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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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 XOM July 90’s.  Phil would you still buy those at this level?

 Thanks Phil!

CNBC said that there is a rumor that BP would buy CHK?!!?   That would suck because I’ve been rolling down my calls for months and they are finally solidly below my callers.

Phil and Cap; 3 times i sold to open and closed now on SKF, like on 1/23, hope it runs up again.
Phil: what’s the trend for financilas ??

"That was July $90 puts to be clear…  Well they are up $1 so a little chasing here but still the best overall strike to play."
could you explain why this is the best strike to play?

Phil: GE: when I roll in Fidelity, it lets me only roll the number of positions I have, so, when you say go 2x to march 12.5 putters, I first have to do the 1x roll and the sell 1x march 12.5, does your system let you select any number on positions on rolls ?
what I do not understand is the quote cover with 1x the 5$ puts unquote, does that means feb 5 putters for 12 cents ??

Pull up intraday chart of DJIA and XOM … they go in lockstep today; and SKF goes exactly the other way.  I am sure many other charts follow along as well.

good job RMM

Are you getting whipsawed today?  Try selling a Short Strangle: sell SPY Mar 72 PUT, and sell SPY Mar 96 CALL for $2.55.  That’s a 15% cushion on both the downside and upside.  The margin requirement ATM is $9, and increases to $22 when SPY is at 96 or at 72.  It’s a cool 12% for two months, given the highest margin requirement, and not much maintenance.
If you are more conservative, pick strikes that give you 20% cushion.  Sell SPY Mar 67 PUT and Mar 100 CALL for $1.5, a 7% for two months, 42% per year!  Don’t forget the stops.

Phil: you believe GE can fall to 5 ?
I better take the present loss and get out as one cannot short enough to balance that fall if so.

 A real whipsaw  every day.  I think you can make a living just waiting for the 2pm sell off and buy in at that time.

Education stocks took a haircut today.  Must have been the republicans against the bailout bill and the funding on education.

BA  My position is + 2 Jan 10 40, – Feb 40 Put, – Feb 40 Call.    Would you make any adjustment ahead of Wed’s earnings?   I’m thinking of selling  a 45 caller for 1.20

Can still sell a 280, 290 SKF strike for $5 + …. wow.

RMM/GE  I think Phil suggested the 5 put to cut down the margin requirement not because he sees it as a target

FWIW – If the S-chip gets approved by Congress, I can see the tobacco stocks taking another one on the chin!!!

SPY  What do you think of + Jun 90 / – Feb 83 as a protective spread?   You’re paying about $4 in premium for 5 months and earning almost all of it back immediately.

Phil, I would stay away from AXP!

Well, pretty nice day playing the ol’ SKF/UYG fiddle!  Wish I was this talented everyday. 😉  No idea which of the two will be up big tomorrow am.  But with AXP reporting.. if I had to bet I’d say SKF.  But I will stay away with this indecisive afternoon action.

Eph – SPY Bear diagonal. Are you suggesting calls as protection? Phil is talking about puts, others are using back-spread ratio, calls is something new. Please elaborate. Thanks

SPY/Bronek   No I meant puts in the same way as DIA puts, but without the distortion caused by the very low priced financials and very high priced energy components.   TOS just froze up on me, but as I remember you’re paying about $12 for the June 90s and making $3+ back by selling the 83s.   Similar to the DIA the $1 strikes make it an easy spread ot manage.

Eph – Thanks. The comment “ ..  You’re paying about $4 in premium for 5 months and earning almost all of it back immediately …” caused my confusion. Thanks for explanation.

Seems like everyone is announcing results AND job cuts at the same time. Get it over with I guess ?

"look more than 1 year out and things are going to be just fine…" 
LOL. That guy’s going to be so painfully wrong.

From last weeks talk on Stem Cell companies, a blurb from SeekingAlpha:  FWIW – stroke is a major killer for pharma clinical trials, beware. 
Stem Cell Research
President Obama is expected to lift the ban on federal funding on stem cell research in coming weeks, a historic move that will boost the US health industry. As a sign of the attitude of this administration, last week, the Federal Drug Administration said it had cleared US company Geron (GERN) to begin trials of its early-stage treatment for spinal cord injuries. This is breaking, almost revolutionary, news in the health industry as this will bring a new era of treating diseases. Investors welcomed this news.
Earlier last week, ReNeuron’s [RNUGF.PK] ReN001 therapy for stroke won permission to start UK trials; the stock rallied almost 400% in a week’s time. Stemcells Inc. (STEM) owns a 10% stake in ReNeuron. Stemcells and Geron are two US companies leading this industry. Stemcells has over 130 patents, Geron has over 160 patents. To investors, a new era has come, and the opportunity is huge. For STEM and Geron, we may be looking at a medical "Microsoft" (MSFT) of the 1980s.

I did a table showing the companies reporting this week.  First column is ticker, second column, is closing rpice (today), third column is the combined price you can get by selling a put and a call (based on the mark of the options closest to the money), and last column is what percent that put/call compination represents of the company’s price. 































Well, it didn;’t work as I expected, but you can see the numbers easily.

Stephen Friedman, a director of Goldman Sachs Group Inc. (GS), on Monday reported the purchase of $1 million in company shares.
Friedman, who joined the bank in 1966, bought 15,300 shares for about $66.61 each, according to a filing with the Securities and Exchange Commission.
This is Friedman’s second recent purchase of Goldman stock. In December, he paid about $3 million for 37,300 shares, another filing shows.
With his latest purchases, Friedman directly owns 98,600 Goldman shares, worth about $7.3 million at Monday’s closing price of $74.20.
-By David J. Reynolds; Dow Jones Newswires; 202-862-1342; david.reynolds@dowjones.com

Thanks Phil, that’;s actually your list of companies annoucing earnings, I just looked up the data.  I did that after I saw NFLX go up so much after hours and still realizing that a straddle would have been profitable there.
Besides copy-pasting, can we look into a file upload feature in chat?  I think it would be very useful to upload an excel spreadsheet when we need to.  Not sure how realistic/doable that is.

AXP up a bit after hours – 15.60.
SLG reported good results, no bad news.

Geithner confirmed.  34 no votes, including Dems Harkin, Byrd, Feingold and ol’ socialist Sanders.
Obama is getting quite the pass on his nominees. 

Japan is up 4% at this hour as the govt said it’s going to buy shares in companies.  Hopefully this will carry across the ocean and we’ll have a good day tomorrow.

Futures are up more than 1%.  Haven’t seen that for a while.  Looks like the market would burst through last week high tomorrow.  Let’s not get our hopes too high as we can get whipsaw again.

Phil – Put protection – Thanks

Good Morning everyone.
The UK opened down this morning, not much, about 0,2%. US stock futures look very good up 130pts at this point. A bit suprising given the results and layoffs announced yesterday/last night but most commentators are saying the jobs are a lagging indicator. Maybe but all those people will be struggling to do their bit spending the economy back. Lots of earnings this morning so i guess it could all change.

Good Morning Phil, DB & everyone

Asia Markets :    Tuesday, January 27, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                 8061.07    378.93    4.93%
Hang Seng* *                  12578.60     -79.39    -0.63%
China: DJ Shanghai* *       223.87       -0.98    -0.44%
Seoul Composite* *         1093.40     -22.83    -2.05%
Bombay Sensex*              9004.08    329.73    3.80%
Baltic Dry Index             995.00    15.00    1.49%

*at Close

** Markets in China, Hong Kong, Taiwan, South Korea, Singapore and Malaysia are closed for the Lunar New Year holiday. Data from Friday (Jan 23, 2009).

Japan Climbs 5% on Weaker Yen, Sydney Rises 3%

(Markets in China, Hong Kong, Taiwan, South Korea, Singapore and Malaysia are closed for the Lunar New Year holiday.)

Asian stocks rose Tuesday, with Japan’s Nikkei surging almost 5 percent higher following a gain in U.S. markets and as exporters rebounded on a weaker yen.

Japan’s Nikkei closed up 4.9 percent, its biggest one-day gain in six weeks, on a lower yen and news the Japanese government will offer funds to firms whose capital has been hurt by the financial crisis. Exporters gained on a wave of short-covering and Honda Motor surged over 9 percent following the announcement of further production cuts in North America and Japan, while a newspaper said the automaker would increase production capacity in China by 23 percent.

Australian shares finished 3 percent higher, buoyed by stronger markets in the U.S. and Europe, with miners such as Rio Tinto gaining on a rebound in metals prices.

Bombay Stock Exchange’s Sensex ended at 9007.26, up 332.91 points or 3.84 per cent. The index touched an intra-day high of 9021.97 and low of 8789.06. Benchmarks pulled back sharply on Tuesday to close higher as investors bought heavily in frontline stocks like Sterlite Industries, Reliance Infrastructure and Reliance Industries.

Euro Shares Mixed; Banks, Siemens Gain

European shares drifted higher in early trade on Tuesday as banks continued their upward journey after surging in the previous session, while Siemens advanced after posting positive results.

The FTSEurofirst 300 index of top European shares was up 0.2 percent at 786.42 points after jumping 3.2 percent in the previous session, led by banks.

Banks added the most points to the index again on Tuesday, with Barclays rising 12 percent, adding to a 73-percent surge in the previous session, when it said it had no need to raise fresh capital. Lloyds was up 12.4 percent, Royal Bank of Scotland jumped 15.2 percent and Societe Generale advanced 3 percent.

Siemens rose 4 percent after the German industrial conglomerate said profit covering its three main divisions for the first quarter of fiscal 2009 to Dec. 31 rose 20 percent to 2.005 billion euros ($2.64 billion), beating market expectations.

Software AG, Germany’s second-biggest software company, jumped 9 percent after posting a rise in 2008 sales and operating profit that beat market expectations thanks to its market entry into Brazil and integration of its webMethods unit.

Miners retreated with a decline in metals prices.BHP Billiton, Anglo American, Vedanta Resources, Xstrata and Antofagasta fell between 0.5 percent and 4.2 percent.

Energy stocks were also under pressure.BP, Royal Dutch Shell, gas producer BG Group and Total shed 0.3-1.9 perce

In economic news, German corporate sentiment unexpectedly improved for the first time in eight months in January, buoyed slightly by a rise in business expectations, a closely watched survey showed.

Across Europe, the FTSE 100 index was down 0.3 percent, Germany’s DAX rose 0.3 percent and France’s CAC 40 was up 0.1 percent.

Oil Rises Toward $47 on OPEC, Cold Weather

Oil prices rose more than a dollar towards $47 a barrel on Tuesday, boosted partly by cold weather in top energy consumer the United States, plus signs OPEC oil supply cuts may have begun to underpin prices.

U.S. light, sweet crude [ 46.19    0.46  (+1.01%)] for March delivery rose. U.S. crude has rebounded from below $33 a barrel in the past week.

London Brent crude [ 47.42    0.46  (+0.98%)] climbed.

Evidence suggests most of OPEC’s members are implementing the group’s biggest ever 2.2 million barrel per day (bpd) production cut agreed last month.

U.S. fuel inventories, for example, are building as demand shrinks. U.S. crude oil stockpiles are expected to have risen a further 2.7 million barrels last week, the fifth straight week of gains. Colder weather is expected to help draw down distillate stocks by 800,000 barrels, according to a Reuters poll. Gasoline stockpiles are likely to have risen by 1.3 million barrels. Temperatures in the densely populated U.S. northeast are forecast to be below normal this week.

Oil traders will get an early indication of Wednesday’s U.S. government data with the release at 4:30 pm New York time on Tuesday of inventory figures from the industry group the American Petroleum Institute, as the API shifts to a new, earlier release schedule.

Euro Rises, Supported by Strong Ifo; Yen Slips

The euro hit a one-week high versus the dollar and the yen on Tuesday on a surprise rise in German corporate sentiment, while easing risk aversion kept the Japanese currency under broad selling pressure.

German’s Ifo economic research institute said that its business climate index rose to 83.0 in January from an upwardly revised 82.7 in December, exceeding forecasts and posting its first improvement in eight months. The figure suggested that businesses are slowly gaining confidence following the government’s announcement of an economic stimulus package, although analysts warned against becoming too optimistic about the German economy.

The yen fell broadly after a pledge by the Japanese government to inject capital into ailing companies prompted some investors to take on riskier trades, which helped to support the euro and sterling.

A slight improvement in risk demand prompted some selling in the dollar ahead of a two-day policy meeting by the Federal Reserve that begins on Wednesday.

The euro [ 1.3244    0.0057  (+0.43%)    ] traded higher against the dollar, having climbed as high as $1.3328, its strongest in a week, after the Ifo figures were released.

While the pair pulled away from the high, it kept its distance from a six-week low around $1.27 hit late last week.

The euro [118.19    0.70  (+0.6%)   ] also traded higher versus the yen after hitting the day’s high of 119.45 yen, a level last reached on Jan. 19.

The yen stumbled due to improving risk demand after Japan launched a $16.7 billion scheme to buy shares in firms whose future has been threatened by the financial crisis. The low-yielding yen often takes its cue from perceived swings in investors’ risk appetite and has tended to fall against higher-yielding currencies when risk tolerance increases.

Improving risk appetite pushed the yen lower across the board, boosting the dollar [ 89.22    0.15  (+0.17%)    ] by as much as 1 percent to a one-week high of 90.07 yen, before pulling back slightly.

Sterling and higher-yielding currencies like the Australian and New Zealand dollars each rose around 1.5 percent against the yen. The pound [ 1.4188    0.0196  (+1.4%)    ] rose as high as $1.4242, pulling further away from a 23-year low of $1.35 hit last week.

Still, analysts said a further improvement in risk appetite was unlikely, given persistent stress in global financial sectors and the global economy’s decline into recession.

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