3.7 C
New York
Tuesday, November 29, 2022


Just Another Manic Monday

OPEC left production alone, that dropped oil prices 5% from Friday’s close back to $44 a barrel, saving global consumers $1.2Bn a week.

That, by itself will make for an interesting day.  Also this weekend, the G20 ended up pledging a "sustained effort" to end global recession and to "cleanse banks of toxic assets."  Of course, this is a meeting of finance ministers so there may be a will, but will there be a way when their bosses (the people who have to pay for it) get together April 2nd?

It’s an interesting mix of things because they did double the IMF funding, something the US and China had to agree to do as well – so we’re giving in there, but I see no change of stance on the global stimulus issue, which we are kind of alone on in wanting to do more. “Our key priority now is to address the value of assets held on banks’ balance sheets, which are constraining banks’ lending” and damaging economies," the G-20 statement said. Banks are still hoarding cash after being stung by more than $1.2 trillion of write-downs and losses. Interbank lending rates this week rebounded to the highest level since Jan. 8.

They laid out principles to be followed in bank bailouts that I am surprised isn’t freaking people out.  Among them: shareholders should be exposed by the “maximum possible” to losses or risks prior to a government intervening. There should also be flexibility when judging which assets can receive support, and it should be clear how they are valued.  Credit rating companies, hedge funds, off-balance sheet vehicles and credit derivatives markets will be subjected to greater oversight.  G-20 central banks also committed to maintaining expansionary monetary policies for “as long as needed” after cutting interest rates to records and will use all the tools they can.  Have I mentioned I like gold lately?

Participants said they were pleasantly surprised by the meeting’s unity of purpose, given comments beforehand from the Germans and the French rebuffing U.S. calls to make further commitments to fiscal expansion. But it was also clear U.S. officials had a long way to go before they could satisfy concerns about the banking sector, which emerged as a surprising point of contention during the negotiations.

The Hang Seng sold off pretty hard after the open and is right on their 10% line at 12,650 at lunch but flew up in the afternoon to 12,976, setting the tone for Europe’s strong open.  The Nikkei is also right at the 10% line at 7,700 at their close and the BSE is also right there (8,800) at 8,756.  So at or above 10% lines in Asia, which was led by the banking sector, which offset declines in the energy sector.  "With several strong days (in the U.S. market last week), risk seekers can claim their first weekly victory in more than a month," said analysts at RBC Capital Markets. "However, a back-to-back weekly gain has not been recorded since the October 2008 meltdown and we need to see another strong week to start allaying fears of a bear market rally."

Over in Europe, the markets went flying right out of the gate and our 10% lines are:  Dax 4,015 (now, at 7:30, 4,038), CAC 2,750 (2,797) and FTSE 3,850 (3,833).  Obviously, if NONE of these indexes can make a 10% bounce, it’s not smart to assume we’ll hold ours.  Our 10% lines are Dow 7,150 (Friday’s close 7,223), S&P 748 (756), Nas 1,430 (1,431), NYSE 4,620 (4,721), RUT 380 (393), SOX 209 (220) and Transports 1,375 (1,415). 

So we have NYSE, RUT, SOX and TRANQ outperforming (and Russell and Transports were our index calls in addition to QLD thank you very much!) on the global stage.  No reason the Transports can’t keep it going today after the OPEC news and I see nothing damaging for SOX so it’s all up to the RUT and NYSE to lead the way.  I think my main concern for the morning is that the G20 will be perceived as good for foreign banks, who are rallying now, and not so good for US banks, who face a lot of regulation ahead.  Also, the OPEC meeting may affect OIH and XLE, who are 20% of our markets and OIH is up 12% from the bottom and XLE is up 10.5% so we need to watch them but they may not take it badly as low oil prices means more fuel demand, which is good for OIH and a lot of the XLE have chemical and refining business which benefit from low oil prices.

Definitely one of those days when news could be interpreted different ways and we need to let those 10% lines be our guides.  Europe is up on Bernanke’s comments on 60 minutes as well as what they consider progress at the G20 as they are keen to see US banking globally regulated.  Russia has also had some success stabilizing the Ruble and that’s very encouraging for EU traders and the Nasdaq will be opening an exchange in Russia later this year so perhaps an interesting market to dip our toes back into.  The RSX has already made a nice comeback off the floor at $11 to $13.46 but you can still buy the ETF and sell the Apr $13 puts and calls for $2.46, which is net $11 if called away at $13 (18% profit in 32 days) or an average of $12 if put to you below $13 on April 17th.  Not a bad way to establish a small position in Russia.  With the April $14s fetching $1, the 2011 $9s at $6.85 are not a bad deal either – the RSX was in the upper $50s until oil collapsed last year so not a bad way to play a bottom on crude as well.

The big news of the day hasn’t happened yet (8am) as we wait for "clarification" on mark to market accounting for our financial institutions.  A simple change in wording can increase the liquidity of US banks by Trillions but then the question is:  Would anyone trust their books enough to invest in them?  That may be the experiment our government is willing to take today and FASB chairman, Robert Hertz has already stated: "a great preponderance’ of assets at U.S. community banks are not subject to mark-to-market accounting."  Also, Kevin Bailey, deputy comptroller at the Office of Comptroller of the Currency, says bank regulators ‘do have a large degree of flexibility and have exercised it‘ in determining capital adequacy ratios while the SEC’s Kroeker says the objective of mark-to-market rule is not to Mark assets to fire sale prices.

It’s possible we get a major change in the regulations, Congress has already threatened FASB to play ball or have laws passed that will change the rules entirely.  We can debate the propriety of this all day but the fact is that we could have a game-changing event today or we could have a fizzle that ends the financial rally so let’s be on guard!

It’s going to be 7,450 or BUST this week and we have tons of data to climb over as our wall of worry.  Already this morning we have the Empire State Manufacturing Index at an awful -38.2 (50 is expansion) but that’s nothing we didn’t know.  We have Industrial Production and Cap Utilization just ahead of the bell and any increase in Production would be an upside surprise with just 72% of US capacity used in January but, since it’s a February report, we’re not expecting much.  Tomorrow we get Building Permits, Housing Starts (which can’t really get worse) along with PPI at 8:30.  Wednesday we get CPI (these are Feb numbers) and, at this point, we’re looking for a lack of DEflation as a good sign.  We will also be reminded of our negative Current Account Balance for Q4 on Weds morning and we get a Fed Rate decision at 2:15 (nothing left to cut).  Thursday is another 600,000 jobs lost along with Leading Economic indicators and a Philly Fed that willl likely be the same as today’s NY Index so no surprises there and Friday is a data holiday.

So, whichever way they take the market this week, the data is just an excuse, we need those 10% levels or we’ll be seeing the 5% levels (and maybe lower) very soon!



Notify of
Inline Feedbacks
View all comments

Redfern I do not know when you were assigned, but the math models for options pricing provide max premium to be almost always ATM. OTM will be 100% premium, but premium will be always smaller. Same ITM – the cost of the option may be high, but the time premium portion will be smaller. Just for example today CCJ closed @$15.79; the Jan2.5C last trade was $12.6 that makes premium value (2.5+12.6)- 15.79 = -$.69 (no premium – all intrinsic). (The ATM premium for this example is (4.57+15)-15.79=$3.78).

 Fuss and sputter.  
Why did Congress authorize bailout money for AIG without understanding the bonus / compensation system and making the appropriate conditions in the legislation?
Because most legislators are not schooled in business or finance, they are mostly lawyers who couldn’t hack it in private practice.

Jordan – Redfern’s premium was probably <$12/contract and price is rising, so it will cost him to reinstate position. Stock pays div and div was declared recently.

Well – here’s my thinking on defeat – why worry about "rolling" or being ITM or OTM or even
trying to profit from the trade- if you can be assigned at anytime under any circumstances.

And to be perfectly clear


Feb 18, 2009 2:54 PM







Feb 19, 2009 2:56 PM








Mar 12, 2009 12:29 PM







Mar 12, 2009 12:29 PM














3/13/2009 2:00:00 AM SOLD 100.0 CCJ @2.5 upon Assignment 1.0 CCJ 100 JAN 10 2.5 CALL ($15.00) $250.00



Mar 6, 2009 2:40 PM







3/6/2009 2:40:51 PM WBT BOT +100 CEG @15.35 NYSE ($5.00) ($1,535.00)
3/6/2009 2:42:30 PM WBT SOLD -1 CEG 100 JAN 11 5 CALL @10.30 ISE ($1.50) $1,030.00
3/7/2009 2:00:00 AM SOLD 100.0 CEG @5.0 upon Assignment 1.0 CEG 100 JAN 11 5 CALL ($15.00) $500.00

Now I’m trying to figure out (as I do when it comes to my taxes) how do I avoid an audit or in this case an assignment.


 sorry looks like I screwed up the copy/paste format off the ToS site

and it still makes sense if you ignore the spaces but it looks like I’m shouting.

Actually feel better for some obscure reason – perhaps the solidarity of fellow travelers? 

Hey all.  Was travelling today after a long family weekend.  Missed all of the fun.  Would have loved to jump on that pullback today.
C today was a monster early.  Same for other financials.  That trade may be over for a while.  Ben on 60 minutes was more of the same BS.
The we won’t let banks fail stuff is BS IMO.  Banks don’t have to "fail"; but they will wipe out shareholders if they have to, and that’s enough to be bearish on the financials.
Phil a different take on the horseman not leading today ….. a tell that this rally wasn’t going to hold up.
Obama’s going after AIG bonuses ?  How comforting ….
That one is actually a no win situation.  On the one hand, we (at least I) don’t want the government interfering in how companies pay people.  They have enough worries w/ Congressional pay raises and Air Pelosi.  On the other hand, how on earth can one defend AIG paying multi-million bonuses ?  Still the site of Obama throwing a tantrum about it or Ben claiming how upset he was over the whole AIG situation (while sending money over to save GS) makes me kind of ill.
Don’t forget to visit http://www.hopeychange.blogspot.com for some cool ravings.
And don’t forget Obama on Leno (what dissing Jon Stewart ??) and the economy is now "fundamentally sound"  (meet the new boss….)

Matt – good comment at 1:03 (coming pullback)


Perhaps my attempt at clarity needs work and I confused you by writing about CCJ and CEG 

Sticking with CCJ the situation is as follows:-
I bot 200 shares of CCJ for a total cost of 2933 and sold 2 Jan 10 calls for 2517 so 200 shares for
net cost of 416 or 2.08 per share.
Then I was assigned and had 100 shares called away for 235(250-15) leaving me with
100 for a total cost of 181 (416-235)   – so a lesson learned
but  now the question is how will I fix the position since the other Jan 10 short call is ITM
and could be called away anytime leaving me with no shares and $431 for my trouble.
I am not panicked I’m just shell-shocked because I did not expect the assignment  

redfern/CCJ    Before you can think of "fixing" the trade, you need to think about what your goal was when you put the trade on.   What was the best thing that could happen?   You bought CCJ at a net cost of $2.08 and committed to selling it in January for $2.50.  If everythink worked out you make .42*200 = $84 – $15 assignment fee or $69.  You get a bit unlucky in that they are going to be assigned separately so you lose another $15, but you should net about $54.  I don’t know exactly when you put the trade on, but $54 on a $418 investment is almost 13% so it’s not a horrible return for a year.  
I guess my point is, there is nothing really to fix.  You put a trade on that is going to play out exactly how it was set up to except that the stock is being called away early which is actually to your benefit.   I’m guessing, however, that this result is not what you were looking for….you just put on an inappropriate trade.   So what were you hoping to accomplish?  I bet we can find a more suitable trade.

Good Morning Phil

Asia Markets :    Tuesday, March 17, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                    7949.13    244.98      3.18%
Hang Seng*                        12878.09     -98.62     -0.76%
China: DJ Shanghai*             255.27        8.22      3.33%
Seoul Composite*               1163.88      38.42      3.41%
Bombay Sensex                   8863.82     -79.72     -0.89%
Baltic Dry Index                     2058.00    -64.00     -3.21%

*at Close

Asian Markets Gain as Bears Are Squeezed

Asian markets advanced Tuesday, with banks extending gains on hopes the struggling global financial system is stabilizing, despite reports showing the U.S. economy is deteriorating further.

Japan’s Nikkei climbed 3.2 percent as banks extended gains on improved sentiment about the global financial system and mounting hopes for fresh policy steps as the U.S. and Japanese central banks head into policy meetings.

South Korea’s KOSPI finished 3.4 percent higher, posting the highest close in a month, as a continued rebound in the won currency boosted financials, while builders rallied on real estate tax regulation changes.

Australian stocks rose 3.1 percent to a one-month closing high as banks and mining companies climbed on hopes for an economic recovery taking hold, while agriculture stocks were boosted by strong rains. A three-day rise in the stock market provided some confidence to investors and some expect the uptrend to continue. Bank stocks led the market higher on growing optimism that that the recent measures by global central banks would eventually open up credit markets.

Hong Kong shares lost 0.8 percent, but some China stocks beat a retreat after Monday’s strong rally.

Singapore’s Straits Times Index fell 1.7 percent by the market close.

China’s Shanghai Composite Index rose 3 percent after global copper prices surged and oil rebounded.

Bombay Stock Exchange’s Sensex closed at 8861.86, down 81.68 points or 0.91 per cent. The index touched an intra-day low of 8801.79 and a high of 9024.12.  Three-day old pull-back rally in Indian benchmarks came to an end Tuesday as profit booking set in after sentiments in global markets turned bearish on concerns of credit card defaults in the US. European markets were under pressure following decline in commodities and banking stocks.

Euro Shares Snap Winning Streak

European shares snapped a five-day winning streak in early trade on Tuesday as news Alcoa is to slash its dividend weighed on miners, oils tracked crude lower and investors took profits in banks.

The pan-European FTSEurofirst 300 index of top shares was down 1.1 percent at 713.34 points, following a 2.7-percent rise the previous session.

Banking stocks were one of the worst performers. BNP Paribas, Credit Suisse and Banco Santander were down 1.2-2.8 percent.

Analysts said investors were booking gains after a 4.5 percent gain in the DJ STOXX European banks index over the past week.

Mining stocks fell after Alcoa said it would slash its dividend, issue stock and convertible notes worth about $1.1 billion and trim its 2010 spending to help weather the steep downturn in aluminum demand. The stock was down 12 percent in Frankfurt. Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources, Rio Tinto and Xstrata were 1.9-5.4 percent lower, also depressed by a 1 percent fall in copper futures.

Energy stocks were lower as crude fell below $47 a barrel. Royal Dutch Shell lost 3.1 percent after it said it was under investigation by U.S. authorities for potential breaches of overseas bribery rules. BG Group, BP and Total were down 0.9-1.2 percent.

One of the few sectors not in the red was non-life insurers.

A senior EU lawmaker said the European Union is close to a deal on rules obliging insurers to set aside enough capital to cover risks on their books, easing industry worries that the process would drag on for months.

Swiss Re gained 3.3 percent after it said it should be able to generate enough funds to buy back convertible bonds issued to Warren Buffett’s Berkshire Hathaway. Generali was up 1.3 percent.

Across Europe, the FTSE 100 index was down 0.8 percent, Germany’s DAX was down 0.8 percent and France’s CAC 40 was 1.4 percent lower.

Oil Rises Above $47 ahead of Inventory Data

Oil rose above $47 a barrel on Tuesday, building on gains in previous session’s, despite renewed signs of economic deterioration in the United States, the world’s largest fuel consumer. US crude inventory data will be closely watched later on Tuesday as a preliminary Reuters poll showed analysts forecast a 500,000 barrel increase in domestic crude stocks last week.

US light, sweet crude [ 47.0    -0.35  (-0.74%)] for April delivery fell. The contract had settled $1.10 higher at $47.35 on Monday.
London Brent crude [GB.1  46.75    0.29  (+0.62%)] fell.

Industrial output in the United States in February plummeted to its lowest level in almost seven years, serving as a stark reminder that the 14-month long recession in the world’s largest economy was far from over.

OPEC met on Sunday and decided not to cut output further but rather concentrate on existing cuts that total 4.2 million barrels per day since September. The producer group’s compliance with current cuts is estimated at about 80 percent and full adherence would take a further 800,000 barrels per day off the market. "OPEC has really restored some its credibility and there is optimism that it will be able to reach the target. If they do, prices could trend upwards to around $50 a barrel," said Clarence Chu, a trader at US-based Hudson Capital Energy in Singapore.

Euro Pares Gains vs Dollar as European Shares Fall

The euro pared gains against the dollar on Tuesday as European share prices fell, prompting investors to pull back a bit from perceived riskier assets. Traders were also wary of chasing prices higher ahead of key German economic data and U.S. and Japanese central bank policy-setting meetings which both end on Wednesday.

The single currency had hit an 11-week high against the yen and a five-week high against the dollar on Monday after equity prices soared.
The euro was up [ 1.301    0.0046  (+0.35%)    ] against the dollar, but off from a high of $1.3032 hit earlier in the session as share prices weighed, and below Monday’s peak of $1.3072, which was the highest since Feb. 10.
The euro rose [ 128.35    1.05  (+0.82%)   ] against the yen, off from the previous day’s peak of 128.74 yen, which was the highest since late December.

The dollar rose against the yen [ 98.63    0.47  (+0.48%)    ].

Markets will closely watch German ZEW institute’s economic sentiment index, which is expected to have deteriorated to -7.4 in March from -5.8 the previous month. The data will be released at 10:00 am London time

The Bank of Japan is seen keeping interest rates unchanged at 0.10 percent but could increase its outright buying of government bonds and purchase subordinated debt issued by banks to help shore up their balance sheets.

Gold falls as scrap dealers sell; ETF at record high

Gold fell 0.4 percent on Tuesday, coming under pressure from selling by scrap dealers to lock in profits around $920 per ounce, while a rise in regional stock markets suggested some recovery in risk appetite. "Sell orders from scrap dealers in the region are now lined up around $920, down from $940 and $930 previously," said Kaname Gokon, deputy general manager at Okato Shoji Co in Tokyo.

The world’s largest gold-backed ETF, the SPDR Gold Trust, said holdings hit a record 1,069.05 tonnes as of March 16, up 12.23 tonnes or 1.2 percent from the previous day.

Gold was trading at $918.85 per ounce at 0655 GMT, down 0.4 percent from New York’s notional close of $922.55 on Monday. It earlier fell as low as $916, off a Monday low of $914.70 and 14 percent above a January trough of $801.65.

Trade was slow as Japanese institutional investors curbed activity before the fiscal year-end on March 31 and because the physical business in mainland China was quiet.

Bernanke’s comments boosted risk appetite, with stocks rising and gold and the dollar dipping. Chairman Ben Bernanke said on Sunday the United States should start recovering from recession next year.

My only trade yesterday was to short 1000 shares of the spy at 77.94 and when I got home buy it back in after hours for 76.17 for a $1750. gain. When we hit 774 late morning on the S&P I figured a 16%  gain the S&P in 5 days , it was time for a pullback.

Phil/ Links — dunno, still trying to figure out how to make click thru links on blogspot.  you ought to be able to cut and paste the links.
S&P, Dow, etc. …. broke down yesterday.  Was in a rising wedge channel, broke to downside.  Maybe you get today what Tom called a kiss goodbye…..

 Thank you people

I am learning to swim so I don’t swim forward either – I swim round in circles – this has added enormously 

to my understanding. What was this trade about? I guess it was a swimming lesson. I thought I knew what

I was doing – pushing the risk into the future and earning enough to cover it within the time came to pay it back.

Kinda like a credit card I suppose – and I read the small print  without really understanding it. So "I ken noo"

as the Scots say. Thanks for all your help.

[…] Monday (post): RSX at $13.46, hedged to $11, now $14.63 (8.6% but 18% if they hold $13) also, the spread of the 2011 $9 calls at $6.85, now $7.90 (15%) hedged with Apr $14s at $1, now $1.68 assuming you covered right away (-68%). Of course, covering long positions is a whole, complex strategy but we’ll just look at the week’s moves… My closing comment for that day still goes for next Monday too: “We need those 10% levels or we’ll be seeing the 5% levels (and maybe lower) very soon!” I also mentioned in Monday’s morning post that: “G-20 central banks also committed to maintaining expansionary monetary policies for “as long as needed” after cutting interest rates to records and will use all the tools they can. Have I mentioned I like gold lately?” The last bit is a running joke with members, as I have gone on and on, ad-nauseum, about how gold is an essential inflation hedge for portfolios. […]

[…] Read the original: Just Another Manic Monday | Phil’s Stock World […]

Stay Connected


Latest Articles

Would love your thoughts, please comment.x