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Thursday, March 30, 2023


Monday Morning

Wow, the last week of January already?

This year is already flying by and we're heading into a February with just 19 trading days so just 39 trading days until March options contracts expire – how's that for perspective?  Let's keep that in mind with the VIX still near 50 as these fat premiums may not last forever so we may want to move away from February sales early, especially in cases where we get a near double for selling 39 days vs. the 19 days that remain in the current expiration period

We have to consider – what would it take for the markets to get MORE volatilie?  Last week was devoid of data but this week will be exciting with Existing Home Sales and Leading Economic Indicators at 10 this morning, Case/Shiller and Consumer Confidence tomorrow, Crude Inventories and the Fed on Wednesday, Durable Goods and New Home Sales on Thursday and Friday we finish the week with Chicago PMI, Michigan Sentiment, Employment Cost Index and the Advance Q4 GDP – which will make everything else irrelevant so strap in for a wild ride!

We also have earnings from about 1/3 of the S&P 500, highlighted this week by CAT, HAL, MCD and AXP today; DAL, BTU, X, VLO, VZ & YHOO tomorrow; T, BA, COP, GD, LM, PM, ALL, BXP & SBUX Wednesday; MO, BUD, CL, EK, F, OSK, RDS.A, TXT, UA, AMZN, SPWRA and YRCW Thursday and XOM, CVX, HON and PG on Friday.  XOM and CVX together on Friday (15% of the Dow weighting) have me really, really, REALLY worried that we'll get a -5% GDP along with poor earnings from them and people are going to act like the world is ending so it's going to be a tricky play this week but lots of fun playing the ultras.

After not hitting our levels last week we shifted to Neutral at 2:21 on Friday and picked up DIA puts for protection and we are sincerely hoping that this down 7% (so far) January market is not the much-discussed "January effect" as, statistically, January is THE BEST month of the year for the markets.  It would be quite a feat to just get the markets back even in the next 5 days, let alone come up with a finish that would be encouraging for the rest of the year.  Many companies that have reported so far have been hit by the violent swings in currency and commodity prices with many airlines taking hits on fuel hedges while COP, for example, is taking a $33Bn reserve write-down and CVX has warned that it's Q4 earnings will be "significantly lower."  KFT is taking $140M in hedging losses this Q and GIS marked down $269M of commodity hedges they took at the height of the Ag bubble.

I was discussing how currencies hit the big international players this weekend with some investors and we used the example of TM, who may have priced a car for sale at $26,000, which was 3M Yen in October but, by the time the car is sold in January $26,000 is just  2.3M Yen, over 20% less then TM planned to collect.  If they spent 2.5M yen building and shipping the car and expected to make a 20% profit on the final sale – they are going to have a problem and this certainly isn't the market environment to mark the car up another 20% on this end.  This is the reason the Nikkei is off 14% this month as the Japanese market is very export-focused.  The dollar has been strong but still losing ground to the Yen, which is seen as the safest global currency at the moment. 

Of course no currency is "safe" as gold (I believe I may have mentioned gold before) is flying past $900 as investors look for REAL safety as opposed to the very imaginary safety of fiat currency, no matter what country is issuing the paper.  I won't get into it here as we are already big into gold but Adam Hamilton wrote a great article on Inflation and the Money Supply this weekend that is a must read – especially for those of you who think keeping it on the sidelines is going to protect you!  The government is trying to keep a lid on gold prices and the US mint suspended and then resumed only limited sales of gold coins and has halted new production.  Dennis Gartman agrees with my general strategy of hedging with GLD and agrees we should not go too crazy, as it would be nice if we're wrong and sad if we hit my $1,500 target (at $2,000 we go short).

Speaking of out of control inflation, an inflated money supply and insane levels of government spending – It looks like FRE and FNM need another $50Bn or so this quarter (ah yes, it has already been 3 months since we last bailed them out).  Foreclosures are kicking up and, much to my chagrin, the government still hasn't done anything to stop the actual bleeding at the homeowner level so: "Their losses are going to be much higher than anyone anticipated,” said Paul Miller, an analyst with FBR Capital Markets in Arlington, Virginia. “The more and more that people are digging into these virtual portfolios, they’re finding out the more and more these guys were doing subprime and Alt-A loans and classifying them as prime." The companies have posted five consecutive quarters of losses totaling $68.4 billion combined. The Federal Housing Finance Administration seized their operations in September amid concern from regulators that the government-sponsored enterprises may fail in the worst housing slump since the Great Depression but virtually nothing has been done to actually address the problem by the outgoing (thank goodness!) administration.

Speaking of companies that are being rocked by housing, CAT just reported a 20% miss and guided down 20% for 2009 and is taking a 20% hit pre-market and will be laying off 20% of their workforce.  We took the $34 puts for $1.83 on Friday but it looks like we should have taken Komatsu's warning more seriously as our net $32.17 entry target may not be low enough for a CAT entry.  Fortunately they have now put March contracts up and we should get a near even roll to the March $30 puts and, despite to poor outlook, I do like this 5% dividend payer (6%+ at this level) for a sub-$30 entry.  As an exporter, CAT was hit by the strong dollar as well, getting less of them back in exchange for foreign currencies.  It's very possible that a hedged entry into CAT would be nice this morning but we'll have to wait and see where it shakes out in this morning's trading before committing to ownership so stay tuned in member chat as we'll watch this one closely – it could be a great chance to get into a stock that should directly benefit from infrastructure building at a time of maximum panic – very much on-target with the way we're lookng to play this earnings cycle…

Again XOM buyers seem to be in la-la land as XOM is still strong pre-market but CAT was also hit hard by cutbacks in machine sales to commodity producers.  We'll see on Friday but we are short XOM at $80 long-term.  Another intersting macro to watch is a glut of shipping vessels hitting the water in 2009 as the 3-year building cycle of jumbo vessels that began in 2006 begins to increase capacity at perhaps the worst possible time.  The new ships are 30% larger in capacity than Panamax tankers, holding 13,800 house-sized containers and STX Shipbuilding has plans for a 22,000 container ship.  The rate for shipping a container from Asia to Europe has fallen from $3,000 last year to $300 plus the $500 fuel service charge – also down from last year.  Compare that to what your local movers charge you! 

Asia was mostly closed today (lunar new year) and the Nikkei loast about a point on thin trading.  Still, that is a 3-month low in Japan and SNE has already warned ahead of earnings this week with not much expected from the auto industry to cheer things up.  China denies manipulating their currency, which is interesting since the government sets the official exchange rate which, to the untrained observer, would pretty much be the definition of manipulation.  LEH's assets go on sale in Japan this week and that will be an interesting auction as real estate prices in Japan could not (seemingly) get any lower. 


Europe, on the other hand, is up about a point as the World economic leaders begin to gather in Davos for the annual World Economic Forum.  Financials led the gains as BCS jumps nearly 50% as they move up their reporting date to 2/9 and CEO Varley pre-reported that the bank "will report a profit before tax for the year well ahead of the consensus estimate of £5.3 billion ($7.4 billion)."  They also said the bank's capital resources are "well in excess" of regulatory requirements, creating a "large performance cushion" for the bank.  So we go from a run on the bank rumor to a run on the bank's shares in just 7 days!

We're waiting to see if Geithner finally gets confirmed today as that should give us a boost and we should also be getting some more stimulation commitments this week, also good fuel to move us up despite some scary earnings reports but I will be very, very, VERY concerned about Friday so we'll be paying careful attention to energy earnins this week to try to get a clue on XOM and CVX on Friday.  Also, don't forget to keep an eye on rates today as the US has to find buyers for over $100Bn worth of notes at two auctions



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Good Morning everyone. Well Barclays seems to have lifted the UK but CATs results are a bit of a damper on US futures. The financial side of CATs results are bad enough but laying off 20000 workers is just grim.

CAT forecast is FUGLY !

Interesting comments from John Mauldin on Friday or Saturday.
Dow historically replaces sub $10 stocks.  Not doing it now.  C, GM, BAC.  The result is, that if C, GM, BAC, AXP, GE and MSFT all went to 0 today, the Dow would only lose something like 500 or 600 points.
In other words, if stocks like IBM, BA, XOM, etc. hold up, it would be difficult to tank the DOW, unless they kick out the financials and GM noted above.

Bozo on CNBC.
At S&P 800 he is a buyer – stocks "very attractive".
At 840 he is a seller – not very attractive.
C’mon !

Hmmm….a 5% range….talk about false precision!

GLD  I’ve got 1/2 covers of the Feb 86s.   I’m planning on a 2X rollup when the premium % in the price drops a bit more.   I was planning on something like 2X Feb 92s, but given the possibility of the VIX dropping, should I be thinking of something like 2X Mar 95-ish? 

Phil – Ref Opex. I believe that there are 25 days to Feb20th and 53 days to Mar20th.

 phil, i have cat 35 leaps 2011. thinking about dd? thoughts

You guys may have already seen this, from CNBC on Friday, analyst slams XOM  

EPH – I am with you on GLD.  I was just looking at the rolls.  Sticking with the 86 Feb and rolling 2X to the 95s Mar if VIX stays above 50ish, otherwise 92s.

 Phil, what do you think of this trade: buy 1000 shares FAS, sell 10 JUN 10 calls FASGB and sell 10 JUN 10 puts FASSB.  This one pays very nicely unless FAS drops by half.

Rohm/Dow deal crumbles….Dow should pick up a nice bounce (fingers crossed).  If you play the dividend yield game comparing Dupont vs Dow, Dow should move up to the 17ish range.  Sold Feb 15 puts on Dow.

phil, what are your thoughts on BTU ?

 phil, thanks but are you bearish on cat or is this a short term blip for a strong well run company?

Nice pop for HOV, finally, up 14.5%.  Existing home sales must be better then expected?

Anton, great video on XOM

Home sales up 6% from November but median price down to 175k!  We’re now back to the median price of May 2003.  Wanna bet we get to May 2002 anyone?

XOM   I’ve got a – Feb 80/ + Apr 80 put spread.  Should I just take out my putter in anticipation of poor earnings on Friday?   I’m leaning that  way especially since I’m at 50% plus in profit on the putter. 

Leading Indicators – Intense DownTurn. – Doesnt seem to be how the market see it ?

GLD/Eph – Still a lot of premium (almost 40%) in the $86s and $90 is a big barrier so no hurry, especially on a half cover.  Don’t forget you can roll them up to 2x the $90s now and pcket almost $1 per current contract and THEN roll to March $95s even or even better as the Feb $90s are all premium. 
I like the idea of pocketing some cash here.   I’ll put in a silly order and see if it fills.

I think the take away from the home sales figures is that prices are still falling.  Alot.  Of course there will be an uptick in sales when you drive the mortgage rate down drastically like they did in December.  But it’s already climibing back up.  There will always be people willing to try and catch a falling knife. 
I’m up for a little pain this morning.  Going long on SKF.

Looks like forced buying going on might as well join the party.

XOM  It crossed 80, time to put on a long put?   How about the Jul 90 for $14.60?

I don’t how many of us read Paul Krugman’s articles in NY Times. Here is a serious one, a rebuttal to some conservatives. Please read this as ‘economic knowledge’ and not as a political commentary.

Matt – UYGs are 3.4….U should be doing back flips (and then get out)!! 

Phil: low premium left for:
UNH feb 24 put and VLO put feb 20, 30 cents, CLOSE ???? UNCOVER the BOTTOM,
USO put feb 30 has 1.35$ too much left so milk more with 25 days left,

Pharm, I’ve been out of UYG.  I already took my lumps.  I think SKF is the way to go.. but the market might think differently.  Looks like they maybe intent on driving her higher due to the wonderful news that the leading indicators are up due to the Fed flooding the money supply.  Hooray.  Another manufactured rally on a manufactured piece of economic data?  Maybe.  But if so, that will only make the selloff on Friday all the more spectacular.
Disclaimer:  Short XOM and will continue to do so.

SBUX   I’ve got Jan 11 7.5s, 1/3 covered with Feb 9s.    If I wanted to sell more covers would you go more 9s or wait until I can get .50 for the 10s?

Obama – that dude is a wet blanket – so anxious to avoid blame – the crisis we’ve "inherited".  Meanwhile keeps focusing on the negative.  He should be trying to build confidence.

Cap; where do you plan to make money today ?

House prices – I wonder how many people are managing to get a bigger/better home at the SAME price/equity as their existing home ? i.e move up at no cost !

Phil – CAT – if they are forecasting 2009 EPS at 2.50 – before writedowns – how can one justify more than $25 at this time ?

Nice job Obama !  (not …)

DJIA needs to break 8240 to have a shot at moving higher

Phil, can you explain the roll to 2x the 90s on GLD? Doesn’t that mean that you have uncovered calls sold?

RMM … playing small.  Letting my short calls on SKF ride (i covered 1 280 call today) the rest are 280, 300, 330, 340 and 360 … should be able to run em out thru expiration.
Adding short exposure by selling XOM 85 calls, WFMI 12/13 calls; TSO 20 calls.
Not doing much else; want to see if market can break higher or not.

Matt, I joined you on the SKF calls, so now you’re probably doomed. Sorry.

Goldman – "stay away from Citigroup".
Why ?  B/C Goldman wants to buy them cheap.

so much for the ibm good news. just got off the line with an ibm executive friend of mine who said that ibm laid off 30,000 workers worldwide last friday. they are trying to keep it low key. no ‘corporate’ official layoffs with action taken by the divisions (wink, wink). ibm must see bad days ahead!!!

30000 wow, the rumor was for 16k!!

Phil: from optionmonster, I see: what is the point of AAPL calls april 150 being bought, a few cents, what is the buyer expecting ?

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