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Which Way Wednesday – Topping or Popping?

Wheee, what a ride! 

We only had one trade idea for Members all day Monday and that was the DIA $103 calls for .52 from the 9:46 Alert.  It is extremely rare that we only have one trade in a day but there really wasn’t anything for us to do as we had been BUYBUYBUYing all last week so there was nothing to do but watch.  The calls finished yesterday at $1.12 for a nice 115% gain in 24 hours but we took the money and ran at 10:04 on a spike up to $1.25 because it’s too close to expirations to mess around.  They actually topped out at $1.55 near the close but - better safe than sorry.  Anyway, we replaced them with IWM calls later in the day and those doubled up and we were out at the close – again, it just doesn’t pay to be greedy

It’s fun to day trade options on expiration weeks because the premiums go way down and we get fantastic leverage.  Our longer-term trades turned mixed for the first time in 2 weeks (we had been 100% bullish) and we went from one to a dozen trade ideas a day as we used DXD for an overall hedge and took bullish positions on AAPL (2), GOOG (2), INTC, T, TZA (which is really a bearish position) and bearish positions on DIA (2) and MA.  Of course ALL of our bullish plays were hedged already so the mix was a real indication of how exhausted the rally was starting to look. 

Too much, too fast was the watchword for Tuesday as we were already up 5% for the week so we expected a gap fill back to the open (didn’t come yet) before we get serious about taking out our levels (Dow 10,290, S&P 1,102, Nas 2,257, NYSE 6,930 and RUT 651).  We expected good news from INTC (we did a bullish ratio spread aimed at $22) and now we’ll see if it’s good enough to get the Nas up to 2,257 but it was the NYSE that worried us yesterday as they were close but no cigar at our 6,930 target.   

Gap filling would be nice and normal and would take us back to test Dow 10,200, S&P 1,075, Nas 2,200, NYSE 6,800 and Russell 620.  If we can show a little support there and consolidate for the next run, we’ll be in pretty good shape to continue this run but FIRST we have to test them WITHOUT everyone freaking out and getting us back into the negative spin cycle. 

To some extent, it will be up to the actual data and we have lots of it coming this week (see yesterday’s post for details).  We NEED to get out of this nasty downtrending channel so let’s hope we don’t get too much of a pullback but it is possible for us to pull a bullish consolidation back to that 1.049 line and, now that we’re into options expiration week, we can’t really trust anything that happens for the next few days anyway. 

Last options expiration was June 18th and the Dow finished at 10,450 and the S&P was 1,117 so, after a really wild ride, we’re coming up just a tad short of wiping out all calls and puts but there are 3 days left so we’ll see if they can hit the marks on the nose by Friday and burn the maximum number of people (although pretty much everyone who fell into the bear trap last month is pretty much burned already) but, as I said: Too far, too fast this week already so we’re just a bit cautious.  The bond market has burned all of its bears in the longerst rally since March while US Corporate Credit Risk is at 6-week lows and even the default rate on Junk Bonds are at their lowest level since March of 2009 as huge increases in corporate profits drop the Q2 default ratio to 0.47 – the best performance since Q4 2007 – don’t you think that bodes well for earnings?

I’m also worried because the MSM has suddenly flipped bullish with Jim Cramer flip-flopping so fast he reminds me of a kid learning to do 360s in a parking lot.   The WSJ ran an article titled "Why the Doomsayers Are Wrong," apparently missing the irony that 90% of their coverage was devoted to doomsaying in May and June.  Irony also seems to escape CNBC, who’s web site now says "Markets Look Good Over Short-Term,"  "Feel Like Market Will Keep Going Up: Art Cashin" and, of course "Cramer: "We’ve Seen the Lows for the Year."  Only the NY Times seems worried with "Crisis Awaits World’s Banks as Trillions Come Due."

As I was saying to Members yesterday – nothing fundamental has changed in the past 5 days – it’s all about the spin.  The markets flip from bullish to bearish on a weekly basis, which reminds me of the audience rushing in and out of the theater every time Bugs Bunny throws the switch (at 5:00 on this video).  Put Lloyd Blankfien’s head on Bugs Bunny and replace the trampled Elmer Fudd with the average investor and you get a pretty good picture of what’s going on in the markets.  Keep in mind that I am neither bullish or bearish, I think we are range-bound and we get either too high or too low in a range and all this bandwagon jumping angers me because I see so many people getting burned as the media effectively tells them to buy high and sell low.

So, not too much point in discussing fundamentals because fundamentals have little to do with what’s going on in this market over the short-term.  You really couldn’t get a more positive report than the one we had from Intel yesterday which the company says was the "best quarter in the company’s 42-year history," and the numbers don’t lie: EPS, sales and margins all crushed estimates, and Q3 guidance was raised far above expectations.  In a normal world, that should spark a massive tech rally but we already had a massive rally of 6% in 4 days so, at this point, it may take a bit more than just INTC to kick us over the top.  

The Nikkei finally woke up this morning and slapped on a 2.7% gain but still down at 9,795 and far behind the Dow, who they usually pace more closely.  Chinese markets were up about 0.7% and the BSE rested flat today, still under 18,000.  Europe has been heading down since the open, giving up half a point and that flattened out the US futures after a 1% pop last night right after Intel’s earnings.  There’s not much international news today but a day of rest would be good after a week of rally anyway. 

We got a 2.9% drop in Mortgage Applications last week and this summer is looking very anemic in the Housing Sector.  June Import Prices were a deflationary -1.3% (-0.4% expected) and Retail Sales were off 0.5%, which is better than May’s -1.2% and, Ex-Auto, it was down just 0.1% so not too bad, really.  We’ll just have to wait and see what the markets decide to do with this information but it’s the Fed Minutes at 2pm that are likely to make or break this rally so tune in for the afternoon fireworks! 

Based on INTC’s report, I’d be looking at DELL, IBM, HPQ, AAPL, CSCO, SNX and SNE as probable good earnings plays – we’ll be looking at them in Member Chat today.  We’re off to a very good start as our first earnings play of the season, on INTC, is right on the money at $22 and that’s a great way to get started on our very profitable earnings spreads, which make every quarter feel like Christmas.   

Great article in The Times as Amsterdam Physicist, Eric Verlinde demonstrates that gravity is nothing more than an illusion - this is the kind of thing that hopefully our own top scientists will be able to uncover once pot is legalized in America as well!  

Try to stay grounded today…


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  1. Yesterday, CNBC was good enough to let us know we shouldn’t worry about Moody’s downgrading Portugal not one but two clicks… will they be so good today to let us know if we need to worry about retail sales dropping for the second month in a row?

  2. Don’t forget Matt that the previous month (May) was revised further … down … but don’t think about it, or a Phil says, "fuhgeddaboudit."

  3. Pharm, I’m trying.   But I’m terribly bad at it.  The way I see it we’ve got 2 possibly 3 more days of this nonsense before heading lower again.  If not, I will probably start averaging in my entire portfolio short using the big technicals on the way up as entry points.  That would get me out of the daytrading game.. which would probably be a good thing!

  4.  Matt1966,
    You are right. They will try to keep it up till OE.
    I expect the market to tank from late August / early Sept. i think It will drop for a week next week and run up again from 23rd.
    I shall be shorting from August end for sure.

  5. Good Morning – Could a "tank" begin today?

  6. …or karate-chopped, if you prefer.   :-)

  7. I know, I know, Mat, it is SOOO tempting, but all the trading of late has been on technicals.  James Alutcher (a Cramer boy) say 1500 on the S&P.  Many forcasters (who are these people) S&P earnings will be $96 next year, which is higher than they were at the height of the market, and that is with austerity and consumers pulling back.  Must be that the wads of cash from companies are going to move future growth, but …Go figure.
    Yesterday David R writes: WHAT’S DRIVING THE MARKET?
    We’ve been asked repeatedly how the stock market has managed to bounce off the nearby lows with such veracity. Especially with the ongoing weakness we have seen in the incoming U.S. economic data due to the fact that the retail investor still refuses to participate and is solely focused on income-generating strategies. The answer is that the market may have been on the receiving end of another few jolts of liquidity. M2 money supply has expanded $38.5 million in the past two weeks and the M1 money multiple has risen from 0.839 to 0.862.

    When we go to the weekly data from the Fed, we see that “trading assets” on commercial bank balance sheets expanded to $325 billion in the past two weeks from $297 billion. And, when we go to the Commitment of Traders report, we see that there has been a big swing in the net speculation position on the S&P 500 “E-minis” on the Mercantile Exchange (futures and options) to a net long position of 28,172 contracts from 15,155 net shorts just two weeks ago. That’s a big part of the bounce-back — prop traders and short-coverings. Nothing fundamental here, as far as we can see.
    In other words, when they flip bullish….the market goes up.  Now we need to see what they are doing for the next week.  Something we should keep track of at PSW.

  8. Maybe I get burned but Im shorting the 30 year treasury bond until the auction, unless we completely fall apart it’s got to come down a little!

  9. Its not just SNBC — all the major networks (ABC, CBS, etc.) are a-buzz about a "market rally" and INTC’s great earnings. 
    butterflies, unicorns and rainbows are all I see this morning.

  10. Zortrades put up an interesting post called "Curb Your Enthusiasm On INTC".  He shows a recent chart where the market drops shortly after each INTC earnings report. 
    Lookee here:

  11. looks like retail sales are down but who’s surprised about that?

  12. Phil I just went through mondays post twice because that’s where I thought you mentioned the new disaster plays are but I didn’t see them?  Could someone please post the latest disaster plays I cannot find them. Thanks

  13. My max pain calculator is showing some strike prices (GOOG, AAPL) below the current market prices.  Maybe a little drop between now and Friday.

  14. IWM 61.38 61.97 62.59 62.92 63.25 63.60 64.35 64.78


  15. Yip – from last night on Mattresses:
    Mattress/Amatta – Dec $104 puts, now $6.70 and 1/2 covered with July $102 puts ($104 puts stopped out) and looking for new Aug cover at about $2.50 to be new 1/2 cover.  Collecting $2.50 (at least) in Aug, Sept, Oct and Nov on 1/2 pays for $5 of the $6.70 spread so the cost of insurance for 5 months is $1.70 and we try to work that off with momentum plays on the other half.   All we need to do is make .25 7 times and our long-term puts are free.  The problem most people have with this play is a lack of patience – if you just leave it alone and collect your $2.50 a month and always stay 1/2 covered, then your insurance cost is .35 a month vs. a $6 gain if the Dow drops 1,000 points.  Everything else is just playing for people who are comfortable day trading since we have the 1/2 open long puts and we (day traders) hate to waste free margin.

    Disaster Hedges here.

  16. Releasing bad news into a rallying market.  I feel like I’ve seen this movie before…

  17. Yipcarl/ Check last Friday post
    Hedges/Hoss – First of all, you should really have SOME kind of hedge into the weekend.  When we have a disaster, it’s often on a Monday or Friday.  Right now, I’d go with the assumption that Whitney is right and Friday is a disaster for banks next week so a 5% drop in XLF back to $13.75 (they are testing $14.50 now) would be a 15% boost in FAZ to $17.25 and the Aug $15/17 bull call spread is .62 and you can sell 1 UYG $45 puts (20% out of the money, 10% down in XLF) for each 3 FAZ spreads you buy and you drop the net on the $2 bull call spread to .22.  If FAZ goes over $17 (more than 5% drop) you can layer up the protection to cover the short puts and if FAZ doesn’t pay off, you won’t lose on the naked puts and the whole spread costs you .66 for 3 so $660 spent on 30 FAZ Aug $15/17 bull call spreads net of selling 10 UYG $45 puts for for $1.20 each gives you $6,000 worth of downside protection and your worst-case is you own 1,000 UYG at net $45.22 (now $54.76).  TOS says 1/3 margin or about $15,000 on the put side

  18. Thanks much peeps!!

  19. Good morning! 

    YAWN…  We are STILL NOT impressed by anything less than making our levels now:  Dow 10,290, S&P 1,102, Nas 2,257, NYSE 6,930 and RUT 651.

    Now we would like to make sure we hold our 5% gains (not our 5% levels) off last Wednesday’s lows, which are: Dow 10,200, S&P 1,075, Nas 2,200, NYSE 6,800 and Russell 620.  Dropping just 2 of 5 here would be BAD! 

    The same DXD Aug $27/30 bull call spread (still .90) can be covered with the DXD $25 puts (still .35) but ONLY COVERING IF they get to $1 on a big run – yesterday they barely got to .45.  If we don’t have a big run against the call spread, then we don’t need to cover it… 

    Let’s keep our eye on Copper of course, which is back to $3 and must hold that.  Oil inventories are at 10:30 and will be a market mover.  As long as oil holds $75 we should avoid a tragic pullback in that sector.

    The Nas and SOX are leading us – if they turn red then down we go so be very careful but I think, in the very least, the Fed should save us at 2pm – not really for what they say but just because we need an excuse to break up and that should do it

  20. VVUS FDA advisory is tomorrow.  EOD I am going to buy some P with FUN MONEY.  I am prepared to lose it, but I am betting all RED!

  21. CNBC/Matt – Don’t worry, be happy

    Stripping/AC – About time someone has the balls to say it!  

    Tracking banksters/Pharmboy – Good idea!

    Pretty good volume on this selling so far.  40M on the Dow at 10 is +10M (33%).  That’s actually bullish if we hold up without too much damage.  Profit taking makes sense and it’s nice to see sensible investors participatiing in the markets. 

    INTC/Kinki – Well, that’s partly because INTC is so much better than most companies that they generally make a poor leading indicator but these earnings were very good looking for the overall industry.  Nonetheless – Nas went negative so let’s be VERY careful….

    Thanks Pharm and Lionel!

    Gold looking weak and taking the miners down.

  22. Pharm/VVUS
    Have you seen the vol on those puts!
    Do you bet a 25% decrease in stock value or more?
    The market is pricing 20% down as break even on ATM puts.

  23. LOL,  Bugs & Elmer
    I haven’t seen any comments on the new Sabrient Dark (H)Edge Portfolio.  I for one, really like the premis & structure of it, as I see years of fun & profits going both long & short  with a bar-bell portfolio.
    Any thoughts on their selections : long- TEO, XRTX, WDC  short- JOE, USG, HUSA, AMAG, AIV, STI
    also thanks to you & Sam Antar for the AMED tip

  24. Pharm,
    Which ones? Only .20 difference b/w July 10s and Aug 10s

  25. Yipcarl/disaster hedge
    By the way FAZ was almost a dollar higher when Phil posted this play.
    So you may want to adjust your hedge accordingly by lowering your bull spread to 14/16 or 14/17
    Unless Phil has a better idea?

  26. DCTH +10%    Doug Watson former CEO at Novartis and DNDN board member added to DCTH BOD

  27. DCTH on the march yet again. 

  28. AAPL seems happy above the $250 line. 

    We can assume that the expectations of a 1.5Mb draw in crude inventories (net) will be disappointed and that will give us a good test as OIH slips to test $102 or lower.  That will take down commodities in general and then we’ll see what sticks but so far, so good with this little sell-off.  If oil inventories are a draw and oil kicks back over $77.50 (now $76.66), then we can expect XOM and CVX to go green and that’s going to be enough to green the Dow right there.  

    Watch 2,250 on the Nas – that’s a critical line, of course.  RUT 637 was our break up line yesterday so now it’s a break down point.

    May Business Inventories: +0.1% to $1,355.7B vs. +0.2% expected and +0.4% last month. Sales -0.9% to $1,090.2B. Inventory/sales ratio rises to 1.24 from 1.23 prior, and vs. 1.41 a year ago.

    Eleven banks including Germany’s Commerzbank, Italy’s Banco Popolare and all the Greek banks will fail the EU’s stress tests, Macquarie’s Alessandro Roccati tells CNBC. Banks that fail the tests would be expected to have some breathing space to raise capital, he says.

    Almost four out of five surveyed in a Bloomberg poll say they have little or no confidence that the financial reform bill about to be passed by Congress will prevent or significantly soften a future crisis. Yet by a three-to-one margin, Americans have grown more favorable toward stronger regulation.

    Business groups including the Chamber of Commerce and NFIB will confront the Obama administration today over economic policy, calling on the government to cut taxes and curb its regulatory agenda. "We are not going to engage in a debate over whether the White House is pro- or anti-business. We really want to talk about policy," says a Chamber official.

    Hedge funds are cheering Consumer Reports’ slap at the iPhone4 (AAPL -0.2%), awaiting what Jason Schwarz calls an "Apple slingshot." Apple’s established strengths give hedge fund managers confidence that the stock will always bounce back, and "as a result they use any and all resources to beat it down when they can… Everyone selling [is] plotting their re-entry on Thursday, Friday, or Monday ahead of earnings."

    Today’s Mr. SunshineDoug Short uses a stunning series of charts to show that the current secular bear market is worse than the 1929 crash.  Doug Short is a great bear market guru name but was rated top 10 in bad porn-star names

    Sabrient/Ekor – Well they are there because I like their picks and the system.  I haven’t really looked the current set over in detail but it seems like a good set except JOE and USG I would stay away from.   Sam is a friggin’ genius – a criminal genius but a genius nonetheless and Ilene and I are trying to harness his powers for good.  The stuff he writes isn’t even half of what he knows (but can’t talk about). 

    FAZ/Lionel – You are right, if possible, you want to push for the extra dollar – never hurts…

    Commodities and Transports now gathering strength – that’s interesting

  29. VVUS – just wait untill EOD.  I want to see if they jack it up,. eating more premium out.  May have to make it a P spread, which is what I am leaning towards.  The 13/10 Jul P spread.  It is SO risky though as I see the arguments of both sides….my premise though is the increased heart rate with no apparent understanding of the etiology and the CNS effects at higher doses.  It all comes down to a numbers game.  With obesity being an epidemic, and the conservative nature of the FDA, I think they will need to do a few more trials b’f they ‘get’ approval, if at all.  JMO.

  30. Phil
    I am back from my trip
    What should I do with the TZA trade ?
    June 23rd, 2010 at 1:56 pm 2 Weeks/QC – How about selling TZA Jan $5 puts for .87 and buying the July $7/8 bull call spread for .29?  Why?  Because you are going away for 2 weeks so you agree to buy $10K of TZA and sell 20 contracts for $1,740 and you put $870 into 30 of the bull spreads and they either pay you $3,000 for nothing or TZA is lower and you can DD on the puts and set up longer Jan protection.  Of course the Jan spread still works as is but you can work into that later

  31. Is JR MIA?

  32. Phil,
    Did you make a new setting for the page to auto-refresh? I see my "reloading" icon on the window tab constantly circling and it is regularly seizing up my charting program (web-based). It seems to be a relatively new phenomenon within the past couple of weeks. Anybody know a fix for this?

  33. Oil inventories:  HUGE draw in oil – Down 5.1Mb, Distillates up 2.9Mb and Gasoline up 1.6M so overall a net 0.6Mb draw, which is not all that exciting so $77.50 should still be tough to beat but it’s not bad enough to stop a rally by any measure

    For some insane reason, you can still sell PLA Sept $5 puts for $1.50 even though they have a cash over over $5.  Seems like a good idea to me if you can find buyers

  34. Phil,  Do you like buying CVX at 72.6 and selling 72.50 P/C’s for a net entry of 61/66?  Thanks!

  35. Oop’s this is the Jan 2011 P/C’s!  Sorry!

  36. Hi Phil — question on Rut if I have 10 aug short 520 put — could I sell July 650 short call for two more days of premium to cover, and if not wortless then I can roll up to august 710 short call for even —

  37. Welcome back QC!  Technically TZA is at $6.92 (divide by 5) and you can take .19 back for the $7s (I’d let the $8 callers expire if you have the margin) so that’s a .10 loss but the puts are still in fine shape, 40% in the money so consider that .77 in your pocket to put towards longer-term protection as planned, maybe the Jan $35/38 bull call spread for about .70. 

    JRW/Exec – He seems busy on a project.  This is a good week to skip anyway as expirations make trading ridiculously unpredictable.  The most imprortant thing about trading a system is knowing when NOT to trade it! 

    Auto-refresh/AC – No changes like that were made and we don’t run any scripts that I know of that should interfere. 

    CVX/Trad – Didn’t we do this yesterday?  That trade is fine but I like XOM much better at $58.99, selling 2012 $57.50 puts and calls for $15.70 for a net $43.29/50.40 entry so a nice 20% off with 24% to gain in 18 months (plus 3% dividend) for betting that the World’s largest corporation stays ahead of AAPL..

    RUT/Gucci – I hardly think you need to cover short Aug 520 puts but getting $2.35 for the $650s is attractive yet the RUT can easilly fly to 666 by Friday so are you willing to risk having a $16 caller to roll to Aug?   If you sold the put, I assume you are bullish and saying you are bullish but not 10 points in 3 days bullish is a dangerous game. 

  38. Phil,
    You were right on the money with your title today…."Which way Wednesday"  Have you figured it out yet?

  39. I’m surprised the market isn’t stronger given INTC report.

  40.  Hi Phil,
    Just came back from a trip in Costa Rica/Nicaragua.  Missed the commentary during the day for the past 8 days.  And of course, that’s when we got all the good moves.  I wanted to get in on GLW.  Should I wait for a general market pullback to get a better price to long on this one?  Was thinking of an artificial buy-write strategies that you usually do on non high dividend paying  stocks.

  41.  hey phil,
    got F august 11 calls, short july 11…the july calls have exploded…should i wait till friday n flip to august 12 call…or do u think i should buy it back on a dip, take the loss and hope F goes up more near earnings (July 23)..

  42.  Phil,
    I tried to sell PLA $5 Puts at the ask price but 1 minute later my order was cancelled by someone other than me.

  43. Phil:  I sold INTC 2012 20c at 3.1; now it’s above 4.  Is there any adjustment that I should make?

  44. Phil
    I would like to do a long term play on GOOG, as I believe in their android technology, and I am speculating this could give them a lot of growth down the road.  Do you have a suggestion for a play today?  You probably know this company better than anybody, and have traded it extensively in the past,  therefore I respect and appreciate your thoughts.

  45.  Phil, 
    I am now positive 30% on the TBT 38 calls and even on the 39′s. Should I take them off the table with only 3 days for expiration?

  46. Have the earlier mentioned DXD Oct 30-38 call spread at $1.6  -no puts. Stand pat ?

  47. I have been trading a short position today on USD/SGD. My stop is 1.3875…. will take profit at 1.3350

  48. Looks like the weak hands are shook out of AAPL.  I suspect an opex pin at 260, with a resolution on antenna issue announced with earnings next week allowing a relief rally past 280 for a new 52wk high.  JMHO.  

  49. Phil
    What are we doing with FTR stock , buy sell  ?
    I may have missed the post

  50. Phil
    What are we doing with FTR stock , buy sell  ?
    I may have missed the post

  51. O/T Billing Question:
    Things are sort of slow, so figured I’d ask this now.   I got double billed this month, and sent an email to admin a week ago with no response.  Is there a specific email address I should use, or someone to call?  Thanks!

  52. Hi Phil,
    I sold  TBT July 40 put for 2.20, now is 2.45/2.52.  Which month and price should I roll to?

  53. Wow..the machines really want this market higher today…1M TNA @ 11:40 (IWM 64.26 R) that ensured the move up when a reversal looked possible.  Or perhaps JRW was buying…=D  Phil you are right…looking like a dangerous day to day trade as one would think SP 1100 would be hard to blast past…TBD

  54. Phil, do you still like the FAZ Oct bull call spread from two weeks ago?
    "FAZ Oct $13 calls at $6.35, selling Oct $18 calls for $4.15 and selling Jan $11 puts for $1.50 puts for net .70 on the $5 spread (614% upside at $18, which is the current price)."
    It’s even cheaper now. Now net $.51 credit on the $5 spread. If you sell Jan $10 puts instead of $11, then it’s net $.01 (50,000% upside).

  55. Which way/Exec – I suppose we test yesterday’s highs and then maybe pull back ahead of the Fed and then that can break us higher.  As I said earlier, the high volume (relatively) selling that barely took us down was bullish.  Volume is just 87M on the Dow at 11:30 so half as much volume since the first half hour and it’s all been up since then so the bots are obviously aiming to take us higher (sorry Matt).

    Investor intelligence/Dez – I’m starting to think that’s an oxymoron. 

    Welcome back JDub!  We need a good pullback and the VIX is just 24 now so best to be patient unless we pop 3 of 5 of our upside levels at which point you may want to add a few longs.   GLW hit resistance at the 200 dma at $18 and the 50 dma is $17.50 so a nice, tight range to test. 

    F/Bambi – One monh calendar spreads are always a terrible idea for exactly the reason you are seeing.  At this point, you may as well wait but see what position you are in because now you need your Aug calls to lose value so you don’t get killed rolling the caller.  Very bad spreads to be in. 

    PLA/Cslan – Yeah, TOS rejected mine too, says it’s a "broken option" which makes sense to me as no way should they be going for $1.50! 

    INTC/Sean – Well they are 1/2 premium so no big deal if you are bearish on INTC but why you would be bearish on INTC in the first place is beyond me.  My adjustment would be to either buy INTC to cover or pray for the entire economy to fail so badly that people stop buying computers because that’s your best chance….

    GOOG/Gel – We did two yesterday but I know you are a Player so how about the 2012 $400/550 bull call spread at $77, selling the $450 puts for $57 so you are in the $150 spread for net $20 plus about $115 in margin and your worst case is you own GOOG for net $470.  You can pair that with selling some $10 calls (1/2 covers) to make $5 here and there but not ahead of earnings, of course – just a selling into the excitement thing to cap rallies.  If they drop for some reason, you can roll about $50 for $30 and then you get into a $200 spread for $50 with a base of GOOG $350 so a fun trade to work overall

    TBT/Amatta – Absolutely as TBT isn’t even at $38 so you are all premium and lucky just to be alive.

    DXD/Drum – It’s still good long-term protection.  We need to rethink if we pop our levels but not before.

    AAPL/Lv – Good plan, hope it works….

    FTR/QC – I’ve lost interest in them because it’s too confusing and I haven’t had time to figure out who they are now.  Still seem good long-term though. 

    Billing/Wassellc – Just send it to admin at phistockworld dot com – maybe they missed it or maybe its in processing already. 

    TBT/Bob – I would just roll them right across to Aug $40 puts for +.40 as we still think TBT is going up and making .40 a month in premium on $2.50 is a nice living.

    1,100/Goldman – I’m not happy with the timing of the move up.  It would have been better if we had laid low into the Fed.  From up here (yesterday’s highs) the minutes could send us either way – much less certain…

    The eurozone stress-test haircut update, courtesy of the BBC: They hear a 17% writedown on Greek debt, 10-11% on Spain’s, the U.K. by a discount "marginally smaller" than Spain’s, 6% on France, 4-5% on Germany.

    Rio Tinto (RTP +0.6%) reports a 2% drop in iron-ore output due to scheduled mine closures, but it plans to increase output as Chinese steelmaker demand firms up. The company has maintained shipments to China at or near capacity (more than 220M tons) over the past 12 months.

    Leading the Market down now: Several people are injured in an explosion at a U.S. Steel (X +1.7%) plant south of Pittsburgh.

    Zions Bancorp (ZION -2.9%) downgraded to Neutral by Macquarie after reaching the brokerage’s price target amid "concerns with the credit trends." Zions stock paced the S&P 500 gainers in the first half.

    RadioShack’s (RSH -5.7%) soft auction to sell itself is slowing down, David Faber reports, with some more modest interest than before from private equity firms looking at a heavy asking price. The P-E firms still seem more interested than Best Buy (BBY).

  56. Phil – remind me never to leave the room again when Im shorting oil!!! Still up 5% today shorting treasury futures but damn!

  57. Phil: have buy/write on AXP
    stock 37.91/43.86, jan2012  35 caller 9.24/13.65, jan2012   30 putter 4.8/3.8$,
     they will have substantially increased earnings, so stock wil go up,
    what can/should I do ? Nothing ?
    just buy more stock ?

  58.  Phil, 
    Sorry, my mistake they are PUTS… not CALLS.

  59. To anyone: what are the upcoming US reports (this week) that could potentially bring the market down (if any)?

  60. Phil/GOOG
    You never disappoint….. THANKS!

  61. I skipped the disaster hedges previously because I felt the market would bounce in spite of the gloom. Now I’m liking the idea of hedging against a Dow drop. The previously recommended hedge has dropped from $0.10 net entry to a $1.65 credit:
    "DXD Oct $30 calls at $4.20, selling Oct $38 calls for $2.20 and selling Jan $26 puts for $1.90.  This is a net .10 entry on a $8 spread so your upside is 7,900% at $38 (DXD is now $31.49 so you are 1,390% in the money to start!)."
    How would you rebalance this to better reflect current risk? I’m thinking drop the Oct bull call spread to $26/$34 so that it’s similarly $1.27 in the money (DXD currently $27.27). The problem is the Jan 11 $26 put. You can drop it to a $25 put, but that’s still pretty close to current price (a 9% drop in DXD is only 300 points or so down on the Dow, not even factoring in ultray decay). There are no other puts to sell in Jan util $20.

  62. I skipped the disaster hedges previously because I felt the market would bounce in spite of the gloom. Now I’m liking the idea of hedging against a Dow drop. The previously recommended hedge has dropped from $0.10 net entry to a $1.65 credit:
    "DXD Oct $30 calls at $4.20, selling Oct $38 calls for $2.20 and selling Jan $26 puts for $1.90.  This is a net .10 entry on a $8 spread so your upside is 7,900% at $38 (DXD is now $31.49 so you are 1,390% in the money to start!)."
    How would you rebalance this to better reflect current risk? I’m thinking drop the Oct bull call spread to $26/$34 so that it’s similarly $1.27 in the money (DXD currently $27.27). The problem is the Jan 11 $26 put. You can drop it to a $25 put, but that’s still pretty close to current price (a 9% drop in DXD is only 300 points or so down on the Dow, not even factoring in ultray decay). There are no other puts to sell in Jan util $20.

  63. Privyet Russki Q, go to yahoo finance home page – investing tab - stocks – then earning calendar for a list of all the companies reporting… Im assuming its all JPM and C this week? Goog reports on Thursday as well.

  64. Phil,
    With JPMorgan in the morning, what are your thoughts on holding FAS overnight (stock and/or AUG options)? I entered AUG Calls when the stock was at 23.05 today.  I think the FED can give me a little rally, 10-15% in my options value, so I have some padding if JPM misses before the bell.  

  65. Phil: Sorry I didn’t give you the full picture: I do own the stock and sold both calls and puts; so overall I made money :-) .  Just wondering if I should limit my gains to whatever the premiums that I received to or make adjustment now in case INTC goes to 30 or 40…

  66. Phil; Is INTC a buy ?

  67. Economic Calendar @
    Earnings schedule @

  68. Hello all,

    We have a new position for The Oxen Report up today. I am involved with FCS at 9.60. The stock has made some movement from where it was that I was expecting, but it came much sooner than I had expected. 

    If you want to still read the position, analysis, etc. click here.

    Good Investing!

  69. RMM- Phil recommended INTC back at $19.48 and it’s up 12% since then. He’s calling for a pullback at some point, so you probably want to wait for that pullback and reassess INTC then.

  70. David Ristau: FCS is already 9.91, too late to buy ?

  71. Phil: earnings predictions are quite UP for semi stocks, which ones do you like ?

  72. jvest; txs, how do you make the link back ?

  73. Gold just took a huge dive – from $1,217 to 1,205 in minutes.  Whoever was dumping miners earlier knew something.  No big currency changes but copper and oil pulled back to – just not as dramatically

    FAZ/Jvest – I like it but it’s cheaper because it’s riskier now.  Still good protection and that’s the whole point of insurance buying – try to get it when it’s cheap…  Your danger on the play is, of course, owning FAZ at $11 (now $13.95) but, as you say – 50,000% upside is nothing to sneeze at.  Better on this one though:  FAZ Oct $11 calls at $4, selling Oct $16 calls for $2.10 and selling Jan $11 puts for $2 is net credit of .20 on the $5 spread.  

    Oil/Jrom – NEVER!  8-)

    AXP/RMM – I take it you took that play to stop the bleeding at some point.  Not much to do now but add to the stock if you are super bullish or you can just sell some 2012 $35 puts for $5.25 as your worst case is a cheap average in. 

    TBT Amatta – Well they are only worth .45 so buying them back for .65 doesn’t make much sense unless you are expecting something bad to happen.  Worst case is you roll them even to Aug $36 puts to collect another 70% but if you don’t have faith in that then by all means take 30% and run now. 

    Reports/Russian – This week it’s mainly The NY Fed, Philly Fed or Industrial Production falling tomorrow.  If those come in well, we could be off to the races as no one is expecting much.   On the earnings side, it’s MAR, FCS, JPM, AMD, GOOG, SCHW, BAC, C and GE that can move the market but only the banks really concern me (hence the FAZ hedge).  

    GOOG/Gel – No problem.  That’s a great play for you and I’m glad we have a few members who can afford to trade those. 

    DXD/Jvest – As I said above with FAZ (which is a very nice hedge) it’s cheaper because it’s riskier now.  With DXD you can sell the Jan $25 puts to raise $2.20 and use that money to buy the Oct $26/30 bull call spread for $1.30 so if you go 2 spreads to each put, the net cost of the spread is .20 for $4 (2,000% upside) and selling 5 Jan $25 puts for $1,100 + $40 out of pocket buys you $4,000 worth of protection and you are obligated to own 500 DXD at $25 ($12,500) if the Dow is up 5% (11,000 ish) but, of course, they can be rolled to 2012 $20s so really you are betting against Dow 12,000 and as long as you find something (like our 500% upside plays) that makes $12,500 if the Dow hits 12,000 by 2012 – then you have nothing to worry about.

    FAS/RS – I wouldn’t.  They had a great run and now you are heading into max risk.  If you get a pop off the Fed, it’s a good time to cover or exit. 

    INTC/Sean – Well that’s better.  Still then, they are $2 in premium, which is 10% of your stock price.  Better to take the $2 you want to give them for no reason and buy a 2012 $22.50/30 bull call spread for $2.07 as that will pay you $5.43 if INTC goes higher and you still have some protection from the $20 calls.  In fact, you can set up that spread and then you are free to stop out your stock if they fall back down and you can just add some more $22.50s to cap those callers (not likely to happen as I do think INTC goes higher). 

    INTC/RMM – Unless the world totally falls apart it is certainly a buy.  

  74. RMM – Yeah it was too high at 9.91. I would definitely wait for it to get blow 9.80 at least.

  75. Warning – Off Topic Post
    Phil/ Dr. Verlinde "entropic force" gravity idea – The good Dr. admits it is an idea, not a theory…so rest assured gravity is still a trustworthy force.  There are so many theories and ideas on gravity, it becomes obvious that we have very little understanding of the true nature or "where" it comes from.  One excellent theory is that gravity leaks from parallel universes, and that the only way we could communicate between one "bubble" universe and another "bubble" universe is by using gravity waves…which is great if only we could produce gravity artificially…
    If anyone wants to "strech" their minds beyond their "preceived reality" (without using drugs), PBS has numerous mini-series on advanced physics theories…@  After taking advanced Physics courses in college, my motto was "Don’t believe everything you think".  The universe complexity is well beyond human conceptual limits, and light years beyond our multi-dimensional limits……at least until we wire those I-phone chips directly into our brains to expand our capacity…like Phil has theorized in past articles! =D
    Thanks for the article…a great distraction to this boooooriiiiiiing market!

  76. Phil – is there a reason you prefer a hedge using DXD over the SPY ? Thanks

  77. Phil: AXP 2012 jan35 puts to sell are over 9$, you meant 30 strike ?

  78. SSDirk/Judah - you guys online?  Strange things happening with the TBT relationship right now…could be another bot test…

  79. Goldman, We’re here.  TBT is very often a great guide, though like anything else, sometimes it gets affected by external events that throw it off as a guide.  In this case, I think the results of the 30 year auction affected TBT indirectly right at 1:00.  Just a thought.

  80. Thanks Phil!

  81. Pretty sure that’s it judah, didnt see the news on Marketwatch or anything yet but the 30 year futures went from 125.2 to 126.03 in a hurry.

  82. Judah – agreed, I forgot about the 30 year today…looks like we had a 2.89 B/C ratio @ 4.08%…not too shabby.  Thanks for the reminder!

  83. INTC/Jvest – You are right, it’s a little chasey at $21.66 but still a long-term buy.  I’m not sure we’ll ever see $20 again.

    Semis/RMM – Still like WFR best.  QCOM and SPWRA were my other favorites but they got away now.

    Gravity/Goldman – Gravity has been identified as a contributing factor in over 80% of all accidents involving falling objects.  The sooner they put a stop to this thing, the better!  8-)

    DXD/DK – Because the Dow is more prone to sudden, crazy drops than the S&P.  Because a catastrophe in a single componenet (C, BAC, GM) can take the whole index down and give you a nice payday before the rest of the index settles down.  If the S&P were ever running far ahead of the other indices, I’d like shorting them. 

    AXP/RMM – If you can sell 2012 $35 puts for $9 then please sell 100 for me and send me the $90K!

    I love the new Geico commercial where Lincoln’s wife asks if her dress makes her ass look big and he doesn’t know what to say – cracks me up every time. 

    Bailouts weren’t any help to smaller banks, Elizabeth Warren says. Small banks that took TARP money will struggle under repayment obligations, Warren’s Congressional Oversight Panel reports, and the Treasury may be stuck with stakes in them.

    The Treasury sells $13B in reopened 30-year bonds at 4.08% (.pdf). Bid-to-cover ratio of 2.90, vs. a recent 2.79; indirect bidders take 37.4%, vs. a recent 34.4%. Direct bidders take 16.1%, vs. a recent 20.1%. Treasurys added slightly to gains: the 30-year yield -0.03 to 4.07%; 10-year -0.04 to 3.08%; 5-year -0.05 to 1.49%; 2-year -0.04 to 0.63%.  The quadrupling of direct bidding at Treasury auctions over the past year (21% on average, vs. 5%) won’t last, Citigroup analysts say. Securities firms (many aspiring to be primary dealers) have concentrated their direct bids in the two- to five-year maturity range, while depositary institutions have been direct-bidding seven- to 30-year Treasurys.  

    For the first time since just after his 2006 confirmation, Bernanke may end up with a full board of Fed governors to work with. As three Obama nominees with dovish attitudes get set to go before the Senate Banking Committee tomorrow, Fed watchers look at the votes and say it means Bernanke’s grip on policy firms up.

    Matt Hougan has done it again, shaving another basis point off what he has termed "The World’s Cheapest ETF Portfolio." The six-ETF model portfolio now costs a combined 0.125% and ranges in expenses from 0.06% for largest holding SCHB, Schwab’s broad U.S. equity ETF, to 0.50% for DJCI, UBS’ broad commodity futures ETN.

    Three lunchtime reads:
    1) Rising imports offset U.S. sales abroad
    2) Global imbalances: Don’t worry about manufacturing
    3) Dumping the dollar: Why it’s time to diversify

  84. Hi Phil,
    I sold JPM July 40 put for 2.10, now is 0.70(up 66%), JPM is 40.19 now and report earning tomorrow.  Should I buy it back??
    Thanks again.

  85. Phil, So what I’m hearing is you like DXD play better than the FAZ play.  The play is as follows
    Sell DXD Jan 25 puts for 2.20
    Buy DXD Oct 26/30 bull call spread for 1.30 
    I must be retarded today.  Is this correct?  Are we selling 1 put to buying 2 calls?
    Please confirm.

  86. Hi phil
    Looking at health insurers.
    Noticed Aetna being down. Would not mind owning it for a few months.
    What do you think of selling 20 Oct $26 puts for 1.20?
    Worst case, make $2400 by oct which is 4.8%

  87. Phil: sorry, that was XLNX not AXP. No 90k for you.

  88.  Tmr too many things can go wrong
    China GDP
    JPM earnings
    Google earnings
    Jobless claims
    Expecting a pullback,  ViX gave the signal yesterday, buying dip

  89. Not to reopen a political debate but someone didn’t believe that Conservatives and Tea Partiers were calling Obama a Socialist and here is a NOT FAKE billboard paid for by the North Iowa Branch of the Tea Party

    A billboard ordered and paid for by the North ...

    JPM/Bob – What’s your risk/reward?  You can’t possibly make more than .70 and your risk is easily $4 and you have no possible way of knowing whether it will be one or the other so does it make sense to take those odds on what is essentially a coin flip?

    DXD/Yip – It depends what you are protecting.  If you are protecting Financials (as many of us are) then FAZ is a great hedge.   Yes, it is selling one put and buying 2 calls. 

    AET/Maya – Disappoining earnings, you may want to wait for the Dowgrade police or at least to make sure the market doesn’t roll over after the Fed in 10 mins. 

    No $90K/RMM – Damn, and I already spent most of it!  8-)

  90. Good morning,
    IWM 62.55, 63.50, 63.94, 64.39, 64.67

  91. Yip- I bought DXD Oct $26/30 bull call spread, selling half Jan $25 puts and also buying half Jan $15 puts to minimize margin and protect in case ultra decay goes crazy. Maybe this is a waste of 5 cents, but it makes me feel better when I can cut the margin requirement by 60% for a small difference in price. So net entry $.28 per $4 spread, for a 1400% payoff if it lands in the money.

    These unbalanced spreads are hard to wrap my head around on the Optionshouse order entry screen because it calculates the market price based on 2x. For example, it said the market price was $1.00 per spread (which I guess is technically true when you’re thinking 2x, but when you’re thinking 1x bull call spread and 1/2x put sale, then what you really expect to see is $.50).
    I’ve heard some of you mention a discount at thinkorswim. I need to get that discount enabled on my TOS account so I can start trading more there.

  92. That’s better – now we have a sell-off ahead of the fed that we can rally on.  Strange way to get there though

  93. Goldman, On the other hand, TBT worked great once again as an early indicator this past hour.

  94. Little Late JR…
    Phil…..whatta ya doing starting another political debate?????  Do you have and address for the tea partiers that we can use to send funds too????

  95. Fed minutes - Raised their unemployment outlook and lowered economic outlook – that’s not good.  On the other hand it’s good for those who are looking for QE2.  Nervous Nellies getting out but maybe some buyers will come in after that.  Nor really big rally fuel but certainly nothing to take us down.

  96. Judah – Yes, and I really didn’t like how far they had diverged…sometimes it can be a false indicator, but not this time.
    Fed notes ….5-6years for an economic recovery….Wow…

  97. Jvest… thanks… I’m going for another spike before I enter but I am prepared.  I have a hard time wrapping my head around it too and math is my strong point…. TOS is the best options platform I’ve seen

  98. yip- this DXD hedge is already up 26%. Hopefully that’s not a sign of bears to come, because my portfolio is still basically bullish. I’m just experimenting with a smaller hedge because when I first started following PSW, I made the mistake of purchasing hastily purchasing an SDS hedge that Phil recommended, but I sized it too large for my portfolio. So when my positions started growing, the hedge wiped out my gains.  :)   That’s the part I have the most trouble with: judging how to size the hedge.

  99. Did anyone else have TOS crash on themabout 20 min ago? I had 4 accounts crash and TOS Support says was wrong.

  100. Valerie Jarrett on the boob tube; doesn’t know what she is talking about and not very convincing.
    Iowa Billboard ….well, Phil, you can’t handle the truth.  Whether Obama believes he is a socialist or not, it would be hard to convince me that his worldview and policies are not oriented towards socialism.  So, I’m not sure what your complaint is about ….except I don’t know that any president deserves to be compared w/ Hitler.  Obama and Lenin … now that’s not too crazy.

  101. *Meant to say TOS says nothing was wrong.

  102. Jvest… My situation is different I’m in mostly cash I just believe we will go down 10% or more by Sept..
    Now I’m hoping IWM holds here in TNA….41.01

  103. Fed minutes Highlights: 

    Developments in Financial Markets and the Federal Reserve’s Balance Sheet

    In his presentation to the Committee, the Manager noted that "fails to deliver" in the mortgage-backed securities (MBS) market had reached very high levels in recent months. Under these conditions, dealers had experienced difficulty in arranging delivery of a small amount--including about $9 billion of securities with 5.5 percent coupons issued by Fannie Mae--of the $1.25 trillion of MBS that the Desk at the Federal Reserve Bank of New York had purchased between January 2009 and March 2010.  The Desk had postponed settlement of some of these transactions through the use of dollar rolls. The Manager discussed alternative methods of settling the outstanding transactions and recommended that the Committee authorize the Desk to engage in coupon swap transactions to facilitate the settlement of these purchases. The Manager noted that a coupon swap is a common transaction in the market for MBS in which the two counterparties exchange securities at market prices. By engaging in a coupon swap, the Federal Reserve would effectively sell the scarce securities that it had not yet received and purchase instead securities that are more readily available in the market. After discussing various approaches, meeting participants agreed that coupon swaps were an appropriate method to achieve settlement of outstanding transactions.

    Continuing a discussion from previous meetings, participants again addressed issues regarding asset sales. Participants continued to agree that gradual sales of MBS should be undertaken, at some point, to speed the return to a Treasury-securities-only portfolio. A few participants supported beginning such sales fairly soon; they noted that, given the evident demand in the market for safe, longer-term assets, modest sales of MBS might not put much, if any, upward pressure on long-term interest rates or be disruptive to the functioning of financial markets. However, many participants still saw asset sales as potentially tightening financial conditions to some extent. Most participants continued to judge it appropriate to defer asset sales for some time; several noted the modest weakening in the economic outlook since the Committee’s last meeting as an additional reason to do so. A majority of participants continued to anticipate that asset sales would start after the Committee had begun to firm policy by increasing short-term interest rates; such an approach would postpone asset sales until the economic recovery was well established and maintain short-term interest rates as the Committee’s key monetary policy tool. A few participants suggested selling MBS and using the proceeds to purchase Treasury securities of comparable duration, arguing that doing so would hasten the move toward a Treasury-securities-only portfolio without tightening financial conditions. Participants agreed that it would be important to maintain flexibility regarding the appropriate timing and pace of asset sales, given the uncertainties associated with the unprecedented size and composition of the Federal Reserve’s balance sheet and its effects on financial conditions. Overall, participants emphasized that any decision to engage in asset sales would need to be communicated well in advance of the initiation of such transactions, and that sales should be conducted at a gradual pace and potentially be adjusted in response to developments in economic and financial conditions.

    So they REALLY don’t think in ANY way, shape or form that this economy can handle anything.  That right there is the best summary of the Fed’s interpretation of the situation but it seems like they don’t read their own data: 

    Staff Review of the Economic Situation

    The information reviewed at the June 22-23 meeting suggested that the economic recovery was proceeding at a moderate pace in the second quarter. Businesses continued to increase employment and lengthen workweeks in April and May, but the unemployment rate remained elevated. Industrial production registered strong and widespread gains, and business investment in equipment and software rose rapidly. Consumer spending appeared to have moved up further in April and May. However, housing starts dropped in May, and nonresidential construction remained depressed. Falling energy prices held down headline consumer prices in April and May while core consumer prices edged up.

    Labor demand continued to firm in recent months. While the change in total nonfarm payroll employment in May was boosted significantly by the hiring of temporary workers for the decennial census, private employment posted only a small increase. This increase, however, followed sizable gains in March and April, and the average workweek of all private-sector employees increased over the March-to-May period. As a result, aggregate hours worked by employees on private nonfarm payrolls rose substantially through May. The unemployment rate moved up in April but dropped back in May to 9.7 percent, its first-quarter average. The labor force participation rate was, on average, higher in recent months than in the first quarter, as rising employment was accompanied by an increasing number of jobseekers. Although the number of workers who were employed part time for economic reasons leveled off in recent months, the proportion of unemployed workers who were jobless for more than 26 weeks continued to move up. Initial claims for unemployment insurance were little changed over the intermeeting period, remaining at a still-elevated level.

    Industrial production rose at a robust rate in April and May, with production increases broadly based across industries. Firming domestic demand, rising exports, and business inventory restocking appeared to have provided upward impetus to factory production. In April and May, production in high-technology industries again rose strongly, with substantial gains in the output of semiconductors and further solid increases in the production of computers and communications equipment. The production of other types of business equipment continued to rebound, and the output of construction supplies advanced further. Production of light motor vehicles turned up in May; nonetheless, dealers’ inventories remained lean. Capacity utilization in manufacturing rose in May to a rate noticeably above the low reached in mid-2009, but it was still substantially below its longer-run average.

    The rise in consumer spending slowed in recent months after a brisk increase in the first quarter. Although sales of light motor vehicles continued to trend higher, nominal sales of non-auto consumer goods and food services were little changed in April and May. The moderation in spending appeared, on balance, to be aligning the pace of consumption with recent trends in income, wealth, and consumer sentiment. Real disposable personal income moved up at a solid rate in March and April, reflecting increases in employment and hours worked as well as slightly higher real wages, but home values declined in recent months and equity prices moved down since the April meeting. Measures of consumer sentiment improved in May and early June but were still at relatively low levels.

    The anticipated expiration of the homebuyer tax credit appeared to have pulled home sales forward, boosting their level in recent months. Sales of existing single-family homes rose strongly in April, and, although they moved down in May, these sales were still above their level earlier in the year. Purchases of new single-family homes also jumped in April, but then fell steeply in May. On net, the upswing in the volume of real estate transactions in recent months was likely to boost the brokers’ commissions component of residential investment in the second quarter. However, starts of new single-family homes, which had trended higher in the first four months of the year, declined sharply in May. In addition, the number of permits for new homes, which tends to lead starts, fell for a second month in May. House prices declined somewhat in recent months, reversing some of the modest increases that occurred in the spring and summer of 2009. After changing little on net during the preceding year, interest rates for 30-year fixed-rate conforming mortgages moved lower in May and June.

    Real spending on equipment and software increased further early in the second quarter. Business outlays for computing equipment and software continued to rise at a brisk pace through April, and shipments of aircraft to domestic carriers rebounded. Orders and shipments of nondefense capital goods excluding transportation and high-tech equipment stayed on a noticeable uptrend, on net, in March and April, with the increases broadly based by type of equipment. The recovery in equipment and software spending was consistent with the relatively strong gains in production in recent months, improved financial conditions over the first part of the year, and the positive readings from surveys on business conditions and earnings reports for producers of capital goods. Business outlays for nonresidential construction appeared to be contracting further, on balance, in March and April, although the rate of decline seemed to be moderating. Outlays for new power plants and for manufacturing facilities firmed, and investment in drilling and mining structures continued to rise strongly. However, spending on office and commercial structures was still falling steeply through April, with the weakness likely related to high vacancy rates, falling property prices, and the light volume of sales.

    Businesses appeared to have begun to restock their inventories. Real nonfarm inventory investment turned positive in the first quarter, and data for April pointed to further modest accumulation. Ratios of inventories to sales for most industries looked to be within comfortable ranges.

    Consumer price inflation remained low in April and May. The core consumer price index rose only slightly over the period, and the year-over-year change in the index was lower than earlier this year. Core goods prices continued to decline, on net, and prices of non-energy services remained soft. The headline consumer price index edged down in both months, as the drop in the price of crude oil since April led consumer energy prices to retrace a portion of the run-up that occurred during the nine months ending in January. At earlier stages of processing, producer prices of core intermediate materials rose moderately in May after five months of large increases. Inflation compensation based on Treasury inflation-protected securities decreased recently in response to low readings on inflation and falling oil prices. Survey measures of both short- and long-term inflation expectations remained relatively stable.

    Unit labor costs continued to be restrained by weakness in hourly compensation and further gains in productivity. Revised estimates of labor compensation indicated that hourly compensation in the nonfarm business sector was about flat, on net, during the fourth quarter of 2009 and the first quarter of 2010. The employment cost index showed a moderate rise over the period, boosted by a sizable increase in benefit costs in the first quarter. The year-over-year increase in average hourly earnings of all employees was also moderate through May. Output per hour in the nonfarm business sector, which rose rapidly in 2009, posted a more moderate but still-solid gain in the first quarter of 2010.

    The U.S. international trade deficit widened slightly in April, as nominal exports fell a bit more than nominal imports. The April declines in both exports and imports followed robust increases in March. The April fall in exports reflected declines in exports of consumer goods, primarily due to a drop in pharmaceuticals, and in agricultural goods. Exports of industrial supplies moved up while exports of capital goods were flat after increasing strongly in March. Imports in April were pulled down by lower imports of consumer goods, which more than offset sharply higher imports of capital goods, particularly computing equipment. Imports of automotive products and non-oil industrial supplies declined slightly, and imports of petroleum products were flat following a large increase in March.

    Incoming data suggested that economic activity abroad continued to expand at a strong pace in the first half of the year. Among the advanced foreign economies, growth of real gross domestic product (GDP) in the first quarter was particularly strong in Canada and Japan, and recent indicators for those countries pointed to continued solid increases in the second quarter. In contrast, the rise in economic activity in the euro area was subdued, as favorable readings for the manufacturing sector were counterbalanced by weakness in domestic demand. Since the time of the April meeting of the Federal Open Market Committee (FOMC), concerns about the fiscal situation of several euro-area countries intensified sharply. In response, European authorities announced a number of policy measures, including acceleration of fiscal consolidation plans in some countries, finalization of an International Monetary Fund (IMF) and European Union (EU) assistance package for Greece, and the introduction of a broader €500 billion financial assistance program that could be complemented by bilateral IMF lending. The European Central Bank (ECB) also announced further measures to improve liquidity conditions in impaired markets, including a program to purchase sovereign and private debt.

    Economic activity in emerging market economies continued to expand briskly in the first half of this year. Growth of economic activity was particularly robust in emerging Asia, driven in part by strong increases in industrial production and exports associated with solid gains in final demand as well as the turn in the inventory cycle. The rise of real GDP in Latin America appeared to have stalled in the first quarter, but this development reflected a contraction in Mexico that more-favorable monthly indicators suggested should prove temporary. In contrast, the increase in Brazilian real GDP was very strong. Consumer price inflation in the foreign economies in aggregate was buoyed by higher food and energy prices in the first quarter, while core inflation generally remained subdued. More recent information suggested some moderation in foreign inflation in the second quarter.

    More to come….

    I like selling TNA $40 puts for $1 here – great play if you are the kind of person who likes to play them up anyway.

  104. JRW/
    Are you in TNA rebounding off 63.50?

  105. I have trouble with the debit credit when entering a bull call spread.  It is a debit right ?

  106. Come on Matt, let’s give a shout out to the 230 stick!

  107.  I think Google will disappoint tmr, their biggest issue is to find another source of income, which I dont really see any.
    Banks are expected to be poor, INTC have given a very high watermark to techs

  108. DIA Aug $102/106 bull call spread at $2.10, selling $99 puts for $1.50 is net .60 on $4 spread that’s $1.30 in the money (116%) right now.  Puts can be rolled and rolled and rolled so great way to try to make $3.60 if you have the margin for the put sale (about $17 per)

    Hitler/Cap – I don’t think Lenin would take too kindly to being compared to Hitler either. 

    TOS/Wilsons – No problems here.

  109. Cap – The reason why the billboard is in bad taste is because while Obama can be labeled as a socialist, you and the baggies insist on comparing him to a couple of bad guys who would have had their "boys" come pull your a** out of bed in the dead of night just for talking sh*t about them or their policies. That my man is QUITE a difference!!! :)

  110. lionel / TNA
    I am, but could be dangerous here, so have your sell button ready !!

  111. So David recommended AMD yesterday at 7.45 to 7.55.
    It is now $7.43
    What do  you think of bull call spread 7 and 8 for a net .43 and sell the 7 put for .13. 

  112. Although I am probama, I have to say that W  was compared to Hitler all the time and it wasn’t big news. It seems like all the news stations are running four segments; Mel Gibson tapes, Obama billboard, Barefoot Bandit caught, and BP’s containment efforts..

  113. More Fed Minutes

    Staff Review of the Financial Situation

    The FOMC’s decision at its April meeting to maintain the 0 to 1/4 percent target range for the federal funds rate and the wording of the accompanying statement were largely in line with expectations and prompted little market reaction. Economic data releases were mixed, on balance, over the intermeeting period, but market participants were especially attentive to incoming information on the labor market--most notably, the private payroll figures in the employment report for May, which were considerably weaker than investors expected. Those data, combined with heightened concerns about the global economic outlook stemming in part from Europe’s sovereign debt problems, contributed to a downward revision in the expected path of policy implied by money market futures rates.

    See, this is old news.  These minutes are from 3 weeks ago when everyone was doom and glooming.  It affects the Fed too and colors their outlook and has little to do with today’s reality.  Think of how many of the issues they worried about are no longer true.

    In the market for Treasury coupon securities, 2- and 10-year nominal yields fell considerably over the intermeeting period. Market participants pointed to flight-to-quality flows and greater concern about the economic outlook as factors boosting the demand for Treasury securities. The drop in Treasury yields was accompanied by a small widening of swap spreads.

    Conditions in short-term funding markets deteriorated somewhat, particularly for European financial institutions. Spreads of the term London interbank offered rate, or Libor, over rates on overnight index swaps widened noticeably, with the availability of funding at maturities longer than one week reportedly quite limited. Market participants also reduced holdings of commercial paper sponsored by entities thought to have exposures to peripheral European financial institutions and governments. Even so, spreads of high-grade unsecured financial commercial paper to nonfinancial commercial paper widened only modestly over the intermeeting period. In secured funding markets, spreads on asset-backed commercial paper also widened modestly, while rates on repurchase agreements involving Treasury and agency collateral changed little. In the inaugural Senior Credit Officer Opinion Survey on Dealer Financing Terms, which was conducted by the Federal Reserve between May 24 and June 4, dealers generally reported that the terms on which they provided credit remained tight relative to those at the end of 2006. However, they noted some loosening of terms for both securities financing and over-the-counter derivatives transactions, on net, over the previous three months for certain classes of clients--including hedge funds, institutional investors, and nonfinancial corporations--and intensified efforts by those clients to negotiate more-favorable terms. At the same time, they reported a pickup in demand for financing across several collateral types over the past three months.

    Broad U.S. stock price indexes fell over the intermeeting period, in part reflecting deepening concerns about the European fiscal situation and its potential for adverse spillovers to global economic growth. Option-implied volatility on the S&P 500 index spiked in mid-May, to more than double its value at the time of the April FOMC meeting, but largely reversed its run-up by the time of the June meeting. The spread between the staff’s estimate of the expected real return on equities over the next 10 years and an estimate of the expected real return on a 10-year Treasury note--a measure of the equity risk premium--increased from its already elevated level.

    Investors’ attitudes toward financial institutions deteriorated somewhat, as the equity of financial firms underperformed the broader market amid uncertainty about the implications of developments in Europe and the potential effects of financial regulatory reform. Yields on investment- and speculative-grade corporate bonds moved higher over the intermeeting period, and high-yield bond mutual funds recorded substantial net outflows. Spreads on corporate bonds widened, although they remained within the range prevailing since last summer. Secondary-market bid prices on syndicated leveraged loans fell, while bid-asked spreads in that market widened.

    Net debt financing by nonfinancial corporations increased in April and May relative to its pace in the first quarter. Gross bond issuance by investment-grade nonfinancial corporations in the United States remained solid, on average, over those two months; nonfinancial commercial paper outstanding increased as well. High-yield corporate bond issuance in the United States briefly paused in May, reflecting the market’s pullback from risky assets, although speculative-grade U.S. firms continued to issue bonds abroad and a few placed issues domestically in the first half of June. Gross equity issuance fell a bit, on net, in April and May, likely due in part to recent declines in equity prices and elevated market volatility. Measures of the credit quality of nonfinancial firms generally continued to improve, and first-quarter profits for firms in the S&P 500 jumped substantially, primarily reflecting an upturn in financial sector profits from quite depressed levels. The outlook in commercial real estate markets stayed weak; prices of commercial properties fell a bit further in the first quarter, and the volume of commercial property sales remained light. The delinquency rate for securitized commercial mortgages continued to climb in May, and indexes of prices of credit default swaps on commercial mortgages declined, on net, over the intermeeting period.

    Still the weakest part of the economy but I’m way too scared to bet against CRE these days….

    Consumer credit contracted again in recent months, as revolving credit continued on a steep downtrend. Issuance of consumer credit asset-backed securities (ABS) increased in May, although the pace was still well below that observed before the onset of the financial crisis. Credit card ABS issuance remained subdued, partly reflecting regulatory changes that made financing credit card receivables via securitization less desirable. In primary markets, spreads of credit card interest rates over those on Treasury securities remained extremely high in April, while interest rate spreads on auto loans stayed near their average level of the past decade. Consumer credit quality improved further, with delinquency rates on credit cards and auto loans moving down a bit in April.

    Bank credit declined, on average, in April and May at about the same pace as in the first quarter. Commercial and industrial loans, after dropping rapidly in April, decreased at a slower pace in May. While commercial real estate and home equity loans fell at a slightly faster rate than in recent quarters, the contraction in closed-end residential loans abated, partly because of a reduced pace of sales to Fannie Mae and Freddie Mac. Consumer loans declined again, on average, in April and May. The amount of Treasury and agency securities held by large domestic banks and foreign-related institutions declined in May, contributing to a sizable drop in banks’ securities holdings.

    On a seasonally adjusted basis, M2 contracted in April but surged in May, with much of the month-to-month variation apparently associated with the effects of federal tax payments and refunds. Averaging across the two months, M2 expanded moderately after having been about unchanged in the first quarter; liquid deposits accounted for most of the net change.

    The threat to global economic growth and financial stability posed by the fiscal situation in some European nations sparked widespread flight-to-quality flows over most of the intermeeting period. This retreat led to a broad appreciation of the dollar as well as declines in equity prices abroad and in yields on benchmark sovereign bonds. However, investor sentiment improved near the end of the period, leading to a partial reversal in some of these movements, despite Moody’s downgrade of Greece to below-investment-grade status in mid-June. On net, the dollar ended the intermeeting period up, most headline equity indexes fell, and benchmark government bond yields declined. Strains in euro-area bank funding markets reemerged during the period. In response, the ECB announced some changes to its liquidity operations that would provide greater market access to term funding in euros.3 Difficulties also appeared in corporate debt markets as both nonfinancial and financial corporate debt issuance dropped substantially in May. In addition, pressures in dollar funding markets reappeared for foreign financial institutions, especially those thought to have significant exposure to Greece and other peripheral euro-area countries. To help contain these pressures and to prevent their spread to other institutions and regions, the Federal Reserve reestablished dollar liquidity swap arrangements with the ECB, the Bank of England, the Bank of Japan, the Bank of Canada, and the Swiss National Bank.

    Yields on the sovereign obligations of peripheral European countries declined noticeably following a May 10 announcement of a framework established by the EU for providing financial aid to euro-area governments and of the ECB’s intention to purchase euro-area sovereign debt. However, yields remained high even after these announcements and moved up subsequently, notwithstanding the ECB’s purchases of government debt. Amid a weakening outlook for economic growth in Europe, central banks in several emerging European economies began to decrease policy rates. By contrast, brighter economic prospects in Canada and China prompted the Bank of Canada to raise its target for the overnight rate to 50 basis points at its June meeting and Chinese authorities to raise banks’ reserve requirement further in May. In addition, the People’s Bank of China announced late in the period that it would allow the renminbi to move more flexibly, and the currency appreciated slightly immediately following the announcement.

    Staff Economic Outlook

    In the economic forecast prepared for the June FOMC meeting, the staff continued to anticipate a moderate recovery in economic activity through 2011, supported by accommodative monetary policy, an attenuation of financial stress, and strengthening consumer and business confidence. While the recent data on production and spending were broadly in line with the staff’s expectations, the pace of the expansion over the next year and a half was expected to be somewhat slower than previously predicted. The intensifying concerns among investors about the implications of the fiscal difficulties faced by some European countries contributed to an increase in the foreign exchange value of the dollar and a drop in equity prices, which seemed likely to damp somewhat the expansion of domestic demand. The implications of these less-favorable factors for U.S. economic activity appeared likely to be only partly offset by lower interest rates on Treasury securities, other highly rated securities, and mortgages, as well as by a lower price for crude oil. The staff still expected that the pace of economic activity through 2011 would be sufficient to reduce the existing margins of economic slack, although the anticipated decline in the unemployment rate was somewhat slower than in the previous projection.

    So they were worried about Greece, etc and lowered their outlook only very slightly and we have already moved past the EU crisis and we didn’t blow up and domestic demand is not dampened so their concerns of 3 weeks ago are out the window and the initial reaction to the headline spin on this report is INCORRECT!!!

  114. Sorry, I got swamped by a plumbing problem.  Just got the plumber to fix it.
    I haven’t got the chance to read any posts yet.  I just saw the last post from Phil at 2:39 on a DIA bull call spread.  Are we a bit more bullish now?  60/40?  Or 55/45?

  115. CSCO   My current position is + 4 Oct 23, + 3 Jan 22.5 / - 6 Jul 24 and also -2 Jan 25 Puts.    I’m hoping my callers will expire, but obviously like the recent strength.  My question is what to do for the 3 weeks after opex.   I normally would be looking to sell at least 1/2 callers pretty early, but I sometimes cover too quickly since I’m not actively trading and want to be hedged and earning premium decay.  

  116. Notice CNBC’s "expert" analysts don’t mention WHY the Fed knocked down their projections.  How can they possibly leave out this critical information if they don’t have an agenda to purposely spin the news as negative???

  117. Cap, Lenin and Stalin kills 5 x more peoples then Hitler….

  118. I’m getting confused as to whether CNBC is spinning positively or negatively.
    See link attached.

  119. I’m not big on demonizing people.  
    Calling Obama a socialist is well within bounds given his outlook and policies.
    Calling him a murderer or Hitler would be out of bonds.
    Calling him incompetent and completely in over his head is more than fair.
    Wondering where his heart lies given his lenient attitudes towards dangerous radicals and enemies (Iran, Chavez, many others) as compared to his unfriendly treatment of allies and democracies (Britain, Israel, Honduras, others) is fair play.  It really makes you wonder about this dude.

  120. Phil,
    INT (World Fuel Services) is down pretty good today. Options are pretty thinly traded, but Feb11 puts and calls are 7.65 They have grown revenues steadily the past 4 quarters. Dangerous?

  121. And even more Fed Minutes (big one this time)

    The staff’s forecasts for headline and core inflation were also reduced slightly. The changes were a response to the lower prices of oil and other commodities, the appreciation of the dollar, and the greater amount of economic slack in the forecast. Despite these developments, inflation expectations had remained stable, likely limiting movements in inflation. On balance, core inflation was expected to continue at a subdued rate over the projection period. As in earlier forecasts, headline inflation was projected to move into line with the core rate by 2011.

    Participants’ Views of Current Conditions and the Economic Outlook

    In conjunction with this FOMC meeting, all meeting participants--the five members of the Board of Governors and the presidents of the 12 Federal Reserve Banks--provided projections of economic growth, the unemployment rate, and consumer price inflation for each year from 2010 through 2012 and over a longer horizon. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge over time under appropriate monetary policy and in the absence of further shocks. Participants’ forecasts through 2012 and over the longer run are described in the Summary of Economic Projections, which is attached as an addendum to these minutes.

    In their discussion of the economic situation and outlook, meeting participants generally saw the incoming data and information received from business contacts as consistent with a continued, moderate recovery in economic activity. Participants noted that the labor market was improving gradually, household spending was increasing, and business spending on equipment and software had risen significantly. With private final demand having strengthened, inventory adjustments and fiscal stimulus were no longer the main factors supporting economic expansion. In light of stable inflation expectations and incoming data indicating low rates of inflation, policymakers continued to anticipate that both overall and core inflation would remain subdued through 2012. However, financial markets were generally seen as recently having become less supportive of economic growth, largely reflecting international spillovers from European fiscal strains. In part as a result of the change in financial conditions, most participants revised down slightly their outlook for economic growth, and about one-half of the participants judged the balance of risks to growth as having moved to the downside. Most participants continued to see the risks to inflation as balanced. A number of participants expressed the view that, over the next several years, both employment and inflation would likely be below levels they consider to be consistent with their dual mandate, but they anticipated that, with appropriate monetary policy, both would rise over time to levels consistent with the Federal Reserve’s objectives.

    Financial markets had become somewhat less supportive of economic growth since the April meeting, with the developments in Europe cited as a leading cause of greater global financial market tensions. Risk spreads for many corporate borrowers had widened noticeably, equity prices had fallen appreciably, and the dollar had risen in value against a broad basket of other currencies. Participants saw these changes as likely to weigh to some degree on household and business spending over coming quarters. Participants also noted ongoing difficulties in financing commercial real estate. Nonetheless, reports suggested that more-creditworthy business borrowers were still able to obtain funding in the open markets on fairly attractive terms, and a couple of participants noted that credit from the banking sector, which had been contracting for some time, was showing some tentative signs of stabilizing. Moreover, several participants observed that the decline in yields on Treasury securities resulting from the global flight to quality was positive for the domestic economy; in particular, the associated decline in mortgage rates was seen as potentially helpful in supporting the housing sector.

    This is what I’ve been saying is going right for the CRE majors.  The Big Boys are having no problem getting funded.  In fact the banks are tripping over themselves to get problem assets off their books and shift the loans to people they think are going to be better able to service the debt so the banks are pushing not just the properties they already own but even properties where owners are missing payments as they try to do anything they can to improve their books.  For wealthy CRE players – this is like living in the Magic Kingdom, where all of their dreams come true….

    Supporting the view of a continued recovery, incoming data and anecdotal reports pointed to strength in a number of business sectors, particularly manufacturing and transportation. Policymakers noted that firms’ investment in equipment and software had advanced rapidly of late, and they anticipated that such spending would continue to rise, though perhaps at a somewhat slower pace. Business contacts suggested that investment spending had been supported by the replacement and upgrading of existing capital, making up for some spending that had been postponed in the downturn, and this component of investment demand was seen as unlikely to remain robust. In addition, inventory accumulation, which had been a significant contributor to recent gains in production, appeared likely to provide less impetus to growth in coming quarters. Participants also noted that several uncertainties, including those related to legislative changes and to developments in global financial markets, were generating a heightened level of caution that could lead some firms to delay hiring and planned investment outlays.

    Participants commented that household spending continued to advance, with notable increases in auto sales and expenditures on other durable goods. Going forward, consumption spending was expected to continue to post moderate gains, with the effects of income growth and improved confidence as the economy recovers more than offsetting the effects of lower stock prices and housing wealth. However, continued labor market weakness could weigh on consumer sentiment, and households were still repairing their balance sheets; both factors could restrain consumer spending going forward. Although readings from the housing sector had been strong through mid-spring, participants noted that the strength likely reflected the effects of the temporary tax credits for homebuyers. Indeed, data for the most recent month suggested that, with the expiration of those provisions, home sales and starts had stepped down noticeably and could remain weak in the near term; with lower demand and a continuing supply of foreclosed houses coming to market, participants judged that house prices were likely to remain flat or decline somewhat further in the near term.

    Meeting participants interpreted the data on the labor market as consistent with their outlook for gradual recovery. Employers were adding hours to the workweek and hiring temporary workers, suggesting a pickup in labor demand; however, the most recent data on employment had been disappointing, and new claims for unemployment insurance remained elevated. Reportedly, employers were still cautious about adding to payrolls, given uncertainties about the outlook for the economy and government policies. Participants expected the pace of hiring to remain low for some time. Indeed, the unemployment rate was generally expected to remain noticeably above its long-run sustainable level for several years, and participants expressed concern about the extended duration of unemployment spells for a large number of workers. Participants also noted a risk that continued rapid growth in productivity, though clearly beneficial in the longer term, could in the near term act to moderate growth in the demand for labor and thus slow the pace at which the unemployment rate normalizes.

    A broad set of indicators suggested that underlying inflation remained subdued and was, on net, trending lower. The latest readings on core inflation--which excludes the relatively volatile prices of food and energy--had slowed, and other measures of the underlying trajectory of inflation, such as median and trimmed-mean measures, also had moved down this year. Crude oil prices declined somewhat over the intermeeting period, a factor that was likely to damp headline inflation at the consumer level in coming months. Other commodity prices were moderating, and nominal wages appeared to be rising only slowly. Some participants indicated that they viewed the substantial slack in labor and resource markets as likely to reduce inflation. The financial strains in Europe had led to an increase in the foreign exchange value of the dollar, and the resulting downward pressure on import prices also was expected to weigh on consumer prices for a time. However, inflation expectations were seen by most participants as well anchored, which would tend to curb any tendency for actual inflation to decline. On balance, meeting participants revised down modestly their outlook for inflation over the next couple of years; they generally expected inflation to be quite low in the near term and to trend slightly higher over time.

    Some participants judged the risks to the outlook for inflation as tilted to the downside, particularly in the near term, in light of the large amount of resource slack already prevailing in the economy, the significant downside risks to the outlook for real activity, and the possibility that inflation expectations could begin to decline in response to low actual inflation. A few participants cited some risk of deflation. Other participants, however, thought that inflation was unlikely to fall appreciably further given the stability of inflation expectations in recent years and very accommodative monetary policy. Over the medium term, participants saw both upside and downside risks to inflation. Several participants noted that a continuation of lower-than-expected inflation and high unemployment could eventually lead to a downward movement in inflation expectations that would reinforce disinflationary pressures. By contrast, a few participants noted the possibility that a potentially unsustainable fiscal position and the size of the Federal Reserve’s balance sheet could boost inflation expectations and actual inflation over time.

    Gee, at least there are a couple of guys who "get it."

    Committee Policy Action

    In their discussion of monetary policy for the period ahead, members agreed that it would be appropriate to maintain the target range of 0 to 1/4 percent for the federal funds rate. The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside. Nonetheless, all saw the economic expansion as likely to be strong enough to continue raising resource utilization, albeit more slowly than they had previously anticipated. In addition, they saw inflation as likely to stabilize near recent low readings in coming quarters and then gradually rise toward more desirable levels. In sum, the changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place. However, members noted that in addition to continuing to develop and test instruments to exit from the period of unusually accommodative monetary policy, the Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably. Given the slightly softer cast of recent data and the shift to less accommodative financial conditions, members agreed that some changes to the statement’s characterization of the economic and financial situation were necessary. Nearly all members judged that it was appropriate to reiterate the expectation that economic conditions--including low levels of resource utilization, subdued inflation trends, and stable inflation expectations--were likely to warrant exceptionally low levels of the federal funds rate for an extended period. One member, however, believed that continuing to communicate an expectation in the Committee’s statement that the federal funds rate would remain at an exceptionally low level for an extended period would create conditions that could lead to macroeconomic and financial imbalances.

    At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive: 

    "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability."

    The vote encompassed approval of the statement below to be released at 2:15 p.m.: 

    "Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

    Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

    The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

    The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability."

    Voting for this action: Ben Bernanke, William C. Dudley, James Bullard, Elizabeth Duke, Donald L. Kohn, Sandra Pianalto, Eric Rosengren, Daniel K. Tarullo, and Kevin Warsh.

    Voting against this action: Thomas M. Hoenig.

    Mr. Hoenig dissented because he believed that, as the economy completed its first year of modest recovery, it was no longer advisable to indicate that economic and financial conditions were likely to warrant "exceptionally low levels of the federal funds rate for an extended period." Although risks to the forecast remained, Mr. Hoenig was concerned that communicating such an expectation would limit the Committee’s flexibility to begin raising rates modestly in a timely fashion and could result in a buildup of future financial imbalances and increase the risks to longer-run macroeconomic and financial stability.

    By unanimous vote, the Committee selected William B. English to serve as Secretary and Economist, and James A. Clouse to serve as Associate Economist, effective July 23, 2010, until the selection of their successors at the first regularly scheduled meeting of the Committee in 2011.

    It was agreed that the next meeting of the Committee would be held on Tuesday, August 10, 2010. The meeting adjourned at 12:10 p.m. on June 23, 2010.

    Conference Call

    On May 9, 2010, the Committee met by conference call to discuss developments in global financial markets and possible policy responses. Over the previous several months, market concerns about the ability of Greece and some other euro-area countries to contain their sizable budget deficits and finance their debt had increased. By early May, financial strains had intensified, reflecting investors’ uncertainty about whether fiscally stronger euro-area governments would provide financial support to the weakest members, the extent of the drag on euro-area economies that could result from efforts at fiscal consolidation, and the degree of exposure of major European banks and financial institutions to vulnerable countries. Conditions in short-term funding markets in Europe had also deteriorated, and global financial markets more generally had been volatile and less supportive of economic growth.

    The Chairman indicated that European authorities were considering a number of measures to promote fiscal sustainability and to provide increased liquidity and support to money markets and markets for European sovereign debt. In connection with the possible implementation of these measures, some major central banks had requested that dollar liquidity swap lines with the Federal Reserve be reestablished. These swap lines would enhance the ability of these central banks to provide support for dollar funding markets in their jurisdictions. The terms and conditions of the swap lines would generally be similar to those in place prior to their expiration earlier in the year.

    The Committee discussed considerations surrounding the possible reestablishment of dollar liquidity swap lines. Participants agreed that such arrangements could be helpful in limiting the strains in dollar funding markets and the adverse implications of recent developments for the U.S. economy. Participants observed that, in current circumstances, the dollar swap lines should be made available to a smaller number of major foreign central banks than previously. In order to promote the transparency of these arrangements, participants agreed that it would be appropriate for the Federal Reserve to publish the swap contracts and to release on a weekly basis the amounts of draws under the swap lines by central bank counterparty. It was recognized that the Committee would need to consider the implications of swap lines for bank reserves and overall management of the Federal Reserve’s balance sheet. Participants noted the importance of appropriate consultation with U.S. government officials and emphasized that a reestablishment of the lines should be contingent on strong and effective actions by authorities in Europe to address fiscal sustainability and support financial markets.

    At the conclusion of the discussion, the Committee voted unanimously to approve the following resolution: 

    "The Committee authorizes the Chairman to agree to establish swap lines with the European Central Bank, the Bank of England, the Swiss National Bank, the Bank of Japan, and the Bank of Canada, as discussed by the Committee today."

    Secretary’s note: Later on May 9, 2010, the Federal Reserve, in coordination with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank, announced that U.S. dollar liquidity swap facilities had been reestablished with those central banks. The arrangements with the Bank of England, the ECB, and the Swiss National Bank provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously. On May 10, the Federal Reserve and the Bank of Japan (BOJ) announced that a temporary U.S. dollar liquidity swap arrangement had been established that would provide the BOJ with the capacity to conduct tenders of U.S. dollars at fixed rates for full allotment.

  122. pahurik, I don’t know how you compute numbers.  Hitler was a genocidal maniac.   Stalin also.   I made no mention of Stalin, or Mao, or the Khmer Rouge, etc.   Lots of bad dudes throughout history.
    Lenin too; but my commentary was politically speaking.  And I don’t know off hand how many people Lenin is credited w/ killing; not defending Lenin.
    Not sure your point; other than I guess you object to O being compared w/ infamous commies and socialists.
    Anyway; let’s get back to the markets; I don’t really have a lot to say on that today; watching mostly and trimming positions into expiration.  Not quite getting this 7-day rally.   I heard someone today talking 1150-1200 by mid August, which sounds crazy to me; but if say JPM GS GOOG and AAPL go nuts, who knows ?

  123. Oh Dear and Merciful Lloyd,
    Bless us again with thy Holy Stick

  124. Well the price you pay in a bull call spread is a net debit  – I know because they filled a 100 contracts of AMD.  lol

  125. OK, we have the Pivot, the 40 and 200 SMA, the Bollinger, and my IWM 63.94 all in the same place. we should push hard up from here.

  126. JRW III…very nice.

  127. Thanks JRW for your comments

  128. Hi Phil,
    "JPM/Bob – What’s your risk/reward?  You can’t possibly make more than .70 and your risk is easily $4 and you have no possible way of knowing whether it will be one or the other so does it make sense to take those odds on what is essentially a coin flip?"
    Closed my JPM July 40 put, why was I so stupid that I didn’t think like you???

  129. Phil, SPWRA did get away somewhat and I am up 50% on a 2011 artificial (thanks) but you could still enter a 2012 artificial selling the 7.5 P for $ 1.33 and buying the 7.5/10 C vertical for $1.70. The $2.5 vertical cost you less than $0.40 (600%) for only $1360 margin for 10 contracts (per TOS). This seems fair as worst case is 1000 shares of SPWRA at $7.87. 

  130.  Socialists – Its hard to find a real socialist in America today, but for the few that will claim the title, they certainly don’t count Obama as one of their own, and for good reason.

  131. Don’t freak, we’re just testing the 200 SMA as a floor; still above the 8ema, but I will be out if we should somehow fail 63.94 !! Beware the flush !!

  132. Phil,
    My ACI cost base about 20.75, should I sell Aug. 21 call for 1.20 or wait for the earning report at July 30?

  133. i guess this’s y ya gottsa have big balls

  134. Well, that’s why we have conformation rules. Out of TNA at $41.48 for 59 cents.

  135. chyer/GOOG
    Just my $.02….The action for GOOG looking forward, I believe, is the OEM business that will no doubt evolve with their android technology. This could be huge, and it could happen soon. I also believe they can give Apple a run for their money in the iPad space. These companies are only six miles apart, and love to compete. The search engine/advertising business is only a part of their potential, IMO. I am very bullish on their future.

  136. VVUS – Aug P vertical 13/10 for 1.40 or better.  Not sure it will fill, but worth it in my mind.

  137. last 2 days —final gasp on TBT disasters-sold 2012 20puts for .82—-sold 55-65 2012  vertical for .97 no more!

  138. JRW/DrCraig,
    even with that failed run up, it was about $300 per /TF futures contract…….

  139. CNBC/Dez – I think their policy shifts depending on whether Immelt is happy with Obama that morning or not.  I think it depends on whoever has the active bribe on the table – whatever that is.  There are so many ways a multi-national like GE can trade favors it’s mind-boggling.   I noticed GE got some solar money this weekend and suddenly the commentary was better this week but I don’t know what the hell they were thinking with thier analysis of the Fed minutes – hard to believe they are actually this bad at analyzing a document and keeping it in perspective…

    LOL Cap!  And you never wonder about GWB when there are pictures of him French-Kissing Saudi Princes?  How about the way a couple of dozen Bin Ladens and 100 other Saudis were given special permission to leave the US right after 9/11 when all other air traffic was grounded?  Did that make you wonder or was that OK because he was your lenient guy.  Please – this is what is so sickening about your sacntimony – how opportunistic it really is.  You can’t be a part-time patriot – things are either right or wrong for America no matter whether it’s your guy or not in the Big Chair. 

    INT/RJ – They are down on an acquisition so not too bad but I have no idea what the deal is.  They are already way up in anticipation of a recovery so it seems kind of risky until you get better indications from the Transports that business is going well. 

    Thinking/Bob – You’ll get used to it.  Trust me, you don’t want to think like me.  Makes it very hard to sleep.  My little one has the same problem and can never go to sleep (too much stuff on the brain) but luckily I can help her get through it, having been there myself.

    SPWRA/Stjean – That’s still very nice for 18 months!  2012 $7.50/10 bull call spread at $1.70, selling the $7.50 puts for $1.33 is net .37 on the $2.50 spread with worst case owning SPWRA at net $7.87.  Nice play! 

    ACI/Bob – I’d wait.  Coal shipments seem good but, of course, if they get a nice run back to $22 ahead of earnings, then you want to lock it in. 

    The news is going to be that we sold off on poor Fed mintutes so we may get a dip as Europe and Asia react in the morning but if their anylists are smarter than ours – they may be heading higher and we’ll have to gap up to catch up.  Earnings trump all of course

  140. Phil
    I missed the list of 401K trade can you send me a link ?
    I think Kraft  was one of them   KFT

  141.  gel1/ My issue for Goog is near term. They dont really make any revenues for andriod OS. The difference with Apple is that Apple can make cash in several areas, Google in earnings terms is a one trick pony. If their earnings growth is marginal and capex up again it will not be pretty.

  142. The only dissenter is Thomas Hoenig… I believe him to be right in his opinion. ( he might also have a large position in TBT )

  143. Phil, I was e-mailing Greg (one of your staff) last week and I wondered if you ever slept.  Now I know that you don’t. 

  144. head fake, but can we re-take?

  145. Machines want to make it 7 in a row…"world’s largest Green Stick" the IWM screen…"GOOD ROBOT!"…oh wait failing now…"BAD ROBOT!"…oh wait.
    Actually, looks like the IWM 200 is giving the bot issues…

  146.  CNBC Comment on intel is ridiculous. Running the company well is a reason to sell it?? if it is near 30 I agree, under 22 that is a real joke!!

  147.  ocelli7 – Caught the run from 634.50 to 637 (stopped out). Only 2 contracts, but I’m playing cautiously. I’ve had a lot of early stops lately due to false positives on the indicators. Chalk it up to earnings volatility and indecision. It would be nice to see some of those sweeping trends again, now that I’m in the IWM game. I’ve stopped trading during lunch hours all together. Too little consistency.  

  148. chyer/GOOG
    I understand your position and it makes rational sense, however my focus is more as an investor as opposed to a trader. I am looking forward 12 months.In my strategy, I have factored in the current P/E and believe the company is still attractive without the potential of android sales, and consider this additional revenue simply as a plus.

  149. Phil/not sleeping – I don’t sleep either for similar reasons and it still frustrates the hell out of me. I don’t think I’ll ever completely "get used to it".

  150. Phil/french kiss  Don’t forget holding hands….  :)

  151. Phil / Sleep   I surprised you don’t have more kids?!

  152. Phil/sleep  You may want to start with not allowing your little one to read your morning write-up…. ;)

  153. And to weigh in the VZ vs. T debate, a friend of mine is the IT manager at a business who uses both wireless data networks to transfer lots of data. He told me this weekend that the VZ data network works much better (better speed and bandwidth) for him than T (they use both) and that he will be switching his entire system to VZ. And it’s not just local, they have machine in the entire country. So I guess anyone switching from VZ to T for the iPhone probably feels the pain. And he uses T for his iPhone so no T basher there. Just reality! And on a different but similar subject, VZ Fios is gold compared to Comcast!

  154. 401K/QC – Not sure what that is?  We have our conservative Buy List and last week there were 10 Dow plays (or 9 Dow plus WFR) so click on my name above and you’ll see it pretty quick.

    Sleep/Dez – Highly overrated…

    Sleep/Kwan – Call me about that.  I have a few tricks and we need to talk about Wiki project anyway. 

    Hand holding/1020 – Hey, I’ll hold a guys hand to be culturally polite but smooching is out – not that there’s anything wrong with that! 

  155. JRW, If you are checking in — my hat is perenially off to you.  You nailed the high and low of the day.  Just playing off the low was good enough for me.  Thanks, as always.

  156.  stjeanluc, i agree with everything you said – vz is a much superior network which makes the iphone/apple even more amazing – people are wiling to put up with such a subpar network in order to have such a innovative product.  

  157. Phil
    Thanks thats what i was looking for

  158. VZ versus T: Is it a good idea to have both in the portfolio?  I think both are relatively solid.  And both pay decent dividends.

  159. GWB, I will give you another one.  A month or two after 9-11, an American Airlines pilot threw an arab male off of his plane because of some suspicion.  There was some minor outrage in the public.    The exact quote from GW: "I hope that pilot did not throw that person off of the plane because he was an arab."  Absurd.  Bush should have said nothing.  The attack was conducted entirely by arab males so it would make perfect sense that the pilot might have been suspicious of an Arab male on his plane, especially at that time.  I certainly hope that current critics of Obama on this site leveled similar appropriate criticisms of Bush during his term for driving the nation off a cliff on practically every policy issue you can think of.  They did that, right?
    LOL Cap!  And you never wonder about GWB when there are pictures of him French-Kissing Saudi Princes? 

  160. Makes you wonder why Apple chose T to begin with – better deal? I think that the iPhone could have been an even better story had they gone with VZ even with a slightly worse deal. Part of the equation was also probably the technology as VZ runs CDMA which is not widely used internationally while T use GSM and it’s 3G variations used pretty much everywhere. But still, puzzles me!

  161. stjeanluc- I think the worldwide use of GSM was key, as you said. But also, AAPL probably just got a better cut of the profits by going with T. At the time, VZ was full of hubris and T was desperate. Now AAPL has revitalized T while taking a larger portion of profits than they would’ve gotten with VZ. Meanwhile, VZ is becoming increasingly desperate to get the iphone.
    AAPL and VZ are like the two spoiled kids who refuse to play with each other because they’re both used to getting their own way 100% of the time.

  162. Hi Phil
    I am a new user
    Why would you sell xom jan 2012 puts and jan 2012 calls on xom at lets say 57.50 strike price
    I know you get the premium but what about the risk on the naked calls
    are you buying the stock?

  163. sydney99- Phil’s litmus test is "do you really want to own the stock?" Selling a naked put is no more risky than buying the stock itself. Either way, you could theoretically lose the entire current value of the stock. (Technically, selling the naked put is slightly less risky because you would still get to keep your premium…)  Your brokerage will prevent you from selling more naked puts than you can cover with available margin.

  164. So how do you guys link the smiley icons, I’m not use to using "FCKeditor"…LOL…the name of the forum software program (click on the "?" icon in the forum toolbox)

  165. sydney99 yes you do buy the stock

  166. sydney99: Yes, Phil was buying the stock and then selling the calls and puts.  That’s the favorite strategy here.  It’s called "buy/write".  You have to get used to the way Phil talks.  Go back and re-read that post.  That’s how he usually talks about buying the stock and selling calls & puts.

  167. also another reason APPL did not go with VZ was because VZ would not give up control over software on the phone. if you remember VZ had/has its hand up and all over the phone software making it suck and reducing and cutting functionality so they could extract money from customers for stupid services like $2 ring tones. APPL wanted a totaly diffirent way of doing biz in the wireless market and T accepted and VZ gave APPL the finger.

  168. Phil, I am worried that TBT is dying of a 1000 cuts now. It has been making lower highs and lower lows for the last 4 months and decay is taking its toll. I think that we all expect rates to go up eventually, but TBT might need to be reset before that happens. Is there a non-triple ETF we could use instead? 

  169. goldman - :-)

  170. Uh oh…Fast Money is bearish.  That doesn’t look good for my shorts… hahaha

  171. Phil-
    VLO –  $17 puts look good at 0.7 – what are your thoughts on the 16-17 bull call spread for 0.73 and selling the 17 puts for 0.7 for a net 0.03 entry into the $1 spread? Or we sell the $16 puts for 0.4 for an entry of 0.33 into the $1 spread

  172. diamond – (^_^)

  173. thanks guys

  174. James Grant of "Interest Rate Observer" is predicting QE 2.0 soon.  We may get our Dow 36,000 after all. :D  

  175. The APPL and T issue has most to do with appl wanting apps control. What you aslo must consider is like microsoft, they may end up with a monopoly issue. Their issue and microsoft issues with explorer only differ by what was allowed then and what is allowed now. The justice department takes it’s time and checks everything first.

  176. Phil, VLO in a good spot now? I was thinking selling the 2012 15 P for $2.28 and buy 2 X 2012 15/17.5 C Vertical @ $1.30 each. Put you in effect in a $5 vertical for $0.32 with $1535 margin for 10 P contracts. Worst case, you get VLO at $15.16. And we are already $2.5 in the money.

  177. I forgot to mention that Itunes is overcontroled and may prove problemactic for apple also.

  178. As Bob Pasani pointed out, INTC got totally sold into today.  I’d like to think they were trying to keep a lid on it for oe but at 3 times the average volume.. I think that’s an unload.
    They’re preparing us for lower bank (except JPM) earnings then last year.  Saying BAC and C are down due to assets sales marked last year.  Couldn’t they find anything else to unload this quarter?  JPM looks rock solid compared to the rest.  But we’re still only talking about .57 per share.
    Banks continue to look topish.  But they still have room to go for oe if they need it.  I am using all my strength to try and wait until Monday..

  179. Matt1996
    I believe even the banks realize their BS is exposed and since they control the market where they go is still up to them. Maybe because your smart you can do the look through their eyes and figure it out. Good luck!

  180. Phil, the two things folks speaking for the Fed are tossing around are more MBS and treasury purchases.  But we already have historically low mortgage rates and treasury yields.  What would that accomplish?  I think it illustrates their limited abilities in fighting the deflation boogey man.

  181. this looked like a typical consolidation day to me, but we head higher tomorrow into goog earnings and goog is over 500 by 4 pm
    just my two cents
    rut wants to at least touch 650 prior to expiration

  182. rwvjx5
    Hope your right tomorrow.

  183. stjeanluc & jvest/T & APPL-I read a piece a few weeks ago that put forth this very issue.. from what it was saying, Jobs has some allegiance for T b/c when APPL was close to bankruptcy, circa 1996, T was one of the few companies that lent them money to continue doing business. Surprised me. I just can’t remember where I read this.

  184. Jbur
     I also remember that. Remember T was broken up as a monopoly and that is the problem for them and Apple!

  185. PHIL/BP Integrity Test – Bob Cavnar is a former Oil Industry Executive who was featured on MSNBC Harball July 13th…someone who I trust understands the processes and equipment involved in such an operation.  Below is a post from his web page today.  This test is going to be more important than most realize and/or will admit…

    Updated: Well Integrity Test – Where Did That Come From?
    By eljefebob on July 14, 2010 9:00 AM | 15 Comments

    Updated:  Sunday, BP surprised everyone by announcing that now that they had a "capping stack" set, they were not going to actually hook up all the ships they have on station to collect the oil; rather, they were going to run a well integrity test to see if they could shut-in this badly damaged well that has been flowing into the Gulf now for 86 days uncontrolled.  My first reaction was What?  Well integrity test?  I’ve looked back through all of my notes, blog entries, and reviewed BP’s and the Unified Command’s communications.  I’ve even done multiple internet searches, and found the first mention of a "well integrity test" related to BP on this past Sunday, July 11.  Certainly I could have missed something, but I don’t recall even a single mention of what I consider to be probably the most significant (and risky) operation BP has conducted since the much hailed, and utterly failed, top kill procedure that kept the masses enthralled during the Memorial Day weekend.

    All of us who are paying attention have been watching ROV feeds, and listening to the briefings by Adm. Allen and Kent Wells that continue to be long on words and short on information.  The press continues to let them get away with it, not asking the pertinent questions and holding them to a standard of transparency so we can really know what’s going on.  Wells is now actually holding 2 "technical briefings" a day, which are also long on words, short on technical, where he basically talks in long sweeping statements talking about safety and "making sure everyone knows what we’re going to do", without actually telling anyone what they’re going to do.  This morning, we learned that, even thought the stack has now been set for 3 days, they actually haven’t hooked up the two new valves.  He also announced that yesterday, they pulled all of the ships off site to run a seismic survey, and, alarmingly, have  stopped drilling the relief well, which is now only 4 feet away laterally from the blowout well.  Since Dudley’s letter to Adm. Allen last Friday laying out the relief well timeline, they have made little progress and have only 34 more feet to drill before they get to casing point for the last string of pipe. 34 feet, and they stopped.  They’re just sitting there circulating on bottom at 17,840.  Just sitting there.  Wells claims that they are doing that for "safety reasons" during the well integrity test.  The one they’re not going to run for at least another 24 hours.  What?

    I’m sorry, but I have to ask, What the hell are they doing?  We now have an ability to capture all the oil and stop this massive pollution of the Gulf (as well as measure it).  We have great weather to get the relief well completed.  We already know, without the "well integrity test", that they have severe damage to the BOP and other surface equipment and casing.  If that weren’t true, the damn thing wouldn’t have blown out in the first place.  We also know that between the "capping stack" and the old BOP that there is a non-wellhead rated piece of equipment, known as the flex joint, along with the riser adapter, that we’ve talked about before.  This piece of equipment, that normally sits above the BOP, is not rated to those pressures encountered in wellheads.  All of the other components in this BOP are rated to at least 10,000 psi (new, off the shelf, and undamaged); this piece is by far the weakest link in the chain, especially since it took severe stresses as the rig sank and 5,000 feet of riser torqued it as it sank.  Yesterday, Adm. Allen announced they were going to take the stack, including this flex joint, to as high as 9,000 psi for up to 48 hours.  I have been unable to learn the model and rating of the flex joint here, but Oil States advertises their LMRP flex joints to be rated 600-6,000 psi, far below the 9,000 to which Adm Allen said they would potentially go; even with the 2,200 psi of hydrostatic pressure on the outside of the compenent caused by it being in 5,000 feet of water, it’s still at least 1,000 psi differential pressure over the rating of the component.

    Surely, I’m missing something here, but all of this seems like reckless rope-a-dope in the tradition of Muhammad Ali in his best rope-a-doping days.  Either that, or there are so many cooks in the kitchen that the pot is boiling over while the chefs all stand around arguing about spices.  Boxing and cooking analogies aside, I don’t think anyone is actually in charge, and if anyone is,  they are certainly not interested in giving any real information.

  186. Below is a picture of the equipment "stack" that Bob Cavnar discussed in the post above:

  187. goldman
    I wish I was suprised!

  188. Jbur, good info. I was not aware of that fact! 

  189. Might be interesting and stock moving!
    Apple to hold iPhone 4 press conference this Friday at 10 AM PT

  190. All,
    IBKR jumped 4% after hours after it was announced that they’ll be included in the S&P Small Cap 600 as of Tuesday, July 20.  I’ve been looking to sell calls against my holdings on the next move above 17.50, as it has had a tough time holding a price above that level.  Well, here it is (at least after hours) in the 17.70s now, which seems like the golden opportunity I’ve been waiting for.
    The question is this: In your experience, are the jumps based on index modifications quick and overdone?  That’s my guess, but I haven’t been through enough of these to have a sense, so I’m curious whether I should just sell the calls tomorrow morning and take the opportunity that has presented itself (assuming it holds up overnight), or whether these tend to have shelf life all the way until the index modification takes place on July 20 (e.g., because ETFs will need to buy shares that day).
    Wisdom appreciated, as always.

  191. Phil / 1020 / Saudis.   I don’t like sucking up to the Saudis no matter who is doing.  Bush holding hands w/ King Fahd or whomever; or Obama bowing and kissing ass.
    More to the point however is that Bush generally recognized the evils in the world (in particular Taliban, Saddam, Iran, N Korea and Syria) while Obama is more sympatico with their "grievances" and worldview, and I have a problem with that.
    The Saudis and China are in the grip of our dependencies on them, Saudis for oil and China for buying Treasuries and supplying cheap trinkets.  So they get a pass; and the left in particular swoons over how the authoritarian Chinese can simply trample on human rights and the environment and get away with it.  Tom Friedman, well he just loves it.  He wants a Tyranny Day for us.  or more.

  192. These guys have a one track mind:

    Sen. Jim Bunning (R-Ky.) on Wednesday praised New York Yankee owner George Steinbrenner for passing away in 2010 when there is no estate tax.

    "Because he was smart enough to die in 2010, there is zero tax liability on the estate tax," he said. 

  193. regarding INTC’s earnings, an interesting comment:

    One of the main problems in the economy seems to be a lack of job creation / job losses. This is further highlighted by Intel’s recent quarterly release of earnings. If their revenue is at all-time highs, this means that businesses are electing to modernize their technology at the expense of hiring new workers. I have done a quick analysis of the employment figures over the last couple of years from the BLS and discovered that approximately 6.5MM workers could be substituted in various industries for technology improvements in infrastructure. Similar to the auto replacing the horse and buggy. Some quick numbers: 6.3MM workers x 32 hours per week (avg work week) x 20 per hour = 4.03B of lost wages to technology per week or 48.3 B per quarter. Intel had revenues of $10B. So for companies to improve the bottom line, cutting costs, no health-care benefit problems, no union issues, and no pension issues; they elect to improve technology where it functions 24/7 with no employee complaints. Additionally this analysis has been done just for one quarter, imagine the benefits over a year / replacement cost cycle. Income levels are going to remain depressed and workers are going to experience continuing difficulty in finding employment. Essentially Intel’s numbers are worse for the economy than a bad unemployment report.

  194. Do you realize you approve breaking the law as long as it is in your best interest?

    Somebody else posted this as a comment in response to the story linked above showing Obama’s / Holder’s / Justice Dept sheer hypocrisy and lunacy on immigration policy:
    "Hmm – seems to me that we have some dots to connect.
    Arizona law – Pro American – Obama’s against it.
    Capitalism – Pro American – Obama’s against it.
    Socialized Medicine – Anti American – Obama’s for it.
    Sanctuary Cities – Anti American – Obama’s for it.
    Blacks committing voter intimidation – Anti American – Obama’s for it
    NASA going into space – Pro American – Obama’s against it
    NASA doing remedial outreach to the Muslim world (can you say appeasement) Anti American – Obama’s for it.

    Is there ANYTHING American about this President?"

  196. ANd you felt the need to repost it Cap? :)   Damn, expecting China to be in the red, wasnt counting on the bogus #s coming out! Bad day for me today….

  197. Cap…. good stuff!…. you ask if there is anything American about this President – you bet there is, Americans "spend till they bend", and are in debt up to their eyeballs, and have no concern for the consequences. Obama is following the same pattern, and doing it very well!

  198. Having read the Jim Grant piece ( this guy has been around for a long time, and in my opinion knows his stuff ) and his projection for a better than even chance we will very soon see QE 2.0 from the Fed, I am laying in some GLD calls tonight for an early fill in the morning.  $2 Tril of further dilution will drive the price of gold skyward – might also scare the Chinese enough to see them bail on further Treasury purchases, not to mention other sovereign buyers.

  199. Phil, I know your were a fan of Activision Blizzard at one time. I just read that it is coming out with WOW’s sequel, Starcraft II later this month. They are hoping it will be a big profit driver.

  200. Phil’s Yen Perpetual Free Money Machine:  Phil, I have been trading this since last week, whenever I am able to be at my desk for 3am ET (11am where I am).  This trade is magic, and along with the simple backtesting I had done before, has worked all 7 days I have looked at it. Of those, I have successfully traded it 4 of 4 days. It works on days when the Nikkei is up, or down (like today). Almost inevitably, just before 3am, the Yen sinks (meaning USDJPY goes up) and then you have a 10 minute window or so to short USDJPY. All 7 days I have watched this, that entry window is within 10pips of the highest point of USDJPY over the next 2 hours. That means your risk can be defined very narrowly to a 10pip buy-stop. On the other hand, the reward has varied from 20pips to 50pips, in a two hour period (closing trades by 5am). Many days it seems the USDJPY will fall further throughout the US daytime session, but given this is a specific day trade, I don’t take that risk. I’m glad there aren’t too many PSW’ers in the Asian time zone as we want this free money machine to keep going!

  201. neverworkagain, interesting-  no doubt what you are observing is a ‘tell’ of the big boys daily machination of the world markets.

  202. Matt, yes, I think the Japanese banks have been manipulating the Yen for years to try (unsuccessfully) to pump the Nikkei, where a weaker Yen helps exporters. I think it is the Japanese version of the stick save. In addition, for any sort of short term currency trading to be successful, you need to have a system of betting, either timing or risk / reward set-ups that you can stick to precisely. This one seems perfect.

  203. Good morning! 

    What a crazy futures market – S&P ran up to 1,100, then fell to 1,087 and is now back over 1,090.  Most of the drop was due to China’s "slower" 10.3% GDP number and that is just STUPID because they’ve been trying to slow GDP growth so a higher number would have been bad.  I don’t know why but I am still shocked at how absolutely TERRIBLE people are at interpreting data.  Same goes for the Fed minutes this morning – I don’t think even the "experts" read more than a sentence or two before running on TV and giving their opinions about things and the people watching them seem to only read the headlines before committing their capital and then they wonder why they don’t make money consistently….

    Oh well, it’s a huge advantage for the few of us remaining who have attention spans so we shouldn’t complain, but what’s going to happen when the people who write the reports that nobody reads are replaced by the next generation of people who can’t be bothered to read reports?  Will the Fed one day just Twitter their statement in 140 characters or less ("Rates on hold, economy good, inflation low – B.")?

    VZ & T/Cwan – I think they are both great companies.  Keep in mind that we, of course, are all web users who care about bandwidth and stuff but a very large percentage of people don’t care and just talk on their phones so VZ will not wipe T out just because they have a better system.  T still has the last mile locked in 80% of America and they are laying the groundwork for a massive upgrade but the company works on decade-long plans and the IPhone was part of their customer retention strategy since they know that competitors will be grabbing high-end users for a while.  Meanwhile, AAPL has schedued a 1pm (EST) press conference on Friday, supposedly to address the IPhone issues but they’ve also been dropping hints about some new, big thing in the works that all the store people seem very excited about. 

    By the way, I was at the mall today and AAPL store was a zoo on a Wednesday night and whole mall (Wayne Town Center) was busy and people were waiting over an hour at 7pm for a seat at CAKE.  If this is a recession, it’s the liveliest recession I’ve ever seen and I’d be terrified to go shopping when things pick up for fear of being trampled by crowds…

    Also, by the way – had my Iphone since Tuesday and no dropped calls yet.  Even if the phone didn’t work at all I would be thrilled with my new camera!  I tested the video and it took less than 2 minutes for a video I shot to be ready to view on YouTube with a 3G upload - talk about changing the world - put a few million of these on the street and watch what happens….

    T/Stjean – Sure, they needed it more and had more cash as VZ was in the middle of the FIOS rollout but the key is where T will be in 5 years as Jobs knows the IPhones are major bandwidth hogs and he needs a company that has a future vision that fits what he wants to do (live video phones, for one thing).  Also, people don’t get that AAPL can’t sell more IPhones than they are – there are supply constraints so going with VZ doesn’t sell more phones for them and letting other carriers have the IPhone isn’t going to make IPhones magically appear on boats from China.  As we heard from FoxCon – those people are already working triple-overtime and we are years away from expanding capacity so the smart thing to do is simply make a deal with someone who has adeqate distribution and will pay you the most per phone.

    And what Jvest said!

    Welcome Sydney!  No naked calls!  We are almost always buying the stock in what we call a buy/write.  We do it so often I sometimes forget to specify the BUY portion of the transaction (see "How to Buy a Stock for a 15-20% Discount"). 

    And what Jvest said!  (if he keeps this up I may be able to retire…)

    Smiley/Goldman – You don’t link them, you just typy 8, then -, then ) together and they make a smiley face (or a glasses face, I don’t know the other codes and that’s the only one I do).  8-)

    Good Apple point Micro!

    TBT/Stjean – Yes, they are sucking aren’t they?  Still too much fear in the global economy for anyone to imagine rates will be going up for the next year.  Not sure of an alternate – best to just avoid I think and hopefully, when rates do kick up, we can grab it before it gets too far away from us.

    LOL Yip!

    VLO/RN – It’s a very good play if you get those prices because, even if VLO falls to $16.50, you own it for net $16.53, which is a perfectly good price on it

    QE2/Kinki – Anticipation is cranking up, that’s for sure.

    VLO/Stjean – Yep, nice play and a great company

    Banks/Matt – Their earnings are whatever they say they are despite evidence to the contrary so be careful.  As to the Fed, everything they do is for the banks.  It doesn’t accomplish anything useful other than giving the banks Trillions of our Dollars to erase all the bad decisions they made this decade.  I am just blown away that people don’t riot over what’s going on at the Fed but you barely get a peep out of the media as the Fed drops an average of $100Bn a month onto the banks. 

    Speaking of banks – let’s be on our toes this morning.  We have SCHW, CBSH, JPM, BPOP and TCB to look at in the Financials and we should be able to figure out what C and BAC will say from those reports.  JPM is expected to be up over 100% from last year and BPOP is expected to lose money so bullish if they don’t.

    BP/Goldman – Oil has been spilling for 3 months and making a mistake here could set them back another month or two so I don’t think it’s a bad idea to go very slowly and make sure every step they take is the right one.   Here’s a good summary by Bill Nye.  

    IBKR/Boobear – If the announcement was unexpected, you get a lot of arb guys trying to jump in ahead of anticipated fund buying but there is a reason that Rule #1 is: "ALWAYS sell into the initial excitement" – the initial reaction is more often an over-reaction than the beginning of a major rally.  If you want to be greedy and hope for me, that is why Rule #2 is "When in doubt, sell half" and, of course, Rule #3 is "If you didn’t follow Rule #1 OR Rule #2 then what is the point of having rules in the first place you greedy bastard!

    Bunning/Stjean – Oh that is cold! 

    Idiotic list/Cap – So Obama being against unreasonable search and seizure is now Anti-American?  Obama is against racial profiling and that is Anti-American?  I must have also missed Obama’s plan to abolish Capitalism or are we now officially calling the Corporate Kleptocracy that has taken over America "Capitalism" and planning to go down in flames defending it?  Socialized Medicine is Anti-American?   Gee, I guess it’s a good thing Obama didn’t come out in favor of Socialized Security or Medicare or took a stand on the right of women or, dare I say, black people to vote because I’m sure you would have slammed him for that too.  I heard Obama is also against child labor – I can’t wait to hear your rant on that.  Really Cap, what is it like to be a cartoon character???

    Speaking of cartoons.  Here’s a cool cartoon about capitalism from the 40s.  It’s sad how the capitalism they talk about is nothing like what happens in modern America yet people like Cap still pretend what he’s defending is Capitalism.  Here’s a cool anti-Nazi cartoon from Russia – very interesting to get their take on keeping the world safe for Communism.  Here’s the Disney version of fighting Nazis.   Here’s Monty Python’s Communism Quiz.   

    Ooh look, Cap pushed Gel’s "on" button!  8-)

    Starcraft/Jbur – I am wondering what that will be like.  I do miss the old basic games of Starcraft and Warcraft that were more like chess, though..

    Free money/Never – I know, isn’t it crazy?  How can they do the same thing virtually every single day and not have tons of people following it but it’s been going on for a year at least and I’ve pointed it out on many occasions but it persists, day after day…  Enjoy it while it lasts!

    Speaking of currencies:  Euro popped to $1.283 and Pound is up to $1.535 with 88 Yen to the dollar and that’s popping copper back over $3 ($2.99 on China GDP) and oil back to $77.50 and gold is $1,214 again.  Oh boy, a weak dollar rally – what will they think of next?

    JPM seems to have beat pretty nicely so good reason for us to be back off to the races. 

  204. Re the banks: don’t forget that FINRA passes (probably) later today and that could be a huge boost. everyone was talking about it 2 weeks ago, but they all kinda forgot about it now.

  205. Phil, you can’t endorse a blanket prohibition against profiling by authorities.  For example, if we know that certain nationalities or groups are more likely than the general public to want to take down an aircraft, we would obviously want the authorities to profile on that basis (unless you are comfortable getting on a plane knowing that the authorities have chosen to do nothing because of a fear of criticism).  The alternative is to profile everyone getting on a plane (grandma), pull everyone aside for questioning, and shut down air transport.  So in limited instances like air transportation the authorities should be able to profile based on race, sex, age, dress or demeanor. I would not support profiling in ‘lesser’ areas, enforcement of traffic offenses and the like.

  206. Profiling/fjd10595 – Ok, fjd, this is where epidemiology and security overlap. Many years ago at the start of the AIDS epidemic, the Wasserman test (for syphilis) had recently been dropped as a requirement for marriage license. There was talk of replacing it with a western blot elisa for HIV. We in public health quickly quashed it because AIDS is rare, especially in the population of people applying for marriage licenses, and even with a test that has 99% sensitivity and specificity, you will be overwhelmed by false positives, who will all be very upset & freaked out.
    Same deal with the screening tests in place for ‘terrororists’, which are a long way from having 99% sensitivity and specificity – huge numbers of false positives, and don’t forget, a false positive looks just like a true positive – you have to have some better test to distinguish them. And the follow-up to the screen right now seems to be "pull aside and question". IMHO all this does is inconvenience ordinary folks – sometimes extraordinarily so – while full of enough openings for a true terrorist to drive a Mack truck through.

    We have been on the receiving end of endless analysis suggesting that double-dip risks are either zero or completely trivial.

    “Double-dip talk would have more merit if no one believed it.” Yet, this investment bank doesn’t believe it!

    “Double-Dips are Hard to Find”

    “No Double Dip on Indicators”

    Even the Cleveland Fed has gotten into the act. Someone sent me one of those charts that illustrate over time the number of times a word or phrase can be found in the financial literature and the term “double dip” has flown off the charts. The individual that sent over the chart said it was a classic contrary indicator until I convinced him that the words are showing up in research reports that are denying the risks of a “double dip” taking place, so this may be a time when the contrary indicator is its own contrary indicator!

    The primary reasons given are the positively sloped yield curve, negative real short-term rates, no sign of inventory excess and no sign of a flattening in the trend in the leading indicators (aside from the ECRI, we would suppose). We were sent one particular Street report yesterday that began with a comment on how the analysis incorporated data from the last eight recessions in the United States.
    The question we have is why these other eight recessions in the post-WWII era are relevant. This wasn’t just a blip or correction in GDP due to a manufacturing inventory-led recession. This was a traumatic asset price deflation and credit contraction of historical proportions. In essence, this was — or still is — a balance sheet recession that has absolutely nothing in common with the experience of the post-war business cycle when recessions were temporary dips in GDP in the context of a secular credit expansion. And, this wasn’t just a U.S recession and debt-deleveraging cycle — it was global in nature. This is why a re-read of the Rogoff-Reinhart and McKinsey reports on the history of what the aftermath of a secular credit contraction really looks like is imperative. This is all the more so after a six-day power surge in the stock market as the gap to the 200-day moving average gets filled.
    Take us at our word that if Ben Bernanke is worried, it is not about what drives a post-WWII cycle. He has the 1937-38 brutal downturn in mind and this is actually a much more appropriate template, notwithstanding the changed structure of the economy (we don’t have one-third of the population living on the farm).

    Heading into that downturn, there was no sign of inventory excess (prior to that recession, inventories contributed 20% to the economic expansion versus over 60% contribution this time around from the 2009 lows in GDP). Going into the renewed 1937-38 meltdown in the economy and the stock market, the yield curve was positively sloped to the tune of 240bps (3-months to the long bond). Why do so many cling to the “yield curve” in a credit cycle in any event? Are you going to tell me that a 50 basis point inversion in 2007 was the principal cause of the recession? Seriously now, the same pundits pointing to the yields curve now were telling everyone to ignore it back in 2007 because rates were low, which was a “conundrum”, apparently, because of excess Chinese savings flowing into the Treasury market. These same double-dip deniers never saw the recession coming in 2007 to begin with because after “adjusting” for the bond yield conundrum, the curve was not really inverted, don’t you see? Well, it only inverted by a little bit, anyway, and unlike other post-war cycles, this isn’t what unraveled the economy.

    Just as the yield curve flattening and Fed tightening (the funds rate did rise 450bps) were no match for the parabolic credit expansion from 2003 to 2007, it would seem foolhardy to revert to the yield curve’s steepness today as some bellwether leading indicator when we are on the other (darker) side of the credit cycle. At best it gives the banks another way to generate low-multiple trading profits, and that’s about it.
    Moreover, where were “real” short-term interest rates heading into the unexpected 1937-38 collapse? How about -200bps? What was at play in that recession was not inventories, the curve or real rates — it was the sudden withdrawal of fiscal support after years of massive New Deal stimulus. The deficit-to-GDP ratio receded from 5.5% in 1936, to 2.5% in 1937, to 0.1% by 1937. That represented a huge negative fiscal shock to an economy dependant on government support. Full stop. End of story. Paul Krugman is not sleeping well because he knows that history may repeat itself. Okay, okay — that was over 70 years ago (not really that long ago in the overall context of economic and financial history, that was one retort I got yesterday.

    What about Japan? Perhaps an extreme example of a post-bubble credit collapse, but it is still a modern society (for the most part — just avoid the glares if you count your change, forget to drink your green tea at meetings, close the cab door or comment on the white glove, and of course letting women out of the elevator first) and an industrialized tech-led economy. Did Japan not have a recession that seemingly came out of nowhere in 1997 with a steep yield curve, at +170bps, real short-term interest rates at -150 bps and a cycle of modest inventory accumulation? What happened, again, was a negative fiscal shock that took an enormous bite out of aggregate demand as the deficit-to-GDP ratio was cut to 3% from 4.5%.

    So, let’s look at the situation from a top-down view. We have seen real U.S. GDP growth average 3.2% at an annual rate during this statistical recovery from the 2009 bottom. Of that, 2.1 percentage points came from the inventory swing — or about two-thirds of the growth. The remaining 1.2% average annual growth rate of GDP excluding inventories — otherwise known as “real final sales” — is the weakest post-recession recovery on record. The weakest ever, despite a 10% deficit-to-GDP ratio, a debt-to-GDP ratio rapidly heading to 100%, a near zero Fed funds rate, record low mortgage rates, an unprecedented tripling in the size of the Fed balance sheet, shifting accounting rules to help rejuvenate profit growth in the financial sector, cheap and easy FHA financing to virtually anyone who wants to buy a home, relentless government pressure on banks to modify defaulted loans, and bailout stimulus galore (Fannie and Freddie are now de facto “Crown Corporations” and their stock still trades!!) — and with all that, all we get for our money is a paltry 1.2% growth rate in final sales. Yuk.

    Well, what’s past is past. Where are we going? It’s pretty clear from the manufacturing components of the last payroll report and the latest ISM index that the inventory cycle is either reaching its peak or it already has. The inventory plan components of the small business survey for June hardly pointed in the way of more contribution.
    We can see from the latest auto sales reports that absent cash-for-clunkers, sales are, at best, stuck in neutral near 11 million annualized units at a time when replacement demand is closer to 14 million. That this is happening with auto loan rates down 40bps year-to-date and down 100bps over the past year attests to the view that motor vehicles, like housing, is working off years of excess consumption. At least the used car market is thriving, but that doesn’t end up adding a whole lot of jobs to the economy outside the car lot.

    Speaking of housing, sales and mortgage purchase applications are hitting new lows despite mortgage rates at record lows and this also attests to the degree of excessive demand from the prior bubble that is still being worked off — not to mention the fact that when appropriately measured with the shadow inventory of foreclosed properties held off the market, we are talking about close to a two year backlog of unsold homes overhanging the outlook for residential real estate valuation. Commercial construction is beset by high and still-rising vacancy rates in the office and shopping centre space.

    It would be nice to see an export boom but the overseas economies, to varying extents, are tightening either monetary or fiscal policy to rein in growth. China is certainly not going to be in the same position it was back in late 2008 in terms of being a leader on the policy front that could ignite a power surge for the global economy. In fact, we just saw the U.S trade deficit widen quite unexpectedly in May to an 18-month high and trigger a wave of downgrades to second-quarter GDP growth. The consumer is not exactly rolling over, but spending fatigue seems to be setting in, along with a natural rise in the personal savings rate, whenever a quick fix fiscal policy gimmick runs its course and expires.

    Perhaps capital spending will be a lynchpin, but at 7% of GDP, at most it will contribute a handful of basis points to headline growth. It certainly doesn’t seem to be generating a whole lot of new jobs; however, corporate spending growth, along with a sharp eye on cost-cutting, you may want to stay long your Intel stock a while longer. But, what it means for the economy beyond tech capex probably isn’t very much.

    Then we come to the near-20% chunk of the economy, the government sector. Two-thirds of that comes from the beleaguered State and local government sector, which is in a full-fledged retrenchment mode as it cuts services, raises taxes, and lays off 10,000 employees month in and month out, to reverse the flow of red budgetary ink. This will likely persist well through 2011.

    In addition, we now have the federal government, with 70% of the ballyhooed spending stimulus behind us. Look at the bright side, the President recently said at a town hall meeting — at least the unemployment rate didn’t go to 15% or 16%. Let’s uncork the champagne, folks! What a way to measure success — my kid got an F but at least they didn’t throw him out school.
    Congress passes the laws anyway, and in a midterm election year, as always, the opinion polls hold sway for the incumbents — and the survey says, there is no more public appetite for more fiscal largesse. We’ll see the extent to which this sentiment shifts as three million unemployed Americans roll off the jobless benefits data (since Congress refused to go beyond 99 weeks of support) just in time for the holiday shopping season — lost transfer-income of up to $100 billion heading into the most critical time of the year for the retailing community. And then there are the tax hikes slated for 2011, whether they be income, capital, dividends, or death!

    After contributing about two percentage points annually to OECD growth over the past two years, fiscal policy in the industrialized world is set to subtract a percentage point in the coming year. In a world of small numbers, that’s pretty big. In the U.S., the fiscal withdrawal will be closer to 1.5 percentage points of GDP. So, if the peak inventory contribution is behind us, and all we have left is a baseline growth trend in real final sales of 1.2%, then how does the economy not contract in the coming year — when the consensus expects to see peak earnings?

  208. Test 8-)

  209. Test 7:^]

  210. snow, I am not speaking about a ‘screening test’ with 80% accuracy.  I am saying that if there is a high degree of likelihood that certain persons that we can identify by race, gender or behavior, are likely to be involved in an attack where large number of people can be hurt or killed, i.e. an airplane, that the authorities should be able to profile on that basis.  I am not talking about permanmently detaining such people- I am talking about denying the ability to board a plane for an hour, or a day.  While I’m sure that you would have been happy and comfortable to get on a plane one week after 9-11 along with a bunch of Arab males , most thinking people would not.

  211. Wow…what happened in the last few minutes?  I had to reset my trading program due to my last trade not showing as settled.  Did the Pres say something???