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Throttle It Thursday – CNBC and the Rally Killers

Once again, CNBC pulls out the big guns!

No sooner does the market begin to show signs of life than our favorite financial networks goes to the bench and pulls out interviews with both Dr. Doom, Nouriel Roubini (7:30) and Mr. Gloom, Mohammed El-Erian (8:30) to tell us how awful everything really is – no matter what we may dare to think.

I'm not generally for censorship but, in CNBC's case, I think it's tme we make an exception.  At least make them stop pretending to be a news station and make them come out of every break disclosing the fact that their parent company, GE, not only benefits from a poor economy that forces the Government to maintan low interest rates and offer them bailouts, but that they (GE) are also the nation's largest abuser user of "uncertain tax positons," with $8.7Bn of questionable deductions

Raise taxes?!?  Are you joking?  CNBC's parent company refuses to pay taxes at the Bush cut rates – there is no way they are going to put up with paying their full share.  Just 500 US companies did not pay $200Bn worth of taxes last year in deductions that even their own auditors were forced to list as "questionable accounting strategies."  That's 50% more than the entire $138Bn paid by all US corporations last year, which happens to be just 1/14th as much money as their employees had to pay to support the economy, even though the corporations and the top 10% made $9Tn in profits and income last year while the bottom 90% made just $4Tn.

The current corporate rate of 35 percent is higher than that in many other developed countries. But Congress has larded the code with so many deductions and loopholes — including a dollar-for-dollar credit for taxes paid to foreign governments and generous deductions for depreciation and debt financing — that the effective rate paid by most companies is below 22 percent, lower than in most developed countries

Outrageous or business as usual in America – we report, you decide…  Meanwhile, CNBC is going for the gusto this morning wth a string of bears leading up to the unemployment report at 8:30 but, like last week's number, expectations are getting so dire it's going to be hard to shock people.  Of course, that won't stop our GE's public relations and lobbying arm from trying. 

You will hear all about how bonds are not in a bubble on CNBC (and I pick on them but Murdoch owns FOX an Disney Owns ABC and Redstone owns CBS - Billionaires all) and how we are in danger of deflation yet cattle prices are hitting all-time highs as are grain and sugar so food inflation, in the very least, is on the march for the little people, where silly things like food make up a significant portion of their annual spending.   China is also seeing plenty of infaton with a 3.3% rise in CPI, the most in 21 months. 

On the bond front, Credit-default swap indexes are signaling caution.  In London, the Markit iTraxx Europe index of swaps linked to 125 companies with investment-grade ratings climbed 2.58 basis points to 117.75, the highest since July 20, Markit data show. A basis point on a credit-default swap protecting $10 million of debt from default for five years is equivalent to $1,000 a year.  “CDS will continue to play an increasing role because even as people go into the bonds, they’re going to start worrying about default risk increasing,” said Komal Sri-Kumar, of TCW Group, who manages $118Bn.

Meanwhile, while we were chatting, the Unemployment report came in 31,000 lower than last week, with "just" 473,000 citizens losing thier jobs – that's all it took to send the futures up half a point in a relief rally as your chance of being one of the 146M US workers to lose their job in any given week remains at 0.3% (or 16.8% a year if you want to be pessmistic about it).

An optimist could say that the average American worker KEEPS their job for 5.5 years so we'll go with that and call it a good day's news but it don't mean a think until we retake our mid-points at 10,200, 1,070, etc.

Asia was mixed this morning and Europe is up about a point and, if they can hold that through the close (11:30 EST), we can expect the same as we bounce back to set up for a possible re-test of our watch levels.  We are not going to get too excited about the jobs data and don't forget we get a GDP revision tomorrow morning, very likely down so we'll be keeping those Disaster Hedges for today thank you and, very likely, over  the weekend - just in case!

 


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  1. Phil, what’s your view on gold over the next month or so?  Seems to be up again today, hit new high yesterday.


  2. Phil / AWK – do you like them and, if so, what’s your recommended play? I’m thinking about a buy write or covered call.  nice 4% dividend.  Stock is at high end of range so maybe i wait for it to settle down a bit. 


  3. Phil – was on a sailboat for a few days and catching up – really sorry to hear about your step father. Hope things turnaround.


  4. velocity of money/ Phil, to clarify, you don’t mean the velocity of the entire money supppy is zero do you? You just mean the velocity of any marginal increase in the money supply is zero.  After all, I just bought a coffee at the deli.  But if the Fed lends another $1 million to BAC,  BAC , in turn, isn’t lending it to anyone now.  So your worried that when (if?) the economy picks up a little, those marginal dollars they are pumping in now will suddenly start flying around.  And that would be inflationary.  Have I got your point?


  5. One thing I don’t understand is why, if they think, as I am sure they realize, the jobs number can’t be worse than people expect in their current state of mind, and this is the bottom of our range, why do they have Roubini on TV, when two hours later the market will be up on the jobs number.  Seems like Roubini actually acts as a spring up for the market, as he sets up low expectations to be beaten by the mediocre jobs numbers.


  6. ..popping in quickly
     
    Yesterday AM I noticed something I hadn’t seen before and that is all the trades in FAS were below the ask at the time.  This occurred pretty much up until we bottomed around 10.  Considering that along with the rest of yesterday’s action and I think it could have been a flush.  Don’t get scared by Roubini.  He’s been trotted out on many days we’ve gone up.  I would be looking for that today if I could. 


  7. correction:  trades were below the bid yesterday am.  ie, trades were being executed below what someone was apparently willing to pay.


  8. The corporations didn’t pay 22% in taxes last year, they simply passed those taxes on to their customers, and therefore didn’t pay ANY taxes.
    It doesn’t work like that the proles. They have a withholding and estimate that they have to pay and then on April 15th at midnight, without extensions, they jibe what they owe and what their obligation is.  They can’t pass that tax bill on to anyone else, unless they are in the unique position of demanding and getting a raise.
    The customer of GE pays ALL its taxes. They pay none.


  9. flipspice-- by that same argument you could say that the consumer pays none of their own taxes because ALL of the money comes from their employer, and so they "pass on" the taxes to their employer.


  10. Trading AAPL:   Present position is Oct 220 Calls, 1/5th covered with Aug 240  weeklies.  Premarket futures and AAPL up.  Strategy is buy more ITM calls on a pullback (which may not occur).  Otherwise, let the position stand.   Not  too late to go long with new ITM calls if you have none. 


  11. flipspiceland- taxes- Actually, corporate taxes (all) are shifted 3 ways- to the customer; to the employees & to the owners/shareholders. Just a simple fact of life – as the old saying goes "people pay taxes, not corporations".


  12. ok, phil, good luck with Dad.  i went through it last year with my father….
    ok, time to buy TBT finally?  what’s the best trade fo rit please?


  13. Check out the AAII sentiment survey: http://www.aaii.com/sentimentsurvey/
    Bullish: 20.7%
    Bearish: 49.5%
     
    That is like incredibly pessimistic.  Contrarians take note.


  14. Good morning,

     

    IWM 58.75, 59.04, 59.41, 59.86, 60.18, 60.60, 61.25, 61.85, 62.85, and 63.42

     

    IWM 60.60 should be a floor for an up day; good hunting !!


  15. kstyle/ Apple weekly 240 puts, out @.60.  Thanks


  16. AAPL/rexx: nice play rexx! getting out today too.


  17.  Cap
     
    You around? FMD to the upside or a headfake?


  18. Phil, I am selling put premium in commodity/tech as we continue to pullback.  Doe this make sense to you?


  19. Good morning Phil, 
    Was the CAVM play from a couple weeks ago a short term to take profits now or continue to hold?
    Thanks 


  20. Good morning!

    Back to the hospital so not much time. 

    Levels are same as yesterday, which makes for a quick cut and paste:

    • Middle Range (we hope): Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635.
    • Down 2.5%: Dow 9,945, S&P 1,043, Nas 2,145, NYSE 6,630 and Russell 619
    • Down 5% Dow 9,690, S&P 1,016, Nas 2,090, NYSE 6,460, and Russell 603.

    3 of 5 rule of course and, as I mentioned in the Disaster Hedge post (and please make sure you have some!), let’s also watch those Feb lows for support, which were:

    • Dow 9,835, S&P 1,044, Nasdaq at 2,100, NYSE 6,631 and Russell 580

    Failing those levels greatly increases our need for hedges.  It’s all about the GDP tomorrow so it wouldn’t be surprising to have a consolidation day although I think I’d like that more than a fake rally..

     

    Nat gas at 10:30 and a $29Bn, 7-year note auction at 1pm.   After hours they release the Money Supply and the Fed Balance Sheet – both of which are subject to interpretation. 

    At the open: Dow +0.15% to 10075. S&P +0.28% to 1058. Nasdaq +0.25% to 2147.
    Treasurys: 30-year +0.09%. 10-yr +0.02%. 5-yr +0.05%.
    Commodities: Crude +0.65% to $72.99. Gold -0.07% to $1240.40.
    Currencies: Euro +0.41% vs. dollar. Yen +0.09%. Pound +0.51%.

    Wow, it looks like the Gang of 12  held one more bear in reserve, timing this right for the openSocGen’s Albert Edwards says the S&P will collapse to 450 because conditions in the U.S. are "much, much worse" than during Japan’s lost decade. "There is still too much hope about," Edwards says. "Until the mantra changes from ‘equities for the long term’ to ‘bonds at any price,’ we will not have completed our Ice Age journey."

    And another bear (from yesterday’s close): Government defaults are "inevitable," a Morgan Stanley (MS) analysis says, given the burden of aging populations and the difficulty of securing more tax revenue. “The question is not whether [governments] will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.”

    And, as usual, the ratings agency kills the rally (they dongraded Spain at yesterday’s open): S&P’s John Chambers says the U.S. AAA rating is in jeopardy unless Congress takes serious steps to combat the deficit. Measures taken in response to recommendations from Obama’s financial commission would be crucial in the view S&P takes on the U.S. credit rating.

    Social Security turns 75 this month, but the new fiscal reality could mean a big entitlement fight is coming: "Inter-generational insurance program" vital to America’s well-being, or a "milk cow" and "six-decade Ponzi scheme" needing an overhaul?

    Teenagers are allowed to drive, vote and parent, but their financial illiteracy is killing us, Brett Nelson writes. Schools need to start teaching assets and liabilities, because "if the U.S. aims to compete – for anything – on a global scale, its populace has to be financially literate. And it isn’t. Not even close."

    What have I been saying?  Investors should buy large-cap, dividend-paying stocks like Exxon Mobil (XOM) and Johnson & Johnson (JNJ) rather than settle for paltry yields from Treasurys and municipal bonds, Loews (L) CEO James Tisch says. “Who would have thought five or 10 years ago that a 3% yield on a stock would be a good yield? But today it’s a very good yield."

    Most investment advisers say a double-dip recession won’t happen and the stock market will improve over the next six months, but their clients are much more worried, a Charles Schwab (SCHW) survey says. Yet the clients keep coming: 92% of advisers said they’d brought in new client money in the past six months.

    Deutsche Bank upgrades Paychex (PAYX) to Hold from Sell: "No near-term catalysts, but downside from here [is] probably limited. Our $25 target is aligned with [the] low end of our normalized earnings analysis…" DB downgrades Taiwan semiconductor firms Advanced Semi (ASX), United Micro (UMC), Taiwan Semi (TSM) and Siliconware Precision (SPIL).

    Oh, oh – better go find something else to do! Downtime from digital devices is vital for the brain in allowing people to learn better or come up with new ideas, new research finds.

    So a lot of work being put in today to keep things sour ahead of the GDP, maybe we get whipped up so hard the bears won’t know what hit them tomorrow so I think perhaps and upside hedge of our downside hedge might be in order.  I’ll check in later.  


  21. Phil, Too quick on the sbmit button.  Generally using yearend as the expiration time frame on the puts, acknowledgn the need to perhaps roll if things worsen.  Using 25% positioning as a rule.  Make sense?


  22. Phil,
    Sorry and Thank You! I have been traveling for a few days--very sorry to hear about your Dad--hope all goes well today. Thank you for the Strategy Note for Portfolio Building--i am definitely a Poindexter in need of that kind of advice and just getting a handle on your thought process is extremely helpful.


  23. ok, one last time, how about playing TBT finally here


  24. JRW    Thanks you for your lines.  I love TNA Days!!


  25. Phil, 
    Also Ive been following in on the discussion on Bonds/TBT, and I am not sure based on what I hear if I should proceed as we discussed a couple of days ago the front month TBT puts to make back the $4,500 I lost on the sale of the August 36 puts… still think it is a good idea to go with the Oct 31s? and then on to the forward months?
    Thanks


  26. Looking at buying the Sprint 3.5/5.0 Jan11 call spread at .60.  Offsetting with sale of 3.5 put at .30 for a net cost of .30 on the 1.50 spread.


  27. Phil or anyone else:
    I want to do the DXD disaster hedge. The Jan 2012 27 calls have a  bid/ask at 4.00/4.30 with no volume. In that situation am I stuck with the ask price of 4.30 or is it possible to get a lower price? Amateur 101 question……I know. Thank you.
    Dclark41


  28. Phil, Pham, Insurance specialists / Are insurers a buy?   I’m reading more complaints that companies are being slapped with big  (20%) increases in healthcare premiums.  Some companies are complaining that insurance companies are withdrawing coverage without huge premium bumps, especially smaller companies.  I don’t understand the healthcare bill, but is this presaging a huge increase in margins at insurance companies, even at the price of less volume.  You’d think there would be more competition between providers? Oligopoly pricing maybe?  Maybe PRU a buy here even if we print negative GNP?


  29. Insurance/tusc – No idea.

     

    Sprint/2coma – like that one!

     

    DXD/dclark – 2011, not 2012.


  30.  dmankoff / TBT – some good plays on TBT were suggested in yesterdays post…they are 2012, and still look good. I have excecuted a small portion of it thus far, and will wait to sell the second half of the call spread. 


  31. Good morning Peter D,
     
    Thank you for your answer last night, I am a lazy member 8-(.


  32. Pharm:
    Thank you I meant 2011 not 2012.
    dclark41


  33. Phil, great discussion on disaster hedges and difference between hedging and betting. Can you provide a link that explains in detail how to roll positions that go against you? Also, is there a list of companies you like for the long term? If stocks get cheap I want a good shopping list.
    I think CNBC is a circus too, but for the opposite reasons. Roubini is a shameless self-promoter but I think there is some merit to what he says. El-Erian tries to give the impression that he’s above it all, almost like an academic, but I’m sure he talks his book like everyone else. Thing is, PIMCO’s thesis of a new normal has been pretty accurate.


  34. Good Morning!
     
    Phil/USO — Thanks. I was also thinking $75 was the "sweet spot".
     
    yodi/TOS — $DJI volume, I get my volumes from Fidelity’s Active Trader Pro. I’m not sure how you get dow minute volumes with TOS. I’m new to that platform. Anyone know how to get minute volumes on the DJI with TOS?
     
    pahurik/AA spreads — yes, those spreads do indeed offer greater returns and I’d likely take a closer look at them if we weren’t talking about AA here. AA is one my core holdings. A place to park cash long term until I find a reason to move it (opportunity, safey, fundamental change in AA, etc). Selling puts and calls against it is just icing on the cake. With spreads, it’s possible to loose 100%. I’m pretty confident holding the stock, that’s not going to happen and if it tanks without fundamental change, I’d be willing to hold for a recovery (and maybe even double down). So, although the spreads are attractive, they’re not a strategy I’d employ with core (staple) holdings. This is just a way of spreading risk. Your risk profile/confidence/view might dictate that the spread is the better choice on AA.
     
    Phil/GE/Building long term positions — Bravo! That’s a keeper post! Anyone looking to build a portfolio from the ground up should go back and read Phils comment at 6:46 this morning:  http://www.philstockworld.com/2010/08/25/which-way-wednesday-dow-10000-edition/#comment-349051
     
    kururi67/AONE — I remember looking at that one when it went public. The IPO looked like a way to fund research more than anything else. Looking at the chart, it would appear the market agrees. I should have shorted it — ah, hindsight.
     
    Volume is low on the Dow, the bots took over a couple minutes after open. Very little warm blooded trading.


  35. matlev32/long term — have a look under the portfolio tab in the upper right of the page for long term picks.


  36. Phil--Tx closed the NETL position for a nice profit
    Hope everything will work out with your Dad


  37. Money finally starting to move out of the Yen.  (Dollar has been dropping all morning).
    Maybe we can get some of that money into the stocks here.


  38. Data / Mattlev – be careful, you guys "Thing is, PIMCO’s thesis of a new normal has been pretty accurate." Speaking as an epidemiologist, ie someone who does a lot of data crunching & analysis & interpretation thereof, how things look depend very much upon what data you look at and how you choose to interpret it. For me a large part of this site’s value is the differing perspectives and interpretations, not to mention how Phil brings in data other than what CNBC or Fox shows us.


  39. rainman,
    Thanks for trying It looks that you can get volume on DJI for days back but not on intraday. Possible some one else knows the trick.


  40. Peter D and all involved with the short strangle strategy
    Thanks so much for responding to my questions regarding the SS strategy, put verticals and Port Margining.  Just to make sure I am understand the concepts correctly, if one were to initiate a short strangle for oct (15%/+10% OTM), with SPX currently at 1060, that places the short puts at 900 and short calls at 1165, one could get approx $5.60 per put and $1.95 per call sold for premium of $7.55.  At what strikes would one consider buying the $10 put vertical?  RE: rolling, if SPX drops to within 5% of the short put, one would roll  2x further OTM.  Would you close the put spreads at the time of the roll?  Also, how far can you let the market run up before rolling the short  calls and are they also rolled 2x away?  Thanks.


  41. PHIL,
    If oil is up why is VLO down? The hydrocracker unit snag news?


  42. JRW or anyone, I’ve admired the JRW TNA/TZA methodology from afar, but as a basic member can’t follow all the related chat. Yesterday Peter D posted a very nice collection of links that summarize the strangle play methodology. Does anyone have links that summarize JRW’s methodology so I don’t have to bug him with 101 questions? Thanks in advance. 


  43. VLO – down to 18 month lows, sold BAC, PHM, KBH that I bought Tuesday am after housing report…… :)


  44. They are trying everything to scare this market on a good day…Tomorrow GDP s number must be real good!


  45. Lionel, King of the Thundercats – I agree! Or at least it won’t be as bad as feared and we will most likely rally. We’ll see, not making any plays one way or the other.


  46. ongba/ss: Look for put verticals costing between $1.30 and $2.00. It should put you somewhere between the current money and the strike on your short put.
     
    closing the vertical at the time of the roll: Conditions under which you would close the vertical would be (1) we have a market crash and you cash out the verticals and use the money to roll your short puts. (2) you end up with a vertical that’s worth a lot of money. Say a vertical becomes worth $8 and you paid $2 for it. If the market goes back up, the $8 starts disappearing, so there’s an incentive to cash them out. If you did cash them out, you want to ensure your short puts are adequately protected. If not, you could consider buying some back, rolling them, or entering a new put vertical at lower strikes (would cost less than the $8 you just cashed out.)
     
    So, you don’t necessarily (and usually don’t) cash in the put verticals when you roll your puts down. The verticals are really insurance to cover an emergency.
     
    rolling calls: you can roll calls (1x or 2x) just like you roll puts. There’s less worry on the calls than the puts, since markets generally ratchet up relatively slowly. There’s no firm rule on when to roll. If your call strikes are "run over" and go far into the money, you’re going to get "further and further behind" in terms of how long it will take you to burn off the premium you originally sold. Personally, I never let my short calls go into the money.
     
    One thing to keep in mind is that you can get both margin and premium relief by rolling either calls or puts into the next month. The tradeoff is that you have added another month to worry about burning off your premium and managing the trade.


  47. Talk about bizarro world today,
    Roubini and PIMPCO trying to spin a drop in claims number as evidence double dips coming. Then Mr. "When I speak the Dow drops 100" Hoenig actually being the bull saying we’re in a weak yet normal recovery, no double dip. What next? Cramer will announce Phil coming on as a Mad Money guest next week?  


  48. Jromeha/
    I knew I was King of something but I just couldnt remember :)
    More seriously S&P …450. That is a bit steep for a fall 3 months before an election
    In TNA @ 34.75 after the bounce on the ascending sma 200


  49. Someone is loving her long T-bonds! TBT trying to find out if there is new world below 30


  50. yodi/TOS — I talked to TOS and you can’t get DJI intraday volumes. You can get a composite volume with Prophet and $INDU. I’m not sure that would be a good indictor for what I’m looking at though since it’s not weighted. Actually the DJI volume isn’t weighted but I’m still not sure how it’s calcuated. I do know it’s not a composite.


  51. lionel
    what is your stop loss when you enter a trade on TNA? thanks


  52. Completely random question on this schizo day but does anyone have/know of any FUNNY videos relating to the subprime collapse? Got a final ppt presentation for a finance class Im working on and wanted to start with a funny video about a very unfunny subject…


  53. Hello all,

    If you had not seen this morning’s post yet, one of our positions is still in a place where it can make a definite run up and is still in range to buy.

    That position would be in J. Crew Group (JCG).

    Check out my analysis, entry, exit, etc. here!

    Good Investing!


  54. rain/yodi
    TOS volume on $DJI
    Someone else taught me how to do it ……
    Add $DJI to the quote widget on the home page (under account info)
    Click on the small circle (dot?) just to the left of the widget’s header "Symbol"
    Select "Customize" – the top option
    That opens a window that lets you add volume to the quote widget


  55. What did you guys do to the nice rally?

    Actually, it seems like it was a combination of the dollar that refuses to go down (or the Euro that refuses to go up) and more nasty noises from Deputy Doom:

    Although jobless claims improved, "the bigger picture is that the economy is losing momentum when it comes to growth," Pimco’s Mohamed El-Erian tells CNBC. He expects Friday’s GDP numbers also will point to the negative trend, and agrees with Nouriel Roubini that there’s a high risk of a double-dip recession.

    10:00 AM On the hour: Dow +0.18%. 10-yr +0.06%. Euro +0.6% vs. dollar. Crude +0.81% to $73.11. Gold -0.2% to $1238.80.

    11:00 AM On the hour: Dow +0.21%. 10-yr +0.02%. Euro +0.6% vs. dollar. Crude +1.67% to $73.73. Gold -0.08% to $1240.30.

    EIA Natural Gas Inventory: +40 bcf vs. consensus of +38 bcf. Futures turn negative, -1.4% to $3.84.

    The Fed buys $1.42B in Treasurys, another of about $18B of buys planned in its program to reinvest proceeds from maturing debt. Dealers offered $8.46B for purchase.

    Venture capital investing has become a "sucker’s bet," as the latest report from the National Venture Capital Association shows 10-year returns on venture capital investments had turned negative at the end of 2009 and plummeted during Q1 2010.

    A ninth drop in 10 weeks and mortgage rates are at 4.36%, another record low, Freddie Mac reports. Refinancings are up, but not as much as in previous drops, since fewer homeowners can get access. The 15-year fixed-rate average: 3.86%.

    Mortgage delinquencies are down, to 3.89%, Freddie Mac says – an eight-month low after years of increases. Mortgage delinquencies are up, to 3.51%, the Mortgage Bankers Association says.

    They are still working very hard to scare people out of everything.  At this point I wonder what kind of GDP report we will have to have tomorrow to take things lower. 

    I can’t see volume but the Dow is at 10,037 and there’s no reason to think they can’t be good for a nice move up into the close.  $103 calls are .89 and have a .30 delta so shouldn’t be too hard to pick up .15-.20 if they get going (50-point move on the Dow).  It’s the kind of play where you want to DD if they test (successfully) 10,000 or just wait and hope we spike down before moving up but we’re coming into lunch and I think there should be a little bargain hunting

    FTSE closed up 0.91%, DAX up just 0.22% an CAC up 0.72% so not the clearest of signals.


  56. Z401/TNA
    None when I am in a situation like the one we were.
    We were protected by 60.56 (JRW floor). I doubled down at 60,54 and held on tight for the retest of the low of the day.
    Honestly I had the mouse ready to close the position but neither CL or HG were selling off at the time.
    I think it is only upwards from now on


  57. Good Morning Ladies and Gentlemen – I closed out all of my currency plays for minimal profit, as the currency market is very spooky. I am watching the USD/JPY closely, as the Yen is overbought – might be my next play.


  58. Scott Brown from Sabrient here.  VECO still making strong volume up move after announcing share repurchase yesterday. 


  59. Once the talking heads figure out how to scare the BOTs…..they’ll have it made.  Oh wait…..their objective is to scare everyone into selling while they buy into it.   Must be good numbers tomorrow.


  60. Tomorrow’s GDP number might be a suprise – but is really meaningless, as it is contrived, and will surely be adjusted later. How is everyone playing this?


  61. rainman
    I will look at this thanks for the effort


  62. What, if anything beside rising over a dollar since monday, is going on with Silver??


  63. Trading AAPL:   Covering the Oct 220 calls with Aug 240 calls 100% @ 3.60.  I think a pin at 240 tomorrow is highly likely.


  64. edro00
     
    Thanks for the info on TOS but tell me are you opening the TOS webpage or are you looking at the trading plateform?
    thks


  65. LIONEL
    HG ?  thanks


  66. Phil/Dow Volume — 63M at 12:10. I haven’t been tracking the total volume on the hour (perhaps when you get back, it might be an interesting addition to your hourly stats), but I think that is really low consdiering we won’t get much before 2pm. We did have some non-bot trading as we went negative at 11:05 but that tapered off quick and lunch is very low (bots off line for reprogramming, or non-autonomous bots). I think this is quite stickable. 15 period minute average is around 2100 at noon.
    edro00/DJI — that’s the total volume, we’re looking for a minute volume graph, but thanks!


  67. @jvest
     
    Actually all the ‘money’ comes from FRNs, and credit. ALL  of it.
    But not to belabor the point, the consumer pays, thru Labor for Everything. And when you really look at it, ALL expense on a corporate income statement regardless of how they are classified are Labor.  You use Copper in your business, it’s not a raw material cost. Copper is an inert ore in the ground worhless until miners extract it using Bull dozers which are mainly steel and steel comes from steelworkers labor.  ALL things are paid for by labor.  Except those shysters on wall street who are handed a trillion in FRNs [printed up especially for them, simply for the asking.  


  68. Flip/Taxes
    As everyone understands that corporations, Sub-S and Sole-P pass on their costs (taxes) to the consumer…. What is the Solution to this "pass on dilemna"… Maybe, we should just super size this tax situation…..No one should pay ANY TAXES and it should be on a VOLUNTARY BASIS Therefore….. The economy will grow beyond belief… the economy and market will soar expotentially upward…. What are your thoughts……..


  69. yodi -
    $DJI on the trading platform


  70. z401/
    HG is copper futures and CL is crude oil futures
    TBT used to be a good indicator of TNA direction but with the relentless bond buyng activity that has been going on for the past few weeks I am trying to test other trend indicators.
    We are back to were we started, how convenient :)


  71. edro00
     
    OK I got it thanks The confusion was when you mentioned home page but it’s clear now the penny dropped


  72. Hey all,

    I have a really great long term position update alert I just sent. Here is the link. If you follow any of the Long Term positions, you will definitely want to take a look.

    Good Investing!


  73. Phil (others),
    I just do not understand the double dip fear mongering.  Are these people just all short?  Are they mad they missed the bottom.  Its hard to understand their motives. Its almost like they want it to happen.  Because that would make everything so much better for life in the U.S.  I have read some interesting articles from reasonably smart people about how the DOW is worth 5k.  That stocks won’t bottom until a similar great depression effect where dividends go to 8-10%.  A small insight into some of the motives behind these predictions would be greatly appreciated.


  74. Google is going to take over corporate email from Microsoft
    CBS and other major corporations are switching. It’s much cheaper than having to have an exchange server and you can keep using outlook on your desk top

    I just managed sync my google calendar with both outlook and my iPad.

    I highly recommend google apps account. You have your own domain name but it runs off the google server. Great for small businesses.


  75. Chaps,
    thank you very much for great responses. You deserve a special color of your choice!


  76. Pharmboy, check out DCTH, perhaps the bottom is in…


  77. Email /samz3700 – agree on the good email apps, ease of use etc. That said, the Lotus Notes salespeople seem adept at finding high-level but computer semi-literate customers in corporations and selling them Lotus Notes, based on, I don’t really know, but they are good at it with what is a product that end users seem to almost universally dislike.


  78. Gel, As for revised GDP, I think bulls have the bears boxed in for a few days at least. We’re low now already, probability is for a bounce up not down. If revised GDP number is not too sucky, bulls win. If it is sucky, then Bernanke and the Fed will likely do or say something meaningful to reassure everyone, bulls win. That said, it would not surprise me if they dropped the Dow up to 100 today to try and scare everyone out of their positions. Notice how Roubini is getting desperate to stay relevant, upping the double dip chance to 40%. He’s about 13 minutes into his 15 minutes of fame.


  79. Arubenstein -

    What’s the point of pessimism? Its all the same camp…its just easier. Bad news and gloom is what sell. Best movies and TV shows are unhappy…the fun ones are looked at as less dramatic.


  80. Gold/Jordan – I am not a big fan of gold but, I’ve been wrong about that and I’m still wrong about bonds.  It makes no sense at all for gold, which is an inflation bet against weak currencies, should go up in tandem with bonds, which are a deflation bet assuming currencies hold their value and inflation is very limited.  Since it makes no sense at all and since I am a fundamentalist and like things to make sense - I think they are both stay away items at the moment.  Japan is in Wyoming with the Fed and that could cause wild moves in the Dollar over the weekend and gold could fly down.  Or not – so be careful. 

    Note the Dollar is pushing on a breakout here.

    AWK/Terra – I like them but not at an ATH in a weak market. 

    Thanks Brooklyn, and everyone else for their good wishes.

    Velocity/Rexx – I mean relatively dead.  It could get deader (depression) but the main mover of money is home sales and they are, of course, deader than dead.  Less than 300,000 new home sales against 110M homes is one replacement home every 366 years.  There is a certain physics to how long you can keep an economy on idle because we don’t build things to last the way Europe does!   That is not to say this can’t go on for years but, slowly but surely, things break and unless we are all committed to moving back in with our parents and hand-washing our clothes and sewing our on clothing – at some point, some people are going to get up and say – I’d better go buy some stuff.  Anyway, so clearly the movement of money is very low and clearly there is twice as much money as there was when the movement of money was high so what happens if this new, gigantic pile of money starts moving again?   It’s much harder to stop than to start – that’s why there were 7 of 17 dissenting Fed Governors – once inflation gets going, it can create all sorts of panic bubbles and things can turn chaotic very quickly.

    Roubini/Joradan – It’s a quote/clip gathering thing.  Watch what they choose to play as they highlight the day.  Most people don’t sit around playing the market during the day, they want to affect the newspaper headlines and they want to affect the top 10%, who mostly have jobs and check their stocks during lunch.  I find the 12-1:30 segment to be very telling when you see how they decide to spin things into the afternoon.  Notice very little talk of GDP as they don’t expect it to be as bad as thought.

    FAS/Matt – That does sound a bit off.

    Corporations/Flips – What Jvest said!

    3-way/Pstas – Ah, if only corporate profits were also shifted 3 ways!

    TBT/DMan – The 2012 $28/33 for $2.20, selling Jan $27 puts fro $1.40 for net .80 on the $5 spread (525% upside).  If you are willing to buy $25,600 worth of TBT then you can do 10 with a $4,200 potential upside at $33.

    JRW’s 60.60 holding up pretty well on IWM, we should probably use that for a worry line!


  81. DCTH/mrm – thank the holy heavens above……let’s hope!

     

    Ilene noted taht INFI CEO bought some shares yesterday.  They have a few things in the cancer pipeline, and worth a flier on a few shares to see how they react to the CEO buy.  Options are horrid, so buying a few shares here to see where they take it.  Out if they move through the 4.50 mark.

    ALXA is holding and moving slowly up.  Still accumulation.  I expect them to start their ascent next week or so.  ARNA in the same pattern, but Opt posted a nice bull flag forming.  We shall see!

     

    NNVC, NWBO and CRIS are all within range for picking up entries if one has not already.  Do 1/4 entries.

     

    BSX blows.


  82.  hmmm-ARNA bounced off resistance at 6.60…is this a buying opportunity?


  83. flips – not sure if you live in America or Iceland or what, but in America the corporations really do pay all our taxes. By decree of the IRS, employers help the sheeple stay in line by taking taxes right out of your paycheck and sending it straight to Uncle Sam. So there you have it, corporations actually pay ALL the taxes.  :)  No one would actually work for a corporation if their entire paycheck was withheld for taxes, so employees are just looking at their net income and "passing on" the taxes to their employer.  (by your logic)


  84. Did everyone hear the news about GOOG rolling out VoIP phone services, a la Skype, that will allow phone calls to Canada and U.S. for FREE (2cents a minute to Europe and China).   Skype is planning an IPO and GOOG is raining all over their parade.  This company is a monster, but stock is going nowhere.


  85. 3-way shift- profits- they are actually in the long run. However, that is a conversation for another time. I just checked with my "sources" again and "they" have agreed to a political cease fire until things are more improved on your home front. They promise no stealth takeovers or some such while you are away, so for crying out loud , take care of what is much more important.
    :)


  86. anyone hear Berkshire wants to buy rest of WSC?


  87. jromeha
    Love this one (may not be ok for class tho-)
    http://www.youtube.com/watch#!v=p2riegs2TNU&feature=related


  88. WSC –  From Marketwatch 5 minutes ago –  "Berkshire offer to be at Wesco’s book value"



  89. Put selling/Trad – Well I do like selling tech as it’s easy to cover with QID.  Commodities are their own animal but as long as we hold those Feb index lows and copper holds $3.20 and oil $72.50, I don’t think commodities will be collapsing. 

    CAVM/Amatta – Was that the March $20/25 bull call at $2.85, selling the $22.50 puts for $2.40?  I hope so because that was net .45 and is nicely on track with CAVM at $23.60 but still .70 on the spread unless I mised something so not very exciting to cash out.  The idea of that (and most) artificial buy/write is that you have a SERIOUS desire to own CAVM for net $22.90, in which case you just patiently wait for the premiums to die out.  The premise of the trade is that they were oversold and our b/e is actually about $21.50 due to the low call.

    25%/Trad – Not sure what you mean by 25% positioning as a rule.

    Oh no, CNBC at 1:15 – Fed Crisis of Confidence!

    TBT/Amatta – I like the trade idea I gave DMan if you can be patient.  The one we discussed still works but now you can move all the strikes down lower!

    Sprint/2com – I would like it more if you had more cushion.  Your effective entry if below $3.50 is net $3.80 and S is $4.12 so why not just buy the damn stock and sell the Jan $3.50 call for .95 for a net $3.17 entry?  The flaw in the strategy is you selected a base call (Jan $3.50s) that themselves have a huge amount of premium.   On the whole, the pemiums just don’t make this a very attractive play other than, perhaps the 2012 $2.50/5 bull call spread at $1.20, selling the $2.50 puts for .50+ (now.35) if they head lower.  If they don’t head lower, you get a double anyway and, if they do, you drop the basis to .70 or less with $1.80 of upside.  You canaso do a buy/write with the stock at $4.12, selling the 2012 $2.50 calls for $2 and the $4 puts for $1.05 for net $1.07/2.54, which is good downside protection and 150% profit if called away in 17 months.

    DXD/Dclark – You can offer a limit order for whatever price you want.  I usually assume I can fill the mid-point between bid and ask but it never hurts to offer lower.  Also, keep in mind that you get better prices when things are moving against you and often more likely to fill that way.

    Insurance/Tusca – I doubt that we are heading into the first time in the history of the World where insurance companies don’t make money.  They may go through a rough patch, which is why I prefer good management like AET or PRU over slick marketers like AFL.   Good idea for a weekend look. 


  90. Hanna / TBT
    I finally got around to making a play  this morning.  I did a 20 – 40  2012 bull call spread, and sold the 30 puts for a net debit of $4.25. The long call is already over $10.00 ITM.  I am of the belief the bond market has attracted all the money that has rotated out of equities, for the most part, and furthermore,  I do not see the yield rates dropping much, if anything, and the chance of rates moving upward is a pretty good probability. I will add to this position as we advance forward, probably with ratio buys or sales.


  91. Gel1/TBT
    Have you tried to evaluate how low could be TBT if yields on 10Y and 30Y US treasuries match Germany’s.
    A quick back of the enveloppe calculation gives me approx 15% down from today.
    And that is without the fading off effect of ultra ETFs. So TBT at 25 is a possibility…


  92. All – how do I pick which disaster hedge is right for me? DXD, FAZ, EDZ, SDS, TZA? I am looking at hedging for disaster for the first time but do not have a clue as to what to pick. The stocks in my portfolio are NYSE and NASDAQ weighted.


  93. Actually with TLT effective duration of 16, it looks more like 20% down from today.


  94. Final part of alternative fuels story…ethanol.

    Check it out!


  95. Just something to be aware of…..Bear Rosenberg yesterday:  If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $60 or $65 in the coming year as opposed to the current consensus view of almost $90. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 12x was actually buying the market with a 17x multiple — it’s happened before, folks.

     

    Complaining about overvaluation in the bond market is a waste of time — especially spurious analysis which concludes that there is an equivalent 100 P/E multiple in the fixed-income arena. There is no bubble in an asset class where your capital is guaranteed. There are deep correlations across the asset classes and what U.S. equity investors should probably pay attention to is the fact that the Nikkei is down to levels prevailing on April 30 of last year when the S&P 500 was trading at 870; and the 10-year T-note yield is back to where it was on January 20, 2009, when the S&P 500 was sitting at 805. Take note that the NYSE lost 1.5% yesterday and as a result has undercut the closing price we saw on the July 7th follow-through session (see front page story in the Investor’s Business Daily).


  96. Phil, I am sorry I wasn’t clear.  I am thinking companies like FCX, XOM, MON, BHP, etc. when I say commodities.  I am not comfortable actually trading the commodity.


  97. lionel / TBT
    Good point… and worth consideration. The shorter term treasuries are at the greater risk of having a yield drop, because many buyers of product in the bond market are now experiencing concern of the increasing probability of inflation onset. China, for example, is buying only the shorter term bonds, and rotating out of the longer term issues. Inflation is prevalent around the globe – even in your domicile (Australia ) and inflation is contageous thus a risk here in the US. At present we are at 3.6% inflation and a low yield rate on a bond diminishes the investment appeal, considering the differential. My thesis is we will see rates moving up, as inflation becomes more of a reality. I think 2012 is a good date to consider as safe for this to play out… maybe much sooner.


  98. 25% positioning – I mean scaling in small positions over time at about 25%.  I will ultimately want to have 1mm invested so looking at buying puts that if exercised would give me $250,000 in the stocks during this current uncertainty.  If we drop further, be ready to roll and add puts as we hit support in the ranges and be ready for a turnaround. 


  99. Pharmboy/
    How can you write or copy and paste such a statement: "There is no bubble in an asset class where your capital is guaranteed."
    Bonds have a price and can be bid up and down like any other financial assets. If you pay 105.30 for a UST 30Y, you are not guaranteed the price you paid but the par. You may loose $5.30 on a $100 bond and have your money parked for 30Y with a below inflation yield therefore loose much more on a real basis.
    Dont you agree?


  100. Rolling/Mattl – I believe there is some discussion of that in the Salvage Play article in the strategy section as well as perhaps the extensive comment section under that post.  I think I did do an article on rolling once (look for a reference to rawhide) but I just have my laptop so I am screenycapped at the moment.  Shopping list is still the Buy List and the Dow list – we buy blue chips until the market breaks up, then we’ll look at riskier plays.  I think Pimpco’s thesis will always be somewhat self-fulfiling just as GS’s conviction buy and sell picks are self-fulfilling – if a leader of that size says things are going up or down, enough people follow them to make it true in the short run. 

    Thanks Rain! 

    NETL/Savitri – Cograts and thanks.

    VLO/Z4 – It’s all about the "crack spread", the difference between the cost of a barrel of oil at the point where they "crack" it open and what they can sell the refined products for after they refine it.  When oil prices are rising despite low product demand (yesterday’s huge inventory build), the crack spread shrinks and VLO makes less money per refined barrel.  That’s what makes VLO a good canary in the coal mine for oil – they tend to give early warning that demand for product is not keeping up with prices. 

    Good rolling comment Chaps!

    LOL – CNBC girl says "tone this week has been rather fearful" – I wonder why?  Now the are laying a lot of pressure on Bernanke doing something tomorrow, setting us up for disappointment about something no one would be expecting if they didn’t make a big deal of it.

    LOL Kururi!

    Subprime/Jrom – I’ve seen some good ones but I can’t find here.  Try googling subprime explained or crisis explaine or morgage crises explained in Google and hit the video button – I think  was something like that- one of those light, info-cartoons.

    Volume/Edro – Nice!

    GDP/Gel – Assuming you have disaster hedges, then I like hedging the hedges with the SSO $33/36 bull call spread at $1.40, selling the $31 putsfor .72 for net .68 on the $3 spread.  Pays about 5:1 so if you have $25K of disaster hedges you can hedge the hedges for $5K.

    Dow volume/Rain – Thanks.  If it were my data, I’d add volume but I just grab it from SAlpha.  70M is "normal" for noon.

    Labor/Flips – Wow, that is a very Marxist observation!

    Motives/Arubern – Great weekend discussion.  Overall, we are/were in the end-stage of the super real estate cycle that began in the 30s, as the banks were done confiscating the land from the people.  The next stage is encouraging people to buy land from the banks (by lending them money to do so) and then burdening them with taxes and increasing the cost of the land again until you force a bubble that pours more and more of people’s lifetime wage earnings into their homes, forcing people to go deeper and deeper in debt to the banks with less and less of a cushion and, when they have the people all in on housing – the banks pop the bubble, conficate the land and do it all over again.  It’s been going on since before the Magna Carta – over and over again but it’s such a long game most people don’t see it that way.  The problem is we "v" recovered so quickly that the banks didn’t get a chance to really crash people out of their homes (less than 20%), while in the Depression, close to 1/2 the people lost their land to the banks.  So they left a lot on the table and they want it….

    Thanks Pstas, I think…

    Guaranteed/Pharm – How can you, on the one hand, say that corporate earnings could drop 33% but then say that capital in bonds is guaranteed?  Don’t you think that an additional 33% contraction in the economy would begin leading to bond defaults?  What about the risk of inflation making the cash value of the bond worthless? 

    That’s the huge joke of this thing, people simply don’t remember the old joke that was taken for granted in the 80s that a guy puts $100,000 in the bank at 12% interest an has himself frozen for 100 years and, when he wakes up, he calls his bank and asks for his balance and they say $42,000,000.  "That’s great he says, where can I go to make a withdrawl?" and the operator interrupts and says "Please deposit $10,000 for the next 3 minutes, sir."  That’s the danger of bonds and that’s why they were out of favor for 2 decades as invesors of the 70′s and 80s are well aware of how you can lose you ass(ets) investing in bonds.  It just takes 20 years for the next generation of suckers to go for the "sure thing" again.

    Commodity stocks/Trad – Oh, well I like those!

    Nasty turn down, watch that 1,044 line on the S&P – that needs to hold.

    Later all, must go.


  101. Pharm   sold some ARNA Sept 6 puts around 1.65 a week or so ago…hold until right before the Sept announcement or are these too dangerous to hang onto??? your thoughts? Thx


  102. ARRYPharmboy are you still in this one? Seems like a floor at 2.70 so I’m thinking of jumping in.


  103. Phil/
    Thank you for taking the time to check on us in this difficult period of time for you. It is greatly appreciated. Best wishes of recovery.


  104.  gel,
    I completely disagree with you on how far yields can continue to drop in the bonds.  Right now, judging from price action and options flows, all sign point to lower yields.  I think it is a very good possibility that we are going to revisit the lows put in back in 2009.


  105. @jvest
    You apparently don’t know the difference between the Tax COLLECTOR and the Tax PAYER.  As an employer I can assure you that the taxes I "collect" from my employees (and myself) are of the collected variety. 
    The fact that the corporation (if you work for one) is, by law, confiscating YOUR money by withholding some of your money to remit to the taxing authorities by no means indicates that they are ‘paying’ them anymore than any other fiduciary which acts as an agent between two entities. The other fact is that the corporatoin receives a benefit for collecting (not paying)  those taxes, which in a large coporation can amount to millions that they earn on the time they withhold it and the time they remit it to government.  And the other fact is that the corporation gets a deduction for the entire salary or commissions and any other compensation they pay me, which included my income taxes, social security from both sides, and medicare.
    But it sure is unique perspective you have.


  106.  Phil – Gel – anyone – now I’m getting a little confused. We have a disaster hedge strategy to protect our longs in the event of a "bad thing" happening. Now we’re talking about a hedge to the hedge in case there is a  "good thing" that happens ? I thought that was the point of the longs in the first place ?
    Phil – hope you step Dad is doing better and is stabilizing. You all are in our prayers.


  107. Gel1/
    US CPI in July yoy was 1.2% before seasonal adjustement, Germany CPI for August is expected to be 1.1% like EU wide data. Where did you get the 3.6% figure?
    Now you can argue that CPI calculation doesnt capture real inflation but it seems to me that US and Europe are in a similar inflation environment which is at the moment close to zero. With huge overcapacity in manpower and investments and no money velocity, I struggle to see any inflation unless imported. But then why ot short the dollar against commodities or commodity currencies?
    I am not a TBT fan (may be just for a momentum play).


  108. @acobra65
     
    Apparently not everyone understands the pass-through, as jvest has so thoroughly iterated. I doubt he/she will be convinced either, that the final user, he who receives the benefit of the service, (and in reality ALL costs, are services) pays, in the final sales price, the money he gives over to the seller pays for everything associated with purchase. EVERYTHING.
     
    My thoughts on taxes generally would take too much bandwidth to enter into here. Maybe after the close.  


  109. @Phil
    Which part?  Where Bernie Madoff,  Dick Fuld and Joe Cassano get to rip off  a hundred billion dollars or more to sock away in the Caymans, or the fact that ALL costs are ultimately Labor costs?


  110. DKGuy/Hedge — You’re referencing Phil’s Sept 103 Dia play? That’s a day trade, not a hedge.
     
    Nicha/Hedge — you want your hedge instrument to move in correlation (or inverse correlation) to your portfolio. For example, if you had a portfolio of financials, the FAS would be appropriate.


  111. Trading AAPL:   You can now buy back those Aug 240 calls sold this morning for a 40% profit if you think AAPL turns around between now , but since they are covers I’m riding them into tomorrow. 


  112. Pharm
    I believe the the most important debate today is the assessment of the probability of either deflation or the inverse – inflation. Getting a good grip on this understanding, is the most important issue when making investment decisions today. We can always hedge our plays, but getting a clear picture of the inflationary or deflationary pressure can have a profound influence on the profitability. I can see some statistics that would support your position of a strong probability of deflation looking forward, but on the other hand, I see so much inflation throughout the world – some of it quite pervasive. China at 20% inflation, India at 16% and the prevailing upward demand for commodities continually raising prices.  With the massiive expansion in our money supply, that someday will be shloshing throughout the economy ( as soon as the Treasury gets their act together and revises their fiscal policy ) combined with the building inflationary pressures throughout the world, I see inflation on the horizon, as I do not believe the US is an island. Ultimately, the Treasury will opt for a fiscal policy that will spark the economy, and that will put inflation on an upward trajectory. My TBT play today is a hedge position for me at the moment, but also could be very profitable in the future.


  113. jromeha
    Try this video.
    http://www.crisisofcredit.com/


  114. Gel/
    Did you just called me Pharm? I am very flattered…:)


  115. APWR just hit a 52wk low.


  116. rain – got it . Thanks


  117. Sorry guys, I took Phil’s advice on the DIA 103 calls and that spanked any chance of a rally.


  118. Treasuries…..not corporate per se on the bond issues I noted above.  Unless of course, you think the US is going to default……I will post somthing here AH on Treasuries (bonds)  Again, I am referring to Treasuries…which is what TBT is linked to if I am not mistaken.  I have only spoken of treasuries, not corporate bonds in my posts….


  119. lionel / CPI
    The number quoted was an extrapolation of last months CPI rise of 0.3%, which annualized is equivalent to 3.6%. In Europe, overall the nimbers are as you state, however Germany is reaching full employment, based upon a very robust economy. This will be inflationary going forward.


  120. flips / corporate taxes – I’m just playing with you. Personally I could care less if corporations pay any taxes at all, IF it meant that the rich people who withdraw most of the money from those corporations were paying an equal share. The only thing that really bothers me is when the middle class is paying more on a percentage basis than the upper class. Unfortunately I don’t think there’s any way to solve the problem. I don’t think a VAT would solve it (as Phil occasionally proposes), because it’s a consumption tax and poorer people consume more of their income than wealthy people do. An income tax essentially charges people for the right to earn money, which seems fair to me because profit is made possible by the peace and order the state insures. The problem is, wealthy people will always find ways to "lower" their income and corrupt politicians will line up to create new loopholes as the old ones are patched.


  121. rainman – so for my portfolio that of Nasdaq and NYSE, what hedges would be appropriate for me?


  122. rainman/Anybody – so for my portfolio that of Nasdaq and NYSE, what hedges would be appropriate for me?


  123. jmm…. my reference was concentrated in the longer dated bonds ( 20 year ) – TBT territory. Sure they could drop, and I did not want to leave the impression that it was impossible, but biased to improbable. The "wild card", of course is the action of the Fed and Treasury, that could reverse the direction on a dime.


  124. Phil,
    After reading your bond 80′s "joke". So things like PHK bonds are not guaranteed to pay the 12%?  Its a bond bubble? What happens the fund just gets cut in a half?  They just
    Wow, I feel like I have so much to learn. (What you wrote about the debt cycle pre-Magna Carta.)  It just seems like for the past 50 years people have made money buying real estate and stocks.  So real estate is a trap? Even when its rented out?


  125. Gel/Phil – don’t think that I don’t believe that Inflation is not around a corner….but TBT is the SKF of yesteryear.  I am biting my nails NOT to put money into it.  Inflation is what it is, but pricing pressures on GOODS (minus food/oil/commodities) is where GDP is being measured.  Right now we have an overcapacity of goods, and with horrible employment, so tell me, who is buying?  That is inflation is too much money chasing too few goods….I am not chasing any goods right now?

     

    Are lumber prices up?  How about toys (plastic)?  Houses? Appliances? Sure, money is being poured into the economy….but who is spending it?  Babyboomers aren’t….savings is up to 6%.  Inflation, phooy….don’t see it any time soon, and again, TBT is not something to invest in…..Maybe when it splits 10:1.


  126. lionel… Yes I agree, Pharm is a "sage" and we are both fortunate to benefit from his insight.


  127. ARRY/ARNA – Array I will hold on to them for a while again….it was a 1/4 entry.  ARNA, 6 Ps, well, if the stock goes up, I would take the money and run.  I am not for holding sold P for any thing related to a panel (FDA) review.  Things are very conservative there, and if they sneeze, then the stock is blown…..I continue hold the stock, and will let everyone know my exit stage left.


  128. nicha — Do you have a TOS account? You can open one for free. There is a way to do delta comparisons by entering your portfolio there. I can’t seem to find it at the moment. That might give you a starting point.  Compare your portfolio to the different hedges and see which one has a delta near 1. Alternatively, you can compare your gain/loss on a daily basis to the different hedge instruments to see which one correlates the best (or inversely correlates).
     
    MrMocha — you must have sold right after that post, eh?


  129. PHARM
    I was considering buying PFE as a long term hold to do buy/writes, and i’m looking for an entry point. It is almost at a 52 week low of 14.00   what do you think would be a good entry point and do you see any negatives to owning this stock over the next couple of years?  If you have given this advice in the past couple of days sorry i missed it. just point me to the day and  i’ll find it if you don’t want to repeat yourself. thank you


  130. z401- as good as anything here- don’t know if you are capable (IRA?) but would sell the 2012 naked 15 put also if able for the other 1/2 your position


  131. Pharm, Lionel, Phil
    I believe a conservative position in TBT is prudent at the moment, particularily one that is structured for the 2012 time period. We think the US economy is in a funk, but remember the earnings have been decent lately. The equity markets are weak, but remember this is a bad time of the year to expect volume, as the big guys are vacationing, and the retail guys are hiding under  the bed, with their assets in the mattress. This will all change soon, and we will get back to a more typical market. The Fed will be taking steps soon to initiate more easing, and most importantly, the Treasury will be revising their policies that will, in their mind, provide some hope for the reversal of their political demise that is iminemt, based upon the polls.


  132. gel- you are correct UNLESS things do not get better- we could conceivably with help from our friends in washington be in a 2 year funk!


  133. Gold on the other hand is no longer a hedge against inflation…it is a currency being traded as ALL currencies are being pushed down (Oh, except the Swiss Franc).  Sure China and India have inflation, b’c they have a population that is chasing too few goods (for now) – humm, looks like us and the housing market a few years ago.  The question is, IF we go down, can these emerging markets be self sustaining?


  134. IWM looks like it’s looking for a reason to pop.  Look at todays relative outperformance compared to other indices.  Brought back down by overall tape.  If market gaps up tomorrow, this mofo is gonna jump.  Taking some 62 Sept IWM calls may sell some weeklies to knock off basis.


  135. Gel – did I just read ‘we will get back to a more typical market’.  I did…..We are in low volume pumps with big volume sell offs. 

     

    Why not buy TIPS…instead of TBT?


  136. Gel/
    Can we agree to disagree on that one?
    I dont believe short term interest rates will move up anytime soon in the US. And banks will keep buying treasuries with interest free short term funding complimentary of the Fed until there is some private credit demand.
    If anything I see US treasuries being bid up even more until the carry trade become no longer profitable enough for all Pimco friends to start exiting the trade. The Fed will act very slowly to let them offload their bonds without wrecking the US financial system….Again!
    So no rush to enter that trade and why blocking money now on a 2012 trade if you believe it is a slow mover?
    What about the 25/35 bull spread for $5 selling the 27 put for $4 :)


  137. Phil – Yeah, I tried and there were some decent videos but was curious if anyone knew of any good ones off the top of their head.
    Loop – hahaha yeah that wasnt bad but the language probably a lil’ too colorful for my class :)
    SSdirk – That definitely is a great video explaining what happened, Im just looking for a shorter video with some humor as my introduction.
    Damn, I shouldve listened to fill about those Chinese ADRs!!! APWR KILLING me today! Of course the play that Phil suggested is doing well but I only did a couple of those….


  138. ARNA – buying more for 6.60 or better.  Let’s see if they push it back down.


  139. Oops, mean shouldve listent to PHIL, doing too many things at once!


  140. SPY someone is doing a serious shopping of 107 calls expiry 17 SEP in the late trading….


  141. Lionel – the 105 Sept 18 puts traded 95,000+ today.


  142. jthoma
    thank you for your input.


  143. Parts/Flips – That all costs are labor cost and that the capitalist merely skimms the excess production capacity out of the system in the form of profits.  So, essentially, from each according to his abilities to each according to his needs and whether it is taxes to a useless government or profits to a greedy capitalist, the fruits of the community’s labor are intercepted and put into the hands of the privileged few.

    Inflation/Gel, Pharm – One impression I did get from Giethner is that he wishes he could inflate his way out of this mess.  I mentioned he considers the economy a dead parrot and is not in the least bit considering inflation to be a threat at the moment so he is very much on the stimulate bandwagon but frustated that no one will let him.  That means to me that it’s the Fed that is unwilling to back a play, which makes sense as banks detest inflation (since they lent out the money that would be paid back in devalued dollars) and the Fed is responsible to the banks, not us.  I still maintain that inflation is the only way to balance the global books and, if not, then countres and states will begin to default and rates will go up and we’ll have inflation anyway – it’s just a matter of when.   We can’t all be Japan – Japan was the exception, charging 1% in a 5% world and that created a carry trade where investors borrowed Yen to buy other currencies, which pulled as many Yen as could be printed out of Japan and into the global economy where they were exchaged for other currencies and those Yen were then held as a 2nd reserve currency (and before the Euro, they were just the two).  That just will not work if everyone is at 1%.

    Crisis of credit/SS – That’s the one!

    Rally/Mr. M – Sorry about those, when that happen and our levels don’t hold, it’s best to take the dime loss and wait for the next one.

    What a crap finish! 

    CNBC says GDP is below 1.4% – that’s a revision down from 2.3%.


  144. Bonds- it all about inflation or lack thereof. If the assumption is deflation then there is no bubble in Treasuries. If there is, lots of folks are going to be very sorry down the road.
    See the graph on inflation by decade back to 97 years. If the next 20 yrs. mimic the the roaring 20′s and depression 30′s then the T buyers are in fat city. If we revert to the mean avg. inflation since 1940 (4.11%); they are in deep yogurt. 
    http://inflationdata.com/inflation/images/charts/Articles/Decade_inflation_chart.htm
     
    Essentially the difference is contraction of the money supply during the depression years (if my recollection of history is correct) vs. the flood of money today.
    So, the prognosis can be either way but I think inflation is more likely than not. For now, I am stuck in TBT with short puts and for now, am going to stick it out and work my way out of the hole bit by bit.


  145. CNBC says GDP is below 1.4% – that’s a revision down from 2.3%.
     
    Didn’t everyone know that was coming?


  146. 1047 close. thin ice!!
    Nicha, maybe I don’t know  your exact situation but what about FAZ as a hedge against NDAQ and NYX? I have traded both in the past and when financials cave these two go right with it.
    Phil, good luck with  your family. I am in healthcare so I fully appreciate the level of distraction that comes from the issues you are undertaking.
    I have appreciated your recent hand-holding on buy-writes for XOM and MSFT--most excellent. When you get a chance, can  you suggest one on GS--specifically selling covered calls? What do you like? Right or wrong, GS would be one of my ten stocks for a long-term port like what you wrote about this morning (GE).
    Chip


  147. PHIl / Anyone : Please help me with my calculating of % returns when I buy the stock and sell puts & calls against it. I thought I was folliowing your format,but I believe I’m making an error. For example:
    On JNJ, the stock is $57.97 and the Jan. $60 C is $1.60 and the $60 P is $3.20 totalling $4.80 for net $53.17. Max. profit would be at or above $60 which produces $$6.83 profit. In the past ,I would divide $6.83 by net cost of stock of $57.97 and get a return of 11.78 %.
    After looking at Poweroptions.com spread sheets, they show a 6.4 % return. After several discussions,they made me realize I had to enter 2 positions totallying 2x $57.97= $115.94,therefore the return on the C is 6.2% and the return on the put is .2% since I would have to have equity/cash to cover the put;therfore my total return is 6.4% and NOT 11.78%.Have I made an error here?? Thank you


  148. lionel – capital is guaranteed if one holds to maturity.  Sure one paid a premium from par, but if one holds to maturity and the yield is positive, you get the capital ($100) back.  I am not saying that time value of money is not a factor, but when one looks at capital preservation, then those are the facts. Sure if one sells when the price drops, then you take a bath. 

     

    Let’s face it, the feds are not going to raise rates anytime soon (despite my home town Fed man Hoeing.  The ‘great’ earnings are all out and over (much due to cost cutting), and now the rubber meets the road.  The next two quarters will be the big tail on the donkey as to where we will go.  I am not trying to be ‘yip’ here, but I do want to put my views there to pick apart.


  149. dflam/returns — the difference is that the put should be using margin for collateral so you really don’t have 2x tied up.


  150. GDP revised down.  Now that will help my cause!

     

    PFE/z – IF I were to buy PFE, I would use a Jan12 $15 collar on them.  I think they are going to move down over the next year, as Lipitor goes off patent.  One can sell the 12.5s to increase the return a bit, but I am not high on them, as I noted here.  When I wrote that piece, PFE was at $17!


  151. DKGuy/ nice late activity as well. Good spot.
    Pharm/ I dont have a problem with capital guaranteed. And I do understand your point.
    But what I was disagreeing with is the sentence saying being capital guaranteed means bublle proof. How does it work?
    Any financial asset can be bid up to a stupid level. 30Yr JGB are Y114. So it is Y14 that are not part of the guarantee. Right? You can argue that it just represents 12% of your capital (Y114). Therefore there are no possibilities of a huge bubble?
    But are you getting a rent on your money that take this capital risk into account? My answer is no, not at these ultra low yield. So risk adjusted the bublle can be huge.


  152. GDP is expected to be revised down to 1.4% from 2.4%. So anything below that could start a big sell off from our levels.
    On the opposite hand, …
    I know I am biased.


  153. Phil / Inflation
    I agree with you 100%, and I believe you have identified the emotion that prevails in the "hallowed halls". The one dynamic that will exert a lot of influence over the coming days will be the overwhelming concern for survival of the Fed and Treasury credibility. At the moment, most feel the efforts to date to revive the economy were in vain, and did nothing to help the recovery, but did a lot to blow out the deficit numbers. Witth the elections just around the corner, I believe you will see some desperate moves, influenced by the White House, very soon, that could go in any direction. Maybe Larry Summers will prevail. or he could be purged with many more. This whole idea of predicting an "end game" is very much a matter of conjecture at the moment. All of this uncertainty puts additional risk in the equity market.


  154. Guarantee/Aruben – Unless they actually default they will pay but what happens is, let’s say you have a 12% bond at $100,000 for 10 years.  That’s taking into account (for example) 10% assumed risk and 2% inflation covered.  If inflation turns out to be 6%, then you are only getting paid 6% for the same risk (maybe more due to increased borrowing/rollover costs hampering the lender’s ability to pay).  So your bond had a redemption value of $100,000 if you wanted to cash it now but the new bonds from the same company are paying 16%, which means your bonds pay 25% less and, therefore, if you try to cash your bonds, you will only get a cash offer of $75,000 because your bond is not as "valuable" as newer bonds.   The reason bond funds are doing well right now is they are generally in instruments that pay a higher return than today’s notes so they command a premium cash value.  Now imagine this happening to you in the 70s, when interest rates went from 5% to 15% – what use are the 5% notes to someone when they can get a 15%?

    Real estate/Aruben – Real estate isn’t a trap if you time it right but look at what is happening to people now -  Invest $1M to buy a $5M commercial building with cash flow that covers morgage an taxes but then taxes double, utilities double and you can’t raise rents because the tenants are already moving out due to the economy and people who are buying other buildings in town (that are being foreclosed on) have 1/2 your mortgage and offer your tenants significantly lower rents to leave you.  CRE is the very definition of dog eat dog when it starts to slide with whole towns canniblizing each other until they hit rock bottom.  Residential rental can get hit like that too, especially vacation properties when there is a lot of competion.  That’s why Las Vegas and Florida dropped like rocks.

    Inflation/Pharm – I buy (or don’t buy) that argument.  Low demand is deflationary an my inflation premise is based on WHEN this huge pile of money does get moving but I sure don’t think it’s going to happen very soon. 

    GS/Chip – Thanks.  On GS I’d sell the 2012 $100 puts for $8, which have a net $10 margin requirement so you can sell 2x assuming you don’t mind being assigned 2 for $100.  That puts $16 in your pocket with $18 used in margin and you can go for an Apr $105/135 bull call spread for $22 so net $6 in cash and $18 in margin to make $24 if GS can hold $135 through April.  If you make your $24 there, you can roll to 2012 or 2013 and do it again. 

    Returns/Dflam – You buy JNJ for $58 (simplifying) and sell $60 puts and calls for $5 so you are in for net $53 of cash and make $7 if you are called away (13.2%) but, there is also a margin requirement on the put side that is part of the overall trade.  That part very much depends on how your system is counting it – is it 100% margin, which would mean you are making $7 on $113 cash and margin (6.2%) or, at 50% margin, it’s $7 on $58 + $30 ($88) 7.9% or, according to TOS standard, it’s $16.50 so then it’s $7 profit on $74.50 (9.4%).   And, of course, you may have portfolio margin, with it’s own rules.  Also, don’t forget that the stock you buy uses cash but, if you have even a basic margin account, gives you a 50% credit on the security, which generally offsets the margin from the put side.  That’s why I just calculate profits on cash comitted – too many variables and if your portfolio is 1/2 cash – margin is not an issue.


  155. I executed this trade near market close, and am wondering if someone could critique it for me.
    As a speculative position, just bought a bunch of Jan 11 GE 15 calls for 0.99 and partially sold next week’s GE 15s for 0.13 against them (sold 3 for every 5 bought) – the rationale is to sell weeklies to recover the cost (increase ratio sold as we get close to January). Further, if the dow recovers before Jan, GE should be above 15.


  156. Pharm / TIPS
    No, that play is not for me. I crave the leverage of the ultra ETF. Maybe I’m just a "risk junkey". At one point last year I had 75,000 shares (leveraged) in TBT. If it would have paid off as we expected, I’d be communicating from my own Greek island at this point.  But for the crash of the Eurozone monitary situation, and the failure of the stimulus here in the US, this would have been the play of the century. Both situations were not predicted or expected, so I can’t blame myself.  My re-entry to the TBT venue is minimal, as I’m scaling back in, assuming nothing stays static forever, and I see some reason to believe inflation is around the corner. ( I must be a contrarian )


  157. lionel .. ha, ha – It must be the rainy season there in Australia, gosh, you sound depressed today with such negative projections. I hope the GDP numbers tomorrow will not destroy the markets any further.


  158. Rather than a long winded diatribe, here and here are two write ups on the bond market. 


  159. SSDIRK: Didn’t know you were still around! Hope all is well with you in Fl.   The video was a good review, thanks for sharing. And tell JBH hello.


  160. When Uncle Sam lends to the banks at 0% and tells (forces?) them to start buying Treasuries with that money….it ain’t coming out to the market for lending, no matter how much Uncle Sam wants it to. We are now buying our own debt (not the Chinese, not Japan) but good ol’ ma and pa….Wall Street needs ‘us’ to keep investing, otherwise they do not get the fees associated with it as well as stealing ‘the money’ from ‘us’ as the MM front runs the prices, etc.  Matt continually notes this (as am now with ARNA  as it took 3 min for my order to go through on TOS) and then the MM moved my price target way…now where is ARNA sitting, 3.59 when I put it in at 3.60…and it moved to 3.63.  Nice.


  161. Phil: regarding your 5:06 post, "Real estate isn’t a trap if you time it right…" Absolutely true. And what most people don’t know, but are now learning is that the real estate cycle is very LONG cycle. We tend to think in microseconds when stocks, options, and even bonds can be flipped with a keystroke: when information on an iPhone is a second away.  But if you sign a real estate contract at the wrong time, it can be years or decades to work your way out. I bought land in Colorado Springs in 1986 and it took a decade to come out well. Unless you have been through it it can be hard to imagine. I still won’t touch real estate for that reason. I know there’s a number people on the blog that have made their wealth on  real estate.. kudos to them.
    My best to you and your family.


  162. I think this applies to the country as well.


  163. Pharm, really good article.


  164. Wow, now my font is growing like my head….


  165. Jbur - What brought you to Colorado Springs?


  166.  If you can’t beat ‘em, join ‘em. I’ve flipped almost 100% and now I’m long TLT calls and loving a market day like this, especially when I’m working and can’t check in on the market until after EOD. TLT pushing 109! Unreal!  Bonds are WAY overbought, but no need to dump until the tipping point which has very definitely NOT yet been reached. Some catalyst will push it over …  but you know the saying, the markets can stay irrational …  yada yada yada. So don’t go too early into TBT calls (or TLT puts), but when it goes, it goes big, so stick with it for the full 6 months and make a killing.


  167.  Bye bye PCLN 
     
    SWEET


  168. PCLN - 
    "Go Lower"
    "99"
    "Now you’re negotiating"
    http://www.youtube.com/watch


  169. Great Article Pharm!  Growing up in Cali in the 60′s and 70′s seems like a long ago Fantasy…. The Bay Area ain’t what she used to be, though North County S.D. is pretty sweet…… :)


  170.  if PCLN goes to 99 i’ll be eating more than cupcakes haha!


  171. biodiesel… Its all about timing, and the fundamentals are easier to figure out, than the moment of opportunity. The buildup is big, and the correction will be comensurate.


  172. Pharm… you have the strongest position at the moment, relative to market direction and economy strength. It is typical to have the bond yields and equities move in the same direction, HOWEVER, there is a major gap forming, as stocks are resisting a definitive move lower. The last time the 10 year bond yields were this low, the S&P 500 was trading around 850. Bonds have been right in the past, so if we break below 1020 on the S&P, then it could be ‘elevator down"
     
    Bernanke will give us a view into this window tomorrow, and he will confirm the weak economy. The news the markets are waiting for is the remedial efforts that will be implemented. I think, because of the consensus in the Fed makeup, we will not see much consolation, and the fear quotient is fully in place. – Not good for the markets. – Great for the bears!


  173. Good evening everyone.  I have been lurking for a little while, and wanted to finally introduce myself.  I am still working through reading the huge amount of material here.  I am new to investing, and in fact currently only have a very small 401k. I have never owned an individual stock, and only briefly had an IRA with 3k in it.  I am currently trying to educate myself as I get ready to begin investing.
    Phil – One of the main reasons i chose this site was your political commentary.  I appreciate your perspective and look forward to the morning’s read every day.  All my best to you and your family during this difficult time.  
    I reckon that’s it for now, y’all have a nice night :)
    Scot.


  174. oh, geez, if you picked phil for his politics, i am deeply concerned.
     
    on the other hand, there’s a world of knowledge here. I only wish i were young and found this place.
     
    best of luck to you.


  175. Biodieselchris:
    What are you currently holding on PCLN. I shorted that in August and it was obviously early. Did not have the guts to do it again--Story of my life the last couple of months! How low do you think they will go and what are you holding? Thanks.
     
    dclark41


  176. And guys, if I want mattress plays, i sell close to the money SPX calls. Done it twice in the last three days.
    These are insurance plays that are rollable if things turn higher.
    I admire you guys who understand what is going on.


  177.  Bar:
    Thanks for the warm wishes.  I am not that young, i turned 44 this month.  That being said, it did take me a little longer to get started than most.  I didn’t graduate with my BS till i was 32, married at 33, divorced last dec at 43.  I am pretty much starting over at this point.  In fact, worse, since i am severely under water in my home (50%+), and I am required to sell or refi within the next year or so as terms of my divorce.
     
    If there is anyone that has any advice on how best to handle my housing situation, i am all ears :) .
     
    scot.


  178. Strongly suspect we rally tomorrow, even if GDP is under.


  179. Scot:
    I thought for a moment you were describing my life! Very similar paths. Anyway, I just joined here about 10 days ago and love it. Most on here are very knowledgeable and very willing to share for the "less gifted" (includes me!). The political rants are both amusing and sometimes enlightening. I don’t agree with Phil’s politics, but I figure it doesn’t hurt to hear what others think for perspective. On the other hand, Phil is fabulous at explaining trades and techniques-the main reason I am here. Welcome and best of luck on your trading.
    dclark41


  180. Howdy; of all days to be on an airplane, I will be on one tomorrow.  A little bit of family time … will check in sporadically on the weekend and next week.  good luck all.
     
    I wouldn’t mind one more good squeeze up for the next week or so.  DOW is down 700 points in last 2 weeks or so.
     
    TED spread is not confirming the fear factor in the markets.  TED was something like 465 during the financial crisis.  Today TED was 15.  Usually a reading of 50 is indicative of fear.   So TED is not confirming all the panic in the financial markets (flight to bonds and stocks falling).
     
    http://www.straightstocks.com/investing-lessons/the-ted-spread-and-its-implications/
    http://www.wikinvest.com/rate/TED_Spread
     
    "The TED spread is the difference between the rate on the “risk-free” 3-Month U.S. Treasury Bills and the interbank lending rate.
    The spread increases when liquidity dries up and banks consider lending to each other to be risky. It rises because banks buy T-Bills and push down rates on them and demand higher rates for interbank loans.
    The spread falls when banks perceive less risk of lending to each other and they want to eke out a greater return by lending to each other rather than buying “risk-free” T-bills.
    In a market where liquidity means everything, the TED spread is the key indicator of where the markets are headed next."
     
    Someone joined this site to listen to Phil’s politics ?!  … a sign of the Apocalypse if there ever was one !


  181. PCLN, I am out for now:
    Here are my 2 quick plays
    Sold Aug 300 Call at 7.20, closed at 2.00,   gain 5.20
    Sold Sep 320 Call at 5.80, closed at 2.65   gain 3.15
     
    Wish I could replicate those trades all over !  But as we know, it doesn’t work that way !


  182. Scot
    Nice to have you "on board". We all are really here to enhance our education and trade equities, options and ideas. Phil has a mind that likes to work 24 hours a day, and as most of us will agree, politics whether good or bad, has a whole lot to do with our markets, and therefore our trading strategy.  Phil is very passionate about his politics, and it is fun to observe, and I am one who from time to time will offer a rebuttal. I am usually on the otherside of the political fence that Phil embraces, so you will see both sides of an issue. ( We can’t let Phil get away with some of his political positions, but we all agree he is the "grand master" when it comes to trading ).  Good luck with your experience at PSW.


  183. One technician’s comment from this morning:
    I think we could drop back to 1047 but then I expect a move towards 1090 next week.
    Well, nailed the first part …. now we’ll see.


  184. Apologies Phil for the length of this … no link
     
    The Fed Can Create Money, Not Confidence
    Inflation—or stagflation—remains the more serious danger than deflation.
    MORE IN OPINION »
    By GEORGE MELLOAN
    A report by the Federal Reserve Bank of New York last week showed that consumers are having difficulty climbing out of the debt hole they dug for themselves before the credit bubble began to deflate in late 2007. The report gives support to the fears of those asset managers and economists who believe the U.S. is facing deflation.
    Bill Gross, manager of the $239 billion Pimco bond fund, is one. His evidence is that the Consumer Price Index (CPI), annualized over the last two years, has fallen slightly.
    Since deflation, in simple monetarist terms, means too little money chasing too many goods, with a consequent fall in prices, the remedy should be easy. Can’t the Federal Reserve create as much money as it wants with just a few key strokes? Well, there are some things money can’t buy. In political circumstances like today’s, one of them is public confidence.
    In fact, the Fed has been fighting deflation for nearly two years. It began pumping new money into the economy after the September 2008 stock market crash to restore liquidity in the financial system. It has kept the pumps running by maintaining a near-zero interest rate target. Its net purchases—with newly created dollars—of government and government-agency bonds have totaled some $1.4 trillion, expanding its balance sheet to $2.3 trillion. As the Fed pumped out new money, member bank reserves ballooned and now exceed $1 trillion. That means a vast amount of money is on deposit in Fed accounts, ready to be flooded into the economy if loan demand increases.
    So what’s the problem? Here it is best to depart from monetarist terminology, with its heavy emphasis on the magical powers of the central bank. Those magical powers are highly overrated, as almost anyone who has ever run a central bank will likely tell you. The Fed can flood the banks with liquidity in an effort to stimulate economic growth (if it is willing to run the very serious risk of inflation). But that will not necessarily stimulate a demand for this money.
    What’s missing in these times is a strong desire among businesses and consumers to take on new debt, low rates notwithstanding. Corporations can’t even decide what to do with all the surpluses their businesses are generating; they are sitting on vast amounts of cash even though it is earning them minimal investment returns. Because business’s "animal spirits" are suppressed by caution, private-sector hiring is weak, which means the unemployment rate is likely to remain high. As the New York Fed report shows, householders on balance are struggling to pay off the debts piled up during the 2003-2007 credit binge and are building up savings. Consumer spending is relatively flat.
    The key word here is "uncertainty." The Obama administration and Congress have dumped a huge load of highly dubious new legislation on Americans, much of it unread even by the legislators who voted for it. ObamaCare is an attempted federal takeover of a vast and complex industry. No one really knows how much chaos the financial sector "reform" act will generate. Hyperactive zealots in federal bureaucracies such as the Environmental Protection Agency have been unleashed to do silly things like attempt to reduce the planet’s supply of carbon dioxide.
    A massively expensive federal "stimulus" program failed to stimulate for the easily predictable reason that the money the government spends on its political projects robs the rest of the economy of resources. Opinion polls show that the soaring federal deficit is of major concern to voters, as it should be.
    State and local governments are, on the whole, in terrible financial shape, which means that they will likely be shedding employees and adding to the ranks of the unemployed. The only remedy the Democrats have for cutting the deficit is higher taxes, which in a weak economy likely would be counterproductive.
    As a rotating member of the Federal Open Market Committee, Dallas Fed President Richard W. Fisher helps guide national monetary policy. He addressed the uncertainty issue in a recent speech to the San Antonio Chamber of Commerce.
    The prevailing sentiment among business leaders he surveys monthly, Mr. Fisher said, is that "the politicians and officials who craft and enforce the rules are doing so in a capricious manner that makes long-term planning difficult, if not impossible. They are increasingly distressed by the lack of consistent direction coming from Washington. . . . So they are calling time-outs and heading for the sidelines while they wait for the referees to settle the rules of the game."
    He added that no amount of further monetary accommodation can offset the retarding effect of heightened uncertainty. Indeed, it would make matters even worse if the private sector concludes that the Fed has become "politically pliable and is prone to substitute such accommodation for fiscal discipline." Who would ever think that?
    Getting back to Mr. Gross and his fears of deflation, it should be noted that he stacked the deck in referring to a two-year average, since that includes the brief period after the 2008 crash when the CPI fell. The index began climbing sharply at midyear 2009 and was showing nearly 3% inflation by the end of the year. A 0.3% rise in July still signals rising prices.
    Since U.S. prices correlate inversely with the dollar’s international purchasing power, and since the massive U.S. budget deficit puts downward pressure on the dollar in international markets, inflation surely remains a more serious danger than deflation.
    But deflation and inflation predictions could both be right in a sense, if you aren’t too fussy about strict definitions. In the late 1970s, the last time Americans suffered from manic interventionism from Washington, we had "stagflation," a combination of minimal economic growth and double-digit inflation. It wasn’t pretty.
    Stagflation was cured by a set of policies that reversed the Keynesian nostrums then in vogue and that are again the core basis for federal economic policy. In the early 1980s, the Fed tightened money, tax rates were cut, economic regulation was pared sharply and an effort was made to curb nondefense spending. It worked quite well, producing 25 years of economic growth. It will be much harder to repair today’s damage, but the need to make another try is becoming urgent.
    Mr. Melloan, a former columnist and deputy editor of the Journal editorial page, is author of "The Great Money Binge: Spending Our Way to Socialism" (Simon & Schuster, 2009).
     


  185. cap, I read a good article from  ZH (libor) and thought I would dig it up for you…safe travels cap
    http://www.zerohedge.com/article/worthlessness-libor

    scot where are you and your home located?


  186. Cap / Apocalypse
    Not quite… but a sure sign "the end is near"….. See – your work is never finished!


  187. One strategist has this to say:
     
    A Solid Setup.
    Today was one of those days that, despite the loss on the scoreboard (and we recognize the P&L hits do truly hurt), was far more constructive than most sessions during August.  We suspect today’s Initial Jobless Claims report provided some preliminary credence to our theory that the August seasonal adjustments are a head fake in the data, creating the impression that the trend is reversing to the upside.  The Non Seasonally Adjusted number was 380,900, a new lowest reading in just under 2 years and slightly below the NSA claims number that was registered the week prior to Lehman’s failure.  We reiterate that these are not good numbers, but they are a far cry from the trend reversal of new rising claims, which is how the seasonally adjusted data is being misinterpreted.  Remember, next week should also be a tough week.  If our theory proves correct, we will know by mid to late September when the downtrend should appear to resume. 
     
    The other interesting development today was on the sentiment front.  AAII Sentiment as we calculate it (Bulls/(Bulls + Bears)) was 29.54% in buy signal territory.  It is not as good as the reading registered last month, but good enough to rank it 4th best in the last two years following November 6, 2009’s reading of 28.57%, July 9, 2010’s 26.84% and the two decade low registered March 6, 2009 at 21.21%.  The Hindenburg Omen made it to the front of our Yahoo! News page. A six basis point increase in the quarterly report of the Mortgage Bankers Association’s 30 day delinquencies was covered in the media as if the second sub-prime crisis was again upon us.  Besides the fact that it was 6 basis points, it is coming primarily from failed modifications.  We get monthly snapshots from Lender Processing Services and Bloomberg so there are no shocking revelations in the MBA report, which overall exhibited improvements.  Meanwhile, positive stories seem to get missed, such as Moody’s asserting yesterday that credit card losses have peaked even if Unemployment rises to 10%.  In addition, Moody’s noted that “Falling charge-offs led to excess spread widening by 57 basis points to 10.44% in July, breaking the 10% level for the first time in the 20-plus year history of Moody’s Credit Card Index.”  This is the good type of spread widening.  It represents the profits banks make on a card program.
     
    There are only two things we feel like we are missing going into tomorrow’s GDP report: Volume and a 30+ reading on the Vix.  The ideal setup for tomorrow would come from the result of an ugly Q2 GDP revision tomorrow.  Every hour, a tenth of one percent comes off the market’s expectations of tomorrow’s revision.  It is hard to remember the last time the market was so enamored with a backward looking number.  We recognize a large downward revision will influence estimates for the balance of 2010 and the forecasts for 2011, but we did sell off on most of the weak initial inputs as the data was reported in the past few months.  Nonetheless, any ugliness or sloppiness tomorrow morning  should prove to be a buying opportunity.
     
    At 10 am, the Fed Chairman will move back to center stage.  It will be his first speech since August 2nd.  Since then, the Fed has been a source of confusion.  We don’t expect QE2 to be announced, and as a matter of fact over the past month, the Fed finally witnessed some pick up in M2 growth in what was essentially a non-QE environment (Chart 1).   What we believe the Fed Chairman needs to do is explain where he sees the recovery headed taking into account the soft data over the past two months.  Then he needs to explain how the Replacement Purchases will be enough to get the recovery back on track and finally allude to plans B & C should Replacement Purchases fail to be sufficient.  We suspect the Chairman will also highlight some positives out there, such as the M2 growth accelerating, C&I loans modestly upticking, banks easing lending standards, etc.  Finally, by the end of the day, we believe a month long process of confusion created by the Fed will finally give way to one of the things the markets appreciate the most, “clarity.” 



  188. jrom, I got absolutely tired of the long winters where I grew up in Michigan, and in 1981 the unemployment  there was about what it is now. So I looked at places to live that would offer a much less closed in lifestyle, with a vibrant economy and opportunity. So I practiced with a gentleman for a few years, then bought one of his office locations. It’s been a great place to bring up a family. Have a good evening.


  189. EricL: Good to see you are still around. I wanted to ask  you a question if you don’t mind. Thanks.
    jamesieb2@gmail.com.


  190. I am not sure our Government leaders are understanding the underlying reasons for our delayed recovery in the economy. They have a tendency to fixate on just the numbers that are exposed everywhere, and then make comparisons to other periods in our past.  This methodology is flawed, for the reason we have never experienced a downturn like this ever before in our history, with the recent explosion and colapse of the housing bubble.This created some entirely new problems, that are unique to the efforts to mitigate the effects of the weakened economy.
    There are new dynamics at play this time around, when analyzing the reason for a dismal recovery in light of the fact we have had a massive amout of quantitative easing and bank liquidity.  For the first time in our history we experienced a severe contraction in personal wealth while simultaneously entering a recession.  In most households, the largest asset one has is the equity built up in their home.  Because of the housing crash this equity was destroyed forever, and the precipitous drop in the equity markets destroyed the second largest asset, that being their 401K accounts. This did not happen in previous recessions to this degree, where both asset reserves were destroyed.  The result is our population, for the most part feels insecure, and hopelessly without reserves  Our consumers are rebuilding their lives and therefore are reluctant to take on debt, or take on risk.  The banks have money to lend, but there are few takers at the interest rates that are prevailing and the folks do not have any equity they can hypothicate. This is why this recovery will be very slow, and may take years, unless we can get a good dose of inflation that would provide equity in mortgaged assets. In the end, this will most likely be the solution of choice, as it would be popular with the voting population. ( but not the banks ).  I do not fear deflation, as our inventories are at all time lows, and outside of housing we have a shortage of goods. Too few goods will encourage inflation, not the inverse, as the money supply is increasing as we move forward.


  191.  test1


  192. gel – as you state, we are in a different ‘normal’.  With just in time delivery cycles, inventory is a hard thing to measure, as manufacturing is right next to their supply chain….right now we have an excess capacity of manufacturing (I am not confident of a double dip, as I am not sure we ever came out of it).  From the economist:

     

    The recovery is now appearing in a less flattering light. In America the monthly surveys of purchasing managers by the Institute of Supply Management (ISM), a professional association, suggest the economy is losing momentum. The institute’s non-manufacturing index, which covers everything from home-building to pet care, fell to 53.8 in June from 55.4 the month before. The drop in its manufacturing index, from 59.7 to 56.2, was even more conspicuous. Although manufacturers added jobs in June, the average workweek shortened by half an hour, according to the Bureau of Labour Statistics. America’s metal bashers put in 5.5m fewer hours last month.

    This slowdown is not confined to America. The global purchasing managers’ index (PMI) produced by JPMorgan and Markit, a research firm, showed the world’s workshops at full stretch in the spring, as they restocked at a record pace. But the ratio of inventories to orders is now back at its long-run average and the index has eased to 55 in June from a peak of 57.8 two months before. Even in China, according to an index prepared by Markit and HSBC, manufacturing output fell a little in June, ending a 14-month run of expansion.

     

    and…a month old, but

    …when the ISM is down over four points in a two-month span (June and July), it practically signals that the peak in manufacturing activity has been turned in. The problem is that outside of all the stimulus out of the federal government, this whole recovery has been led by an inventory-induced rebound in manufacturing production (since last summer/winter the inventories were almost 0 b’c no one knew how bad it was going to get). There are no other offsets if industrial activity starts to slow down! Ditto for exports, which slid to 56 from 62, again a low for 2010.

    And no wonder the bond market is rallying. Look at the meltdown in the inflation indicators. Backlogs down 2.5 points in June, to 57. Vendor delays down to a six-month low of 57.3 from 61 in May. And, prices paid collapsed from 77.5 to 57 — it hasn’t been that low since last November and before that last July.


  193. Cap, That was a VERY interesting read. Thanks.
    http://www.zerohedge.com/article/my-ex-bonds-and-ben-bernanke


  194. Nikkei is up around 0.85% and the UK revises its GDP beat expectations by rising to 1.2%.   Plus I look outside and its nice and sunny over the Hudson River.  Feeling kind of upbeat.



  195. Good morning!

    My Dad made it through the night and they think he’s going to be OK (ignoring obvious quality of life issues).  I’m not sure he’ll actually be pleased with the result, frankly but that’s modern medicine for you.  I’m heading home this afternoon but we’re still going to be on standby for a while, unfortunately.  Best we can do right now is just rotate coverage so someone is with Mom every weekend, Dad won’t be out of the hospital for a couple of weeks, at best.

    Thanks to everyone for warm wishes and prayers – they were much appreciated!

    Reich/Pharm – Wow, I thought he had gone off the rails but it’s a very ensible elimination of tax on the first $20,000 and making it up by adding that to people over $250,000.  He actually brings up the "dirty little secret" that Conservatives like to ignore when they claim the bottom 50% little or no income tax: " Right now, 80 percent of Americans pay more in payroll taxes than they do in income taxes. And lower-income workers, who would receive the largest proportion of the benefits, are more likely to spend the extra cash than are people with high incomes."

    I liked the selfish generation article too!

    Joining BDC – just watch your step.

    Welcome Scotbraze!  On the home thing, look into walking away.  As a business decision, why should you assume an obligation to pay 50% over market for a home?  Mechanically, you can rent it out (short-term) and use the cash to move out and get an apartment or home you CAN afford.   If you do want to keep the house, ask the bank about HAMP modification programs – they do work well in the one out of 10 cases they go through.

    TED/Cap – Very telling!  Meanwhile, people listeing to my my politics may be an Apocalypse for your crowd but just 60M more followers and I’m electable!

    Fed/Cap – That’s a very round-about way to ask for tax breaks but not surprising, given the author.

    Setup/Cap – Who was that, I liked that write-up.

    Delay/Gel – I think it’s more a case of hyperactive expectations than a delayed recovery.  We had a major shock to the system that unwound the market from ’07 to March ’09 and was salvaged through drastic and unnatural measures.  Like my Dad, there will now be a recovery process that will be long and difficult.  Calling the recovery a failure because it’s slow is really what the problem is with the attitude of the MSM – it’s short-sighted at best.  There are way too many people who have their money invested in the bear case and they will say anything to create an environmet that is likely to make them a profit. 

    That is the sad reality of a market where bearish sentiment is 70% – the top 10% (70% of whom are bearish) stop spending and stop hiring and the MSM, who "give the people what they want" both echo and magnify that sentiment and eventually you have a majority of the media and the people CELEBRATING bad news and taking pleasure in the destruction of wealth in this country.   This is the problem with a system that enables profitable betting on destruction – while there is a healthy "price discovery" mechanism, of course, they system has been perverted when you can have a bearish majority (in the investing class – I’m sure the bottom 90% would rather have jobs), who want government to fail, and business to fail and cities to fail and countries to fail – all so they can make their individual profits. 


  196. Dad / Phil – Phil, from what you’ve said, I gather your dad had a CVA – as you said, these are crippling and nearly always leave some permanent disabilities, but – those boring, tiring rehab programs do work, and doing them faithfully will gain some functions back. If he’s the sort of person who will follow those regimens, great, if not, now is the time to change that. Physical and occupational therapy are often no fun, but they really do work, even if not miracles. Tell him we’re here cheering him on. And don’t let the family forget to support your mom through all this.