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Wild Weekly Wrap-Up – August in Retrospect

It has been a crazy few weeks!

I went back over our Long Shots list from August 9th, thinking all our picks must be doing great but really only C, with a 67% gain, is really outperforming.  Long spreads on UYG and BHI are on target for nice gains but haven't moved much.  Looking at our original picks in Pharmboys Phavorites from the same week, GSK is on track and up nicely already, our AZN cover is up 45% and MRK flew up 19% already.  On the riskier Biotech side, ARIA's stock is up 16% and our spreads are all performing well, ONTY has been flat, OGXI is up 33% and the Jan $17.50s are up a rockin' 63% with that "cautious" spread up a surprising 75% already

SPPI had a wild ride (as we predicted with TSCM's failed assassination attempt) and the buy/write is already up 24%, the Feb vertical is up 50% and the naked Jan put sale is up 27% and our Feb hedge play is right on track so all good there and a fine example of how following Cramer and his lackeys and and doing the opposite of what they say can be very profitable!  Congrats to Pharmboy for a very fine set of picks, proving once again that there is room for research and fundamentals - not a single loser in the bunch in a choppy market!  It was very timely as I had mentioned just that week in my interview with AOL Finance that XLV was my favorite sector and our IHI pick of 8/10 is up 28% on the naked Feb $45 put sale while the Feb $45 calls have already jumped 16%.  It was a great call as IHI outperformed XLV and all our major indexes.

So our energy service pick (BHI) and overall financial pick (UYG) have not done much in 3 weeks and those were our leading sectors into my call to cash out our exposed long calls on Aug 13th, ahead of expirations.  The Dow was at 9,400 on that day and now, a bit more than 2 weeks later, we've gained another 144 points but to listen to the MSM, you would think you are missing the rally of the century the past couple of weeks.  This is one of the reasons I've gotten a bit more cynical about the rally – there is so much hype and so little actual progress, something must be wrong.

Back on Thursday, Aug 6th, I noted the pump action that took us to just under 9,500 in the pre-markets was nonsense as GS upgraded their economic outlook while China and the ECB all announced the continuation of easy money policies would not be enough to give us a breakout and, of course, it didn't.  I said at the time: ""THEY" are pulling out all the stops today because if we can’t make our breakouts by tomorrow, the weekly charts start looking questionable again and the one thing "they" can’t control is volume selling.  We are in a very dangerous area here where sensible investors would cash out their gains and wait for the next dip."  I made a call to take bullish profits off the table on the 13th, just ahead of the 400-point dip and we caught the dip on the nose but by Tuesday, the 18th I noted that the spin was back in and, once again, all the stops were being pulled out to jam the markets back up.

The pump job was so ridiculous that even Warren Buffett had to say we were getting ahead of ourselves but Cramer rightly said that: "The bears must be stunned and confused, flummoxed even" and that pretty much describes the week of the 17th, as the Dow made up 500 points in 5 days into options expiration capped off on Friday by Goldman's Global Goose, when they chief equity strategist Kathy Matsui made the ridiculous prediction that Japan's corporate profits would rise 73% next year.  That allowed us to close our our generally bullish $100,000 Virtual Portfolio with huge profits so thanks, I guess, to Kathy for being such a good company girl and saying whatever it takes to move the markets, no matter how many people follow your bad advice to their detriment.  The Nikkei did indeed gap up 150 points on Monday and finished that day up 350 points higher than Friday's close but made no progress since - not what you'd expect with GS predicting next year's earnings will top 2007's when the Nikkei was 70% higher.  

That brings us to last weekend, where we initiated a new $100,000 Virtual Portfolio (to be reviewed later this weekend) and Pharmboy made another round of picks with NVS quickly taking off, BMY up and down a bit but on target for the $22.50 buy/write, the SNY naked $32.50 puts are already up 44% and the JNJ spread was rightly conservative and is on target.  On the Biotech side, GENZ popped right up on Tuesday and Pharm's call was right on the money saying: "buying the $50 Oct09C @ 4.2 ($1.5 premium), letting it run for the next few days, and then selling $55 Sept09 for 1.25 or better (all premium)."  The Oct $50s jumped up to $6.50 (up 54%) and the $55 puts came in as a $2 cover, looking very good overall.  Congrats to Pharm on another nice set of picks! 

On Monday morning I noted that the market momentum was still up but slowing and we went over some long-term protective puts on SKF, with Jan vertical spread that is holding even so far; DXD held our $36 target but triggered our roll to the Jan $35 calls for net $4.95 and also even for the week and the SDS Dec vertical is slightly ahead.  That's not bad for a group of bearish hedges after what Cramer calls a huge bullish victory for the week!  My fourth bearish call of the morning was grabbing the FXP $10 calls, which made a quick 37% as we hit our target on Thursday morning and made a very well-timed exit.  

You can't be a greedy bear in this market as the feeding is scarce indeed but it's there if you know where to look.  I laid out our trigger list of buys for the $100KP at 10:28 on Monday, expecting we were topping out for the day but we never got a dip low enough to trigger half our targets and we wisely decided to go light on the covers as it just didn't look like this market wanted to go down.  As I said, I'll reveiw that in detail later.  GOOG $450 puts made a quick buck but we wisely went bullish into the close, playing for the stick at 3:25, when I sent out a Member Alert saying: "We can sell those DIA $95 puts for $1.98 as a full cover against long Dec puts, taking 1/2 off if we fail 9,500 on the Dow and going to 1/2 cover overnight regardless."  Sadly, we stopped out half of it with a nickel loss on a down spike as the next morning we took off like a rocket but we did pick up .50 (25%) on the 1/2 covers at least. 

Tuesday Moning's market booster was the pre-announcement of Bernanke's second term.  Something that was sure to be celebrated by Wall Street as Mr. Bernanke's solution to everything is to give Wall Street more money and for the government to pick up their losses.  That popped the Dow 120 points the 9,620 but I didn't like it and pointed out the this news seemed to made to counteract some not so good news about bank problems and commercial real estate – two major industries that would much rather know that "Helicopter Ben" is on the job than worry about figuring out how to scam money from a new guy in January

I called the buy-back of the DIA $95 puts in my 10:09 Alert to Members and that caught the top of the Dow "rally" pretty much right on the nose as we gave back all the gains and then some by the end of the day.   OIH $105 puts at $2.30 were a huge winner, giving us a quick $1 (up 43%) by the afternoon.  By 10:36, I sent out another Alert with another bearish play, this time the DIA $94 puts, which also made a quick 10% at the day's end.  The ERY buy/write is going well as is the Jan vertical despite oil's comeback at the end of the week.  I was still bearish when the Dow made a move back to 9,600 at noon and I said to Members: "Still a very good time to look at some of those long put plays we discussed in yesterday’s morning post."  That was it for picks that day, the rest was just waiting to see if 9,500 would hold (it did, so we re-covered our long DIA puts).

Wednesday morning I was out of the box early with a 7:33 am pick on PARD in member chat although it turns out we could have been more aggressive with our buy/write position and we'll have to settle for 122% at $5, rather than the 300% at $7.50 had we gone with the riskier spread.  Of course dropping our break/even by 1/3 let us commit more cash at the outset so a good lesson in trade-offs!  Wednesday we had our quote of the week from Chantale, who said of the markets: "It s hard to predict when somebody on coke will stop dancing."  That pretty much sums up August to a tee and I said in the morning post: "The markets have indeed been out on a bender and, like our coke dancer, we know there’s going to be a crash, we just can’t say exactly when it’s going to happen."  As long as the Government keeps handing our hits of free money, we can keep this party going for quite some time, despite the damage it's doing to the long-term health of the economy.

Also in Wednesday morning's post we delved into the concentration of trading volume in just 4 stocks and we compared buying FRE, FNM and AIG to a game of hot potato.  This weekend, in Member chat, we had a great quote from Trader Mark on a similar subject (LEHMQ), who said: "The shell known as bankrupt Lehman Brothers (LEHMQ.PK) which now trades on the pink sheets rallied a solid 200% Friday. And why not – fundamentals no longer matter; even having a functioning business is just an afterthought.  As long as you have a shell that one high frequency trading firm can trade with another (or if you are real clever, I assume the same HFT firm can work in the dark pools and trade among themselves to create "demand" – not that this would ever happen because its illegal)."

We had a huge chart that showed a 42% dive in the Baltic Dry Index since June so we anticipated a poor Durable Goods number but the headline LOOKED good and the media ran with it and I said: "Just like you couldn’t have a .com bubble or a housing bubble without a complicit media, you can’t have an irrational market rally without the MSM waving their pom-poms to get the masses into the game" and my plan for the day was to take our short plays right off the table and reload later.  Also, in the main post, I called for the FXP $9 calls at $1.50, expecting China to pull back into the weekend and they picked up .25 the next day but nothing more so far.  

PARD was our first Alert of the day and I already mentioned that has taken off nicely and in that morning Alert I said: "We also get new home sales for July, we can assume they will beat so a great excuse to pop us up off the 9,480 line in 5 minutes."  It actually took 10 minutes for the market to take off but it was plenty of time for us to make our exits on the short side as planned.  In the morning we did a PALM back-spread that's holding up fine so far, an AAPL spread that was a home run for those who followed the plan and took out the caller and rolled down the next morning and, as usual, SRS was taken at $11.50 with the $10 calls at $1.75, which ran to $2.15 the next day (22%) and were reloaded yet again into the weekend at $1.50.  Another trade idea on the same comment was selling the naked $12 puts at $1.20, which made their 20% the next morning as well and can now be sold for $1.40 on Friday's move down.  The range we have been playing on SRS (as a stock) is buying at $11.50 and selling near $12 but Friday was a move back to the August lows at $11 and we are considering it an opportunity at the moment.

As the market jerked up and down all day, we were not motivated to make many trades.  We did a complex spread on EP, targeting $9 for the Sept close which is right on track but that was it and we went 1/2 covered into the close (wishy-washy) as the GDP + Jobs the next morning was too much of a wild-card to deal with.  By Thursday morning I had decided I didn't care what the GDP was as it was based on stimulus anyway and jobs were what mattered.  We had no improvement on that front and TOL announced they had sold a grand total of 792 homes in Q2 – just 5 homes per state per month.  While the company has done a great job of trimming operating expenses from $1.2Bn in Q2 '07 to $842M last year and all the way down to $580M announced on Thursday, sadly sales have plummeted from $1.1Bn in Q2 '07 (loss) to $739M last year (loss) to $461M last Q (huge loss). 

Nonetheless, after a sensible sell-off in the morning, TOL jumped back up 5% into Friday's opening rally.  Major market madness for a company trading with a $3.7Bn market cap who have earned a total of $2.4Bn in 10 years with 80% of that money earned in the 3 bubble years of 2004-2006.  Without repeating this bubble performance, it seems very unlikely TOL can return more than $1.5Bn over the next 10 years, which is just about 3% a year on your $3.7Bn investment. 

Once upon a time, this was how you would value a stock investment.  You would look at the long-term prospects, compare the risk and returns to other asset classes and allocate your capital accordingly.  Somehow, all of that has gone completely out the window in today's market and TOL is typical of what's going on in the property space, commanding huge premiums to potential growth while ignoring all risks as if they don't exist.  Only then can you justify putting your money into TOL vs a 10-year bond that is guaranteed to pay you 4%. 

My concluding outlook in the morning post on Thursday was: "If the market doesn’t finish the week at or above the mid-week highs, I think we may have finally found a top.  Meanwhile, we have continued to be wishy-washy with our covers but that will end this weekend, where we are more likely to go more bearish  I see nothing in the actual figures that indicates a strong enough economy to justify the p/e ratios we are being asked to pay for so many stocks (91%) that are above their 200-day moving averages."  Still we remained cautious to the bear side and watching our levels kept us safe.  In my 10:02 Alert to Members I said: "Dow 9,400, S&P 1,010, Nasdaq 2,000, NYSE 6,600 and Russell 575 – anything over those and we are still in a bullish trend but below those and we should get our move down to 9,100 et al."

In that same alert I wisely called for a stop out on our FXPs and just 25 minutes later I had to send out a follow-up alert saying: "Notice we are holding that 9,480 line like it’s life or death.  Oil is holding $70 and gold is holding $945 so Mr. Stick is hard at work.  Now watch the upside breaks of 575 on the RUT and 300 on SOX and 2,000 on Nas and I still like selling the DIA $95 puts for $2 as a day trade using those points (and Dow 9,480) as the on/off switch, looking for a quick .25+ to the upside. SRS calls are, of course stopped out here as $12 was the best we expected but happy to reload yet again at $11.50 if they let us."  You can tell from the above chart on that DIA put how well that went.  People often want to know if our plays are easy to follow – this seems simple enough:   Get an Alert at 10:27, sell the put for $2, and by 2:30 you can buy it back for $1.50.  You just can't make 25% a day trading stocks that often and that's what I love about options – this kind of stuff happens almost daily! 

We took an October bull vertical on SKF at 11:30 as I felt we were topping out on the financial run but I called for taking the money and running on ERY longs at $17.50 in that same note, which was a very nice top call.  Non-greedy exits are CRITICAL in this market – whether you are a bull or a bear the tide is very likely to change if you wade too far out into the water. Keeping that in mind, we took a quickie short on AIG, selling $50 calls for $7 at 11:57 and we made our 20% goal by 2.  An AIG spread was taken in our $100KP as well and we made some adjustments for more aggressive players.  We were too early re-entering the SRS $9s at $2.60 though as they fell to $2.25 on Friday (down 14%).  At 2:23 I announced to members: "I’m calling shenanigans on this rally as the dollar was smacked 1% in on hour (and into the NYMEX close) and that has provided this market boost since 1:30.  Between that and a 5% turnaround in CRE since the open on no news at all, I have to think this is pure and utter BS.  At $1.15, I like the DIA $94 puts for the weekend.  It’s going to be a gut check if we break 9,600 but, right now, I feel it’s worth a shot as a short play."  The DIA $94 puts are still $1.17 so we'll have to see what Monday brings us. 

Another afternoon short I called was long on ERY (ultra-short oil) with the Oct $17.50s at $1.80 which are down a dime so far but even for those who took the cover on the play (Sept $18s).   DELL had a beat after hours and the dollar was under attack on Friday morning but we focused on the 3% drop in the Shanghai Composite index and drastically low volume that was driving the US markets to the upside. 

I did the math and it seems GS and their 11 pals who control the world are trading AT LEAST 60%, probably 70% of all transactions in the market leaving just 30% for you retail investors and all the other hedge funds and mutual funds that dare to swim in Goldman's pool.  I am firmly convinced that real market volume is 50% lower than it appears which means anything you see in a chart is total nonsense as it's based statistically invalid levels of trading.  Sadly, most technical analysts take all their numbers at face value and this is leading to more nonsense being spouted by "experts" than I have heard since 1999's dot com boom.

Nonetheless, we do like AAPL and I made a bullish call on them for the morning post but we hedged that with a buy/write on EDZ aimed at giving us a 25% buffer if China turns out to be not all that in the fall or a 100% profit going out to the Jan vertical.  My closing comment to the post was: "I hate to be a stick in the mud but I will remain bearish into this weekend and next weekend for that matter as it’s a holiday.  After that, I guess I’ll have to start running with the bulls if they can hold it together that long but, keep in mind, those bulls are actually being herded into an arena where they will be slaughtered." 

Keep this in mind as you chase this market higher.  The bulls think they have the men in red and white on the run and they merrily chase them along the path, scoring victory after victory along the way and they follow the obvious twists and turns in a full charge until they exhaust themselves at the end of a long run,and find they are in a huge stadium where the gates close behind them and there is no exit until the meat is stripped from their bones and they are carved up and sold at market prices.

We weren't buying the "rally" on Friday morning for one second and my 9:49 Alert to Members said about our short plays: "In general, this is the time to roll up if possible and be patient otherwise."  The AIG $50s worked so well on Thursday that we jumped at the chance to sell the $55 calls for $7.50 in the morning and those made a quick 50% profit by lunch.  We expected the sell-off to fizzle on such a low volume day and my 12:12 Alert to Members was: "Levels getting properly tested now.  Noon volume just under 90M, which is dangerous for the bulls if it starts trending up but, more likely, this is a cash-out by the Hamptons crowd who are out of here by 1pm and then we’ll see what Mr. Stick has left in super thin trading this afternoon"  and at 12:49, expecting the stick, I reminded Members: "If you were too bearish and freaking out this morning, this is a very good time to lighten up on some puts and/or take a few long plays for a possible stick save."  We went back to the well on the DIA $95 puts, which returned a quick .20 this time and I suggested the DIA $96 calls at $1.35 as an additional cover with our watch levels at Dow 9,528 (finished at 9,544) and S&P 1,026 (finished at 1,028) – that's not bad targeting for a Friday afternoon!   

Other than some fairly conservative buy/writes on ELN, DRYS and GNK, we weren't in much of a buying mood on Friday afternoon and we went into the weekend cautiously bearish.  The last news of the day was Cerberus Capital Management, surprised to find its investors now want $5.5B back from its asset base of $7.7B – up from $4B just a few days ago so we'll see how that news plays out over the weekend.  During chat this weekend (under this very post!), we've been discussing the state of retail malls in America as well as Hugh Hendry's latest fund letter, which makes some very bearish points and is a must read for all. 

Dr. Brett says: "ARMS Index Indicates Market Is at Peak, Not Bottom" and David Fry says: "This Market's Running on Empty" but we have learned to fear the stick and, as this week's trades illustrate, it's very simple to make quick bets and take quick profits so why even bother with long, unhedged plays into this madness.  There are bullish spots to pick and there are bearish ones – the one thing we have been able to count on is the volatility and we'll be keeping plenty of cash on the side to take advantage of that until we get a real breakout in one direction or another. 

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  1. Phil – What do you think of LMT – it’s been consolidating between 73 and 75 over last month. Would an artificial buy/write of Mar 70s at $8.80 and Sep 75 puts/calls for a total $3.50 be a reasonable trade? The Sept 75 straddle seems to fully pay for the roll down 1 strike.

  2. Regarding LMT above – I was really thinking the Oct 75 calls seem to almost fully pay for the roll down 1 strike. So, would buying the Mar 70s and selling the Oct 75s as the initial trade be a better approach?

  3. Phil, what is the source of the options chart you show above? I am sure it is some subscription that I may not want, but I find the graphics helpful……thanks.
    Also, is there any play in MBIA or is it too crazy and dangerous?

  4. The disconnect between the bond and stock markets is pretty significant right now. Treasuries have been getting bought even though yields are low and falling lower, and even though the dollar is weak and getting weaker. We know that the Fed has said it’s stopping its Treasury purchases, so that isn’t the likely source of the buying. Rather, investors and foreign CBs are willing to accept paltry returns for a very long time in exchange for knowing that their seat-belts are securely fastened.
    I understand this, in fact, it makes sense given the complete absence of any meaningful inflationary pressures. But what’s so odd is that this is in total contrast to the incredible bullishness in the stock market, where the meme (in the MSM) has been to add beta and add leverage. Bloomberg even had a story Friday about how funds were dumping ‘safety’ stocks like MCD and WMT in exchange for higher-yielding equities. (This AFTER a 52% rally!)
    Not sure what to conclude here, except that there are some very large bets being placed in the bond market that conditions will NOT meaningfully improve, and in fact may get worse, while at the same time the pump monkeys in the stock markets are going, erm, ape.

  5. Phil, Cramer was pumping up his show Friday by saying this "I also know that you won’t find stock advice this good anywhere else!" 

  6. EricL – Thanks for info on the bond/equity disconnect.  NPR mentioned something a day or so ago, and I was just looking into it this weekend. 
    I still don’t get how inflation is not around the corner.  WIth the Feds stopping (so they say) the buys, and consumers using their savings (again) last month at least when their wages are not going up – buying cars, BUT the biggest question is what about all the bottles, packages, etc on the grocery shelves are getting ‘lighter’ – don’t tell me that inflation is not already here.  I remember a year or so ago, ice cream was 1/2 gallon box top.  Now they are 1.5 quarts (25% less) and are the same price!!!!  Pork prices, though are coming down!  Baby back ribs anyone?

  7. Hi guys!

    Just checking in briefly, will catch up tomorrow morning but I just wanted to say that I got back from a visit to the Nanuet Mall in NY and I am scared!  This happens to be the mall I grew up with and I was driving by and it was lunchtime so I thought it would be fun to show the kids where we used to hang out.  Ghost town does not describe this place!  They have a Sears and a Macys and about 100 stores and I very much doubt 20 of them were functioning.  SPG manages the mall and there are rumors they are going to tear it down but disaster doesn’t begin to describe what I see there.

    This mall is just down the road from the Palisades Center, the 2nd largest mall in America but they aren’t too busy either and have plenty of empty stores (under 20% though) so perhaps everyone from Nanuet defected there on a combination of the tear-down rumors and pershaps some aggressive rent deals by Palisade center – it would all have to be investigated befrore drawing conclusions but there are literally, on a Saturday afternoon in a heavily populated upscale New York suburb, wings of that mall where our voices echoed and every single store was dark.

    The food court had 3 out of a dozen slots open and the escalator made a noise and the plants were dying and the fountain was broken – all signs of neglect or budget issues for SPG. 

    Lunch at the mall being too depressing of a concept, we then went to Nyack, another upscale village and they too had their fair share of closed storefronts and the town seems to have torn out the parking meters in some effort to aid the business district.  Business there was lethargic to say the least, we walked into an antique store and the owner acted like he hadn’t seen a customer in weeks and this town used to be huge for antique hunters. 

    I’m wondering if any of you are seeing similar things around your towns or perhaps things are fine – all would be welcome information, especially if we can identify ownership of malls that are doing good an bad.   Let us know what you see

  8. Uh Oh Phil …… don’t tell me …. go Long SRS ….. I continue to lick that wound.   On another note very off topic I  jsut saw this tweet from earlier today.
    WARNING: If you get an email titled "Nude photo of Nancy Pelosi," don’t open it, It contains a nude photo of Nancy Pelosi.

  9. Alert Members please check out my commentary on Malls if you have a chance and send feedback if you have any.  You can leave feedback under today’s post even if you are in moderation and I will release it asap as this would be a valuable data-gathering tool for us.

    Oh and this is a big deal and a good point by Trader Mark (I highly suggest reading the whole post): 

    The shell known as bankrupt Lehman Brothers (LEHMQ.PK) which now trades on the pink sheets rallied a solid 200% Friday. And why not – fundamentals no longer matter; even having a functioning business is just an afterthought.  As long as you have a shell that one high frequency trading firm can trade with another (or if you are real clever, I assume the same HFT firm can work in the dark pools and trade among themselves to create "demand" – not that this would ever happen because its illegal) – and lo and behold you can attrack other HAL9000s and the retail trader in.

    Also, while we are in the mood, Hugh Hendry, who I VERY much admire but we had a parting of the ways in March when he continued to insist the world was ending and I felt we were oversold but he is, otherwise, the smartest guy I know and seems to be back on track with his latest fund letter (also a must read) but that track is a highway to hell for the markets:

    Good people are becoming desperate. I know a man who is planning to capitulate and buy stocks. He cannot comprehend what is happening today. He is, to employ Churchill, a fanatic; he won’t change his mind and he can’t change the subject. But, fearing the loss of his franchise, he will change his portfolio.

    He laments that it is as though last year’s events never happened. Rhetorically, he asks whether we have all been sent through time to invest in equities at the end of the 1970s when stocks were cheap and society had thoroughly deleveraged (the opposite of today). “Why do other investors not contemplate the prospect of further household deleveraging when building their profit forecasts?” he fumes. “Can they not see that the private sector’s deleveraging is more than offsetting the public sector’s expansion?” Despite such ranting my Minskian friend remains a most entertaining and charming individual.

    What could possibly generate such a black turn of events as to send stock prices back to challenge their March lows?  Not withstanding, of course, a tapped out private sector, lingering high levels of unemployment, capacity utilisation levels which never rally sufficiently to raise industry profitability, a speculative orgy in China which is likely to burst at some indeterminate moment and the complete uselessness of fundamentals in determining turning points. 

  10.  I too see empty stores compared to 1 or 2 years ago.  There is talk of American ‘consumerism’ dying, or at least moderating..   People are spending less, saving more.   Even my wife has started to go to discount stores, and we are not financially strapped.  Christmas season is just a few weeks ahead of us, and this will tell the tale, but people are certainly buying less than before.  There is one thing in my town that is not dying, however.  A new casino has been built here and people flock there by the thousands to put down a few bucks, in hopes of winning their way out of what is, for many, a financial downturn.

  11. I’ve been to two malls in the past month down in the south and if I had to guess only 5% of the stores are vacant. Maybe a bit more than that but bumping that number up to 10% would be a bit of a stretch.
    In fact there were so many damned cars near the apple store today (the parking lot was FULL – I mean completely full) that I just kept driving and figured I’d grab a copy of snow leopard tomorrow from a store that isn’t in a mall.

  12. Phil, I live in a resort community called Sandestin which is in Destin, FL.  It is a beautiful place situated on the Gulf of Mexico on the panhandle of Florida.  It is definately one of the hottest vacation spots along the Gulf Coast.  In 2004 and 2005 real estate here was increasing at an alarming rate.  Waitresses, hairdressers and guitar players were becoming millionares by flipping condos.  And then the music stopped.  I live in a very upscale neighboorhood within the resort.  On my street there are several foreclosures, and many left in the middle of the night without even sending in the keys.
    In the past, the resort was buzzing during Labor Day weekend with about an 80% occupancy rate in the available rentals.  This year the resort has bookings for Labor Day of 4%.
    No matter who you are that right there is some green shoots!!

  13. Phill,
    I’m in Los Angeles, in Burbank to be exact.
    Our local mall is not as busy as it used to, I’d say, maybe 5-10% down, but it is still pretty crowded on weekends.
    They’ve been careful not to build too many malls in our area, the other closest mall is in Glendale, and this too is about 5-10% down, but still crowded on weekends. Its owner is General Growth Properties, who went bankrupt in April, and its pink slip shell is trading under the ticker GGWPQ. It’s up about 300%, believe it or not.
    Having in mind the spike of irrationality last week (AIG, LEHMQ, and almost all home builders’ stocks) I thought maybe this is the market top, which is usually celebrated with a remarkable dose of exuberance as icing on a cake.
    So, on Friday, I bought some SRS Oct. 12 calls, some MAC Oct. puts, and some Oct. puts on selected home builders (HOV, LEN). Please, note that these three stocks (MAC, HOV, LEN) are up 100% since July 10. Ain’t that something?
    I hope above info can be useful.
    I read your morning posts religiously, so, keep the good work.

  14. Today, I went to Quakerbridge Mall in Lawrenceville, NJ.  Not too many vacancies.  But the traffic was definitely very light.  But it was a Saturday afternoon, for God’s sake!  I was in Lord & Taylor.  It was as if we were the only customers in the store!
    I still kept my SRS positions open.  When I saw Phil saying "I propose that we never trade SRS again" (something to that effect), I said to myself, "maybe this is THE time to go long SRS!"  If Phil is out of SRS, I’ll be the last contrarian!
    But I have to tell ya, I’m scared!  I’m pretty deep in water in SRS.
    One thing I want to suggest is that maybe we have to keep a longer-term horizon on SRS.  We may have to wait until after yearend.  That is, we may have to wait for the 4Q earning reports, which won’t come out until January/February 2010.

  15. I have someone visiting me from NYC. we traveled to Key West and spent 4 nights there. The hotel Casa Marina Resort was far from capacity (highly recommended). The people staying there were mostly from overseas. Duval St was a ghost town and the art galleries were all selling at huge discounts. I spent a month on the Adriatic last August and the place was a mad house and cheaper to boot even with the exchange rate. Building that was once host to Wachovia is for rent at 85 a sq.ft. The guy renting jet ski’s said business was great up until the second week of August. 
    South Beach Miami is DEAD, my guests friend works in South Beach and found out today that she has lost her job.

    My local area seems to be doing better. City Place in Palm Beach has been pretty busy for the off season. I think its mostly locals that live downtown doing all the partying (older crowd). The local stores are usually busy, i have been to BJ’s (not too many people) TJmaxx (pretty busy) Macy’s (dead) Chili’s (packed) Outback etc all pretty busy. Supermarkets in my area always busy, small local eateries pretty busy (Sushi, Greek, Italian rest). The hookah bars are usually packed and it isnt cheap to smoke and drink at most of these places. I had a Kava drink that cost 30 a pop and it tasted like sheet but no one seemed to mind, it was one of their best sellers!! It does relax you. My friend owns a title company here and shes very busy. Lots of short sales.

    I have talked to many local business owners, most have restructured their leases. In Ft. Lauderdale many of the stores off the beaten path are available for rent, cheap i might add. The more exclusive places are still doing well. The high end steak houses (my fav) are always full. Usually a wait at the gas stations, lots of pickups here in Fla. All in all i would have to say things down here dont seem too bad. One more thing i see, prices for clothing has fallen off a cliff.

    Key West tourism is down 8% compared to last year, this comes from the Casa Marina Resort  head.

  16. Phil/Mall- I grew up here in the suburbs of Denver and the mall that I grew up going to-the Westminster Mall- looked very similar when I went by there a few months ago. They uses to have these wonderful hot air balloons that would go up and down in the center plaza which were broken and neglected, th food court had 4 out of 15 slots occupied, none of which were the ones that were there when I was a kid. Also, occupancy was MAYBE around 25%. It was really sad for me, as odd as that sounds. I think this mall had a few things against it- in 2000 they opened 3 other malls within 15 minutes of it and now they’re all facing low occupancy. It’s sad but it is demonstrative of the huge problems with commercial real estate and a shift in consumer sentiment, in general towards less discretionary spending. BTW, I changed my SN from skasiah. My actual name is Josiah and I prefer it. Thanks for the article.

  17. Whirlpool Factory Closing (On Mish’s site, Bloomberg, etc) – All of the articles on Bloomberg and the like say the factory closing in Indiana will result in 1,100 job losses… but my guess is ALOT more than that. When those pillar factories die in communities, so goes their restaraunts, shops, etc. It happened to my wife’s hometown (Wooster, OH) when Rubbermaid left years back. I truly feel for that town in Indiana. It has to be a rough weeekend there for everyone. Recovery, nothing.

  18. Sorry if these links are all well known, but I love this guy’s wrap up that to me covers a huge amount of ground concisely
    On around the world and from Europe I already reported my home town of Manchester appears to be doing relatively well. Before leaving I visited mediaCityUK where an initial 1 million square feet of new office space is under construction, part aimed at taking 10% of the BBC’s workforce from London as the corporation looks to slash costs.
    Less encouraging I have family in Gran Canaria (Canary Islands) a popular British/German tourist destination which has grown from straw donkeys to Louis Vuiton as I have visited over the last 20 years. My most recent visit was the quietest I have ever seen it, from empty low end "football bars" in silent shopping malls, to deserted prime beach front restaurants, seriously taxing the 80% tourism based economy.

  19. While I remember that we have questions about the source of the transactions, there is something truly startling about this graph on home sales

  20.  Hey Phil… I shop at Walmart where it is always, always crowded. That is probably where all the mall traffic has gone. In the past, the deals in the malls were usually much more expensive than similar items at Walmart.
    Me personally.. I haven’t set foot in a shopping mall to actually buy something in probably two years. I did happen to visit the local Virginia Center Commons ( the big mall just north of Richmond, VA) to eat at the food court for lunch as part of a movie date with my son to go see the new GI Joe movie. The mall crowd seemed to be normal density as I remember it was the last time I went there.
    Maybe I should try shopping a mall now. There might be some real good deals out there these days.

  21. Malls – Seems mixed so far, of course our tolerance bar is set very low because, had we heard that there were even a half dozen malls with 25% vacancies a couple of years ago – we would have been pretty shocked.  Now we think it’s a green shoot to hear of anything that isn’t 20% empty…

    I remember when I was in school in Amherst, Mass back in the early 80s we had a "dead mall" but that was because they built a better mall down the road and the good stores had all left but that didn’t stop the dead mall from filling up with discount stores and Army recruiting centers and a couple of new fad food vendors every year.  This is a different kind of dead that I’m seeing – this is a complete vacuum, which nature supposedly abhors. 

    The best spin I can put on this is that many retailers have paired back unprofitable stores and are eating their lease termination fees and that means there isn’t quite the pressure on the landlords that there would be if they weren’t pocketing the rent.  Then the "improviing" economy makes them think there is no particular hurry to fill the space and they are holding out for their rents, which they aren’t getting just yet but our collapse is only a year old and the banks are willingly refinancing most of the REITs to lower costs so this isn’t hitting them as a loss just yet.

    It would be nice to be able to get a rented store count, the way we get rig counts in the petroleum sector.  If anyone has seen a statistic like this, let me know…

    Steve’s chart on home sales is interesting and is a great example of how deceiving a chart can be.

    Notice what a sharp "rise" we have since January but also notice this is a year/year chart so this phenomenal rise to -13% is off the -50% rate we had in January but it’s not a rise at all, it’s just a slowing of downward momentum.   If our base was 100 home sales in August of 2005 (call it halfway between the ticks) then Aug 2006 was -25% (75), Aug 2007 was -35% (49), Aug 2008 was -35 (32) and this August we are down "just" 13% to 27 homes sold.  At this point, we can go +20% next year by selling just 5 more homes in August and 70% of the the people who were building homes in August 2005 would still be unemployed. 

    Of course it’s to be expected by rational people that after home sales drop 65% over 4 years that PERHAPS you reach a point where a certain number of homes NEED to be sold, regardless of the economy.  Some people HAVE to move (bankruptcies, loss of job, need money, had babies), some people die, some banks unload foreclosures (30% of current sales) and yes, some people get their first job or have finally saved up enough to buy a home.  Did anyone really think home sales would continue the down 35% annual trend all the way to zero?  Of course it’s going to find a bottom somehwere but -13% after -65% in the 4 previous years, which is only an average 16% drop anyway so we are falling 20% less fast than average this year – WOO HOO! 

    This kind of graphing is exactly what our "rally" is based on.  It’s kind of like when you visit someone who is dying in the hospital and they couldn’t talk at all and were fluttering their eyes on your last two visits but this time they croak out a couple of words and squeeze your hand and you say "Oh you are doing so much better today."   That does not mean that, next year, you should be planning on having them take the lead sled in the Iditarod, but that’s how the market is behaving – betting anyone with a pulse is a marathon runner.

  22. From Robert Reich on
    My road trip across America a few weeks ago with elder son Adam and his big dog, Herb, was one of the highlights of the summer. Not only was it great being with Adam — and Herb — but I learned more about America by seeing it from the ground than reading dozens of reports.
    One surprise was how jammed our Interstates are. Not because of more traffic than usual — in fact, the economic doldrums have actually reduced traffic — but because of all the highway construction and repair. The Interstates are among the first targets of government stimulus money.
    Small comfort when we’re moving 15 miles an hour on a road designed for 75, but at least good to know the money is getting out there, and our Interstates will be all the better for it.
    Another surprise was how big a toll the recession is taking on Main Streets and malls across the country. I’ve never seen as much vacant retail and office space. Commercial real estate may be in bigger trouble than I imagined — the next shoe to drop in an economy that’s otherwise showing a few signs of life.
    And it was easy to find rooms for the night. Even hotels and motels that normally wouldn’t take in dogs as large as Herb were eager for the business.
    No surprise there, but I was surprised by the number of foreign visitors — mostly European and Asian — on the roads, taking advantage of the bargain rates.
    How could they afford it when most of their economies have been as battered by recession as ours?
    Then the answer came to me: Their countries have far more generous social safety nets. With unemployment benefits covering a big portion of their prior salaries and extending up to a year, they had the money to spend seeing America.
    All told, the view from the ground was sobering. I have to tell you, I didn’t see many green shoots.

  23. I live in Northern Alberta. I was in Calgary a couple of weeks ago and a brand new mall was just opening:
    There doesn’t seem to be any vacancy at all in the malls in Edmonton and Calgary. We’re obviously completely based on oil and gas up here though and the oil industry here hasn’t really slowed down much. I’m not sure about gas, that’s the other side of the province.

  24.  Weekend News, Bangor Maine Business page this weekend………article entitled "Big Box Vacancies" reports Bangor’s store vacancy rate 12.3% (up)and the national avg. 7.5% (up).    Here’s an interesting observation……….I went to buy some electronics over a year ago and noted that Circuit City store was empty, Best Buy was bustling.  I told my wife I didn’t think Circuit City would survive…I wasn’t smart enough to short it the next day.   Point is…..sometimes you really can visually observe what’s going on in the retail sector and make reasonable predictions based on the what you see.  Not fancy, but important information.  Based on what I see, consumers are reigning in their spending habits on nonessential items.  But don’t forget the essentials ……..  as time goes on people must have certain things….homes to live in, cars, food, clothing, etc.  They can avoid buying TVs , computer accessories, and so on.  They won’t do without phones!  I think about these things when I’m making investment decisions, as we all do.

  25. One thing to remember about malls is that this country is massively over-malled and so some culling was inevitable. For example, I lived on the Colorado front-range in the ’80s and like josiah says these things were built everywhere. Back then developers just carpet-bombed the region with boxy, samey-looking malls. GGP and SPG acquired most of these old malls and seem to have just run them into the ground. This left the malls vulnerable when shiny trendy malls were built a few years ago. The huge new FlatIron mall north of Denver has supposedly been successful. I went by that mall in July and the parking lot was pretty full, although I don’t doubt that the crummy ex-GGP malls in the region are graveyards.
    By the way, check out any tired-looking, 80s-era mall in your region and there’s a good chance it’s SPG or GGP property.
    Anyway my town of Mobile sounds like what pdaskalof describes about Burbank — maybe a 5-10% reduction in retail volume and the weak retailers are gone, but it’s not a disaster.
    I was in my old home of Austin earlier this month, and it seemed positively vibrant. Restaurants were nearly full (not packed), some large new mixed residential/retail developments downtown seemed to be doing very well, as did a huge new mixed-use development. My friends there think they’ve escaped the recession.

  26. Pharm,  on the inflation issue, one thing to keep an eye on is consumer and C&I loans and credit availability. All of the recent Fed beige books have shown this contracting, including the last one. This is net deflationary, even if the Fed keeps printing money, since it tells us that the printed money isn’t being lent but is rather pooling or being used to speculate. For inflation to take off we need both an expansion of the monetary base, which we have, and an increase in the velocity of money, which we don’t have yet.
    At the same time though, if deflation is really hitting we should start seeing dollar strength and commodity and metals weakness, and we haven’t seen those happen yet either, obviously. So some really mixed signals right now.

  27. Phil:
    The malls across the country are much quieter, but the bars are still busy. In a lasting tribute to the greatest party animal of all time, the late Edward Kennedy, I am adding to my long term portfolio Diageo Plc (DEO) – doing a buy/write, selling Oct. 65 calls and October 60 puts. The dividend is decent (2.65%) and I think it can be a steady long term  premium income producer. (even with Teddy no longer helping sales)

  28. Hmm, speaking of U.S. bonds…

    Note the article date, and the claim that a DPJ win was "unlikely".

  29.  Big political change in Japan… media spinning it as a sentimental short term positive for the stock market
    Barrons’s  is emphasising that AIG’s stock is representing "negative tangible equity"

  30.  Hey Phil…
    I noticed a change on the option tables on Option Express for AIG this weekend…  On Friday the September contracts traded out to the 75 strike. Over the weekend contract strikes up to 100 are now going to be available for trading on Monday.  
    On TD Ameritrade, the September contracts also show trades out to the 75 strike. But so far, those September option tables are not showing any higher strikes above 75 on Ameritrade.
    I find it so impossible to accept that AIG could get anywhere near 100 !!!   But it does makes me wonder what sort of volatility may be in store for next week.
    Like you said last week, this is a stock I want to "short the hell out of" …. especially with Barrons’s article making sure everyone remembers this weekend that the stock has a "negative tangible equity".
    Shorting AIG makes sense… doing that is what is the rational reaction to the fundamentals…. just like betting that a fish jumping out the water will no doubt come back down into the waves .
    But AIG is like one of those flying fish… you just don’t know how high or how long it will stay up in the air.

  31. Phil : Good reference source is  

  32. Kustomz/REIT- That was a good read, thanks.

  33. Small businesses around colleges Humboldt State in Arcata CA and San Jose State very busy .Walmarts, Targets, Home Depot, Costco busy. With online shopping so easy maybe there are changes really coming to retail. Why waste time going to a mall?

  34. EricL
    Any thoughts on the direction of the Yen over the next few days given the change of government? I believe the Yen will strengthen long term V the USD, but I’m trying to sort out the sentiment that might exist immediate term.

  35.  Looks like 60 Minutes is a much watch tonight.

  36. Your welome Joshiah, seems its just a matter of time

    Damn i missed 60 min

  37. Just got back from the game and finished the $100K update. 

    Futures were up and down 50 points already, dollar down to 92.5 Yen but holding up against Euro ($1.43) and Pound (1.63). 

  38.  Hello PSWer’s.  
    Just got back from a few days away with the family; a good time was had by all; did something different for a change.
    Its just as well, as this low volume ridiculous pump market has been both annoying and a giant waste of time.
    Hope some of you missed my wit and wisdom  :lol: 
    Nanuet Mall ?   OMG Phil, me too; but Palisades Center killed that baby some time ago.  Was at Palisades a couple of weeks back; top floor was crowded; we didn’t do much shopping; just Target and Food Court.
    That Target has to be the WORST Target I have been to in the chain.  What a mess !
    Phil, I forget, you were a Ramapo guy ?  N.Rockland me.
    AIG … they gotta be kidding with that one:

    AIG’s so-called reverse stock split in June magnified the effect of short selling, saidJud Pyle, a market analyst at Chicago- based options trading firm PEAK6 Investments LP. Through the split, AIG gave investors one new share for every 20 they turned in to help keep the stock above $1 and avoid delisting.
    “That meant there were fewer individual shares out there,” Pyle said. “If you can’t borrow the stock, you can’t short it. Because if there are fewer shares available to sell short, that can cause a short squeeze if people aren’t able to borrow it to short.”
    As AIG’s shares have more than doubled in the last nine sessions, the company’s bonds still trade at levels that indicate the company’s shares may be worthless, according to Peter Boockvar, an equity strategist at Miller Tabak & Co.
    “The value of the company is still the same,” he said. “AIG bonds tell you that the equity is possibly worth nothing and that they may not be able to pay back the government.”
    AIG Bonds
    AIG’s $3.24 billion of 8.25 percent bonds due in 2018 are quoted at 79 cents on the dollar to yield 12.2 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The insurer’s $4 billion of 8.175 percent bonds due in 2058 are quoted at 49.5 cents on the dollar to yield 16.7 percent, Trace data show.
    Fannie Mae and Freddie Mac, mortgage-finance companies under federal control, both climbed to their highest levels in almost a year. Fannie Mae added 12 cents, or 6.3 percent, rising to $2.04. Freddie Mac advanced 16 cents, or 7.1 percent, to $2.40.
    Paul Miller of FBR Capital Markets in Arlington, Virginia, said those gains also came as investors bought back shares they had borrowed and sold short, speculating that the companies will also do reverse stock splits to raise their share prices to avoid delisting from the NYSE.
    “There’s no value. This is all speculation,” Miller said. “No one can say for sure that they’re going to do a reverse stock split. I don’t think the regulators want to do a reverse stock split and make a decision when the shares are $5 or $6.”
    Lehman Brothers Holdings Inc. also climbed today, tripling to 15 cents. The failed investment bank filed for bankruptcy in September, listing $639 billion in assets, the most ever in a U.S. bankruptcy.


    Just for kicks and giggles I sold short a few Aug 65 calls at $3.15 on Friday afternoon.

  39.  uh, Sept  (Aug would be better – risk free !)

  40.  The things pissing me off the most are:
    1.  Most nights, futures are red, I go to bed very late; and by morning, voila, they are green !
    2.  All of the BS stick saves and support thrown at every little sell off.
    3.  Financials (all of em … AIG C FRE FNM BAC COF AXP and on and on.
    4.  Retail  (consumer is dead, the stocks are beyond silly).  WFMI a good example.  SHLD.  BBBY.  others.
    5.  Real Estate … IYR, SRS all sorts of REIT’s.
    6.  Oil / Energy.  Hasn’t been as bad as 1-5 above; but OIH, USO somewhat silly.  Drillers especially.  A lot of other energy names have actually underperformed.

  41.  Eric L  -- actually credit (corporate credit) has performed quite well also.
    Cramer – I thought he didn’t give "advice".

  42.  gel1; don’t worry, Patrick Kennedy will make up for it !

  43. Two comments. I spend time in Rochester NY in the summer. We had Irondequoit Mall which opened successfully amid much fanfare in 1995 or so, then went downhill. There were some vandalism attacks and some crime originating in the food court, and then some breakins in the parking lot. It went in the toilet, maybe 2003. It reopened as the Medley Center, did a bit of business, and now, only the Sears and Macy’s remain. The entire interior of the mall is closed off.
    My second comment is the Upstate economy has been just inches above water for several years, having the misfortune of being located in New York, but lacking Wall Street businesses. And I can’t believe how every single mall in the country gets away with having the same damn stores. Who cares if they close?

  44. Cap
    You are so right… also forgot all those Irish mourners. I feel better now.

  45. Futures/Cap – I completely agree that the future’s have been completely misleading almost every night. I’ve gotten to the point where I just expect to wake up with them being the opposite of what they are when I go to sleep because somebody (cough, Goldman, cough) said something about how "everything’s great!", or all of a sudden China exploded. Best reason to stay half and half this past few weeks, I suppose.
    COF/Cap – I’ve got an unhealthy obsession with watching this one finally lose value. I don’t actually have any stake in it anymore (Phil coached me out of it the way he would’ve needed to coach an addict off of crack), I just haven’t had a put work out with them yet and it drives me nuts that they’re valued this high!

  46.  That 60 Minutes last night was a good piece on the "bucket shops" of 1907… bucket shops allowed street people to place bets on whether the market would go up or down….  hmmmmmm   kinda sounds familiar
    The piece went on to talk about financial weapons of mass destruction and how Congress passed a new law in 2007 during the last vote of their final session that repealed all the "bucket shop" laws that were in place for the last 100 years.
    After watching, I was left with the impression that big investment banks transformed themselves into bucket shops (with the blessing of Congress) and the whole financial system seems now to be operating like some mafia scheme designed to enrich Wall Street while ripping off Main Street.