Archive for 2008

California Implodes in Multiple Ways

California - more bad news from my home state, courtesy of Mish, with musical selection from the Eagles. – Ilene

California Implodes In Multiple Ways

Courtesy of Mish

Inquiring minds are investigating the rapidly deteriorating economic conditions in California. Let’s take a look at the lowlights starting with Schwarzenegger May Order Unpaid Leave for Employees

California Governor Arnold Schwarzenegger today ordered all state workers to take two days of unpaid leave each month to conserve money amid a record budget deficit and a legislative impasse over how to fix it.

The furloughs will begin in February and will last through June 2010, Schwarzenegger said in an executive order. He also ordered all departments to cut 10 percent of their workforce costs, through firings if necessary.

“Every California family and business has been forced to cut back during these difficult economic times, and state government cannot be exempt from similar belt tightening,” Schwarzenegger said in a letter to state workers.

The furloughs would amount to a 10 percent pay cut, Chris Voight, executive director of the California Association of Professional Scientists, a group that represents about 3,000 scientists working for the state. The association and the Service Employees International Union announced they will sue to block the furloughs and any layoffs, which they said would violate collective-bargaining deals.

“We don’t think it’s right, and we’re prepared to file an unfair practices charge against the governor,” Yvonne Walker, SEIU Local 1000 president said today at a news conference in Sacramento. “We think it’s regressive bargaining. For him to do this outside of existing negotiations is improper.”

California, the biggest borrower in the municipal-bond market, has $54 billion in general-obligation debt. It’s rated A+ by Standard & Poor’s and Fitch Ratings, the fifth-highest grade, and an equivalent A1 at Moody’s Investors Service.

Last week, Standard & Poor’s said it may cut the rating on $54 billion of California bonds because of the fiscal problems, and investors have pushed down prices on the debt.

A California bond maturing in 2038, which pays 5.25 percent interest, traded at 79.4 cents on the dollar yesterday to yield about 6.89 percent. That’s 1.8 percentage points more than similar trades three months ago, according to Municipal Securities Rulemaking Board trade data.

These unions just don’t get it. They should be thankful to have a job. The budget needs to be cut. Raising taxes as the Democrats tried…
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As Oil Sinks

As oil prices staged a spectacular collapse from $145 a barrel (remember peak oil?) to the $30 range, it’s hard to believe speculation played no role in skyrocketing prices.  Even though oil prices have plummeted, Congress is preparing to increase regulation in the commodity markets.

As Oil Sinks, U.S. Officials Plan to Fight Speculation

By Gregory Meyer and Ian Talley, WSJ

Excerpt:  A financial crisis and recession this year have pulled off what U.S. lawmakers couldn’t: popping what many believe was a speculative bubble in oil prices.

But a collapse from highs above $145 a barrel into the $30 range doesn’t mean Congress is washing its hands of the issue. Instead, many lawmakers are emboldened, seeing both the crude-price collapse and the systemic failure of the credit-derivatives market as reason to push ahead with rules to prevent what they call "excessive speculation" in commodity markets.

"The anti-speculation talk may have subsided in the market slide, but its ugly head is likely to rise again," said Greg Mocek, a former head of enforcement at the Commodity Futures Trading Commission, now a partner at law firm McDermott, Will & Emery in Washington.

Light, sweet crude oil for January delivery on Friday fell $2.35 a barrel, or 6.5%, to $33.87 on the New York Mercantile Exchange. The new benchmark contract, which ended higher on Friday, is poised to begin trading above $40.

President-elect Barack Obama vowed Thursday to impose more stringent regulation of financial, stock and commodity markets. In his nomination of Gary Gensler as CFTC chairman, Mr. Obama charged his appointee with "regulating some of the unsound practices and excessive leverage that helped cause this crisis.

"A consensus has emerged that at least part of the reason for oil’s plunge stems from unprecedented financial-market strains that forced speculative investors to dump assets and raise cash. Speculators include funds, banks and other financial institutions trading to gain from price movements, rather than hedge against them for commercial reasons…

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Is the Medicine Worse Than the Illness?

James Grant takes a historical look at the Fed and laments its lack of prescience that in turn bodes nothing good on the horizon.  (This article, quoted in the previous post by Tim Iacono, is so eloquent and thought-provoking that a few more excerpts are in order,… or just read the entire article here.) 

Is the Medicine Worse Than the Illness?

The world ran out of trust in 2008 — but there is no shortage of money because the Fed is printing like mad. It’s the wrong approach, with potentially dire consequences, says James Grant.


It is a sorry place at which we Americans find ourselves this none-too-festive holiday season. The biggest names on Wall Street have gone to their rewards or into partnership with the U.S. Treasury. Foreigners stare wide-eyed from across the waters. A $50 billion Ponzi scheme (baited with, of all things in this age of excess, the promise of low, spuriously predictable returns)? Interest rates over which tiny Japanese rates fairly tower? Regulatory policy seemingly set by a weather vane? A Federal Reserve that can’t make up its mind: Is it in the business of central banking or of central planning? And to think — our disappointed foreign friends mutter — all of these enormities taking place under a Republican administration.

Trust itself entered a bear market in 2008, complementing and perhaps surpassing the selloffs in stocks, mortgages and commodities. Never to be confused with angels, we humans seem to outdo ourselves when money is on the line. So it is that Bernard Madoff, supposed pillar of the community, stands accused of perpetrating one of the greatest hoaxes since John Law discovered the inflationary possibilities of paper money in the early 18th century.

Barely nudging Mr. Madoff out of the top of the news was the Federal Reserve’s announcement last Tuesday that it intends to debase its own paper money. The year just ending has been a time of confusion as much as it has been of loss. But here, at least, was the bright beam of clarity. Specifically, the Fed pledged to print dollars in unlimited volume and to trim its funds rate, if necessary, all the way to zero. Nor would it rest on its laurels even at an interest rate low enough to drive the creditor class back to…
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Who is Elihu Root?

Here’s more excellent Sunday morning reading from Tim Iacono at The Mess That Greenspan Made. Tim cites the WSJ article by Jim Grant (always worth reading), Is the Medicine Worse Than the Illness?   

Who is Elihu Root?

Courtesy of Tim Iacono at The Mess That Greenspan Made

Jim Grant writes another timely essay in the Wall Street Journal’s weekend edition that adds to the growing doubt over the recent direction of monetary policy, not only in the U.S., but all around the world where money and credit is gushing from nearly every central bank.

Mr. Grant thinks that central banks are part of the problem, not the solution, a view that was shared by one Elihu Root almost a hundred years ago who served his only stint in the Senate during the years between the panic of 1907 and the formation of the Federal Reserve in 1913.

According to Wikipedia, his credentials are rounded out by service as Secretary of War under President McKinley (1899-1904), Secretary of State under President Roosevelt (1905), and winning the Nobel Peace Prize in 1912. Mr. Root was one of many early 20th century "wise men" who "shuttled between high-level government positions in Washington, D.C. and private-sector legal practice in New York City".

A hundred years later, contemporary "wise men" have eschewed legal practice, toiling instead for Goldman Sachs and Citigroup when not working for the people in Washington.

Grant recounts how things have changed in Washington and on Wall Street over the last century, the transformation of money and credit into something infinitely more responsive to both politicians and financiers playing a central role, in a piece that is well worth reading in its entirety.

We’ll skip right to the part about Elihu Root and the formation of the Federal Reserve.

Promoters of the legislation to establish America’s new central bank protested that they wanted no soft currency. The dollar would continue to be exchangeable into gold at the customary rate of $20.67 an ounce. But, they added, under the Fed’s enlightened stewardship, the currency would become "expansive." Accordion-fashion, the number of dollars in circulation would expand or contract according to the needs of commerce and agriculture.

Elihu Root, Republican senator from New York, thought he smelled a rat. Anticipating the credit inflations of the future and recalling the disturbances of the past,

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Missing the Target

Here’s an article on the $700 Billion bailout and the misallocation of the first half.  Alan Binder argues that Congress should reject Paulson’s request for the remaining TARP money. 

"Missing the Target With $700 Billion"

Courtesy of Mark Thoma, at Economist’s View, citing the NY Times article Missing the Target With $700 Billion, by Alan Binder.

Alan Blinder isn’t happy with Treasury Secretary Paulson’s use of TARP money:

Missing the Target With $700 Billion, by Alan S. Blinder, Economic View, NY Times: …It pains me to say this, because I was among the first to call upon Congress to create two institutions to deal with the financial crisis: one to buy and refinance home mortgages, the other to buy what came to be called “troubled assets.” The legislation signed in October empowered the TARP to do both. Sadly and amazingly, it has done neither. … Instead, taxpayer money has been used [by Treasury Secretary Henry M. Paulson Jr.] mainly to recapitalize ailing banks. …

Because about half of the $700 billion remains uncommitted, let’s review the arguments supporting the three main uses of the TARP:

Mortgages: The financial crisis began with falling home prices and fears of rampant mortgage defaults — fears that are now coming true. Those fears depressed the values of securities based on mortgages, making them “troubled.” … It is hard to see a way out of this mess without seriously reducing foreclosures. Understanding that, Congress directed the Treasury secretary to use the TARP to get mortgages refinanced. But he has not.

Mortgage-Related Securities: There were several rationales for buying troubled mortgage-backed securities. First, panic had virtually shut down the markets for these securities… Second, one source of that panic was that nobody knew what the securities were worth. A functioning market would establish objective valuations. Third, many mortgages are buried in complex securities. Buying the securities would let government refinance the underlying mortgages.

Mr. Paulson says he changed his mind about buying troubled assets because the facts changed. I’m sure that many facts changed. But what new facts invalidate the rationales above? …

Recapitalizing Banks: Granting the secretary catch-all authority to buy “any other financial instrument” was a sensible addendum to the law. It offered much-needed flexibility to respond to unforeseen circumstances — an auto bailout, for example. But whoever imagined

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Typo In Prop. 8

Is California trying to save money by cutting back on proof-readers?

Typo In Proposition 8 Defines Marriage As Between ‘One Man And One Wolfman’

Excerpt:  SACRAMENTO, CA—Activists on both sides of the gay marriage debate were shocked this November, when a typographical error in California’s Proposition 8 changed the state constitution to restrict marriage to a union between "one man and one wolfman," instantly nullifying every marriage except those comprised of an adult male and his lycanthrope partner. "The people of California made their voices heard today, and reaffirmed our age-old belief that the only union sanctioned in God’s eyes is the union between a man and another man possessed by an ungodly lupine curse," state Sen. Tim McClintock said at a hastily organized rally celebrating passage of the new law. But opponents,… claim it infringes on their civil liberties…. 

The Onion, read more here.  


Danger + Opportunity

As 2007 drew to a close, I wrote an article for projecting 2008 would be a very difficult year to trade due to ‘unprecedented volatility’. As 2008 draws to a close it looks like the prediction was realized but pleasure does not necessarily accompany vindication. As John Maynard Keynes wrote:
“It is usually better to [...]

Sidestepping the housing bust

American ingenuity at it’s best.  Courtesy of Tim Iacono, at The Mess That Greenspan Made, who found this important article at the Onion.   

Sidestepping the housing bust

Friday, December 19, 2008

One man’s story about how he avoided the pain and misery associated with the bursting of the housing bubble, from The Onion.


Spitzer Retakes Chinatown

StockJockey reporting on Eliot Spitzer’s comeback…  

Spitzer Retakes ChinatownStockJockey's avatar


 Courtesy of StockJockey at 1440 Wall Street

Eliot Spitzer is back…sort of. Can I ever forgive him? For the hooker, sure, but not what he did to railroad Wall Street.

His return was not quite as triumphant as Douglas MacArthur’s, but he established a beachhead in Chinatown.

Baby steps, you know…

If Eliot Spitzer were to choose a venue at which to make his re-entry into society, he would presumably not have selected a former massage parlour in Chinatown on the Lower East Side of Manhattan.

But Mr. Spitzer, who resigned as governor of New York state after getting caught up in a call girl scandal this spring, did not get the choice. Happy Ending, the former parlour in question, is now a sleek bar and it is where Slate, the online magazine was holding its seasonal drinks party.

Mr. Spitzer this month started to write a column for Slate as part of his comeback – he wrote last week about the Detroit bail-out – and so he showed up at the Slate party to be sociable.

Hilarious, go check it out…

Eliot Spitzer Attends Slate Party At Former Massage Parlor, Huffington Post 


Ground Zero

Ellen Brown writes another excellent article on our credit crisis and bankrupt banking system, discussing interest rates, the credit market, debt, the creation of money, the federal reserve, and ways of dealing with bankrupt banks.  Ellen makes a compelling argument for nationalizing our banking system.


“I am more concerned with the return of my money than the return on my money.”
– Mark Twain

In the last two weeks, two federal interest rates hit all-time record lows. On December 16, the market was taken by surprise when Fed Chairman Ben Bernanke lowered the federal funds rate (the interest banks pay to borrow the reserves they need to meet their reserve requirement) to zero. The explanation given was that the Federal Reserve was just setting the rate closer to where banks had already been trading with each other for weeks.1 

In an even more stunning development, the week before that the federal government itself began borrowing money for free. “We were all watching it agog,” said a Treasury spokesman of the December 9 auction of three-month Treasury bills. Investors were so hungry for Treasury debt that they were snatching up the T-bills at zero percent interest. In the secondary market (investors buying from each other), Treasuries were actually trading at a negative interest rate. That meant buyers were paying more than they would get back when the Treasuries came due. Even at these unprecedented rates of non-return, the Treasury was having trouble keeping up with the demand. Four times as much money wanted in as was sought by the government, indicating much more demand than availability.2

What is going on? The credit market remains so tight that state and local governments are being forced to pay interest rates as high as 20 percent. Why is the debt of our insolvent federal government so much more desirable that investors are clamoring to buy it when the return is zero or even negative? The U.S. government is the most indebted nation in the world, with an official federal debt topping $10 trillion. Everyone knows that this debt never can or will be paid off with taxpayer dollars, now or in the future. …
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Zero Hedge

Americans' Economic Hope Has Collapsed

Courtesy of ZeroHedge. View original post here.

Which came first, the confidence or the stock market rally?

One thing is for sure, the crash in stocks in December has crushed the hope of Americans that their economic future is going to be better under President Trump.

Overall confidence dipped to 58.1 - a 4-month low, but, U.S. consumers this month were the most downbeat on the economy since November 2016, a third straight drop after expectations reached a 16-year high just three months earlier, as the partial government shutdown wears on toward a fourth week.


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Kimble Charting Solutions

Triple Breakout Test In Play For S&P 500!

Courtesy of Chris Kimble.

Is the rally of late about to run out of steam or is a major breakout about to take place in the S&P 500? What happens at current prices should go a long way in determining this question.

This chart looks at the equal weight S&P 500 ETF (RSP) on a daily basis over the past 15-months.

The rally from the lows on Christmas Eve has RSP testing the top of a newly formed falling channel while testing the underneath side of the 2018 trading range and its falling 50-day moving average at (1).

At this time RPS is facing a triple resistance test. Wil...

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Phil's Favorites

Brexit deal flops, Theresa May survives -- so what happens now?


Brexit deal flops, Theresa May survives -- so what happens now?

Courtesy of Victoria Honeyman, University of Leeds

As the clock ticks down to March 29 2019, all of the political manoeuvring, negotiating, arguing and fighting is coming to a peak. In the two and a half years since the 2016 EU referendum, views on both sides have hardened and agreement still seems as far away as it was the day after the referendum.

With Theresa May’s withdrawal agreement disliked by all sides, and voted down by an unprecedented majority in the House of Commons, everyone is wondering what can and should be done next?


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Digital Currencies

Crypto-Bubble: Will Bitcoin Bottom In February Or Has It Already?

Courtesy of Michelle Jones via

The new year has been relatively good for the price of bitcoin after a spectacular collapse of the cryptocurrency bubble in 2018. It’s up notably since the middle of December and traded around the psychological level of $4,000... so is this a sign that the crypto market is about to recover?

Of course, it depends on who you ask, but one analyst discovered a pattern which might point to a bottom next month.

A year after the cryptocurrency bubble popped


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D.E. Shaw Investment Calls For Leadership Change At EQT

By ActivistInsight. Originally published at ValueWalk.

Elliott Management has offered to acquire QEP Resources for approximately $2.1 billion, contending the oil and gas explorer’s turnaround efforts have done little to lift the company’s share price. The company responded and said that a thorough review of the proposition is imperative in order to properly act in the best interests of shareholders, “taking into account the company’s other alternatives and current market conditions.” The news came only a month after Travelport Worldwide agreed to sell itself to Siris Capital Group and Elliott’s private equity arm Evergreen Coast Capital for $4.4 billion in cash and two months after Athenahealth was bought by Veritas and Evergreen for $5.7 bi...

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Insider Scoop

UBS Says Disney's Streaming Ambition Gives It A 'New Hope'

Courtesy of Benzinga.

Related DIS Despite Some Risks, Analysts Still Expecting Double Digit Growth From Communications Services In Q4 ... more from Insider

Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...

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Members' Corner

Why Trump Can't Learn


Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...

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Opening Pandora's Box: Gene editing and its consequences

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


Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.


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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...

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Swing trading portfolio - week of September 11th, 2017

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


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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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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