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Wild Weekly Wrap-Up, Topping or Popping?

This was an annoying week for bulls and bears alike.

We had a very exciting day on Monday, topping out at 10,248 but I didn't like the way we got there (low-volume, commodity rally, as noted in David Fry's chart) and, when pressed for a prediction on TV that evening, I had to say that I felt that we were more likely to be down by Thanksgiving than up with a possible Santa Claus bounce into Christmas.   What we did get for the remainder of the week was very choppy action on even lower volume

I had mentioned in last week's "Wrong-Way Weekly Wrap-Up" that we were partying like it's 1999 as we broke through Dow 10,000 and S&P 1,080, despite rapidly deteriorating fundamentals.  Stocks are being bought because they are going up in price (much like commodities), not because there is any actual demand for them and that is very clear from the rapidly declining index volume as we run back into resistance at S&P 1,100. 

Since early September our upside targets for the indexes have been: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 and nothing has happened to change our fundamental outlook for the better so the closer we get to those levels, the LESS comfortable we are taking bullish positions.  In fact, yesterday as we got our mid-day spike to 10,300, I told members that it was sorely tempting to just cash out all bullish positions and take 20% of the virtual portfolio 100% bearish with a 10% stop.  Rather than mess around with a mix of positions, going fully bearish can allow for some spectacular gains if we crash and stopping out with a 50% loss would suck – but a breakout like that, well above Dow 11,000 and S&P 1,200 would certainly give us reason to be more bullish.

As I concluded last week: "We’re generally not happy until we see Russell 600 and the Dow Transports over 4,000 (now 3,852) and we took a 55% bearish stance into the weekend because we’ll feel a lot less silly being burned by a move up than we would if we weren’t bearish enough for a move down.  It would be nice to be able to make more of a commitment but the bulls clearly have the bears cowering in fear so we’ll just patiently wait and see how far they can play things out."  Not much has changed since then and we are still waiting to confirm a breakout on those indexes

Monday Market Mark-Up - 50 Ways to Dump the Dollar

Probably my biggest overriding concern about the markets is that the weak dollar has given us the illusion of a rally as it has plunged 14 points from 89 (15.7%) since the March lows.  Should the dollar be at 89 again?  No, I wouldn't lend Bernanke any money, would you?  But it also shouldn't be at 75 because there are plenty of countries just as screwed up as ours and all it will take is one small crisis to send investors flying back to the buck.  This Friday, like last, there have been heavy bets placed on UUP into the weekend, indicating the expectation of a policy shift that boosts the dollar over some weekend.  Last weekend the G20 disappointed us (the topic of Monday's post) and this weekend we have Obama in China and a shift in Chinese monetary policy could make a huge difference. 

On Monday morning I put up an index chart for the week and we targeted 2.5% moves up for the indexes to Dow 10,273 (finished the week at 10,270), S&P 1,095 (1,093), Nasdaq 2,164 (2,167), NYSE 7,131 (7,119) and Russell 594 (586) so not bad for targeting a week in advance!  As we expected, the Nikkei put in the worst performance, finishing the week lower at 9,770 as that index has reached it's breaking point on the low dollar.  Along with our many DIA cover adjustments in both directions, we had a fairly mixed week of picks overall.  Monday's were:

  • WFR Jan $12.50 puts sold for $1.05, now .90 – up 14%
  • VLO Dec $17 puts sold for .85, now .83 – up 3%
  • TIE Jan $10 buy/write net $7.31/$8.65, now $9.32 – on track
  • FAS Dec $67/71 bull call spread at $2.20, now $2.25 – up 2%
  • VIX Dec $22.50 puts at .65, now .75 – up 15%
  • QQQQ Nov $43 calls at .85, now $1.18 – up 38%
  • UWM Dec $25 calls at $2, now $1.60 – down 20%
  • UWM Nov $26 calls sold at .60, now .30 – up 50%
  • EDZ Dec $5 buy/write at $4.10/4.55 – on track

My attitude on the week is summed up in my 11:28 Alert to members, where I said: "As I said this morning, the entire Nasdaq run over 3,500 was a fakeout but it lasted 6 months and you could have made millions following the fake (buying YHOO at $150 and selling it for $300, for example).  It doesn’t pay to insist on being bearish if we are breaking out here.  We are better off being bi-directional and taking those hedged downside plays only until we break back down."  That's why we continue to take hedged bullish entries, even though we are not true believers – if we do break over these levels, we could be truly heading off to La-La Land and there's no point in missing the party just because we know it will end badly

Toppy Tuesday Morning

We had a huge run-up into the futures that smacked of desperation.  Cramer had been on TV the night before telling his sheeple that no news is good news and the market is in a "a positive and delicious void," which would allow a merit-less rise to continue.  Jim is a veteran of 1999 trading and, to some extent, I think that colors his thinking as he loves riding the bubbles until they pop.  Of course, that's why Jim's bestselling book for his viewers is now titled "Getting Back to Even."  By pursuing a strategy that is based on collecting dividends and premiums from bullish and bearish plays – we're hoping to do a little better than even, no matter which way the market heads. 

I was using my crystal ball to look ahead on the day and I decided that, despite the Fast Money and Cramer pumps the night before (I had been at the Nasdaq studios the night before with Fast Money taping one level below me) we would have trouble at our 25% levels (off the July consolidation) at Dow 10,206, S&P 1,086, Nas 2,152, NYSE 7,087 and Russell 588.  As you can see from this chart, they all pretty much hit it on the nose.  My comment that morning was: "I will be truly amazed if the "finest minds on Wall Street" called it right yesterday and we keep going higher with no pullback."

I pointed out how bad the copper situation is in China and that made FCX our first short of the day but, so far, runaway gold prices are sustaining them even as copper stalls out below $3.  We were playing both sides of the fence on gold this week but cashed our our longs on Wednesday's rally and failed to cash out our shorts on Thursday's dip so we'll see what is real next week.

  • FCX Dec $80 puts at $3.90, now $4 - up 2.5%
  • SRS Dec $9 puts sold at .75, now .80 – down 7%
  • RL Nov $80 calls sold at $4, now $2  – up 50%
  • GLD Jan $111/108 bear put spread at $1.80, now $1.57 – down 13%
  • ERY Dec $11 puts sold at $1.20, now .90, up 25%
  • EDZ Dec $5 buy/write at net $4.15/4.48, now $5.48 - on track
  • YRCW 2011 $2.50/5 bull call spread at .10, still .10 – even
  • YRCW Apr $1/2 bull call spread at .20, now .15 – down 25%
  • YRCW Apr $1 puts sold at .65, still .65 – even
  • TM Dec $75 puts sold for $2.30, now $1.50 – up 35%

Will "THEY" Hold It Wednesday – Veteran Scammers on the Loose!

We expected Veteran's day to be to have some shenanigans but boy that 100-point pump to Dow 10,300 in the morning was a doozy!  I had expected to be out for the day (but plans changed), so I made an extra-early post at 7:57 am but even that early – it seemed obvious that we were just pumping up into a big sell-off.  I said at the conclusion of my post, a bit before 8am:

It’s probably a great day to buy cheap shorts at the open using those same lines but we have to be careful out there, Gates and Buffett have a TV special on Thursday and they are likely to be telling everyone to BUYBUYBUY so we’ll have to tread cautiously and be patient.  If oil stays under $80, that’s still bearish.  If XLF can’t get back over $15 – still bearish.  If ANY of our indexes fails to hold their 5% level – still bearish.  If, however, we are over the 25% lines and hold them, then the bears are the wrong team to be backing

After publishing the post, I felt strongly enough about it to reiterate in a note to Members at 7:59: "Sorry I won’t be here, looks like an exciting day.  Best to just let the levels guide us but I’m kind of glad I won’t even be able to look today as it may just be a blow-off top but one that is going to be very hard not to be suckered into."  Luckily, my appointment got canceled and I was back by 10:03 and we were able to take advantage of some nice downside opportunities from the top.  At 10:37 I noted: "10:30 volume is 42M so we are on track to be over 50M at 11, which is not all that low but that may indicate "THEY" already punched in the stick at the open and they are already spent."  I said it was tough to call at the moment but 10 minutes later, we went short, but just 2 new plays:

  • FCX Dec $85 puts at $5.55, now $6.60 - up 19%
  • FXP Dec $8 calls for .50, still .50 – even

State Tax Revs & Economic ChangesJobless Thursday – Get Ready for the Next Million Layoffs

The state of the states caught my eye in the morning as they are coming in tens of billions of dollars short at the same time that the Federal government is going to have to go to Congress for permission to raise our own national debt ceiling above $12Tn, just $100Bn away by most counts. 

Without a shower of manna from Federal Heaven, it seems virtually impossible for the 10 states we looked at to avoid having to lay off an additional Million employees in 2010.  State tax receipts (see chart) are plummeting and most most of the states are losing another 2% of their taxable property base to foreclosure each year in addition to the rampant unemployment that is chewing away at income and sales tax revenues.  $12,000,000,000,000 is a lot of money and, unless Congress doesn't act quickly AND quietly to expand our debt limit, this is just the sort of conversation that can eat into consumer confidence just in time to ruin Christmas.

Nonetheless, as we were brushing right up against our breakout levels on Thursday morning, I reminded Members it was time to switch off those annoying brains and go with the flow, saying: "When I need to switch my brain off, I go to the charts.  In Monday morning’s post, we expected to test our 25% lines (up from July consolidation) of: Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600…"  We shifted our attention overseas to watch the FTSE, which must hold 5,250  (now 5,296) and the DAX, which needs to break over 5,750 (now 5,685) in order to give the global economies another leg up.  With Asia looking top-heavy, it would be a very bad time for Europe to falter too.

  • DIA Nov $101 puts at .55, out at .82 – up 49%

That was our only new play of the day (other than adjusting our other DIA positions) but we did finally capitulate on our short AMZN position that wrecked our $100K Virtual Portfolio and turned it into the Amazon virtual portfolio, with that position down 80%.  We finalized our other small positions there and turned the AMZN short puts into a short strangle with higher strikes so now we have to play the long game and hope AMZN hits our target prices, wipes out our obligation and lets us keep the cash from the calls and puts we sold.  We will begin a new $100K Virtual Portfolio next Monday after expirations, concentrating on our buy/write strategies (much like the Q2 $100KP) - which have been the best performers this year and I'll set up a new Buy List for Members next weekend, hopefully at the tail end of a sell-off!

Friday – Well We Finish the Week Over Our Target Levels?

If you haven't seen the videos I posted in the morning about the empty Utopia shopping mall in China and the empty Chinese CITY of Ordos, please do.  This goes to the heart of why I am skeptical about the "resurgence" of global GDP.  It is very easy for governments do create statistics to tell you anything they want but when I go to the shopping mall on a Saturday morning and get a space near the door and I don't have to watch my kids too closely because we're the only people in the store – that's just not good! 

As I've pointed out in the past, much of the global optimism we've been seeing is based on every nation pointing to every other nation's recovery as having the potential to save them.  The US and Europe look at China's $585Bn-stimulated GDP (12% of GDP), which keeps the economy at 8% growth and we call that a sign that things are turning around.  This is much like having a leaky swimming pool that is losing 4,000 gallons of water and you pour in 12,000 gallons of water and declare the leak fixed because the water level went up 8,000 gallons.

While 8% growth does sound exciting, it's only $650Bn of growth (China's GDP last year was just under $8Tn) and if it cost the government almost $1Tn to get $650Bn in growth, that's not really sustainable is it?  So the global $68Tn economy is pinning it's hopes on $8Tn China and $3Tn India growing to offset the declines in $17.5Tn Europe/UK and $14Tn America and $4.5Tn Japan.  This is some plan, isn't it?  All China and India have to do is grow 20% ($2Tn) to offset a 3% decline ($1Tn) in their trading partners and that would give us a total of $1Tn in net growth against $45Tn in combined GDP (2.2%).  Isn't this great? 

Overall, about $3Tn (about 4% of global GDP) has been spent on global stimulus programs in addition to 5 times that amount going to bank rescue programs and that is ignoring the incredible increase in the global money supply, estimated to be as much as 10% this year – all just to keep the World economy from showing a big negative in 2009.  From our short-term investing standpoint, none of this matters and we can go with the flow as the market is determined to party like it's 1999 but, as long-term investors – it's VERY hard to get enthusiastic looking at these numbers.  This is why I often joke that we have to disconnect our brains in order to go long sometimes, it's a scary world out there.  Not making our levels kept us a bit bearish in our betting on Friday: 

  • DIA Nov $103 puts, sold for $1.50, out at $1 – up 50%
  • DIA Nov $102/100 bear puts spread at net .40, now .45 - up 12%
  • SRS Dec $9 puts sold for .75, now .81 – down 8%
  • SRS Nov $9 calls at .35 (avg), now .32 – down 9%
  • UUP Jan $23 calls at .30 (avg), now .25 – down 16%
  • SRS $8/9 bull call spread at .65, still .65
  • SRS $9 puts sold for .35, still .35

We ended up going into the weekend 55% bearish as planned.  From a level perspective, we still haven't made 3 of 5 of our upside breakouts and the XLF is below $15, while the Financial Index was above $15 for most of September, until they gave us an early signal of the market breakdown at the month's end.  

We'll be very much in chart-watching mode next week but it was fundamental concerns more than levels that determined our weekend stance as it seems more likely that the market opens down 200 on Monday than up 200.  It was my 1:58 comment to Members on Friday when I said I was tempted to cash out all bullish positions and go 100% bearish with about 20% of the portflio, it is only the fact that some of our levels are holding up that prevents me from going with my gut on this one.  As I said to Members: "There are so many stocks that are not at all justified in their valuations and there are only 40 shopping days until Christmas and I have yet to see a positive consumer report."

Retail sales lead off the week's data at 8:30 on Monday morning so we placed our bet ahead of the call.  The Nov number was -1.5% and the consensus is for +0.7% this month as we have some very easy comps.  We also get Business Inventories and the Empire Manufacturing Index for November, which is likely to fall off October's surpring 34.57.  Japan's GDP will be released at about 7pm on Sunday as well so all that data will hit us before the open.  I applaud the bulls who are not worried about any of this – you are braver men than I am! 

 


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  1. Do you think the average consumer actually considers the debt limit? Aren’t these the same consumers wherein 60% believe that home prices are higher than a year ago. I would think that that kind of large, nebulous, and distal number does not psychologically factor into individual purchasing decisions. It seems most people already have a good idea of how much they are able/willing to spend for Christmas. I don’t believe the average consumer makes the connection from national debt limit to anticipation of personal layoff. What do you think?


  2. Cmtp, u told me to remind you Phil, curios on your thoughts on the stock


  3. Debt/Ac – I don’t think the average consumer considers the Debt at all, which is why I said Congress needs to move quickly and quietly to raise the limit as no one will really care if they bump it up 10%.  What is bad, especially just ahead of the holidays, is if we have a knock-down drag-out debate in Congress where people start screaming about the Debt and panic the consumers.  Don’t forget, the "average" consumer isn’t concerned about anything until Fox news tells them to be…

    I’ve been saying for a very long time now that we need to watch the MSM news cycle for signs of negativity.  So far, only positive news seems to be selling papers but I do wonder what’s really behind this sudden dumping of NBC by GE.  They are doing it at the lows, they certainly know that, and it’s not like it’s bleeding cash – just underperforming.  I’m wondering if there is some regulatory prodding behind it as I’m not the only person who takes offense to the company’s entangled market manipulation.

    CMTP/Jrom – I’m on the way out now but I’ll try in the afternoon.

    The FDIC’s failure Friday claims a smaller California bank (at a cost to the Deposit Insurance Fund of $27.4M) and – via a purchase-and-assumption agreement with IBERIABANK of Louisiana – two bigger ones, in Sarasota and Naples, Fla., at a combined cost of $959M.

    The $44B deal for Burlington Northern (BNI) was no bargain, Warren Buffett tells Charlie Rose, but the railroad’s results in the next 100 years will justify it. "It’s a good asset for Berkshire (BRK.A) to own over the next century … You don’t get bargains on things like that. It’s not cheap."

    Abercrombie & Fitch (ANF +10.7%, but on much lower sales) and J.C. Penney (JCP +6.2%) led a good day for retail, and a couple of discounter IPOs had strong debuts as well. But without rose-colored glasses, the retail outlook still isn’t pretty.

    Place your bets: Which of the biggest economies will default on debt first?

    FHA Commissioner David Stevens once again downplays recent reports the federal mortgage insurer is on the brink of a bailout, adding, "Without FHA there would be no (housing) market, and this economy’s recovery would be significantly slower." Still, we seem to have heard this song before.

    Good article stresses the complexities of understanding how China’s rise will remake the world.

    Funny post from Barry Ritholz – "How to Be An Agreeable Guest of Mark Haines on CNBC":

    Each trading morning, CNBC’s anchor agrarian has two
    guests he asks one simple question: “So, What Do You Think Of The Market?

    If you are chosen, you¹ll only have 20 seconds to answer so practice
    practice practice!; Here¹s how to make sure you get it right!

    Good Morning Mark! ­ I’m (pick ONE)

    a)  Very Bullish
    b)  Bullish
    c)  Bullish But A little Cautious (Use ONLY if market is currently down)

    on the markets here because we believe (pick TWO)

    a)  interest rates are going to stay low,
    b)  there is real growth in the GDP,
    c)  the rally is still intact,

    And (pick ONE)

    a)  stocks are a great value at current levels.
    b)  the market will continue to go higher from here.
    c)  stocks are undervalued at these levels.

    We¹re bullish on (pick up to THREE)

    a)  Technology
    b) Energy and Commodities
    c)  Blue Chip Industrials
    d) (Insert Stock Names You Already Own At Lower Prices)

    Mark will make some short meaningless comment signaling your time is up, then repeat your name and firm; SMILE and remember to reply:

    Thank you for having me on.”

    NY Times graphic showing our unemployment vs. 1974 and 1980 recessions, notice our long-term unemployment (15 weeks +) is now 5.7%, compared to peaks of 3% and 4.2% in the other two major downturns. 

    Zisler Capital Report to California State Controller’s Office: predicts a “massive repricing of all commercial real estatea crisis of unprecedented proportions" approaching:

    Of the $3 trillion of outstanding mortgage debt, Randy points out, $1.4 trillion is slated to mature in four years, and he estimates another $500 million to $750 million of defaults. Maturing debt will have a tough time finding lenders. Debt that has been or will be marked to market, he predicts, will render many banks, especially of the regional and community kind, insolvent, since much of the debt is worth half or even less of par value.”


  4.  U-6, the broadest measure of unemployment, hit 17.5% in October. (By comparison, the “official” rate, the U-3, sat at 10.2%.).  It measures not only the unemployed, but “marginally” attached workers, and part-timers who can’t find full time work. Basically, everybody who wants to work full-time but isn’t. 

    Is gold a 6,000 year-old bubble?

    In Europe, where banks hold over $350 billion of increasingly dubious shipping industry loans, the inability of Eastwind, which is based in New York,to handle its debt of more than $300 million set off an anxiety attack on lending desks across the Continent.  The collapse of Eastwind Maritime, analysts say, while small, could well be a harbinger of more carrier failures to come.

    In Britain, for example, where the economy shrank a further 0.4 percent for the third quarter, the government had to put an additional £43 billion ($71 billion) into the Royal Bank of Scotland and Lloyds, both essentially under national control, because of continuing trouble with their real estate loans.  And in Spain, where loans to companies working in the real estate sector are estimated to be almost 50 percent of gross domestic product, a consensus is growing that many banks are underreporting the value of their stricken loan portfolios.

    Now there is more to worry about. Banks with large shipping industry portfolios — among them Royal Bank of Scotland and Lloyds, and HSH Nordbank and Commerzbank in Germany — could face meaningful write-downs as ship owners confront plummeting charter rates from a 25 percent drop in global trade.

     

    Slate looks at some of the popular Wall Street conspiracy theories.

    Sixteen percent of banks say they have tightened their standards for new accounts, and none reported easing up. One third said they had cut back credit limits, increased interest rates, and raised customers’ required credit scores. About a quarter reported that demand for consumer loans was moderately weaker, and eight percent said it had weakened substantially.

    Investors may have been turned off by the market’s poor performance. Or it may be that Americans didn’t have much leftover cash to deploy into the stock market. Incomes were basically stagnant during the decade while the costs of vital goods and services—education, health insurance, energy—spiked. The latest report from the Census Bureau on income, poverty, and health insurance is full of interesting data that show that median household income in 2008, at $50,303, was below where it was in 1998. The same report shows (see Table B-1 on Page 44) that both the number and the percentage of people living below the poverty line rose, from 11.9 percent in 1999 to 13.2 percent in 2009.

    Many economists and retail analysts expect spending to remain low for a while. Federal Reserve officials warned Tuesday that unemployment probably will stay high for several years, even if signs of economic recovery take hold.  "Consumers have entered a period of stabilization," said Kamalesh Rao, director of Economic Research for MasterCard Advisors. "We are not seeing robust measures of acceleration."


  5. Phil….You said something in yesterday’s post that made my ears perk up.  You said (paraphrasing) that you were "sorely tempted to just cash out all positions then take 20% of the portfolio and go totally bearish with a 10% stop".  With that admission of yours (your temptation to do this) I need to make an admission.  Up until now I’ve been, shall we say, embarrased at an investing style I’ve developed, as it doesn’t fit with standard recommendations.  It has to do with what you just mentioned. 
    We are always cautioned not to put our eggs in one basket, and I think that’s good advice.  But I do something in one of my accounts that violates that rule.  I have 4 accounts I use for investing.  One is a company sponsored 401k.  This is 70% stocks, 30% bonds, and is managed by an investing firm on behalf of my company.  It’s the only account anyone else directs for me.  My second account is stocks only, long and short.  The third is options only.  These are all managed in traditional ways.  The fourth is the one I’m going to talk about, and I mention the four because it’s the one performing by far and away the best compared to the others.
    In this account I trade only options, and I buy only one company at a time.  Right now I’m in AAPL.  I choose the company based on a record of steady upward movement in an upward moving market, or steady downward movement in a downward trend.  Right now AAPL fits the former.  At the moment this account is all cash, with AAPL at 204 and change.  I just cashed it out this last week.  Looking at the AAPL chart it appears that eventually it will pull back to under 200, maybe even to 190.  So I pick 195.  I set my acct. up so that when it hits 195 I move  10% of the acct into at-the-money calls at least 6 months out with no stop.  If it hits 190 I buy another 20% (now I"m 30% in) , then set a 20% stop there.  If the stock goes to 185, I’m all in, with a 20% stop.  However,If the stock goes back to 195 before it goes to 185, then I buy another 20%.  Now I’ve got 50% of my acct in AAPL.  If it reaches 200 I buy another 20%.  At this point I’ve got 70% in and a 10% trailing stop.  When it gets to 205 I buy  protective puts (QID) and continue my trailing stop.  At 210 I’m totally out and wait for the next pullback.
    I know this sounds insane, but this method has earned me much more in this account than all of the others combined.  It basically consists of waiting for a very positive moving stock to pull back with the market, then scaling in as it continues to pull back (with options for leverage), and taking profits when you are  slightly over your previous high, then waiting for another pullback. 
    This is not recommended for the average investor.  I have developed the ability to just watch a stock like AAPL ramp up and up, waiting patiently for the pullback which will eventually come, then pouncing with sometimes 70% or 80% of my full account.   Last month this account went up by 30% using this technique on AAPL, and has doubled since instituted about 6 months ago.   Now Phil, I know  I’m probably crazy to do this, but It’s like chocolate.  It has worked so well for me that I can’t stop!


  6. Whew, now I’ve got THAT off my chest.  I feel like a husband who has just admitted a sordid affair to his wonderful wife. 


  7. TNK / Phil – Looks like they have cut their dividend from 40c to just 15c. And have declined by almost 10% in the last few days. Would you still recommend them? Or time to move them out of the watch list?


  8. When one "cashes out" – is there an optimal way of doing this or is it just "green" longs first then red?


  9. Iflan – not
    You have been doing this for six months – how long in apple?
    If you were going long apple in any way – you were minting money


  10.  GOOG and AAPL.  But the correct picks are part of the process.  


  11. Iflan – sorry that "not" was a typo


  12. CMTP/Jrom – They are still listed at .ob so be very careful but it’s a great sector with $4Bn in battery exports already coming out of China and this little company doing just $7.8M this Q with 9% growth.  As an ADR with a .ob and no options, I have no interest in this kind of stock.  They do have a conference call on Monday morning at http://www.chinadigitalcommunication.com so that’s worth listening to if you are interested.

    One stock/Iflan – I think if I had to do that strategy with one stock it would be AAPL and it’s very valid to know a stock very well and play the momentum.  Here’s good news for you by the way:

    Mac (AAPL) clone maker Psystar goes down in flames in a California court room, with Judge William Alsup ruling it "violated Apple’s exclusive reproduction right, distribution right, and right to create derivative works." Groklaw: "In short, Psystar is toast." (previously I, II, III)

    TNK/Trad – We were playing them to sell off to $7.50 anyway and dividends were the reason.  I actually like companies that goe down on lowering dividends as long as I think they may come back one day since the company has already indicated that they like to pay dividends.  Buying the stock now for $8.18 and selling the May $7.50 puts and calls for $1.90 nets $6.28/6.89 and .60 dividend on that is still 9%.

    "Our fixed-rate charters continued to provide insulation from the spot tanker market weakness that persisted through the third quarter," commented Bjorn Moller, Teekay Tankers’ Chief Executive Officer. "Our fixed-rate out-charters, which accounted for 55 percent of our revenue days in the third quarter, earned over $31,000 per day. At this level, cash flows from our fixed-rate vessels alone covered the operating, drydocking and debt servicing costs of our entire fleet and enabled us to declare a $0.15 per share dividend for the quarter despite the weak spot tanker rates." Mr. Moller continued, "As per our previous guidance, a heavier than normal drydocking schedule in the third quarter resulted in a greater number of off-hire days which lowered our third quarters dividend by approximately $0.10 per share. These drydockings were completed in the third quarter and there are none scheduled for the remainder of the year."

    Cashing out/Red – Really it’s just a series of momentum plays, depending on your very short-term outlook for each position.  Next week we have plenty of data plus expirations so things could get wild.  Don’t forget though that you can cash out of 100 shares of AAPL ($204.45) by selling the $195 calls for $10, collecting net $205 unless AAPL drops more than $10 next week.  The VIX isn’t very high but it’s a good trick to squeeze a little extra out and it’s a good way to put a cap on your indecision.  Just keep an eye on you balance on the way out.

    BEIJING — China’s top bank regulator blamed the U.S.’s loose monetary policy for creating new global asset bubbles, saying low interest rates and a weak dollar are encouraging speculation in world markets.  The U.S. Federal Reserve’s promise to keep interest rates at extraordinarily low levels for an extended period "has already led to a massive U.S. dollar carry trade and massive speculation," said Liu Mingkang at the International Finance Forum in Beijing, which began shortly before U.S. President Barack Obama arrived for his first visit to China.

    Mr. Liu, who is chairman of the China Banking Regulatory Commission, said the weak dollar and low U.S. rates are creating "unavoidable risks for the recovery of the global economy, especially emerging economies," and that the situation is "seriously impacting global asset prices and encouraging speculation in stock and property markets."

    You currency people may want to consider that it’s almost a sure thing to bet the Yuan to appreciate against the dollar at some point.  Since they are pegged to the dollar, there’s almost no chance of it heading lower (not to mention they are a creditor nation and we are a debtor nation) and almost any kind of decoupling should boost the Yuan.  It’s not my thing but with the 100:1 leverage of currency trading, it could make for a fun bet.


  13. Hi Phil: Since 1 of the reasons (  and maybe the only reason)  the market has gone up is due to the declining dollar, if China decides ti inflate the Yuan ,our market will take a big hit. Is there a way to play this?
    dflam


  14. Interesting April 2008 speech on the Dollar by candidate Obama.  He certainly does seem to know what the problem is but what has he done to change things since Jan?  Someone sent this to me and it got me thinking that maybe the only reason the dollar ever did get back over 80 was on the expectation that Obama would do something different and, as the year has progressed and the war hasn’t ended and we’ve done nothing to control oil prices and very little to fix the economy overall, the the dollar is mostly just settling back into it’s long-term decline (note we are now at 75):

    Of course, if Bush 1 ran the S&L scam and his banker buddies benefitted from the declining dollar (getting a lot of them for their assets) then the end game had to be the re-flation of the dollar at some point.  So the dollar drops 50% off it’s highs in the mid-80s and bounces along 80 and then back to 120 under Clinton.  Then Bush II comes back and they drive the dollar back to 80 again.  Note on the Case-Schiller chart that, as the dollar fell, real estate fell as well.  This is the time when owners/producers of commodities get the maximum benefit as they get lots of dollar and buy relatively cheap land:

    Then housing is driven up with the dollar (driving commodities back down) at which point the ex-commodity owners/now landowners, begin to cash out their land and get back into the commodity game.  With the dollar once again at all-time lows and and real estate also back where it was in 1993 – it is possible that this cycle will repeat itself and we will once again get into a cycle of rising dollar and real estate against falling commodities. 

    Don’t forget the market went from 3,500 to 11,500 during Cinton’s term (93-2000) so what we don’t want to do is miss that, even if it does seem pretty unlikely from where we’re standing.  Keep in mind, no matter how bearish you are, there’s always room for a few speculative upside covers because imagine how cheap US real estate must look now to foreign investors and US speculators who have been playing the commodity game.  There may be more pain to come (and we do think there is in CRE, at least) but I think we’ll hit an investable bottom at some point. 

    On the darker side, we NEVER had deficits like this and that has to factor in and we are miles away from running a surplus or even balancing the budget.  If we are going to have inflation, however, nothing gives you leverage on your money like homes do.  You put down 20% on a $200K home and pay $1,300 a month on a $180,000 mortgage ($15,600/yr) and, if inflation averages 9% for 15 years, the house jumps to $728,000.  You can’t do that with commodities because you can’t wrangle a 30-year fixed loan on gold production or even an oil well and, of course, your production costs go up but land is a real thing of beauty when it’s appreciating. 

    We talked about how homes fell from a median $264K to about $175K now and we assume the 2.5x median income ($42K) or $105K is the dead bottom but somewhere around $145K median I think homes get to be compelling investments again, especially at these low rates, which you certainly can’t count on lasting. 

    So the foreclosure buyers aren’t crazy, if you can wait a decade, we can assume people will want to live in homes eventually.  The same way we were eager buyers of stocks in March, it might not be a bad idea to consider what you will do if we get a panic drop in real estate.


  15. China hit/Dflam – I’m not sure we’ll take a hit if China de-pegs.  China last de-pegged in July, 2005 and look at the boost we got on the chart, it was good for a 10% pop in the dollar. 


  16. TNK / Phil – Thanks Phil. So you think it’s still a good long term bet.
    BRCD / Phil – Do you think there’s still a trade in Brocade? They were the frontrunner for the HP acquisition and got dumped on when HP chose 3Com. Will other big players in the market still make a play for Brocade in trying to play catchup with HP?


  17. Infantheman:
    Very interesting strategy…. I believe a similar strategy could be followed selling puts, as opposed to buying calls, I will scope it out. I think the safety is making sure the stock is stable in its primary direction such as APPL or GOOG, and that earnings are somewhat predictable. Your stats are very comendable, and certainly caught my attention. Some people thought Einstein was crazy…not so – just smart!


  18. [Growth and Deflation chart]Good morning! 

    Japan had a huge GDP beat (+1.2% for the Q, 4.8% annualized)) and they leaked it early (to oil executives!) but, strangely, deflation is accelerating at the same time.  That’s great news for stimulus watchers as the government can continue to pump money into the economy, even while it’s growing and, of course, the carry trade can continue.

    Despite the robust third-quarter report, Japanese officials said they were still concerned about the economy’s strength going forward, and didn’t intend to pull back plans for further spending to ensure continued growth.

    "There is no change in the severe condition of the country’s economy," Naoto Kan, the deputy prime minister, told reporters after the report’s release. "We are concerned about whether the economy falls into a deflationary situation," he added.

    The domestic demand deflator — a measure of changes in prices of goods and services, excluding exports and imports — plunged 2.6%, the fastest pace since 1958. It was the third straight quarter of falling prices.

    Another sign of concern in the report: The contribution of private consumer spending to growth slipped in the third quarter, suggesting measures to convert Japan from export-led growth to domestic-demand-led growth were facing limits. In the third quarter, private consumer spending, rose 0.7%, compared with a revised 1% climb in the second quarter.

    It’s all stimulus but there’s no sign stimulus is stopping so party on markets.  The Nikkei itself isn’t thrilled and is up just 0.25%, barely hitting Friday’s high on a stick-save into the close but that isn’t stopping the futures from jumping up half a point and gold from hitting $1,130.  Once the Nikkei closes (2am EST) the Hang Seng will have an hour to themselves and that should top out our futures (the Hang Seng is up at 22,900 (+1.5%).

    The shorting move on gold futures is to short them as they cross below $1,130 with zero tolerance for holding gold above that line.  The same can be done with the S&P futures at 1,100, the Dow at 10,316 and the Nas at 1,800 and you can even use the 2 out of 4 rule to short one of the laggards only AFTER two others break down to be a little safer.  We have Retail Sales at 8:30, which should be the next big market mover and keep in mind that Retail Sales were LOWER than expected in Japan for Q3. 

    Japan also got a huge benefit from the Chinese auto sales – more stimulus!

    Oil is $77.33 and we’re still watching that $77.50 mark.  Copper is very excited about Japan and is back over $3 while silver hit $17.60.  As usual, the dollar is the World’s whipping boy at $1.4975 to the Euro and $1.6725 to the Pound and still under 90 Yen at 89.59.  That $1.50 line on the Euro is going to be critical, if that one breaks, the markets could break higher as the dollar heads to new lows.

    There are some great charts this morning in our Chart School section from Fallond Stock Picks and Pragmatic Capitalist and it’s this Russell Chart we’ll be watching closely today as that’s the index that needs to turn (back over 600) for us to get more comfortable with our bull side. 


  19. PARD results out. Shares down to 1.50 pre-market.
    Poniard Pharma announces Ph. 3 SPEAR trial of picoplatin in SCLC did not meet primary endpoint