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Fall Down Friday – Stop the Week, We Want To Get Off!

Boy, when sentiment shifts – it REALLY shifts!

Suddenly nothing is good enough for this market.  A beat from GOOG send the stock plummeting, massive earnings at GS sent the stock lower even before Obama read them the riot act (now called the "Volker Rule").  On the one hand, it’s all an overreaction but, on the very large other hand, it’s about freakin’ time this market finally acted normally and pulled back a little because 10,700 was pretty irrational given the underlying fundamentals

On the whole, we’re loving it as we went to cash last week and played bearish into the drop.  Last week I detailed how we had a great time day-trading in both directions and this week we hit it again with our upside DIA play on Wednesday (a 26% winner on the day) and yesterday I sent out a morning Alert to Members at 9:50 saying: "I am for shorting into this morning spike as it’s nonsense, especially this run in the Nas – most likely it will reverse but I’d like to see a clear move back to resistance first.  QQQQ $45 puts give you great leverage at .56 and you can use $46.20 on the Qs as a stop out, looking for .70+ on the day."  We hit .85 by lunch and pulled it just off the day’s high for a nice 51% gain on the day. 

I point this out both to encourage you to subscribe to our Newsletter (all 19,000 subscribers got yesterday’s free Alert) as well as to emphasize that WE DO NOT CARE which way the market goes.  Yes, I am very bearish on the short-term economy as I feel we are overbought and due for a correction but I also think we are probably OK over the longer term and we are taking advantage of these dips to pick up some long positions.  We are opportunistic players and we are investing along the premise I laid out in my 2010 outlook, which was titled "A Tale of Two Economies" as we see a great divide forming between the top 10% and the companies that service them and the bottom 90% of our population who are in dire straights, as are the companies that rely on selling to the masses to make a living.  

For an example of "Rich Company/Poor Company" just look at the earnings of two ends of the Financial Services sector:  Goldman Sach beat earnings expectations yesterday by 60% ($8.20 vs. $5.20) while Interactive Brokers, who service the "lower end" clientelle, missed by 72% (.06 vs. .22) on 53.3% lower revenues.  This was exactly what we expected as the rich, serviced by Blankfein and Co., got much, much richer last year while retail trading volume (as we often point out) ground to a halt, punishing the brokers who service the masses. 

UNP beat on earnings but had 12.4% less revenues than last year – an last year was AWFUL!  BNI also reported yesterday and their revenues are down 15.8% – this is a recovery?  Just like in the Great Depression – there are plenty of empty rail cars for homeless people to move into.  IIIN saw 33% less revenues, LUV down 8%, XRX down 3.5%…  While people are buying far less commodities than last year, dumb, rich speculators are paying 2-300% more for them and that has pumped FCX’s revenues up 123% – EVEN THOUGH THEY SOLD 21% LESS COPPER!  That’s right, you may feel like you are being fleeced by Wall Street crooks but our dumb mistakes don’t hold a candle to the wealthy suckers who get conned into coughing up their hard-earned cash in exchange for shiny bits of metal at random price spikes while pretending the laws of supply and demand have been repealed.  

Speaking of demand, or lack thereof, we had another disappointing oil inventory yesterday with a MASSIVE 3.9M barrel build in gasoline despite the lowest level of refinery output (78%) since 1987.  Now,  I don’t want to make it sound suspicious but I went to find a clip of the CNBC segment where they,at 3:50 yesterday, gave an oil report which omitted the build in gasoline but, surprise, it’s been deleted.  Also missing from CNBC’s page is the 11 am oil report where they cut the archives at 59 seconds and have no follow-up clip until 11:05

At least I was able to dig up Sharon Epperson’s report direct from the NYMEX at 4pm in a report titled "Oil Tomorrow," surely she will give us the facts…  Oops, no, not a single one.  You would think it’s hard to give an entire 2 minute report on oil on inventory day without mentioning the inventories but Sharon pulls it off like a pro and tells us all about the draw in natural gas.  This is why we call them Criminal Narrators Boosting Crude – if you think the Volker Rule is harsh, just you wait until the Davis Rule on commodities comes out! 

Speaking of rule changes – the Supreme Court has effectively overturned the 2002 McCain-Fiengold Campaign Reform Act that was meant to restrict soft-money donations by corporations and limit political advertising by corporations and has now given corporations sweeping rights usually reserved for individuals.  As Rob Warmowski neatly summarizes: "Already deeply corrupted at every level by influence of private interests, with this decision, the entire political and electoral communications process will be placed directly in the manicured hands of big business. The millions of corporate dollars that once stood between you and your government will be fondly remembered after they are replaced by billions of corporate dollars." 

Next time you think it doesn’t matter what kind of President you elect and what kind of Supreme Court that President will empower, remember this day because we just handed the keys to government back to Corporations.  In his dissent, Justice Stevens wrote: "The Court’s ruling threatens to undermine the integrity of elected institutions across the Nation…  Going forward, corporations and unions will be free to spend as much general treasury money as they wish on ads that support or attack specific candidates, whereas national parties will not be able to spend a dime of soft money on ads of any kind. The Court’s ruling thus dramatically enhances the role of corporations and unions—and the narrow interests they represent—vis-à-vis the role of political parties—and the broad coalitions they represent—in determining who will hold public office." 

Of course the good news is that we already know what we get when corporations and special interests take over the government – ROLLERBALL!  So we have that to look forward to at least…   In an interesting side note, funny how the awful 2002 remake of the movie deleted all references to the evils of corporate dominance over the common man – I guess they had trouble getting the original script funded…  Speaking of lack of funding – Air America shut down in Chapter 7 Bankruptcy yesterday teaching us once again the valuable lesson that LIBERALISM DOESN’T PAY! 

Japan was taken over by corporations long ago and the Nikkei dropped to the 2.5% rule today – something I predicted at 11:59 yesterday, when I said to Members: "Dollar was MURDERED on Obama’s speech.  Now $1.414 to the Euro, $1.624 to the Pound and 90.22 Yen, which is really going to bum Japan out!"  The dollar opened on the Nikkei under 90, which sent that index all the way back to 10,550 (finished at 10,590), wiping out all of 2010s gains in  90 minutes of trading.  This is why we have fun being bears – it’s torture on the way up but then – WHEEEEE!  You need a million reasons to take the market higher but, usually, just one can take it all back… 

Nonetheless we did flip bullish yesterday as we hit our own 2.5% rule on the US indexes at Dow 10,432, S&P 1,119, Nasdaq 2,256, NYSE 7,263 and Russell 632.  Absent of another major downside catalyst, we expect a bounce of at least 0.5% to test resistance to the upside and then we will have to wait and see which way things go but it’s likely we’ll be back to mainly cash over the weekend unless we get some high-volume consolidation today.  On a low-volume move up, we’ll be taking the money and running – which has been an excellent strategy lately.  China held up fairly well with the Hang Seng falling "just" 136 more points (0.65%) but the Shanghai lost a full point as did the BSE but we’ll be keying off the Baltic Dry Index, which has been barely holding on to it’s 40 WMA at 3,077.  Below that spot and we may have a big leg down ahead of us across the emerging markets.  

[GREECE]Europe is down about a point ahead of our open as Greece is forced to get real and offer a whopping 6.6% interest rate in order to entice investors to purchase $1.5Bn worth of bonds they need to sell in order to keep the lights on for another month.  Not only that but they are being forced to do a road show to peddle the notes as Greek officials said they planned to sell the bonds globally, in part because demand in Europe was weak

President Papaconstantinou will travel in late February to market the bonds to investors in Beijing, Shanghai, Tokyo, probably Singapore, New York and perhaps the West Coast, Mr. Papanicolaou said.  If the US had to pay investors 6.6% on our $14Tn in debt, our interest payments alone would be $924Bn a year!  Brave carry traders meanwhile, can borrow dollars and yen at 3% and make a nice $54M a year playing the 3.6% spread on $1.5Bn – not a bad way to play with other people’s money…

We got the good news we expected from both Google and GE but SLB was the disappointment we expected (great for our OIH puts) and even HOG missed on weak demand (not to many top 10% Harley riders).  MCD is another Dow component reporting good numbers (our Happy Meal hypothesis) and a lot of the downside pressure is coming from fear and panic regarding the Volker Rule, which is very likely all sound and fury, ultimately signifying nothing and GS is one of our "buy on the dip" picks as will be BAC and, of course, C who are both banks that are big enough to make money from actually banking – rather than playing the markets. 

Have a great weekend,

- Phil


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  1. Phil -
    What percentage of IB’s customers are retail and what percentage institutional / hedge funds – I always thought they had a large percentage of small size hedge funds – b/c that platform is not for retail traders ?
    Wonder if it indicates small hedge funds going out of business as well as low retail.
    I will check over the weekend – if you don’t know of the top of your head

  2. Phil/EDZ. I decided to let EDZ be put to me last week instead of rolling.  On EDZ (and EEV), I tend to key off of EEM, which is now getting close to the level where it has shown support for the past few months.  So, is there anything better to do than sell some March 5 or 6 calls on EDZ?
    On Bernanke, with the big caveat that I haven’t spent enough time to count the votes (in a manner of speaking, I used to count Senate votes for a living), I think the Bernanke cloture vote will be close.  You have a strange bedfellow combination of Sanders, DeMint, and Vitter, plus Republicans who see Obama suddenly vulnerable and will want to pile on, plus incumbents up for re-election (now worrying about primaries, as well as the general) who will be nervous about the activist tea party movement, plus Brown possibly replacing Kirk by next week (a possible no vote replacing a yes vote), and there is always an elderly, decrepit Senator who can’t make a vote for illness reasons, and there is always a Senator or two holding out to exchange their vote for something.   I’m not suggesting yet that Bernanke won’t be confirmed, but that the first cloture petition might fail, after which there would be some agreement to get more information from the Fed about the AIG transactions or an agreement to schedule a vote on the Audit the Fed bill, and only then does Bernanke get confirmed.  So, I’m thinking of a "market freak out" play in case the first cloture petition fails.

  3. IBKR/Samz – I don’t have the breakdown but DARTs were down 9% and that killed them.  Smaller hedge funds are really just pools of retail traders, the ones with under $100M don’t move markets on the whole and I think those are still suffering from 2008 but I’d love to hear the figures if you can get them. 

    Let’s watch our 2.5% levels at Dow 10,432, S&P 1,119, Nasdaq 2,256, NYSE 7,263 and Russell 632 – those are key for the day and we expect a .05% move above them as a WEAK 5% rule bounce (retracing 20% of the drop) anything less than that for the day is bearish and we may get a nasty sell-off into Monday if we can’t show some improvement. 

    Europe is in a poor mood and they may hold us down until 11:30 regardless and it looks like we may be testing 10,250ish but, if the volume is lower than yesteday, I still want to play a bounce. 

    Will oil hold $75, will Gold hold $1,088?  Silver is testing $17, copper is at $3.30 and nat gas is doing best at $5.72 because it’s going to be cold in January (so silly).

    DIA $107 calls dropped to .50 with a .20 delt so they can go back to .60 fast which means they aren’t worth changing but we’ll keep an eye on them.  For a new entry I prefer the $105 calls at $1.18 with a stop at $1.10, looking for whatever we get at 10,400 (probably $1.50).

  4. When there is joy in the streets……………sell
    When there is blood in the streets ……………buy
    Anyone recall who said this?
    It comes to mind as I look to buy long-term calls in  good companies beaten down by the correction.

  5. CAP
    Thanks for that GOOG 520p/650c!

  6. It was one of the Rothchilds. Althought I can’t remember which one.

  7. Phil    .05% = 1119 X .0005 ?? to ??

  8. JRW – you still holding that tiger by the tail – TNA?

  9. CAP – gotta be lovin COF!

  10. EDZ/Judah – I’d go conservative here and sell the March $5s for .90 as that is a fat return for 60 days.  We had a good run so no need to be greedy, right?  As to Bernanke, that would be a great buying opportunity if we do sell off on that but I don’t think they want to throw us into turmoil over that, I think this is just fluff to stir up panic in the markets (and it’s working!). 

    As a new entry to EDZ I like the buy/write at $5.33, selling the March $5 puts and calls for $1.50, which is net $3.50/4.25 a nice 20% discount if put to you and a huge 43% if called away.

    Joy/Iflan – I don’t know that but it’s a variation on Buffett and anyone else who says "buy low and sell high" – it works great as long as you time it right because joy can turn into irrational exuberance and blood tends to pool larger than you may first think…

    GOOG March $540 puts only up to $13 on that drop (sold at $11.50) and the $530/560 bull call spread is looking very good!  The 2011 $880s fell from $3 to $2 so about what we expected there. 

    Rothchilds/JB – I don’t care which one as long as a get a case of Chateau Lafite from the cellar!  8-)

    Math/B1 – 1,124.60

    Poor ZION – having a bad day.  Very nice for the naked calls we sold. 

    OIH down to $124, also very nice. 

    BRK/B – I hate it when they split a stock and you can’t read the charts!  Another good reason to wait a week for them to settle down.  I expected the buy and hold crowd to want to get out at first anyway. 

    COF broke $39 – Congrats Cap!

    FSLR at $116!  

    BTU March $44 puts are a nice entry to sell naked for $2. which is net $42 if put to you.

    WFR getting cheap yet again and I always like short put plays there.  The March $13 puts can be sold for .70 for a net $12.30 entry, that’s still 11% lower than here.

  11. ss,
    I sold that position this morning, a couple of minutes in for a smaller than it could have been loss; this is why I rarely carry overnight.

  12. BYD is my current casino pick, $8.67 and you can sell the March $7.50 calls for $1.50 and the March $10 puts at $1.60 for net $5.57/7.78 so it’s a pretty bullish bet but they’ve been consolidating for almost a year now and I think it’s time.  I also like the cheap 2012 $10s at $2.25 as a patience play.

    GE (GE): “GE’s environment has improved and we saw some encouraging signs at year-end… Capital Finance is executing well in a difficult environment, earning $0.3B in the quarter and $2.3B. Every segment at GE Capital was profitable with the exception of Commercial Real Estate, which continues to operate in a difficult environment." (PR)

    Oops, oil broke below $75 and gold broke below $1,088.  I have my finger on the DIA $100 puts as a mo play to the downside at $1.19, below 10,315 ONLY and just looking to shave another .20 off the DIA $107.

  13. JRW – tough for me to get a read on IWM under the support levels.  You have any ideas?

  14. HOG and GOOG positions which I enter yesterday just killing my portfolio:((((

  15. CRIS – sold a bunch of shares at 2.52, currently at 2.37.  I am going to pick up some here 1/4 position.  They are in bed with Genetech/Roche, and their cancer inhibitors are doing well in the clinic.  no options unfortunately.  High was 3.7.

  16. Buying a few more regional banks here, and some mining stocks (GOLD, SLW): all with verticals selling the ATM Feb option for a little cover and since premiums are high.

  17. ss
    62.33, then 61,98, and 61.40

  18. /ES coming into support too. I suspect this is a decent buying opportunity, so going long a little SPY.

  19. Lawmakers are debating whether to bring Fannie Mae (FNM) and Freddie Mac (FRE) onto the government’s books, raising the federal deficit by tens of billions of dollars. According to CBO estimates, Fannie and Freddie’s bailout has cost the gov’t $291B to date and could cost another $99B over the next decade.

    Bernanke’s confirmation vote is looking much tighter than it was just weeks ago. With the vote pushed off until next week at the earliest, Bernanke might be confirmed with as little as 69 votes in his favor, dangerously close to the 60-vote minimum.

    Venture capitalists are still proceeding with caution, spending less money and spreading it among more companies. Biotech start-ups continue to get the most funding, with a 7% Y/Y drop in Q4, while clean tech investments plunged 58%.

    Obama’s plan to curb banks’ proprietary trading will cost Goldman Sachs (GS), Morgan Stanley (MS), Credit Suisse (CS), UBS (UBS) and Deutsche Bank (DB) a combined $13B in revenue next year, JPMorgan says. Firm says Goldman will take the biggest hit – an estimated $4.7B in earnings.

    The Bank of England and FDIC sign an agreement to cooperate on resolving distressed banks that have operations in the U.S. and U.K. BoE Governor Mervyn King says it makes sense "so that the toolkit and powers now available to us can be applied effectively to large and complex cross-border banks."

    Stocks so far are extending their worst two-day slide since last June – and for the third day in a row, basic materials are an anchor: U.S. Steel (X) -3.7%; Alcoa (AA) -1.6%; Potash (POT) -1%; Freeport-McMoRan Copper (FCX) -1.7%. Early on, DJIA -0.7% to 10,317; S&P 500 -0.8% to 1,108; Nasdaq -0.9% to 2,246. Crude -0.7%. Gold -1%.

    HOG and GOOG/Tcha – It’s only a virtual loss with a month to go.  The "losses" are all premium, right?  Also, don’t forget you can always roll putters lower to the next month so just look ahead to what makes an even roll and make sure you are comfortable with that target. 

    Speaking of premium – VIX is at 24.12, up from 17.50 2 days ago!

    Still in the DIA $105 and $107 calls and out of the $100 puts as 10,300 is holding up too well.

  20. JRW/SS. Jumped on TNA a tad late as it came off 62.33 support (on at 62.40).  You guys aboard?

  21. Eric – Good call on /ES.  Did you see the support coming from the tops put in in Nov and Dec.

  22. PARD up 10% today on no news?

  23. judah – not yet.

  24. ss,  yeah, there’s just a lot of congestion here from Nov and Dec that should act as some support.

  25. Phil -
    Sold GS 160 puts at 5.70 yesterday – should I roll to march 155′s or just hold on for a while

  26. Market Internals update at 10:30amET – NYSE volume 300M shares, about 17% above its three-month average; decliners lead advancers by 2.2:1. – NASDAQ volume 625M shares, about 27% above its three-month average; decliners lead advancers by 1.5:1. – VIX index +7% to just under 24.00

  27. Phil
    Opinion on short gold futures here?

  28. judah – SPX Feb 980/1180 strangle now 5.70 looks pretty tempting.

  29. ss
    Back in at 62.33 on the way back up.

  30. PARD/Doro – I don’t subscribe so this is all I could get: 

    1. Forward Looking News / Rebound Play  (Premium Content/Subscriber Only Content) … we have confirmed that Poniard Pharmaceuticals’ (NASDAQ:PARD) CEO and President will be presenting some important clinical data in the form of an abstract at this weekend’s American Society of Clinical … is a good place to find this sort of stuff. 

    GS/Samz – I think there’s an overreaction in the financials.  You can always roll next week if you have to. 

    Volume/Steve – Thanks.  Dow volume is 80M at 10:45, 90M at noon is typical prog trading day so not too exciting. 

    That little run-up was very nice though! 

  31. Phil
    what happened with solar? last week SPWRA dropped 20%

  32. Hello phil;
    in your buy list you have a 2012 bull call spread for WFR. how would you start playing that today ?
    any of the buylist stuff look good today or wait a tad more ?

  33. SS. I agree. Are you adding put verticals, and if so, what levels? I’m just looking now at what might cost $1-$1.50.

  34. short stranglers – I’m having a blast selling additional strangles on that dip.  The SPX Feb 980/1180 like ssdirk said is good.  I sold a bunch of SPX March 900/1210.  Strike 1210 was picked as I already have 1240 and those poor callers are down to $0.85, so I need additional downside protection.

  35. David, Two days ago you recomended a to buy the SKF for a day trade I set it up as a call bull spread doing very well so fare

  36. Peter, judah – do you like SPX Feb 1050/1040 for 1.10 debit with the 1180/980 strangle for 5.50 credit?

  37. ss, judah / IWM
    Target is north of 63.60

  38. HI, phil, on Google, I sold Feb. 580 puts and bot March 570 puts for a credit of 10 cents yesterday, not about the same,
    and it pays big if Google creeps up to 580 by Feb. expiration in 4 long weeks..  do you like this trade?
    and are you playing SRS anymore ?
    and what about selling the FAS 72 puts for Feb. not a bad play with it down so much and you can buy the Feb. 70 for a put call spread

  39. Peter – when you look at your strangles of TOS Analyze Risk Profile do you look at all months combined or do you seperate them?  For me, looking at them combined makes the curve look a little strange.

  40. somebody must be pushing that HOG. & up hill at that.

  41. Gold/Humvee – Too dangerous here.  Our range on Gold is $950 to $1,250 and we’re too much in the middle to make plays, especially in super-volatile futures.  ABX held $36 so far and you want to take them seriously as they probably know something.  I was all over the GLLs as $1,150 and up because that was a nice, clear place to short and even then people were freaking out as they dropped lower (rather than scaling in at the discount).  It’s all about being patient and waiting for really good spots.  I think, on the futures, I’d rather go short on Copper if they hit $3.40 again (now $3.33) or on a break below $3.30, using that as a stop line because you can fool people into buying gold but copper needs to be stored in very large warehouses. 

    Solar/Tcha – German subsidies in doubt, Obama has no concreat plan to boost solar and oil is coming down in price.

    Buy List/Micro – On the whole, I’m waiting.  We’re not getting our 0.5% bounce today (now 1.25% up from here) and that means we are super weak going into the weekend even if we do stick it in the afternoon.  WFR I just put up a play to enter above but you can take a chance and grab the 2012 $10s at $5.50 and look to sell the $17.50s, now $2.40 for $3+ for a nice spread

    DIA $106 calls seem too cheap at .86 (because the $105s are $1.27) so I like them!

  42. Phil,  Do we still like the XLF Feb 14 puts for .30?

  43. JRW, Thanks for the lines this morning. I owe you a bottle of wine at least.  Can you tell me what method you typically use to derive the lines, so I can fish from this stream instead of asking you for fish every morning?

  44. judah – LOL.  I agree.  I would love to fish like JRW – Money.

  45. ss,
    The 1050/1040 vertical is okay as there is a chance that they get into the money, and also a chance that you can sell off the 1050.  Offer $1 and see if you get it.
    TOS Analyze, I look at all months combined, then I see individual months.  The plot does look funny with multiple months, but the breakeven points are usually accurate.

  46. Phil,
    Thanks for the AU  advice

  47. SS/strangles and verticals.  I think that’s right.  I may try a bit higher on the verticals.  The spreads are so wide that I can’t make sense right now as to what is possible, so I may put in a few low bids on the verticals higher up.

  48. Speaking of Commodities:  Faber in his doom, gloom and boom report suggested buying wheat since it was at such a relative low; wheat has dropped nearly 10% in January.  Is that something you have an opinion on; I’m not usually into the soft commodities, but did well with sugar last year. 

  49. Phil if my covers have a lower delta than my long puts – should i be looking to roll down my long puts?
    .63 for longs / vs .50 for short covers

  50. GOOG/Dman – Yes, I like those trades as they often do very well once the premium runs out.  Best not to be greedy though and be thrilled to make $5-10 if you can.  SRS is simply too annoying to play so I don’t bother anymore – there are better things to do than scalp nickels while I wait for CRE to crash.  I switched to shorting VNO at $70 (worked every time so far) and shorting the IYR as the puts give you plenty of leverage so you don’t need the ultra.  With the VIX climbing (if it continues) SRS may bet interesting again.  FAS I would not touch with a 10-foot pole as Obama can move them $10 one minute and Barney Frank can move them $10 the next and sometimes I like to be able to go to the bathroom without wondering if I’m getting killed in the 30 seconds I missed…

    XLF/Stock – Yep, it’s about the net entry of $13.70, which is both fine and dandy! 

    Speaking for Barney Frank – now he says let’s tear down FRE and FNM altogher – fun, fun, FUN

    Wheat/Humvee – I think all commodities are overpriced except wood, which I predict will be the next bubble.  Generally Ags are not my thing as they are dead boring.  

    Rolling/Samz – I don’t like rolling around for no particular reason as you are probably going to lose 3-5 cents on the roll spread so it needs to be REALLY worthwhile.  As long as you are full covered, it should be fine. 

    The "Volcker Rule" plan to separate banks from proprietary trading makes some to-be-sure exceptions for market making; and therein lies the enforcement problem, because the line between the two is awfully fuzzy.

    After cutting flights, American Airlines (AMR -1.9%) will lay off up to 175 pilots starting next month, with a possible second round of furloughs in the spring. In addition to weak demand, fewer pilots than expected are retiring.


  51. Phil – never mind on the delta questions – stupid – I should buy another layer if i want and set a trailing stop – following your early am post – sorry to be a pest

  52. Phil
    I have BAC spread Jan12 15/22.5, may be roll 15 to 12.5 for $1.2?

  53. ATVI/ with the stock now at $10.55, Phil can you recommend a buy/write strategy.
    Your watchlist strategy includes a 2011 $7.50 CALL and for some reason I can t find this strike on IB.
    Thanks for the ZION trade yesterday

  54. judah, ss / Fish
    For that, I might need a bottle of wine, or scotch; I take the one and six month charts, set the high point support / resistance levels, and then overlay the current trend lines. It may just be easier for me to offer the " poisson de jour "

  55. Got most of my money back with PCX but didn’t have the cojones to stick with it. Thought a bird (or a small pair, apparently) in the hand was worth getting back close to even. Yesterday was ugly so I’m happy to be here now. Got back into S this morning at $3.46. Also picked up Dell and small amt of AAPL at this level. DD’ed C yesterday with new basis of $3.37. I, too, think the reaction to Financials is an overreaction.

  56. Phil, what do you think of EXC at this point, post earnings?

  57. FNM and FRE down on Barney the Dinosaur’s remark this morning, but I don’t think they’re going anywhere after the recent Govt statement saying all losses, regardless of size, would be covered for the next 2-3 years, right?

  58. phil, i like the FAS put sale at 75 Feb level, cause you have lots of places to run if needed

  59. judah, JRW – yeah, those tops put in in Sept, Oct put in great support for todays bottom on IWM.  Should have seen that.

  60. The Obama boy scouts in Washington are still trying to trying to figure out how to light the camp fire, while half of them are peeing on it. This whole political experiment is heading for the trash heap. I am now 80% in cash and looking for more stuff to close out. This is not a market – it is a Haitian gambling casino. With Volker calling the shots, TBT is looking very good, and everything else is questionable.

  61. Thanks Phil! for the long response on yesterday’s post. Just about to get on a flight but plenty of things to digest for the morning :)

  62. Gel-Boy Scouts- Hey, that’s a slam on a venerable institution. :)
    I prefer the image of hippies in Brooks Bros. costumes and the hopium bong is empty.

  63. Such a political football Bernanke has become.  MA has lit a fire under the dems.  If Coakley would have won none of these dems would be jumping ship.

  64. pstas – lets dont start gettin personal :) Jumpin from one ven inst to another

  65. BAC/Tcha – I like that roll down but don’t chase it.

    ATVI/Lionel – There certainly are 2011 $7.50 calls (VENAU) and those are still good to own at $3.50, selling March $11 calls for .40, which is $3.10 on the $3.50 spread, which is not a bad way to start.

    PCX/LLorens – Smart play, cash is king in this market.

    EXC/Hanna – The earnings were not good but they could be nice long-term if theyget back to $45 and hold it.

    FRE, FNM/Llorens – Take nothing for granted.  Something is up as the Dems are rallying against Bernanke now. 

    FAS/David – True you can roll and roll so not so bad as long as you have the margin to spare.

    Boy scouts/Gel – I think you are giving them too much credit – this is a total disaster and getting worse. 

    No problem Ajay, you just have to catch me in the right mood to pontificate!  Have a good trip.

    Finally a guy who can do math!  Nouriel Roubini doesn’t see Chinese consumers buoying the global economy any time soon, saying it will take "a decade, if not a generation" before they’ll have a meaningful impact. Consumption accounts for just 36% of China’s GDP, vs. 70% in the U.S.

    The eurozone is talking tough on giving no bailout to Greece, but would it really allow a default? Danske Bank (DNSKY.PK) thinks not: It would likely be “highly contagious and would undermine the whole project.”

    Talking with Republicans about Fannie Mae (FNM) and Freddie Mac (FRE), House Financial Services Committee Chairman Barney Frank says the panel will probably recommend abolishing the agencies, which have received nearly $111B in taxpayer aid since their seizure.

    Southwest Airlines (LUV) up 1.6% on an upgrade from Raymond James, to Outperform. The firm raised Southwest’s 2010 expected earnings to $0.55 from $0.25, saying it would benefit from smaller industry capacity, more optimal routes – and passengers escaping bag-check fees at other airlines.  Not to mention passengers escaping from America when it all hits the fan – too bad SW is regional… 

  66. JRW/fish.  If you are supplying, Phil should give you your own color.  I’ll take the quotidien fish and see if I can replicate your lines at the same time.  Sold half when we couldn’t hold 63.  Selling the other half if we don’t hold 62.5, but hoping to break back up.  Let me know where to send the Scotch/wine. :)

  67. I’m short JPM Feb 41 put sold at 50 cents and long Feb 43 call at 2.70 and I already bought back my short Feb 45 call sold at 1.60 for 20 cents. This was an earnings play from last week. Would you just sit tight on this?

  68. Market Internals update at 12:00pmET – NYSE volume 520M shares, about 15% above its three-month average; decliners lead advancers by 1.6:1. – NASDAQ volume 1.15B shares, about 25% above its three-month average; decliners lead advancers by 1.2:1. – VIX index +2.25% to just under 23.00

  69. Phil,
    I closed out Jan. BAC straddles sold against a long position a couple of weeks back, just as BAC began to pinball back and forth.  I’ve stayed out since waiting for BAC to settle down a bit so I wouldn’t be rolling every other day.  So far it seems to have been a good call.  Do you think selling the Feb.15′s now is a good move.

  70. Cap,
    Are you having problems on Schwab Street Smart charting ?

  71. A trickle of Bernanke no-votes from the Democratic caucus starts to turn into a stream, as Sens. Barbara Boxer and Russ Feingold say they will vote against the Fed chairman’s reconfirmation, joining Byron Dorgan, Jeff Merkley and Bernie Sanders.

    So far, this is the nice, decent-volume consolidation day that I wanted.  We do really need to take back those 2.5% levels though….

    HOV 2012 $2.50/$5 bull call spread at .95, sellling $2.50 puts for .70 is net .20 on the $2.50 spread that’s $1.30 in the money and put to you at $2.70 (30% off) if below $2.50.

    ISRG March $300 puts at $3.70, stop at $3.30 (ISRG $342.50) just to be a contrarian after a big run.  I love ISRG and they had great earnings but that hasn’t stopped them from diving before

  72. Cld the Dem’s b using Bernanke as a "football" in payment  for the MA loss & the way it was done? I don’t get it unless it is straight out retribution againt the Reb leaving them with such a horrendous mess to wade through & THEN blaming O.

  73. Phil/Bernanke.  As I was saying earlier, look to the incumbents who are facing re-election--Boxer, Feingold in your post just now--they all want to vote "no" on Bernanke now.  On the Dem side, there are a lot of nervous incumbents, and on the Repub side, they don’t want a primary challenge and the tea party folks are threatening primary opponents against Repubs like Bob Bennett, so he can’t vote for Bernanke.  Don’t underestimate committed groups during the primary process, incumbents hate to face primary challenges because it bleeds them.  The math for Reid finding 60 votes gets tougher, because he can’t ask his vulnerable incumbents to take the hit.  Suddenly the "Audit the Fed" crowd has a lot of leverage.

  74. 1105 is trying to act as support on the intraday  /ES. If it can’t hold we may have another trip down.

  75. JRW- I’ve been shit down on StreetSmart three times today already

  76. sorry.  Meant to write "shut" down. 

  77. JPM/Roast – Since they own a bank, they are going to be wild until things settle down a bit.  They held support pretty well so I’d stand pat or spend .65 to roll down to the $41s at $1.12 and, if you have problems next week, you can sell the $42s, now .75 and roll yourself to the March $41s, now $1.65 (and the putter can be rolled to the March $39 puts around even once they worl off some premium).

    Internals/Steve – Finally some volume 2 days in a row.  VIX calming down is a bullish sign.  Dow volume at 12:30 is 128M – pretty good for them.

    BAC/Bass – They are down on panic over nothing at the moment, I’d hang tight as they either move up from here (and then you can sell) to retest $15 or they fall and retest $14, which is a good roll/DD spot. 

    Goldman Sachs (GS) has reportedly closed its limping Global Equity Opportunities quant fund after it shrank to $200M in assets from $7.5B. The bank and big investors injected $3B into the fund in August 2007, a month where it lost 23%.

    Since the Great Recession began in 2007, some 8.6 million jobs have been lost, according to the bureau; and small businesses, the normal source for new jobs, are still shedding workers. Fewer than 10% added employees, while more than 20% cut back—and the cuts averaged nearly twice as many per firm as the hires at the expanding companies.  Unemployment, in short, has graduated from being a difficulty, a worry. It is now a catastrophe, with some 15.3 million Americans out of work, according to the BLS… 

    Bernanke/Judah – I wouldn’t mind getting rid of him if there was a better idea but there isn’t. 

    IMAX doing well regardless.

    10,400 still looks like the finish to me but that won’t be up enough to give us a bullish signal as we need 10.432+.  That does mean I like the DIA futures, now 10,300, using 10,300 as a stop line.

  78. Sounds to me like you used the word you really meant! LOL

  79. jcmcn5
    I know how those things slip out ! Mine seems to be back to normal but WTF ?

  80.  JRW…where are you in IWM now?

  81. STD coming back as well.  Bought in a 1/4 position on the dip, and see what sticks next week with regards to levels.  STD pays a nice dividend and hegdies are buying up shares. 

  82. Yeah Phil, thank you for the DIA post this morning in yesterday’s chat, very helpful!

  83.  Phil what to do w/ my loser IWM and DIA calls?

  84. Phil/better idea.  Volker’s lining up support to replace Geithner or Bernanke. ;)

  85. Very telling Freudian slip Jcm! 

    FTSE bounce of good old 5,250 today and finished at 5,302 but the DAX failed 5,750 and could only get back to 5,695 so very weak there. 

    Dow futures fell to the wrong side of 10,300 so no futures trade yet.  10,251 was the LOD on the futures and that’s right about 10,300 on the Dow and if we don’t turn back up there it could be a messy afernoon.

    Volume is high for the day but has slowed to levels that are very stickable (less than 20M per hour).  Yesterday the volume stayed strong all afternoon and we had no stick – no we’ll see how it goes in low volume to see if Mr. Stick has truly foresaken us…

    IWM, DIA/Big – We’ll have to see what happens into the close but it’s early enough in the month not to worry too much.  You can cover to neutral into the weekend if you don’t want to risk it – I’m reserving judgment for the moment. 

  86. Big,
    $42.50, I got in at 62.33 on IWM on the way back up.

  87.  Phil,
    If FRE and FNM are abolished what do you think the impact would be on AGNC if any?

  88. What’s the deal with Nat Gas – up $0.20 since yesterday and Oil is at $75, Gold rejected at $1100.

  89. STD/PHARM-- are you moving into the position long stock, or moving in using options. Would you share more detail? Or did I miss an earlier post? Thanks

  90.  JRW maybe 3rd times a charm for IWM…if it ends positive today will you hold over weekend??

  91. BigPinot,
    Absolutely NOT !   BTW I live in Sonoma county CA, where’s your pinot from ?

  92. Phil:
    have VLO stock, base 17.29$,
    have putters feb 20, nothing else,
    what adjustment if any ?

  93. Volker/Judah – I’d love that but he’s too old and not senile enough to think he wants Ben’s job.

    AGNC/Jc – I think they benefit but FRE and FNM won’t be demolished but restructured but anything that diminishes their role in the process is good for lenders like AGNC as an alternative source. 

    Nat gas/Stj – It’s gooing to be cold next week and Futures traders are essentially day traders who react to weather forecasts over long-term fundamentals.  

    Sector ETF strength: Homebuilders– XHB +1.2%. Gold Miners– GDX +1.2%. Healthcare Providers– IHF +0.9%. Biotech– IBB +0.6%. Retailers– RTH +0.2%.

    Sector ETF weakness: Solar– KWT -3.2%. Silver– SLV -2.6%. Semis– SMH -2.6%. Oil Services– OIH -2%. Commodities– GSG -1.8%.

    Treasury futures are trading flat ahead of another round of auctions next week. The dollar’s largely down: -0.5% against euro, +0.4% against pound, -0.3% against Swiss franc, -0.6% against yen, -0.3% against Aussie dollar.

    HPQ (down $1), IBM (down $2) and AXP (down $2.55) doing the most damage to the Dow today.  Only GE, KO, MCD, PG, TRV, VZ, WMT and XOM are green and just about $3.25 between them (26 points). 

    VLO/RMM – I think it’s fine.  They have lots of room to run up but next time they are up over $19 you need to seriously consider selling some calls.  If they fail to hold $18.25 then you have a problem.

  94. Phil, Despite having a mattress, the SDS and DXD disaster positions you recommended plus covers on all my longs, I have gotten killed the last few days in the market  (I have some good size long bets on BAC and GS). I realize now that my mattresses and short plays were not sufficient for my portfolio size. I am now tempted to beef them up today, but am wary of even losing more if we snap back up hard next week. Not feeling so confident in my judgment today, so I just want to hear from you what is a good thing to do in this kind of situation based on your experience over the years.

  95.  I like Burgundy, otherwise I used to like Flowers, but quality is lousy now, and since I lose money every day in the market,    I prefer La Crema Sonoma Coast 2007 at 1/4 the price. Mostly S.C. actually, but sometimes Oregon, Santa Barbera, NZ.       I have a locker full of DRC, Vogue etc.

  96.  Phil, Sunshine Profits chartist looking for second downward leg of PM correction.

  97.  JRW..I am getting scared w/ these IWM calls…does that mean IWM ready to go up? What do your tea leaves tell you?

  98. Peter – What do you think of rolling my SPX Feb 1210 call to 1180 for 1.20 credit?

  99. hey phil, i’m still long feb DIA 106 calls and 100 puts. Equal. What you think? Keep over the weekend or get rid of one. I also have about 30% of portfolio in long positions….rest is cash.

  100. Obama on TV everyday, if things were so great he would be playing golf….. like Bush. ;-)


  101. I wish this guy would stop spooking the market Maby montesuma revence would help him to clear his brain

  102. Big,
    How did you know that I drink tea in the morning ? I think we go up from here, but don’t know if we close at our high. I like Burgandy as well, Pommard is a favorite, as to Oregon, the best they have IMO is Loraine from Domain Drohan.

  103. SS, got my 1180/980 strangles filled.  Did you get the vertical filled as well?

  104. judah – just the 980/1180 for a buck 50.  Just missed the vertical at 1.05 now 1.70.

  105. STD – bought the stock.  Ex-div is 27-Jan.

  106. judah – sorry, 5.50.

  107. Hedging/Bord – The disaster plays will do better as the mature if the market does not come back but it’s very hard to judge if we are at a bounce point here (down 3.5%) or if we are on the way to 5% or lower.  We’ve all been well conditioned to fear going short into the weekend but, from a technical standpoint, that would be the logical play if we are still below 10,350 at the close.  I think trying to get yourself more neutral into the weekend is key as it’s much easier to manage yourself from Mon-Fri than it is from Fri-Mon.   You may "lock in" some losses but if you feel you could fight back from here given more time, then you will be locking in your ability to fight back starting Monday.

    Sunshine/Big – We sold hard into Obama as people fear what he would say.  Maybe a relief rally once he’s done to coincide with 2:30 stick but, if not, maybe time to go with the bearish flow

    DIA/Hanna – It seems pretty neutral (a bit bearish) and I think it is fine over the weekend, better than selling and taking hits on both ends and then paying a spread to re-enter next week.   Cash is very good!

    BIDU $420 – as bad as GOOG.

    ISRG ran up and stopped out the puts.  Very annoying!

  108. Phil, I’m still in EXC 2012 60 calls after selling the 40/30 bull put spread for a net debit of $0.45, but the calls are way underwater… I still like them long-term and think $60+ is realistic with decent economic activity, industrial demand, normal weather, etc. by 2012, but I wonder if/how you’d adjust that at this point? Even if I have conviction, is it worth paying $2.50 to roll down to the 2012 50s? And which near term calls if any would you cover with, and what percentage of the longs? Thanks.

  109.  Phil, went long TBT June 48.

  110. Nothing summarized how messed up this country is more than a sharp drop in the indexes when Obama says he wants people to have jobs…   They didn’t mind the Health Care comments but putting people to work is the last straw…  Now bank talk is really hurting.

    Still nothing new so far so how many times can the markets freak out about the same thing? 

  111. ss, sorry, just back from meetings.  SPX looks iffy with the bankers going down, so rolling to Feb 1180 is relatively safe.  The last high was around 1150, so there is still a 2.8% or so cushion if we get back there.

  112. Obama’s advisors should tell him about overexposure; on second thought, they probably do but he can’t help himself.  Sometimes it’s best not to say anything and remove any doubt about one’s ignorance.

  113. JRW, Broke my line, I’m out with my small profit.  Good luck.

  114. Hi Phil : I’m short ABX feb. $38 and $37 puts at $1.06 and $.86,now $$2.26 and 4.70 respectively for net loss of $2.04 Double down on the March $35 puts for $1.50 ?
    dflam .

  115. Looks like path of least resistance is down.

  116. Now 90% out of the market. When the President of the US declares a war on the banking system and the financial markets, then what more could bring on a severe correction. That is the way I am playing it. Why declare a war on Wall Street, and at the same time refer to the terrorists who are also trying to kill our financial markets as " incidental aggravations"? I would call this a severe case of rectal-cranial inversion.

  117. gel1   lmao

  118. EXC/Fein – So you only have the 2012 $60s now?  Well for sure I’d spend $2.50 to roll down $10 to the $50s.  You can pay for that with a 1/2 sale of the 2012 $40 puts at $4.50 if you want.  Doing that roll is a patience play for now as the premiums are too low to give you a good price on the $50s at the moment but 2012 is a long way off so there’s time for improvement. 

    CNBC will now decide which questions and answers you need to hear from Obama’s continuing meeting….

    TBT/Big – Well we have to compete with Greece offering 6.6% interest.

    Investors are more pessimistic about the U.K. than any other major economy – 66% negative, a Bloomberg poll says. The negativity extends to Prime Minister Gordon Brown, who finished next to last on a list of nine political, economic and financial figures, ahead of only Sarah Palin.

    Gold’s pulling back again (futures currently -0.7%), and one reason isn’t getting too much play: Maybe gold bugs got way too bullish to start the year – with a sample of recommended gold exposure jumping to 60.9% as of early this week, from 10.9% at the year’s start. (ETF: GLD)   Gee, ya think?

    Dow leaders: GE +2.2%. PG +1.3%. MCD +1.3%. KO +0.6%. WMT +0.6%.
    Dow laggards: AXP -6.9%. AA -4.1%. INTC -2.9%. BAC -2.5%.

    ABX/Dflam – As long as you REALLY want to own ABX at $37 or less, then what do you care what the apparent value of the puts is.  In no case whatsoever can they do anything worse to you than have you owning ABX at net $37.  Look where ABX is, you are very likely buying high after selling low unless they violate that channel (which has held up since last April).   Gold is holding $1,088 so far (shaky but holding) and you have a whole weekend when we could have Rent-A-Rebel attacks and it must have been at least 90 days since Iran said something stupid and sub $75 oil is usually their cue.

    Good commodity overview.  Note wheat and corn in bottom of channel, Copper still high despite silver and gold testing the bottom of their channels (which is why I like them for a short).  Nat gas also unrealistic but that’s a short-term weather thing. 






    Union Pacific Corp., Burlington Northern Santa Fe Corp. and CSX Corp. — the nation’s top three railroad companies — all say demand for coal, once a lucrative segment, is slumping as U.S. factories and homeowners use less electricity.   "Until employment shows some signs of improvement, you’re going to have consumers stay on the sideline, and I think it’s going to be pretty tough to see any kind of a strong recovery," Union Pacific Chairman and CEO Jim Young said in an interview with The Associated Press on Thursday.

    . Freeport McMoran & Gold (FCX) reported earnings yesterday and they had an interesting blurb which really looks not at all different than the railroads above.

    • We still need to wait to see the fundamental numbers improve in the U.S. Copper demand in the U.S. is highly correlated to industrial production," he said, noting weakness in the housing and construction sector.
    • "We’re going to need to see some fundamental industrial production growth in the United States to justify going out and starting major projects or restarting curtailed production."

  119. Phil, yes ISRG is rising (and annoying) and hard to see how it is doing so well in such a lousy tape! Good company and good report but 13%??? Is it worth reloading at these higher levels or give it a day to relax?

  120. LOL gel. Wall Street — IBs, rating agencies, insurance agencies, and so on long ago declared "war" (i.e., suckered) most of the rest of the country. They sold securitized debt packages to school districts, universities, municipalities, counties, states, and many others that they knew were highly dangerous and presented them as "AAA" rated and safe (while simultaneously betting against them behind the scenes). They constructed complex interest rate swap agreements that sold as ‘safe’ to the same customers that were in fact highly volatile and imposed onerous and brutal exit conditions on them They fabricated complex bond auctions that they presented as ‘safe’ (since they implied they would themselves be buyers if there weren’t others), and then ran as soon as things went south, leaving their customers screwed.
    On and on and on. I would love to see these banks cut into little pieces and sold off,  although I seriously doubt any of this will come to much.

  121. Phil, You playing any kind of stick save in the last 90 minutes?

  122. Phil,
    So you still think we close at 10,400 ?

  123. Looks like an inverted stick now!

  124. phil : thank you for the reality check. The 3 down days cloud my rational thought

  125. Phil/EXC – I still have the 2012 40/30 bull put spread too. So that said, you’d still roll down the 2012 60s to the 2012 50s I’m guessing, but what, close the spread and just sell 2012 40 puts or what? Thanks!

  126. ugly. very ugly.  do we have an SMN play at work?

  127. Um. Down we go.

  128. ISRG/Ocelli – I think it’s worth taking another whack.  It’s the kind of play where you can lose .25 4 or 5 times but then make $3 when it finally hits.  March $300 puts are still $3.50  so hardly a difference.

    Finally testing 10,250 – hope it holds!  

    Ratings/Eric – You are right, it’s amazing that the people who pulled a scam, ripped off the American people for Trillions of dollars, bankrupted the country, got caught and then rescued by the same people they screwed are now telling us it’s unAmerican to regulate them.  I am so sick of people wrapping themselves in a flag to justify whatever they feel like doing! 

    Stick/Judah – Sure off 10,250.  Volume is 179M on the Dow though so higher than we usually see for a stick by 30M but I still like the DIA $105 calls at $1 as they were good to us before and I think 1.25% should hold (it was what I said yesterday would be the worst-case today).

    10,400/JRW – Looking kind of far away now!  Not likely…

  129. HOG !!!

  130. ITMN also did another offering of commons at 14.1.  Stock is currently at 13.68.  Selling Mar 12.5 P for 90c.  FDA decision in April……

  131. 10250 holds, i hope not…VXX…i do fear the stick but sentiment has def turned negative and that gives me the confidence to hold

  132. DD on AAPL and Dell – looking for the stick up from here. Plenty of panic out there so the big names should be good to pick up here.

  133. llorens, agreed.
    Front-month ATM options on those have crazy premiums on right now (relative to recent past), so I like selling them and buying lower strikes.

  134. That’s call verticals, I mean (or short put verticals).

  135. I don’t want to get too far off subject here, but when we talk about how Wall Street stole money  through securitization schemes, let’s not forget that the biggest player/beneficiary of that game was FRE/FNM and their political enablers.  No one’s going after them.  They’re just going to retire to cushy consultancies, ambassadorships or Irish cottages.  And as for ripping off the public, look no further than Detroit.  At least the banks paid back the tarp money.  Bottom line is that if you attack Wall Street, don’t complain if the market goes south, fast and hard.  Surely that’s something we can all agree on.

  136. FSLR broke through it’s support of 115. Now at 113. Is it going to it’s March lows of 100?

  137. I can’t believe QID over $20. that’s like seeing a Dodo bird or carrier pigeon….never expected to see it again. Congrats to those (if anyone) that stuck with QID through the low $19.20′s.

  138. from CNBC… "The Dow is now on pace for its worst 3-day losing streak since the beginning of March."

  139. jcm,

    TARP was paid back but it’s largely a red herring. These banks received far larger indirect bailouts through things such as the Fed’s countless swap programs which takes their largely worthless RMBSes and CMBSes at par (which has been a massive program), low interest rates that only banks benefit from, interest paid to banks who deposit their money with the Reserve, the federal bailout of the worthless AIG CDSes at par which saved many of their asses, and frankly FNM and FRE themselves, which as buyers of lots of over-rated mortgages from the banks who sold them, enabled the whole banking scam. That’s likely a $1tn+ tab for the american public right there, depending on the ultimate default rate of the underlying securities.
    I’m not defending the Detroit bailouts, either, btw., but they are small potatoes next to what the banks received.

  140. RMBS doesn’t care that the rest of the market is selling off. 

    EXC/Fein – Sure, the 4:1 payoff roll is a good idea regardless.  As to the spread, you have the $30s at $1.60 so maybe put a .25 trailing stop on them so you flip naked on a move up.

    SNM/Jcm - Well we have the Apr $10s, now back to .55 and looking good but I wouldn’t chase them, they were .30 the other day!

    Two outlooks on the Obama bank plan’s chances: It’ll get approved, says Meredith Whitney. There’s "zero chance" it’ll pass, says Economics of Contempt.

    President Obama – juggling a few different agenda items this week – expressed confidence that Ben Bernanke will win reappointment before his term is up Jan. 31. Meanwhile, Senate Majority Leader Harry Reid is officially undecided about which way he’ll vote. Approval requires a simple majority, but it’ll take 60 votes to bring the nomination to the floor. (earlier)

    She breakin’ down captain - I canna’ hold ‘er together much longer!

    SOX off 4.5%, Nas down 2% and others between 1.25% and 1.5%.  Finishing down 1.25% indicates another 0.75% in the next session and even a 1.25% move all the way back to the 2.5% line still won’t be bullish so this puppy is probably going down!!! 

    We do not have much time to flip this now, maybe a 10 min grace period before this looks like a pause rather than solid support. 

    Everything is selling stupidly, even great things that have already given positve reports like GLW, SNDK, LULU, IBM, BA, JPM – just silliness to some extent but there are also so many stocks that are priced way too high as it’s easy to see how the tide affects all ships – should make for some excellent opportunities next week.

    The Economic Cycle Research Institute’s leading indicator reached 132.2, the highest point in a year and a half. Annualized growth for the index, however, slipped to a 19-week low of 23.4%.

  141. Phil -
    At what point to we roll our covers out? It’s really tempting to roll out and set up a nice big diagonal spread?

  142. Monday / Phil – What is your outlook for Monday? Given that we have been falling for the last couple of days? Can we get a bounce on Monday?

  143. Eric — there wouldn’t have been a market/buyer for all the crap if FNM wasn’t on the other side of the trade half the time, and they were given the green light to buy, buy, buy.  Hell, they’re still being given the green light by Geithner as we saw on Christmas Eve.  The only point I’m making is that if you want to blame Wall Street, fine.  I don’t work there and Lord knows there are enough villains there.  You cannot however pin the blame on them without reserving an equal amount of outrage for the gov’t crooks who will ALL walk away scot free from their crimes.

  144. Phil/RMBS.  Won a decision against NVIDIA at the ITC.  As far as I’ve ever been able to tell, RMBS just trades on the ups and downs of its various legal proceedings.

  145. Well, we were saying a couple of weeks ago that we could see weeks of senseless gains destroyed very quickly, and here we are — same /ES price as we reached on  11/10.

  146. jcm, 
    I agree re: FNM; they were enablers, as I said. But remember their bonds were not officially backed by the U.S. Govt. — it said this very clearly on the cover of every single one. The Govt. caved under intense pressure from the banks last year who all screamed "systemic risk" if those were allowed to default, and we are left with the tab.

  147.  JRW when do you go short rather than long, according to the tea leaves?

  148.  Today’s date: 01.22.10  -   Hmmmmm …

  149. Needless to say, if we don’t hold above 1080 it will get very ugly.

  150. OK, so what do we do now?  While Eric and I have been talking trash, the market just dropped another 50.

  151. The masters of the universe are throwing a tantrum because they’re going to be regulated….they’ll show us who’s boss

  152. Big Picture for JCM -

    • Detroit needed a $100Bn bailout, Wall Street needed TRILLIONS and TARP was just the tip of the iceberg.
    • Detroit made cars that people get to own and they made them at near break even.  Wall Street leaches capital out of the system with fees but that wasn’t enough for them so they started gaming the system and they drove up the price of commodities and housing, costing the American people TRILLIONS of dollars and ultimately destroying over $10Tn of household wealth. 
    • Meanwhile Wall Street fights to stop any kind of health care reform because it caps all the insane fees they get taking Biotech Companies public so they can promise to charge $20,000 per weekly injection for cancer patients and that causes Detroit to be burdened with $4,500 per car of health care costs that no other civilized country on Earth has to pay so the 10M US produced cars a year that were sold for the last 20 years made $45Bn less than they should have and Detroit goes bankrupt, taking US manufacturing down with it and millions and millions of jobs are lost so a few hundred bankers could get their hands on that $45Bn. 

    Volume is swamping Mr. Stick – now 205M on the Dow at 3:15. 

    QID/Llorens – Good things come to those who wait, finally!

    Covers/Samz – Well the $106 puts should have been rolled out (per this morning’s Alert) to the $102 puts, which are now $2.35 and 10,250 was the point at which we add 1/2 x June $103 puts (now $6) and put a stop on 1/2 x June $108 puts, now $9, at $8.50 (.50 trailing stop).  Once the June $108 puts stop out you should have 1/2 the $103 puts and 1/2 the $108 puts and you can stop out the other 1/2 $108 puts at $8 ($1 trailing), adding June $103 puts to cover and that becomes your new June position

  153. Big,
    I got out when 2:30 didn’t happen, if you are long, I’d buy some short term TWM calls as the last 1/2 hour could get ugly.

  154. Phil,
    GE 2011 Jan. 12.50 / 17.50 Bull Call net $3.00 Selling $15 puts for 1.52 nets 1.48 for $5 spread.
    What do you think.

  155. AAPL down $10!  Wow!  March $180 puts can be sold naked for $5.85 and that’s a nice entry on AAPL, especially if you scale in here and are willing to roll to 2x the Apr $160 puts!

    Monday/Trad – The stick looks broken, 10,165 is the 5% rule off 10,700 so we can assume that holds at least for a while but if we break that then it’s another 2.5% or 5% to go easy.  Cash is the best play into the weekend as we may get some stimulus talk over the weekend (China will be very upset if the Hang Seng can’t hold 20,000!)

    RMBS/Judah – You are right as they are totally unaffected by the broader market (as is ISRG so far!).

    Bonds/Eric – Great point.  It was the banksters who gambled on the FNM bonds that were bailed out against all normal rules of capitalism.  Also, FNM was a buyer of AAA paper and the banksters took advantage of that fact and ran a scam with the ratings agencies to turn crap into AAA so they could unload it.  Every time they flipped their loans based on misleading ratings, they jacked up the "value" of homes and that caused the next home buyer to overpay and again, TRILLIONS were stolen from the American people in a massive con game.

    Masters/Alsos – Very possible.  They are "teaching Obama a lesson" by shutting down the buy bots, which we all know were the only things holding up the market.  

    GE/Bass – I like it, GE had decent numbers and good guidance.  Certainly they were only dragged down with the market today.  

  156. Big picture — Detroit makes lousy cars (for the most part) than no one wants to own. As for making them at breakeven, that’s a debatable point and depends on how you calculate the union payoffs, uh, salaries. 
    FNM will need trillions too, and Geithner just violated the Constitution to ensure they get it.
    Look, I;m not defending Wall Street.  I’m just noting the irony of this holy crusade against them because they were in it for the money. That’s like exterminating scorpions for stinging you.  Our political class was supposed to protect us from all this but it turns out they were the real whores here, yet no one’s holding any of them accountable beyond the occasional "It’s all Bush’s fault."

  157. Keep in mind that we still see 9,650 as the top of the true value range for the Dow.  If this turns into a panic, that’s going to be our only major support!

    Looks like they picked the wrong day to split Berkshire! 

    Scorpions/Jcm – I agree, it’s that "because it’s my nature" joke but what does piss me off is those same scorpions getting their hooks into the politicians and making moves to insure they can sting you whenever they please – some stomping is not just to make us feel better – it’s a matter of life or death for the American people.  I think it’s all great fun to ride this thing down to hell and laugh about how silly wall street and our government is but, in the end, I’d like to have a country that we can live in and right now Wall Stret is conducting a scorched Earth policy with regards to the bottom 90% and if this thing goes off the rails – I’m not sure I want to live in a country where your success is measured by the level of security you can afford to keep your stuff safe from the have nots. 

  158. IMHO  we all are to blame for this whole mess, from the homeowner using their increasing home equity as a piggy bank to the politicians on top pushing "houses for all".
    As in medicine(I am an MD), from the patient demanding MRI’s and name brand prescriptions "because they are covered", to greedy medical providers, insurance companies and politicians, we are all again to blame because so many have benefited from it for so long.
     As the financial mess came tumbling down, so  will our health care system.  It’s simply not sustainable; we will either have to continue to pay more (which we can’t), or accept less innovation and less health care (yes rationing in some form is needed; we can’t afford to pay $250,000 so an 88 year old can live to 88 1/2). 

  159. AMZN- amidst all the carnage, I got out of my long ago short calls with a 20% profit. Did not think that would happen in my lifetime.

  160. Wow, 500 points in 3 days! 

    Dow volume now 241M at 3:45 and it’s a fact – we only go down on volume. 

    Back to cash but leaving disaster hedges, which are looking great now as this is shaping up to be some disaster

    EDZ is still a good hedge on a catastrophic Global melt-down.  The Apr $4s are $1.75 with very little premium.

  161. The interesting side story is that Wall Street is still able to convince close to 50% of the people including some in the lower percentiles wealth wise that they are acting in the best interest of the country. Amazing the PR machine a couple billions can buy you!

  162.  Yeah, those buybots were doing their business generating 2009 bonuses using free money from the fed, all the while the toxic assets were being dumped off on the taxpayer.  I’ve had it with the myopic mentality of Wall Street.  If they take the market down, so be it.  Just more rage energy generated to put the industry into a tighter noose.   Reminds me of the mutually-assured-destruction mindset of the sixties…what Wall Street doesn’t get is the Main Street is already destroyed.  The 2009 bonuses should be their last supper…!  Sorry, just needed to get that off my chest so I can go back to trading!!

  163. Phil — I assure you that I am not laughing at this decline. I have no State insured pension plan that has been written into State Constitution, nor do I enjoy any gov’t job security.  I don’t work for GS or any other bank.   I am one of the grunts of which you speak, trying to provide for my family in a low paying job.  I am not interested in blaming anyone.  I only want to figure a way to make a few extra dollars so I can pay for my kids piano lessons.

  164. Phil: How/where do you judge ‘true panic?’
    I bought DIA 107 calls in anticipation of a bounce — would you dump ‘em before the weekend after this bloodbath?

  165. Phil,
    So how’s this for the ultimate market manipulation theory? Knowing that their bonuses will now be primarily in the form of stock grants, the Masters of the Universe give marching orders to shut down HAL to drive down stock prices in order to maximize the number of shares in their bonus grants. Hm – wonder what the effective date is that they do the calculation? I can just hear the evil laughter growing in the dark shadows . . .

  166. Phil
    I bought the ISRG Mar 300 puts for 3.60
    Now at 4.20? Get out or hold.

  167. stjeanluc
    January 22nd, 2010 at 3:49 pm | Permalink  
    The interesting side story is that Wall Street is still able to convince close to 50% of the people including some in the lower percentiles wealth wise that they are acting in the best interest of the country. Amazing the PR machine a couple billions can buy you!
    Richard Mellon Scaife, the money behind the conservative propaganda machine, is on record stating the "conservative" movement was successful beyond their wildest dreams. 

  168. TBT -
    Phil  if we are in the jan 11 45 – 55 – can we think about legging out of the 55 – once we seem like we hit bottom?

  169. Well, we did get out stick – Just like a colonoscopy – all the way up. Thanks a hell of a lot Obama.

  170. Phil / 500 points
    It’s a little disappointing how little we have made of the last three days considering how Bearish this blog is; I made more than half my profit for the week on UP plays.

  171.  Hey oncmed, didnt leave much time before market close. I wouldve kept em, though. I think Monday will be a panic.

  172. So, what’s the consensus on this board?  More downside Monday?

  173. Obviously if we all knew that the market was going to drop 500 points in 3 days, we could have made out like bandits.  Looking back, is there anything Phil or anyone else could have done to better predict this?  I personally kept thinking it was going to turn around, so I didn’t make much.  Now I’m wondering what might happen next week.  Honestly I feel that we’ll get some news over the weekend to take the markets up Monday.  Plus Apple is both reporting earnings on Monday & introducing the tablet on Wednesday………….I think that can only help.
    A lot of folks probably feel we are going down like last Jan – Mar, but I doubt it.  Hopefully this is only a temporary short-term correction.  We did say above the 5% level that Phil mentioned.

  174. Phil… I like short GLD…Gold is only 10% off its highs.. do you still think it will go to 950?

  175. JRW: I don’t know about the rest of the bears on the board, but I was bearish for two months and bleeding, and on Tuesday Phil said "This will probably be my last bearish judgement call…" so I used that as my trigger to throw in the towel and finally killed the last of my shorts.  Perfect timing, eh?  But many of us bears just ran out of steam after the first two weeks of this year didn’t bring the expected dump, so maybe the other ex-bears are not making much on this drop.  (To be fair to Phil, in his posting he also said he was going to wait one more day to capitulate, I capitulated early because I had looming travel…)

  176. cwan
    I think the odds of a further correction is better than even. Confidence has been lost, as we can not trust our government anymore to support the markets. Most all of my long positions are gone or covered. Uncertainty is the mood of the day. I am not a good short player as the drops are hard to predict and are so swift, but I will start to move back into bullish plays after Obama ends the war with the markets, as I believe the fundamentals are starting to look very good on strong stocks. Right now it is all about government caused fear.

  177. Same here…killed my DXD and SMN plays just in time to miss the drop…PISSED!

  178.  Every time I went short I lost my A$$. Every time I went long…same story.

  179. Hi, Peter, Judah, SS, and fellow stranglers,
    I’ve been quiet because I’ve been busy on other things.  But I managed to add some March strangles using strikes suggested by you folks.  Thank you all!  I also rolled down some of the calls, which don’t increase my reserve requirements.
    After those new strangles today, I’ve now deployed 80%-85% of my ammo, assuming $20,000 reserve per contract.  Do you recommend deploying more?  BTW, for each strangle I have paired with a put vertical.

  180. Whew, it was exhausting to add new strangles. What a great day to add them.  VIX jumped to 27.31.  Look at the SPX puts, Mar 875 is $5.25, Feb 950 is $4.55!  We may go down further, but it’s a great opportunity to scale in more.  If we stabilized next week, VIX would come down fast and the newly added strangles can be got rid off, and we are ready for another drop.

  181. 88.5/Humvee – A very good point.  Unfortunately, it will take a generation or longer to adjust people’s attitude to accept that life does end as some point over 75 and that we shouldn’t complain about it or spend millions (of other people’s money) to fight it. 

    AMZN/Pstas – Congrats!  About time on that one…

    PR/Stj – When I checked out those statistics yesterday it really bothered me.  Wall Street alone spends 5X the entire Congress’s payroll (including executive branch and the supremes) to lobby them.  Those guys are not badly paid either so we’re talking about 10 people making $100K a year assigned to each and every Congressman just to make sure they "see things the right way." 

    Grunting/Jcm – Well we need to talk more because I really feel you have a lot of misdirected anger.   It’s not the teacher or cop with a pension that’s ripping you off, it’s the commodity trader that takes $20 every time you put gas in your tank and the another $50 every time you go to the grocery store and adds 30% to the cost of your home while lobbying for massive tax cuts that starve your local government, forcing them to raise your local taxes (which are flat, not progressive) to make up for the Trillions they save with a 10% progressive tax cut.  Those guys own every television network, newspaper and magazine and they spend Billions of dollar making sure that you fault the government and the unions for your troubles while sympathizing with the "hard working" capitalists who are only trying to make an honest dollar. 

    DIA/Chuck – I killed the other calls but kept the $107s as they can’t gbe hurt much more.  Next week I will roll or DD (assuming there is any point at all in being bullish).   This is not panic yet but we may get a 5% dip on Monday and that will be panic. 

    Grants/Chuaeu – Good theory, I don’t know what the timing of the bonus money is but it’s certainly possible. 

    ISRG/Onc – I’m for holding as it’s a good way to play a huge drop on Monday.

    TBT/Samz – Sure, those are always judgement calls but I love to take advantage of big sell-offs to take out the Top and roll down the bottom. 

    Bearish/JRW – Sorry about that but it’s been so long since we failed a 2.5% pullback it just didn’t seem like a good thing to bet on.  I think cashing out at 10,700 should count for something though..

    Monday/Cwan – Hard to avoid as Asia (absent of major Chinese stimulus) is probably going to have an awful day on Monday and Europe wasn’t down too far today so they could tumble too and that’s not going to give us a very good open. 

    Outlook/Ernest – You are right, we can only wait and see.  If we don’t get a bounce off the 5% levels, then we have BIG trouble but that will be easy to bet on.

    GLD/Big – If they break $1,088 then you can used that as a stop for a downside bet but, as I said earlier, this is too in-between for safe playing.

    Timing/Mr. M – I was just thrilled to get back to cash once the first wave of bearish plays paid off after enduring all that pain earlier in the month.  That’s why the disaster hedges are critical, that’s where the big money gets made in, well, a disaster! 

    OK guys, that was one crazy mofo week!  Have a great weekend – I’ll be around and charting out the 5% rule as we now have to be VERY aware of our levels in both directions

    - Phil

  182. Hi, gel1,
    If we were in the middle of the week and we had another trading day tomorrow, then I’d agree with you.  But don’t you think people would recover after a weekend with their husbands/wives, boyfriends/girlfriends?  Is there a saying about s-x and money going hand-in-hand?

  183. Ernest
    In this market mind-set earning do not mean squat. Google has the best fundamentals for future growth compared to most, and their beat on earnings saw the stock fall (a lot)) AAPL always beats earnings expectations and will report next week, but their stock is dropping hard. This market drop is all about sentiment brought on purposly by our own government IMO. The President is a populist and is in the job he has solely because of populist support. He noticed this support weakening as a result of the election in MA, and is now back into campaign mode fully trying to pacify his base support by trashing the banks and financial markets, which he believes is a position that re-energizes  the rath that this group has for this sector. Until this rant ends, then look for more market weakness. This is all about politics and not fundamental strength of the underlying market health. 

  184. Phil

    I solid have thought you’d be buying the Edz calls – but it looks from the alert system like you sold, is that correct?

  185. A few stocks (like Apple) are going back up after hours.  I really believe that some announcement or realization is going to come out that will make everyone realize that either the effect on the banks won’t be that bad or it will be delayed for a while.

  186.  gel … That coupled with fundamental economic weakness should spell a REAL correction.

  187. gel1 well said, its become the Obama show on CNBC.

    I think over the weekend we’ll be hearing the bear case and bulls will be out partying as they’ve made their loot. There’s no need to be uber bullish anymore… the moneys been made.

    The world has been selling debt at a record pace this year, that my friends says a lot. As far as earnings are concerned, you would have to expect some of those trillions would trickle down to GE CSCO etc. etc.

    I bought VXX a bit early and kept buying as it went against me, there was just too much complacency out there for me to stomach. Simple.

    Great weekend folks


  188. I am long into the weekend with the following:   AAPL, DELL, C and S. If I sell now it’ll be like a dog chasing its tail. I will stay long since the panic level seems to be at a really, really high point. I have sold out of countless positions prematurely and for a loss because I didn’t have the patience to wait it out. I think I’ve got good cards here so I’ll wait it out. We can’t forget that most earning reports have been good or improving this quarter. Not compared to a year ago, but all improving.

  189. Gel/confidence  The govt. givith (confidence) now the govt. taketh away…… Have a good weekend

  190. Phil — Mostly I’m angry about being short up until last week and missing this move! 
    But as to what you wrote,  I wouldn’t say my anger is misdirected.  I could say the same thing about you.  I just have eyes in my head and see the world differently.   I see what’s right in front of me.  No one is exempt from having their hands in my pockets, and that goes for the teachers who don’t work very hard during the school year, have summers off, and get lifetime pensions and healthcare that is now exempt from taxation.  (You think only Wall St. lobbies for reduced taxation?)  And I love cops.  I shoot with them all the time, but I haven’t met one who doesn’t want to game the system by claiming a disability which gives them early retirement at 40 with 3/4 pay and full benefits.  And the list of small fries ripping off the local governments (this is NJ after all) is so long I can’t even begin to get to it here.  Yeah yeah, I know it pales in comparison to the latest Wall St rip offs but the point is that EVERYONE is complicit, from the Senator to commodity trader and from the local union boss to the beat cop.  The ones who get screwed are people like me, the ones who don’t work for a politically favored union, the government or Wall Street.  As far as I’m concerned, they’re all guilty of having their hands in my pockets and I’m too old to care who is the bigger sinner. 

  191. Good take Gel but I think Obama is channeling the real anger that is out there.  People are aware they are being screwed and it’s starting to occur to them that they can do something about it and the Mass vote may have been just the start.  The only thing corporate money can’t buy is votes and that’s the one thing the people still have going for them and if they start getting off their apathetic asses and pushing for real change then heads are going to start rolling.

    EDZ/Deano – It was a roll, cashing out 20 existing $3s for 50 $4s.

    Monday/Ernest – It very much depends on the weekend spin.  A lot of perma-bulls just got a real kick in the ass this week. 

    VXX/Kustomz – That was an excellent play!

    Longs/Llorens – If you really believe in your companies long-terrm, the best thing to do is hedge the downsides and pour the cash you make on the sell-offs into improving your position through rolling or adding.  Over time, they come back although it doesn’t seem like they will during the sell-off.  Go back to the Q1 reveiw I wrote around New Year’s and remember what it was like during that crash – the opportunities were everywhere for those who kept their heads and my main point was to buy brand names, like you have.  You can gamble on CROX anytime but when NIKE is offered up at half price – it’s insane to turn it down….

    Well said JCM – My attitude is that the winner take all menatality does trickle down from the top.  If you take and take and take from the bottom 90% then of course you breed the sort of behavior you see.  Everyone is looking out for number 1, dog eat dog an all that – like I said, it’s not nec. the kind of society I want to live in as things head downhill.  As a former CEO, I don’t blame the little people – it all rolls downhill and our government and the elite who hold their chains shaped this game, history shows that eventually the little people fight back.

  192. You could debate whether it’s fear at work, or panic, as the VIX makes its biggest three-day run in almost three years, to 27.31.

    Consensus expectations didn’t have a handle on just how hot China’s economy is running, which points to tightening and inflation – but maybe inflation will do what U.S. consumers and Asian savers haven’t: reverse trade flows. (ETFs: PGJ, FXI)

    The Dow logs its worst week since last February, capping it with three straight days where it lost 552 points. Basic materials issues were the big decliners, until tech stocks joined them today. For the week: the DJIA -4.1%; S&P 500 -3.9%; Nasdaq -3.6%. Gold’s week: -2.4%. Crude: -4.7%.   Yay SMN!!! 

    So Wall Street has changed its pay mix: more stock, less cash. But shareholders could pay for years, as some estimate the moves will increase outstanding shares up to 4%.

    The best parodies may be the ones you’re not sure are parodies at all. The sharp-looking site for the "Predatory Lending Association" fights for the right of lenders to locate – and extract profit from – the working poor, "an exciting, fast growing demographic that includes: military personnel, minorities, and most of the middle class." (via)

  193. Hi Phil : You  discuss a lot of different hedge stratagies as insurance.MIne dididn’t work that great today. Give me a suggestion I can use for each $100k of my portfolio . Apprciate it.

  194. Normal



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    As a card carrying "hard working capitalist" trying to make an honest dollar, please be assured that I neither want nor need anyone’s sympathy. Let me assure you also that, in fact it IS the fault of government (mostly) and unions (at least to the degree that they are the one’s driving up the cost of local government; (industrial unions have ceased to become a significant factor as the golden goose has taken up residence elsewhere). Besides, it is not that us capitalist have "shipped the jobs overseas"; the third world came and took them. Sure, we capitalist skim a few nickels and dimes off the top when the opportunity presents itself but we also take it in the shorts quite often when the tide goes against us. I don’t complain (much) as there is always another good opportunity around the corner.
    I have to chuckle every time I hear the lamenting over evil commodity speculators driving up the cost of everything from gas to groceries when the biggest scammers of all are the in the Federal Government taking from you and me, and parceling out hundreds of billions in ag slush funds to the chosen few; or the millions of mindless bureaucrats at every level who promulgate endless rules, regulations; policies and procedures that , for the most part accomplish nothing but impose billions upon billions of inefficiencies and waste (IRS anyone?). And what about the master scammers running Social Security? Our beneficent Federal Government has been peddling this fraudulent "old age insurance" scheme for generations. Conning people in to believing their money is invested as "insurance" while running bundles of cash out the back door faster than it comes in.  
    As to the corporate controlled media, come on. In this day and age if one cannot find an outlet to educate and inform in a manner to your liking then you are in a coma. On second thought, it may be that you are a product of our outstanding government run public education system which has dumbed down our society with all the new fangled techniques and has resulted in 30% or more of students, even in so-called good districts, unable to pass a simple competency test. Let’s not even get into 50% inner city drop out rates in systems run by union educators and government administrators pulling down sweet pensions at 55 after a tough career of all day time work; a 9 months "work" year; no week ends; no heavy lifting ; spring and Christmas breaks paid; etc. My hat is off to the NEA, et al for pulling off this scam.
    I could go on but the obvious point is that along with the private sector, government and union scammers are equal opportunists.

  195. I missed the close but I love this discussion.
    Simple fact: in 2008, under a Republican adminstration, we had the largest socialization in American history. The U.S Govt. assumed responsibility for over $5tn in FNM and FRE securities (that it was not legally obligated to do, they were legally private companies), it pumped hundreds of billions into allegedly ‘private’ banks, buying warrants, shares, etc. It paid one ‘private’ company’s (AIG) obligations to it’s private counterparties in full and at par when AIG couldn’t do it, it expanded the backstop for bank accounts and money market funds for private banks to protect them, it bought billions worth of worthless bank assets (securitized debt) at face value to prevent the market for them from imploding, it engaged in extremely generous swap and repo agreements with ‘private’ banks to keep them afloat, it gave them a massive, free opportunity to make money through low interest rates and generous payments on deposits — and so on and so on.
    Now a democratic administration suggests it’s not going to continue business as usual (which I still don’t believe, btw) and everybody freaks out.
    You guys screaming and crying today do have some sense the irony in all this, don’t you?
    "Confidence has been lost, as we can not trust our government anymore to support the markets."
    Extremely well said gel!!! Outstanding!!!!  (You’re not a Republican by any chance, are you?)

  196.  Eric…Government = Banks

  197. LOL BigPinot — exactly.

  198. Phil
    Yes, there is a lot of anger and disappointment by those who are the unfortunate victims,  and it is totally understood and justified. The economy has been contracting for over 24 months and the unemployment is near record levels. For many, they are losing their patience and I for one am very concerned. The current administration has now realized their experimental program to reverse this situation is failing. (Instead of leading an economically proven solution that has worked in the past, he delegated the task to less than qualified Nancy Pelosi to come up with a stimulus for this purpose) The result is not suprising. They are quickly losing their core support and have taken the position they took during the campaign to get elected (bitch about banks and financial markets and their perceived greed), and attack the same targets in order to keep the masses from marching in the streets.The markets are dominated by sophisticated, experienced investors and they are reading the tea leaves left in Obama’s cup this week. He is trying to boost his weakening populist support at the expense of trashing the best potential sector for hope in reversing the recession. My opinion has elements of political odors, and we try to avoid these misives, but the reality of cause and effect are clear to me. I am pissed about this irresponsible behavior, as I have had to dissmantle a portfolio that took a lot of time and effort to accumulate, and someday in the future will again have to go through this all over once again. If this scenario was caused by a 911 event or a calamity that was an accident, then I could accept it, but I can’t accept the fact it was intentionally caused by our own government for their own undeserved survival.

  199.  Looks like the Fast Money guys still pumping it up.

  200. The banks = govt, that was established long ago.  I will say it again, legalize illicit drugs (hrroine, cocain, pot, hash, etc) and put a tax on them, raise the alcohol tax some, pass gun laws for just having a shotgun or a single shot rifle for hunting, and the the health care and police/defense problem will be less of an issue.  This country needs to become progressive, the right to arms can be changed, voting, equal rights, etc, were, why can’t we change that?  Damn, don’t want to get involved in political hob-knob but this country is becoming to polarized, and soon even those of us with ‘some’ money will be considered poor.

  201. Eric
    LOL… No, not a member of the Republican party, nor the Democrat party. I am a founding member of the newly formed National Realist Party. It is still in its infancy, but growing quickly. Your historical analysis is accurate, and all administrations who have served us since the formation of FRE and FMA are complicit in the gradual insolvency of these quasi corporate entities. The problems have been evident since their inception, and for the reason they always had the support of the government in the form of a parachute should they not maintain profitability. They assumed they were performing "Gods work" in facillitating credit to those who would otherwise not qualify. The real perpetrators of this scam are the politicos that encouraged the expansion of credit to the masses that in no way were elegible, for the sole purpose of offering to them home ownership. This was their goal and never gave consideration what the consequences might be should the grand plan run into problems. The policy resulted in a bubble of unqualified home owners that were living on the edge and at the moment the economy merely coughed, then this house of cards came tumbling down, because these unqualified homeownwers had no equity in their residental asset. The underlying reason for this scenario was created through compasionate concern for home ownershipfor the non credit worthy, but the framers of the policy never cared about the necessity for financial responsibility of the beneficiaries. The can of worms was kicked down the road ad infinitum until it became so large that no administration wanted to address it for a final solution. I believe the time has come and we need to forget about who or why but concentrate on when and how to get resolution in finality.

  202. Gel,
    I understand the frustration about unqualified homeowners, subprime and al, but as I was refinancing my house last year and going through hoops to get a mortgage of 2/3 my yearly income through a reputable regional bank, I was thinking that at this game, it takes 2 to tango! The government certainly didn’t put guns on the head of companies like Countrywide to make exotic loans available to unqualified borrowers. Some of these independent mortgage companies (completely unregulated mind you) were selling mortgages faster than we could buy them. No docs, no problem! Can’t pay the interest and the principal, no problem! % too high for you, here is an ARM at 1 1/2%. And let’s not perpetuate the myth that CRA was at the source of this sub-prime explosion (that’s the Kudlow explanation). Less than 25% of sub-prime mortgages were issued under CRA mandate and default is actually lower than in other categories. 50% of these sub-prime mortgages were issued by independent mortgage companies. There is a lot of blame to go around, and politicos share part of it, but it’s not all, far from it.

  203. drumkeerin … you are welcome … although we may have to sweat those GOOG 520′s a little bit.

  204. What a day ….  oy.
    But you know what; my accounts were basically flat for the day, so I am pretty pleased about that, even though I made a couple of trades today that I would rather take back.

  205. ssdirk … yeah, loving COF today; although I lightened up a bit too much before earnings.

  206. stjean
    You are correct and I do not doubt your facts. The pressure was on the quasi/corporate entities to buy as much in the way of mortgages as possible. They even offered bonuses and awards for increases in this regard. No pre-qualification perameters were issued and the banks just did what they were incentivised to do – write the mortgages and sell them to the next buyers who in turn packaged them and sold in packages of 100 with the rating agencies not even looking into the quality of the risk, but classifying the junk as AAA. The blame can be placed primarily on the politicos who created this irresponsible activity and refused to regulate the whole thing. The banks knew they were a part of it but felt the risk was not their responsibility as long as there were buyers for the junk and the program was supported by the government. The Bush administration tried in 1998 to regulate the apparent mess, however the House banking committee refused to accept the premise that the whole program was flawed. Lots of blame to go around, but that is the historical truth. This mess is still in the process of unwinding but at least we are aware of the scope and magnitude of the liability. The next shoe has yet to drop, as the interest rates have to go up in order to finance our overwhelming debt, and the increase in rates will exacerbate the real estate market.

  207. I asked Phil in yesterdays comments, his thoughts on the Supreme courts decision on Thursday to give corporations the same rights as private citizens to donate unlimited $$$ and to promote their "favorite" political candidate in any way they choose. You think there is confusion and a lack of direction now, just wait until after November and 2012, democrat or republican, policy will be decided by the Dow 30, thanks to our supreme court. This country is sooo screwed…..

  208. JRW;  not having problems w/ Street Smart charting … what problems are you having.
    The one thing I am having a problem with is their $TICK which is completely wrong….

  209. Mocha; bought some HK late in the day around 24.50 ….

  210. To be clear; I use Street Smart Pro, not the website online version.
    Another problem I have been having is having it get jammed up on high volume; part of the problem is the low RAM of the computer I run it on.

  211. To be clear; I use Street Smart Pro, not the website online version.
    Another problem I have been having is having it get jammed up on high volume; part of the problem is the low RAM of the computer I run it on.

  212.  Gel,
    I guess you mean the Clinton administration in 1998! Bush was "elected" in 2000! But true, deregulation of the banking industry was started then and pushed hard by people like Phil Gramm who probably shares the biggest blame for this entire fiasco we are in now!

  213. so much has been done, over many years, for simple political gain. It is hard to find anybody who fights for sensible corrections to a system gone bad.
    All are guilty, and I don’t see this changing. Actually, in the corporate world, it works about the same. Power and money and personal gain rule most everything.

  214. Phil, so sorry, but Obama is not channelling the anger out there.  The people are mad at HIM and Pelosi and Reid and Barney and Dodd and Rangel !!
    He is busy trying to deflect that anger … its Bankers fault !  Its Bush’s fault !  Its even Timmy’s fault !
    It won’t work;  a lot of bums are gonna be thrown out come November.   Obama is just trying to save his skin, as buyers remorse kicks in.  Independents don’t drink the same kool aid that the true believers of the left do.
    Just like you on Tuesday did not believe Brown would win in MA; same deal here … Obama had his chance; 1 year gone and he blew it already.
    No coincidence that the market pounded him on his 1-year anniversary of his inauguration.
    State of the Union coming up; what’s he got to say …. not much … will be painful to watch.

  215. 1020; but you have no problem with Unions doing the same … ??
    or these "non partisan" groups like Move on or Media Matters or whoever who are really fronts for political parties (think hacks like John Podesta).
    If you are gonna complain, at least complain about all of the political pollutants out there, not just the ones you don’t like.


  217. Oh yeah, term limits as well….and yes, Cap, throw all of them out, except maybe Ron Paul….LMAO.

  218. I did buy some AAPL late today; how could you not down 15 or so from yesterday and ahead of both earnings and their big new product day.  What a setup IMO.
    Also noticed that HOG got smacked; that trade didn’t quite workout as someone here had advertised … I did not play it.

  219. 1020; Phil

    The Supreme Court yesterday confronted a fact in constitutional law that has been hard to justify: How is it that the First Amendment protects obscene speech, nude dancing and talk radio — but permits Congress to shut down independent political messages from corporations and labor unions? Why do those groups get second-class status when politics, rather than, say, simulated child porn, is the topic?
    In the Citizens United case, Justice Anthony Kennedy, writing for a five-justice majority, couldn’t be clearer: The federal ban on such independent expenditures is unconstitutional on its face: "Speech restrictions based on the identity of the speaker are all too often simply a means to control content."


  220. DIA- A bit out of whack on the mattress – I am long June 104′s; full cover with Feb 106′s- sold @ $2.12. Looking for some guidance on adjustment. It looks like I need to add some longs whether we go up or down on Monday — add the longs right away if down but wait to add/roll the shorts down after we settle down a bit if we go up? Thanks,

  221. Hegdges/Dflam – Check out what I wrote on Dec 9th in that hedging article as well as the link back to the Ocober post.  The key is to balance your portfolio and it takes time, practice and constant testing to stay in balance.  This is just like surfing – it’s not a formula that you get and then it works every time.   Every market wave is different and you need to "ride" them a little bit differently – otherwise you risk a wipe out, which happens to even the best traders. 

    I think the biggest problem I see people happening is more of The Gambler issue:  "You have to know when to hold ‘em. know when to fold ‘em, know when to walk away and know when to run.  You never count your money when you’re sitting at the table, there’ll be time enough for countin’, when the dealin’s done."  

    This is actually great advice. Markets go up and down and too many people tend to make money ON PAPER and then "let it ride" until it’s wiped out.  IT’S NOT A PROFIT UNTIL IT’S CASH is a good thing to write on a post-it and stick on your monitors.   If you start with $100K that’s 60/40 bullish and you end up with $120K and you are now 80/40 – you must rebalance.  Expecting to get to 100/40 without a problem is not a winning strategy. 

    Just like yesterday, I was poking at upside plays because we already had a ton of short plays that were making a mint – it was the upside that needed protection so taking a 10% position at 10,450 and losing 10% of it at 10,350 and taking another 10% position at 10,350 and losing 10% of that at 10,250 and then taking another 10% position at 10,250 and losing 10% of that is a loss of 3% of the portfolio but the other 90% gained 20% on the day – it’s that 20% day gain that we’re spending 3% protecting and we take plays like the DIA calls, we’re allowing ourselves to let the rest ride as it will buffer our loss on a big reversal.   At the end of the day, I couldn’t see a good way to protect the shorts over the weekend so I went to cash rather than try to hedge out the ridiculous short side gains of the week. 

    So your hedging strategy depends on your overall strategy and your short-term and long-term outlook but the big trick is to have an arsenal of hedging tools so you can pull one out that suits the occasion.  I was all gung ho on SMN as a short (it was our only naked disaster hedge) because I thought the materials sector was the most overbought and it went higher and I bought more and it went higher and I bought more and this week it doubled but that doesn’t mean I think it’s a good hedge for next week.  We always have to look for the things that are most likely to pop to the downside as well as what will be a good balance to our existing positons

  222. LOL Pstas – It sounds like you are ready to go country shopping with me.  I’m thinking some self-sufficient island that currently has luxury hotels and high-speed cable but would also probably survive if the global economy collapses and they get cut off like the Caymans, Belieze or Curacao although Crete is very nice too…  Any suggestions?

    Well said Eric!

    Anger/Gel – As you know, I’ve been very critical of this BS rally for a while and I do blame the government (even my beloved Obama administration) for participating in this farce.  Perhaps only now they realize they’ve been swindled by Wall Street too (hence the "sudden" anger) or perhaps they are just jealous that the WS bonuses dwarf the bribes they got for making them happne – who knows?  Whatever the case, you can’t pump up a market forever and you shouldn’t get so attached to a portfolio – it’s not a house, it’s not supposed to stand for 30 years.  Think of it more like a business plan – you set it up on paper, you fund it, but then when it’s put into motion in the real world it either works or it doesn’t and, if it does very well – the smart guys cash out at the top and go start a new business with all the profits.  

    Taxes/Pharm – I don’t like legalizing heroine or coke as they are dangerously addictive but pot is arguably less dangerous than drinking so that is just ridiculous.  As to guns – I can solve the entire gun issue tomorrow.  Put a huge tax on bullets, then people will think twice about shooting them.  Use some of that take to create an identification system for each bullet so that every bullet sold can be traced back to the owner.  That will make it fairly impossible to use a gun illegally without being identifies or, of course, force criminals to seek black market bullets, which will add a whole layer of hassle and problems to committing crimes. 

    FRE/FNM/Gel – I will say, in mild defense of the "politicos" that the real cause of failure was not the initial program but the attempt to keep pushing the program, and even expanding it, as homes became less and less affordable.  The problem with housing is there were no brakes applied, EVER, until it rode right off the cliff.  It is a good idea to help 2 people earning minimum wage ($33,000 a year) to buy a home with a $800 monthly mortgage payment and taxes and utilities of no more than $400.   It is reasonable to assume they can continue to hold minimum wage jobs and the home is a good investment for them.  That would be roughly a $130,000 mortgage and that’s what a starter home should cost. 

    The problem is that we pulled all sorts of tricks to put these poor people (and I will argue all day and night that these are innocent victims for the very most part) into bigger homes with bigger mortgages that they can NEVER afford and then the taxes and utilities run up as well and all the brilliant bankers act all shocked that they are defaulting on their mortgages – this is just ridiculous and the most ridiculous thing is now we are (have already) bailed out the banks who made the bad loans and pushed these poor people into bankruptcy and those people will be paying for it all over again in the form of higher taxes for the rest of their lives.

    I worked in the title industry and we would pay readers 6-figure salaries to go through these morgage documents and they spent half their day explaining the contracts to the lawyers and realtors who did these transactions for a living.  99.9% of the people sitting at a closing table would sign 30-100 pages of paperwork wherever the lawyer or realtor put those little arrow sticky things having never read a single word of the document.  You can say it’s their fault for not reading it but it’s ridiculous to expect them to understand it if they did read it.  They pay the bank, the realtor, the title company and even a lawyer huge fees to represent them and NONE of those people EVER speak up and tell someone they shouldn’t buy the home or the interest or taxes will kill them or the home may be overvalued.  In fact, if the appraisal comes in low, what does the realtor or mortgage broker do?  They call a "more friendly" appraiser! 

    It’s a totally broken system and the end result of it was that we jacked up home prices to ridiculous levles and hardly anyone complained because we had record home ownership and everybody was getting "rich" so no one wanted to rock the boat.  In 2005 and 2006 I was telling everyone I knew to sell their homes and go rent and I think 2 people actually did it despite the fact that I had been in the industry for 20 years.  We didn’t sell our home either because Tina didn’t want to move the kids – it could have paid for 4 years of college for each of them had we cashed out then vs what we can get now.  Anyway, the bottom line is that pumping up the cost of homes from $150,000 to $275,000 median (and median is miles below average) is $1.25Tn a year more loans written by banks, with all that money and fees sucked out of the pockets of the middle class. 

    This is not a victimless crime, it’s a systemic ponzi scheme that funneled 1/4 of the money made by working people in this country through the realtors, brokers, lawers, insurance people, local government (higher property taxes) all, of course, to the bankers, who work with the federal government to convince people there is no inflation (while homes rise 10% a year or more) so they can pay just 1% to passbook savers while lending Trillions out at 6%.

    I’m sure the banks thought they could keep it going forever and they were, for the most part, as surprised as anyone when the housing market collapsed.  Henry Ford realized 100 years ago that if he didn’t pay his workers enough to buy his cars – he wouldn’t have a business – it’s time the rest of the world catches up…

    Obama/Cap – At this stage, I would have to agree that he has really messed up his first year.

    Speech/Cap – Oh come on, it’s a perversion of the concept and you know it.  This isn’t about speech because corporations don’t speak, people do and this concept of corporate personhood to make sure their rights are protected is just a clever way to get around finance reforms.  I tell you what, let’s take it a step further and hold a murder trial for all the companies that have been bankrupted in the last financial crisis.  I’m sure we can find lots of smoking guns over at GS et al and we’ll take that company and march it right down to jail (no bail because GS may board a plane and flee the country) along with anyone else who harmed another company (MSFT?).  When we’re done with that we can have a sit-in for all the baby corporations that die for lack of financing.  At what point does corporate life begin?  Is it on the granting of a corporate seal or does life begin with the first business plan? These are all questions I look forward to reading additional Supreme Court decisions on in the future as it becomes more and more of a shameful farce of justice…

  223. DIA/Pstas – Well that’s never good, you need to be aware of your net deltas in the very least.   For example, the June $104 puts are at $6.70 with  delta of .58 and the Feb $106 puts are now $4.90 with a net delta of .85 so you will lose .28 per $1 (100 Dow points) that DIA falls.  Of course, at the 5% rule, in a vaccum, this is the correct posture as we expect a bounce now back up 100 points so you would gain that .28 if things go well.  If we head lower, you want to get at least neutral or better on delta, which means, at the very least, you need to add 1/2 the June $102 putss, which have a delta of .52 (so you will make up .26 of .28 delta differential). 

    Step 2, after having identified what it takes to get you neutral, is what would you do next.  The Feb $106 puts are at $4.90 and if you are adding the June $102 puts, then we are heading lower.  That means you need to look forward to a 1.5x roll of the $106 puts and the March $101 puts are $3.10 so rolling to them would take care of $4.55 of the $4.90.  That means, if the Dow continues down, you need to commit to adding 1/2 x the June $102 puts, now $4.25 and spending another .35 to roll the Feb puts lower. 

    Per yesterday’s post on this subject, you don’t have to do the Feb roll right away because, if we keep falling AFTER you buy the June $102 puts, then you will also be buying some June $100 puts (when we go 200 points lower).  If you buy 1/2 x the June $100 puts for another $5.75 then you’ll have X June $106 puts at (adding the delta x 2) $9 and 1/2 X the June $102 puts at $6.75 and 1/2 x the June $100 puts at $5.75 against X Feb $106 puts at $6.60.

    The Feb $106 puts should be able to be rolled down to 2x the March $99 puts at $3.20 and THEN the question is – can you live with that spread on the way down?  At least you are good to 9,800 (because you sold the puts for $2 in the first place) and that puts you WAY in the money on the Junes. 

    If you are able to go naked on 1/2 the short puts, then you can just let the June $106 puts stop out naked on a move up once you hit 2x (which would flip you bullish with the callers having a $1.60 delta and yours at about $1.20) and, again, being aware of your net delta helps you manage the position because you know that if you do stop out your June $106 puts on a move up but then it reverses again, you can either add 33% more June puts or buy back 25% of the March puts to get delta neutral (and that is AFTER cashing out your very profitable June $106 puts). 

    Anyway, that’s the sort of stuff that goes on in my head whenever you guys ask me a question and that’s why I stick with the DIAs rather than flip around.   I have the DIAs pretty well internalized so I can give the answer in about 1/100th of the time it just took me to write down the logic! 

    Does anyone use Wealthlab (from Fidelity in the US and Canada)?
    What are your experiences?
    Do you have any scripts that make money?

  225. …and now for another issue of     Bear Droppings!
    First a word from our sponsor:  Hey folks, sorry for dropping off the face of the earth!  I know, it’s terribly rude of me to not stop in on occasion and just say ‘hi’ but as I’ve found out about myself, when placed in certain stressful situations I quickly go into survival mode.  Survival mode for me means shutting down all outside interests and communications and focusing solely on the task at hand.  As some of you may recall, I was put into ‘survival mode’ by a layoff back in December.  So what’s brought me out of survival mode?  Well, a job for one.  Actually, I had 3 offers to choose from ranging from a 6 person firm, a 30 person firm and a 167,000 person firm.  Which did I choose?  After a gut wrenching process I went the conservative ‘safe’ way and chose size to hopefully help me ride out the severe correction in our economy I see on the horizon for the next several years.  What I gave up was excitement and perhaps even a, dare I say, fun job.  It still nawes at me. 
    Unfortunately, I will only be a visitor from henceforth.  My time during the day will be on lockdown.  Furthermore, this company also has a large public accounting arm and there are ALL KINDS of limitations on what kind of investments employees can have.  It could be that I’ll have to sell off my terrible SRS investment at a large loss to ensure my independence.  If that is the case, I still don’t know what I will do.  But that’s for another issue.  So what brings me back?
    THE POPULIST FUROR THAT IS BREWING!  I LOVE IT.  And it’s about friggin time.  Last Spring I officially gave up on Obama.  But his latest announcement on limiting proprietary trading could actually win me back.  If he gets it through Congress that is..  You see, to me, the reason Obama blew it was because he never accepted the hand he was dealt.  He carried on during his first year as though he was in a vacuum.  We had the worst financial blowup in our nation’s history since the Depression and what has dominated debate in Congress last year?  Healthcare.  Big friggin mistake.  He should have gotten Wall Street nailed down with new regs, propped up the economy and THEN undertaken a smaller more sensible approach to health care reform focusing on the things that everyone can agree on ie., allowing pre-existing conditions, etc.  If he had done those things he would now be our closest mortal equivalent of God.  But alas.  No one listens to me.
    Of course the timing is very obvious.  No sooner do the Dems get bitch slapped in MA then he reaches back into his playbook for an item with a more populist tone.  Whatever the reason.. so be it!  It’s about friggin time.  Let’s make those banksters piss, moan, cry, wet themselves and proclaim the end of the world as we know it.  When in fact, it will only be the end of the world as they know it.  And they know it!
    From a market standpoint, if this isn’t a catalyst, ALONG WITH CHINA’S EFFORTS TO REIGN IN SPECULATIVE LENDING, for the long awaited correction then there won’t be one and it will just happen out of the blue.  I prefer to take advantage of the opportunities that are more obvious rather then waiting to get lucky down the road.  Although I sold my FAZ midday yesterday, I am looking to get in again.  Unless they put a floor under this thing from the get go on Monday, we’ve got ALOT more room to travel down.  There are alot of people who will be trying to head for the exits.  Even though they’ve had more then enough chance to do so.  Those that are long now are simply greedy.  So if you aren’t short, then I hope at least you aren’t long.  Don’t catch the knife!  Good luck and good to be back!

  226. .. forgot something.  Does anyone else see the irony of Ted Kennedy’s death?  Because of Kennedy’s death, health care reform is probably dead, too.  The man who made championing health care his entire career couldn’t hang on quite long enough to get the reform passed.  Granted, a completely bastardized form of  health care reform, but reform nonetheless.  Now that’s ironic!

  227. Country shopping- although the prospect is appealing, I would fear getting rounded up as "a usual suspect" in some third world coup d’tat and having to eat maggots to survive in a dank cell :)
    No, I am aiming for the Peoples Republic of California; establishing an outpost camp in the outlying province of San Diago county where the natives are somewhat more level headed and the beach, ocean and year round sunshine outweigh the consequences of jumping from the frying pan (Illinois) to the fire. Besides, once the enlightened lumpen proletariat finishes storming the castle, someone needs to be around to take down the barricades and pick up the pieces. Ah, capitalism!

  228. Congrats Matt, so glad you go a new job but sad you won’t have time to hang (although we’re up all night if you are!). 

    LOL Pstas – You send me a post card when it’s safe to come home.

    OK, I just put up a new weekend post (in progress) so let’s move chat there – thanks!