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Testy Tuesday – Daring us to Buy those Dips Again

Should we be concerned?  

As Doug Short points out in his EEM chart (click to enlarge) from our Chart School, while Egypt may be "fixed," emerging markets are not.  We had a pretty ridiculous discussion in Member Chat last week on whether we should take our quick 300% profits on our EDZ hedges or wait for the full 500% and we decided to wait because, like Doug and Captain Kirk – we do not believe the trend is the friend of Emerging Markets at the moment.  

Sure any one of them could be toppled tomorrow by a popular uprising like Egypt, Tunisia or Algeria or they could be swamped by runaway inflation like China (4.9% AFTER adjusting food inflation to a much lower weighting) or, well, EVERYBODY but the US, where we have no inflation because The Bernank said we don't.  UK inflation rose to 4% in January and BOE Governor King now expects the trend to rise to 5% in the coming months.  That's not very good for a CB with a target rate of 2%.  This MIGHT be a temporary situation because German Q4 GDP was actually 20% lower than expected, at 1.6% vs. 2% hoped for.  Europe is still a major mess and the EU finance ministers just agreed to double the "Permanent Rescue Fund" from $332Bn to $675Bn.

Graphic: Defenses against a default

That news helped knock the dollar back to 78.4, boosting the pre-market futures this morning as the US had no such fund for it's member states, who are twisting in the wind at the moment and, of course, no one has a fund to rescue the US, who spent $675Bn while I was writing this post!  Of course part of the $675Bn we spent is right in that IMF slice of the pie as the US funds about 20% of that 250Bn Euros ($330Bn so there's a quick $66Bn we pledged to bail out Europe this morning!).  

This is a great, great scam because we spend dollars we don't have, devaluing the Dollar, to prop up the EU and that strengthens the Euro – devaluing the Dollar again!  It's a double hit on the Dollar in one morning and we haven't even seen the rotten Housing Numbers yet!  We have seen the rotten Retail Numbers as ICSC Retail Store Sales showed a 1.4% drop last week but, of course, weather will be blamed and we will ignore them again.  See, we're getting right into the spirit of things now!  We get the Jan Retail Sales Report at 8:30 and, hopefully, that will give us some better insights into what is going on with the economy.

8:30 Update:  As expected, January Retail sales were 50% less than expected at +0.3% vs. +0.6% forecast by the people's who's job it is to get these things right.  That's OK though, because Import Prices were 100% MORE than expected by our expert analysts (the same ones The Bernank likes to cite when he tells us inflation is "not on the horizon"), coming in at 1.5% higher than December vs. 0.8% expected and, interestingly enough, ex-energy this time we have almost a triple – at 1.1% vs. "just" a 0.4% monthly increase in the December survey.

I'm sorry but I'm laughing while I'm writing this because now I'm looking at the February Empire State Manufacturing Survey, which shows 15.43 vs. 15 expected.  Wow!  That's cool!  Things must be picking up, right?  Was it the employment component that gave us a lift?  No, sorry, employment was 3.61, down from 8.42 in December.  Then it must have been New Orders, right?  No, sorry again, new orders fell to 11.8 from 12,39.  Well no prize now as, obviously it must have been PRICING and yes, prices jumped 6.8% in the last 30 days from 15.79 in January to 16.87 this month.  So rising prices overrode the declining employment and orders to give us a 3.3% gain.  Isn't this BRILLIANT – almost 50% of our inflation drops down to the bottom line.  I'll bet if we can get inflation up over 100% then we can pop the markets a good 50% – what do you say?  Who's with me?  Yes, Ben – you can put your hand down, I was already counting on you….

Speaking of things we count on.  Last June, the Fed's NY Branch (who do the Empire Survey) asked the question (page 8 on the report): "Please indicate your best estimate of your total capital expenditures for last year (calendar year 2009) and the expected amount for this year (calendar year 2010)" and the answer was $3.38Bn in 2009 and $4.3Bn planned for 2010.  This is a major metric on which the Fed then determines their outlook.  Well, they are asking that question again this year and guess what was actually spent in 2010?  $2.87Bn.  That would be 32% LESS actual spending than planned.  We often talk about survey bias at PSW and this is a great example of how asking business owners how they think business will be is not the best way to base your long-range economic forecast models.  

Even so, for 2011, NY Manufacturers now PLAN to spend just $3.5Bn, that's down 20% from last year's PLAN but UP 20% from last year's actual so guess what the title of the Fed's report is?  How about "Firms Plan to Spend More On Equipment"?  I brought up 1984 yesterday so I'm not going to belabor the point but RTFM, my friends!  It's in the public domain, I got it on my IPad for free and it's not even a long book but it is, unfortunately, the best description of what is going on in our World these days…

I have said we would hold our bearish stance into this week's data (and option expiration) as we thought this might be too much to bear.  It's not about the data itself – anyone who is not an "expert analyst" could have told you prices are flying and sales are falling.  The question is whether or not the new and very aggressive round of POMO for the next 30 days can roll over the bad data and keep taking the markets higher (see Stock World Weekly for details).  The jig may indeed be up for The Bernank as Net Foreign Purchases of Long-Term Securities dropped 37% in December from $64.6Bn in November to $41.8Bn meaning Bernanke's $120Bn of POMO purchases constituted 75% of all security purchases.  Once we get to 100% and that's still not enough, then what?  

Like all other bad news in the market – IT JUST DOESN'T MATTER!  Take FDX, for example:  Yesterday, FDX dropped guidance by 25%, from $1.04 to .75 "due to the severe winter storm season and higher than expected fuel costs (that are not inflationary)."  Bad news, right?  Not according to UBS's, who are playing the role of Tripp (see video) and telling the campers: "We think this profit warning is at least partly priced in already, with the stock underperforming recently" and maintaining their CONVICTION BUY rating on the stock, which is up 200% from the bottom at $33 in 2009 and trading at just under the all-time high.  This makes, according to UBS:  "A very compelling entry point…especially ahead of what we expect to be bullish guidance around fiscal 2012."

So ignore the company's ACTUAL guidance – we EXPECT that NEXT YEAR, they will be in a better mood.  I could talk about the weakness in oil or the upcoming housing numbers or the 10 am business inventories but – why bother?   It's all about whether or not the Fed and their pet IBanks can goose the S&P over that magic 1,332 line today.  As to the bad news, as Tripp tells us – IT JUST DOESN'T MATTER!!!


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  1. I love the weather excuse, hasn’t got old yet!lol unlike headlines discussing “late day buyers”, those headlines are VERY played out.

  2. [Took me so long to write that Phil managed to get today's article up.  So I copied this from yesterday's comments...]

    NFLX — Well, my version of fundamental also includes the precept that no amount of analysis is likely to decide that a stock with a forward PE ratio of 100+ is likely to be a value stock (although NFLX is no longer quite that high).  Although I do find the occasional exception to that rule. ;-)
    I most recently traded NFLX around its earnings report.  But that was primarily because it looked to me like NFLX was trading in a rising channel.  In late January, they broke below that channel when they hit $176, but then climbed back into the channel (and above the 50 day moving average).  So I was willing to see whether or not they’d bounce back up to the top of the channel.  I’d used the $174, $184, and $199 peaks as my channel top reference points.  I thought the $209 peak was noisy…  Which means that the current top of my channel was $235′sh.  I’m not really a technical investor (I’m occasionally a technical speculator), but a break above a channel could go either way… ;-)
    NFLX’s CEO argues that international expansion will make them larger than folks give them credit for; however, I perceive international expansion as possibly being more difficult than he realizes.  We’ve all watched AAPL roll out iTunes internationally and it has not been an easy process.  Furthermore, it’s much more common internationally to pay "by the bit".  Which might well make the cost/benefit analysis of international customers different.
    There’s international potential no doubt.  But I just don’t feel comfortable enough evaluating it to give it much weight.
    [Having said that -- Netflix Japan or Netflix Korea could rock.  Both have got fantastic Internet infrastructure, Internet subscription rates that are unbelievable (90+% of Seoul has truly high-speed broadband), and a population that spends a lot of time commuting while staring at mobile devices...]
    Or, in short.  In the meantime, I don’t own NFLX.  But I think NFLX is worth watching as a channel stock.  As yesterday’s move put it well outside my channel, I’m not comfortable declaring whether the next 20 points will be up or down.

  3. Howdy everyone.   Not at all happy w/ NFLX and CMG shenanigans.
    Reinharden, re: your comments, thanks … price is completely extreme and irrational, but we’ve seen that before.  And that is after factoring in growth potential, none of which is realized or actual.

  4.  Also, CMG and NFLX both have downgrades today.
    Amazing that CMG is at 270.  The power of Lloyd.   CMG has received 5-6 downgrades since earnings.  Lloyd upgraded CMG.  Look who won.

  5. Good Morning!
    NYSE purchased by the Deutsche Borse….. Achtung Baby!

  6.  Pharm.
    Can you recommend a play on PLX FDA decision next week?

  7.  Phil and longer term diagonal puts you like.  I’d like to set up some longer term hedges using over extended stocks that don’t have to be adjusted daily.  Any ideas you have are much appreciated.  I find that the 25K Por is a little too day trade oriented for my ability to play it.

  8. PLX – I am going with the Mar 10s, selling some Feb 10s to reduce costs to 1.30.  Otherwise it will have to be turned into a spread 10/12.5 for 90c or so..  As a contrarian play, Jomama has also bought the Mar $5 Ps. 

  9. BTFD? or just BTF PCLN?

  10. How could PCLN go down when they have Kareem???

  11.  Phil,
    As I watch the game of chicken at the federal government level with neither party wishing to propose meaningful structural changes thereby "kicking the can down the road", I’m skeptical that our politicians will actually make a "grand bargain" before the next election.  I’m more inclined to think that whoever is elected as the next President is going to be faced with a serious load of crap on his/her lap.  If you agree that this is a likely course of events would you also agree that the bond vigilantes will long before begin to apply a lot of pressure to the yield on the long bond and if so wouldn’t that be quite bullish for TBT?

  12. Pharm
    Your take on DEPO today? Thanks.

  13. PHil, regarding the Breakout Bullish plays – I was unable to get in on the FAS or the HOV plays that you suggested (I got in on the other two, SSO and DRYS), and they are now out of range (The FAS spread at over $4 and the HOV around $1.15) – would you still recommend something with these two plays (FAS and HOV) or would you recommend waiting until some new bullish plays come up?  Thanks for your advice…

  14. Good morning!  

    I seriously have to avoid looking at the papers in order to get bullish.  I did that yesterday and sent out an Alert on bullish ADM and ISRG long-term trade ideas (end of yesterday’s chat too) and that’s what I did last week to get more bullish.  It’s easy to do.  Just watch Mad Money and then go straight to Seinfeld or some other thing that reminds you of better times and make sure you are asleep before the news comes on.  Try it, you’ll love it!  

    Unfortunately, today was not one of those days as I did do some reading and I still can’t bring myself to even pick something to buy on the dip – not even NFLX!  We’re still waiting for oil to have a proper breakdown and it’s at the $85 line right now with 190M barrels worth of March contracts scheduled for delivery as of next Tuesday.  Cushing is full so the NYMEX boyz have 5 days to dump about 160M barrels of oil into this strip:  

    Notice contango is now $3.50 in the front month (April) so that’s about $700M to do the roll alone. That’s a lot of money to lose in a month, even for our Bankster buddies (also puts a crimp on earnings).  If there were no mid-east unrest, I’d be all gung-ho for shorting oil but, right now, I’d rather wait to see the low, probably on Thursday after a run-up into tomorrow’s inventories, and then we can look at an upside play for next week as the people who roll into $89 barrels in April are going to be very happy to rent a few rebels to help them get their $3.50 back by blowing up a pipeline or hijacking a tanker or assassinating an OPEC leader – that sort of thing.  

    It’s all about S&P 1,332 but we’ll keep an eye on them all at:   Dow 12,938, S&P 1,332, Nasdaq 2,530, NYSE 8,362 and Russell 800.  - Keep in mind that RUT 800 is way over their 100% line but it’s our resistance level there.

    If anyone is going to blow it, it’s going to be the NYSE, now 8,395 so let’s watch that 8,400 mark as a bullish indicator that should help lift the S&P over their 100% line.  They almost had it into yesterday’s close so of course they are going to go for it today despite FDX and all the other data.  Once we pass 10am’s housing and inventories and the market shakes that off, we have a very good chance of making a positive run based on the same nothing we always make them on.  

    We’re going to watch and wait at the moment but after the data maybe we can find something bullish to grab so stay tuned.  

    Tuesday’s economic calendar:
    7:45 ICSC Retail Store Sales
    8:30 Retail Sales
    8:30 Empire State Mfg Survey
    8:30 Import/Export Prices
    8:55 Redbook Chain Store Sales
    9:00 International Capital Flow
    10:00 Business Inventories
    10:00 NAHB Housing Market Index
    10:00 Hearing: Assessing the Implications of the Dodd-Frank Bill
    10:00 Hearing: President’s Fiscal Year 2012 Budget Proposal
    10:00 Fed’s Pianalto: ‘Regional and National Economic Conditions’

    At the open: Dow -0.19% to 12245. S&P -0.17% to 1330. Nasdaq -0.27% to 2810.
    Treasurys: 30-year -0.16%. 10-yr -0.14%. 5-yr -0.1%.
    Commodities: Crude +0.65% to $85.36. Gold +0.47% to $1371.50.
    Currencies: Euro +0.2% vs. dollar. Yen -0.59%. Pound +0.68%.

    Market preview: Stock futures point toward a lower open on a smaller-than-expected rise in retail sales and a larger-than-expected rise in U.S. import prices. S&P benchmark -0.2%. Overseas exchanges were mixed after China’s inflation came in at the whisper number. Still ahead: business inventories, NAHB housing.

    John Paulson’s 13F is out, showing he jumped into energy stocks in Q4, adding major stakes in Transocean (RIG) and Andarko (APC), and opened new positions in health care stocks Medtronic (MDT), Baxter (BAX) and Teva Pharmaceutical (TEVA). His top four stakes remained SPDR Gold Trust (GLD), AngloGold (AU), Citigroup (C) and Bank of America (BAC). 

    More 13F findings: Steve Cohen boosted holdings in 99 Cents Only Stores (NDN); David Einhorn opened new positions in Sprint Nextel (S), BP and Potash (POT); David Tepper moved into food-related firms Dean Foods (DF), Supervalu (SV), Safeway (SWY) and Kroger (KR); Berkshire Hathaway (BRK.A) substantially added to its holdings of Wells Fargo (WFC) and Coca-Cola (KO).

    The Riksbank raises its benchmark rate 25 basis points to 1.5%, and signals a speedier rate of tightening in the future. The central bank is attempting to be preemptive with respect to still low reported inflation as well as keeping an eye on asset prices. The past year: EWD +35%. FXS +10%.  

    Delinquencies at Alliance Data Systems’ (ADS) private-label cards rose to 5.6% in January from 5.4% in December, contrary to the drop noted earlier by Capital One (COF). But charge-offs (loans lenders don’t expect to collect) fell to 8.5% from 9.1% a month ago. ADS’s customers include AnnTaylor (ANN) and Buckle (BKE). 

    Good for our EDZ play:  South Korea (EWY) joins Hong Kong (EWH), Taiwan (EWT), and India (a few) as Asian equity markets that have broken below long term uptrend lines. Not a consolidation for another attempt at new highs, Daryl Guppy calls this retreat "larger and more significant." 

    Great news for me!  Apple (AAPL) says it will now allow all producers of content-based apps to charge a (weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly) fee for their apps. Apple will earn 30% for customers it delivers, and nothing on existing customers and subscribers brought by the app producer. (PR


  15. I have know idea.  Read on a board something about not getting orphan status, but I don’t see it anywhere – and that does not matter anyway.  I am not worried about these little dips, and it gives us an opportunity to get back in.

  16. Item 8.01 Other Events
    On February 15, 2011, Carl Pelzel, the President and CEO of Depomed, Inc. (the "Company"), is presenting at the 13th Annual BIO CEO & Investor Conference in New York City at 8:30 am EST. The presentation is available on the Company’s website (
    The presentation includes additional disclosure related to the Orphan Drug designation of GRALISETM (gabapentin) tablets. Gralise is a once-daily formulation of gabapentin for the management of postherpetic neuralgia developed by the Company and licensed to Abbott Products, Inc. in the U.S., Canada and Mexico. As previously disclosed, FDA has granted GRALISE Orphan Drug designation for the management of PHN, based on the size of the PHN population and the reduced incidence of adverse events observed in DM-1796 clinical trials relative to the incidence of adverse events reported in the package insert for immediate release gabapentin.
    Subsequent to the FDA’s approval of Gralise, the Company was informed that additional submissions or evidence to demonstrate the clinical superiority of GRALISE based on improved safety will be required to be provided to the FDA to obtain a seven year period of market exclusivity in PHN as a result of the Orphan Drug designation. If obtained, the market exclusivity period will run from January 28, 2011, the date FDA approved the GRALISE New Drug Application.

  17. Thank you Pharm.

  18.  Homebuilder sentiment unchanged for 4th month in a row at 16, which is very lame and was expected to go up a point at least.  Over 15 is positive.  Dec Business Inventories were up 0.8% vs 0.7% expected and inventories boost GDP as there is an expectation that businessmen are wise and wouldn’t be ordering things they can’t sell.  So that wasn’t so bad and there’s no reason we shouldn’t be able to pop 1,332 in that news.  No reason we should either but, like FDX, we seem to need excellent reasons NOT to gain 0.5% a day.  

    10:00 AM On the hour: Dow -0.31%. 10-yr -0.13%. Euro +0.22% vs. dollar. Crude +0.74% to $85.44. Gold +0.61% to $1373.40.

  19. Phil,
    Owned Danaher (DHR) in the past. Great company for long term hold. Any suggestion for entry.

  20. IWM 82.64 82.41 82.23 82.08 81.75 81.45 81.28

  21. NFLX/Rein – Looks like they are going to test your $235 line this morning!

    CMG/Cap – Looks like they are running out of gas here but maybe wishful thinking.  

    Achtung/1020 – Good choice!  I’ll bet the old Jewish guys who have seats are just thrilled they are now owned by Germans.  That’s why Schumer had to make some noise – not everyone has forgotten the war, although we know not to mention it!  

  22. Hello Phil, I own XLE March 75 puts and OPEN March 90 puts. Is it already time to sell them, or it is better to wait?

  23. @Phil
    "..then go straight to Seinfeld or some other thing that reminds you of better times and make sure you are asleep before the news comes on.  Try it, you’ll love it!
    Been doing that for decades.  I don’t think I’ve seen anything but fiction on TV for  many years…..wait a minute……

  24. flipspiceland / TV — what? You don’t watch "reality" TV? 8)

  25. So nice of the market to hold a sale on optical stocks today.
    JDSU has an analyst day on Thursday.  Not sure if that’ll result in any upgrades prior to options expiration on Friday, but if one were feeling speculative, one might find an opportunity here.
    FNSR reports February 28.  So sadly, barring inadvertent upside out of JDSU’s event, it’s mostly the March options or later for FNSR.  I’m surprised to find that I’ve essentially rebuilt my entire position 24 hours after FNSR hit $46 and forced me to partially capitulate.
    I’m not saying it’ll happen today, but a lot of the time, there’s been money to be made by reversing whatever 10:30 AM had wrought.  FNSR’s probably too expensive today, so JDSU’s a more interesting spin of the roulette wheel. ;-)

  26. Phil,
    What is your opinion of a buy/write on WMT here. Selling 2012 52.50 p for 2.83 and 55 calls for 2.76? Thanks

  27. I know that shorting NFLX and CMG seems to be the big white whale, but following the posts I had yesterday regarding the screens I am maintaining, I wanted to see if I could create a list of stocks to short based on reverse criteria. So I am now screening for stocks within 5% of their 52 week low, above $5 (I don’t want penny stocks) and I ranked them by Price-to-Sales in descending order (highest at the top since low Price-to-Sales seems better). The list is posted at:

  28. NFLX — if they drop back inside the channel, the think the bottom of the channel is down around $190 at the moment (and obviously trending upward over time as it’s an upward channel and all).
    Of course, if that $209 wasn’t actually noise, but was an upper channel marker, the top of the channel would actually be up close to $260.  But I still think $209 was noise and NFLX is currently out of its channel…

  29. Diagonal/Bgb –  What are you trying to accomplish?  Bullish or bearish?  Of course the $25KP is short-term oriented – it’s very difficult to make 300% in 11 months without some aggressive short-term trading, you know!  How about tell me what you are interested in accomplishing and I can think of some ideas.  

    Dips/Jabob – We’re getting a nice sell-off for no particular reason (on the 10 am data, plenty of reasons from the 8:30 data) and expiration day is looming so I wouldn’t be too quick to jump in yet.  12,220 failed a little too easily on the Dow but the NYSE is holding up so far.  The other shoe to drop is oil below $85 as most of yesterday’s run came from that sector.  Today, XOM is giving back 2% already – showing you what total BS yesterday’s move was.  

    TBT/CS – I think physics eventually kicks TBT higher but keep in mind that is exactly where the Fed is concentrating their firepower (keeping rates low) so your definition of long-term comes into play.  I’m just thrilled we finally got to $40 after so much hassle last summer (all the way down to 30, where some people bailed rather than DD).  I don’t think I’d be too enthusiastic about a long-term play here until we see that 200 dma begin to curve up to follow the 50 dma higher.  Once that happens, we should have a pretty clear shot to $50.  

    Breakouts/Jerconn – Well you don’t need to take them all.  FAS is my favorite because that’s where all the money goes from the Fed.  HOV is speculative but I like the long-term fundamentals there.  SSO is my least favorite as it’s merely a defense against the S&P getting more ridiculous than it is now and DRYS is also speculative – based on the supposition that I’m an idiot and Cramer is right and there is some secret economy that is doing great and there is real demand for commodities and retail goods to be shipped all over the World in record numbers (not just record prices).  That’s why they are DEFENSIVE upside plays.  So yes, if we get a nice sell-off, you can try to grab some more or just get a better position on the two you have, which are the strongest anyway.  

    DHR/Pain – No longer cheap but, then again, what is?  If you like them long-term then you can sell 2013 $45 puts for $4 and buy the $50/60 bull call spread at $4.50 and that’s net .50 to make $10 over 2 years with what looks like $4 in margin so a double on cash and margin if they hit $60 and worst case is you are back in at $45.  

    XLE/Alik – Well they just erased 2/3 of yesterday’s gains in an hour and oil hasn’t even failed $85 yet.  I think they get back to $72.50 at least and this is just a bounce testing $75 support on a 1.5% dip.  As to OPEN, it’s a Cramer pump job and just $2Bn means they can push it around but you know it’s BS so it’s a mater of your own conviction but I’d stick with it.  

    JDSU/Rein – They pay a whopping $1.20 for the March $25 puts and another $1.50 for the March $26 calls and you can sell those against the June $27 calls at $2.40 for a .30 credit spread and a worst downside case of owning them at net $24.70 (but chances are you can salvage $1 off the long calls so $23.70) and, to the upside, your delta matches the caller so you should clear at least $1 no matter what the move up.  

  30. 10:30 bot appears to have been sold into but I’m betting he has more ammo than the warm bloods. Time for a slow climb…

  31. Oh yeah, regarding 10:30, technically, it’s more like the 10:37 reversal.  And it’s kind of like 10:37 +/- 5 minutes.  And maybe it’s only the stocks I follow.  But it’s surprisingly consistent (except, of course, when it isn’t). ;-)
    Unfortunately, I’ve got afternoon engagements and must beat feet shortly…  It’ll be interesting to see if the pseudo-pattern holds…

  32. Zero,
    Last night you posted this:

    One note on TZA – they are going to have a reverse split (1:3) on Feb 23. Last time TZA had reverse split, the options chains from before the split became very thinly traded. Might not be an issue for you but good to know.

    What is your point here.  What is the danger of thinly traded options?

  33. exec / thin — spreads widen.

  34.  Don’t get caught in a reverse split.  My father was caught with the thinly traded TZA after the last split and wound up taking much bigger than expected losses because the spreads widened so much his profits disappeared, and there was no one available to get him out of the trades.
    I’ll flatten my TZA positions prior to a split and then re-apply them afterwards rather than go through the BS he went through trying to get Tradestation to help him exit those trades.  Basically, with no volume they blow the spreads out so far you are stuck, and there’s no courtesy reach around.

  35. TZA / Exec – The problem is that the spread between bid and ask grows when they trade more thinly and you can’t always get a good price when you try to exit a position.

  36. Thx able.  I should have checked there first….

  37. This is shaping up to be one of those illusion days where the Bots give a little back design to give the illusion that it is not completely and utterly fixed market.

  38. DEPO – Sept 7.5/12.5 BCS for 1.85, selling the 7.5 P for 1.10.  75c on the $5 spread.

  39.  Phil I’m looking to build a long term conservative growth portfolio, but primarily buy write and synthetics of the same profile.  So I have a series of plays you have setup that tend to be artificial spreads.  Everything I currently have are bullish positions.  I’d like to add a couple hedges, but plays that maybe only need adjust once a month or every couple months.
    Any ideas are much appreciated it.

  40. Felix Salmon points out that Bill Gross trimmed weightings in PIMCO’s $240B Total Return Fund from 51% Treasurys to just 12% by January as he "changed his base view from worrying about deflation to worrying about inflation." How concerned should investors be and what’s the best way to position portfolios going forward? 

    WMT/Jomp – Getting killed by their grocery stores but still WMT and a nice long-term play.  I’d be a little more defensive with the stock at $54.88, selling the 2013 $50 puts and calls for $12 for net $42.88/46.44 as that plus $1.12 x 2 years dividend is $9.54 back on $42.88 or 22.5% over 2 years vs.  $49.25/50.87 where you make $5.75 + $1.12 in one year for 14% but you need $55 to make the money vs a 10% cushion on the more conservative spread.  I guess, in short, I’d rather wit for a better dip.  

    Shorts/StJ – It’s so dangerous to short anything right now but I will be curious to see how those work out. 

    5% Rule: NFLX with $10 drop and $2 bounce (20%) so let’s watch that $240 line closely.  $242 is their 38% Fib line but, once they are over that, those who were thinking of covering should probably do it!  

    LOL Hoss!  Good advice, horrifying imagery!  

    Volume just 43.6M on Dow coming up on 11, that’s pretty low. 

  41. Phil!  Don’t watch the TV,  you-know-who is on again….

  42. Thanks Jeanluc

  43. IMMU spreads not filling. Going to try for the Jan12 2.5/5 BCS for 85c.

  44. Phil, for 25KP, I didn’t get filled on VIX Feb $17 to Mar $17 for $1.50, I put $1.60 yesterday and still not get filled, Now the middle point $1.80. Should I still roll it?  Thx.

  45. This is the second day pierceing upper bollinger band, to see a positive day the must get by levels, S&P 1,329.7, DOW12,257, and IWM 82.41. Going back there was weak support at 81.96 but would be a very strange low for the day. Maybe a BOT FAKE!
    Phil Those SMAs crossed again at 82.11.

  46. Screen / Phil – As opposed to the other screen (long), I would expect that a short list would perform better (well, in this case worse) once we get a correction (if we ever get one on our way to DOW 36,000 again). It’s still an interesting exercise to track performance through different markets. All the stocks on all my lists are optionable (it’s a criteria) so you can always sell calls with some margin of safety in rising markets and be more aggressive in a down markets. I suspect I’ll have some good information in 6 months or so.

  47.  Phil/NFLX – Just to clarify, are you saying we should use $242 as the line to buy calls over to get delta neutral on short call positions?  

  48. Hi Hoss 18 when is  TZA schedule for reverse split thx

  49. Hello Phil,
    Please any  brief opinion on RIG. Not urgent.

  50. guc
    One note on TZA – they are going to have a reverse split (1:3) on Feb 23

  51. 11:00 AM On the hour: Dow -0.43%. 10-yr +0.05%. Euro +0.2% vs. dollar. Crude +0.55% to $85.28. Gold +0.63% to $1373.70. 

    11:12 AM The Fed buys $6.689B in Treasurys maturing 2015-2016, of $31B submitted by dealers, and government bonds are trying to cling to gains: the 10-year yield -0.01 to 3.61%; 5-year -0.01 to 2.35%.

    Illusions/Exec – You are right.  In fact, here’s a word from TradeBot 3,000:   


    Long-term/BG – Well we pick trades like that every day with short puts and calls 6-24 months out so I’m not sure what you feel is missing.  If you want to look at a balanced mix.  Remind me after hours or, much better, on the weekend, when I can spend some time on the subject.  The $25KP is nothing like a long-term portfolio but it is the exception.  Most of the trade ideas I put up are for longer-term, bullish investments.  We are generally bearish and shorting for the short-term because, if we are going to crash, it would have to be before inflation kicks in.  Once inflation is ingrained, like FDX, going down will mean not going up that day.  

    Oil broke below $85, this should give us the nice move down we were waiting for.  Now we’ll see what sticks

  52.  Phil:
    What we would be a good alternative as I try to transition out of some tza puts until after the reverse split to avoid not having the hedge for the next 8 days, which of course is when we would get a big correction. Or since they are Aprils is it not that big a deal?  TIA

  53. tradeBot3000 is hot!  FAS 5/04/10 high of $34.15 not broken yet either..  perhaps an afternoon pullback is in the cards.

  54. matt
    I see the pivot on FAS as 33.95

  55. Gucci, i believe it is 2/23

  56. Sorry for the delay of today’s PP.

  57. Phil/TradeBot 300
    Laugh!!!…..wife won’t make love cuz I aint got no money!!

  58. Thanks Pharm!

  59. Phil/NOK – what are your thoughts on this one? A J13 BW with $7.50 p & c’s is a 44% return (plus the dividend takes it over 50%) and dd price of $6.35.

  60.  Exec/kustomz
    TZA split – not my post, I know nothing about a reverse split for TZA.  Maybe it’s the KGB Identity Theft Division taking revenge on my father, same name, he was hard on ‘em. Oh, now they’re the FSB.

  61. Phil
    What risk is there if I hold TZA puts through reverse split? It is my long term hedge of choice.

  62.  I’ve picked up 73% on my CMG Feb. 290s; I should take it and run, right?

  63. Phil TZA what is the bussle on splitting again did they not split recendly I still Holding P & C at a strike of 5 any idea thks

  64.  VIX/Bob – I think chasing is a bad idea.  It’s just one trade and we’re too bearish (maybe) anyway.  Just keep offering the $1.50 and, if you don’t get it, then get out even if you can on the Febs.  If no luck by tomorrow, let me know then and we’ll look at it.  

    Now we are watching either oil to cross back over $85 or XLE to cross back over $75 to indicate there are buyers.  If not, both can sell off pretty hard.  

    6 months/StJ – I hate the waiting on these systems!

    NFLX/Palotay – Sure, that was the logical line.  20% bounces are "weak" bounces and 40% bounces (38% Fibonacci retraces) are still just bounces and not a sign of strength so, when you are deciding something like when to cover and you would RATHER NOT cover, that’s a good rule of thumb for when to give up.  Now that we double bottom though, I would move the line down to $240 because the bias shifts to the upside off a double bottom (assuming they hold $238 again).  

    RIG/Urmana – I love them.  We went nuts buying them when they went on sale over the BP thing but that was in the low $40s and, of course, we got out when they were having trouble at $70 so $80 is not terribly appealing to me.  They are absolutely a buy on the dips play and you can sell 2013 $65 puts for $8.30 for a net $56.70 entry so that’s they way I’d go.  Net margin on that is just $640 to collect $830 so, like our ISRG trade from last night – there’s really no point to doing anything else.  

    Let’s say you intended to buy 200 shares for $80 ($16,000).  What would you expect to make?  Maybe 25% at $100 and that would be $20 or $4,000.  In this trade, you can sell 4 puts for $3,320 and that ties up just $2,560 in margin and your worst case is you own 400 at net $56.70 so that would be $22,680 – not much difference in allocation and you make $700 less than if the stock jumps 25% but you make that money EVEN IF the stock falls all the way to $65 – down 19%.  Your break-even is 29% below the current price so you don’t have to hedge or do anything fancy – just sell the put and wait.  

    TZA/Red – The split is 1:3 and I don’t really see it as a big deal since we are playing for expirations and not trading in and out of them.  If it’s a true hedge, that you intend to stick with to offset pain, then this is not a big deal and certainly not worth paying 3x the spreads to get out.  Essentially, our short Apr $12 puts, now .82, would become short Apr $36 puts at $2.46 and the stock would go from $13 to $39.  The percentage moves will still be what they are and, in fact, there will be more strikes to roll to.  As mentioned before, that’s the net effect of the split but we will still most likely hold a secondary class of puts with fairly wide bid/asks – especially if we wait a long time to convert but, if the RUT goes down and TZA goes up – you make the same money on Apr expiration day and that’s the day we’d roll when premium would be gone anyway (barring some huge move that forces our hand, of course).  

    Pullback/Matt – As Tradebot says, the NYMEX is out of his control and if they panic down, then they pull the energy sector but probably not broad commodities as everyone knows the score and knows the NYMEX boys have painted themselves into a special corner.  This has nothing to do with the Dollar – it’s all about the fact that they MUST dump 160M contracts by Friday really because Monday is a holiday.  

    NOK/Brooklyn - - I am not too thrilled, even at that price for now. 

    TZA/DC – As above, the hassle is just that, over time, the trading will get super-thin on the old-style positions and the spreads will get wide but, if it’s a long-term hedge you intend to stay in – no big deal.  

  65. U know things are not good (and this is the new business model) when Big Pharma does this (although NVS has been doing it for years):

    LLY plans to raise up to $750 million through three funds; each fund will start with a $50 million investment from Lilly, with further funding coming from venture capitalists. A slate of experimental drugs will be explored by virtual drug companies, with Lilly getting first shot at licensing any promising therapies developed as a result of the program. Lechleiter told the Financial Times that one such fund has already been finalized.

    This new approach will expand the company’s early-stage pipeline without forcing Lilly to foot the entire R&D bill. Additionally, the developer can select the most promising programs to advance into mid- and late-stage trials. "We think this is a very different kind of model," Lechleiter told the Times. "This way we are not limited by our own resources and we can have more ‘shots on goal.’"

  66. Phil had mentioned going with a VAT tax on corporations yesterday.

    In the UK VAT has just risen to 20% on many goods (outside of zero-rated food, children’s clothes, fuel and other necessities). To introduce VAT would (probably) be a permanent change and it wouldn’t go down, ever. It would definitely mean bigger government and more socialism – not that I’m saying that’s always a bad thing when there have been zero bankruptcies from health care costs in the UK for decades.

    But, VAT is only payable by companies who’s income is over circa $180,000/annum so sole traders and small companies don’t pay. This has lead to the growth of the self-employed in the UK outweighing the employed by a considerable margin since the 80s. In fact, when you’re self-employed and you breach the VAT threshold there are ways to farm out some of your work to bring you back under that threshold. The work would be given to a spouse, other family member or close associate so it, in effect, increases self-employment numbers and keeps the overall tax bill down for small enterprises.

    With a smaller tax bill, smaller companies can often outbid larger corporations where the work is labor intensive. Nannies, cleaners, mechanics, therapists, builders, plumbers, chefs, electricians etc all benefit from VAT in this way.

    To introduce VAT in the US would need a seriously large commitment from the government that it would only go to paying down debt to get political backing, IMO. That politicians are seen as being catastrophically bad at keeping promises would certainly be a hindrance to this.

  67. Phil.

  68. I opened the bloomberg market data section this morning, clicked on commodites and was presented with a chart of of four major commodity price indices. Collectively, these cover virtually all raw materials used in the products you and I and all consumers of goods and services will pay for in the next year and years beyond. All four indices have increased approximately 40% in less than six months. The accumulation of these price increases will hit us increasingly, as has already begun. No matter what eminates from DC, this is reality, as Phil has stated and will not dissipate quickly.

    Admittedly, these charts are valued in US dollars, but currency valuations adjust naturally with relative inflationary expectations and thus the impact of the currency dfferences is muted. 

  69.  Kicking myself for not taking the March 40′s NYX off the table yesterday – went for the homerun and didn’t go for rule #1.  Oh well, at least i got my money back, but damn!!!! kick, kick, kick!!

  70. So there is our cross in NFLX without breaking below $238 on the 2nd dip.  That means $240 is now a reliable on/off line for day trading and the play would be the March $245 calls at $10 but you can also go for the Feb $240s at $4.25 as a momentum trade (which means you get out when they stop going up).  Day trades are NOT about percentages, they are about making quarters and dimes and sometimes, ACCIDENTALLY, dollars!  

  71. Pull back/Phil – HAHA! 

  72. Branded and generics makers both have something to complain about in President Obama’s proposed budget for 2012. Two proposals, to be exact: One that would allow the Federal Trade Commission to crack down on cash settlements in patent-dispute cases, and another that would shorten the exclusivity period on biologic drugs. Both measures are designed to get copycat meds to market more quickly.

    It’s no mystery why branded drugmakers would oppose the very idea. Drugmakers are already suffering from generic competition; they’re posting sales declines as copycats take a slice out of megablockbuster products and cutting forecasts in anticipation of new generic rivals.

    So, anything the feds do to encourage generics only adds to the pain. "While we understand the need to reduce the deficit, policies such as these represent the wrong approach," PhRMA’s chief, John Castellani, said in a statement, pointing out that the 12-year exclusivity period on biologics was "the only provision" in the healthcare reform law "to garner strong bipartisan support."

    The generics industry isn’t happy, either--or not completely happy. The Generic Pharmaceutical Association cheered the proposed shortening of biologics exclusivity to seven years from 12 years; knocking off expensive biologic drugs is a big new field for copycat drugmakers, and the more meds they can try to copy, the better for them. But the group said empowering FTC to go after patent deals was "misguided," the Wall Street Journal reports.

  73. CMG/ZZ – Et Tu, ZZ?  Come on, at least set a stop at 60% (20% trailing).  

    TZA/Yodi – Those 3x ultras erode so fast that they have to constantly reverse split. 

    LLY/Pharm – I think it’s kind of clever.  They build a little development incubator where they oversee research and put in a tiny bit of cash to get the inside track on buying out the winners early on.  Meanwhile, a bunch of investors pay all the bills.  Sounds good to me.  

    VAT/Gobob – Good weekend discussion.  Americans think a VAT is pure evil because the MSM, who are owned by big business, tells them it is pure evil.  Oddly enough, our corporations pay VAT in pretty much every other country in the World – just not the US.  The same way California is one of the few places on earth dumb enough not to charge oil companies for the oil they extract out of their soil.  

    Inflation/JG – Don’t do that!  Now I’m all bearish again and it’s your fault!  8-)

    Kicks/Jo – Rule #1 AND Rule #2 blown off?  And people wonder why Rule #3 is pretty much just a kick in the ass…. 

  74. Ags — anyone know how grocery pricing works? Is it the typical 100% markup of wholesale? Wouldn’t the grocery stores stand to benefit from higher food costs as prices increase?

  75. 6 months / Phil – You should watch The Man Who Planted Trees! :-)

  76. From the Bass letter;

    Just remember:

    Hyperinflations are
    creation. If inflation accelerates these budget deficits tend to increase (Tanzi’s Law).
    always caused by public budget deficits which are largely financed by money

    Peter Bernholz, Monetary Regimes and Inflation. (Emphasis Added)
    With “Helicopter Ben” printing $3.3 billion per day ($2.3 million every minute), the consequences of this
    financial experiment could be staggering.


  77. PHIL
    Good Morning,  I sold 10 TNA Jan 2012 Puts for $ 6.40 a while ago. right now the bid is 1.05 and the ask 1.20. I was  trying to BTC and offered up to 1.30 but still didn’t  fill. What would you do with this position?. thank you

  78.  Phil - - something you are interested in – the story behind the Oil Traders at the NY Merc.

  79. Phil or others Can not find any news why MOS, POT, CF, AGU are dropping a lot ????

  80. Phil
    I meant  . TNA Jan 2012  "20" Puts

  81.  yodi – SOROS dumped (or reduced)  his position in MON .. maybe that had a ripple effect ..

  82. Phil,
    Do you see any play on Graftech ( GTI) ? They have earnings on Feb. 24, Ask JRW about the use of carbon fiber -graphite in exotic toys..

  83. Sure it is kind of ‘clever’ but VCs have been doing it for years….why Pharma not? B’c they have the attitude of ‘not invented here.’ It will take years to get these going and LLY needs something NOW!  So does PFE, and FRX, and ….

  84. IWM 82.23 pivot has been reafirmed as the significant level.

  85. Phil / Gold    Are you still bearish, expecting a correction? 

  86. Oil / Phil – A $2 plunge in one day is pretty bad, but there seem to be some support around $84 as it was resistance in Oct and Nov. However, it’s a long way to $80 after that. Could be fun to see all the oil bulls rush to same exit… 

  87. partha thanks
    MON yes I read this. But this is incredible dump the stock and buy it back through the back door. Surely worse than a Casino.

  88. WOW,  2 min later we blew through that!

  89.  Good to see CMG slowly taking a bath;   another 15 points or so and I’ll be reasonably happy.
    NFLX also, but they are trying to keep it pumped.
    Very Depressing:  Obama is completely unserious about budget / spending reform.  His budget, with its absurd assumptions, is getting pilloried everywhere:

    What struck me about his press conference today is his utter lack of urgency …
    "Wall Street "wants" us to talk to each other and make some progress in "CHIPPING AWAY" at the problem.
    "These things will take 1 or 2 years to see progress"
    [not exact quotes, but pretty accurate in terms of what he said].
    Hopefully the Repubs will force his hand.  It remains to be seen if they will be serious enough, beyond talk.
    The Democrats sure won’t force O’s hand.
    Its a sad state of affairs:
    If you look at the assumptions in his budget projections for Growth, Revenue Growth, Spending, GDP, Interest Rates, and so on, its clearly that this is a budget of fantasy.

  90. Used to do my own grocery shopping until a year ago. Went to Shop Rite with my daughter this morning,and I was blown by the increased prices. This is really serious. Taking her to Lowes on Thursday to get a ches tfreezer.

  91. yodi / ags — looks like a sector rotation to me. of the 40 or so ag related stocks I watch, 30 are down and the majority appear to be beating their 10/90 day average volumes.

  92.  Yodi/Rainman     Think we are in a rotation or just a long overdue pullback?  I am long MOS at 60

  93.  Doug Kass seems to be right in line with you Phil.  His comments this morning:

    Sometimes I think that the game is fixed and reality is blurred by those viewing the world through rose-colored glasses:

    The January China CPI increased by 4.9%, better than the expectation of a 5.4% rise and the December read of 4.6%. Taking a cue from U.S. government record keeping, the weight of food in the CPI was adjusted lower, from 33% to 25%. Without the change, the CPI would have been close to consensus.

    In "Wall Street’s Dead End," New York Times op-ed columnist Felix Salmon addresses how and why companies circumvent stock market listings.

    Fooling all the people all of the time? The deficit is not being addressed, and there is a lot of fuzzy math incorporated in projections. On the same day that the administration unveiled its 2012 budget and proposed a $110 billion per year reduction over a 10-year period, it raises this year’s budget by $150 billion.

    Bulls have argued that the administration is moving toward a centrist policy position. Really?

    But Fed Chairman Bernanke and others insist that core inflation is under control! Increases in clothing prices are reversing a decade long reduction in prices this spring. During my appearance on "The Kudlow Report," a University of Michigan professor debated me about inflation; he, too, said it was contained. He highlighted produce prices under control in his argument. Really, Chairman? Really, professor?

    A year ago we were told by the economic pundits and strategists that the European contagion would be contained. Two weeks ago we were told that the Egyptian riots are a one off. Really? Look at Iran, Bahrain, Algiers and other areas of knock-on demonstrations.

    Despite broadening austerity measures in Europe, strategists remain bullish on the region. Last night, German investor confidence came in below forecasts. So did the flash eurozone fourth-quarter GDP. This data, I suppose, will be excused by poor December weather. It’s funny, good weather is never seen as non-recurring!

    And then there is POMO and the quantitative-easing policy that have buoyed risk appetites for long-dated asset classes such as U.S. equities.
    There is so much phony in regard to addressing our fiscal imbalances, dubious reported statistics, failure to recognize the threat of screwflation and the many secular challenges, but, for now, the last laugh is on the bears as it appears you can fool many of the people most of the time.
    Everything is not coming up roses.
    As an aside, Nouriel Roubini is guest hosting "Squawk Box" this morning. Joe Kernen quickly pinned him down regarding his thoughts on the U.S. stock market’s prospects over the next few months. No Dr. Doom, Roubini surprisingly cited the bull’s fare and suggested that with corporate profits growth strong, the near-term market outlook is positive.
    The cynic in me suggests that Roubini might have just rung the bell this morning on the end of the current bull phase.
    As I wrote in yesterday’s opener, when bulls are universally bullish and bears have covered, who is left to buy? 

  94. drumkeerin
    Don’t let lowes talk you into an upright, big difference in holding cold if the power goes out.

  95. willsons / pullback — I don’t think I’d be able to tell the difference. I’d be worried if MOS fails 76.

  96. Interesting drop from 1:50 to 1:55 hitting the DIA and SPY and Q’s pretty hard but leaving the IWM alone for the most part.

  97. rainmain wilsons
    The rising trend channel is broken and now a downward trend, IWM needs to take 82.23 then 82.35 right now! Not trading but I would buy TZA.

  98. Any reason PCLN is up today or is it because all MOMOs can’t be down on the same day? Kareem factor maybe?

  99.  Shadowfax    Thanks for the input.  Ive been in TZA all day!

  100. Phil, 
    With the RIG play, I have the 2012 VLO 15/17.50/15 play mentioned the other day (up close to 70% not 90% as mentioned that was a typo), would you exchange that one that is way ahead of schedule for RIG above or would you raise the puts and calls to boost profit potential? 

  101. Well lookie who joined the party.  ABT is bouncing!

  102. Cap – By now you know I’m not too wild about Obama,  though I’m curious, what would you want to cut?
    And please, No peas and carrots type of cuts, just the "meat" please……

  103. ….and Phil, Cap started it… ;)

  104. BOTS can’t decide at 82.08 again below 82.03  shoud confirm down.

  105. Phil,
    You mentioned on a further pull back in oil you would start a long position in uso. At what level would that be. I’m thinking about selling a put.  I’m thinking if the unrest in Iran heats up, we might get a pop. If not, I’ll just accept the uso and be long at the level you were targetting with the added benefit of having gotten the put premium.

  106. Groceries/Rain – Actually very thin margins and  if they get stuck with inventory that doesn’t sell quickly, they can get very screwed.   When prices change, people do funny stuff and change habits and that’s bad for that business.   It’s good for gas stations and refineries – things people must buy that charge fixed margins.  

    Tress/StJ – Ah yes, it has been a while. 

    Bass/Jabob – I agree.  It’s very scary when you think about the end game. 

    TNA/Cnarb – I would just leave the $1.20 offer on the table. They are way out of the money with little margin so no skin off your back to let them grind away.  Logically, you can imagine that nobody wants to own them so it’s really just a matter of waiting for someone who wants to clear a position.

    Asylum/Partha – Thanks, I am very interested in reading that one!  

    Ags/Yodi – Just gravity.  The Soros thing was a catalyst too.  As I’ve been saying, the problem with food is that, ultimately, you need a buyer.   Gold can be speculated to the moon but food and even oil can’t go up past a certain point without someone actually having to go to a cash register and buy them for these ridiculous prices – otherwise the whole pyramid of speculative assumptions begins to collapse.  I think I mentioned yesterday that POT had finally gotten so ridiculous that they were worth shorting.  I wish they had hit $200 as I planned on an official trade there. 

    Stock cycle/StJ – I don’t see how that can be the "average" but interesting if it holds up. 

    GTI/Randers – Nice company but getting up there.  I’d buy Sept $22.50 calls for $2.90 and sell Sept $17.50 puts for .80 and sell March $22.50 calls for $1.35 and that’s net .75 on the spread and that should be a nice way to play earnings with a very low put-to strike (net $18.25) and 6 months to roll the caller if they take off.   Obviously, hoping for a flatline or slight move down to give you a cheap ride on the calls through Sept.  

    Incubators/Pharm – Well I like it and I think LLY is making a smart move.  How are they overall?  Maybe a good long-term play.  

    Gold/Tusca – Like the eventual drug bust of Justin Bieber, the fall of gold is a virtual certainty but I wouldn’t bet much on it as we could head up and up for quite a while.  At $1,500 I’ll be excited about shorting them just like I got excited about oil shorts as they went over $90 – there are certain breaking points – at least for the short-term.  

    Oil/StJ – Keep in mind this is not a fundamental drop.  The Dollar is just 78.6 and gold is up and silver is up and copper is over $4.50 – this is all about a speculative frenzy at the NYMEX on Egypt running headlong into a holiday-shortened cut off date while US inventories are already packed to the gills.  I think that a lot of them are holding out for some kind of good inventory report tomorrow but it can really hit the fan if not but, then, it’s more likely to be a buy off the $80 line – if we get there.  

    NFLX blew their line – it’s not the kind of trade we ride out as we have no real faith in the stock on the bull side! 

  107.  1020 – I would cut pretty much everything.
    You could probably cut 15-20% out of everything without any discernable negative impact on what gov’t does.
    Some things would get cut; others would get eliminated completely.
    Its not an Obama thing either; but he happens to be the Prez and its clear he doesn’t get it; or doesn’t want to get it.
    This whole "chip away" attitude is nonsense and not serious.  its an attempt to portray oneself as doing something, when in fact, you really aren’t doing anything.

  108.  Anyway; leave it for after hours …
    The only trading question for today is do we get the stick again today ?

  109.  Phil:  Allocations
    Last May my goal was to be invested by Jan 12 to produce 1% per month on maybe  80% of my portfolio invested.  With the market action since Sept I’ve not been comfortable  with more than 25-30% invested at this point.  Would a plan as follows make sense?
    Assume 100% allocation would be 2,000 shares, sell 10 Apr puts, then if <= put price take assignment on 1/2, roll half and sell another 5 July puts, then if <= put strike take assignment on another 500 shs, roll 5 and sell 10 Jan 12. Not sure of timeframe, months to roll to but generally would be committing to 1/4 position then 1/2 position and then full position in last target month and selling calls on the shares as I get assigned.
    I’m sure it would be better to wait for a dip to start the put sales but my concern is not having enough positions to generate income in Jan. if I over think moving forward.  You had great suggestions last summer that I took but since I was just starting to follow you my position size was too small and things just got away from me once I had a better feel for your approach :(

  110. Oil / Phil – I still call $84 for support…. 

  111.  Other then a couple of high flyers giving back some ill gotten gains, I would hardly call this slight down move a sell off.

  112. Nothing has changed since my write up last year on LLY.  Loses Zyprexa this year, and that is $5B in revenue out of $23B. 

  113.  Phil, thoughts on TM – looks pretty toppy?

  114. IWM major support 81.45
    Below that will be a sell off. New low for the day.

  115. Fantasy/Cap – I am just dumbfounded.  The underlying assumption is revenues will increase 65% in 4 years while spending remains flat.  So assumption number 1 is everyone in America suffers 70% inflation EXCEPT the US government and that none of that inflation will affect margins and all increased profits will be dutifully shipped off to the IRS.  If my girls handed this in as a homework assignment, I’d make them redo it!  

    None of these combinations make any sense, as ZH says:  


    Over the past 60 years, there have only been three other years with a similar or higher rate of revenue growth to the one estimated to occur in 2015: 1979, 1980, and 1981.
    There are two things we might note about those prior three years (’79-’81) of rapid federal revenue growth. The first is that those same years represent the second, first, and fourth highest rates of yearly inflation in 50+ years of data, coming in at 11.3%, 13.5%, and 10.4%, respectively.
    Does the Obama budget assume similar enormous rates of inflation? Nope. It assumes 2% or less inflation in every year of its projections out through 2015.  So it’s not inflation that will be driving the enormous revenue growth.



    Another reason we might anticipate extremely strong revenue growth is because of a rapid expansion of GDP.
    Here again in 1979, 1980, and 1981, we saw something very unusual in the data:
    Those years clocked exceptionally robust GDP growth at 11.7%, 8.8%, and 12.1%, respectively.  Out of 65 years of data, those were the 4th, 5th and 17th fastest years of economic expansion.
    Could that be the driver behind Obama’s optimism? Is his team calling for double-digit GDP growth over the next few years?  Do they envision ‘top ten’ like performance for a couple of those years?
    Not according to their published data.
    So we can’t really defend the projected increase in revenues on the assumption of massive economic expansion either. The
    Obama team does predict a pretty decent expansion – but on a relative basis, it’s nothing spectacular and is less than half that which drove the revenue expansion in the 1979-81 period. 
    So the 65% revenue increase will not be driven by either inflation or GDP expansion.

  116. She falls fast don’t she!

  117. shadow / iwm — 81.85 the next stop?

  118.  Shadowfax
        I have a line at 81.82 and then 81.59  You?

  119. shadow / whoops — didn’t see your 81.45

  120. Sticker shock/Drum – See, that’s the problem with most of us in the investor class.  We don’t really deal with that stuff for the most part and it causes many investors to say "oh rice is a good bet to go up 50%" when the reality is that 100M people would DIE if rice rose 50% in price.  We are too disconnected from the real price of many things as well as what it takes for people in the real world to afford them to make good commodity decisions sometimes.  

    Cramer is, meanwhile, blathering about China again and is actually saying "What’s so bad about coal – because it kills 20,000 a year?  Is that really so bad?"  That is the perfect example of what is wrong with Capitalism and why people like Cramer, throughout history, end up with their head on a pike outside the headquarters of the new regime.  

    Speaking of China – Get this article!  


    The twist on the story is that Chinese suppliers are in a triple world of hurt. Attempts to pass on substantially higher prices of 20-50% to American buyers were resisted. The events leading up to the Chinese New Year holiday, when tens of millions of Chinese workers returned home, were described by the NYT:
    • "The first signs of a potential slowdown in Chinese exports have shown up in shipping. As factories closed on Friday across much of China in preparation for weeklong Chinese New Year celebrations, ports in Hong Kong and elsewhere along the coast were working long hours to meet last-minute shipments.
    • But the annual pre-New Year rush has been nothing like that of recent years, causing shipping lines to reverse rate increases and cancel sailings they introduced last summer as the American economy improved. This winter, the scurrying started only two weeks before the holidays, instead of the usual four weeks, according to shipping executives. That is because many Chinese factories simply cut back production this month as their Western customers began resisting steep price increases."
    At the same time, the Chinese export sector scrambled to try and save its labor force with hikes of 20-30% in wages and benefits [Reuters]. Reportedly, this has had limited success, which is a moot point anyway if western buyers fail to cover these increased costs. China has a new labor law and labor unions now have the upper hand. From
    • "Increasing militancy over labor conditions and terms by migrant workers in China is having a serious impact on South China-based businesses, as many migrant workers are refusing to return from the Chinese New Year vacation unless their demands are met. With workers becoming increasingly aware of their rights under the Labor Law, many are resorting to strong-arm tactics to “persuade” factory owners to give them more money. The situation is often exacerbated by grass roots labor union officials, who also stand to benefit via larger payments into the labor funds at their disposal if companies pay higher wages. Increasing China labor costs and worker demands are making once profitable businesses lose money and there is virtually no leeway for labor-intensive manufacturing to survive under such circumstances."


    It goes on with more good stuff but you get the idea!  

  121.  In all fairness to Cramer (who is a combination of a tool and a d-bag) I think he was being a bit sarcastic.  He actually, sounds like you – that he’s calling out the crooks (the coal lobbiest) but saying the game is rigged so invest in coal and make money.

  122. From Doug Kass:
    Here’s a little-discussed indicator of trading volume.
    With the Sports Illustrated swimsuit cover model shortly to be interviewed on CNBC, can New York Stock Exchange volume turn negative? (Hat tip to Benzinga).


  123. LOL!

  124. I think we might have ourselves a turning point folks..  but as always, average in.  Tomorrow could test the top of today’s range.

  125. Budget / Phil – The real number to watch is not just revenues but revenues as percentage to GDP. Right now, it’s around 14% which is about a historic low and goes a long way to explain our deficit (combination of the crisis, the tax cuts and 2 wars). The historical average is closer to 18 or above and it was 20% when Bush came to power in 2000. That would be another $600 billions of revenues in the historical average and $800 billions more if we had Clinton taxes. Subtract the war in Iraq and Afghanistan and we have no deficit…. The 2015 projected revenues would match the 18% average. So either they expect all the tax cuts to expire (including the lower brackets) and a return to growth that might be a bit overstated… 

  126. MOS/Wilsons – I don’t trust them at all to hold up. 

    NYMEX boys held the line at $84 with a pump into the close but volume wasn’t there so I think my theory that they are holding out for inventory is looking good.  There’s word that gas demand is off 3% this month too – stormy weather for oil.  

    Cuts/Cap – That is funny but let’s not forget that’s the Republican party getting serious about the budget with the President.  Total joke, the whole thing…

    Kass/Rustle – Interesting points.  

    Keep in mind the NYSE has been holding 8,362 (8.367 was low) so nothing to be too bearish about yet.  

    I think if NYSE is holding 8,362 then we can play IWM for a stick save with the $80 calls at $2.15 with a stop at $2 (below the $82 line).  

  127. Rainman wilsons
    I have 81.75 I may have made a mistake and that makes it 81.58,  81.45 might be 81.28.

  128. Phil / China — Isn’t that your bottom up inflation? If China raises prices (products and labor), I’d think it would make the US look more attractive (products and labor) relatively speaking.

  129. I have sold 10 ABX Feb 47callers at 1.57. Tactical question is whether to roll to the Mar 48s around 2.4 or the 49s around 1.8 or split the difference?

  130. Cap- you and the other ‘independents’ crack me up…. So what, all of the sudden you all are deficit hawks now!?lol. It humerous that repubs are all for fixing the deficit after they extend those RIDICuLOUS tax cuts!!!! I’m not saying that the Government can’t cut back some but many areas targeted for cuts by republicans affect primarily lower income people…
    Phil/StJ, I’m thinking oil stops it’s fall somewhere between 80-83. I’ll definitely be buying….

  131.  Phil, KO is setting up to be a good old fashioned LEAP money maker.  57.5′s have very little premium.  Hoping for a little sell off this week, if not plan on starting a small position next week.  Thoughts?  

  132. RE: people like Cramer, throughout history, end up with their head on a pike outside the headquarters of the new regime.
    Unfortunately, he’d probably keep talking.

  133. Has anyone negotiated a better price than street price with TOS?  When I spoke with them and mentioned Phil’s Stockworld they didn’t know what I was talking about.  Any guidance would be appreciated.

  134.  Funny because it’s true
    February 15th, 2011 at 3:00 pm | Permalink  
    RE: people like Cramer, throughout history, end up with their head on a pike outside the headquarters of the new regime. 
    Unfortunately, he’d probably keep talking.

  135. Phil
    TradeBot 3,000 thinks 82.03 is like the 13th floor, it doesn’t exist, check the any number but.

  136. Anyone    
    I wanted to post my chart on etrade how do you find the url that link wants?

  137. shadow / 82.03 — sure that isn’t 82.02? I’ve got 611k shares at 82.03.

  138. Praizda, didn’t see that particular blog but I have read similar comments. I just don’t see oil falling that far unless we get the much anticipated market pullback that so many of us are waiting for. I’m sick of waiting for godot though:). I’ll buy an out of the $ oil put to limit my potential losses in case the market decides to go kaput one day.Middle East tensions, demand increases from emerging markets, and helicopter Ben all work in oils favor.

  139.  it is scary how well we hold 12200 on the Dow.  It’s like every bot is ready to buy once we get down there.

  140. PCLN/Jabob – Well, if you are a long-time investor then you would certainly have to attribute the success to the celebrity spots but, so far, I don’t consider a picture of Kareem for 1 second to be "having him on board."  Shatner is THE MAN, they’d better have a good insurance policy on him.  

    VLO/Amatta – Well at 70% with a year to go, it is time to do something about that trade.  When you ask these questions, adding the fact that you are in for net .50 or whatever would be hugely helpful for me to know.  The $15 puts are .26 so pointless and the $15/17.50 spread is a mile in the money at $2.40 so also pointless to keep.  I think VLO may be stretched so yes, flipping to RIG is the way to go to keep an oil bull play that has better legs.  

    Bots/Shadow – Have faith in the stick!  

    USO/Judy – I’d love to own oil at $65 long-term, so my driving decision would be based on what kind of dip we do get and what rollable position we can get to that nets $65 oil.  It’s about 22% down from here let’s call that $25 on USO to allow for decay over time.  Well, we can sell the Jan $31 puts for $2 and those can roll to 2013 $25 puts at $1.60 so that seems to be the target area.  Net margin on the naked sale of the Jan $31 puts is $3 so a nice 66% return on margin is not bad so that now becomes the least I would want to accept.  Getting back to our $2 mark, we can then look at July and see the $34 puts are $1.95 and those have $5.60 of net margin and that’s 35% in 6 months so pretty good but I wouldn’t want to risk a big drop so I’ll be looking for $80 on oil and figure that would make the July $32 puts $2 and that then becomes a reasonable place to establish an entry.  

    Allocations/Red – As with the oil example above, you need to find some stocks you REALLY want to earn and just sell some puts.  Remember AAPL the other day?  "Oh please mister market – don’t make my buy AAPL for $250!" – There are always things you REALLY want to own if you think about it.  Also, why no breakout defense.  Your fear is based on the fact that you might miss something and I listed 5 trades there that make sure you won’t.  Then there are things like the Secret Santa hedges – same deal, you can be aggressive with 10% of your portfolio and, if that doubles, then you got most of your 12% while 90% in cash.  

    $84/StJ – Good call so far but we’ll need a barrel count.  I doubt they got rid of much today and I think the NYMEX is closed Monday so tick, tick…

    LLY/Pharm – Too bad, I like what they are doing.  

    TM/Jo – Crazy China growth story.  Hard to bet against.  We were long when they had the scandals but now they are back to recent highs and I wouldn’t play them up but I wouldn’t play them down either as our entry was a lucky break at the time – overall, they are a great company.  

    Cramer/Jo – If so I missed that.  

    Dollar making a bit of a move back over 78.70 – be careful with longs!   

  141. rainman
    I have had gaps and skips around 82.03 until afew minutes ago, it did hold for 1 min. Maybe tradeaBot 3000 has your url and says that guy is not going to get out even, you must commit to a direction.

  142.  Gapping and skipping are really more for tulips, daisies and other fanciful, fairyland adventures don’t you think?  
    Oh wait…this market’s make believe anyway, WTF am I saying….carry on…

  143. 15:45 stick? BOTS are selling into every uptick! IWM close 81.00 or some kind of a move.

  144. Tax Cuts/StJ – Oh I can see it with the war ending and the tax cuts expiring but Obama doesn’t even have the balls to say it so why should I think that’s their "secret plan."  I lost all faith in those guys when they bent over and extended those tax cuts – why should we expect the 2012 Congress to have more backbone?  Hell, if the Reps take the Senate, they’ll probably lower the rates further and declare war on Canada because Sara Palin thinks that all land in between two states should be another state.  Meanwhile, that Heritage chart shows what a joke it is to claim that tax cuts boost revenues.  Look at Reagan’s cuts and then Bush’s, then look at Clinton’s increase – THAT’S how you boost revenues and the country was totally prosperous too.  Until people stop trying to pretend white is black and vs, vs. – how are we ever going to be able to fix the economy?

    Meanwhile, I’m looking forward to my 65% raise Mr. President!  

    Bottom up/Rain – Yes, but WE need to have bottom up inflation, not China.  There’s not much benefit in giving a person earning $2,000 a year $2,400 a year so he can afford to drive to work and eat a bowl of rice at lunch.  That has to be done in conjunction with giving an American family a $2,400 raise so we can buy more Chinese junk and create those $2,400 jobs over there.  Then everyone benefits.  

    ABX/Drum – I wouldn’t react to this move until you see if it lasts another day but, when you do roll, I strongly favor maxing out the premium and just be happy to end up even once a short call goes against you.  

    KO/Jo – That’s the kind of company we DO want for Global inflation as they know how to manage their costs and can take advantage of international flows.  

    Oil charts/Praiz – those are great!  

    LOL Chaps!  

    TOS/Jr – Take to Scott at thinkorswim dot com – he’s our guy.  

    12,200/Rustle – Yes, but when/if it falls, it should be fun.  

    DIA/$25KP – I have to say I’m not comfortable with the $119.75 short puts anymore.  Let’s buy them back for .15.

  145. Oil / Phil – Sorry, I was just kidding with the $84. It’s fun when all falls into place. I am like Jrom and actually think that closer to $80 is a better target. There was no way they were getting there in one day in any case. Too disrupting…

  146. ….TLT continues to move up, slowly.  I am currently in the Mar 89s…

  147.  DIA/$25KP – Oops, that was the $120.75 puts – even worse!  Those are .27 so we’re up .23 and done with them – Just in case we get a big drop, we don’t want to be trapped.  

  148. i had the 120.75′s. Youre probably less comfortable with them, right?

  149. Phil, I know youre not a big fan of Chinese ADRs and you’ve been right 100% of the time when I’ve asked you for advice with plays on them(most recently with apwr that I LOVED at 7.89 and is now at 5.90!lol). So, having got that out of the way my favorite of alltime is STP, always been a fan. Have had a small position for awhile now and been doing ok just selling 1$ out of the money calls on a monthly basis lowering my cost basis… was curious if you liked them here ( as much as you CAN like a Chinese ADR) an if you had any plays you liked going into earnings next week? Thx

  150. Closed my FAZ for a small gain.  I’m too much of a chicken dooty to hold over night.. but have the feeling we open down tomorrow.  Will definately be getting short again as soon as an opportunity presents itself.  Just hope its not a runaway train before I can-

  151. TLT/Pharm – Feels like a flight to dollar safety.  Something is up that we don’t know about yet.  

    Right Morx – you are totally getting this stuff! 

    STP/Jrom – They do seem to be a real company, which is a big endorsement from me on an ADR!  I’m good with them at this price but earnings are terrifying (or lowering of losses in this case).  Expectations are low with over 40 analysts following them and just 12 buys.  I’d play them bullish with the June $9s at $1.40, selling the Jan $7.50 puts for .97 and the March $10 calls for .45 so you pretty much own the June $9s for free if they head up and you have a $1 spread at worst and the downside worst is owning them $2 cheaper (more than 20% off) than they are now.  

  152. lol!  That didn’t take long!  FAS at 7.57

  153. Make that FAZ!!

  154. Pharmboy,
    I sold some TLT March 85 puts and they are up 50% (put value was cut in half in just 3 trading days) and I’m looking to buy to close and reloading later.  I found that TLT gives us many chances to reload.

  155.  Matt 1966   Are you thinking we break the upward trend on FAS  Its at about 33.28 ??

  156. Boy……the Bot’s gave up those measly 40 points kicking and screaming.

  157. can i get a colored box now?

  158.  Execution is a real hall of mirrors to a novice. "Geez, Dorothy, we’re not in Kansas anymore.".  I bought back CMG June 350 puts for the $2.80 low tick of the day and feel like I won the Superbowl.  

  159. Morx,
    Careful what you wish for!!!
    Once you have a colored box….you’re going to be tagged as one of the "regime"……and just like in Egypt….if there’s an uprising…..they’re taking down they entire entourage!!!

  160. Phil AAPL still holding the 350 short call Feb sold for 5.67 now 10.22 .22 in premium question shall I roll just to Mar 360 or 365. In both rolls I left with a small credit. Obviously against the short caller I hold Apr 340 longs and even Apr 300 short putters. It is just a question of rolling. Obviously do not want to out roll the long Apr caller bought for 21.60 now 26.75

  161. Very nasty commodity chart set

    Transports were up on the day and testing resistance at 2,550 (Nas Transports), which is about 5,250 on the Dow Transports.  If "THEY" can punch the transports over, I think they will be ready to rally so we’ll have to watch those closely now.  

    Colored box/Morx – Let’s not get ahead of ourselves!  

    At the close: Dow -0.34% to 12226. S&P -0.33% to 1328. Nasdaq -0.46% to 2804.
    Treasurys: 30-year +0.13%. 10-yr +0.07%. 5-yr +0.11%.
    Commodities: Crude -0.61% to $84.29. Gold +0.6% to $1373.30.
    Currencies: Euro -0.03% vs. dollar. Yen -0.59%. Pound +0.52%.

    Market recap: Stocks slipped in listless trading, dragged down by energy and materials shares, after a surprisingly weak retail sales report. The data pulled crude oil futures to an 11-week low, and investors turned to gold, which moved to a five-week high. Declining issues led advancers eight to five on the NYSE. 

    "Global food prices are rising to dangerous levels and threaten tens of millions of poor people around the world," says World Bank president Robert Zoellick. Prices have risen 15% in just the last 4 months, a nice performance, but U.S. equities are doing better. 

    Prominent economists including Joseph Stiglitz distance themselves from a report that was supposed to provide ammunition for financial industry opponents of new derivatives legislation. Barry Ritholtz labels it part of a "phony lobbying campaign [including] claiming affiliations with well regarded economists and Nobel Laureates where none exists."

    Engaging in "acute cognitive dissonance," investors know leverage caused the GFC, but do everything possible to prevent deleveraging, says Kyle Bass in his latest letter. Debt matters as it always has. "Without a resolution … systemic risk will fester and grow." 

    Finance Minister Guido Mantega rebuffs Tim Geithner’s attempts to enlist Brazil in teaming up to fight China’s currency policy, saying the weak dollar is just as concerning as the yuan’s value. "There is no common initiative," he says.

    The new "normal" unemployment rate – pegged by most before the financial crisis at 5% – may have had its center kicked up to 6.7%, according to a new SF Fed paper. Longer-term joblessness, extended benefits and structural mismatches might be impeding any decline to the 5% mark. 

    “I think tactically for the next few months equities could rise because corporate profits are still strong." Take it for what it’s worth – at S&P 1330, Nouriel Roubini turns constructive on American stocks, at least in the short term. 

    Fund managers are more bullish on global equities than at any time in the past decade, according to the new BofA Merrill Lynch Fund Manager Survey. Of the 188 fund managers polled around the world, 67% say they are overweight global equities, the highest reading since the survey began asking the question in April 2001. (PR

    We’re running out of positive economic surprises to drive the market higher, Pragmatic Capitalist writes. "Given the very high levels of bullishness and analyst expectations of economic data, we could finally be due for an equity market correction… assuming that the Bernanke Put isn’t so firmly entrenched that it overrides any and all historically reliable data." 

    The FCIC backpedals on its prior refusal, and releases its 2009 interview with Ben Bernanke (transcript). Among the more choice bits: He’d defend his actions on Lehman Brothers "to my deathbed," and blames "poisonous" politics for TARP’s failure to spark lending.

    More from the FCIC/Bernanke interview: The chairman says reforms need to contemplate the failure of a Goldman Sachs (GS) – "a system by which Goldman Sachs will go bankrupt and Goldman Sachs’ creditors could lose money" – because otherwise "we might as well treat them as a utility, because that’s what they are." 

    Thousands of protesters take control of the main square in Bahrain’s capital, settling in with generators and tents, after a 2nd death resulting from clashes with the police. Unlike Egypt, opposition groups are calling for political reforms, not yet regime change. 

    And the next revolution is:  Saying the government is trying to satisfy international authorities at the expense of the population, Portugal’s Left Bloc may put forth a censure motion against Prime Minister Sócrates that could force him from office. Public discontent is rising as well, with a series of strikes planned and just 9% having faith in the government. 

    Helping Transports – MORE INFLATION:  Delta (DAL +0.6%), American (AMR +2.9%) and US Airways (LCC +1.5%) say they’re raising the price of tickets favored by business travelers by as much as $120 per round trip, following last week’s move by United (UAL +1.3%). "The increases appear substantially aimed at the higher-fare categories favored by less elastic, corporate travelers," JPMorgan’s Jamie Baker says.

    “The utopia for one stop sourcing for quality and low price has been China… but utopias never last,” says Collective Brands (PSS) CEO Matt Rubel, who is shifting production to Indonesia as Chinese wages continue to bolt higher. Just a tiny rumbling beneath the powerhouse Chinese economy. 

    Another thing notable about the 13F from Berkshire Hathaway (BRK.A) was what was no longer there: Bank of America (BAC). With the position closed out, you can see just how deep was Buffett’s bath on that "loser" investment. (earlier

    Despite Sirius XM Radio’s (SIRI -8.2%) Q4 loss, with rebounding auto sales and a strengthening economy, some say it’s still positioned for growth. VFC’s Stock House reminds investors that money spent paying down the debt will hold down quarterly numbers for a while, and Jon Friedman warns that Sirius must now beat back the challenge from Pandora.

    Three lunchtime reads:
    1) Rosenberg: No free lunches in debt-fueled bear rally
    2) What the Egypt ETF investors should know when markets reopen
    3) Three stocks to prosper from inflation


    OK, it is after hours and it sounds like all of us are watching the market with disbelief.  I read this article from a speech by Bill Moyers and I think the title "America Can’t Deal With Reality" says it all.  Here’s the link and a couple paragraphs of think get to the heart of the issue.  If you are in a hurry, just catch the last line I highlighted.'t_deal_with_reality_--_we_must_be_exposed_to_the_truth,_even_if_it_hurts

    Hadn’t Thomas Jefferson proclaimed that, "Whenever the people are well-informed, they can be trusted with their own government"? And wasn’t a free press essential to that end?
    Maybe not. As Joe Keohane reported last year in The Boston Globe, political scientists have begun to discover a human tendency "deeply discouraging to anyone with faith in the power of information." He was reporting on research at the University of Michigan, which found that when misinformed people, particularly political partisans, were exposed to corrected facts in new stories, they rarely changed their minds. In fact, they often became even more strongly set in their beliefs. Facts were not curing misinformation. "Like an underpowered antibiotic, facts could actually make misinformation even stronger." You can read the entire article online.
    I won’t spoil it for you by a lengthy summary here. Suffice it to say that, while "most of us like to believe that our opinions have been formed over time by careful, rational consideration of facts and ideas and that the decisions based on those opinions, therefore, have the ring of soundness and intelligence," the research found that actually "we often base our opinions on our beliefs … and rather than facts driving beliefs, our beliefs can dictate the facts we chose to accept. They can cause us to twist facts so they fit better with our preconceived notions."
    These studies help to explain why America seems more and more unable to deal with reality. So many people inhabit a closed belief system on whose door they have hung the "Do Not Disturb" sign, that they pick and choose only those facts that will serve as building blocks for walling them off from uncomfortable truths

  163. CMG/ZZ – Still, that’s a nice job.  Small victories are all the bears are allowed these days.  

    AAPL/Yodi – I’d go $360.  If you go up $10 a month that’s $450 by Dec and you only have to get lucky once.  

    Moyer/Rev – Good points.  

  164. MSCI Taiwan hit 52 week high February 8, falls off a cliff.  China inflation story starting to bite?

  165. From Paul Krugman

    The Great Abdication


    Andrew Leonard is right: the Obama budget isn’t going to happen, so in a sense it’s irrelevant. But it still has symbolic meaning. What is Obama saying here?

    The important thing, I think, is that he has effectively given up on the idea that the government can do anything to create jobs in a depressed economy. In effect, although without saying so explicitly, the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again.

    What’s extraordinary about all this is that stimulus can’t have failed, because it never happened. Once you take state and local cutbacks into account, there was no surge of government spending. Here’s total (all levels) government spending over the past 10 years:


    Looking at this graph, if you didn’t know there had been a “massive” stimulus, would you even have suspected that there had been any stimulus at all?

    And yet the failure of the stimulus that never happened has become conventional wisdom — which is what I feared would happen, two years ago, when I was tearing my hair out over the inadequacy of the original plan.

    Yes, I know, it’s argued that Obama couldn’t have gotten anything more. I don’t really want to revisit all of that; my point here is simply that everyone is drawing the wrong lesson. Fiscal policy didn’t fail; it wasn’t tried.


    A Mysterious Absence


    Steve Benen:

    Looking over the guest lists for all of the Sunday shows, viewers will see two Republican senators (McCain, Graham), three Republican House members (Boehner, Ryan, Schilling), three likely Republican presidential candidates (Barbour, Gingrich, Pawlenty) … and zero Democrats from Congress or the Obama administration.

    It can’t be about political relevance; last I heard, Democrats held the White House and the Senate. Is it about expertise? As Benen points out, just two weeks ago McCain was warning about the menace of the Egyptian virus. And let me give some props to President Obama: I think the administration, by playing it cool but being clearly pro-democracy, has done just fine in the Egyptian affair.

    So why the blackout on Democrats?


    Who’s Unemployed?


    Larry Mishel emails me to second my concern about Charles Plosser’s blithe assertion that unemployment is about shifting workers out of construction. As Larry points out, the BLS provides data on the previous employment of the unemployed. There were 7.7 million more unemployed workers in 2010 than there were in 2007; of those extra 7.7 million, only 1.1 million had previously been employed in construction.

    To do a bit more with those data: here’s the increase in unemployment 2007-2010 by industry of previous employment:


    See the structural shift? Neither do I. As others have noted, basically unemployment doubled for every industry, every occupation, every state. Where are the sectors/occupations/regions gaining jobs? Nowhere to be found. There’s nothing structural about it.

  166. DELL beats on earnings/outlook, up AH

  167. Hi Phil :
    I entered a GE Sept. $16 /$18 BCS at $1.11 paired with sale of Sept. $16 P for $1.10 for net $.01 on the $2 spread. I closed out the P for $.25 and today I sold the $18 P for $.58 since I would be willing to buy GE at $18 in Sept.The BCS is now priced at $1.70 with only $.30 max. profit remaining. With the new sale of the Sept 18 P,my new net is now a $1.38 credit on the $2 spread.Should I make any changes to the BCS or just let it run it’s course? 

  168. Phil/small victories:
    You’re right……and it play’s right into what the guy I heard on the Bloomberg interview was saying.  He thought that the government/Investment bankers have a system in place that is designed to limit downside….a kind of sell off backstop. 
    When you watch the intraday charts closely you can see that is exactly what is happening.  If there is a pullback with volume the Bots fight like hell to keep it from gaining momentum…..then once the volume dry’s up…..they move in and chase it back up.

  169. Another from Paul:


    The public says it wants to see government spending cut — and the Tea Partiers really, really want spending cut — but people don’t want to cut any program they like; and they like almost everything. What’s a conservative to do?
    The obvious answer, once you think about it, is to eat the future: to cut spending in a way that undermines the nation’s long-run prospects, but doesn’t impose all that much pain on voters right now.
    And that, as best as I can tell, is the running theme in the cuts proposed by House Republicans. The proposal is, deliberately I think, hard to read and interpret; I hope and assume that the good folks at CBPP will do the detail soon. But on a quick read, here are some of the cuts that jumped out at me:
    WIC 1008 million
    Food for Peace 544 million
    NOAA 450 million
    NASA 579 million
    Energy efficiency and renewable energy 899
    Science 1111 million
    Nuclear nonproliferation 648 million
    Federal buildings fund 1653 million
    Homeland security administration 489 million
    FEMA, various, around 1.2 billion
    EPA clean water and drinking water about 1.8 billion
    Community health centers 1.3 billion
    Centers for disease control 900 million
    WIC is nutritional aid for pregnant women and women with young children; let’s cut that, because the damage to the nation from malnourishment is a problem for future politicians. NOAA is weather and climate — hey, what we don’t know can’t hurt us. Nuclear nonproliferation — well, we probably won’t feel the pain of a terrorist nuke assembled from old Soviet fissile material for a couple of years. FEMA — well, how often do hurricanes hit New Orleans? CDC — with luck, by the time plague hits someone else can be blamed.
    Don’t start thinking about tomorrow.


  170. Phil, surely you can put this photo to good use ..

  171.  And the rest of it – very good thing to consider!  


    Cut the fellow behind the tree that’s overseas. Pew on public fiscal views isn’t really all that surprising, but it’s still striking: people want spending cut, but are opposed to cuts in anything except foreign aid:
    And they want state governments to balance their budgets without cutting spending or raising taxes:
    The conclusion is inescapable: Republicans have a mandate to repeal the laws of arithmetic.


  172. Taiwan/ZZ – I don’t see how it can’t affect them, they import a lot of commodities. 

    GE/Dflam – It all comes down to opportunity costs.  You have $1.70 tied up in the BCS with a 20% upside in 7 months that looks pretty safe.  Do you have anything better to do with $1.70 over the next 7 months to make more than 20% as safely or safer?  If not – why change it.  If you do see something that looks like a better place to put money to work (like selling CSCO July $17.50 puts for .70 and buying the $17.50/19 bull call spread for .83 for net .13 on the $1.50 spread that’s $1.17 in the money (6.2%)).  Only if you found a trade like that with a similar downside risk (owning a blue chip for $17.50 on sale) and a better upside payoff potential (1,000%) should you give up on your very safe 20% position.  8)

    System/Exec – Yes, that system is our beloved TradeBot.  If all the IBanks nod and wink at each other and decide that making the market go up every day is going to make them Billions and since they initiate 80% of the transactions themselves – why not.  They’ve eliminated the risk of playing the markets – just like they eliminated to risk of purchasing Mortgage Backed Securities 5 years ago.  

    Good photo cap but not copyable. I don’t like that at all if this is a trend….   I’ll see what happens if I embed it: 


  173. @Phil
    While you’re posting the cuts in these budgets, to be completely objective, could you post the Actual Budgets, thespending that each of these cuts are coming from.  To  be completely objective, you know.
    Or are you of the twisted language department, wherein a reduction in the rate of increase is considered a cut?
    This is what is essentially dishonest about liberals.

  174. Phil – If I am not mistaken, the buyback of the DIA puts changes the price some in the sheet.  I think I add the 26c, which moves the total paid up to 1.97 from 1.71……

  175. Phil,
    In my second quarter here.   I’ve been working hard on understanding things and gotten comfortable enough to start executing more complicated trades.  However, my employer just instituted a compliance policy that requires that I hold anything I buy for a minimum of 30 days excluding indices and open end funds.  There is no regulatory requirement for them to do this or bona fide reason.  Corporate Amerika just wants to block any escape pod you can use and ensure you are chained to your workstation slaving away until they are done with you.  Perhaps this shows a lack of expertise, but I don’t feel comfortable doing some of the trades we look at with this restriction.   I realize the trades we do are a function of the environment in which we find ourselves and hope that soon we will get the opportunity to do more BW’s.  Trades like CSCO and ADM are helpful to re-orient my thinking in the direction I need to go.   I’ve also been following IT and think that could be a solid strategy for my portfolio.   Any thoughts or ideas appreciated.  Thanks.

  176.  Flips – If I lose a cost of living increase or go through a salary freeze during a time of inflation it sure feels like a cut to me.  It may not be completely accurate, but there are worse political sins than calling a reduction of a rate increase a cut.  Like making stuff up or falsifying data or going to war on trumped up intelligence.  Surely you have something more to throw at us Liberals than this. Even I can think of things more damning about my own political party.  Is there a party that stands for honesty in budgetary matters?  See the article I posted from Bill Moyers above.  While he is a liberal, the addiction to "truthiness" seems to run deep in the whole system.

  177. Anyone with a good question for my US Rep, on CC right now. Theme turn off the spigot of spending.

  178.  Phil/Downside Hedge – I covered EDZ early and have pulled back from the 25KP portfolio (looks fun but I’m not really around enough, so I’ m enjoying the long-term picks you have posted lately.)  
    I am in about 50% cash and have several long-term bullish spreads and a couple of long-term puts I would like to protect just a little more.  Right now all my hedges are the ones built into each of my buy-writes or writing puts out of the money on stocks I don’t mind owning. I do have a VIX spread which would probably give me a little boost on and downturn.  Which inverse ETFs would be the best right now for adding a small hedge?  I’m leaning to doing something with EDZ given the current environment.  Your thoughts?

  179. Phil
    Great points but lets not forget the repubicans will not put military, home security, or criminal incarceration sanity on the block even though that eats up about 75% of the money. Today I heard Obama laughing about corp tax freform, dare you guys!

  180. revtodd
    I live on a fixed income, 3 years ago I made ends meet, today I count the days to the end!

  181. Budget /Flips – I’m not saying they are cuts.  Lack of new spending is not cutting.  Cap is right, 15% cuts across the board, 33% on military and maybe even sit down and get real about SS but I would eliminate the cap and balance it out – not screw people out of what they put into the program.  The point Krugman was making, which escapes you, is that ALL of the cuts are coming out of programs that build America’s future and NONE of the cuts come from things that voters would notice between now and election day.  It’s short-sighted and foolish and juvenile and bad for our country, not to mention simply unrealistic as we again refuse to admit that LACK OF TAXATION is the primary cause of our deficit.  

    I’m not looking to raise your taxes or anyone’s taxes if you pay your 35%.  I just want to collect that 35% from EVERYBODY in the upper brackets, not just the people who have bad accountants.  Corporations plus people earn $10Tn a year in America so that would be $3.5Tn in revenues plus another $1.8Tn from SS and that’s $5.3Tn on a $3.5Tn budget.  If we knocked it down to $3Tn by eliminating the War – we could afford everything and pay down the debt in about 6 years.  The only reason this country can’t balance the budget is because people don’t pay their fair share of taxes – it has nothing much to do with spending. 

    I don’t advocate crazy, massive spending, but that’s something we can vote for and adjust over time but acting like we’re bankrupt and crippling the nation simply because a bunch of selfish bastards don’t want to contribute like everyone else is ridiculous.  

    Put a 30% VAT on all $15Tn of goods and services and that’s $4.5Tn collected by the Government, still $700Bn over this bloated budget and $1.5Tn over a non-war budget – Debt gone in 10 years that way.  If we did that, we wouldn’t need to collect ANY taxes from Corporations or People so you would have (assuming you were an honest taxpayer) 35% more cash to spend and (assuming the VAT was 100% passed on to you) things you decide to buy would be 30% more.  So the only people paying a lot would be the people spending a lot and businesses would also get the bonus of no longer needing to deduct matching SS funds.  

    What’s not to like?  Nothing except GE would have to pay $50Bn on $150Bn in sales wheras now they get a $1Bn rebate.  The cheaters object and, since the cheaters control the media (and your well-washed mind, Flips) it will never happen.  Why wouldn’t GE pay lobbyists $40M to make sure this doesn’t happen?

    That is, of course, over and above their campaign contributions.  Reporting laws are BS when a company with 300,000 employees and thousands of executives making 6-figure salaries wants to "help out" with a little fund raising.

    So there is my "twisted language" simplified as much as possible for you.  Another lobby you constantly speak out for is another one that is destroying our country and that’s Health Care.  We spend more than twice as much money per person on health care as any other nation on earth and they have the same GE equipment and the same Merck pills and the same ISRG machines that we do – we’re just the idiots that don’t let our big, bad, lazy, inefficient government coordinate a system and negotiate a discount for it’s 300M citizens because – where’s the profit in that?  

    File:Us gov spending histry by function 1902 2010.png

    Here’s that budget chart you wanted:

    File:Federal spendings.png

    EU nations spend, in general 45% to 55% of their GDP through public expenditures.  We spend 23%, including a $700Bn a year war (5%) and $400Bn in debt service (2.5%) and people expect us to cut.  Compared to the rest of the World, we already have no government.  

  182. Congrats on FDO DC!  I remember you were talking about them on the weekend although I’m not sure this is an honest offer (kind of like when Kirkorean said he was going to buy GM).  

    DIA/Pharm – Oh, I just sent out an Alert where I just dropped that gain into cash and left the $1.97 basis.  

    Restrictions/Seer – Isn’t it insidious the way they take away your freedoms one by one?  Now they tell you how to trade?  Well, if you stick to S&P blue chips then you can always do quick in and out covers with the indexes so not the worst thing.  So yes, look for trades like CSCO above where it is virtually inconceivable that you would have any need to move it within 30 days.  If you stick to 6 month+ buy/writes and artificial buy/writes with built-in 20% or more cushions when you take the trade – then it’s just a matter of slapping on a DIA or SPX hedge if we drop more than 5% but, otherwise, you are golden.  

    We spend most of our time talking about short-term trades because they require all the work but I say to people over and over and over again that short-term trading should be a SMALL part of your portfolio with the vast bulk of your money in long-term 20% trades that you buy and forget until it’s time to cash out or roll.  Even today, what are people asking about?  GE that’s a mile in the money, VLO that’s a mile in the money….  THAT’S what our portfolios SHOULD be filled with.  The rest is stuff to amuse ourselves while we wait to collect our annual 20%.  

    The best strategy to trade that way is to WAIT.  WAIT.  WAIT!  There is always SOMETHING going on sale.  Right now TZA is so on sale that they have to reverse split the thing.  HOV is still $4.36, C is $4.91, MRK is $32.75, CSCO is $18.69, ADM is $36.35, XLF is $17.05, TASR is $4.09, EGLE, $4.20, HMY $10.89, SVU $9.20, DF $9.50… – don’t tell me there’s nothing to buy so you have to play NFLX – that’s ridiculous!  Any of those stocks can be combo’d for 20% annual returns – only greed prevents you from establishing a sensible portfolio that makes 20% a year, which turns $100,000 into $619,000 in 10 years.  

    That’s an average of $50,000 a year over 10 years by just making sensible, well-hedged investments!  

    Can you lose?  Sure, the S&P can crash and even a diversified set of blue chips (and not all the above are blue chips – you have to be more patient to get all blue-chips on sale but that happens often enough too) can drop 50% but you’d still be 30% ahead of the S&P and, of course, you know how to buy those indexes to cover to the downside somewhere between a 5 and 50% drop, right?  

    That’s all this is about and it’s a shame people seem to lose sight of it and get caught up in the gambling.  My favorite quote from Charles Dow (founder of the Wall Street Journal and the Dow of Dow Jones) from the 1800s is one I should probably put at the bottom of every page on this site:

    "The man who begins to speculate in stocks with the intention of making a fortune usually goes broke, whereas the man who trades with a view of getting good interest on his money sometimes gets rich."

  183. Got it….thx.

  184. US Rep/Doro – Which one?  From the theme, I’m guessing Republican so ask him why we have a $1.1Tn annual military budget when the entire rest of the planet combined has $1Tn?  Is that a little overkill to defend 5% of the planet’s population with no enemies on our boarders?  Then ask how much he will cut SS and Medicare, which is 70% of our forward deficit.  Ask him how much of your benefits you would expect to collect and why are you and your employer putting $9,000 out of $106,800 into a program for 40 years that is unlikely to pay you back a dime.  What is his plan to insure that that specific money is not "wasted" because (and you can use my handy compound rate calculator) putting $9,000 a year every year into a 4.5% TBill for 40 years at 4.5% interest should net you over $1M at retirement, which would be $45,000 a year if you rolled that into more TBills and you would still get to leave the $1M principal to your kids so they would start off in better shape than you did.  What’s his plan for that.  

    Hedging/Rev – Yes, I like EDZ and TZA as my favorite hedges for the same reason.  Small countries and small companies can get crushed by inflation.  We’re going to invest long-term in solid multi-nationals for the most part and, at worst, they may get outperformed by the Russell or even Emerging markets but it’s very unlikely that our big-caps will fail without EDZ and TZA paying off.  So we have a chance of winning on all 3 or 2 of 3 and very little chance of blowing all 3.  

    You can sell EDZ Jan $16 puts for $3 and buy the $17/25 bull call spread for $2.80 so a .20 credit for the $8 spread that’s currently $5.68 in the money.  The net margin on the puts is a laughable $1,500 so it’s a nice naked play too (collect $3,000 on net $1,500 in margin) and figure you can short 10 and worst case is you own EDZ for $16,000 but realistically you would roll them or stop out with a $2K loss.   Best case is you make $8,000 so a nice little hedge there.  Also – don’t forget, you wouldn’t be buying EDZ at net $16 unless the $50,000 worth of longs you are protecting are up 20% ($10,000) so the real worst case is you own EDZ for net $6,000 and even if it goes to zero on some insane event, you still have $44,000 out of $50,000 after the "disaster".  

    TZA should be even more correlated to US stocks but that’s the thing, I like EDZ BECAUSE it can go up even while we’re doing well in the US (as we export inflation and burn global economies).  TZA is going to reverse split so not a good time to enter but, conceptually, you can sell the Jan $10 puts for $2 and buy the $11/19 bull call spread for $2.20 and that’s net .20 on the $8 spread and there you are only committing to buying $11K of TZA for $8K in protection and the net margin there is also a laughable $965 to collect $2,000 so again, can just sell the naked puts for a pretty good hedge.  

  185. Phil, this article looks like a candidate for your lead-in tomorrow, it’s the top story now on Yahoo! Finance home:

  186. seer -
    re: your compliance policy … what  company do you work for ( if you can disclose it ).
    I ask b/c I have seen such policies before and usually the policy has provisions to try to receive a waiver from such requirements.
    Just trying to help you get unchained …

  187.  Speaking of honesty in budgetary matters, I just read in WSJ that Neil Barofsky, the TARP inspector general, is stepping down as of March 30.

  188.  OMG … an historic day at Phil’s Stock World …
    "Cap is right …."

  189. An interesting article on how insider trading might occur without actually buying the stock or any options on the stock.  The explanation is wrong but the concept is interesting.

  190. Phil-Thanks.  I guess what you’re saying is that I should take a que from the women and continue to shop until I find what I want!  I qualify for your hedge fund and was thinking about allocating a percentage of my portfolio to it.  It’s probably worth the fee given my restrictions, portfolio size and time constraints.  I was wondering how you would manage the fund while  promulgating trade ideas here.  Do you envision this site continuing in its current form after your launch?
    Cap-Thanks for the help.  I would prefer not to disclose my employer given the nature of the company and my position with them (discretion is the better part of staying employed).  There is a waiver process, but it is so cumbersome and time consuming that I would likely suffer a signifcant loss before I received it.  It would also be just another demand on my limted time (along with my heavy workload and trying to do the rearch for my protfolio). 

  191.  Phil: Allocations
    Okay, thanks for the response earlier.  I’m in breakout hedges and in inflation plays as well but again just started too small.  You’ll have to forgive me for not yet counting on my 10% risk portion to double since I’ve never done it before. :)   I guess plant trees with 90% and kudzu with the other 10%.
    So my follow up is how should I be allocating individual aggressive trades if 10% (100k) is my aggressive portion, 20% 10%, 5% each?  I’m following no more than 5% in the longterm positions.  If I’m only 35% invested does that mean 35k is what I should be aggressive with and if so what allocation?  Uh oh, I think I’m answering my own question and should just follow the 25KP

  192. Phil, those proposed cuts are sick… I can tell you that the nuclear nonproliferation funding is the best $ spent when it comes to Homeland security/DOD related spending.

  193. Phil
    Sorry you have to respond to supidity. I will add for you vilocity of money is what builds real wealth and that starts at the bottom, not power but money to the people. Who buys their crap anyway?. If these idiots don’t have anyone to sell to how do they sustain their income? Stupid !!!!!!!!!!!!!!!!!!!!!!!!!!102 202 302 402 MBA PHD Stupid.

  194.  Cap – lol, you are right. Phil hardly agrees with you.

  195. Hey Phil, even a blind squirrel finds a nut (FDO) every once and awhile!

  196. Phil
    I was reading all the commentary about the reverse spit on TZA and am still thinking that it might be prudent to make any adjustments before the split rather than being forced into a move early (if things keep going up) and being hurt by a wide spread. In that regard, I currently hold the following in TZA: July $13 long calls (in $3.56/$2.45)/ July $17 short calls (in at $1.76/$1.51 & July $11 sold puts (in at $1.11/$2.33). I am in TZA for the long haul. Not sure if I see a move that makes a lot of sense at this point. Your opinion would be helpful.

  197. BTW, is why is it that /DX always goes down AH!?! Im sick of this sh!t!

  198. Phil…Loved your comments at the end of the day. Trying to understand the long term picture/asset allocation on a 1M+ portfolio.Is it wise to perhaps be 75% invested in long term buy/writes that are always evolving and then have 15%% in reserve and 10% for our gaming time?  ANOTHER really basic stupid question….I bot a put and had it assigned to me SHORT after the stock suddenly closed 1 cent under the strike price at expiration. Why am I assigned the stock SHORT as opposed to long? Does the same hold true if you sell calls and they are assigned to you at expiration as the stock finished below the strike price and you are assigned SHORT? Is the trade at broker discretion ….I did not want to be assigned? I’m learning and amazingly making some good returns thanks to you and the other members,keep up the fight.I love ya man!

  199. Thanks for the question Phil, sadly I wasn’t picked to ask a question from my Rep Daniel Webster FL. He spoke about cutting most of your above list programs (oddly I was watching a NPB show when the phone rang). Most of the people on the call were on board with that and bashing Obamacare. Two mentioned defense cuts that were "being looked at". He wanted to have an "adult conversation" about health care (with no ideas other than repel and no funding). One person asked about the defiect commission report and why it wasn’t being adopted lots of double speak. Did like that he said that he wanted to put elected officials in pool with everyone else with healthcare and pension plans. 

  200.  Phil:  Don’t disagree with your comment, to wit:
    I’m not looking to raise your taxes or anyone’s taxes if you pay your 35%.  I just want to collect that 35% from EVERYBODY in the upper brackets…"
    But……I think the problem with "taxing the rich" is more subtle than you think.  Capital is worth more in an inflationary environment, because, assuming it’s invested, it is essentially indexed to that inflation.  The non-rich, with only labor to offer, are not indexed; apart from high unemployment / rising global population, wages are taxed as you earn them.  E.g. the "inflation" premium attached to capital isn’t taxed if unrealized, but wages are always "realized", for tax purpose.
    Inflation also moves wage earners into higher brackets, apart from taxing the present value of their wages contemporaneously; it doesn’t do that with capital owners.
    So if I have XOM, and it goes up, I may have to pay tax on the dividends, but taxes wouldn’t touch the appreciation in the stock, if I don’t sell it. No tax: no 35%, no 15%, zip.  And, in an inflationary environment, it’s presumably appreciating.  But when I need to buy a car or a chocolate bar, I sell x% of my XOM, and pay cap. gains [15% now, maybe 20% soon].  Net net, capital owners pay a virtual VAT on their consumption, but pay, as a percentage of total gains, very little or no income tax..   
    To tax the rich at 35%, you would have to tax unrealized gains. Which makes no sense. And, in an inflationary environment, I would argue that the percentage of the gains equal to CPI aren’t "real", and shouldn’t be taxed at all.  [Good luck with that argument, which should apply to wage earners as well].
    Bottom line:  inflation is confiscatory.  Period.  It reallocates wealth from those who offer wage labor, which is taxed contemporaneously, and toward those who own capital goods --and whom don’t sell more than they need to.  Taxes are the capillary, not the jugular, of the problem, which you have been very free to say is massive government spending, distorting everyone’s income and gains.
    I am far from an economist, but that’s how it looks to me.


  201. FWIW the last time TZA split, tried very hard to close both legs of a spread the prior 2 days, it didn’t happen.
    Didn’t even get a sniff post split. Had to write it off as a complete loss.

  202. @phil
    That you cannot seem to get it through your head that the ultimate consumer—from the widgets in your toaster to the burrito at Taco Bell --pays ALL THE TAXES levied by any taxing authority,  unless reimbursed by the taxing authority, makes any discussion with you about taxes utterly pointless and fruitless.  If you cannot see that your business, this one, Phils Stock World, is completely paid for including every single penny of tax that is levied on your business paid for by us,  your subscribers, then any further tax advice you proffer is either done so with complete disregard for the laws of Profit and Loss or you’re just going to ignore the truth and go on with your fantasy.  GE will not pay one dime of taxes. They merely act as a collecting agent for the government! 
    Re: the budget, much better…couldn’t agree more with you and Cap about straight across the board cuts in budgets and especially defense, which is being used by defense contractors to sell stuff to one customer--the government and thru that agency, the taxpayer of the United States. That those contractors employ millions of those middle class people is a problem to be dealt with no doubt. But that’s for another discussion.
    My mind isn’t washed by any government taxing authority.I just understand it better than you do. Your mind closed to who actually has and will pay ALL  of them. 
    As for the per capita expenditures you cite every time you bring up the per cent of what the U.S. pays vs another pissant country, we have been approaching Euro style per capitas for a very long time and I believe it is inevitable that as long as Peter can rob Paul at the ballot box, your dream of having producers pay for all non-producers is aborning.   There simply aren’t enough jobs in the world to employ the billions of those without one, regardless of their abilities, talents, and energies so a new paradigm must manifest itself and has been thru a variety of government created jobs in the private sector--TAx accountants, clerks in accounting departments, etc….
    We likely agree about a lot more than you think, but your willfullness in  ignoring basic economics, and substituting Political Econmics in its place in the solutions you think will work is a huge stumbling block to moving forward.

  203. Good morning!  

    Dollar got dumped back to 78.30 overnight and the spike in the futures was crazy after hours.  That should turn around a bit after the BOE reports on inflation as they are in the same denial as Bernanke and are not likely to tighten policy just because it’s the logical thing to do.  

    We have MBA Mortgage Apps at 7 and Housing Starts at 8 and PPI at 8:30 and then Industrial Production at 9:15 so we’ll see if it sticks or if they are flushing the shorts.  Oil inventories at 10:30 are the last hope for March contract holders (and not much hope at all) and at 2pm we have Fed Minutes where, of course, we will be promised MORE FREE MONEY.  

    Forget Mubarak, Paul Farrell writes, it’s Bernanke who needs to be toppled: "Just as Mubarak was blind to the economic needs of the masses and democratic reforms, Bernanke is blind to the easy-money legacy that’s set the stage for revolution, turning the rich into super rich while the middle class stagnates and peanuts trickle down to the poor."

    Not only do emerging markets have to deal with slowing growth, rate hikes, and inflation, but their shares are not necessarily cheap. RBC points out the ratio of emerging market valuations to G7 valuations is at the highest level since right before it collapsed in the mid-90s. 

    "Brazil totally opposes the use of mechanisms to control … the price of commodities," says Finance Minister Mantega, speaking ahead of a G20 meeting in France this week. Nicolas Sarkozy is attempting to rally support for regulations that would limit price movements. (More Mantega). 

    Was it really just the weather? That’s the consensus explanation for disappointingJanuary retail sales, but Ellen Zentner fears that five straight months of rising gasoline prices are taking a toll on consumers’ wherewithal to spend on more than just the basics. She’ll be watching February restaurant sales as an indicator of consumers’ ability to keep spending.

    Beginning of the long-awaited correction, or just another blip on the way to another 6% upside for the year? Art Cashin points to S&P 1333 as a "psychological area" that will be tested. "Later in the week, the bulls are going to circle the wagons and take another shot at it, and that will tell us whether it’s a rest and recoup or not." 

    Netflix (NFLX -2.7%) has crushed short sellers but they’re not necessarily wrong, according to Heard On The Street. Netflix’s product, it says, is inferior to rivals: Users often must wait a month to see a new movie DVD, and its streaming video offers less newer programming than rival subscription services like HBO. That probably means there’s not much more room for growth. 

    It’s supercomputer Watson 1, human Brad Rutter 1 in the first round of Jeopardy’s man-vs.-machine challengeIBM is developing intelligence that searches information as humans create it, which it believes "could open up all sorts of new fields and possibilities" – and someday, if you work in customer service, tech support or a call center, it could take your job.

    That last item to me, is both exciting and scary.  I watched Jeopardy this morning and holy crap is that thing impressive!  I am thrilled as I can see 1,000 applications for this technology but I also see 40-50M customer support jobs ($1.5Tn/yr) being replaced by this machine within 5 years.   It’s not just that though as this thing will only get faster and smarter as time goes by.  We’re probably looking at the next great leap forward in productivity – don’t dismiss this as a talking Google – it’s not.  

    This computer understands what it reads AND what it hears (HomeSec’s wet dream!).  It cross-files all the data it gathers and makes the same kind of connections our brains do when your daughter says to her friend "Does he like her or does he like like her?"  That means this thing can take your order in a restaurant and pop it up on screen in the kitchen but it can do it at 200 tables at the same time or every table in America for that matter.  It can replace every operator (already done mostly) and travel agent and tech support and customer service and order processing and paralegal and research assistant and secretary, etc. etc.  

    I’m not talking futuristic BS here, IBM built this sucker and they did it for a lot less then $1Tn so it will not be possible for companies to be competitive without using this technology.  This is a World-changing invention and we might worry about jobs but we’re also talking great leaps forward in science, medicine, economics – there’s no limit to what you can do with a computer like this.

    IBM video on the Watson Project.  

    Long-form video on the education of Watson.  

    Great perspective point by project leader that Watson is 8 refrigerator sized cabinets with thousands of processors and terabytes of ram trying to replicate a brain that can be powered by a tuna fish sandwich and a glass of water.  

    What IBM sees Watson being used for.  

    I used to tell my staff at my real estate data company "Someday, you will all be replaced by machines" – that day’s looking very close!  

  204. Wealth gap/Mr. M –  Ah, well you know that’s my pet peeve but we have bigger fish to fry today.  

    Shopping/Seer – Sure, just like anything else, there are companies you KNOW you like and, once in a while, they miss earnings or get sued (CVX yesterday) or have some one-time event (MEE’s mine collapse, BP’s spill) that kills the stock but doesn’t change your long-term view on the company.  
    Even if something like that only happens once per quarter – in 5 years you have 20 great stocks that you bought at bargain prices.  As to the Hedge Fund, I have a partner who ran a very large fund and we’re not day-trading so not an issue.  Just like I answer questions for 500 people and their portfolios here during the day, I can handle one more!  8-)

    Doubling/Red – Be aware that it doubles IF you are missing a rally.  No rally, no double but then the point is that you didn’t need to deploy the other 90% as there was no rally and you didn’t miss anything.  Instead you are PATIENTLY waiting for great sale opportunities (as noted with Seer above) which can be taken advantage of when you have cash.  If you are $35K out of $100K aggressively allocated out of $1M then you can certainly afford to be very aggressive with the $35K.  

    Let’s go back to AAPL, which is a great example in your situation:  You can sell the 2013 $260 puts for $20 (collect $2,000, margin $4,500) and buy the 2012 $260/300 bull call spread for $32 (+$1,200 cash) and that puts you in the $4,000 spread that’s $60 in the money (almost 20% down) for net cash and margin of $5,700.  So your upside is 70% and your downside is owning AAPL at net $272, which is 24% off the current price.  

    BUT, you are not really forced to own AAPL at $272.  The possibility is there so you may end up spending $27,200 to own 100 shares of AAPL but, realistically, let’s say that, two years ago, you had sold the Feb $450 puts and now AAPL is down to $360 and those puts are $92.  Well, you could just take 100 shares of AAPL at $45,000 and you are down $9,000 today.  That can be partly offset by selling the 2012 $360 calls for $41.50 and the $330 puts for $26 and that brings you down to net $382.50/356.25 so, even after this initial crushing defeat, you only need to commit to a DD in 12 months and you are even.  

    We COULD do that or we could take our $92 obligation on the Feb $450 puts and roll it to 2x the 2013 $335 puts at $47.  So, from starting out in (estimating) 2008 with AAPL at $550, we sold the $450 puts and tool a spread that didn’t work (presumably) and now we are obligated to buy AAPL at $450 but we roll it to 2x the 2013 $330 puts so our obligation is not to buy 200 shares of AAPL at $330, which is 44% below where AAPL was when we started in 2008.  If they keep going down, we can probably expect to do another 2x roll to to the 2015 $250s and then we own 400 shares of AAPL for $100,000, more than 50% below the price it was at when we began.  

    As I often say to Members – if you don’t REALLY want to own 200 shares of AAPL at (going back to the current trade and looking one roll forward) $180, then DO NOT sell 1 put at a $260 strike today because that’s the path you are setting yourself on.  Now, if you commit to buying AAPL, T, BA, ABX, WMT, PFE, GE, C, JPM, BTU, CHK, XOM, HUM, AA (I could go on!)…  and collect $28,000 (for those 14) now (assuming similar ratios to AAPL) against $79,800 in cash and margin with a worst-case obligation of buying $378,000 worth of those stocks at 20-30% discounts, you can call that (assuming 50% cash) an aggressive allocation of $200K of your portfolio with a potential upside (assuming the AAPL profile holds – and it does if you are patient and only pick spreads that perform in your profile) of $55,860 (70% of cash and margin) EVEN IN A FLAT MARKET.  

    Now, if one or two of those stocks sell off sharply and you STILL like them long term, then those move into the Long-Term Portfolio and you do a 2x roll or turn them into a buy/write (as above) and now you are putting you other $800,000 to work buying a blue-chip stock cheaply.  If they all take off or go up, then that $200,000 allocation makes 25% for you.  

    Here’s where you must watch "The Man Who Planted Trees" because we’re talking very long-term planning here but let’s say you begin building positions that way.  

    You will have lots of cash at first but, over time, you will add positions like 400 AAPL at $180 (when Steve Jobs died) and 2,000 BA at $40 (because a plane crashed) and 3,000 BTU at $35 (because they passed a law that made their coal less desirable), etc.  Over time, just like now after they all crashed to levels lower than that, they come back and you can sell 4 AAPL 2013 $350 calls for $70 ($28,000) against your $180 entry ($72,000), which is 38% but you don’t have to hedge it and you don’t have to worry about getting called away because you are 50% above break-even.  

    Over time, your whole portfolio begins to look like that – trees that bear fruit every year and, over time, you have 5, 10, 20 positions like that and they throw off $100,000 a year, then $200,000 a year and then $400,000 a year just in call premiums you can sell and, once in a while, a stock goes up so much that you get cashed out and then you plant another seed and wait to see what sprouts.  This is a system to get rich slowly but it only takes a few years to begin to see your investments take root and, once you get in the groove, the potential becomes very obvious!  

  205. Put assignment/490 – You paid to sell a stock to someone at a certain strike.  Below that strike the option must be cleared so your broker executes the agreement which is you sell the stock to whoever at that strike.  If you owned the stock, your stock would have been taken out of the portfolio and exchanged for cash but you didn’t own it so you were given the cash and assigned a short position in the stock – because stock did go to the party you contracted with so you end up short the stock you gave them that you never owned.  Had you bought a call and let it expire, then the stock will be given to you and cash would be removed from your account.  If you sell a call then stock will be taken from you in exchange for cash but, if you don’t own the stock, then a short on that stock will be assigned to you (for your cash).   Actually, it’s a good way of initiating a short position on a stock that’s hard to fill on the short side.  And, thanks, glad we’re helping!  

    Adult conversation/Doro – That would be a nice change.  

    Inflation/ZZ – You are right of course but let’s deal with one issue at a time.  If we paid our debts then the dollar would be strong and we wouldn’t have inflation and the Fed wouldn’t need to print money and dollars would be in demand and the banks would actually pay people a reasonable rate of return for lending them money.  Yeah – right, like that will ever happen!  

    TZA/Doro – Right, no way do you want to be far out of the money.  

    Consumer/Flips – Then why do you care how the taxes are applied?   That’s got to be the most roundabout argument I’ve ever heard.  Do you really think you are making a point to say that taxes are priced into the model?  Sure they are.  It costs X to run the country and the people of the country need to pay X (not less than X) to balance the books.  I don’t care how you try to phrase it, the government needs $3.5Bn so they need to collect $3.5Bn out of a $15Tn GDP.  The fairest and most efficient way to do that is to levy a 22% VAT on all goods and services and leave the people alone.  Since we have debts, better to take 30% and pay them off as well.  You can vote for all the Tea Party candidates you want to and you can cut spending every year until the VAT is down to 2% if you want (and if that level of idiocy is voted in) but all I’m saying is that EVERY YEAR – we collect whatever we spend in an equitable fashion.  I’m sorry if you think that is somehow ignorant of me but balancing a budget makes sense to me and having people who buy the most stuff pay the most taxes also makes sense.  

  206.  Phil: Wow 
    Thanks for that response what a great synopsis and summary with the math to support it,   BTW the Watson project (I saw on NOVA) is one of the most awesome things I’ve ever seen.  It’s funny last night watching the show my wife say’s "of course a computer should win." she like many  with no idea what a feat it really is.  I was the only one pulling for Watson :)  New found respect for IBM also glad the project wasn’t run in India.
    Thanks again

  207. @Phil
    I don’t vote. I tried that until I realized, that on genuinely important matters (leaving out stuff like whether two women should be permitted to marry by federal edict), "Those who vote decide nothing".  Whether it was  Stalin who said or not it is right.
    The 80% of the budget that is off limits for cuts proves it.  All the clamoring for Defense budge cuts will result in marginal at best changes, and subterfuge to get around it.
    The same with the Wall Street bailouts that the people were opposed to.
    Your faith in the vote is bewildering. Whether it’s thru naivete or simply an agenda that will not yield to reality, I don’t know. What I do know is revolutionary changes that you put forth  have zero chance of being considered let alone put into effect. 
    Maybe once your language gets tighter and clearer, I won’t have to respond to things like, "GE will PAY 30% taxes", when that is simply untrue.  GE’s customers will pay. And there isn’t a balanced budget in the entire world, so good luck with that too.
    I do believe you are about the most consummate liberal/capitalist /dealist I have ever come across in a website. In that, you are unique, remarkable.

  208.   Phil:     Forgive my usual terse reply.  Taking as my point of departure your comment,  "….If we paid our debts."
    Your comment gives the sense that there has been a kind of personal failing on the part of citizens and/or it’s government. I take the more mechanical view that failing to pay our debts may be a kind of structural failure our of representative democracy when it was overwhelmed with almost unparalleled wealth.  Reprehensible, but understandable.
    The U.S. came out of WWII and racked up 6% of global GDP by the 1960s — a feat equalled only three times, England 19th Century, China recently.  Americans all became, by global standards, rich.  And successive governments responded accurately to the will of the people.
    There has followed a long series of maneuvers by successive U.S. governments — all three branches — to sustain that global income edge, each increasingly expensive and all ultimately futile.  And there have been a equal series of "recessions", which representing the interstices between maneuvers, as the effects of each one faded away into economic unreality.
    Since the mid-70s, the U.S. cut import tariffs, cut income taxes, outsourced employment to lower the cost of U.S. consumption and ramped up spending hugely.  It turned government into a giant jobs programs — the U.S. military, larger than all others combined worldwide, being the largest.  It passed legislation entitling citizens to income earned by their children and grandchildren while in their dotage.
     And when those initiatives hit their points of diminishing returns, government turned their attention to the stock market, and we had a NASDAQ bubble, which made for a nice wealth effect during the 1990′s.
    But too many jobs had been outsourced and exported, and too many gas guzzling 400 hp Dodge Magnums had been sold,and the cost of keeping Americans running in place was going up. The fall of the Berlin Wall and the privatization of the world economy — communism no longer being around to prohibit it capitalism in at least part of the world — had exponentially accelerated resource use, and the only recourse left to the U.S. government to meet the economic cries of its citizens was to borrow from the future, big time.
    The 21st century was kicked off by a bull market in real estate agents, mortgage brokers and the wealth effect of rising house values, as the government withdrew any semblance of restraint from its financial sector and permitted a tidal wave of debt to rise up — permitted  the instant monetization and current consumption of two or three generations of American GDP. 
    The U.S. has few options at this point beyond lurching from crisis to crisis for awhile, until everybody gets use to having quite a bit less.   I was a teenager when Berkeley, Chicago and Vietnam were going off, before the U.S. government realized they could buy their way out of dealing with the negative trajectory of America’s global income share.  It’s not impossible that Americans start camping out and waving banners in public squares like Egyptians within the foreseeable future. 

  209.  On a more cheerful note — the sovereign wealth fund of Abu Dhabi has launched a public offering for CEPSA, a Spanish oil company of which they already own 47%. If I were an oil producing country with billions of dollars in oil reserves and no desire to buy the sovereign debt of any consumer nation, I would vertically integrate — I would buy stock in oil majors to convert the oil I sell into energy technology and information.
    These buyers wouldn’t be unduly concerned with elevated P/E ratios, since the break even point for such an investment would be the inflation-discounted yield on U.S. treasuries, which is undoubtedly negative when measured in the price of said oil. Disclosure: long PBR & SU.

  210. Remarkable/Flips – Thanks, I guess!  

    Response/ZZ – Not sure what response you expect.   I don’t disagree except for I see other factors like the rise of the military/industrial complex Eisenhower warned us about and the rise of the banks and corporations that Jefferson warned us about taking over our government and turning it into a wealth-extraction machine that funnels money up from the middle class and transfers it to the top 1%.  That has been the history of post WWII America but it was also the history of pre 1929 America so it’s not really shocking, is it?  Capitalism led to banking and bankers took over this country and developed the stock market to make sure they had the ability to reach into virtually every American company in the 1850s.  

    The system was set up so companies can’t get access to real capital without going through a process that generates 10% fees for the banks with no risk on their part.  Then, once shares are issued, the bank facilitates the trading of those shares an average of 20 times a year, also collecting fees with each transaction and also with no risk.  That is the primary scam on which our entire system is based.  

    From there, the banks problem is obvious – How do we create more public corporations and get people to invest in them?  That leads to driving the development of a consumer society (see "History of the Self") and the long-term destruction of private corporations in favor of publicly traded ones.  The next brilliant step was to encourage workers to work for large corporations by offering various retirement schemes that made it seem like giving up your dreams of striking out on your own would guarantee you would be cared for for life. 

    Once they had the majority of Americans working for big corporations, the next step was to feed the beast and grow them as big as possible – even health care was a tool to drive people away from small businesses, who could not afford to keep up because the insurance companies, who work with the banker, offered much better deals to large corporations even though, logically, it makes as little sense to concentrate health care risk to companies as it would to do so with driving risks on auto insurance.  

    The next step was to get the workers to speculate and stocks were sold like shaving cream to the masses and, the most brilliant stroke, was setting up a tax systems that rewarded people for setting up retirement accounts that funneled their savings into the stock market, where the banks could charge people for saving money, rather than paying them.  

    Of course they went after Social Security too but that failed the first time.  I expect them to come back with that one next time a Republican is President and they will point to how much money SS would have made since March of 2009 as "evidence" of why we must put SS money into the markets or at least let people have the "fee choice" to do so. 

    As the man said to Woodward and Bernstein: "Follow the money" and all becomes clear.  Virtually every major action taken by our government since 1850 has been done for the benefit of Wall Street and the Banksters.  Look at things in terms of "how does this help the banks take money from people" and they make a lot more sense.  

    Housing is a great example:  First they market the "Amercian Dream" of home ownership because landlords were often small businessmen who did the banks little good and rent money didn’t do the banks any good – a man would buy one building, pay it off and house people for 60 years.  Where’s the fun in that for the Banks?  Instead, you get the 20 families that were in the man’s building to buy homes and you charge them interest and fees and encourage people to "trade up" as no home should ever satisfy you.  There are even theories that the rise and fall of certain cities are engineered to drive people in and out of areas to encourage turnover.  

    Anyway, so that was great for a while but the Bankers wanted more.  So the next great idea is to get people to spend more than 2 or 3 year’s salary on a home.  That was accomplished by creating a situation in which homes did nothing but rise for long periods of time and that turned us into a nation of real-estate speculators.  Now people are buying homes that retail for 5 year’s salary but what most people don’t realize is that it costs $540,000 to pay off a $250,000 mortgage and, of course, you know how that story ends – everybody in America becomes a wage slave to the banks – working the rest of their lives to pay off a home, not to mention all the "essential" junk we put in it.  

    With all this sold under the "American Dream" label, how else can banks force people to spend more?  Now they have to raise the costs of real essentials.  We all have these ridiculously large homes to heat and cool so deregulate utilities and raise prices, promote big cars that use lots of gas at $1 and then charge $3 for gas (with credit cards, of course).  College costs are encouraged to go sky-high as that’s another loan Big Business can force you to take because the guys who fund your businesses simply place an emphasis on only wanting top management with college degrees (sounds reasonable) which then leads to a culture in which the workers HAVE to have college degrees "or they will never get ahead" and PRESTO – everyone now NEEDS a college education at $50,000 a pop (another year of the families salary gone per child).  

    By the way, encouraging 2-child families is another way to discourage small entrepreneurs.  Big families can start businesses on their own, small families can’t.   

    Once you shove everyone into college, what’s next?  Well, everyone needs to live so let’s raise the cost of Health care until it’s 20% of the GDP and now people must buy insurance because people can’t even afford to have a baby without an installment plan anymore.  

    This country has simply turned wage slavery into an art form.  Kids graduate college in debt.  They can’t work for themselves or start businesses that make no money for 2 years because the bank will begin sending them loan default notices within 90 days of graduation.  You can’t even get engaged without a ring that is a few month’s salary and weddings have turned into 6-month’s salary events (it used to be what we now call an engagement party was the wedding).  

    You are born, you go into debt and then you die.   That’s the path for 90% of the people in this country…