Archive for February, 2009

The Oracle Speaks – Words of Wisdom From Warren Buffett

Boy is this a tough market, even Berkshire Hathaway profits dropped 96%.

First of all, stop right now if you haven't read Warren Buffett's Chaiman's Letter in the Berkshire Hathaway Annual Report.  He can tell you a lot more about the state of the economy than I can.  Although I will go over some of the highlights of The Oracle of Omaha's 100-page report, you should read the whole thing – go ahead and read it, then come back – I'll wait… 

Berkshire Hathaway has produced a compounded annual gain in value of 362,319% since it's founding in 1964, about 10 times what you would have gotten investing in the S&P 500, roughly a 20% annual growth rate.  Included in that figure is a 9.6% decrease in book value last year, the first loss since 2001 and the second loss EVER.  The average S&P company dropped 37% of their book value in 2008 and this year is looking worse already.  "By the fourth quarter," says Mr. Buffett, "the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear."

Buffett does not provide a positive outlook, he expects a rough 2009 and "for that matter, probably well beyond" but that does not shake his outlook that, over time, investments made today will pay off in the future.  He has a quote that is almost identical to one of mine: "Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."

Commentary on the housing market was: "The 1997-2000 fiasco should have served as a canary-in-the-coal-mine warning for the far-larger conventional housing market. But investors, government and rating agencies learned exactly nothing from the manufactured-home debacle. Instead, in an eerie rerun of that disaster, the same mistakes were repeated with conventional homes in the 2004-07 period: Lenders happily made loans that borrowers couldn’t repay out of their incomes, and borrowers just as happily signed up to meet those payments. Both parties counted on “house-price appreciation” to make this otherwise impossible arrangement work. It was Scarlett
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Golden Parachutes

Here’s another colorful, informational graphic representation of our financial world – the Goldren Parachutes, by Jess Bachman.

Golden Parachutes:  How the Bankers Went Down

Courtesy of Jess Bachman at WallStats 

When high-ranking executives are fired from a company, for whatever reason, they don’t go to the back of the unemployment line. Instead, they typically receive compensation in the form of the “golden parachute.” Golden parachutes can include severance pay, cash bonuses, stock options or other benefits. In the case of the financial crisis and the ensuing bank failures, if it seems like these executives are being rewarded for poor performance, you may be right. Here’s a look at what some bankers made on their way down.

 





MONETIZE THIS!

Acknowledging that "we cannot borrow our way out of debt," Ellen Brown suggests the Federal Reserve stimulates our debt-ridden economy by creating new, essentially interest-free money, which does not have to be paid back.  Here’s how.

MONETIZE THIS!
A BETTER WAY TO FUND THE STIMULUS PACKAGE

Ellen Brown, at the Web of Debt

“Diseases desperate grown are by desperate appliances relieved, or not at all.” – Shakespeare, “Hamlet”

David Tennant as Hamlet. Photograph: Tristram KentonMoody’s credit rating agency is warning that the U.S. government’s AAA credit rating is at risk, because it has taken on so much debt that there are few creditors left to underwrite it. Foreigners have bought as much as two-thirds of U.S. debt in recent years, but they could be doing much less purchasing of U.S. Treasury securities in the future, not so much out of a desire to chastise America as simply because they won’t have the funds to do it. Oil prices have fallen off a cliff and the U.S. purchase of foreign exports has dried up, slashing the surpluses that those countries previously recycled back into U.S. Treasuries. And domestic buyers of securities, to the extent that they can be found, will no doubt demand substantially higher returns than the rock-bottom interest rates at which Treasuries are available now.1

Who, then, is left to buy the government’s debt and fund President Obama’s $900 billion stimulus package? The taxpayers are obviously tapped out, so the money will have to be borrowed; but borrowed from whom? The pool of available lenders is shrinking fast. Morever, servicing the federal debt through private lenders imposes a crippling interest burden on the U.S. Treasury. The interest tab was $412 billion in fiscal year 2008, or about one-third of the federal government’s total income from personal income taxes ($1,220 billion in 2008). The taxpayers not only cannot afford the $900 billion; they cannot afford to increase their interest payments. But what is the alternative?The New Yorker October 20 2008

How about turning to the lender of last resort, the Federal Reserve itself? The advantage for the government of borrowing from its own central bank is that this money is virtually free. This is because the Federal Reserve rebates any interest it receives to the Treasury after deducting its costs, and the federal debt is never actually
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Qualcomm – Rally in sight, but not just yet

Today’s tickers: QCOM, GT, IVN, AMGN, C, GFI, HMY, SQNM & GE

QCOM – Qualcomm Inc. – Things might be looking better for Qualcomm – but not just yet according to one large option trade that went through earlier today. An investor sought protection in the April contract for fear that shares would be below $35.00 when the contract expires and turned the cost of the premium into a credit by selling January 2010 expiration puts at the same strike. The strategy assumes that the shares will not break through the strike price as the second quarter begins, in which case the investor gets paid out for every penny below $35.00 the share are at that time. But ahead the investor’s core assumption is that shares will shift ahead of $35.00 when next year begins, rendering the sold put options worthless. Today Qualcomm is trading a shade higher at $33.75.

GT – The Goodyear Tire & Rubber Company – Shares of the manufacturer of tires and rubber products have fallen by 5% to $4.57 today. Perhaps the continued decline stems from the downgrade GT received on Monday to ‘underweight’ from ‘hold’ by a KeyBanc analyst, who cited challenges such as global sales declines, and rising costs related to pension and raw materials. Despite the downgrade and today’s decline in share price, one investor established a bullish play on the stock. At the April 7.5 strike price, 10,000 calls were purchased for 10 cents each. Should there by a rally in shares before expiration, this trader will see premiums grow richer at the 7.5 strike, and could then potentially sell the calls to profit. There is a delta of 0.13 on the trade, thus there is a 13% chance that these calls will land in-the-money by April. The current share price would need to experience an increase of 66% in order to surpass the breakeven point on the trade located at $7.60. Whether the shares can breach the breakeven point or not, this investor can still capitalize on today’s position with even a slight rally in shares by selling premium.

IVN – Ivanhoe Mines Limited – The international mineral exploration and development company’s shares have rallied by 3% to stand at $4.59. IVN caught our attention when it edged onto our ‘hot by options volume’ market scanner. Calls were in demand in the June contract, where over 12,300 calls were purchased…
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On the Economy,… Now Batting 2 Out of 5…

Brad DeLong, at Grasping Reality with Both Hands, assesses reality. 

On the Economy, Obama and Company Are Now Batting 2 Out of 5…

Courtesy of Brad DeLong at Grasping Reality with Both Hands

Paul Krugman is unhappy:

Feelings of despair: There’s so much to like about where Obama is going — health care, transparency in government, ending the war in Iraq. And the stimulus bill is OK, though not big enough. But on the question of fixing the banks, many of us are feeling a growing sense of despair. Obama and Geithner say the right things. But Simon Johnson nails it:

How long can you say, “we are being bold” when in fact you are not?

Obama and Geithner say things like,

If you underestimate the problem; if you do too little, too late; if you don’t move aggressively enough; if you are not open and honest in trying to assess the true cost of this; then you will face a deeper, long lasting crisis.

But what they’re actually doing is underestimating the problem, doing too little too late, and not being open and honest in trying to assess the true cost. The actual plan seems to be to keep the banks semi-alive by implicitly guaranteeing their liabilities and dribbling in money as necessary, all the while proclaiming that they’re adequately capitalized — and hope that things turn up. It’s Japan all over again. And the result will probably be a deeper, long-lasting crisis.

Back last November, I said that the Obama administration needed to do five things:

  1. Expansionary monetary policy at an appropriate scale.
  2. Expansionary fiscal policy at an appropriate scale.
  3. Massive bank recapitalization--or nationalization--so that banks believe that they can be banks that start lending again rather than being zombies that think they have to hunker down and minimize risk in order to keep the next negative shock from destroying the institution.
  4. Massive buy-ups of mortgages by Fannie and Freddie so that (a) mortgage deals could be reworked, and (b) the supply of risky assets on financial markets that the private sector could be reduced in consonance with the banking system’s reduced risk tolerance. 
  5. Design the regulatory system for financial markets going forward.

Bernanke has done (1). Summers and company have


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GDP Number Far Worse Than Expected… (But Not Here)

Yes, Can We?  Jesse’s Café Américain lists policy changes to stop the corruption, greed and deceit that now defines our political and financial system.

GDP Number Far Worse Than Expected by Most Economists (But Not Here) 

Courtesy of Jesse’s Café Américain

The Fourth Quarter GDP number came in at a negative 6.2% versus the original negative 3.8 percent announcement earlier this year.

That is not a big adjustment. It is a HUGE adjustment. That first number was so obviously cooked by a high side inventories estimate and a lowball chain deflator that it was a knee-slapping howler to anyone who is following this economy closely.

This decline did not happen overnight. It is merely being reported that way.

There should be little doubt in most people’s minds that Bernanke, Greenspan, Paulson, and many in the Bush Administration were deceiving us about the state of the economy, for years, almost routinely as a matter of course.

That is important to understand. This was no act of God, no hurricane or meteor strike. And a lot of folks on Wall Street and in Washington playing dumb now knew what was coming. You can decide their motives for yourself, but fear and greed should be high on the top of your list.

The economy has been rotten for a long time, since at least 2001 if not before, and as it worsened more and more money was taken off the table by the Bush Administration and their corporate cronies through no bid contracts and welfare for the wealthy. Coats of paint were slapped over the growing imbalances, market manipulation, malinvestment, fraud and corruption.

Remember that. Don’t let it go. Because as sure as the sun will rise, these jokers will be back in business given half the chance. They are shameless, greedy beyond all reason, and persistent. The fiscal responsibility being preached now by the Republican minority is repulsive hypocrisy.

That is why it is so disappointing to see what looks like business as usual from the Obama Administration. Larry Summers appears to be a tragic choice as chief economic advisor. And Tim Geithner, while a capable fellow, is not a thinker, but a doer, an implementer, and a disciple of the fellows that caused this mess.

What to do? Let them know now we expect reform. Don’t fall


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A self-propelled pyramid?

Additional insight to the USO situation — pyramids can spontaneously construct themselves. – Ilene

A self-propelled pyramid? 

Posted by Izabella Kaminska at FT.AlphavilleClick on chart for larger image

Stephen Schork of the Schork report jumps on the United States Oil Fund issue on Wednesday. He too is blaming the size of the ETF for current distortions in front-month Nymex WTI contracts. [Chart on left shows how poorly USO has been tracking $WTIC - courtesy of Adam Warner.]

He refers specifically to the March/April roll when spreads moved from $3.26 to $8.18 and expired at $1.09. Quite a volatile move. He explains (our emphasis):

"As we outlined at the time, this volatility was largely attributable to “the roll” by long-only commodity index funds, particularly the United States Oil Fund ETF (USO). Open interest in the March contract was 363,757 on February 05th. Per the fund’s website, the USO rolled 85,057 contracts the next day. In other words, the USO held sway over the market, i.e. these funds (USO, S&P GSCI et al) are artificially skewing the front of the NYMEX curve; putting downward pressure as they sell a massive percentage of open interest in the spot over the course of a few sessions.

The USO has since announced it will roll over the course of four sessions instead of one; the April/May roll will take place in between March 06th and 09th. The fund is holding length of 61,940 NYMEX futures, 4,000 NYMEX WTI financials and 30,583 ICE futures, 96,523 contracts in total with a market capitalization (as of last night’s close) of $3.86 billion.

All this length will have to get rolled in a couple of week’s time. What’s to prevent front running the roll? Nothing, that’s what. Over the last three sessions the April/May contango has moved from $2.14 (-5.1%) to $2.80 (- 6.6%)."

Which leads him to make one very brave assertion, a comparison to a pyramid scheme. To clarify – Schork is not saying the USO is an outright pyramid scheme itself. He is asserting the nature of the market, the established participants and the fund’s structure is such that it inadvertently encourages a passive self-propelled pyramidization to take shape. One fuelling the other so to speak. As he explains:

"So how is this like a pyramid scheme? A pyramid scheme
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USO Investigated By CFTC Over Price Moves

Tyler Durden at Zero Hedge reports on a possible looming ETF disaster.  (Follow-up to Crude Talk by Adam Warner.) – Ilene

 

USO Investigated By CFTC Over Price Moves

Courtesy of Tyler Durden at Zero Hedge

The ETF bubble looks like it may be the next one to burst. WSJ just out that the CFTC is probing the USO ETF for price moves coinciding with trades in and out of crude-oil contracts. The USO has recently gotten prominent media attention over allegations that it is a perpetually value bleeding asset, and potentially a pyramid structure.

The Commodity Futures Trading Commission confirmed late Thursday that its enforcement staff is investigating USO concerning its so-called "roll" into a new contract on Feb. 6. The scrutiny is part of a broader probe into the oil market.

"The CFTC takes seriously issues surrounding price movements in our nation’s vital energy markets," acting CFTC Enforcement Director Stephen J. Obie said.

USO has grown so large in recent months — its holdings account for 20% of all April crude futures contracts on the New York Mercantile Exchange and about 30% of the contracts on ICE Futures Europe — that it has a noticeable effect on oil prices when it moves in and out of contracts each month.

It is not clear what would happen to the USO in case impropriety is found and the fund is forced to shutdown and unwind it massive futures positions. Nonetheless, this could be a harbinger of increasing regulatory intervention in other ETFs which have seen a huge rise in trading in recent months.

 





Dreamy Pandit: This Deal Should Put Nationalization Fears To Rest

Citi Deal – Outrageous, embarrassing, Geithner gifting as much taxpayer money to Citi stakeholders as possible.

Dreamy Pandit: This Deal Should Put Nationalization Fears To Rest (C)

Courtesy of Henry Blodget at ClusterStock

If the latest Citi bailout goes as planned, US taxpayers will now own 36% of Citigroup.  They will have paid way too much for the stock, thanks to Timothy Geithner, but ever-cheery Citi CEO Vikram Pandit is happy to report that this latest bailout should end speculation that the company will be nationalized:

"In many ways for those people who have a concern about nationalization, this announcement should put those concerns to rest."

We guess that’s why the stock is down 30% this morning--because nationalization fears have been put to rest.  After all, if the preferred shareholders convert, Citi will now have $80 billion of common equity, which is no doubt enough to absorb the future losses on its crumbling $1+ trillion balance sheet (the company only lost $10 billion last quarter!).

But remind us again why these preferred shareholders are going to convert?  Thanks to the ever-generous Timothy Geithner, the conversion price is $3.25.  Citi’s stock is now available for $1.80.  So why, exactly, are the private-market preferred holders like Prince Alwaleed going to give up their preference and fat preferred dividend to overpay for common stock?

How much longer are we going to have to go through this?  At this point, it’s just plain embarrassing.  Can’t we just grab the place, chop it up, and sell off the pieces?  What the market’s telling us this morning is that that outcome is inevitable, so we might as well get on with it.


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Bank Action And The Market

Let’s check in with Rob Hanna at Quantifiable Edges.  Reviewing the banking sector today and the SOX yesterday, he’s finding a bullish biases forming, or maybe "struggling" to materialize.  

Bank Action And The Market

Courtesy of Rob Hanna at Quantifiable Edges

The one sector that held up very well Thursday was the Banking Index (BKX). Yesterday I showed a study that suggested a bullish bias following a negative SPX day where the SOX thrives [below]. Below is a similar test using the BKX instead of the SOX:

(click to enlarge)

This study would have triggered both on Wednesday and Thursday. Instances are too few here to draw any solid conclusions. It does appear worthwhile to keep an eye on the BKX as well as the SOX, though. Interesting about this study is that there were two occurrences in 2008. They were on 1/22/08 and 10/10/08. Both near notable market lows.
 
Edit: Citigroup is trying its best to ruin these results as I type this. Expect the banks to remain front and center. Looks like we’ll have another action filled day.
 

SOX Gives Intermediate-Term Bullish Market Indication

A positive intermediate-term sign Wednesday was the fact that the Semiconductor Index (SOX) rose even as the S&P and Nasdaq suffered 1% declines. I first showed the below study on the blog last August. I’ve updated the stats to run up until the present.

(click to enlarge)

These are solidly bullish results with the winning percentage, the profit factor, and the average trade all posting strong numbers throughout the test period.

Not shown above is that over the next week the S&P has posted a close higher than the trigger day close 89% of the time. If you look out 12 days there has been at least 1 close higher than the trigger day in 42 of 43 instances (98%). The only loser came after the 7/21/98 signal. This has been a solidly bullish intermediate-term signal.





 
 
 

Phil's Favorites

The American GI in WWII, uncensored

 

The American GI in WWII, uncensored

Pfc Elias Friedensohn in June 1945 at the Special Services Distributing Point, Seine Section, Paris, France. National Archives

Courtesy of Edward Gitre, Virginia Tech

I can still recall the exhilaration I felt in the reading room of the National Archives in College Park, Maryland.

It was mid-April 2009. I was scrolling through roll after microfilm roll of the War Department’s “Opinion Surveys Relating to the Morale of U.S. Army Personnel.”

What I had discovered were tens of thousands of statements writte...



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Zero Hedge

The Bulls Continue To Bet On The Fed

Courtesy of Lance Roberts, RealInvestmentAdvice.com

Over the last several weeks, we have been discussing the potential for a market correction simply due to divergences in the technical indicators which suggested near-term market risk outweighed the reward. As is generally the case, bonds have been warning the bullish bias of equity investors was likely misplaced. I have updated last week’s chart for reference.

The increase in risks has had us rotating exposure in our portfolios to a more defensive tilt. We previously trimmed back our overweight exposure to Technology, Then, two weeks ago, we noted...



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Insider Scoop

Jefferies Sees 60-Percent Upside In Aphria Shares, Says Buy The Dip

Courtesy of Benzinga.

After a red-hot start to 2019, Canadian cannabis producer Aphria Inc (NYSE: APHA) has run out of steam, tumbling more than 31 percent in the past three months.

Despite the recent weakness, one Wall Street analyst said Friday that the stock has 30-percent upside potential. 

The Analyst

Jefferies analyst ...



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Kimble Charting Solutions

DAX (Germany) About To Send A Bearish Message To The S&P 500?

Courtesy of Chris Kimble.

Is the DAX index from Germany about to send a bearish message to stocks in Europe and the States? Sure could!

This chart looks at the DAX over the past 9-years. It’s spent the majority of the past 8-years inside of rising channel (1), creating a series of higher lows and higher highs.

It looks to have created a “Double Top” as it was kissing the underside of the rising channel last year at (2).

After creating the potential double top, the DAX index has continued to create a series of lower highs, while experiencing a bearish divergence with the S...



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Chart School

Brexit Joke - Cant be serious all the time

Courtesy of Read the Ticker.

Alistair Williams comedian nails it, thank god for good humour! Prime Minister May the negotiator. Not!


Alistair Williams Comedian youtube

This is a classic! ha!







Fundamentals are important, and so is market timing, here at readtheticker.com we believe a combination of Gann Angles, ...

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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control

 

Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...



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Biotech

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

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

 

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

A map of DNA with the double helix colored blue, the landmarks in green, and the start points for copying the molecule in red. David Gilbert/Kyle Klein, CC BY-ND

Courtesy of David M. Gilbert, Florida State University

...



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ValueWalk

More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...



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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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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

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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Promotions

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:

 

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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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