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Tuesday, November 29, 2022

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Friday Morning

Blankfein. Steel. Thain. Paulson. Kashkari. See a pattern?Finally the Goldman Sachs conspiracy is exposed!

Not by me, no one paid any attention to me at all when I said they were running up commodity prices into a dangerous bubble that would destabilize the global economy, but by Conde Nast Virtual Portfolio, who have neatly summarized the theory behind Goldman’s recent attempt to take over the financial universe, using their government insiders as hatchet men to hit their competitors or help their own cause.  You may feel free to draw your own conclusions but it’s certainly a fun read!

While the GS execs on the right all have good jobs – the question of the day is: Do 93% of other US workers still have theirs?  The 7% line on unemployment will be the line in the sand that the bulls are very unlikely to cross if they see it this morning and we could quickly get a retest of our levels, which held perfectly yesterday lacking a real catalyst to send us lower.  I’m not sure that any NFP number over 500,000 is going to be enough to let the markets break over the week’s highs as it’s unlikely to be believed following Wednesday’s stunning ADP report, which showed 700,000 jobs lost by their count.

Former Goldman CEO, Hank Paulson’s Treasury is getting scathing criticism from the Congressional oversight panel for their complete and utter failure to do anything at all to help the US homeowners under the TARP program.  "The panel’s initial concerns about the [Troubled Asset Relief Program] have only grown, exacerbated by the shifting explanations of its purposes and the tools used by Treasury," said the draft report, which found that the department has "not yet explained its strategy" for stabilizing the financial markets.

Former Goldman VP Neel Kashkari, who runs the TARP programThe bipartisan panel, headed by Harvard Law School professor Elizabeth Warren, reserved its most strident criticism for Treasury’s approach to dealing with the foreclosure crisis at the root of the economic turmoil. The draft report noted that Treasury hasn’t used ANY of TARP’s $700 billion to help borrowers refinance or deal with mortgages that are worth more than the market value of the homes they are tied to.  "Treasury needs to be clear as to what, if anything, it has done, and if it insists on taking credit for private sector efforts, it must explain what ‘help’ means," the draft report said.

Goldman’s cross-town rivals at CitiGroup are doing a little something (very little, but something) for homeowners by dropping their opposition to pending Senate legistlation that will let judges set new repayment terms for mortgage holders in bankruptcy court, a move that could help 800,000 homeowners stay in their homes.  I’m still waiting for Congress to enact the program I proposed last April – one that would keep EVERYONE in their home and stimulate the economy for just $13.5Bn a month.  At the time, people said that was an outrageous amount of money to spend to stave off the financial crisis I predicted if action wasn’t taken – it would be funny if not so tragic…

[Monthly change in nonfarm payrolls]8:30 Update:  Here’s the Non-Farm Payroll Report, -524,000 jobs (BTE) but Unemployment at 7.2%, the worst since January, 1993.  Also, prior months have been revised downward and that makes 2.6M lost jobs this year, the most since the end of WWII shut down the defense factories that were putting housewives on the assembly line so that was off a record employment number.  What we have here is our years of jobless economic growth coming home to roost as our employment dollars were all sent overseas leaving the US less and less capable of of employing people locally.  Nonetheless, the pre-markets are taking it surprisingly well – perhaps because 524,000 sounds so much better than the 700,000 predicted by ADP but THIS IS A RUN RATE OF 6M JOB LOSSES A YEAR FOLKS – I’m not sure if I would be punching the buy button on this one!

What you’re not getting in the headline unemployment is that the average number of hours worked is down to 33.3, possibly an all-time low.  That means that the 92.8% of the people who do have jobs are not working the amount of hours (or, of course, getting paid for it) that they want or need to and that is probably taking more money out of the economy than the 524,000 people who lost their jobs entirely.  A 2.5% decline (1 hour) in the number of hours worked per week by 150M employed people divided by the 33.3 hours a week of the average employed person equals 4.5M additional jobs worth of hourly wages lost – not a figure to be trifled withWe’re not even getting into job quality issues, something we discussed extensively last year before everyone noticed we were in a crisis..

There is still a war in the Gaza and Russia still has cut off gas to the Ukraine but oil will test $40 again today.  The energy sector still hasn’t really capitulated yet, with the XLE still 25% off the bottom while the Dow is up 12% and the S&P is up 17%.  We do NOT want energy to lead us off the bottom as global consumers, who are working less hours even when they have jobs, cannot afford to divert their limited funds to fuel.  More money to fuel is less money for paying the mortgage, the credit card bills and you can flat out forget discretionary spending.  Dow up and XLE down is a good pairs trade we’ll be looking at in member chat today.

Asia was off mildly this morning and we flipped positive on FXI yesterday, taking a chance on the emerging market with $2Tn in cash saved up to stimulate their economy.  We’re not that loyal to China though as we just closed out an ultra-short on the same index with the FXPs but it’s starting to look like a range we can play in and we’re hedging our longs.  After falling 77% on Wednesday and having the day off in Bombay yesterday, SAY fell another 40% today to close out the week at .49 in India and is a good lesson to yesterday’s knife catchers who thought $1 was a good price!

Europe is mixed ahead of the US open but much improved off a poor open so it looks like our bottom call at 8,650 may pay off today.  Holding our levels will leave us slightly bullish into the weekend despite all the terrible economic news and we can only hope that Obama-mania will not be unfounded and that the new President’s programs will indeed let this be a real Bush bottom.  The stimulus train begins to gather steam next week and we’re going to have to shake off a lot more scary data leading up to a data-less holiday week in which we finally usher in a new administration so hope can spring eternal – or at least for the next 10 days.

Not many bright spots in the Retail Sales Data and not much in earnings either but we did get the RUT, NYSE and Nas leadership we were looking for yesterday and, if we can continue to improve today, the week won’t be all that bad.  Last Friday’s open was 8,800 on the Dow and we didn’t believe a point of the gain on the way up so why should we be surprised to be back there today?

 

 

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Greg,  
Perhaps the doji represents a reversal signal so we’ll need to wait for confirmation or rejectong on Monday.  Otherwise I am considering the following other technicals… Today DRYS it did confirm a break over resistance at 15 (from Oct 17th) on 200% of its 3 month average volume.  Relative strength and average volume this week have been huge.  I’m wondering how DRYS might perform next week if the Obama rally hits?  I’m looking at 22 for the next level of resistance.
As Phil mentioned, a pull-back is always a possibility since this has gained 3+ points this week alone!

Greg
It is also helpful to look at the hourly chart over the last month and the weekly chart too.  On those you don’t get a bearish signal.

Thinkorswim to sponsor a weekly options show on CNBC starting next week. To air Friday nite and repeat Saturday morning.

Phil,
I wanted to wait until the weekend to ask this question. I have about $15,000 that I want to use to generate some income, let’s say about 3% a month, I know that you are a big advocate of selling calls and puts to generate income. Is it achievable? And if it is, what s a good plan to make it work? 
I appreciate everyone’s feedback as well.

Emo
Maybe covered calls is the way to go for you .  Drys is paying a good return but I would only put 1/3 into it. But many others that are paying over 7% for Feb calls with upside of over 15%.  Just depends on how much risk you want to take.  I have been using Power Optoins to sreach and find it easy to use plus you can set up the criteria to be risky or conservative or search for dividend paying or anything you can think of. 

Singapore Steve –  Thanks for responding and for the website.
 

Phil,
Are you saying I could get greedy and aim for, 10% return monthly 🙂
I appreciate your answer. What’s the best way to find potential plays like the ones you listed?

Phil
I agree with you on DRYS, but the premiums are sooo goood and my basis is 3.69 on Jan11  2.5.  I want to roll up to take some money off the table but I would only get $4 and loose 10 in position, that sucks.
A question on your WFR,  selling the feb15 puts and calls gets $4.40 not 3.40.   Also on HOV, trying to follow that one as well. You are selling the Jan10 2.5 right?

Phil –
Ref Sat 12.:32 post (“ … I’d be happy to go over that with you in live trading as it’s a good exercise for everybody to learn how to watch those things.”). For next few hrs I will be monitoring this site.  Can you  please outline for me the process of “live trading” which you had on your mind and most important how should I prepare to make this exercise beneficial and efficient? Thanks a lot.

Phil, I need help understanding you PGH recommendation (amongst other) so please educate me,  We buy 6000 share of PHG at 8.10 – the July calls and puts for a cost of $33,900.  OK, now we wait to be called at 7.50 for a nice profit of $11,100 plus dividends in 6 months, great. What about if the stock drops and we get put for an additional 6000 shares at $7.50, how do we handle this situation? Do we just keep a eye on the puts and roll them down? To get the continual return you are speaking about, do we also roll the calls?  Thanks for the help.

Phil – Thx. Will cont tomorrow @ 8:30 AM ET. Have a good day

Phil, I’ve been following your stratergy of buying stock and selling the puts/calls for a couple of months now with very good success. This is actually the first time where I have a scenario where the current price of the stock is more than the call price + call premium. I bought YHOO at 10.5 and sold Jan $12.5 calls for 0.5 (I bought back the puts a while ago for a nice profit). Would you recommend rolling these to Feb $13 calls for 1.71 or the Feb $12 calls for 2.23?
Same with LDK as well. Bought stock at 13.25 and sold Jan $15 calls for 0.95.
Will probably wait till later this week to roll them though since the calls will drop pretty quickly this week due to options expiration, while i don’t expect too much movement in the Feb calls (unless the stocks themselves have large movements).

RE: WFR
This has been a very fun play for me. I have been selling the $17.50 calls for at least $2 on a run and the $12.50 puts for $2 on a pullback (this can happen more than once per month). I have been doing this for the last several months with great success cutting my basis in half on the stock. Also, most on the time I have only been selling against half my position. I plan to buy more soon and I should be able to double my monthly income.

Thanks for the plays Phil!

Good Morning All

Asia Markets :    Monday, January 12, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                            8836.80      -39.62    -0.45%
Hang Seng*                                13971.00    -406.44    -2.83%
China: DJ Shanghai*                     210.97          0.67     0.32%
Seoul Composite*                       1156.75       -24.21    -2.05%
Bombay Sensex*                         9110.05     -296.42    -3.15%
Baltic Dry Index                               872.00         51.00      5.53%

*at Close

Asian Stocks Decline with No Signs to End of Slowdown

(Japanese markets are closed for the Coming of Age day holiday and will reopen Tuesday.)

Asian stocks slipped for a fourth consecutive session and the yen climbed against the euro Monday, as a relentless global economic slowdown renewed investor caution about taking on risk.

Seoul shares finished 2 percent lower as Friday’s weak U.S. job data stoked economic worries sending industrials lower.

Australian stocks trimmed early losses but ended down 1.4 percent as miners and the banks slid on mounting concerns about a deep global recession.

Hong Kong shares fell for a fifth straight session, matching a similar selloff in October when the market plumbed its year low, as investors turned risk-averse, spooked by record U.S. jobless numbers.

Singapore’s Straits Times Index extended losses, down 1.6 percent.  Oil rigbuilders and shipping stocks fell after several contract cancellations, leading to fears over orders in a sector hit by weakening economic growth and falling oil prices.

China’s stock market rose as the strength of copper futures on the London Metal exchange continued to push up metal producers, though sluggish bank shares dampened the Shanghai Composite Index.

Bombay Stock Exchange’s Sensex closed at 9107.31, down 299.16 points or 3.18 per cent. It touched a high of 9331.13 and low of 9024.45. Equities ended sharply lower on Monday despite positive numbers as investors exited index heavyweights ahead of earnings season and weak global markets. Industrial production for October grew 2.4 per cent in November as compared to -0.4 per cent in October.

Euro Stocks Fall as Oils Weigh

European shares were down in early trade on Monday, with heavyweight energy stocks taking most points off the index, on concerns about the global economy as well as a worse than expected earnings season lying ahead.

The FTSEurofirst 300 index of top European shares was down 0.6 percent at 861.93 points, on course for its fourth-day of retreat. It fell 0.5 percent on Friday.

Oil stocks dropped as crude fell below the $40 a barrel mark, triggered by fears about global demand on the back of U.S. unemployment figures from Friday. Shares in BP, BG Group and Tullow Oil were all down between 0.9-1.4 percent.

Financial markets expect the ECB to cut rates by 75 basis points, while analysts are more cautious in their estimates of about 50 basis points.

The DJ Stoxx banks index was the top sectoral leader, up 0.3 percent.

Lloyds and HBOS were up 6.6 percent and 5.8 percent each, after the banks said the British state is to take a 43.4 percent stake in the combined Lloyds TSB-HBOS bank.

Shares in Swiss bank UBS fell 5.2 percent, as analysts pointed to weekend press reports that the company may face heavy losses for the fourth quarter as well as a fine following a U.S. tax investigation.

Across Europe, the FTSE 100 index was up 0.2 percent, while Germany’s DAX and France’s CAC 40 were down 0.3 percent and 0.2 percent each.

Oil Falls Below $39 as Demand Weakens

Oil fell more than $2 to below $39 a barrel on Monday, dragged down by widespread evidence that deepening recession was reducing global energy consumption.

he decline came despite news that Saudi Arabia planned to cut output to below its agreed target, as well as gas supply disruptions in Europe as a result of the Russia-Ukraine dispute and tensions in the Middle East.

U.S. light, sweet crude [ 38.66    -2.17  (-5.31%)] for February delivery fell.
London Brent crude [ 45.45    -1.79  (-3.79%)] fell.

The world’s top oil exporter, Saudi Arabia, plans to cut output by up to 300,000 barrels per day (bpd) below its agreed OPEC target, a proactive step to prop up a collapsing market, industry sources said on Sunday. Iran’s representative to OPEC was quoted as saying that the group could decide to reduce oil output again at its meeting in March if crude prices fell further.

The front months on oil futures have been taking the brunt of the falls with the markets is steep contango. March U.S. crude futures have been trading at a premium of more than $5 above February, while April is around $3 above March.

Although the Russian-Ukrainian gas price row and Middle East tensions could help push oil prices higher, analysts said any rebound was expected to be short lived.

Goldman Sachs Commodities said in a research note on Friday that a market surplus was expected to continue to drive inventories higher and put pressure on its forecast oil price of $30 a barrel for the first quarter of 2009.

Yen, Dollar Gain as Global Economic Woes Mount

The yen and dollar rose broadly on Monday due to mounting worries over the global economy that boosted demand for safer assets, while expectations of a euro zone rate cut this week weighed on the euro.

The low-yielding yen, which investors see as a safe-haven asset, rose to a one-month high against the euro, while demand for U.S. dollars also increased. "The yen is gaining, especially on the crosses, and the dollar has regained its safe-haven angle.", Calyon deputy head of global foreign exchange research Daragh Maher said.

The euro shed against the yen [120.29    -1.50  (-1.23%)    ] , having earlier hit a one-month low of around 120.13 yen, while it lost against the dollar [EUR-TN  1.3393    -0.008  (-0.59%)    ] .

The dollar [  89.79    -0.58  (-0.64%)   ] also fell against the yen.

The higher-yielding Australian dollar [  0.6846    -0.0184  (-2.62%)   ] lost over 2 percent versus the U.S. dollar and the yen [  61.48    -2.07  (-3.26%)   ] , weighed down by risk aversion and lower commodity prices.

Sterling [ 1.495    -0.0213  (-1.4%)   ] , which is typically viewed as a high-risk currency, also fell sharply, dropping by 1.5 percent against the dollar to below the $1.50 mark.

Among other news, the Russian central bank staged the latest in a series of mini-devaluations of its currency as it allowed the rouble to weaken for the second day running.

Gold falls 1 pct on firmer dollar, weak demand

Gold slipped 1 percent on Monday as oil dropped and the euro extended losses against the dollar, while physical demand was seen softening.

Gold was trading at $844.60 an ounce by 1025 GMT, down 1 percent from $853.60 in New York late on Friday.

Platinum was trading at $989 an ounce, down from $992.50 in New York on Friday. Silver was at $11.09, from $11.24, and palladium was unchanged at $191.

 

Phil, you lost me on the YHOO play.
I’ve got 1K YHOO shares at 10.5 (Not yet sold the Feb puts. Will do that this week).
Are you suggesting the following?
1. Sell 20 Jan 2010 $7.5 calls
2. Sell 2 Feb 12 calls
3. Buy 5 Feb 13 calls

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