, that would be 2.1% higher than Q4 and would have been a big relief but, because the government lied about the fourth quarter (or were they just off by 400%?), the 2.5% jump in GDP from -0.2% (which is more than the 1.5% jump forecast from 0.6%) is being seen as a failure.

You can fool all of the people some of the time (2000 elections) and you can fool some of the people all of the time (hard-core Republican voters) but you can’t fool all of the people all of the time (record low approval ratings).  Economic data is certainly no place to fool around, especially by an administration that likes to play doctor with the economy when the data we’re working with is statistically worse than what you would expect from a random number generator.

Speaking of random numbers, 448,000 jobless claims is the real damage this morning, up 10% from last week and clearly in recessionary territory.  Now this number is OVER stated as the government moved to enroll workers in a new extended Federal benefits program and found a percentage of those people qualified for regular benefits and added them to the rolls.  The 4-week moving average of claims rose 11,000 to 393,000, just a touch under the 400,000 panic level.  State unemployment, a better indicator, rose 0.6% to 3.28M and the 4-week average of continuing claims rose 42,750 to 3.17M. 

Just because we think it’s an over-reaction doesn’t mean we shouldn’t react.  We uncovered
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Zero Hedge

WeWork Board, Softbank Officials Push For CEO Neumann's Ouster

Courtesy of ZeroHedge View original post here.

The odds of WeWork co-founder and CEO Adam Neumann becoming "the world's first trillionaire"  maybe about to take another major hit.

In what appears to be the latest attempt to salvage the farce that is the WeWork IPO (and the massive hole it will leave in Masayoshi Son's balance sheet and credibility), ...

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Insider Scoop

Notable Insider Buys In The Past Week: AbbVie, Kraft Heinz And More

Courtesy of Benzinga

Insider buying can be an encouraging signal for potential investors.

A packaged food giant and two drugmakers saw notable insider buying activity this past week.

Some of this insider buying occurred alongside insider sales.

Conventional wisdom says that insiders and 10% owners really only buy shares of a company for one reason — they believe the stock price will rise and they want to profit. So insider... more from Insider

Phil's Favorites

Peloton IPO Guide... And Why It Makes No Sense

Courtesy of ZeroHedge

By Scott Willis via


At the end of the day, Peloton is a gym membership pretending to be a tech company.

We fully admit the product is exciting and unique in the market, but Peloton still faces the same problem...

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Digital Currencies

Buyer beware: How Libra differs from Bitcoin


Buyer beware: How Libra differs from Bitcoin

Recent revelations about the lack of privacy protections in place at the companies involved in Facebook’s new Libra crytocurrency raise concerns about how much trust users can place in Libra. (Shutterstock)

Courtesy of Alfred Lehar, University of Calgary

Facebook, the largest social network in the world, stunned the world earlier this year with the announcement of its own cryptocurrency, Libra.

The launch has raised questions about the difference between Libra and existing cryptocurrencies, as well as the implications of private companies competing with s...

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Lee's Free Thinking

Look Out Bears! Fed New QE Now Up to $165 Billion

Courtesy of Lee Adler

I have been warning for months that the Fed would need new QE to counter the impact of massive waves of Treasury supply. I thought that that would come later, rather than sooner. Sorry folks, wrong about that. The NY Fed announced another round of new TOMO (Temporary Open Market Operations) today.

In addition to the $75 billion in overnight repos that the Fed issued and has been rolling over since Tuesday, next week the Fed will issue another $90 billion. They’ll come in the form of three $30 billion, 14 day repos to be offered next week.

That brings the new Fed QE to a total of $165 billion. Even in the worst days of the financial crisis, I can’t remember the Fed ballooning its balance sheet by $165 bi...

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The Technical Traders

Is A Price Revaluation Event About To Happen?

Courtesy of Technical Traders

Skilled technical traders must be aware that price is setting up for a breakout or breakdown event with recent Doji, Hammer
and other narrow range price bars.  These types of Japanese Candlestick patterns are warnings that price is coiling into
a tight range and the more we see them in a series, the more likely price is building up some type of explosive price breakout/breakdown move in the near future.  The ES (S&P 500 E-mini futures) chart is a perfect example of these types of price bars on the Daily chart (see below).

Tri-Star Tops, Three River Evening Star patterns, Hammers/Hangmen and Dojis are all very common near extreme price peaks and troughs.  The rea...

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Kimble Charting Solutions

India About To Experience Major Strength? Possible Says Joe Friday

Courtesy of Chris Kimble

If one invested in the India ETF (INDA) back in January of 2012, your total 7-year return would be 24%. During the same time frame, the S&P 500 made 124%. The 7-year spread between the two is a large 100%!

Are things about to improve for the INDA ETF and could it be time for the relative weakness to change? Possible!

This chart looks at the INDA/SPX ratio since early 2012. The ratio continues to be in a major downtrend.

The ratio hit a 7-year low a few months ago and this week it kissed those lows again at (1). The ratio near weeks end is attempting to...

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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 


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The Big Pharma Takeover of Medical Cannabis

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


The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:


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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...

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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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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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About Ilene:

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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