What if the World is flat?
It sure looks flat. You have to go to space to see that it's round, even in an airplane it looks pretty flat, doesn't it? Well, fiat currencies are like that too. We talk about Quantitative Easing as if the World is flat because Americans (who are trained to be self-centered to the point of Xenophobia from birth) don't think of their connections to other counties on this planet. To understand the American investor is to look at this map and understand that it is not a joke…
So investors in the US discuss Quantitative Easing as if we can simply devalue the dollar and every other country on Earth has no choice but to bend over and accept our worthless currency because they are lucky we even bother to trade with them. To most American's, it's still 1950 and we just won the war and Europe better kiss our ass and the rest of the World better fear us or they're NEXT. That pretty much sums up our next 50 years of diplomacy, doesn't it?
That is the mindset that now permeates investors attitudes towards our currency which is, in fact, the World's Reserve Currency. What does it mean to be the World's Reserve Currency? Well, nothing more than the fact that it is held in significant quantities by governments and institutions as part of their exchange reserves. That is what our government and the Fed are now taking advantage of by printing Trillions of additional dollars and devaluing our currency, which is currently 62% of the World's reserve holdings, although that is down from 71% in 1999 and 64% in 2008.
That's the problem the rest of the World faces as we race to devalue our own currency – they simply can't replace it fast enough to stop us. The only real alternative to the dollar is the Euro, which makes up 27.3% of the World's reserves, next is the Pound at 4.3%, followed by the Yen at 3%. Let's say, for argument's sake, there is an even $100Tn in the World. That means $62.2Tn of it is the US Dollar and $3Tn is the Japanese Yen. No matter how irresponsible you think the US is being with it's currency – you simply can't buy enough Yen to replace them. There are only $27.3Tn in Euros (and they don't look like a good bet, do they?) and $4.3Tn in Pounds. What has been happening? Well between 2008 and 2009 $1.9Tn was moved out of the Dollar (3%) and $900Bn went into the Euro (3.4%), $300Bn into the Pound (7.5%), the Yen LOST $100Bn (3.2%) and "Other" currencies picked up $800Bn (36%)!
A 36% increase in "Other" currencies, which flew from 2.2% of global reserves to 3.1%. Others are Rupees and Yuan/Renminbi and even Rubles as well as Aussie Dollars and Canadian Loonies but the sum total of ALL those currencies is just 3% of Global Reserves. It is tremendously destabilizing to those countries to have their currencies go up in value as it makes them all less competitive as exporters. That is the goal of the US at the moment – to create a monetary sink-hole of such mass and gravity that it begins to actually suck global trade dollars in – instead of spitting endless amounts of them out, as has been the norm for the past few decades.
Can creating a black currency hole really save our country, or do we risk being sucked in as well? Clearly the "Greenspan Model" we've been running has been nothing but destructive for America as we have exported 10% of our labor demand to China, who have accumulated $2.5 TRILLION dollars of our currency reserves while we have run up $9Tn of debt since Al Gore lost his election bid in 2000, despite getting the majority of the popular vote.
Why bring up Gore? Well it was Gore who wanted to protect both jobs and our "lock box" but that lock box was raided and our Social Security SURPLUS was used to fund a decade of runaway Government spending that has gotten so extreme that we now need to borrow over $100Bn a month just to keep the lights on in this country. $100Bn is more than the ENTIRE GDP of all but 67 countries on this planet and that's what we need EVERY MONTH to keep up the pace of our spending. Annually, our $1.2Tn deficit is the ENTIRE GDP of all but 14 countries on Earth (about Canada or Spain's entire GDP).
Our monetary black hole has already sucked up all the money on Earth and that's why 72.1% of our Treasuries are now sold to ourselves – we've pushed the rest of the World past their limits and $4Tn of our debt has been dumped on the Social Security Trust since the "lock box" was raided and now we are devaluing our currency at a rate of 1.5% PER MONTH in order to keep up the illusion of solvency but we're really not fooling anyone BUT OURSELVES!
It's US we owe the money to. Sure China has $2.5Tn of our debt and other countries have perhaps $8Tn more but the other $30Tn in the world are held by Americans and the Government's insane scheme to devalue our currency by 10% in order to borrow 10% more money is costing us $3Tn for every $1.5Tn we borrow. That's CRAZY!
Of course crazy isn't just our current policy – it seems to be what the voters aspire to as well. Unlike Europe, we do not have serious policy discussions about taxation and Government spending – instead we have two parties that totally disagree with each other on every issue other than maintaining the status quo which is destroying our nation day by day.
The MSM is no better, with nothing but polarizing opinions as if the whole World is right or left with no room in the middle for rational thought. On Friday, I called Newt Gingrich an idiot and my patriotism was subsequently questioned – that's the way politics are played in America these days – the way they were played under Joe McCarthy in the 50s…
Unfortunately, the lunatics have clearly taken over this asylum and we continue to create dollars at the pace of about a dozen Bahamas per month. That's right, the entire annual GDP of the Bahamas is $9.3Bn and we drop 12 times that in debt load on a monthly basis, going 144 Bahamas deeper into debt every year! Our debt and deficit is now so massive, that we need to measure it in terms of the GDP of other nations because 1,500,000,000,000 is fairly inadequate to grasp the scope of our deficit spending. Suffice to say that it's more money than exists unattached on the planet Earth so, in order to go further into debt – we have to create more money.
As I mentioned, because other countries aren't as stupid as we imagine, we need to create 3 dollars in order to borrow 1. That gives us $1 more debt (out of 10) and $2 less value to our remaining pile. How long can that go on? One reason our currency creation is so inefficient is because the people we are giving the money to, the Banks, aren't willing to invest it in America either. They have their own debt holes to fill and most of the money we give them goes into a derivatives ($200Tn and rising) juggling scheme that makes them look solvent and masks their very, very questionable asset bases.
The banks take the money the Fed is dumping on them and speculate in commodities and foreign currencies and THEN they buy some TBills in order to keep the treadmill running. This forces asset bubbles in things like gold and oil but they too are a complete illusion because it's only the idiots with dollars that are buying them – the rest of the World stopped chasing shiny metals in June but the flat-Earthers in the US just didn't seem to get the message. Here's gold priced in Euros, which is DOWN 8% in 3 months!
Our stock markets, of course, look just even worse – down 10% to the Euro in the last 3 months, but that won't stop the MSM from engaging in the Grand Dellusion that they are feeding to the voters this month – that everything is somehow going according to plan (what plan?) and happy days are just around the corner – as long as Americans can keep pretending the World is not round at all but a neat little square with our great nation on top and in the center.
Well, there's a lot to be said for getting out while you're on top – or at least while there are still enough people fooled into believing you are on top. As the Joker says in the "what plan?" link above – Nobody panics when things go according to plan, EVEN WHEN THE PLAN IS HORRIFYING!
That's what we have now, a horrifying plan to prop up the US Economy based on the belief that the US is the center of the universe and that the rest of the World will be fooled by our fiscal nonsense. As you can see from the gold chart and the S&P chart – we stopped fooling them a long time ago. What will happen when we can no longer fool ourselves?
For my take on the markets today, see the weekend's Member Chat but, as indicated above – it's a meaningless semi-holiday in America – a day the bulls can only pray will be quiet, because all my charting indicates that real activity is very likely to come to the downside this week.
what do you think about it at this level? I have buy/write which I opened at 35 with short Jan12 30s Calls & Puts and finely got positive, don’t know what to do now: happily close, hold it or somehow protect if it will go down again. Any advice?
Phil, took the SSO Oct 39-43 long play last week….it’s nice & green, but I would be shocked if it ended the week anywhere. Should i take it down with small profit, or let it ride? Or how would you suggest I manage it now?
Sometime ago you expressed concern about GLD… and the security of knowing if the physical gold will be there when everything hits the fan…. Here is an alternative play that operates the same way, but the physical gold is in a government controlled depository ( Swiss Government ). The ETF is SGOL. Might be a good alternative.
What you think of Ista Pharm?
Looks like a pretty solid for sure thing in the pharmaceutical sector, but I am not sure can it get much rise since it won’t add too much with XiDay.
ravalos…. be very careful shorting CMG… this one is a momentum stock with some very strong fundamentals. I would not try to channel trade this one…. just my opinion. ( I am long the stock )
Phil, what do you think about sbux puts here – i know they recently raised some prices but i think the commodity increase will not be reflected in these prices. Their margins should really take a hit going forward? more competition from mcd and unemployment?
ALXA/mrm – I need to investigate WHY they were rejected. At this point, I am staying away. I am writing up something on CRIS.
gel, I agree they are in a strong momentum, however since 10/1 I’ve noticed a significant put buying for the Nov expiration in the $165 Puts.. the Put-Call ratio is disturbingly sided towards the puts so I think people expect a pullback on this. Now, I’m not playing fundamentals, but merely an extended valuation at this point in time. If they keep managing the business the way they do it, I have no doubt the stock price should be worth today’s price, but at a much later time.
sent you an email regarding an attorney for your italian passport paperwork–been traveling and just found out it bounced–the address you gave me is firstname.lastname@example.org
Seems that Lloyd is using Friday’s algo on this Melt-up Monday !!
Phil / SGOL
Coincidentially, we posted on this one at the very same time… I’ve got to quit channelling your brain. I have some November naked short puts, hoping for a pump after the FOMC revellations.
ravlos / CMG
This might turn into a short squeeze, with all of the long puts.
gel – what NEM play do you recommend? Thank you.
$1 left to fill our gap on IMGN. If you are up since the 5.50 ways I would start selling here and maybe put on a bull call spread. Looking at the Apr $6/8 for 1.10 and selling the $6 P for 60c. If they fall back bit, may be able to sell the 6s for a better price, so may want to wait on that part….
1020 – I just signed U up for an offer a minute to UR email!!!
nicha / NEM
My play today was a bull call spread, buying the 2012 40 calls, and selling twice as many 2012 70 calls. I also sold an even amount of December 60 puts. I am sure Phil would have a better spread, as he is the "master" at this strategy.
JRW WHERE DO YOU THINK WE FINISH TODAY?
willsons – up of course. This market is a joke. One day within the next two weeks the gang of 12 will announce a major downgrade, and that QE2 is more than reflected in the market and poof – down 350 day and start of a downtrend. Just selling winners & unsuccessfully adding puts.
Pharm–took your advice in IMGN awhile back and sold out this morning for a nice gain
Any speculative calls on VIX?
It’s already below 19.50!
here is another swiss gold option
So what about the ZKB Exchange Traded Funds?
The ZKB precious metals ETFs are generally solid…
We consider the ETFs issued by ZKB as generally solid:
• The fund is (largely) backed by physical metals, “good delivery bars”, as
defined by the LBMA
• All four precious metals are offered: gold, silver, platinum, palladium
• It is covered by audits and insurance
• It is covered by audits and insurance
• No Leasing and pledging
• Minimal tracking errors
• Fees relatively transparent (at least in the unhedged USD classes)
• ZKB, the third largest Swiss bank, is financially sound and comes with a
Pharm/CELG – I have Jan 11 $60 calls from long time ago…I think I mentioned this to you and you recommended rolling to Jan 12. I do not have much money in that account so would like to work with what I have. I would like to lower my cost basis which was $6, they are now $3.
I have a new Play of the Week in Ista Pharma (ISTA). We are looking for 4-6% movement into and out of approval decision on company’s XiDay.
Check it out here!
Jo…. Just curious…. where do you see the market towards the end of November… Im laying in some short call protection.
CEF is another CN gold fund that looks good
Great question, I would say we disconnect from Friday’s algo and move higher; it’s cheep to break technicals on a VERY low volume day !! ( We are very near the top of the channel and a breakout would start one heck of a short squeeze !!)
Re: "FAZ is also getting fun again at $12.60. I like selling the Jan $11 puts for $1.20, to pay for the Nov $10/14 bull call spread at $1.10, which is $2.59 in the money to start. So a net .10 credit and the worst case is you own FAZ for net $10.90 (now $12.60) into next year’s nonsense."
Phil: I must be missing something. The Nov 10/14 bull call spread can be established for a debit of between $2.04-$2.11. Where do you get $1.10?
So, Phil, did Obama have his "shoe moment" today ?
I hear someone thru a book at his head.
Anyway, not cool, but surely the press won’t give it the same field day treatment that it did when an Iraqi threw his shoes at Bush.
datuu – Did not work for me either. It will work if you type it in. Thanks!
Pharm – I share that with the wife….and she’s mean…. 😉
If Lloyd desides to save the House and Senate for the President, I wonder what he will call in for the favor ?
Phil–I cannot do a bull/call spread in my IRA–can only do a buy/write and short put–any suggestions –I have been buying calls on DIA etc and they have been killing me
datuu / ZKB
That does sound very interesting, and certainly worth a complete evaluation. The Swiss have a profound respect for gold and the stability of its value. Interestingly, private investors now own 30,000 metric tons of gold, which far outpaces the world’s central banks. This diversification of ownership is strengthening the base under the price. I expect price corrections will occur, but I will regard these events to be buying opportunities. In the past the Swiss government backed their currency with gold…. and yes, it became the most stable currency in the world. The need for stability is not new, it is just becoming more important as the nations of the world are racing to devalue their currencies first.
Man, is the Russell seriously up 2.5% today? Wassup with that? Testing 700 not in the least expected…
Volume at 1 is very lame 65M on the Dow – that is just sad….
F/CMSosa – Were you bearish to start? I’m kind of confused by why you were in the $17.50s and selling the $12.50s… Anyway, you are in the 2012 $12.50s now and those are $3 and you sold the March $12.50s and those are $2.50, which is .70 in premium. There’s really not much to do with it but wait for premium to expire. Calendar spreads are not big money makers, you can only hope to grind out profits on time decay but that takes ages to work out, especially with a relatively low-premium stock like F. By choosing March, you don’t even have a lot of legs to sell but I guess you had to roll out. Just keep in mind that 2012 isn’t the end of your trade so the real move here is to roll back to 2013 and then roll the March calls up to the 2012 $15s (now $1.80) and, as long as that relationship gives you a near-even roll, you don’t have much to worry about as it’s a $2.50 bull call spread, even from where you are now.
Chaos/BDC – Good point although some thrive on chaos and others don’t. It’s kind of like when small but assertive guys or overweight desk jockeys extol the "fairness" of capitalism as "survival of the fittest" and I tend to think that if survival of the fittest still meant whoever could smash your skull with a jawbone of an ass wins, they’d be singing a very different tune about "fairness." Any system has advantages and disadvantages for different players and our system was designed to reward those who accumulated and held the most wealth. While the first generations of kings may have wielded a pretty mean sword – by the time they hold their grandchildren in their arms they begin to rethink the idea of ascension by combat…
CMG/Rav – You are right, they are not doing you much good with no premium but perhaps consider the intermediate roll to 2x the Oct $180s ($2.50). While you do have to kick in, that $2.50 of premium will expire on Friday vs. just $1.50 per week on the Nov $180s. I agree the calls are overpriced. If you want to offset with a long position, consider selling some Nov $165 puts ($4) as that should no increase your margin and, obviously, they can’t both get hit at the same time so if you do a 1/2 sell there, it contributes $2 to another call roll if you need it and, of course, easily rollable to 2x whatever going the other way. That’s a good way to play a stock like CMG, which we think is overbought but not terrible.
MEE/Tcha – It’s been a long, slow climb for them from where we took advantage of the crash but I do still like them here. They need to break over the 50 dma at $37 but, after that, they should be good to $45 at least. I really don’t believe the $30s are in any danger as the mining collapse that hit the stock was, hopefully, a one-time event. You still have $9 in premium to collect so certainly no hurry but you could cash your stock and roll it too the 2012 $25s at $14 and take $22 off the table if you want to free up some cash. It will cost you $3 of the $9 you stand to collect and worst case is the stock is put to you again at $30. Doing something like that makes sense as long as you feel you can make much more than $3 on $22 with 15 months left to go.
SGOL/Gel – Yeah I just noted that to you in the news!
SBUX/Jo – Too crazy to have an opinion on. I have yet to see a short-term thesis pan out on those guys. I agree that rising commodity prices should have hurt them but we’ve thought that many times and they’ve been very good at hedging and locking up prices. If you want to go short, I’d keep it simple like the Apr $24 puts at $1.57 with a .32 delta so you make 20% on a $1 drop or get hit the same on a move up and then, after earnings, you can see if you want to ride it out.
NEM/Gel – That’s very aggressive. I prefer to keep it simple with something like the 2012 $52.50/62.50 bull call spread at $5.25, selling the Jan $60 puts for $3.10. If the Jan put sale is a winner, you can spend $3 to roll the calls down to the $45s and then sell another $3 of puts for the next 3 months, wash rinse and repeat to work your way into a better spread.
VIX/Resp – I still don’t like them. If we keep grinding up here, the VIX grinds down and if we head down from here, you can make 5 and 10x on thousands of stocks so why mess around with the silly VIX?
Book/Cap – If that was a thown book it missed by a mile but I guess if you think that’s the same as this classic (thrown by a journalist, no less), then I guess that’s just your usual unbiased interpretation of events… The best thing is Bush is so used to being flipped off and cursed out wherever he goes that he doesn’t think this is a big deal…
David, nice play ISTA. Ocular is becoming a big market, and that is a great drug…too bad it was causing liver problems as an oral agent.
Wow JRW color is now enveloping us all!!! Or is it Lloyd? Or is JRW Lloyd?
JRW- just curious- on the puts (IWM & SPY) from Friday, i.e., held over the weekend looking for a gap down open on Monday- did you dump at the open or what?
Still have them, gambling on reality. If we go higher tomorrow, I’ll dump them !!
I’d like to sell the Calls on LDK. Huge run up today! What is your thought on this?
IRA/Savi – Sorry but what are you trying to do? I might have lost track as you mention DIA calls that have been killing you in the best rally we’ve had in ages….
LDK/DD – Chinese solar play that’s breaking out and getting a lot of attention and you want to short them? Good luck is my thoght. When they were lower, they were my favorite foreign solar play.
Reality/JRW – I am learning not to count on it!
sorry –DIA puts
The RUT is not up 2.5%, it is up .5% or 3.5 pts. The problem I as I found out was the the services Reuters etc are feeding inaccurate data The # 697.37 is correct.
There you go again PD ….
What’s up, I proffed that post the first I was not there the first the was that!
The ubiquitous "never ending" news that is coming from everywhere about the upcoming QE is definitely having an effect on the markets. Even Steve Leisman at CNBC is suggesting "shock and awe" levels of $1.5 tril. Could the event be imminent, or just hopeful thinking?
Look at WYNN … holy moley
Savi – if you can do buy/writes and short puts then that’s what you should be doing. Phil recommends plenty of those most months (just not as many in the past 2-3 weeks). An IRA is not for gambling on short-term puts. The R stands for Retirement. 🙂
Defending Defense by – well, who else?:
Barry picks up on my theme very nicely: "The Left/Right Paradigm is Over. It’s You vs. Corporations."
I’m confused: in Ilene’s DarkHorse the Jan $32 straddle is recommended; yet you guys are talking about the Jan $36 straddle?