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Happy Martin Luther King Day!

It’s Martin Luther King day so the markets are closed.

I was just reading his "I Have a Dream" speech and it really is amazing when you think of the great social change in this nation that was set in motion by one man with a vision.  Here’s a great video of the actual event.

It is a testament to the power and effectiveness of Dr. King’s movement that, even to those of us who were alive at the time, it seems like it must have been another world where a man had to speak out against such injustice as if it wasn’t obvious to the majority of people that segragation, whether by law or by practice, was an outrage.

Sadly, many of the lessons he taught us have already been forgotten, some great quotes:

  • Nonviolence is a powerful and just weapon. which cuts without wounding and ennobles the man who wields it. It is a sword that heals.
  • Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.
  • It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.
  • The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood.
  • Human progress is neither automatic nor inevitable… Every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and passionate concern of dedicated individuals.   
  • Never forget that everything Hitler did in Germany was legal.
  • We will remember not the words of our enemies, but the silence of our friends.
  • The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows.
  • A nation or civilization that continues to produce soft-minded men purchases its own spiritual death on the installment plan.
  • A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.
  • One of the greatest casualties of the war in Vietnam is the Great Society… shot down on the battlefield of Vietnam. 
  • Our scientific power has outrun our spiritual power. We have guided missiles and misguided men.
  • Rarely do we find men who willingly engage in hard, solid thinking. There is an almost universal quest for easy answers and half-baked solutions. Nothing pains some people more than having to think.
  • Take the first step in faith. You don’t have to see the whole staircase, just take the first step.
  • The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.
  • The time is always right to do what is right.
  • Our lives begin to end the day we become silent about things that matter.
  • Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.
  • If physical death is the price that I must pay to free my white brothers and sisters from a permanent death of the spirit, then nothing can be more redemptive. 

Dr. King also had a sense of humor:

  • I want to be the white man’s brother, not his brother-in-law. 
  • It may be true that the law cannot make a man love me, but it can keep him from lynching me, and I think that’s pretty important. 


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  1. Some light reading for the day:

    And the price war is on: AT&T (T) largely matches Verizon’s (VZ, VOD) earlier price cuts by rolling out new unlimited wireless plans: voice for $69.99/month and talk/text for $89.99/month. Daniel Indiviglio: Just another step toward voice being charged as another form of data, and metered accordingly.

    BusinessWeek looks at the increasingly tense relationship between Apple (AAPL) and Google (GOOG) and considers a bold prediction: that Apple might dump Google as a default search tool and deal with (gasp!) Microsoft (MSFT). Paul Boutin’s takeaway is that mobile search is far from figured out. Meanwhile, comScore says Bing just keeps gaining market share.

    Forget what you’ve heard about a weakening yen, says RBC’s Adam Cole, and buy on the dips. Changes in Japan’s finance ministry have distracted from events that would strengthen the currency, including hedging by Japanese investors and news of higher bank reserve requirements. (ETF: FXY)

    Bears who like to point to the similarities between today’s China and 1980s Japan can growl all they want, says The Economist: A close inspection of pessimists’ three main concerns – overvalued asset prices, overinvestment and excessive bank lending – suggests China’s economy is more robust than they think. (ETFs: FXI, PGJ)

    More GDP upgrades from the Gang of 12:  Goldman raises its Q4 GDP estimate to to 5.8% from 4%, warning the "headline will be an eye-popper," but that the growth is mostly due to inventory changes.

    Sources say the SEC is stepping up its investigation of the CDO market, and issued subpoenas last month to banks including Goldman Sachs (GS), Credit Suisse (CS), Citigroup (C), BofA (BAC), Deutsche Bank (DB), UBS (UBS), Morgan Stanley (MS) and Barclays (BCS).  Yep, turns out, none of them did anything wrong

    If you wanted (as Paul Krugman and some of the questioners at the FCIC hearings did) to know just why things went awry, you’re wasting your time, says the Epicurean Dealmaker: Top bankers are smart, scary smart, but they have little interest in why things are – and rather plenty of interest in how they can take advantage of the way things are.

    A gallery of banker faces at the Financial Crisis Inquiry Commission runs the emotional gamut from A to D, or so (apologies to Dorothy Parker). (via)

    When the banking system was being restructured under FDR, the top three execs of any firms receiving aid had to tender their resignations. Getting rid of Geithner and the bank chiefs might not fix anything, but "it’s hard to imagine the architects of our current misfortune suddenly metamorphosing" into leaders who can safeguard our financial system.

    Documents released late yesterday show AIG (AIG) considered making a public disclosure about its payments to banks, before the NY Fed actively worked to convince AIG otherwise.

    For all the fluster and bluster of the FCIC, hauling in banks chiefs isn’t going to do much good. If the Commission really wants to find out what went wrong, it should speak to the people on the ground, from the mortgage brokers and underwriters down to the consumers.

    Here’s a dire prediction: Jim Rogers sees food shortages on the horizon because the financial crisis left the agriculture sector desperate for funds. He says investors can play the impending price hike by buying distressed commodities like cotton and coffee.  Nice, Rogers – push your book by making dire predictions

    The recession (assuming it’s not over) stands at 25 months – which would put it into the recession hall of fame as the fifth-longest ever.

    Three more bank failures bring the year’s total to four. Regulators close banks in Illinois and Minnesota through purchase and assumption agreements, at a combined cost to the DIF of $25M. And a $271M setup of a temporary deposit insurance national bank resolves the failure of Barnes Banking Co. of Kaysville, Utah.  So banks are still failing at the same pace as last year – everything must be great!

    Saudi Arabian investor Prince Alwaleed met with Rupert Murdoch (NWS) this week to discuss a "future potential alliance with News Corp."  This is a good one, first we let Murdock take over US media (even though we used to have rules against foreign ownership) and now he sells out to the Saudis.  Conclusion:  Time to go long on oil again!

    If you want to catch up on New York Times articles, better do it now. Sources say NYT (NYT) Chairman Arthur Sulzberger Jr. is close to announcing that the paper will start charging for access to its website, with a final decision coming in the next few days.

    Less than three months after parent company Capmark Financial entered into bankruptcy, Capmark Investments filed for Chapter 11 yesterday. The firm managed more than $1.7B of equity real estate and mortgage-related investments.

    Very good interactive chart of projected job growth for next 10 years.  Notice Manufacturing is still negative (and shockingly so!) with mining (?) and publishing taking huge hits as well.  Management consulting is the all-star so I guess it’s time for me to freshen up Delphi Consulting again!:

    Recent substantial increases in the price of crude oil and other energy products have had a significant impact on American consumers. These increases have been, and continue to be, a matter of intense focus at the Commission due to the key role that futures markets play in the critically important price discovery and risk transferal processes. The CFTC shares the concerns of Americans and Congress, and is committed to ensuring that the nation’s futures markets operate fairly and efficiently, and that the price of crude oil and other energy products is determined by the fundamental forces of supply and demand.

    The CFTC has undertaken a wide-range of actions to ensure that the energy futures markets are operating free of distortion. The following links highlight the various energy markets initiatives and related background information.

    That will be nice if they are serious about it….  This chart shows how REAL hedgers have fallen off a cliff since early last year (when oil was $40) and have been replaced entirely by large speculators and other traders – a COMPLETELY speculative market with NO fundamental demand:

  2. Dylan’s show is now on at 4pm every day.  This will be good! 

    This kid has a kick-ass idea!  An IPhone App and device that lets’ anyone swipe a credit card with an IPhone.  Ripe for abuse but a great idea.   

    Vodafone, the fourth carrier in the UK to get the iPhone, had an impressive first day of sales, unloading more than 50,000 iPhones on Thursday alone according to The Independent. To put that in perspective, Vodafone sold 30,000 more iPhones in a single day than Google sold Nexus Ones in a full week

    The German government’s Federal Office for Information Security is warning computer users in the country NOT to use Microsoft Internet Explorer due to recent security scares.

    Good David Axelrod article: This fiscal irresponsibility — and a laissez-faire attitude toward the excesses of the financial industry — helped create the conditions for the deepest economic catastrophe since the Great Depression. Economists across the political spectrum agreed that to deal with this crisis and avoid a second Great Depression, the government had to make significant investments to keep our economy going and shore up our financial system.

    The cost to borrow in the corporate bond market is rising for the first time since November as Barclays Plc, Lloyds Banking Group Plc and more than a dozen other European banks sell record amounts of fixed-income securities to refinance $2 trillion of debt due this year.

  3. good morning Phil. Can I get your thoughts on CHK given the Schork report on current gas delivery rates and decreasing supply? The charts for CHK also look (to me, the unexperienced) like an upward trend is forming. I’m still short PCX at $20.06 and MA at $262.50, by the way. Should I be worried about PCX since miners did well in the UK and there are reports (Bloomberg) that new money is available to possibly purchase mining companies?

  4. Morning Phil;
    Do we make men like MLK these days ?
    Its depressing to see that we are becomming everything he warned us about.

  5. Phil,  I had a 105/106 DIA spread and thought it would wash out. 75% of it did. The other 25% I am now naked and hold DIA stock. Will close out Tuesday in the meanwhile I hedged 25% of the stock that I have via futures sold short.
    Is it better to hedge more?

  6. Axelrod- we’ll start calling this the 2B all inclusive excuse. Blame Bush; Blame Bankers. How novel. Why didn’t someone think of this before?
    Many moons ago while a young pup making my way up the corporate ladder I found myself promoted into a position managing a large operation plagued with problems. After  a couple of months of investigation and "whining’ about how badly things were screwed up my boss told me that if he wanted to continue hearing excuses, he would have left the other guy there. I got the message.
    We shall see, come November, if the bosses have grown weary.

  7. Anyone:  Phil refers frequently to the 5% rule ("The 5% Rule rules"). Can someone explain in to me or direct me to where I can learn more about it. I suspect he has written about it before but I can’t find anything in the archives. Thanks for helping a new comer.

  8. jburgess, here’s the education section – - I’m not sure exactly where to find the 5% rule, but I think it’s in there.  I’m searching now.

  9.  Phil…..Here is something you asked me to get back with you on.  PCLN/   On TOS I bought Jan 220 puts last week and sold Jan 210 puts, for, I believe, 4.40 debit.  On Friday the stock was hovering at 209 and I called one of their reps asking how best to close it out.  He told me  "If it stays below 210 you won’t have to do anything.  They will balance out and we’ll deposit 10.00 for each option into your acct."   That’s exactly what happened.  He saved me a good deal of money, as the market makers wanted 8.25 for the spread at the time.  I haven’t determined whether I was charged for this transaction.  I’ve not mastered TOS enough to look at a list of trades and commissions retrospectively.  Anyone know how to do the latter?

  10.  Hi Phil,
    I am a returning member.  It is good to be back…..  Phil, please confirm that you are still maintaining the 100K income portfolio.  I was unable to find information about current positions.  Please let me know where to find this information.  Please also confirm how often the 100K income portfolio is traded on average.  Thank you Phil.

  11. CHK/Llorens – Keep in mind that natural gas is a very local market and that a huge portion of supply is currently shut down (mainly by CHK) to keep prices up.  I like CHK as they control much of the nat gas market in this country and can produce at very low costs (so are generally profitable at any price).  They are great long-term and totally unpredictable short-term.  We shorted them whent they were in the $60s and bought them in the $20s.  PCX is another one we liked low and hated high (BTU is my favorite coal co), now they are in between and a tough call but probably due for a pullback as they are 33% over the 50 dma.    MA also seems due for a pullback but I wouldn’t count on any major downturn.  There’s a lot of M&A talk in the MSM this week and it’s so much that I think it’s just bullish manipulators trying to create some excitement but that always makes shorting a dangerous sport.

    Leaders/Micro – Sadly, we are really lacking.  Athenian Democracy only lasted about 200 years and fell apart over budgetary issues which caused them to pull back on the military and they got their asses kicked by barbarians so really, other than this brief little respite in World history, most great leaders are military ones.  The problem is that since the labor movement of the 20s, the women’s movement of the 40s and the civil rights movement of the 60s all generally taught those in power to just fake it better and placate the masses better.  Marx said religion was the opiate of the masses, which it was at the time but now TV is and it’s on 24/7/365, rather  than just Sunday mornings and our "leaders" are the talking head idiots who collect their paychecks from the people in power —- What’s it going to take to get off this merry-go-round?

    DIA/Foss – I’m not sure what you mean by that.  Was that the Jan $105/106 spread and, if so, shouldn’t you have washed out at $1?  Anyway, try to be more specific of what you actually have and what you are trying to accomplish….

    Axelrod/Pstas – Well I don’t think Axelrod is in charge of policy so you don’t have to worry but I’m sure when you were put in charge you did try to identify the problem and discuss possible solutions before taking action so why be upset with people who fill that role? 

    5% role./Jburg – That, along with many conversations that are useful, were collected in the linked Salvage Play post from the strategy section.

    TOS/Iflan – Cool, thanks.  I’ll have to let them do it next time…

    $100KP/Sgrundahl – Welcome back!  We have a virtual $100KP over at Wall Street Survivor but we haven’t been officially using it for a long time and I’ve just been messing around with it, going 100% short in December (bad idea) and now back to mainly cash at about $60K.  I have to decide whether to reset it or just build it back to $100K over earnings season with some riskier trades but our main focus is on the Buy List, which is kept up to date under the Portfolio Tab with each updates top picks highlighted in bold. 

    I had an interesting discussion with a commodities trader yesterday and he made an excellent point about gold.  There are 140,000 tons of gold in the world and it is worth $5.5Tn at current prices.  There is well over $100Tn in paper currency to back up so it’s pretty idiotic to think that gold will ever fill that role.  Back when the US was on the gold standard, we backed 55% of our currency with gold and now, all the gold in the world could only back 10%.  

    So, in order for us to back cureency in gold, gold would have to shoot up to $10,000 an ounce but the problem with that is that most (60%) of that 140,000 tons of gold is still in the ground and held by several mining companies, who would become the richest and most powerful people in the world by NOT selling gold and just keeping what they had (about 2,500 tons a year is produced from mines, which would be $1Tn a year at $13,000 an ounce.). 

    So to make gold the new gold standard for currency would make ABX, with 140M ounces of reserves, a $2Tn company (now $39Bn) so that’s a better long-term bet on gold than gold is since gold going up 10x would send ABX up as much as 50x.  Obviously, that’s very silly and not likely to happen but, if we see Bill Gates buying gold mines – then we know it’s time to back that horse too! 

    The other issue that makes assigning gold, or anything else, high values silly is that, while there may be $5Tn worth of gold floating around, an ounce of gold is worth just 16 barrels of oil at $80 but there are 31Bn barrels of oil produced each year at $2.5Tn so all OPEC has to do is buy up all the gold in the world (and only $2Tn worth of gold is currently out of the ground), effectively trading it for a year’s worth of oil and then THEY would have all the money in the world. 

    So, sorry gold bugs – gold is not money, gold is not the ultimate reserve currency – gold is just a thing that has a finite supply but there is no more logic in holding gold than there is in collecing old baseball cards or comic books or anything else that can’t be infinitely replicated.  Ironincally, the more of you yahoos that keep buying physical gold and holding it, the less inclined "they" will be to let the value rise as it decentralizes the wealth. That’s not to say gold can’t go nuts and shoot up in price – my target for this rally over the long-term was at least $1,600 (possibly to $2,500) but I expected a better pullback off $1,100 (we last bought in at $850) than we have had so far. 

  12. Hello to All,
    Phil this is my second month reading and doing the homework. Been doing options a number of years and working with about 150k. In reading your watch list on Friday I sold 30 puts of INTC @ .79 (wasn’t able to sell the calls but will do soon). Not sure about your reference to the “SOX being up since March and that would be 23.50 for INTC (how does it do that)so it’s a good entry point here” What do you expect from INTC short term and long term? Also long UYG @ 5.98 (per David)for a short term trade and have a Feb Rut credit spread, long the 640 and short the 660 with a credit of 11.60. I would also like to put on an opposite call credit spread as a hedge. Any comments or suggestions would be appreciated. I have been reading you on Seeking Alpha for some time now and I find our thoughts in concert. I have learned much since becoming a member and hope I will be able to profit financially from your tutelage and that of several of your favorites. There are some pretty sharp people making comments. Thank you.

  13. Phil, regarding DIAspread I had 100 contracts of 105 and sold 106 against. Obviously all 100 of mine were exercised, while only 75 were assigned. So now I have 7500 cash from the spread. And 265K worth of DIA stock. To hedge the DIA stock I sold short 3 DIA futures so half my DIA stock is hedged.

  14. INTC/Philit – What I meant was the SOX are up 100% since March and INTC was at $11.75 in March so doubling it would be $23.50 if the SOX are holding 100%.  It’s a simplification because INTC is the tail that wags the dog in the case of the Semi Sector but, either way, we sure don’t mind owning them around $20. 

    My attitude on UYG is it’s a great vehicle to sell against as we don’t feel there’s a tremendous downside so working buy/writes each month is the way to go.  Selling the Feb $6 puts and calls for .60 against the $6 stock drops your basis 10%, which is a 120% annual return if you simply do it consistently.  There are puts and calls to sell at every strike down to $2 so unless UYG drops more than 66% over the course of the next 8 months, it’s going to be very hard to lose on this trade so it’s one of my favorite plays AS AN INCOME-PRODUCER – not as a straight play.   

    I’m not so bullish on the RUT between now and Feb as I do expect a market correction of about 5% (taking RUT to about 610) between now and then.  I’m not sure if you are long or short there because you say credit spread but then say long 640 and short 660 and if you got that for a net credit then please get me a few thousand. 

    For playing the RUT, I like the IWM $62/68 bull call spread at $3 (you can do the RUT for 10x), selling the Feb $65s for $1.  You make $3 at $68 and the 3/31 $68s are .95 so figure you can roll up the caller about $1.50 per month, which is a fine buffer to the spread you’ll make 100% on if successful.  The idea is to make $1 a month selling something and then we won’t even care whether RUT is over 680 or not by next Jan.  Keep in mind that I am looking for a correction though so this is, for sure, a scale-in play.

    DIA/Foss – Only 75 assigned, now I get it!  This is why I buy back contracts on the last day unless I am POSITIVE they will expire worthless (we just had a discussion as to TOS’s reliability on that issue) – assignments are just too much hassle.  Unless you want to be saddled with a quarter million worth of DIA, don’t be a hero, just get back to cash and try again.  You made money on the spread, which is great but don’t confuse that with a sudden wish to go naked bullish on the Dow.

  15. IMF chief Dominique Strauss-Kahn warns developed nations not to get too far ahead of themselves. "Recovery in advanced economies has been sluggish," and premature withdrawal of emergency support measures could send countries into double-dip recessions.

    Jittery bank creditors are trying to reduce their exposure to Dubai World by putting their loans up for sale ahead of an expected $22B restructuring. Debt could probably be sold at 70% of face value.

     Barron’s Roundtable: surprisingly upbeat

    Google (GOOG) confirms it’s in talks with the Chinese government, and says more discussions will be held "in the coming days."

    Financial firms aren’t going to take Obama’s bank tax proposal lying down. Wall Street’s main lobbying arm has hired a top Supreme Court litigator to see if the tax could be considered unconstitutional.

    In a new threat to’s (AMZN) e-books leadership, HarperCollins is negotiating with Apple (AAPL) to place its e-books on a tablet device – all but certainly the "our latest creation" Apple cites in inviting reporters to a Jan. 27 event. A tablet introduced at that time is expected to ship in March.

    Bloomberg reports that former Treasury Secretary Henry Paulson was “asked” to join current Treasury Secretary Timothy Geithner to testify before the House Oversight and Government Reform Committee panel looking at the pass through payments made to AIG trading partners such as Goldman Sachs and SocGen.  The request widens the probe into what lawmakers have called a “backdoor bailout” of banks that benefited from the $182.3 billion U.S. rescue of AIG. Geithner, who ran the New York Fed when AIG was saved in 2008, agreed to testify before the committee after Darrell Issa, a California Republican, released e-mails last week showing that the New York Fed asked AIG to withhold data about bank payments.”

  16. Seems the fate of humanity lies in the hands of the Fed

    The IMF has their hands full and Im beginning to believe the US is printing money and buying lots of this foreign debt, there really is no other explanation. Hey at least its a plus for our weapons manufacturers and maybe CAT.. shoot i would even toss some X in there too….oops cant forgot AMZN!!

    Albania to issue euro300 million ($430 mln) in bonds

     Spain and Ireland led European governments raising $34 billion from bonds sold through banks this week as countries start 2010 selling debt at the fastest pace on record to finance growing budget deficits.

    Seems every country on the planet is selling debt from A to Z, i cant see this ending well. Im beginning to believe 2012 may very well be the end.

  17. Thank you Phil. To claify my Rut position. I bot the Feb 640 put for 18.45 and sold the Feb 660 put for 30 with a net credit to my account of 11.55 which I called a credit spread, (is that correct?)  What I would like to do is put on a bear credit spread as a hedge or counter position.  Any suggestions?