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Turn Up Tuesday – POT Gets Really High

BHP offered to pay $38.4Bn for POT this morning.

Is BHP high or is this market seriously undervalued?  Well, for one thing, POT turned them down saying the offer ($130/share – CASH) "substantially undervalues PotashCorp and fails to reflect both the value of our premier position in a strategically vital industry and our unparalleled future growth prospects."  CEO Dallas Howe continues: "We believe it is critical for our shareholders to be aware of this aggressive attempt to acquire their company for significantly less than its intrinsic value. The fertilizer industry is emerging from the recent global economic downturn, and we feel strongly that PotashCorp shareholders should benefit from the current and potential value of the Company. We believe the BHP Billiton proposal is an opportunistic effort to transfer that value to its own shareholders."

Considering POT closed at $112 yesterday, so a 16% pop in the offer but POT was at $85 at the beginning of July and hasn’t been over $130 since the 2008 crash, although they did top out at $239.35 so I suppose a very patient investor could imagine that within 5 years, $200 is not an unreasonable goal.  Still, is that enough reason to turn down $130 of cash now, with the proverbial 1.3 birds in the hand being worth 2 in the bush? 

Back on July 12th (when POT was trading at $92.81 and the Dow was at 10,200) my premise for looking for S&P 1,100 and Dow 10,700 was that Corporate America’s Non-Financial companies were sitting on a $2Tn pile of cash and, as an old M&A consultant, it seemed pretty obvious to me what was going to happen to that money. 

We’ve had plenty of M&A activity recently.  In fact, M&A activity in the first half of 2010 saw 5,345 deals (up 49% from last year), the highest level since 2007, indicating that companies are INCREASING their confidence in the economy despite the BS spin you are getting from politicos who NEED you to believe things are worse than they seem and the MSM, who push fear like heroin to create a NEED for their product.

POT’s board of directors is very confident that they don’t NEED BHP’s money and BHP may NEED POT badly enough to want to sweeten the deal – frankly I’m surprised at the timing because I would have waited for another dip and the fact that BHP (one of the World’s largest resource companies with $50Bn in annual sales) didn’t think they could wait indicates to me that they see the overall economy turning up.  Of course they are based in Australia and supply China, India, Singapore and other hot Asian economies but isn’t that one of the big fear sticks the media has been hitting us with – the scary China slowdown? 

I had a meeting in the Treasury Department yesterday, which I will address later this week in a larger article, but I will say that THEY are not worried about a double-dip recession.  That’s not to say that they are blind to the possibility but they certainly don’t see it in any of their models.  More to the point, they are very concerned that we are at the point of accidentally unleashing inflation and they are FAR more concerned about that than deflation.  Stimulus spending is down about 50% since the beginning of the year so what we are seeing now IS the slowdown on the removal of stimulus and - IT’S NOT THAT BAD!  

As I’ve often pointed out, our Government is very concerned about unemployment and so am I but corporate America is not – THEY LOVE IT!  Labor costs are about 1/3 of all Corporate Expenses and Manufacturing Unit Labor Costs fell 6.1% in the second quarter after dropping 6.9% in the previous 4 quarters so 13% lower labor costs since the beginning of 2009 – that’s money in the Corporate Bank folks! 

So, even if US consumer spending was off 10% due to high unemployment (it isn’t) and our beloved S&P 500 Corporations didn’t get 50% of their sales from expanding overseas markets (they do), a 13% drop in the cost of production would mean they make more money selling 10% less stuff anyway.  I went into detail about this in my "Pile of Cash" article so I won’t rehash it here – this is just the numbers bearing out my theory.  Jason Saving of the Dallas Fed has an article today asking "Can the Nation Stimulate It’s Way to Prosperity?" and I’ll be tying this and other Fed and Treasury speak into my overview of the meeting later this week.

I will say that Conservatives should be encouraged that Mr. Geithner did not agree with my "New, New Deal" proposal to redirect support away from the banks and towards the homeowners, in large part because it is politically unfeasible in the current climate.  He also questioned whether or not the Treasury had the authority to, in effect, purchase land – to which I responded "Why not, you guys bought Alaska, didn’t you?"  It turns out that the purchase of Alaska was initiated by the Secretary of State (Seward’s Folly) and had to be ratified by both Houses of Congress before we were able to buy Alaska for $7.2M.  Does this mean I have to go see Hillary now?  She seems kind of busy…

So business will continue as usual with EZ money pouring into the banks who feel no particular reason to lend it out and are, in fact, using the still-developing FinReg to justify their stick-in-the-mud lending policies so we won’t be looking for the housing market to turn this economy around any time soon.  In fact, we just got Housing Starts this morning and they were an anemic 546,000 for July with Building Permits doing nothing to cheer us up at 565,000 – both down from June.  There are 50 states so 10,000 homes per state and let’s call it 250 working days a year so, on average, there are about 40 homes being built per state, per day

Somehow, I’m not seeing that as putting a lot of food on the table for construction workers, realtors, mortgage brokers or even the poor Bankers who continue to use the free money the Fed is giving them to buy TBills from Treasury.  Heck, they were selling 10-year notes for 2.5% last week – no wonder they are happy with the status quo!  Nothing I heard at Treasury shakes me off my position that gold is overpriced but we’re certainly not going to be expecting a "strong dollar" policy either, which means we won’t be expecting any major currency-initiated housing price drops but tepid demand and tight lending means we won’t be seeing "normal" housing activity (800K homes) for quite some time. 

Industrial Production came in at 1% for July, far better than last month’s -0.1% and better than the 0.6% expected by economists, who were only off by 66% this month so kudos to them for another job well done.  I read a great article in the Financial Times yesterday dissing economics, hopefully I can find it later as it’s well worth reading.  Cap Utilization was more in-line with expectations at 74.8%, a small increase from June’s 74.1% so slow and steady continues our improvement.

WMT put up good numbers (International strength, of course) and HD did well this morning.  Asia was flat this morning but Europe is up nicely, about 1% ahead of our open and the US Futures are looking bright so we will see what sticks this morning – hopefully we can finally get out of the doldrums this week.


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  1. Nice post from Krugman.  He recommends a two-fisted approach to dealing with China’s mercantilist trade policy.

  2. Feels like today is gonna be filled with bull.

  3. kinkistyle/bull — :-)

  4. rainman- thank you for your advice. I will try to implement it. Right now I feel I have too many positions and unable to manage them. After hours if you have time will u be able to look at them?

  5. Hey all,

    I have two new positions available for you today. We are looking to Buy Teradyne (TER) and Short Sell Cott (COT).

    Check out my analysis, entry, exit, etc.

    Good Investing!

  6. DCTH – stock offering @ 6.75…buying a 1/4 round here and selling a few P at the 7.5 Sept10 strike for 1.20 or better.

  7. Wonder why there is complete silence about M & A activity, from the  boss, of this board? There appears to be a jubilance that it is occurring instead of the normal socialist wailing and weeping gnashing of teeth about corporate amorality.
    This is one of the chief big jefe reasons for unemployment worldwide.  Not a peep about the injustice of it all. Better to mandate a living wage.
    Where’s the BEEF?

  8. nicha/positions -- I’ll take a look, but I’m not the stock/option prognosticator that Phil is so I don’t how much I can help. Something might jump out though.

  9. Good morning!

    We’re still watching Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635 and we still have the same reds so don’t take a move up seriously until we have those FLOOR LEVELS (hopefully) back in the green.  

    A lot of this pop is coming from commodities, all excited by BHP’s shopping spree but there’s no real catalyst here with Housing Data so lame. 

    We still have more data coming:
    10:00 E-Commerce Retail Sales
    12:00 PM Joint Hearing: Community Reinvestment Act (Fed, FDIC, OCC, OTS)
    12:30 PM Fed’s Kocherlakota: Inside the FOMC
    5:00 PM ABC Consumer Confidence Index

    Mixed data so far:

    ICSC Retail Store Sales: -1.3% W/W, vs. -0.2% last week. +3.3% Y/Y, vs. 3.7% last week. Weak pricing led to the third straight weekly decline for same-store sales though store traffic was steady.

    Redbook Chain Store Sales: +2.7% Y/Y vs. +3.0% last week. The softness in sales was due to unusually hot weather.

    Jul. Producer Price Index: +0.2% in-line with expected and -0.5% prior. Core PPI +0.3% vs. +0.1% expected and +0.1% prior.

     Jul. Industrial Production: +1% vs. +0.7% expected, +0.1% prior. Capacity utilization 74.8% vs. 74.6% expected, 74.1% prior.

    At the open: Dow +0.45% to 10348. S&P +0.46% to 1084. Nasdaq +0.68% to 2197.
    Treasurys: 30-year -0.21%. 10-yr -0.32%. 5-yr -0.21%.
    Commodities: Crude +1.12% to $76.08. Gold +0.03% to $1226.60.
    Currencies: Euro +0.5% vs. dollar. Yen -0.14%. Pound -0.16%.

    Let’s see if we can hold it together today.  BHP is down only 3% on the offer, a sign that investors feel that they are not overpaying for POT (and that takes into account the assumption that the offer will be sweetened).

    Oil is still weak at $75.97 but copper is very strong at $3.34 and, if anything, I’d say the markets are holding back this morning and there’s no reason wee shouldn’t match Europe with a 1-1.5% gain off today’s news so anything less than 1% will be a disappointment – around 10,400 on the Dow and 1,090 on the S&P. 

    That means the DIA Aug $102s at $2.10, with .22 in premium, make a nice momentum play, using 10,350 as a stop (now 10,359) and very happy to make a quick .30-.40 (15%)




  10. Pharmboy,
    what do you think about IMMU and KERX? Thanks

  11. "they are very concerned that we are at the point of accidentally unleashing inflation and they are FAR more concerned abou"
    OK- more from you on this later but can you give me teaser here? Very interested in this subject esp. given the deflation drumbeat. Particularly, are they looking out months or years?

  12. Major stick in TBT

  13. Phil commodities markets are going/have been going nuts, prices on most have doubled in the past few months(cotton for example)…insanity, who are they going to pass rising prices onto?

    Gross says WE will need more stimulus, OR WHAT!! LHU!!

    Hope Schumer’s happy now that the Yuan is pegged to Euro/Yen, they’ve been schooled yet again.

  14. Krugman/Jcaesr – I was very surprised that Geithner is very pro free trade.  They are very concerned about protectionism, I think mainly because Treasury feels more acutely that they are at the mercy of our trading partners who can stop buying our Bonds at a moment’s notice to put the squeeze on them.  That’s why I’ve never been a big protectionist guy – we are getting screwed there for sure but we’ve backed ourselves into a corner with debt so it’s prudent to be realistic and look at the big picture. 

    What the hell are you talking about Flips?  Are you saying I should be against M&A?  I’m against monopolization but M&A will occur when you undervalue your assets and, right now, our equity assets are grossly undervalued.  I’ve been saying it for months, it was my premise for my 2010 outlook and now if it’s squeezing your bearish view don’t come crying to me about it – I frankly get exhausted arguing with you about it and, since I can’t change your mind, all we can do is sit back and watch the actual results but dont’ expect me to complain about them when they’re doing what I (not we) expected.

    No looking good on the DIA play already!  Still $2.05 as we touch the 10,350 line but we’re too rocky for that day trade – sorry.  I’m still bullish but it doesn’t look like we’ll have an easy time moving up, hopefully we get a better entry later.

    Overseas: Japan -0.4%. Hong Kong +0.1%. China +0.4%. India +0.1%. London +1.0%. Paris +1.0%. Frankfurt +0.9%.

    08:00 AM On the hour: S&P +0.63%. 10-yr -0.27%. Euro +0.26% vs. dollar. Crude +0.93% to $75.94. Gold +0.24% to $1229.20.

    09:00 AM On the hour: S&P +0.7%. 10-yr -0.26%. Euro +0.34% vs. dollar. Crude +0.73% to $75.79. Gold +0.04% to $1226.70.

    10:00 AM On the hour: Dow +0.53%. 10-yr -0.3%. Euro +0.36% vs. dollar. Crude +1.09% to $76.06. Gold +0.13% to $1227.80.

    European bourses move higher as strong demand for Irish government bonds eases investor fears over euro-zone sovereign debt problems, overcoming lower expectations for Germany’s economy. FTSE +0.9%, DAX +1.1%, CAC 40 +1.3%. Euro +0.4% vs. dollar at $1.2872.

    Japan will consider further stimulus measures as a strengthening yen chips away at a weakening recovery. It would make Japan the first developed country to do so since the global crisis, though any additional stimulus is likely to be relatively modest and would probably reallocate funds rather than initiate new spending.

    Few people are happy with Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), who back nine of every 10 home mortgages, but Andrew Ross Sorkin says the private market is not ready to step in for them. And why should it? Wall Street already has been burned by housing and would rather leave the bill with taxpayers, who have no choice.

    Fertilizer stocks are rising on news of BHP’s (BHP) unsolicited bid for Potash Corp. (POT): IPI +8.5%. MOS +12%. CF +5.2%. AGU +7.8%.

    Uh Oh – Another IPhone victim!  The price of the BlackBerry Torch (RIMM) has been cut in half, to $99.99, on (AMZN) and some other sites, less than a week after the new phone went on sale at $199.99. Early reports suggest sales of the new phone have been tepid at best. RIMM -1.1% premarket.

    Home Depot (HD): Q2 EPS of $0.72 beats by $0.01. Company cuts full year revenue growth outlook to 2.6% from 3.5% and raises EPS guidance to $1.90 from $1.88. Revenue of $19.4B (+1.7%) vs. $19.6B. (PR)

    JPMorgan upgrades Honeywell (HON +1%) to Overweight from Neutral, as the firm will see "fundamental acceleration" throughout 2011 on aerospace and ACS, and pension headwinds should subside by 2012. "2012 is a big reason to own Honeywell, and we would rather be early," says JPMorgan.

    CME Group (CME +0.8%) says it will keep preventing investors from easily moving contract positions to or from smaller rival ELX Futures, despite receiving a letter from the CFTC saying the practice is sound. Regulators have also opened an antitrust probe into CME’s actions.   They are in for a big fall if this goes against them! 

    A group of scientists say nearly 80% of the oil that spilled from BP’s (BP) Macondo well remains in the Gulf of Mexico, contradicting government claims that 75% of the oil had been eliminated through evaporation, capture or dispersement.

  15. VIX stick!

  16. @Phil
    You DO contain multitudes.
    Being for M & A if assets are undervalued (I can’t think of a time when that wasn’t the excuse for laying off millions of peope beginning with Milken’s and Boesky’s junk bond LBOs) and against Monopolies is a contradiction that only a cunning linguist could truly appreciate. You are a pair o’ ducks.
    As for being bearish, you have me confused with someone else, since you and I have never argued about it .

  17. Medtronic buying Osteotech for 123 million. Not sure it is a home run.

  18. Pharm – thoughts on LLY which is down +/- 3% today?

  19. Great level to restart my long VXX position, just opened a Dec put position buying the Dec 30 put……

  20. Looks like we may rally to test 200 by ex ops, gap fill, should be a good shorting point. CSCO looks like a good candidate at 22.50

  21. Dec call I meant

  22. @brooklyn
    In case Pharm didn’t catch yet, LLY just scratched further phase 3 testing on their promising Alzheimer’s drug. A hit of 3% to earnings.
    Their pipeline is also bereft at this point with the upcoming losses of Zyprexa and Cymbalta in 2011, 2013 as well as another in 2016. 
    They will have to start buying assets.

  23. New guy,  Can someone break down, phrase by phrase, "That means the DIA Aug $102s at $2.10, with .22 in premium, make a nice momentum play, using 10,350 as a stop (now 10,359) and very happy to make a quick .30-.40 (15%)." 
    And then, "No looking good on the DIA play already!  Still $2.05 as we touch the 10,350 line but we’re too rocky for that day trade – sorry. "
    I gather a suggestion to buy some calls was being rethought, but I sense some elipsis that I am not getting yet.   Thanks.  RDT

  24. flip – thanks

  25. Geithner is just a tool, isn’t he?  He won’t stand up to the banks and he won’t stand up for American workers.
    While in theory, free trade is wonderful and it will bring the new millenium; in fact most of our trading partners practice protectionism.  And we are in the new millenium already.
    Think back to your favorite course (American economic history), a lot of the greatest growth in the US economy occurred during protectionist or quasi-protectionist times.
    For instance we had pretty high tarrifs after the civil war; economy grew enormously.  Of course there was open land an enormous immigration.  But eastern manufacturers did have some tarriffs that helped them grow with the growing demands of agricultural heartland.
    And more recently – say 1946 – even though we were mouthing free-trade, in fact we had enormous protection in our industries because the industries of both our allies and our former enemies had been all but obliterated. (Half by our strategic bombing, half by axis attacks and occupation). 
    I think I read that in 1946 over 99% of the refrigerators, trucks, cars, washing machines and radios manufactured in the world were made by American workers. In America.
    Now I wouldn’t advocate an abrupt North Korean like rejection of all foreign trade. But IMHO some more than gradual shift in the value of the Yuan as well as other forms of protecting American workers are needed.
    And, really, Beijing needs us just as much as we need them.  Think 1 Billion people in their Tea Party.
    Krugman is at least half right in that they would respond constructively to some show of resolve.
    But Geithner is a tool, so lets invest and make money off all this.

  26. Phil
    Any trade going into earning on Target   TGT, the 5% rebate on purchase.

  27. rdtruitt/breakdown — The DIA Aug 102 calls at 2.10 with .22 premium means that the DIA was at 103.88 at the time. Phil wanted to play the upward momentum of europes close and the rest of the koolaid. Stop at 10.350 means to look at exiting if the down dropped to that level (DIA 103.5). Take profits around 15%. The next statement Phil is saying to exit that trade.

  28.  Anyone?
    I have $14k of a $100k portfolio invested in a variety of buy/writes, bull call spreads, artificials, and naked calls hedged with DIA puts 1/2 covered. My market outlook is cautiously bullish right now.
    This morning my delta based on SPY was positive 142. My account  is up 2% on the trades today. Is my delta telling me my account should rise 1.42X for every upward  1% move in the SPY?

  29.  that is correct ben1be.  But an easier way to think about it is, If SPY goes up $1 my account should go up $142.

  30.  PCLN – Phil we opened a Sept/Aug 280P calendar a while back.  With PCLN popping 300 should that be closed for a small loss?

  31. craigzooka 
    Thanks for the help.

  32. Looks like the reversal for oe has come a little earlier then I thought.  The shenanigans/bs begin!

  33. protectionism/rexx: I don’t understand how the U.S. can be protectionist when we simply don’t manufacture anything anymore.  Not even Harley Davidson or Stanley tools manufactures here anymore.   We’re going to end up hurting the U.S. multinational corporations.  Same with the whole brouhaha about Geithner complaining to China about unpegging the yuan.  I think we really do have our hands tied.  We, the masters, are actually prisoner to our slaves.

  34. This is crazy. The bots aren’t even sweating.

  35.  PHIL / hedge        
    Good day to put a new SDS play on?

  36. Fed/Pstas – You guys can feel free to ask questions, I’m not some dopey newscast trying you to tune in at 10, I simply don’t have the time to write a full article, especially as I have 2.5 hours of audio to review (don’t tell anyone I have that!) and about 5 or 6 referenced studies and speeches to track down and read before I even begin to have a proper handle on what that meeting actually meant.  Anyway, so anyway, I would say that Geithner’s view of the economy is about the same as John Cleese’s view of the dead parrot: "This bird wouldn’t go "voom" if you put a million volts through it!"  I agree, Krugman agrees, the Dallas Fed agrees, Bernanke agrees – this is a $15Tn, 300M person economy that is at a virtual standstill.  The difference between no growth/contraction (too cold) and too much growth (too hot) is about 4% and Timmy said specifically (but we are not allowed to quote them specifically so let’s call it insinuated unspecifically using these exact numbers) that 2.5% to 4% is his goal but 4% is $600Bn worth of growth.  Where the hell are we going to get $600Bn worth of growth from contracting sales and expanding profits?  How the hell are we going to bridge a $1.5Tn deficit between what we take in and what we spend without $6Tn worth of growth (which hopefully will generate $1.5Tn in new taxes at the current rates)?  As I said on the weekend (and they see this) you can’t cut your way to prosperity - not when you already have a 120% debt to GDP ratio with $400Bn a year in interest payments.  Outside of default, growth is our only option and every year we do not grow that $600Bn is another year we fall behind another $1Tn – we can’t afford this, it’s National suicide and the boys at the Fed are keenly aware of this but also massively frustrated that there is no "political will" to do what is necessary to get this economy moving again. 

    Geithner makes the very good arguement that we are like a business with debt but good cash flow and Global lenders are currently lining up to give us more cash (low TBill rates, low corporate borrowing cost, strong demand for bank capital raises).  Why don’t we do what a normal business does and borrow money to expand.  And he was very particular about making sure that we only spend money on things that have a clear pay-off and, in the link the the Dallas Fed article above, you’ll see a chart that shows the multiplier effect they expect to get out of various stimulus measures with the GREATEST benefit (1.6x) coming from extending Unemployment Insurance, followed closely by State Aid (the two things they just went for) and then a Payroll Tax Holiday, both around 1.4%.  Extending the Bush Tax Cuts, on the other hand, has just a 0.2% payback – it’s a LOSER and is a total waste of government money.  Money needs to be put in places where we can get this economy moving and, thank goodness, they are doing studies and seeing that you get 7x more bang for your buck giving money to the bottom 99%, rather than the top 1% but, as Tim says – NO POLITICAL ($$$) WILL, so you boys are safe – for now….

    TBT/Rain – The only reason Treasury and the Fed are not pushing mortgage rates down to 1% is because they are not sure it’s worth it.  If they thought it would help, I think they’d be working on it, or perhaps they are because they were very pleased with themselves that we hit 4.5% last week and I can assure you I’m not the one that said 1% because I almost spit out my drink when that figure was floated…

    Gross/Kustomz – I’m kind of out of things (Washington is not the real World, I doubt there were 2 people I met yesterday who would have known or cared what Bill Gross had to say) so I need a link but that’s right, we NEED stimulus or what indeed is going to be kicking our asses. 

    Speaking of Dollars – nice rallly at the open, up about 0.3% against everything but that’s done now at 85.7 Yen, $1.285 to the Euro and $1.558 to the Pound.  If it pulls back now, copper can pop $3.35 and  oil can get back over $76 (inventories tomorrow) and maybe gold can make another run at $1,230 (but I still think they drop next month). 

    Bearish/Flips – Sorry I get confused I guess.  Been arguing with so many conservative bears I’m losing track!  Some M&A is healthy, too much is not – kind of like wine…  It’s not so much about being "pro" M&A as recognizing that M&A activity is a sign of market health – at THIS stage.  When the market was high and people were doing M&A at ridiculous prices, THEN I was against it as a waste of valuable cash that could have been used for R&D and expansion rather than a pac-man like gobbling up of market share at any price so I guess part of your confusion is I don’t see all M&A as a black and white issue but the kind we have now is clearly value-shopping. 

    MDT/Silent – Don’t know why the buy but for $123M they could have a patent that MDT likes and it may be worthwhile for them.

    Damn, NOW the Dow gets going…

    Elipsis/RDT – No, you got it.  I thought it was a good idea, got worried when we hit my stopping out point but now it turns out I shouldn’t have been such a wimp about a nickel loss.  The problem was I was expecting more of a straight shot up, what some here call a "free money day" when we go up and up and then up some more without a pullback and, since we weren’t getting that, I decided it was too risky with a $2 contract on the line this close to expiration. 

    Geithner/Rexx – I won’t pretend to know the guy after a 90 minute meeting (the first half was all the other Fed people, a couple of whom were super-impressive) but I’d say he cares a lot and is very frustrated that what he considers very good proposals to do things for the economy have been shot down in Congress over and over again.  They pulled about 3 months of 16-hour days pushing FinReg through and they have 3 more years of work ahead of them implimenting it but they’re already moving ahead writing GSE legislation (missing from the 2,300 FinReg bill because the GSE portion alone will likely be more than 2,300 pages) and what’s really confusing them is why they are not getting high-fived when they walk down the streets as FinReg is arguably one of the most important pieces of legislation ever written.  The problem is – nobody gets it and that’s their fault because they are a bunch of policy geeks and never put forth a proper effort to explain it properly to the general public (or Congress, for that matter). 

    Yes, this country was built on protectionism.  The Boston Tea Party wasn’t so much about taxation as it was about the fact that they were paying a BS mark-up on tea because the EIC was not allowed to import directly to the colonies but had to sell it to British firms who then would turn around and sell it to the colonies at inflated prices.  The Dutch (and Manhattan was basically a Dutch colony) smuggled tea in and Parliament passed tax laws to punish the colonists and subsidize losses taken by the EIC which led to the "taxpayer" revolt.  We do need some forms of protectionism because our labor is competing against what is effectively slave labor but that’s a discussion for a weekend!

    TGT/QC – I think we can assume they will be similar to WMT, who got a small pop but TGT is already getting their pop based on WMT so I like the Jan $55/Sep $52.50 spread at .80 since there’s another earnings in between and they should hold value well.  If TGT breaks $52.50, just plan on adding 1/2 x more Jan $52.50s (now $1.90) or 1x the Jan $57.50s ($1.13) ahead of a roll-up for the callers.

    Delta/Ben – It means you should rise 1.42% for every 1% move up in the SPY but, as you can see, it’s not that accurate!

  37. rainman
    Excellent translation on DIA 102 call. I recommend to become Phil’s translator !!!!

  38. protectionism/Ikinkistyle
    I agree its hard and that we’ve lost lots of jobs to overseas.  Textiles as well, we could both say a lot more.
    And of course the multinational corporations will scream all the way to the fundraisers.
    But we still make cars here.  And airplanes. (The aerospace business is at least half  Defense spending so that’s not a good example of how it can be done).
    So lets look at cars. We make a lot of cars for not only for GM and Ford but also VW, BMW and Toyota and Mitsubishi, etc. here. Some is just assembling parts from overseas but some is real.  Those jobs were saved/created by  fractious negotiations with Japanese Trade officials.  Its certainly not perfect.
    A lot of those plants are new, foreign direct investments into the US.
    And now  things are even worse for American workers than 20 years ago because the labor markets in formerly ‘socialist’ India and formerly "Maoist" China, etc.  have opened us up to competition from people who think making $2000 a year is great.
    So I’m NOT advocating any radical break with current international trade patterns.  We could certainly get one if the USD totally collapsed, but nobody wants that.
    But reducing energy imports (per Phil) and additionally  "tweaking" our stance in some areas would help redress the trade balance and the endangered middle class that might not pay my social security in 30 years if they don’t get jobs soon.

  39. PCLN/Bgb – Wow, they snuck back over $300?  Yeah there’s not much point in trying to save it but keep in mind that the Aug $280s are $25 and have no premium at $25 but you can still, if you want, roll them to the Sept $300s at $17, so spending just $8 to move to a $20 vertical.  It’s a little tricky though because I still think $300 is high for PCLN but if the market is moving up, they should hold it. 

    Protectionism/Kinki – Good point, we have nothing left to protect! 

    Volume still low at 61M at 11:30 and check out the TRIN – it’s heading LOWER, which usually indicates over-sold so we may be priming for a pretty good squeeze.  10,500 will be key, if we get over that (up 2%) the bears are going to be fully trapped and loking to gnaw their legs off.  We’ll get to 1,100 on the S&P first and don’t forget we’re still waiting for 635 on the RUT.

    SDS/Salvum – Sometimes, when you get a nice move up, it’s cheaper to consider the day’s gain to be your hedge and resist the impulse to cover until, for example, the Nas now goes back to red.  If the RUT goes green, then set all 5 green as your next "must hold" level and, after that, just make sure we don’t give up 1/3 gains off the bottom until we get back to our 2.5% lines at 10,700 and 1,128.

    Kudlow calling for regime change on the wrong day….

  40. I drop the subject.  After close I ‘ll put out a book recommendation.

  41. Is there another site where the political discussions can go forward, rather than crowding out the financial stuff? I have a whole lot of response to what has been written and I now believe it would be possible for this group to come up with some workable ideas once the communist stuff is stripped away.

  42. To those who point to Japan or other countries with no growth for 30 years, who also think it is nice living in these places, who defend no growth policy, who needs it, please read again and staple it to the inside of the Wernicke/Broca area:
    "Outside of default, growth is our only option and every year we do not grow that $600Bn is another year we fall behind another $1Tn – we can’t afford this, it’s National suicide and the boys at the Fed are keenly aware of this but also massively frustrated that there is no "political will" to do what is necessary to get this economy moving again". 

  43. Pharm--what do you think of MNKD?

  44. NFLX is teasing me! I’m holding holding.. it shot up all the way to $140.9 and then it receded significantly all the way down to $135.9, on an UP day.. I’m holding before I do a roll up from my short Aug $135s up to the Sep $150s for a net credit of $0.40.. but I find that paying $2.6 in premium now with three days to expiration is ridiculous.. but NFLX swings like Derek Jeter..!

  45. The Oxen Report: What Can We Learn from Germany?


    Germany, compared to many other of the established economies (Japan, USA, France, and the UK) is having anexceptional recovery to their economic crisis. What first attracted me to doing a story on Germany was a chart I saw about Germany’s unemployment rate. The country’s unemployment rate has dropped to 7% from a high of 11% in 2005. Additionally, in the past two years, Germany’s rate has declined from 8% to 7% while France has increase from 8% to 11%.

    So, how is Germany doing it while the rest of the Euro Zone is faltering? In the past quarter, the company saw its economy grow another 2.2%. The country focuses on savings, keeping deficits low, and keeping inflation low. This is the reason why the nation tends to see slightly higher unemployment than nations that focus on unemployment. The focus on savings tends to reduce aggregate demand, which keeps prices lower but underperforms output. This is what Keynesian (eh..American) economists comment. Yet, Germany now has a lower deficit, lower unemployment, and lower inflation than the USA. 

    Another great part of the Germany recovery is what is called kurzarbeit, "short-term work." The German government is paying workers up to 2/3 of salaries for companies that would normally lay off workers. These workers work three or four days per week. They work less because of the times, but they are not getting laid off. Its a matter of more employees working less or less employees working the same amount. For Germany, it appears to be working. They are meetingexport expectations and keeping money in the hands of employees.

    So, are we doing the wrong thing? We have to understand that Germany’s economy is vastly different than America’s…perhaps better. Germany makes things. They manufacture goods that are wanted throughout the world from automobiles to engineered goods to new markets, such as solar power and wind power. The company is export-driven, and as demand for goods grows throughout the world, Germany grows. The rest of the Euro zone suffers, however. No other European nation has such an export presence as Germany. Can you name a significant manufacturing company or device from France, Italy, Spain, or even the UK? 

    The UK is an amazing service industry, much like the USA. Yet, services are always second to manufacturing in an economic cycle. Would the USA be a better economic power if we produced more goods that were more popular outside of our country and China? Would we be better off if we focused much more on our deficit? Germany has not always gotten it right, but what type of economy got America out of the Great Depression? A service or manufacture-based economy?

    Let me know what you think.

  46. Out of DIA Sept 106  for 16%. I might have to have one of those liquid lunches although it’s only 9am here.  Then maybe I can make sense of these bots. If they get up to 10,500 I’m shorting since that corresponds with the 200 pt range for the day as well.

  47. 11:00 AM On the hour: Dow +0.83%. 10-yr -0.4%. Euro +0.32% vs. dollar. Crude +1.32% to $76.23. Gold +0.13% to $1227.80.

    Moody’s says the AAA ratings of the U.S., U.K., Germany and France continue to be “well positioned” based on a “forward-looking assessment of their debt dynamics and debt affordability."

    Consumers are still shedding debt at a fast enough pace that delinquencies have now declined, a New York Fed report shows. The second quarter had households reducing debt 1.5% Q/Q; it was the seventh straight quarter of declining debt. For the first time since early 2006, the percentage of delinquent debt has dropped, to 11.4% from 11.9%.

    The Fed buys $2.551B in Treasury debt, its first buyback since announcing it would roll over cash from its maturing securities in nine operations for a total of about $18B in bond buys. Dealers offered to sell $20.949B; Treasurys added to losses: the 10-year yield now +0.06 to 2.63%.

    Big banks modestly eased their standards on small-business lending in Q2, but customers have shown little interest as they grapple with a slowing economy. Smaller banks are still cautious about lending, and the modifications made by large banks are a far cry from conditions before the financial crisis hit.

    Along with equities, crude is up for the first time in six days, +1.5% to $76.36, as some point to confidence in the recovery – though there’s a weaker dollar as well (-0.5% against euro, -1% against Aussie dollar, -1.2% against loonie).

    A big leg up for stock indexes, all of which are over 1% gains in a broad advance; S&P 500 +1.5% to 1,095. Capital goods and transports are showing strength; CAT +3%, HON +3%, BA +2.1%; FDX +3%; UPS +1.8%; UNP +2.8%.

    Hedge fund manager John Paulson discloses portfolio updates: a new 66.7M share position in Popular (BPOP), a new 43.7M stake in American Capital (ACAS); new 5M-10M positions in ME, GGP, BEE, PMI, SY, TLCR and MNI; plus large additions in HIG and MYL. (largest holdings). 

    MYL is very cheap at $17.90.  I think Pharm likes it (and we should maybe wait for confirmation) and you can buy them for that price and sell the Jan $17.50 puts and calls for $3.05 for a net $14.85/16.18 entry.  You can also go artificial with the 2012 $12.50/17.50 bull call spread at $3.15, selling the $15 calls for $1.75 for net $1.40 on the $5 spread.  Margin on the naked put side should be about $1,500 so this is a 100% winner on cash and margin in 17 months if successful).

  48. @barfinger
    Agree 110%. 
    But you have to get Phil to stay on financial topics since he likes to intertingle politics with the economy and finance, futures and options plays thereby pushing emotional buttons in a bunch of us who simultaneously delight in the romance of our own ideas and opinons and are outraged at them being challenged,  feeling it necessary to defend them at all costs and whenever, like our babes in arms.  

  49. Phil    do you think calls on iwm would be a good play seeing that the rut is lagging the other index

  50. If mortgage rates went to 1%, I’d mortgage my paid off house to the hilt! Of course, only because I’d want to do my part to help the economy by putting some cash into play. B-)

  51. Barfinger,
    Nyet Comrade

  52. I think it is time to short the AUD/USD…. set stops @ .9125… still working on a stop limit.

  53. Phil/Tim — His frustration shows. I’m surprised he has been able to keep his cool this long. They also get undermined on finreg when stories hit the news that GS has found a way around it. What was that, maybe 2 days later? People aren’t going to spend the time to figure out what it is if they think it’s broken out of the box.

  54. FMD — why not ?  Stupid robots …

  55. How do I get TRIN in TOS?

  56. Phil, I think is great you got a chance to meet with the Treasury on the issues affecting our economy. Things like that are the greatest source of REAL news as to what the government is doing to address the economic issues of this economy and gives us great insight as to what to do with our investments. Great stuff!

  57. rainman: $TRIN

  58.  Flipspiceland:
     "a bunch of us who simultaneously delight in the romance of our own ideas and opinons and are outraged at them being challenged,  feeling it necessary to defend them at all costs and whenever, like our babes in arms. "  
    very eloquent way to describe public discourse these days.  Perhaps it has always been so?

  59. By the way, I hope you guys realize that $130 was my shorting range for POT and under $100 was my buying range so my valuation and BHPs offer are right on track – they may raise it slightly but, for a cahs offer, I wouldn’t count on it but we’re not going to risk going short on them either. 

    Soc Sec/Rexx – I’m afraid that train has long since sailed.  And you know what happens to trains that sail….

    Political discussion/Barf – Well I don’t mind it after hours or on weekends, I just prefer to keep it out of trading hours.  If you feel compelled, there is always Cap’s web site, which is all about politics (or whatever it is you call a site dedicated to tearing down the current administration).  I think you will find that the "communist stuff" is definitely stripped away, other than labels placed on Obama, of course! 

    NFLX/Rav – Ride ‘em cowboy!

    Germany/David – Interesting.  I saw they had a down report today but didn’t get a chance to read it.

    IWM/Jerri – No because they have been rejected at resistance (335 is big one) over and over and over again so until they lead – I don’t think they are the horse to ride.  Also, we hit my 1.5% goal and I don’t think we have the gas to break 2.5% so I’m going out for a quick bite with my girls while we drift around here.

    Very patriotic Rainman!   8-)

    Aussie/Gel – They sell raw materials to China – why would you short that?

    FinReg/Rain – One of Treasury’s main objectives in the meeting was how can they get people behind FinReg.  They dynamics there are both strange and disconcerting.

    Back by 1.

  60. Phil
    Welcome home from the Circus…. I hope those clowns treated you well.  I would love to know what their grand plan is for recessitating the employment mess.

  61. Phil,
    DIA 102  in at 2.15 at 10.03 am  out at 2.84 at 11.36 am

  62. Phil / Aussie
    Shorting the Aussie is more about the the charts and USD strength at the moment.

  63. Phil, kind of like financials at this point,what do you think of  a FAS bull spread 19/21 selling the 18 put for a net 0.21, good gains if Fas holds 21…

  64. Phil/POT — Phil, you mention the POT side of the merger, any thoughts about the BHP side? I’ve been a long term holder of BHP for I don’t know how long. I sell puts/calls out 1-2 months against it all the time. Most of the time I end up opening and closing positions on currency swings.

  65. FAS/bull spread
    sorry, Sept expiration

  66. NFLX is on its way to form a nice bearish engulfing pattern.. which means the stock might reverse course now.

  67. Jo / ICE
    I hope you caught that bull put spread – it is hot today, but definitely not melting!

  68. Phil
    Most of the folks I follow do not believe a double-dip recession is likely, BUT, if it will take place it will not take place until after the end of the year, and will probably be mid 2011 – FWIW

  69. Phil, what do you think of this trade for some protection I just did? DXD Oct 25/28 bull spread, selling the 25 puts for $.15? Been doing well but want to balance a little. thanks

  70. David -
    Nice analysis regarding the economy in Germany. They are concerned with inflation, as their economy is so robust the employment situation has become very tight. The future looks good, and I am in an ETF that plays this very well – EWG ( Germany index )

  71. Gel/AUD
    it is tempting to short AUD after the dovish RBA minutes released today.
    I am still waiting for the elections to be over (this we) to take a position.
    AUD/JPY seems to me a better cross to play considering the USD current weakness.

  72. Gel -

    Thank you. Good play. I think they have a nice future.

  73. Well it looks like things went as expected while I was gone!

  74. Greetings from Bar Harbor Maine! The “right coast” ain’t so bad… Happy trading all :)

  75. Hi gel1,
    What is your play in EWG thks

  76. Phil, I think it is very dangerous to mix delta’s and percentages.  For example
    If I buy 2 at the money SEP SPY calls my delta is 100.
    If I buy 100 shares of SPY my delta is 100.
    However, if SPY moves up $1 I make $100 in both cases.  But with the calls my % increase is many times higher that with the shares of SPY.

  77. Craig, your percent increase may be higher but your risk is also a lot lower using the calls as a stock substitution. Also, your delta will increase higher than 100 because you have gamma added in for the next move.

  78. Hallo Yodi -
    I did a Buy/Write when I entered EWG – I’m holding the January p&c 21′s. I think this play  ( EWG ) is strong going forward because of the long term weakness projected for the Euro – good for the fatherland’s exports. ( the Chinese love those Mercedez-Benz – who doesn’t? )

  79. back in, only have 30 to go on the dow though.

  80. IMMU – write up here….


    KERX – no data out for a while, so selling the Dec $4 P for 95c or better would be an OK entry


    MNKD – see Exhubera from PFE….not interested and risk reward is not there.  I like PODD better.


    LLY – well, I posted that it would most likely be a swing and a miss, and PFE has the same thing only it is in the brain.   Humm….Alzheimer’s is a very difficult disease to treat, and I believe will be the graveyard (like stroke) for drug discovery….Overall, LLY will be a buyer and they frighten me after this year…unless someone buys them, but the ‘family’ owns a ton of shares, so it would have to be a VERY good deal.  Not sure they are worth it, but from a dividend perspective, playing out until Mar 2011 would be fine.

  81. lionel / JPY
    I do not have the intestional fortitude to short the Yen. One would think it would be a great short candidate, given the weakness in their economy and lofty debt level ( and the ridiculous recent strength ), but it is just always a risky short at all times. We will surely see some oportunities in the future for a short on them, but right now it is not for me – too much uncertainty.

  82. Caps political website … a refuge in a sea of insanity !  (thx for the shout out Phil …)

  83. Hi Phil,
    I saw your remarks on PCLN This stk has gone up from the 230 range to 307 to me somewhat unrealistic.
    I am in the short AUG strangle 300/ 250 Obviously the putter is dead but the caller still holds 8.95 which I sold for 3.95 the putter by the way I sold for .57 so the caller still has about 2.00 of premium looking to roll the play to Sep 330/280 giving me a net credit of 1.10. I am more thinking that the putter will run ITM on this stk . On the other hand shall I wait still a day or two as this does not look for real. I ask myself who is actully buying ths stk at this price??? thks your thoughts pls

  84. Confused_trader, I absolutely agree with you.  The original question was by ben1be
    "This morning my delta based on SPY was positive 142. My account  is up 2% on the trades today. Is my delta telling me my account should rise 1.42X for every upward  1% move in the SPY?
    my response was,
    "But an easier way to think about it is, If SPY goes up $1 my account should go up $142"
    Phil responded,
    "It means you should rise 1.42% for every 1% move up in the SPY but, as you can see, it’s not that accurate!"
    I was merely pointing out that you have no idea what the cost basis for the 142 delta’s was.  So you can’t use delta to try and estimate percentage portfolion change.  You can only use it to estimate actual dollar change.  Even then you are right, delta increases as the stock goes further into the money.  But for a quick estimate, if you have +142 SPY delta’s and SPY goes up $1.  Then you should make about $142.

  85. Back up the ladder we go – this time I’m going to take the parachute with me, for the eventual dessent down – will buy back my short puts to pocket the profit before the door opens.

  86. TRIN/Rain – $TRIN – I stick mine on one of the min-forex charts since I don’t really care that much abou Aussie or Canadian fluctuations. 

    Treasury/Rav – They invited me and a couple of other writers for a roundtable discussion and I have to say I find it very inspiring that it’s still true in America that regular citizens can still participate in government without having to fork over a ton of cash to get "access."  

    Grand Plan/Gel – They do not have a grand plan.  That’s kind of scary.  They are pretty much in the mode of having saved us from a total crisis, they flipped to FinReg to prevent the next crisis but, as I pointed out to all 3 "groups" of T-People we spoke to – "What is the plan for the 3 years in-between?"  I was VERY disturbed to get blank stares from all of them, including Geithner as they seem to be more or less feeling that they pulled the economy back from the edge of the cliff and now they lobbied to get approval to put up a sign that says "Look out, CLIFF!" to warn us next time and, now that they have approval for the sign, they are expecting 2-3 years of building and organizing and placement of the sign ahead.  Meanwhile, they left the economy wandering around the edge of the cliff with no sign…

    I’ll tell you something else strange – there were very few lobbyists about.  That’s a BIG difference from the last administration when it was like the waiting room at a doctor’s office to see people.  Maybe it’s the aftermath of FinReg, where everyone shot their budgets for the year lobbying Treasury but I was very surprised at how empty the place was (and they have 1,000-foot halls so you can see a lot!) despite all the offices being full with the people who are supposed to be there.

    DIA/Dave – Nice job!

    FAS/CMS – The Sept spread?  I like that plan. 

    BHP/Rain – Hey, they sell raw materials to China and India – what could go wrong?  Other than the dystopian fantasy people seem to have about China collapsing and destroying the global economy (they will stall but not collapse and they are only 10% of the global economy anyway), I think BHP is a nice long-term play.  They have plenty of cash and no debt and, even at the increased price, POT’s forward earnings will have a positive net impact on the bottom line to the debt AND there are certainly marketing and distribution synergies.  Of course the Russian thing (also in BHP’s trading zone) raises the need for Potash and it does take a long time to bring on new capacity so if BHP wants to get into this game (and China doesn’t even use fertilzers extensively yet), they need to buy someone.

    DDip/Gel – I think (and T-People agree) that they key is getting past the next 18 months without a crisis.  Once we get a little confidence and the economy starts moving, it will be just as hard to stop as it was to start – hence the inflation paranioa, of course.

    DXD/Jomp – I think it’s fine but, as I said earlier, why not let the 150-point gain we just got be your first line of defense (because it was free) and only cover if we slip below, say 10,300 or 10,350?  Also, I wouldn’t sell a put for .15 as it’s hardly worth it.  You pay a penny in and out so if you buy it out at 50% you are netting just .06.  You can take the bull call for $1.20, which has a nice gain on it’s own and you are starting out in the money by .20.   IF DXD falls below $25 and puts you out of the money AND you still think we will turn back up, THEN you can sell a put at a MUCH better premium.  Otherwise, just be happy with the 150% gain if it drifts higher or stop it out with a .60 loss if the Dow keeps going higher and find a better positioned hedge for the next round. 

  87. Pharm/LLY – good call in the original post.  Thanks.

  88. Out on a breakd down of TBT, +.5%    

  89. Phil,  Does the admin really think they spent their political capital on FINREG?  If so, from who?  The bankers??  While I agree they’ve spent a lot, if not all of their capital… they didn’t do it on FINREG.  It was healthcare!  I don’t know anyone, but bankers, who hold FINREG against them.  While I’m seriously disappointed that it doesn’t go far enough.. I’m not holding the fact it passed against them.  I’m holding their capitulation to the bankers against them… and I don’t think that’s what they mean by spending their capital.  Or does it?

  90. Looking for a nice pullback here and then the stick into close. 

  91. Re NFLX.. Impressive, the Put/Call ratio is almost 1! this has been going on for a couple of days now meaning that there’s a LARGE number of traders buying Aug $135 calls but an equal number buying Aug $153 puts.. which means that if we follow Phil’s learned lessons, the point of maximum pain for all these suckers buying the premium would be that the stock ends up on Friday at exactly… you guessed it, $135! Could it be? LOL

  92. Re NFLX I meant $135 puts! and no other strikes are being bought..

  93. Phil:  Lobbyists-- Just cause you didn’t see them doesn’t mean a thing, now they are behind close doors working closer with their "representatives"   number of lobbyists higher under obama than bush

  94. Phil / Consultation with Treasury
    Very interesting summary. I suspect they believe they themselves are better qualified to direct this ship.  Most all of them have had very little experience in the private sector, and I believe this is their weakness.  They at least were willing to listen to you, as your background if filled with experience at the ground level – They have a lot of experience in the classrooms and government offices, but that is not enough in these tough times.  The way I see it – we have a boy trying to do a man’s job, and the boy thinks he is "Superman".  I feel fortunate to be able to say "I was vicariously represented in your presentation", as we all shouted out our individual solutions, prior to your visit.

  95. Gel/
    Just to clarify, I am looking like you to short the AUD not against USD but against JPY (if we touch 79-80 yen)
    I have no intention of shorting the Yen at the moment (the best candidate would be against the Aussie because of the positive carry. I am currently in this trade from 76.25

  96. Gonna step out of a few more of the ARNA Aug10 $7 P from last week @ 20c…..gotta love the short coverings and retail going in.


    FDA date is Oct 11 for ALXA, drug is an inhaled form of loxapine, a typical antipsychotic (first generation).  They have an inhaled technology that could be transferred to other drugs, and Biovail owns the north American rights.  Options are thin, so buying stock and will sell on the run up, keeping a few around for any positive news.  FDA inspection has just taken place, so that is a risk in and of itself……if it passes, they will pop.  If not, they will go back to $2.  Raised capital a few weeks back at 2.70, so I think they are good for a run to at least 3.50.

  97. Cap
    I enjoy your website…. With all the "crazies" that prevail today… you are providing a public service, I believe.  Now, if we can only get more of these "wing nuts" to log on and become more educated.

  98. Phil/DXD,
    On that trade I ment to say I did the whole trade for .15 – the puts were sold for .95. Crazy but now DXD is down >15 but all 3 legs are up. don’t understand that except the lower vix I guess.

  99. For those that use TOS: Under Monitor and then the Activity and Positions tab, is there a way to move open option positions under the same security into different groups? For example, if I try and move one of my option positions for MSFT to another group (e.g., to separate long-term and shorter term trades), all the option positions move to the group I select. Frustrating.

  100. DXD. I ment down 15 cents, not >15

  101. Is that a JRW entry around 1:56?

  102. Oh, sorry, that JRW entry was on the DIA, not the IWM, although IWM is confirming.

  103. PCLN/Yodi – I’d wait for expiration – they may drop back to pin a lower number. 

    Political capital/Matt – The banks spent well over $100M in 3 months lobbying against FinReg – even at $300 an hour that’s 333,000 hours of lobbying time so they twisted every arm in both Houses of Congress several times over and that means that the Administration had to do their own twisting to get the "save or create" new votes.  Yes, the capital was already depleted with Health Care and now they are exhausted.  Also, I don’t think the T-People are very political, they are true policy wonks who are just trying to organize our massive economy and find the right mix of stimulus and regulations and taxes etc. to not have the country go down the toilet and I think they have had a very tough time dealing with this onslaught.   Also, if you don’t know who holds FinReg against them then you do need to start reading some more conservative sites – pretty much considered a total failure there.  Don’t fall into the rhetorical trap that FinReg doesn’t work.  FinReg is a framework to establish regulation, the Dems made it that way to get the Republicans to finally sign off on it and the Republicans are thowing the dice that they can get control back before this legislation starts to grow teeth. 

    12:00 PM On the hour: Dow +1.39%. 10-yr -0.42%. Euro +0.5% vs. dollar. Crude +1.17% to $76.12. Gold +0.07% to $1227.10.

    1:00 PM On the hour: Dow +1.34%. 10-yr -0.41%. Euro +0.38% vs. dollar. Crude +1.28% to $76.20. Gold +0.17% to $1228.30.

    2:00 PM On the hour: Dow +1.61%. 10-yr -0.47%. Euro +0.52% vs. dollar. Crude +1.2% to $76.14. Gold +0.07% to $1227.00.

    Minneapolis Fed President Narayana Kocherlakota: Weakness in jobs market "can only be termed disturbing" but the Fed has no power to fix that: The disconnect is due to "mismatch" between jobs and workers in "geography, skills, demography." Fed can set up good conditions but can’t make construction workers into manufacturing workers.  This is my point exactly in the New, New Deal – you have to utilize the assets you have – not give up due to the "mismatch" between current supply and current demand for labor.

    And alongside the Fed’s Kocherlakota (who says the Fed has faith in the recovery but the central bank can’t fix joblessness), Nomura’s Richard Koo believes monetary policy is ineffective in this kind of recession: "Those with negative equity are not interested in increasing borrowings at any interest rate." (Debate at The Economist) – That’s what Timmy said yet he still didn’t like my housing fix – that pisses me off!  

    While Geithner sees a continuing U.S. role in guaranteeing mortgages (with or without Fannie and Freddie), Pimco’s Bill Gross says it’s time to think about "full nationalization" of mortgage financing: "To suggest that the private market come back in is simply impractical. It won’t work."  Gross is owed about $600Bn by FRE and FNM so, of course he wants the Government to take it over to guarantee his endless bail-out.

    Banks could be banned from existing dual roles where they both advise on and underwrite state and local bond deals, according to a new proposal from the regulator for the $2.8T muni market – with an effect on dual-role companies like Piper Jaffray (PJC) and Royal Bank of Canada (RY).

    U.S. cars take the top two spots for the first time in the new American Customer Satisfaction index survey, as Ford’s (F) Lincoln-Mercury and GM’s Buick rank #1 and #2 in vehicle satisfaction.

    Potash (POT +24.5%) CEO Bill Doyle elaborates on the company’s rejection of a takeover by BHP Billiton (BHP -2.1%): A sale’s not out of the question but BHP has to come with a "big boy" price and can’t "steal the company," WSJ reports. Analysts are with Potash so far: The offer is "way too low" and bids from Vale (VALE +1.1%) and Rio Tinto (RTP +2.4%) should materialize.

    Starbucks (SBUX +3.2%) reaffirmed EPS guidance of $1.36-1.41 for fiscal 2011 – which includes an expected hit of $0.04/share due mainly to higher coffee prices, though it says it’s not planning to pass price hikes on to consumers.

    More juice to reports that Apple (AAPL +2.7%) is prepping to defend its tablet flanks against new competitors like Dell (DELL) by preparing a 7" iPad that would carry a lighter weight – and price.

    Three lunchtime reads:
    1) Debt virus spreads after make-believe recovery
    2) A bleak view: The Fed throws a bone
    3) The new bond market bubble

  104. Adding 40% more shorts here to a total of 60% short.  We very well may break 1100 and move higher for the rest of the week but I’m not sure just legging in.  I love the VXX here, I have no idea how it can be so low in this environment.  I just don’t see it, it seems nuts to me. 

  105. Interesting to note:    TLT and TBT are both up (bonds are down so TBT should be up); ie;  people are bidding up TLT for speculation, imo  (good arbitrage play here i think)

  106.  humvee4me 
    check out the date on your link…3/29/ wonder Phil did`nt see them.

  107. IRAs   -  I’ve been quiet lately, hanging out with family at the Virginia northern shore.  I spent the last two days body surfing and watching the waves.  Like investing it is all a matter of preparation and positioning to catch the wave.  It puts things in perspective. 
    I’ve noticed several other people asking questions about IRAs.  I just took over my mother’s IRA and plan to mostly write short term covered calls, trying to generate about 2.5 to 3.0 % per month.  I’d like to hear what others do in their IRAs.  I’ve looked at writing puts, which I can write cash secured puts with Interactive Brokers, but it doesn’t make sense to me to do buy-writes with puts and calls since it ties up too much margin in the IRA.  I can also do debit spreads and use them to hedge, though I have not been writing the puts against them either. 
    I’d be interested if a few of us who have IRAs in the group want to post trades and ideas specifically for IRAs.  I will be glad to post my monthly covered calls for those interested.  As a therapist/preacher I don’t have a lot to add in the way of market analysis, but I’ve written monthly covered calls for about two years and make a decent profit at it.

  108. Phil, what were Timmy’s arguments for NOT liking your housing fix? Was it political? If it was so, it doesn’t mean your proposal wasn’t good, it’s just that it wouldn’t run through due to the political implications.. I think they are two different matters.

  109. HHFIV/TOS: They have a "subgroup" functionality that you access through Monitor/Account Statement that is supposed to allow you to assign specific trades to a subgroup – so, you could have different trades of an underlying in different subgroups.
    However, there was a bad bug. Say you bought a vertical (as a single trade) and then later got rid of one leg, leaving one leg. The subgroup functionality would show you holding both legs. Ouch!
    I talked to TOS about this, and they said don’t use it until they fix it (definitely the right answer.) I think they’ve had one release since then, but I don’t know if they fixed it or not yet.

  110. Ben1be
    lobbyists are not registering and going stealth; no way to drain the swamp, got blow it up!


  111. Phil / Stimulus     I’m surprised and saddened that Geithner thinks we can avoid a negative GNP read soon without meaningful  fiscal (structural) stimulus initiatives.  How Obama expects to get re-elected without an China style initiative to tackle the 25% un/underemployed is beyond me.  Makes me very bearish about 2011 now. 
    I suppose the mkt will hold up based on spending, until peoples savings / unemployment checks run out and the foreclosure tsunami tanks houses prices further.   Has the Washington response made you more pessimistic about mkt prospects?
    Mr Bass had a very sobering assessment on the CNBC noon strategy report today, basically forecasting a collapse of global equities and sovereign defaults in Europe and Japan (where Gov income hasn’t increased in 20 years while spending quadrupled and personsal savings are now zero, so the Japs will have to go to Int’l mkts which will drive interest rates up, leading to default).

  112. Pharmboy, thanks

  113. Tuscadog:  yeah I saw a bit of that interview; his idea about shorting Japanese long term bonds makes a lot of sense to me; anyone know who a small investor is able to do that?

  114. revtodd64/IRAs: You can buy call LEAPs of conservative stocks/ETFs like WMT or DBA (no need to worry huge downside) and sell front-month calls. I generally do this with half covers to start.
    You can enter bull put spreads. For instance, I have XLF Sept 13/14 (short the 14s, long the 13s) where I got $.11 for a $1 spread. I find VLO very good for bull put spreads when it is down in its channel.
    You can do buy-writes like in non-IRAs, but instead of a short put, make it a bull put spread. For instance, I have BMY stock covered with Jan 2012 $25 calls and a Jan 2012 $20/25 bull put spread. I got $2.23 for the $5 put spread and $2.80 for the calls when I entered the trade. So that’s $5.03 off of a stock that was $24.90 when I bought it, and whose yield at the time was about 5% – before the credits for the sold options.
    You can do calendars on stocks that don’t move much (e.g., WMT,JNJ). For instance, check out being long WMT Jan 2012 $50 calls and short the Sept $50 calls. It’s a wide spread before you breakeven, and there’s lots of rolling options.

  115. rev/IRA — I think there is still a place for writing puts in IRA’s for a few reasons.
    For one, accumulation of a position (scaling in).
    Two, you can often cash out with 50% of the potential in the short term and then use that capital for a put write on another position with better potential. So say you want to accumulate both XOM and GE. XOM is down from some oil related event and you write your put on it. It recovers, you take your 50% of the potential in 2 weeks on a 2 month option. Now you don’t want to wait for XOM to have another event for a cheap entry but GE heads down on some banking issue, you use that capital there instead.
    Three, if you are writing in the money calls, with the intention of being called, writing puts at the same time becomes more attractive. So for example you think GE is at a short term low near 15.50, you buy a position (or perhaps have one)  and write both calls and puts at 15. The reason this is better than a 2x position with just calls is that one side will win and one side will not and if you are put the stock, you average down your cost wheras the 2x position automatically has a higher cost basis (if transacted all at once). This is directly related to Phil’s scaling in strategy by doubling down except ignoring the 20% drop.  

  116. revtodd64: Correction Sept 12/13 on the XLF bull put spread. 13/14 would be too risky for me.

  117. Not sure if Phil/anyone else had posted this yet – mildly entertaining clip about CNBC

  118. They finally make some sense. Conservative think tank Cato Inst. thinks we should reduce our defense spending and rethink Afganistan. Progress being made hopefully.

  119. Tuscadog/Bass
    Totally Agree… IT was one of the best sessions on that segment to date.  It was interesting watching the CNBC crowd listen intently to what Bass had to say with his SPECIFIC RESPONSES to the glossed over analysis usually heard from that crowd.  Interesting Bass not wanting to be in US Equities… like it was Un American…. LOL

  120. Gel1   Did you see Kyle Bass on CNBC today?  Smart guy.   Says Japan will eventually be toast.  Because of their demograplics, they are running out of people to buy their own bonds. 

  121. jomptien,
    There are many conservatives who think Afghanistan is a foolish venture and think the military is too big…
    Even ones who have son’s there.

  122.  revtodd64/ IRA’s
    I would be interested.  OR we can exchange emails on ideas also.  OR skype.

  123. lionel / AUD
    I entered my full position on the short AUD/USD – my stop is at 91.25, and my limit stop has been set at 89.50 – let the games begin!

  124. lionel… quick question – What platform do you trade on?

  125. Bps2002,
    I think the real conservatives do – the ones 40 years ago like Buckley who woulden’t notice them anymore. Seems most of the ones in congress now want more military spending.

  126. Bps2002Conservatives,
    And the spineless dems. cower as they don’t want to be critized for being weak on "natl. security."

  127. Thanks Gel !  :grin:

  128.  we should have an annual bash. How about Las Vegas?

  129. Kyle Bass, David Einhorn and Julian Robertson have all been short Japanese bonds for about a year now--

  130. Stockbern / Kyle Bass
    I missed that, but I understand the concern. Their interest rates are so low, who would want the stuff. Their debt ratio to GDP is in the clouds, so they can never work their way out of debt. Their consumers are not ever going to sustain their economy, so they rely on exports into countries that are becoming more seff sufficient – sound to me like they are SCREWED.

  131. IRAs/revtodd – count me in – I’m mostly doing covered calls off Phil’s portfolio long-term hold recommendations.

  132. Biodeiesal -  We’ve been discussing it for the last couple weeks but guess you havent checked in lately. Deano is getting together a list (Phil says he wants at least 50) so far we have around 25(?) . So are you in?

  133. Matt,
    You still feeling the stick?

  134.  Phil- Andy Zaky wrote about his concerns back on Aug 2 about a head and shoulders and the possibility of a big move down.  I know nothing about TA, but he made a good argument that the mentality of the market might be, in the longer run, pushing it toward a correction.  Did your trip to DC give you any insight into this outlook?

  135. Just went short, looks like they’re waking the club. Party is over.

  136. jomptien,
    "I think the real conservatives do – the ones 40 years ago like Buckley who woulden’t notice them anymore. Seems most of the ones in congress now want more military spending."
    Have you ever read charles hugh smith’s ( take on militiary spending. I think he may be point on. The book I read was Survival+; available at amazon.

  137. Yip no need to go nuts on the short side..I would lightn up 10380 if we get back today.. Give the markets a bit of room to go crazy into opex

  138. gel,
    plus the japanese demographics are terrible--but their currency keeps rising??

  139. datuu   gel1    Japanese bonds,    Kinda like TBT.    Smart money knows it will happpen, but for how long can we play this game?

  140. More on Japan:  Interesting article in current Forbes magazine about Japan and how/why they are big into robotics as they prefer robots to importing foreign workers (including female robots!).  If I remember correctly, projections are for their population to drop by 25% by 2050; point being they have a shrinking population to pay a rising debt, how is that going to end well?

  141. Gel/ I use IB

  142. JRMEHA, please put me on the list for Vegas. Thx

  143. Knock, knock.. will someone please open the door.  I think it’s Mr Stick~

  144. Bps2002, No never heard of him, will check the website.

  145. IRA"s/revtodd/snow:  Put me on the IRA list

  146. stockbern , datuu
    Buying US and Japanese bonds is much like a New Years Eve party… it always ends with the euphoria morphing to a hangover. Fun while it lasts, but always ends with a thought the next morning – "Why did I do that"?  If it makes no sense, then it will eventually crash, with a lot of injuries to the players.

  147. humvee / robots …. Hmmm – how expensive are they?

  148. Matt… Is the stick up or down?  Are you saying we stick up?  They sure have been trying for about 2 hours….I guess I thought ‘the stick’ was only a rally to the upside is it also downside?  I guess I’m confused because my partner bear matt is talking stick today..

  149. lionel
    I am using the new GFT platform. Check out and check it out – kinda nice! (Dealbook 360 )

  150. Ouch. Juked me that time! -2%.  TBT trending up again. I’m out for the day. Volume spikes look like some warm blood.

  151. stick up I hope, have to get more puts before the close.

  152. revtodd/salvum- IRA- I would be interested too.

  153. Phil,
      Another  Reaganomics  architech. Paul Craig Roberts, gets religion.

  154. Gel1:  Robots
    I believe they’re going for $7000, cheaper than a wife and you can trade her in for a new model anytime you like

  155. Gel/ I will have a look at it after hours. Thanks

  156. humvee… you read my mind… I’ll pass this on to the wife next time there is a dispute.

  157. 10 Pictures Taken Exactly At The Right TimeLobbyists/Humvee – I’m just comparing my observation of the same place over the years.  Had most of the offices been empty, I would have assumed they have switched to more wining and dining but of course the lobbyists are way up now – they spent hundreds of millions fighting health care and over $100M fighting FinReg and then they didn’t want the Climate bill and they want to drill offshore etc…  All big issues they didn’t have to worry about under Bush.  That’s what rich, fat-cat corporations and individuals do when they don’t think they’re going to get their way – they hire lawyers and lobbyists to overhwhelm their opposition. 

    Treasury/Gel – It wasn’t a presentation.  They had me and a few other writers there to listen to our ideas but, in large part, they recognize they have done a very poor job "selling" FinReg to the general public and they don’t want to make the same mistake with GSE reform, which is next on their list.  The defining moment in it for me, wear my consultant’s hat, was that after listening to the first 15 minutes of back and forth (I don’t like to speak until I know who I’m speaking to) I stopped them and said "so you guys want to know how to convey to the American people that FinReg is working, it’s a process and you are making progress on multiple fronts.  Fine – where’s your bullet points?"  (blank stares).  I asked them if they had a summary we could point people to and got more blank stares but their Couselor did say they had done a White Paper, which it turns out is "only" 89 pages and that the final bill is essentially the same but maybe they could update that.  I’m sure you are laughing too because anyone who has been in a board room knows you can have the greatest idea in the World but you still need to sell it, both to the Board and the shareholders, if you want it to fly…

    The coup de gras though, was when I was incredulously going down this path with them, that it occured to me to say "OK, which one of you guys is the PR person?" and I waited and looked at them all and waited for one of them to raise their hands but they all just looked at me (and not even at each other which was telling) and it took me a minute to figure out (because I could not grasp the insanity of the situation) that the Treasury Department of the United States of America, which runs the IRS and collects $2.2Tn in taxes and borrows another $1.5Tn and disburses $3.5Tn and runs on a $20Bn annual budget and is in charge of producing all of our nation’s stamps and currency —-- does not have a PR department or even a PR person! 

    120,000 people work in Treasury and NONE of them are in PR!  Whuck???  No wonder they get their asses kicked up and down K Street.  The people I talked to were top-notch, Matt Kabaker came out of Blackstone, Michael Barr worked under Clinton and vacationed at Brookings while Bush was in office, Mary Miller is out of T. Rowe Price (Director of Global fixed income) and the guy who impressed me the most was Jake Siewert, who was Clinton’s last Press Secy and can rememeber every word on every line on every one of the 2,300 pages of FinReg (along with, I think, everything else he ever saw or heard in his life) – so there is at least one guy in Washington who actually read the whole bill!  

    Anyway, the point is – all bright people, all doing good jobs but blind to the political reality of their situation pretty much just as you would expect your accounting department to be about the actual marketing of the product the company is trying to sell.   They don’t dictate spending, they don’t create the revenues – they advise Congress and the President like any CFO but mainly their job is to juggle whatever mess is handed to them and they were handed on MoFo of a mess 18 months ago and they’ve been so busy trying to pull us back from the depths that they haven’t figured out what their regular jobs should be. 

    DXD/Jomp – That’s the beauty of selling premium like that in a disaster hedge, you have that bonus cushion as we head higher and the VIX deflates but just watch out for the point where that crosses over into something more painful. 

    TOS/HHF – I’m not expert, my screens are still more or less the way they came out of the box.  Call tech support outside of market hours when they have time, they have some great guys there.

    Puts/Rev – Don’t "write off" the whole idea.  With the VIX low, it’s a tough sell but figure out what does make it worthwhile and keep a lookout for that.  Usually you need the VIX around 30 to tilt the ratio in an IRA.  Of course I could argue that you could go long on 300 shares of WFR for $10.60 and sell the 2012 $10s for $2.75 for $7.85 with a break-even there (net $2,355) and a max profit of $2.15 ($645) or you could sell 4 $7.50 puts for .95 ($380), tying up net $2,620 but your break-even on the trade is $6.55, which is almost 20% lower so there are always trade-offs and, of course, if you combine the two, you blend that risk for an additional 10% lower b/e point.  Also, as Chaps mentions – you can look at some bull put spreads if they offer reasonable net credits.

    Housing/Rave – No way Congress would go for it and Treasury does not have clear authority to purchase the assets.  The problem is, even if he does like something, if he makes the rounds and has meetings and gets no’s – his political stock drops so, just like many people in big corporaitons, he has to tread carefully to avoid land mines along the way.

    Good article/Humvee – Such a mess the way everything is interconnected there. 

    Unemployed/Tusca – The problem is we roll the dice on those benefits being renewed every 3 months and we know not renewing them is going to be a disaster.  Meanwhile, NOTHING is really being done to stop 400,000 foreclosures a month for the next 2-3 years from happening and how is it even remotely possible for the economy to seriously recover with that monthly drag?  BUT, keep in mind this is a US burst bubble issue and not a global issue and we are buying, primarily, multi-national corpoorations who’s profits are not directly tied to the fortunes of the US economy.  Look at WMT today, US sucked, International great – stock up.   Forcast going forward, US sucking, International great.  You don’t bet against Boeing because Chicago is running a budget deficit – the world is much bigger than it was and much closer together than it was when we went to school and it’s hard for us to get our brains around that but you have to think of sales in the US, Europe, China, Japan, Australia, Russia… The way you used to think about sales in the local market and the Northeast, Midwest, South and West – the global economy is much less likely to fail across the board than the national economy in the same way it was far less likely to have a national downturn than a regional one.

    So I’m not more pessimistic but I am still very worried that we are very vulnerable to a near-term collapse, especially if people like Bass continue to be given the microphone (in absense of opposing viewpoints) and manage to sour business sentiment to foster the crisis they are predicting.

    CNBC/Jrom – What the hell is that thing?  Is it from a transcript?  Can’t be because "Sara" doesn’t know big words like "fiat" and "fungible."

    Cato/Jomp – Do you have a link?

  158. revtodd/salvum,
    i am interested in the IRA discussion as well-thanks

  159. Chaps- I like your ideas for PM accounts. Is there a way you can post something for non-PM accounts? Your ideas cud be used for small IRA accounts like mine. Thanks.

  160. gel 1, stockbern,
    i agree with gel--so far there has been a lot of pain for the people trying to short both japanese bonds and the yen--the bonds are a good play if you are right on the timing but then what isn’t?--the big guys bass, einhorn etc.. are using curve steepners which are way to much $$$ for me

  161. yip, I was looking for a stick ‘save’.  Not anymore.  Boy do I have a lousy record for that thing.  I’ve been plowed over by it many times and when I actually want to take advantage of it, it doesn’t show.  I should just stop trading by 3:15!

  162. JNJ 60 Calendar spread Aug C sell/Oct C buy – rolling to the Sept 60s for a net credit of 39c. 

  163. nicha: There was a general discussion about IRA accounts today. Don’t know if you’re aware of it, but IRAs and non-IRAs with PM are at the opposite end of the spectrum. PM is the most "sophisticated" (and potentially dangerous) form of margin whereas IRAs have no margin. Moreover, it is my understanding that what’s allowed in terms of options trading varies greatly depending on who the broker is for your IRA.
    TOS has the most lenient options trading in IRAs I know of. Basically, you can enter any trade with a finite risk and you must post cash to cover your max potential loss. What are you allowed with options in your IRA account?

  164. Phil your comments regarding your meetings are troubling but confirm that this adminsitration is being run by a bunch of policy wonks who have difficulty with the basic operation of a light switch. It’s proof there is no real substitute for real life experience. No wonder they have a difficult time getting their message across….they have no message !!

  165. Phil
    Your visit to Treasury must have left you wondering…. hmmmm – are they understanding the direction of my comments? It is sad, because they are not adept in selling their programs ( whether beneficial or not ). When you mentioned PR – they were probably thinking you were speaking of "Personal Rewards" as an acronym  They do not know the importance of selling their objectives, as the public does not trust the government anyway. The bottom line is Marketing 101 – if you have a "better" mousetrap, then you always have to sell it to the schlubs that don’t even know what a mouse is.  The basics always are more important than the "fluff" that clouds the whole objective.

  166. Japan/Stock – I’d say that is the most likely of all international defaults but, like the US, they are a currency of choice and that keeps people buying those Yen – for the very wealthy international crowd, the Global top 0.01%, who have $20Tn in assets, it’s really about just balancing their holdings between Europe, Japan and the US as they don’t want all their eggs to be in one basket so, unless one of them actually defaults, it’s hard to change that dynamic and, of course, the default of one will only send money flying into the other 2 until one of them defaults and then the last man standing can set the rates whereever they want.  Imagine you live in the old west and you have $1M and the rest of the town put together have $2M total (maybe avg $1,000 per person).  How comfortable are you leaving $1M in any single bank?  The whole town could be overrun by Indians so you put some money in NY and some money in Chicago and some in Kansas city, which is all poorly accessible to you and you leave $100,000 in each local bank and still you are way too rich for the town.  It’s very difficult to manage great wealth and the options are not so easy.

    Correction/JTiff – I don’t think there’s anything fundamental pointing to a correction.  You can worry about China, Japan and Europe bursting or Iran attacking or getting attacked or you can worry about the World running out of gold (Cramer’s new scam) or super-viruses from India or alien invaders (either the immigrant babies or actual aliens, take your pick) but if you look at what’s ACTUALLY happening, there’s not much to take us back down. 

    Japan/Humvee – In 20 years maybe they do replace the population with Robots.  Can you say Domo Arigato, Mr. Roboto

    Oh dear, not a good finsih is it?  Hovering around 1.25% and all down since Mr. Gloomy was on TV.

  167. revtodd--would like to be in on  the IRA discussions also--do not know how much I can contribute(new to all this) but will like to try

  168.  revtodd et al / IRA’s
    Let’s get this party started.

  169. Phil / Unemployed     I understand your ‘rest of the world ok’ story, but European austerity, declining population in insolvent Japan, added to a neg GNP USA next year will put big pressure on China exports, Brazil and the commodity countries.  You know how small the Chinese consuming class is relative to the mature economies.  Still think you’re being too optimistic when the three major economic blocks are facing flat to negative GNP without major new stimulus, which has suddenly become politically incorrect.

  170. Pharm, sorry if I missed it, but did you get any information on PolyMedix. I had sent you the story about their antibiotics research. Thanks. 

  171. Phil: great video robot link, thanks

  172. matt/stick — I use use as a contrarian indicator! I should have stuck to my guns but that’s the thing about the stick, you have to be nimble if you you think it’s going against you. One win can make up for 10 losses with that thing if you cut losses short.

  173. @Phil
    I know the definition of FUNGIBLE:
    A mushroom walks into a bar….sits down and orders a beer.  Bartender says, "Sorry, can’t serve you".  Mushroom says, "Why not I’m  a Fun guy".

  174. Matt…. I thought it was coming too but I still got super short at the high.  That was too easy I can’t see that being the top since I got 50% of my account short at that level…  I’m never that good or lucky, my name isn’t JRW. 

  175. That was just a difficult day to trade FAS/FAZ.  What is with all these DOJIs?  I’m sick of them!

  176. Phil
    The administration has failed to communicate to the guy on the street.  He wants to get a picture of the efforts that are in place to help him, but the "gibberish" that comes out in the media does not resonate with his "hand in the pocket" problem (aka empty)  Reminds me of an engineer that worked for me years ago – I would ask him a simple question, and he would answer in multiple sylable words that I had no understanding  whatsoever what the hell he was trying to say.  He,I believe, spent most of his off hours with his head either in a dictionary or up his ass, because he was not communicating with me on my lay level. Our government, now or in the past, never could understand this shortcoming.

  177. Dammmmmmmmn Phil…….is Dub-ya back in the White House……..praise the lord.

  178. Chaps- I am following along in the IRA discussion that revtodd started.

    I have TOS.

  179.  put me on the PSW-bash as a strong ‘maybe’
    And we definitely need to hold a private poker tournament.

  180. gel1/Engineer
    "he was not communicating with me on my lay level"… LOL They are very interesting people as a group… but, still not at the level of actuaries… My son is finishing his masters degree at Cornell in Civil/Environmental Engineering (went through 5 year program in 4 years at U of Washington)… I will have to remind him of this social illness… seems okay at the moment though…

  181. revtodd/IRA- do you want to get an email chain going or post in google docs? Also, personally speaking I am not so good at picking and analyzing stocks. Would be nice if some senior members cud validate our trade….just a thought.

  182. acobra… Yes, the engineers like so many professionals sometime forget they have a vocabulary that is indigenous to their profession. I just answer with ‘duh" ( that is a word that everybody understands ).

  183. FinReg PR — What would PR of FinReg accomplish? Does Joe Mainstreet really care what’s in there? Would he understand it? Does he really know how the crash happened? Who would the PR be targeted at?
    Anyone read "The Quants"? I’d recommend it. Gives you a good look at the guys behind the bots and keyhole look at the anatomy of the crash:

  184. gel1 — Indigenous? What, are you a biologist? ;-)

  185. IRA"s/revtodd:  Put me on the IRA list. 

  186. Phil, are you talking about Kyle Bass? If so, what did he have to say?
    I thought this was worth posting.

  187. PolyMedix/stj – apologies, I had it on my list, but missed it in the writeup.

    Pipeline above and starting some work in 2010.  I think they have a way to go on their data.  The NIH stuff is good, but not a game changer yet. You can put some away in a rainy day fund and check back in a few months to see if you need to DD or possibly be happy and get out.  Just a ton of time to wait.  Trend is down, so wait until they have an accumulation phase on the weekly charts.


    EXEL – one that was also on the list.  I think this company should be avoided for now.  GSK/BMY have returned assets to them, and they have their own internal as well as external competition for the same target!!!!  Nice summary here that I wont rehash.

  188. Revtodd:/Nicha:
     IRA; It’s my understanding that all IRA accounts MUST post 100% cash for all short sales.I only sell puts when I have a lot of cash (like now)  & I am willing to buy the stock at the Put price sold thereby getting the stock at a discount but in general, I don’t like to sell puts in my IRA accounts. 
    Since I would not expect a lot of trading in the IRA selections,it  might be  a good idea to do a list once or twice a week and then run the top 3 selections by Phil for his input instead of all of us taking his time with the same questions & wearing his patience thin.Let me know what you decide.

  189. gel 1, stockbern,
    interesting timing--i literally just got an email from a hedge fund manager that i know who is now looking for financial help due to his short position on Japanese Bonds killing him--he is till convinced his thesis is correct but his timing has really hurt him

  190. rainman / Biologist
    Definitely not… but, I do have some weeds growing in my roof garden!

  191. Pharmboy:
    Phil recommeded MYL today. S&P has a ‘strong buy ‘ recommendation with a 1 yr. target of $25. What say U. Also,do u like ABT  at this price ? Thanks

  192. flip / fungible
    Ha, ha – yeh, that mushroom might be in big trouble, as "fungicides" are used in keeping the bars clean.

  193.   All
    Bash & conference w. Phil in Vegas – here’s the list I have as of now – let me know if I missed anyone:

    1 deano
    2 ban2
    3 dflam
    4 nicha
    5 gel1
    6 snow
    7 gmarts
    8 humvee4me
    9 CaFords 
    10 jromeha
    11 Cap  
    12 Jbur
    13 HHFIV
    14 terrapin22
    15 1020
    16 rainman
    17 Maya1
    18 Pharm
    19 rvnelson 
    20 rdn4evr
    21 willsons 
    22 escohen5 
    23 doro165
    24 acobra65
    25 datuu 
    26 chaps
    27 jomama 
    28 biodieselchris

  194. Roberts/Ekor – That’s a good one!  That’s 3 down, 99,999,997 to go!

    Message/DK – Yes but you want these wonks analyzing and writing the policy, you need a guy who acts as a public face though, to get the people behind what they are doing (even the IRS could use a little PR).  Since Siewert is sitting right there, I can only imagine that Tim doesn’t want to share the spotlight yet he does not see that he doesn’t inspire a lot of confidence when he speaks because he looks too young and doesn’t carry himself with that Pauson-like gravitas that you need from your Treasury guys. 

    Basics/Gel – We’ll see, I have follow-up with them on the subject and I’m still trying to digest the dynamic.  Geithner surrounds himself with very good people but I get a red flag when not one of them says a word once he enters the room.  Perhaps this is because they are used to dealing with people who only want to talk to the top guy and that may be why their format has evolved to bringing him in as the grand finale (he actually went 30 mins over the last hour that was scheduled, which was nice) and then his time is limited but it’s not a good way to run a meeting if you are trying to have a serious discussion. 

    GNP/Tusca – Well there’s lots of ways to measure success and, right now, not going down is good.  China didn’t grow for 50 years and you didn’t care did you?  Russia shrank since 1985, Japan since 1980 and Europe has flatlined for years as they got into the EU mess for the past decade and we didn’t care at all.   Now we are contracting and the World is coming to an immediate end?  That’s just not how it works.  There are 6.7Bn people and there will be over 10Bn by 2050 so hard to avoid global GDP growth to $90Tn with no inflation at all.  Being realistic and assigning 3% inflation at least, we’re lookiing at well over $100Tn so a good $1Tn a year of GROWTH in the world.  Will Japan’s ($6Tn) population decline 20% over 40 years?  Maybe it will so there’s $1.2Tn off the $100Tn.  Who else will decline 20% while the rest of the World grows?  US – knock $3Tn off the gains.  Europe – another $3Tn bites the dust.  Still over $90Tn, which is up $30Tn in 40 years.  Let’s say that 3rd World growth doesn’t impact global GDP as much as Industrialized growth and knock 1/2 off again.   Still $15Tn over 30 years, which is $500Bn a year up for grabs for people and corporations who are not to afraid to be real Capitalists.  

    Treasury is right, the real danger is inflation.  If China and India’s GDP grows too fast then 1Bn people want IPhones and the IPhone alone uses up 50% of global storage and more glass is used on 1Bn 6 square-inch IPhone screens than on 15M 20-inch montiors and what do we get?  Very painful global inflation.  Anyway, the point is that unless we have a global de-populating event, as Jeff Goldblum observes in Jurrasic Park – Life WILL find a way and if life is finding a way to grow – then there will be some clever guy standing by ready to sell them 3-D glasses and a happy meal….

    This is a very important perspective people need to have – the chart above IS happening and that’s without curing aids or cancer, which can spike it up dramatically.  Underlying that trend is global GDP is still almost $10K per person on average with an average of $30,000 for the 1.5Bn of us lucky enough to be in the first world ($45Tn out of $55Tn) and and average of $2,500 for the rest of the schlubs.  While it is relatively difficult for us to raise our standards of living above $45Tn, it is fairly easy to double up the GDP of those below us (China and India have done it in a decade and are on path to do it again) since all you really need to do is take people who live as subsitance farmers and get them some runnig water, electricity and a cell tower and suddenly they are shopping at AMZN and getting deliveries from UPS.  So figure the bottom 80% can be counted on for 20Tn of growth EASILY in the next 40 years plus inflation is another $10Tn so there’s all the growth I’m talking about done if the developed World does NOTHING for 40 years. 

    Again, it’s a matter of having a GLOBAL perspective because it I’m a Martian selling Nike’s to Earth people, I could not give less of a damn WHO is having a good year or a bad or who is having babies as long as those babies have feet and some percentage of those growth feet end up wearing my shoes – other than that, they all look alike to me and I don’t give a damn about their petty, stupid socio-political differences (as very well illustrated in Star Trek: 5:45). 

    Funny flips.

    Communication/Gel – Yes, vastly underrated.

    PR/Rain – Well the newsflow on the regs is overwhelmingly negative.  That leads to a lot of poor feedback and makes it difficult for them to get Congresspeople to move forward on other issues (and still dozens of regulators and agencies to set up within the bill).  I don’t blame bots for the crash, the bots just accelerate the underlying moves but the underlying issue was a crisis of confidence in the system.  You can blow up a fund or two with bot trading but unless you get people to dump their shares, what the stock market says for a day, a week or a month matters very little.  The real problem was (and without making this political, all shall remain nameless) that government officials who were proponents and victims of deregulation were so hands off that they didn’t know how to apply the brakes anymore.  They had an engine light blinking for 2 YEARS and they did nothing.  Smoke was coming out for whole year and they did nothing, flames were coming out from under the hood for 6 months and they did nothing.  Only when the entire engine siezed up and the car was laying at the bottom of a ditch did the government decide they should probably get involved – it was a monumental screw-up that could have been averted a dozen times along the way and what it all boiled down to was a crisis in confidence that first trashed the global real estate market (a bubble that should have been popped in 2004 when Greenspan instead said that adjustable-rate mortgages were a pretty neat idea) and then froze the financial markets – in large part because nobody knew whether or not the government would back up a big bank if they failed.   All the government would have had to do, pretty much any time in 2008 is say "the government of the United States stands behind it’s lending institutions and, although we may have to exercise our right to take posession in an emergency, we can absolutely guarantee that all obligations of that institution will be fulfilled."   They ended up saying it anyway, but AFTER Trillions of Dollars of damage was already done. 

    Bass/Mattl – Lots of doom and gloom about Japan and a EU Sovereign Debt.  Bass is heavily (almost totally) invested in US debt, bank debt and US mortgages so he’s simply dissing the competition but, of course, there is no disclosure of this when he’s on as a guest. 

  195. Growth/Phil – you’re waltzing toward it, but just as a reminder, sometime in the evenings or more likely on the weekend, let’s talk about growth as a measure of economic health, why it doesn’t always work, and the Asian approach.

  196.  PHARM, I bought some puts on LLY – I think they are very similiar to PFE, except the downside IS NOT priced in.  

  197. Phil / Treasury visit
    Quiet participants – most of the folks in the room might be laboring under a severe case of intimidation… you are in the real world, and have a history of success which they did not have, as well as a reputation as an intellect - that is one hell of an intimidating situation for these government wonks, who are theorists and have accomplished very little, other than idealogical acceptance by their peers. . I have delt with them before – they know what and who they are, and realize they are in company that can overwhelm their cranial capacity and pseudo credits in their resume.  They are used to having people ask them for advice, and therefore not comfortable asking for advice themselves.. No they think they, as a group, know it all. That is their principal blockage to achieving success. They represent the pinnacle of arrogance.

  198. IRA interest  -  I’m counting 7 responses on the board interested in IRA trading.  I have emails for:
    plus these 4 expressed interest:
    First, did I miss anyone.  This could be as simple as an email list or some kind of list-serve that people could sign in, but I will defer to Phil as to the best way to do this.  The basic idea is that a few of us who also trade in IRAs can talk about how we handle trading since the margin requirements are different.  I will post covered calls I like, others may have ideas and if Phil would like to comment, that would be great.  It would get all of us doing IRAs in a group so every new person coming in doesn’t have to ask Phil, "What about IRAs?"  Sound good?

  199. MYL/d – well, they are starting to get upgrades around the horn.  Yeah, they are ok.  They have a boatload of debt ($5B), so that is a concern, but revenues are growing (some).  My biggest take is the P/E.  TEVA, WPI and others are all lower, and are growing revenues at a much larger rate than MYL.  So are the upgrades due to wanting to dump shares?  I don’t see anything compelling in their pipe, but again, it is generics.  TEVA at $50 is my favorite still, but if they can get some higher margin drugs, hopefully the P/E comes down.


    Funny when you do research, one comes across other companies in competing fields.  CHTP has Northera (droxidopa) for the treatment of Orthostatic Hypotension, with pivotal phase 3 trial results due in September – this could be a replacement for Shire, MYL, TEVA, NVS drug Midodrin.  They popped today based upon the news that Shire et al, may have to remove Midodrin from the market, so it looks like CHTP stock price could continue up.  The first PIII trial missed the primary endpoint, but succeeded in secondary endpoints, so they changed the goalpost in the second trial and should be ok (?).  Not wanting to play along for the whole ride, I think an entry in this range and a quick 10-15% is not out of the range of possibility.


    ABT/d – range is 45-55ish, and they are at the top of their weekly channel.  I am not a huge fan, and their pipe is weak (whose isn’t?), but if one can employ the 20% discount and sell the Jan12 52.5/47.5 spread to collect the dividend or buying the Jan12 47.5/52.5 C spread and selling the jan12 $40 P for a 30c credit?  Phil may have other ideas that do a bit better.

  200. Phil- just seen your comment and had to review the link i posted…. Not sure what the hell that is!!! That wasn’t the link I originally intended to post, but now cannot find the link. Sry!

  201. please include me in the IRA list, thanks,

  202. Deano     #29   stockbern       I think Phil suggested MLK day weekend ( Jan15-17, 2011) Works for me.

  203. LLY/jo – those might be a VERY good buy.  I just hope the family does not sell out…..

  204. revtodd64

  205.  deano – Count me in for a LV gathering…

  206. Revtodd64
    Re IRA

  207. revtodd64: I am interested in the IRA discussion group. My e-mail address is:
    Thank you for your time and effort.

  208. Deano/LV – sorry, I have a long-standing commitment to camp out in Joshua Tree NP on MLK day weekend…other bank holidays would be good.
    IRA/revtodd – the plans sound good – I’m at
    Something like a Yahoo group or even a facebook page might work. I know how to set up a yahoo group, but everyone would need a yahoo account.

  209. revtodd, put me in the IRA group and if allowed, I can double check the trades in terms of margin and possible profit/loss, but not the soundness of the stock picks themselves.  I’m at peterd188 at yahoo dot com.  Yahoogroups work well, or Phil can have a post for us to use that we can keep adding to it.

  210. gel1
    August 17th, 2010 at 4:34 pm | Permalink  
    acobra… Yes, the engineers like so many professionals sometime forget they have a vocabulary that is indigenous to their profession. I just answer with ‘duh" ( that is a word that everybody understands ).
    Gel, when quoting Homer Simpson please give the legend his due!
    And as marketing guy when selling a "better" mousetrap the customer in this case already knows what a mouse is,
    you’re trying to sell difference in the products.

  211. Phil, PR??? Isn’t that part of Timmy G’s job? Leaders sell the vision, wonks support it.

  212. revtodd-Peter D
    I would like to participate in the IRA discussion also. I think Peter’s suggestion of a post here added by Phil that we could build on over time would be the easiest way for us all (since we are all on this site together anyway), assuming Phil is on board.

  213. Fed/Phil
    It is interesting and a good sign that members of the Fed community are willing to speak with people outside of their circle. With all of the questions you have to answer from all of us each day it is going to be tough on you now that Tim has you on speed dial…….

  214. PHIL
    My monthly subsrciption was upgraded to a yearly subscription. They were both charged to my credit card at the same time. I have not received the reimbursement on my credit card for the monthly fee since the up grade.  Could you look into this and get back with me.  The transaction was on 8-7-10.
    thank you

  215. Phil, So did you offer Timmy a free subscription?  You know it just might take him a few days  for it sink in.

  216. Yeah, if Timmy was a member, maybe he could do something to help our TBT positions!

  217. Stockbern & pyern, I have added you to the list for Phil in LV. We’re up to 30 – anyone else? We need 20 more to make it happen.

  218. revtodd — I also would like to participate in the IRA discussion, my email is  thx

  219.  revtodd – I also would like to participate in IRA discussion:

  220. doro 165
    I did not realize Homer plagerized my wordage- I had that copywrited.  My favorite of his – "Relax, what is mind? No matter – What is matter? – Never mind "
    You are correct about the moustrap – words do have a specific meaning, and they should have relevance to the point being made.

  221. revtodd et al / IRA’s — Please include me in the IRA list,  Thank you,

  222. doro 165
    oops… that sould be plagiarized.

  223. Phil
    I know Treasury intentionally eliminated the problems at Fannie, Freddie from the Fin-Reg bill, probably so they could address the situation in a separate bill.  This government catastrophe a $150 Bil upside down cake. The hope for this entity to recover is nil to none in the eyes of most, so the question is "What should be done with this ever growing problem"?. I do not think it should be recesitated, but should be abolished.  My reasoning is these two quasi government entities were at the base of our financial meltdown, through the significant part they played in encouraging home ownership without concern for the  ability to pay for the associated mortgage obligations. This is a "hot button" issue, and I am curious about your thoughts as to how you believe Treasury will address the much needed remedy.

  224. Phil, I read your articles about meetings in DC with great interest. Too busy in the last few days to check the board, but hope to be back soon.  I know Geithner from a friend and he is a capable man, but you are right, wonky, not really the Machiavellian type.  And ideas don’t sell themselves…

  225. Phil, I’m wondering if you could help with this question, since you’re (also) in the Title business.  I’ve been trying to find some rational analysis (other than on the all-roads-lead-to- $2000- gold website) of the MERS legal situation and what effect that might have in light of California’s May 2010 legal decision invalidating MERS legal standing to foreclose on a homeowner.  Since this comes on the heels of other states, like New York, coming to similar conclusions, I’m trying to figure out who could get bitten worse by this; banks, investment banks, investors who bought CDOs, or the US govt (I mean us taxpayers) in light of Bill Gross’s blackmail demand for the govt to explicity guarantee all home mortgages.  I find it interesting that that 3rd branch of government is as yet unpurchased by the banksters (after all, judges are virtually all homeowners), and I’m wondering if this questionmark is adding to the delay in foreclosing delinquent loans. I’ve been unable to find much real-time information about this subject on the web, but it seems like it could have a big impact on someone, sometime, somewhere…

  226. revtodd / IRA – I would also like to participate in the IRA discussion group –

  227. Revtodd-  Please count me in the IRA group and thanks for the organizing effort.

  228. Good morning!

    IBM/Nicha – That’s about 1/4 of their workforce!  Interesting to me that that constitutes India’s 2nd largest as 100K is not much out of 1.1Bn – you would think they would have a Wal-Mart or some veggie version of MCD or something that employs 1M…

    IRA group – We’ll see if Rev would like to author some articles here, that way it will be easy to link and discuss by all.

    PR/Doro – Saying something is part of someone’s job has little to do with whether they can do it effectively.  Timmy is the CFO of America, you don’t generally pick your CFO based on how good he is on Television.  Paulson always sounded like he was one step away from ordering your death but that turned out to be just what we needed during the crisis.  Geithner is great for the job of SoT but not great at the public speaking part.  The difference between talking to him live, where he was sitting back in a chair and drinking a bottle of water and answering questions off the cuff and the uncomfortable guy we see on TV was striking. 

    I often grouse about how government officials should be given Toastmaster training or something to learn how to communicate more effectively.  You can spend Billions on a program but when you get around to finally launching it and the person in charge goes "Uh…. uh…. this is, uh, the culmination of, uh, a lot of hard work by, uh…." it kind of begins to devalue the project from that moment forward.  Of course if I did have a government PR department with a $100M budget, I’d get reamed by Congress for it, wouldn’t I? 

    Timmy’s problem (and I’m getting more out of this as I continue to reflect) is that he thinks he’s as important as Ben and both think they are as important as Greenspan so Tim doesn’t want to say the wrong word and cause a global financial panic.  This forces him out of character when he’s in public and has him sticking to his notes, which he very carefully writes thinking about how to put each word so as to convey his thoughts without allowing them to be misinterpreted or taken out of context.  This means pretty much every public word that comes out of his mouth is not from his heart and it sounds unnatural and phoney.  Obama has that problem somewhat but Clinton did not because he was a loveable scoundrel and had gotten away with it his whole life so he didn’t fear being himself and that let him enjoy doing his job and enjoy getting out there and speaking and allowed him to make strong connections with the people.  Unfortunately – the political and media "gotcha" culture pretty much assures us that the only politicians who now survive to get to the top are the ones who are least likely to ever act naturally or speak truthfully.

    Subscription/Z – Greg says that was handled on the 12th, let me know if not.

    Timmy subscription/Stock – He’s not even allowed to accept a T-shirt…

    TBT/Ac – I am not at all confident on TBT after that meeting.  They were downright pleased to see rates this low and are actually looking at even lower scenarios.

    GSEs/Gel – I got the general impression that they are looking to unwind over time.  Tim just said something to that effect yesterday.

    Wonks/Jordan – As above, I think he’s the right guy for the job but the wrong guy for the camera.

    MERS/RDN - No property rights have been conveyed to MERS so they have no standing to foreclose, that should have been obvious from the start.  As to who it affects – that’s complicated for the same reason MERS can’t demonstrate good title on the properties – loans have been chopped up and diced and sliced and transferred so many times (sometimes the same loan is parceled out in various tranches) that NO ONE has a clear chain of title.   There is a law firm in Florida that specialized in invalidating mortgages by simply proving that the company doing the billing does not have proof of title – if that catches on it could be interesting as there doesn’t seem to be any way they’ll be unscrambling this omlette. 

  229.  IRA Group –  Sounds good to me Phil.  17 people expressed interest and it could get to be a pain maintaining a separate list.  So those of us interested in IRA covered call trading (Ok, you are right Phil, I will consider naked puts in my IRA, since you are making me a ton of money selling them in my margin account!)  can post on the regular list, and I will throw out an occasional short article.  I will post covered call trades with my reasons for picking it.  I feel competent at explaining the technicals of my trades, but would greatly appreciate others chiming in on the fundamentals.  
    Basically I will follow the advise of this post for my IRA trades.  I will try to highlight things that work on the current buy list.  We can all post under the same heading, so lets try:
    IRA Trader
    I will work on something for this morning as we get closer to market open.

  230. Phil/Cato,
    I don’t have the link but it was an interview I saw – maybe on Bloomberg but not even sure of that. After seing that I went to their website and one of their platforms was no foreign entanglements.

  231. Phil/Cato,
    Sorry late with the response but live in Asia and went to bed. I don’t have the link (maybe Bloomberg?) but it was an interview with one of their guys with the big CATO logo in the back. After seing that I went to their website and one of their platforms was no foreign entanglements.

  232. Jomptien / Asia – I will be traveling in Asia in Sept.  China, Thailand and maybe Singapore.  Let’s meet up for beer if interested.  My email is 

  233. IRA/revtodd – thanks so much; this is really needed. I’ll look up a reference I found a few weeks back about how money used as margin in an IRA then becomes considered taxable by the feds. Think I saw it on wikipedia…….

  234. revtodd64, 
    Please add me to the IRA list:

  235. Phil, I had sold some TBT 2011 $44 puts @2.50 and TBT 2012 $45 puts @12.21. With TBT keep dropping, should I just take a loss or roll? thanks