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Testy Tuesday – AAPL Rebalancing in May May Keep the Nasdaq from 2,800 Today

A staff member holds the new Apple iPad2 at the Apple store in London March 25, 2011. REUTERS/Luke MacGregorThe Nasdaq is finally rebalancing!  

That is good news but not so much for Apple, Inc., whose current 20.49% weighting in the index will be cut to 12.33% on May 2nd.  This explains a lot of the strange movement in the Nasdaq as apparently the cognescenti have already begun jockying their positions – trying to guess which of the 100 stocks in the Composite Index will curry some of AAPL's lost favor.  

Perhaps the the moves up in fellow 4-letter stocks like PCLN ($25Bn market cap), NFLX ($13Bn), OPEN ($2.5Bn), BIDU ($50Bn) and GMCR ($9.4Bn) don't seem quite so crazy in light of the 40% reduction in AAPL ($314Bn) – take the money out of one bucket and you HAVE to fill up the others!  

This does make me feel better as there may actually be a rational reason for NFLX having a p/e of 82 despite the fact that they have a completely indefensible service that already has competition from several on-line clones as well as big boys like AMZN, not to mention every cable and satellite company in America.  Why does WFMI, a GROCERY STORE, trade at 41 times it's projected 2011 earnings in the middle of the worst food inflation in US history?  It's not just because rich people are stupid and will overpay for anything because they hate to have people think they can't afford stuff – it's because their market cap is $11.4Bn and if you take 40% of AAPL's $300Bn and distribute it around the Nasdaq – then WFMI get's $1.2Bn of additional allocation.  

That's not exactly how it works but that's the effect.  A $1Bn Index fund who follows the Nasdaq has $205M of AAPL stock (20.49%) and, after the reweighing, they are to have $123M of AAPL stock.  The other $82M does, in fact, get distributed to the other Nasdaq stocks according to the new weightings.  Do you think that doesn't distort the markets?  Of course, that doesn't "just" affect the Nasdaq – AAPL is a heavyweight in all the indexes.  

The special rebalancing of the NASDAQ-100 Index will be enacted based on index securities and shares outstanding as of March 31 – now it is very clear why the MoMo stocks were jacked up like crazy into the end of Q1 – now the market manipulators have guaranteed bagholders for their stocks come May 2nd!  On that date, they KNOW what the weighting will be and fund managers will be forced to buy more PCLN, OPEN, BIDU, NFLX, CMG, etc – regardless of their actual merit.  They will take these bloated monstrosities off the hands of the IBanks who have been pumping them at top dollar and then – look out below as there is no actual reason for any of these guys to trade at their nose-bleed multiples.  

We have been snapping up INTC on the way down and now we will snap up even more as we THOUGHT it was a pointless shake-out but now we can see it was a shake-out with a major point as INTC is going to double up in weighting, as will MSFT and ORCL.  MSFT was also on our shopping list yesterday (our weekend pick) so things are going to get interesting in the next few weeks and very interesting as we roll over into May.  Notice on the chart that virtually all of AAPL's losses actually transfer to the Big 4 and NOT to the MoMo boys – we'll see how quickly that party ends but I'd be jumping off that train RIGHT NOW!  Notice that "all others" will, on the whole, carry less weight after the rebalance, not more.  The Nasdaq will remain very much controlled by AAPL, GOOG, INTC, MFSF and ORCL with a combined 37.3% of the indexes weighting. 

In other market-shaking news, The Bernank says the Fed WILL act if inflation is "more than transitory."  Apparently, he finally had to pick up the check at a restaurant this week or perhaps he pumped his own gas over the weekend.  “We have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct, then we would certainly have to respond to that and ensure that we maintain price stability,” the Fed head said.  Of course, the trick here is the definition of inflation.  If prices were to stop climbing and remain as ridiculously high as they are – the Fed would consider that "price stability."  In fact, commodities leveled out at these ridiculous prices for the rest of the year and then began to fall – the Fed would likely step in to stop DEflation, which they fear far more than INflation.  

Meanwhile, Ben's pal Timmy says that the US will officially run out of money no later than May 16th, hitting our $14.29 TRILLION debt limit.  Don't worry though – Timmy's mom gave him an emergency credit card and the Treasury can actually juggle things for about 60 additional days before things really hit the fan so don't be fooled by the overly-dramatic sense of urgency you hear from the media – who are dying to find another crisis as the Japan thing is starting to get boring.  

Finally someone is investigating High-Frequency Trading!  Unfortunately, it's the EU as the European Securities and Markets Authority has begun an investigation into automated trading firms, asking for details on trading strategies and the computer algorithms that drive their trading deals.  The probe is part of a fact-finding project to enable ESMA to “better understand high frequency trading strategies and the impact of these strategies on the functioning of the markets as a whole, including the risks associated with HFT.” 

Two major charts I'm looking at come from Doug Short over in Chart School.  The first one is the p//e value of the S&P as well as the Q ratio (value replacement cost),, which are back near all-time highs not counting the absolute madness of the late 90s:


Our other chart of note coming into Q1 earning season is the price of gasoline, which is back near all-time highs that even the madness of 1999 couldn't have touched.  Of course, the last time gas prices were this high the markets were obliterated 3 months later but it was a different world in 2008 – people had jobs and the global economy wasn't teetering and homes were worth 25% more and food was 30% cheaper and the Government was $5Tn less in debt – none of that is true now so "this time will be different" – I'm sure




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  1. Good morning!

  2.  Oil Lines:
    R3 – 109.93
    R2 – 109.35
    R1 – 108.73
    PP – 108.15
    S1 – 107.53
    S2 – 106.95
    S3 – 106.33
    We are currently bouncing between PP and S1.

  3. Phil / Rebalance — Whuck? I never looked at actually calculating that index but wasn’t it SUPPOOSED to be market cap weighted? What the hell is it now?

  4. Japan…..for those of you who haven’t seen how destructive water can be.

  5. My iPad2 arrives today!
    Phil, I’ll hunt you down later in the day…

  6. Quick gold chart
    It points to some resistance around $1447… 

  7. Oil Speculation from ZeroHedge.

  8. CLDX/trad (from yesterday)- they are still OTM, and if they hit $5 and you are up….take it.  We are going to close out CLDX soon.

  9. Anyone have a link to the secret sauce they use to calculate the Nasdaq 100 now and on May 2nd? Wouldn’t you think this would be a "sticky" "Top New Story" on the Nasdaq’s site?

  10.  And for good measure, a silver chart:
    Quite the runaway train. It seems that they intend on reaching $40 soon…

  11.  Pharmboy / CLDX
    have May4s callers against my shares, do you recommend to roll them to Nov,5s??????????
    you think they still have potential to go even higher?

  12. tcha – RU up on CLDX?  If yes, then just leave it.

  13. Here’s the secret sauce:
    It evidently uses a "patented system" to adjust weights. I can’t seem to convert the english into math. Guess I shouldn’t be investing on the Nasdaq if I can’t understand it! Well, that is, unless I just take advantage of the manipulation 8)

  14. There is an article on line at 24/7 Wall Street that gives the exact percentages.

  15. Crude vs. Transports…..correlating perfectly UP!  Everyone must be shipping oil.

  16. CBST deal with TEVA.  Nice 23% pump.

  17. Phil –
    Testy Tuesday is "Immediately available to the public"

  18.  "For every $1 billion benchmarked to NDX, it is expected that 9.5 million shares will execute." — Wonder how many nickels trade bot gets out of this.

    The NASDAQ Closing Cross (SM) will be used to set the NASDAQ Official NASDAQ-100 SPECIAL REBALANCE:
    Closing Price for the stocks in the NDX Special Rebalance.
    • The Cross enables market participants to execute market-on-close and
    limit-on-close interest and provides unparalleled transparency
    Sounds like blatent manipulation if you ask me.
    Then they go on and talk about the Russell 2000 rebalance "event"… another, whuck?
    Ok, deep breath… Oommmm, ommmm, ommmm… Lets trade!

  19.  Phil
    I have USO May 43 puts at $3.06 (after couple of rolls). Should I sell anything against it? 

  20.  Phil, saw the documentary Capitalism – A Love Story and Casino Jack and The United States of America, have you seen either?  Both were great, very telling of the corruptness of govn’t and the financial institutions which you talk about in your morning column.  Now just want to see Inside Job.

  21. Good morning!

    SOX with a big pop but that’s about it so far.  

    Dollar touched 76.40 and hovering at 76.35, gold $1,434, silver $38.48 and copper $4.24.  Oil $108 on the button, gasoline $3.16 and nat gas $4.29.  It’s all up to the Dollar but the Yen is way down at 84 without a big move up in the Dollar so everything is just strange overall.  

    Levels no different than yesterday but let’s watch those psychological lines at Dow 12,400, S&P 1,333, Nas 2,800, NYSE 8,500 and RUT 850 as the next frontier for the bulls to conquer.  As I said in the main post, I don’t think the Nas can pop 2,800 with the AAPL rebalancing as AAPL must be sold over the next month so we can expect at least some downward movement in AAPL, maybe back to test the $300 line where we will once again be excited about them.  

    Oil’s right on that $108 line and still a short at that level – today it’s LULU’s turn to go nuts at $92.50 – maybe TXN is going to buy them…

    Edro says to take our $25KP 40 INTC Apr $20 calls, now .25 and roll them to the June $20 calls at .70 for .45 and to pay for that roll by selling some other sucker the April $20s for .25.  This is a very good idea so let’s make that roll but let’s also put a stop on 1/2 the April $20 callers at .35 – just in case INTC pops.

    I love INTC as a new play.  The 2013 $15 calls are $5.30 so just .50 of premium and you can sell the 2013 $17.50 puts for $2.15 to make a net basis of just $3.15 so you enjoy all upside profits from a move in INTC as they rebalance.  You can do 1/2 sales of covers to further reduce the basis along the way but, since you have time, I’d wait and see if they don’t get back to $21 first, where you can sell May $21 calls for .60 or better (now .23) – picking up just .15 per month per long knocks $3 off the basis over two years – not bad!  

    Oops – Almost forgot – It’s a Fed day (minutes):

    Tuesday’s economic calendar:
    7:45 ICSC Retail Store Sales
    8:00 2011 Financial Markets Conference
    8:55 Redbook Chain Store Sales
    10:00 ISM Non-Manufacturing Index
    10:00 Hearing: FY 2012 Budget (Geithner)
    12:30 PM Fed’s Kocherlakota: Homeownership and Emerging Markets
    2:00 PM FOMC minutes 

    At the open: Dow -0.12% to 12386. S&P -0.12% to 1331. Nasdaq -0.04% to 2788.
    Treasurys: 30-year -0.08%. 10-yr -0.12%. 5-yr -0.09%.
    Commodities: Crude -0.49% to $107.94. Gold -0.02% to $1432.70.
    Currencies: Euro -0.46% vs. dollar. Yen -0.7%. Pound +0.65%.

    ICSC Retail Store Sales: +2.3% W/W, vs. +0.2% last week.+2.8% Y/Y, vs. +2.6% last week. The strong rise in sales is attributed to improvement in the jobs market.

    Redbook Chain Store Sales: +0.5% Y/Y vs. +2.6% last week. Current Y/Y rate, which reflects a difficult comparison with this time last year when Easter demand was giving a major lift to sales, appears certain to move higher as this year’s Easter demand kicks in.

    Mar. ISM Non-Manufacturing Index: 57.3 vs. 59.7 expected and 59.7 prior (>50 denotes expansion). Prices index fell to 72.1 from 73.3. Employment fell to 53.7 from 55.6. New orders fell to 64.1 from 64.4

    The OECD is ‘relatively upbeat’ about economic growth in the world’s richest countries, but sees possible inflation problems from the rise in commodity prices. The organization’s report holds off on making projections for Japan, saying it’s too soon to assess the damage from the country’s recent disaster. 

    The race to the bottom for Q1 GDP projections has a new leader: Bank of America (BAC), which now sees growth coming in at just 1.5%, making JPMorgan’s (JPM) outlook of 2.5% seem downright rosy. But across the board, the themes are familiar: Inflation in food and energy prices will undercut last year’s tax agreement, while consumers remain weak and housing lags. 

    One reason for the dollar’s mild, repeat, mild bid this morning: the South Korean, Indonesian, and Malaysian central banks intervened last night, selling domestic currency and buying greenbacks. The move is seen as an attempt to only slow their currencies’ strength, not reverse it.

    The PBoC raises interest rates 25 basis points, lifting the benchmark deposit rate to 3.25% and benchmark lending rate to 6.31%. It’s the 4th hike this cycle, but still leaves bank deposit rates well below the level of inflation, officially at 4.9%. Chinese stocks were closed last night. 

    Poland raises interest rates for the 2nd time this year, lifting the benchmark rate 25 basis points to 4.0%. Inflation, currently running at 3.6%, is expected to accelerate further in coming months. The zloty gains a bit against the euro and shares -0.2%PLND +8.0% YTD.

    Moody’s downgrades Portugal’s long-term debt (again) one notch to Baa1 from A3. The triggers: a shaky political climate; short- and medium-term funding challenges; and recent deficit revisions - "which increase the risk that the government will be unable to achieve its ambitious deficit reduction targets… and put its finances on a sustainable trajectory." 

    Not necessarily caused by the Moody’s downgrade (but certainly not helped by it), Portuguese bond yields spike, the 10 year rising 18 basis points to 8.77%, a record 536 basis points higher than comparable German paper. Portugal plans to sell $1B of short term notes tomorrow.

    The U.K. services PMI jumps to 57.1 in March from 52.6 last month, the hottest number in 13 months, and far stronger than the anticipated unchanged reading. Cable spikes, jumping more than a full cent against the greenback and even more sharply against the euro. Cable buys $1.6224 

    Despite occasional strong headline numbers, U.K. households, and the retailers who serve them are being squeezed by stagflation. HMV (HMVMF.PK), -11% in London, tries to stay one step ahead of its creditors after reporting sharply lower profits. Marks & Spencer (MAKSY.PKreports tomorrow

    Bill Luby doesn’t know if oil prices will begin to significantly drag down stocks at $110 or $120/barrel, but when it does, he believes it will show up first in the transportation sector. But as long as transport stocks continue to move higher in concert with rising crude oil prices, "investors should feel comfortable with their long positions in equities."

    Deadliest Catch!  Concerns over the fate of Japan’s fishing industry mount after afish is caught with dangerously high levels of radiation. Though fishing in the area near Fukushima makes up just a small portion of Japan’s catch, guilt by association could put a cloud over the industry for years.  Concerns over the fate of Japan’s fishing industry mount after afish is caught with dangerously high levels of radiation. Though fishing in the area near Fukushima makes up just a small portion of Japan’s catch, guilt by association could put a cloud over the industry for years.

    Beware of cheap air!  Southwest’s (LUV) practice of flying jets several times a day could have contributed to the rupture that forced one of its 737s to make an emergency landing; the constant landings, takeoffs and pressure changes may have caused metal fatigue. 

    Google’s (GOOG) search dominance is attracting ever more attention, with the FTC the latest to consider an antitrust probe into the company, sources say. The FTC will wait for the Justice Department to decide whether to challenge Google’s planned acquisition of ITA Software. 

    National Semiconductor (NSM+72% premarket following news late yesterday that Texas Instruments (TXN -2.5%) is buying the company for $6.5B, or $25/share. This is 78% higher than National’s closing price of $14.07, sparking criticism that TI is "paying way too much." 

    KB Home (KBH): FQ3 EPS of -$1.49 misses by $1.22. Revenue of $196.9M (-25.4% Y/Y) misses by $36.7M. Shares -5.8% premarket. 

  22. Phil — HOV has been sucking wind for weeks, and the KBH results today aren’t helping. Assuming that you still like them, what would be your play on them here (if any at all)? Thanks --

  23. Nice shove over psyc levels! Gotta get the IXIC over yet though. Looks like it’s drafting.

  24.  Nas/Rain – I have no idea what the basis of the weighting is at this point.  It seems fairly arbitrary to me.  The Dow is price of share weighted – if PCLN was in it, it would move the entire Dow around.  

    Congrats Kwan, will talk to you later then.  

    Oil/Pharm – Shame on Zero Hedge for not understanding how oil trading works.  Right in the same article they talk about the US rolling over their 300M barrels worth of contracts – obviously they are NEVER going to take delivery – why would they think that other traders have to take delivery?  That’s not at all what moves oil trading.  It’s all about how easy it is to roll the current month into the next three front months:

    Click for chart
    Session   Pr.Day   Options
    Open High Low Last Time Sett Chg Vol   Sett OpInt  
    May 11
    106.72 * Apr 04, 20:11
    34432   108.47 336792   Call Put 
    Jun 11
    104.03 * Apr 04, 20:11
    9779   109.05 174645   Call Put 
    Jul 11
    91.00 * Apr 04, 20:11
    4564   109.53 130051   Call Put 
    Aug 11
    95.70 * Apr 04, 20:11
    1477   109.83 48109   Call Put 

    As a rule of thumb, 600,000 barrels in the front 3 months is "too much" and right now we’re a bit over and there are 48Mb worth of contracts in Aug already so about 80M contracts have to be dumped between now and April 19th (10 trading days) and, of course, pretty much all 336Mb must disappear from May delivery as there is no room at the inn in Cushing.  

    So, CAN they move 30,000 contacts a day (1,000 barrels per contract) for the next 2 weeks?  Sure they can.  There’s only a .50 spread from month to month so all they are doing is paying .50 to roll the contracts forward.  Last month we observed the NYMEX boys very effectively clearing the decks – selling to bagholders during the Egypt crisis and THOSE guys got burned in a hurry and then Da Boyz swept back in at under $100 and loaded up for the next run.  

    Woops, there goes the dollar and here comes the markets!  

  25.  Wow. Down 40 to up 25 --> thats a 65 point move on the Dow in less then 10 minutes. 

  26. @Phil
    Many muchos once again for the call on the CAD/USD earlier in the year.  I still want to hold the CAD so d’you still favor it as THE currency pick of choice?

  27. Immediately available/Edro – We do that with posts once in a while for promotions.  Doesn’t change the comments.  

    LOL Rain – Just grin and bear it I guess.  

    USO/Yshen – I’d wait for inventories tomorrow.  

    LULU still going up! 

    Capitalism/Rustle – Yep, good stuff.  Casino Jack, not yet.  

    HOV/Kimisk – Seems hopeless short-term.  All indications we have is housing is not good.  Of course the whole economy makes no sense if housing isn’t good but that’s a different problem.  The way to play HOV is the 2013 $2.50/5 bull call spread at .80, selling the $2.50 puts for .70 for .10 on the $2.50 spread and then just ignore it for 2 years.  

    What an amazing shove that was – all the indexes, all at once – that was just wild, even crazier than the usual BS…  

    DIA $124 puts for $1.06 with a stop at $1 are a good way to play a pullback off this silliness.  

  28. Phil, as per our exchange…I am obviously too short. While I find a way to rebalance, what would you slap on to avoid getting caught in more pain if the market keeps going up?

  29. Phil so with the rebalancing, what should I do with the AAPL June 340/360 June play we discussed last week (that you had in fact recommended but you had forgot) and that in the end you said you liked it. (I am in it for net $7).

  30.  Amatta – why are you too short? What are your long positions?

  31.  Amatta – the June AAPL call spread is not bad at all, although i think the Jan 2012 340-360 call spread for 9.50 is probably more of a "sure thing" . Are you concerned about the AAPL call spread now? Even if AAPL drops 20 from here, it is a stock that can move $20 in a matter of days. So, nothing to worry about as the long term thesis is still intact. 

  32. CAD/Flips – I think that was a very big run and getting near the 5% rule, which is traditionally a lot for currencies so I would take profits until they break $104 or the dollar fails 76, then you can get back in and use them for stops.  If you are not looking to maximize the moves, yes, I still would put my money in Canada over the rest of the planet.  As long as oil stays high – they make that money in exports with just 20M people who mostly have jobs in other industries (unlike Arab nations).  

    House Speaker John Boehner tells fellow Republicans to prepare for a federal shutdown, undercutting optimism that progress is being made on an agreement that would keep the government running beyond Friday. The shutdown talk could be mere posturing, or it could mean a deal is slipping away.

    Possessing just 1/3 of the planet’s reserves, China produces 90% of world rare earth supply, as other countries were happy to see the environmentally destructive business take place elsewhere. A change in attitudes towards the environment in China likely means this era is over. 

    Portfolio manager Robert Auer strictly adheres to a "double your money" strategy, and he thinks these four non-household names can meet that goal: Cliff Natural Resources (CLF), Rubicon Technology (RBCN), KLA-Tencor (KLAC), Cimarex Energy (XEC). 

    Balance/Amatta – I think we are toppy here.  I’m certainly not going to make a trade based on something I think is wrong just because you can’t stick to your guns on positions!  You are simply capitulating at the top of the range.  It’s the same capitulation you did at the bottom of the range – you can’t keep doing that to yourself, you need to rethink your ENTIRE strategy – not just keep making endless adjustments to a poor mix. 

    AAPL/Amatta – See, case in point.  You are in the spread for $7 and despite AAPL dropping like a rock the last two days the spread is still $8.80 – up 20% but a damn site worse than it was on Friday when 50% of your profits melted away.  There is no helping you if you don’t learn to take profits and set stops.  Your problem is you want every trade to make you 100% so you let 5 20% gains slip away over and over and over again because they "didn’t gain enough."  

  33. AAPL green on the day, which supports the ‘fade the news’ strategy when viewing news articles that clearly had days if not weeks of insider manipulation.  

  34. Phil / Casino Jack — I think that is a "must see" for you but I must warn you that it’s fuel for your fire. It won’t give you a warm fuzzy feeling. :-o

  35. Where’s Matt? Maybe he can confirm the Amatta indicator?

  36. Amazing… Look at the DJI hug that 50 period 1 min MA!

  37. Oil hit our $108.50 shorting target again!  

    AAPL/LV – I’m thinking that this will be a long process – no one is panicking out of AAPL although a Steve Jobs rumor right now would probably do it…  

  38.  thinkorswim responding slowly for me today

  39.  Phil / oil
    in short term at which price you will be a buyer?

  40. PHIL
    let me see if my take on this QQQ rebalance is accurate. they won’t be manipulating AAPL any less, still the leader @ 12.3%  just manipulating GOOG MSFT & ORCL more.    what about QCOM & AMZN  has their weight been changed or are they still 4.69 % & 2.61 % ?  as always thank you very much.

  41. Phil, what’s your view on the red hot rare earth Molycorp? thanks!

  42. Phil,  thats old news on rare earths, most likely spewed by folks who are trying to zoom REE, they are known to find unreliable news reports from China for that purpose. I am short by the way.  (full disclosure!!)  Missed you here in Boca this weekend, I live off Palmetto in the City,  next time I’ll buy you lunch in Mizner Park. Hope you enjoyed yourself.

  43. Phil CMG still holding 3x APR 250 c short sold for 18.88 now 30.70 stock trading for 280.30 very close for confort shall I roll now or wait? thks

  44. Look at that …. someone lit a fire under Gold’s arse.  and SPY….. and well, everything.

  45. TNA,PCLN,CMG,LULU—do you really need to own anythingh else?

  46. Shoulda sold /dx at 76.30, had no doubt in my mind these pr!cks would knock the $ back down to 76 at some point today….

  47. Tomorrow’s earning – Monsanto (MON). Estimates have been somewhat erratic with them. Expectations are for $1.86/share. The market is expecting around a 5% move from what I can tell with the options. I have them as expensive on my valuation spreadsheet. Any thoughts Phil! 

  48.  The always informative Barry!
    His conclusion – "Surprising that many of the states that have the highest net tax gain are in favor of less government spending, while the states that reap the least per capita are more government spending . . ."

  49. I feel sorry for all that have to put up with Verizon internet service, finally working from last week!

  50. jabo / MoMo — did you quit trying to swim upstream?

  51. GOOG down 2.7% to 572 on rumors of anti-trust probe. Yet their weighting in Nasdaq is increasing 40%, from 4.2% to 5.8% of the index. I wonder if the anti-trust news is being pumped to create good entries in the run-up to the rebalance.

  52. hi rainman,  I can neither confirm nor deny amatta’s feelings.  I just see more of the same for us.  They continue to push us up.  Although not very fast.. at least for now.  I still feel that the top has or will be put in this month until they float QE3.  Don’t believe the hawks at the Fed.  They are just running cover for the Bernank.  This is the most financially manipulative administration / Fed in history and they are not about to let up in an election year. 

  53.  Matt/JRW ???

  54.  SLV GLD PCLN CMG — it all goes up. And AIB and ARIA and …..   :)

  55. Matt  — Thanks. This one’s for you: When The Doves Cry

  56. Matt  — Oops! Wrong Link 8) When Doves Cry: Debates Rage About QE2′s Finale

  57. Rain—I don’t swim. just doggy paddle ;-( — under the stream,tyrain,boat, etc…

  58. It is so easy to lit a fire nowdays, all you need is a good paper for a starter, like the one Ben is using

  59. Wow, up and up we go – this is just nuts.  

    Oil/Tcha – I think $97.50 is probably a floor right now to play for a bounce.  $100 may be bouncy just for psychological reasons. 

    Rebalance/Z4 – I don’t think the changes will be felt much on the smaller end of the Nas but they are balancing to 3/31.  I’m sure someone will have an old/new list at some point.   The big deal is certainly with the big 6 listed above and I’m not sure that many funds can change anything until after the fact of the change on 5/2 so some guys get to position early and probably many will not be selling AAPL and buying INTC/MSFT until after the change. 

    MCP/Step – They keep SAYING China will cut exports but China never actually does cut exports.  There is no shortage of rare earths.  They are not rare as in unavailable, just rare in that a small percentage of these elements exists in the ground so you have to strip mine a lot to produce them and most countries are unwilling to do the kind of environmental damage it takes to pull "rare" earth elements out of the ground but, if China decides to give up their leadership position – I think Nigeria would be very happy to become the World’s leading exporter.  In short – it’s all about production constraints, there is no "Peak Earth" issue looming so it’s not a proper investment – you are just speculating on speculation with MCP and the others.  

    And what Dave said.

    Mizner/Dave – We went to that Irish place in Mizner on Saturday.  Proper Guinness but not very good food.  I loved the spice and tea shop but WTF with those prices?  Just another example of how there’s enough rich people in the world to support all kinds of ridiculous businesses. 

    CMG/Yodi – Oh that’s annoying, right?  You are down $12 so I’d just roll to the May $280 calls at $16 and be happy to get out even.  It’s certainly not unreasonable to go for it and just roll to the $260s ($28) if you don’t mind it long-term as we both know CMG is ridiculous but it’s a ridiculous $280 stock that goes up 2% a day – that’s how PCLN went from $300 to $500…

    Dollar was slammed down to 76 but still won’t go below the line.  

    MON/StJ – It’s funny because I kept banging the table on them at $45 last summer and hat to take the other side of the issue.  I think $70 is fair, not very overpriced but you can short the May $75 calls at $2.30 if you want to go short.  

    Taxes/StJ – I had a really good chart of that once that showed the nets per state, it is really amazing how all the red states tend to be the ones getting the most net benefits of Federal spending.  If the Government ever does really cut back – they will be in for quite a shock as their lifestyle changes when the blue states stop funding them.  

    Welcome back Shadow!  I would think you would go with a Hughes satellite.  

    Anti-Trust/JV – Maybe.  I can’t really figure out how you can call GOOG anti-trust when there is no barrier to entry on a free service.  Their competitors just suck, is all.  

    I agree Matt – We’re getting close to November – why stop now?  Although they goosed the markets almost 10% from last July to November and the Dems got creamed to maybe they go the other way this time?

    10:01 AM Mar. ISM Non-Manufacturing Index: 57.3 vs. 59.7 expected and 59.7 prior (>50 denotes expansion). Prices index fell to 72.1 from 73.3. Employment fell to 53.7 from 55.6. New orders fell to 64.1 from 64.4.

    11:00 AM On the hour: Dow +0.03%. 10-yr -0.16%. Euro -0.1% vs. dollar. Crude -0.34% to $108.10. Gold +0.73% to $1443.40.

    11:25 AM Treasurys are down for the first day in five amid chatter that the Fed will kick up the amount of reverse repos that it’s been doing in test quantities so far. The Fed today bought $7.566B in Treasurys of $26.794B offered by dealers; the 10-year yield +0.02 to 3.44%; 5-year +0.04 to 2.22%. 

    12:00 PM On the hour: Dow +0.22%. 10-yr -0.29%. Euro +0.13% vs. dollar. Crude -0.06% to $108.41. Gold +1.23% to $1450.60. 

    Significantly raising its growth estimate for the G-7 (and forgetting Japan for the moment), the OECD lowers its Q2 GDP estimate for the U.K. from 1.3% to 1.0%, concerned over continued weakness in the housing market. FXB +1.0%.

    "2011 will be another year of adjustment, and for the banking sector, it will be one of the worst," says Bank of Spain Governor Miguel Ordóñez, noting that lenders will be hit by the triple whammy of weak credit growth, rising financing costs, and continued write-offs. STD -1.9%BBVA -1.2%EWP -1.0%

    M&A bankers have an idea on how to boost industrial merger activity: a tax holiday (say, a reduction to 5.25% from 35%) that would let multinationals bring money home and thus go after bigger targets. "When you think about healthy balance sheets and the ability to deploy that cash, it’s not clear a lot of that cash can be deployed."

    A $5.4B market cap with just $25M in sales and the hope for producing rare earths in the future, Molycorp (MCP) is no longer in Bruce Krasting’s portfolio. News that Kazakhstan’s state-owned uranium miner is teaming up with Russia and Japan to invest $800M to mine the metals isn’t making him regret the decision. 

    Three lunchtime reads:
    1) How to avoid the pitfalls of a new tech bubble
    2) Black swans and tail risks: Confessions of an investor
    3) The bedrock of the gold bull rally 

  60. Hannah, 
    The longs I have have been going south: INTC, AAPL, CSCO, HOV, HCBK, C, JAG, TBT and SPWA. Which as you can see all but SPWRA have been dogs… And I have a couple of hedges plus some short MoMo’s, all in all a toxic combination for a market that keeps going up…
    My question to Phil was to see if I slapped some sort of cover to the upside as it seems useless to fight the Fed so staunchly. With the Fed release this afternoon I thought it was prudent…

  61.  Phi, re your 10:58, there are 34 million of us Canucks. 20 million was the population in 1967. And in song…

  62. From the Doves Cry article (good one Rain):  

    Chart: Yields Over the QE Cycle 

    A primary concern is about the impact on Treasury yields. Remember, yields and prices move in the opposite direction, so with the absence of such a significant buyer, it’s expected that prices could drop sharply, which would mean yields would rise equally sharply. 
    However, there are many factors that drive yields; certainly not just buying pressure by central banks. Remember, Treasury yields are actually higher today than they were when QE2 was launched (3.4% vs. 2.6% on the 10-year), so there were obviously other factors at play than Fed purchases. 
    Most important has been the improving economy, which has had a greater influence on the path of yields than Fed buying. Many (including the Fed) argue that yields would have risen even more without Fed interventions. 
    The Fed did a detailed study of the bond market impact of QE1, when the Fed purchased $300 billion of Treasuries between March and October 2009. The conclusion was that Treasury yields were lowered by 30 basis points across the yield curve, with a larger impact on 10-15 year maturities. The 10-year Treasury yield rose by about 0.75% over the period the Fed was buying. This also highlights the impact of underlying economic strength as the primary driver of bond yields. 
    In the chart below, you can see the path of yields throughout the QE1-QE2 period. Yields dropped sharply after QE1 was announced but rose equally sharply when it was expanded several months later. 
    When QE1 ended, yields actually dropped sharply, but there were other factors at play; notably the eruption of the euro-zone debt crisis and increased risk of a double-dip recession in the United States. As previously noted, since QE2 was telegraphed and announced, yields have generally trended higher. 

  63. DIA in 25KP
    How about rolling the long May121P to May122P for about 0.30
    And paying for it by selling 1/2 the Apr123P for 0.68

  64. shadowfax — Welcome back. I’ve had friends with Verizon DSL. Nothing but trouble and was incredibly unreliable and slow.

  65.  Phil -
    any thoughts on divergence between spx and rut – except wow.

  66.  Phil
    Yes, thoughts on IWM, S&P, RUT--I can’t figure it.

  67. Phil, 
    Balance, you yourself mentioned that I didn’t have enough breakout defenses, and with my longs not collaborating my shorts have eaten me alive. So I was just trying to balance out a bit, not become overly bullish at the top…
    On AAPL I asked last week if it was a play to keep, you said sure it was protected by earnings. I only asked now again because of the rebalancing issue and your comment about AAPL possibly going to 300!  Why would I have taken out the play last Friday because of a couple days weakness after an expected rebound all the way from 328… you remind us all the time to stop staring at short term movements. So it is hard sometimes making sense of the advice, that is all…

  68. Phil,
    At this level, I would think a May VIX spread would be worth the money since earnings start in earnest on Monday. Any suggestions?

  69. Phil   re: spice and tea shop
    I bought my wife a big hunk of Himalayan salt there, talk about rare earth prices!!

  70. MRK on a buying spree…OPTR…INSP….here we go.

  71.  Income trades: Rut 880?
    Anyone still in the Apr RUT condor?   Should anything be done with the short 880 c?  Delta is like .16., theta -.24 I’m posting this for Income Trader also.

  72. Biotech IPOs may be hard to pull off, but buyouts are all the rage in the early part of 2011. And Merck ($MRK) joined the big game with today’s announcement that it has struck a deal to acquire eye-drug developer Inspire Pharmaceuticals ($ISPH) for $430 million in cash. The $5 per share price reflects a modest 26 percent premium for disillusioned investors in the Raleigh, NC-based biotech.


    Missed headline in Fierce and my bad ticker (ISPH) as things in biotech land are flying all over the place. OPTR is halted for FDA review.

  73.  Kwan – check your Ipad 2 with a Geiger counter !

  74. Shadow
    good to have you back.

  75. Longs/Amatta – There is nothing wrong with those longs if they are truly LONGS.  They will go up and they will go down over the years and it’s just up to you to ride the waves.   You can sell INTC Jan $20 calls for $1.50, that’s 7.6% for 9 months, AAPL Jan $330s for $45.50 is 13.3%, CSCO Jan $17.50s at $1.55 is $17.35, HOV I mentioned above, C Jan $4.50 calls are .45 (10%), JAG Sept $6 calls are .65 (10%), TBT Jan $37 calls are $4 (10.7%) and SPWRA Jan $17.50 calls are $2.75 (15.7%) so if you had $500,000 invested in that group you could pull $50,000 out today by selling calls and that’s assuming you took them all naked and made no money on prior covers.  If you cover a stock with a 10% call every single year, you lock in 100% return after 10 years – this is not a complicated system!   If the market goes up or stays flat, you collect your 10% and do it again next year – if the market goes down, you can add to the positions you like and the just gives you more calls to sell next year.  

    The other issue you seem to have is chasing performance – all those stocks were much lower before being higher – as I keep telling you, you tend to break at the top and bottom of the ranges and take exactly the wrong action at exactly the wrong times.  You’ve already indicated to me that you can’t be satisfied scaling into positions so you are simply throwing the whole system out the window from the moment you buy and then wondering why it isn’t working.  This is very destructive behavior and this is something I have been telling you for a very long time.  

    34M/Gren – Wow, really!  I guess the number they told me during the World’s Fair always stuck in my head…  

  76. SGEN – a 2K straddle was just put on.  Either someone is betting a hold at $15, or someone is buying!!!!!!

  77. Phil….International shipping companies are watching this closely.  Won’t be seen on the major networks.  Note the ship passed 67 miles off the coast of Japan…it did not enter any japanese port.

  78. What is the volume so far? Light or Heavy? Anyone?

  79. YEP and this what we have gone through the last 9 months:
    "Wow, up and up we go – this is just nuts." 

  80. jabo / vol — Dow: 73M @ 1:18, relatively normal I think but high based on the last several days.

  81. Phil, I guess I’ll respond after hours as I don’t want to take more time with this now in trading hours…. but ALL these positions are B/W’s or Synthetics, ENTERED AT THE TIME SUGGESTED

  82.  phil – I am taking it on oil shorts – and prediction on direction of oil over next couple of days – will uso roll bring down futures? Have you watched impact of this? thanks

  83. GMCR in 25KP
    Our GMCR position in the 25KP is tenuous at best.  Rolling to May is very expensive and verticals or diagonals use a lot of margin.  Rolling our Apr60P longs to Apr65P costs about 1.00.
    The best place to roll seems to be to the May60P/Jun60P calendar closing the Apr60Ps for a net debit of 0.42 and no margin required.
    TOS shows a position breakeven, including losses to date, of 57.23 to 63.26.
    What do you think?

  84. GMCR earnings on 4/27

  85. amatta / shorts — If I had your portfolio and wanted to get more bullish, I’d dump the short momo’s and keep the (bearish I assume) hedges. Short momo’s shouldn’t be a large part of your portfolio and if they are not then give your longs time to catch up (most likely post summer).

  86.  Breaking News!
    Everytime one of the momo’s jumps up I check the news and of course the only "news" is "__________ sets new 52 week high.

  87. MCP yesterday buying Estonian firm Silmet for only 8m dollar and 1,6 m shares MCP, yesterday MCP market cap increase 3x more. Silmet produce same 3k tonns production what MCP. Silmet problem was raw material, which coming from Russia. Its no problem for Silmet increase prod 2-3 x with MCP cooperation. Silmet is interesting firm from Soviet time. Same factory produce uranium for 1st Russian atom bomb.

  88. GMCR in 25KP
    A twist on the above – if we only sell 18 of the May60Ps, so our calendar is +20Jun60P/-18May60P our breakeven including losses to date are 0/76.41.
    I included the loses to date by adding 1.50 to the cost of the calendar, ($3000) to date by 20 contracts.
    Would someone please check my analysis!  Thanks.

  89. DIA/Edro – Tomorrow is the day to adjust (Wednesday before expiration).  

    Divergence/Samz – This is all just nuts at this point.  Of course we’re only up half a point on the day led by a 3% move up in the SOX off a huge M&A deal that would usually pop the markets over 1% but it doesn’t matter – everyone is freaking out and capitulating but, sadly, those people are on this board too.  

    On my ETrade screen I track the 90-day moves in stocks I’m watching and here’s what everyone is freaking out about:  

    AA 6%, AAPL -5%, AXP 4%, BA 3%, BAC -5%, BIDU 17%, C 2%, CAT 10%, CHK 1%, CMG 7%, DECK 2%, DIA 2%, DIS -2%, FAS 1%, FCX 8%, FDX 7%, FSLR 7%, GE 1%….  

    So I guess everyone can run around and act like the World is ending or that they are missing some epic rally or whatever but I just think we’re once again testing the top of the range and, if we break up and hold this, then it’s time to bet on the next 5% move up, probably starting with some bets on the laggards like CHK, DIS, GE and the Financials but please forgive me for feeling we have time as I tend to look at daily and weekly charts and sometimes have trouble getting myself all worked up into a frenzy over short-term moves…  

    Balance/Amatta – You need to pick no more than 12 stocks (not MoMos!) to be long in.  You need to cover them with buy/writes that give you 20% downside protection or, if you don’t want the put exposure, calls that give you 10%.  Once you have done that THEN you can allocate a very, very small portion of your portfolio to an upside hedge but your best upside hedge is selling puts and calls so you make 20% on a flat or up market – the rest is GREED and very likely to fail.  Whenever I told you that you need a breakout defense, I’m sure it was a while ago – when you didn’t do it – now we broke up and you want to add it at exactly the wrong time.  Just like on 3/29 I said to you that I was "completely off the AAPL bandwagon" with AAPL at $350 but today you tell me it’s my fault you are still in the $340/360 spread.  It is VERY frustrating to have these conversations with you all the time.  Last time you were freaking out that you had too many longs and needed short-side covers, now you say you have too many shorts?  You CAN’T play like that – it’s suicide.  I remember when SKX was $18 and you bailed – now it’s back over $20.  I don’t want to make you feel bad but you HAVE TO CHANGE YOUR BEHAVIOR!  I don’t know what else to say.  Stocks go up and they go down but you are not prepared for either event – it’s not good.  

    VIX/RJ – Yeah, I was looking at them at $16.50.  Keep in mind that the monthly bets have no real connection to each other and your broker doesn’t probably credit you for a spread but the May $15/20 bull call spread is $2.90 and you can sell April $19s for $1 for net $1.90 on the $5 spread.  You need to make it through next week without the VIX gaining 10% and you are golden but you can also put a stop at $1.50 on the short caller.  

    LOL Dave – I like teas a lot and I buy them everywhere, including a cool little shop on Park Avenue where the rent is $500 a foot and I have NEVER seen prices like that place.  They are smart though, they put the tea in little one ounce packs like heroine and then say "just $5" ($80/pound).  You know you are getting ripped off because they charge the same for rare Chinese blends as they do for Earl Grey – what do they care with that mark-up?  It’s not like they are selling to people who have a clue…   That being said I did buy 3 packs.  8)

    RUT/Lincoln – You should comment over on his post, I’m sure he checks there more often.  

    Shipping/Living – We heard that one last week.  It will be an issue.  

    DIA $124 puts  a nice re-entry at .96!  

  90.  Amatta
    I had the same problem at the beggining of last year when I had portfolio with negative total Delta and miss good rally,
    now I always keep my portfolio long and just sell against it RUT and SPX calls (not too much) and if market going up I roll them and very happy with my longs performance, during corrections (about 5 %) these calls vertually compensate for lose of longs, working very well for me

  91. pahurik, I believe the acquisition pricie was 89MM for Silmet. Still, an $89MM purchase doubles a $5B+ company’s capacity and the $5B continues to go up. it’s just beyond me

  92. VIX crushed.  Now is the time for a buy write.

  93. Pharmboy
    what do you think about IRWD? May be it is time to exit

  94. Phil,
    So much for the AAPL i-pad 2 parts shortage B.S. Shipping dates are improving significantly and has forced Mot to drop prices in UK already.

  95. Volume/Jabob – 78M on the down at 1:51 is LAME.  

    All buy-wites/Amatta – Then what are you worried about?  Did the stocks drop 20%, are you not willing to DD if they are?  

    Oil/Samz – I think we’re up through inventories but then hopefully back to $105ish at least.  Unless the Dollar breaks down – then $110+ for oil.

    GMCR/Edro – I think that’s a good adjustment (18/20) but I’m waiting until tomorrow and after the Fed to see what’s up.  We have Morgage Aps at 7am tomorrow as well so a couple of reasons for a pullback.  China was up 1.5% today but at the close they announced another rate hike over there – I doubt they hold up tomorrow and the Shangai is testing 3,000 anyway.  Europe went nowhere today and we’re not really going anywhere although you wouldn’t think so from the way everyone is freaking out. 

    MCP/Pahur – Nice overview, thanks.  The purchase was good for MCP on the whole, I just think the whole space is overplayed.  

    AAPL/High – Well there is no doubt they had millions ready to ship but, at some point, the supply line will crimp.  AAPL is not a company I worry about – if there is any other supplier in the World that can get them the parts – they will get it.  

    Oops, Fed minutes!  

  96. GOOG is busting my chops lately, anybody think it’s going all the way down to its 200MA?

  97. Fed minutes:  


    Developments in Financial Markets and the Federal Reserve’s Balance Sheet
    The Manager of the System Open Market Account (SOMA) reported on developments in domestic and foreign financial markets during the period since the Federal Open Market Committee (FOMC) met on January 25-26, 2011. He also reported on System open market operations, including the ongoing reinvestment into longer-term Treasury securities of principal payments received on the SOMA’s holdings of agency debt and agency-guaranteed mortgage-backed securities (MBS) that the Committee authorized in August 2010, as well as the purchase of additional longer-term Treasury securities to increase the face value of such securities held in the SOMA that the FOMC first authorized in November 2010. Since November, purchases by the Open Market Desk of the Federal Reserve Bank of New York had increased the SOMA’s holdings by $310 billion. The Manager reported that achieving an increase of $600 billion in SOMA holdings by the end of June 2011 would require continuing to purchase additional securities at an unchanged pace of about $80 billion per month. There were no open market operations in foreign currencies for the System’s account over the intermeeting period. By unanimous vote, the Committee ratified the Desk’s transactions over the intermeeting period.

    The Manager also discussed the possible benefits of gradually reducing the pace of the Federal Reserve’s purchases of Treasury securities when the current asset purchase program nears completion. As its earlier program of agency MBS purchases drew to a close, the Federal Reserve tapered its purchases during the first quarter of 2010 in order to avoid disruptions in the market for those securities. However, the Manager indicated that the greater depth and liquidity of the Treasury securities market suggested that it would not be necessary to taper purchases in this market. The Manager noted that market participants appeared to have reached the same conclusion, as they generally did not seem to expect the Federal Reserve to taper its purchases of Treasury securities. In light of the Manager’s report, almost all meeting participants indicated that they saw no need to taper the pace of the Committee’s purchases of Treasury securities when its current program of asset purchases approaches its end.

    This is a BIG DEAL – it signals an ABRUPT end to QE2!  

  98. Sorry, just saw the one from above and Phil’s note.  And sellers stepping up to the plate.

  99. PC World Compares i-pad 2 , Samsung Galaxy & Mot Zoom. Says Mot Zoom is next best choice to I-pad but in same breath says it feels like a ‘brick’ and cites possible problems with Goog Honey Comb O.S.

  100. Yeah, Phil, but for the time being, good god, GOLD.

  101. and still 290B in QE to go.

  102. GMCR unbalanced calendar +20Jun60P/-18May60P
    My analysis was faulty – I was adjusting for the $3000 loss incorrectly.
    Still looking

  103.  Phil, does that mean dollar zooms, gold tanks?  I was celebrating my gold positions and moaning my dollar longs until this moment.

  104. Phil / perfect storm — Shrinking margins, end of qe2, rising interest rates, double dip in RE, and 108 oil. Can inflation overcome? Doubtful.

  105. Whuck? Sounds like Obama is going to step in to replace QE! Did i just hear "infrastructure spending and job growth"?

  106. Rumors out of GOOG say that Page wants to settle Europe Anti-trust ASAP and has offered to start charging for any and all smart phone and tablet O.S software immediately. Supposedly Page wants to lower the fight with AAPL and is seeking AAPL support for his nation-wide universal access Wi-Fi plans which Page feels Schmidt dropped the ball on during in his moves against AAPL.

  107. MCP, Phil I agree with you, rare plays are all pure gambling, in future they are good short plays, all depend what China do. They kill all firms in the world with dumping and do its agen if needed. Stepup, you info is wrong, right is 9m+80m in shares 50,21 share.

  108. pahurik, we are both right. i meant the acquisition price, and you meant the cash component.

  109. Tchaypov, thanks for your input, that would indeed be very helpful. The problem is that I don’t have a way to tell what my total delta as Schwab doesn’t have the capability, and I have not been able to get enough training on TOS plus the nightmare process to transfer the account. 

  110. Phil I’m down $4100 in my April 41 USO Puts.  Bought too many in first trade.  You recommended rolling up, but I thought & think oil is too risky for me to spend more money shorting.   Thought I’d wait until tomorrow.  Is that when invintories start rolling.  I’ve had sells in at .75 and .85 but havent gotten close.   Thanks.

  111. Phil, is there anything in the futures market you like shorting right now besides oil at the 108.5 line?

  112. oil – what is approximate correlation between oil and USO.
    what range would be USO for oil 100, 105 and 110?

  113. Phil—abrupt end QE2?

  114. Phil,
    My friends tell me to make no mistake. Page fired Rosenberg today and the days of free ‘open’ software which is the mantra Schmidt brought with him from Sun are numbered!

  115. Phil – wild rides in these DIA puts. Loving it! If there is any indication that we can hold these overnight I’d like to pick up gains on the downside. A few weeks ago we had a nice 100% gain on an DIA overnight put hold.

  116. Highlander / GOOG — I read that Google is going to switch to closed source in future android (honeycomb) releases.

  117. Rain,
    Yes both the ‘open’ and ‘free’ were Schmidt’s brain farts and it is killing them. Look at the R&D cost of this B.S. At least Page is saying they must now stand on their own financial merit’s in the marketplace! AAPL’s ‘keeper of the gate’  APP acceptance philosophy is also killing Honeycomb, a philosophy which Schmidt also rejected and now there is complete chaos in the developer community where they have to conform to and test within multiple and incoherent Honeycomb platforms

  118. z401 Phil
    Thanks for the welcome, this keeps going down and I’m afraid to trade, couldn’t refresh PSW for hours.

  119. no offense to anyone but, i know that i am way younger than anyone who posts on this site and was wondering why our government doesn’t spend money on new infrastructure and public works projects? i feel like we our pouring money into our economy hoping that it makes its way to the general public. We all know that Americans are great at spending money and giving it to large corporations all on their own. So why not have job creation through these projects, give the money to the people, have new and improved infrastructure (high speed rail in FL), create jobs, and trust me; the money will be spent and given right back to the large corporations. RIGHT?? Like i said, i am very young and do not understand how everything works, but I sure would appreciate any input to get my thinking strait about our economy and my future as an American. 

  120.  With Android now the dominant phone OS, where does closed source take GOOG?

  121. Fed minutes:  

    Developments in Financial Markets and the Federal Reserve’s Balance Sheet
    The Manager of the System Open Market Account (SOMA) reported on developments in domestic and foreign financial markets during the period since the Federal Open Market Committee (FOMC) met on January 25-26, 2011. He also reported on System open market operations, including the ongoing reinvestment into longer-term Treasury securities of principal payments received on the SOMA’s holdings of agency debt and agency-guaranteed mortgage-backed securities (MBS) that the Committee authorized in August 2010, as well as the purchase of additional longer-term Treasury securities to increase the face value of such securities held in the SOMA that the FOMC first authorized in November 2010. Since November, purchases by the Open Market Desk of the Federal Reserve Bank of New York had increased the SOMA’s holdings by $310 billion. The Manager reported that achieving an increase of $600 billion in SOMA holdings by the end of June 2011 would require continuing to purchase additional securities at an unchanged pace of about $80 billion per month. There were no open market operations in foreign currencies for the System’s account over the intermeeting period. By unanimous vote, the Committee ratified the Desk’s transactions over the intermeeting period.

    The Manager also discussed the possible benefits of gradually reducing the pace of the Federal Reserve’s purchases of Treasury securities when the current asset purchase program nears completion. As its earlier program of agency MBS purchases drew to a close, the Federal Reserve tapered its purchases during the first quarter of 2010 in order to avoid disruptions in the market for those securities. However, the Manager indicated that the greater depth and liquidity of the Treasury securities market suggested that it would not be necessary to taper purchases in this market. The Manager noted that market participants appeared to have reached the same conclusion, as they generally did not seem to expect the Federal Reserve to taper its purchases of Treasury securities. In light of the Manager’s report, almost all meeting participants indicated that they saw no need to taper the pace of the Committee’s purchases of Treasury securities when its current program of asset purchases approaches its end.

    This is a BIG DEAL – it signals an ABRUPT end to QE2!  

    Staff Review of the Economic Situation
    The information reviewed at the March 15 meeting indicated that the economic recovery continued to proceed at a moderate pace, with a further gradual improvement in labor market conditions. Sizable increases in prices of crude oil and other commodities pushed up headline inflation, but measures of underlying inflation were subdued and longer-run inflation expectations remained stable.

    The labor market continued to show signs of firming. Private nonfarm payroll employment rose noticeably in February after a small increase in January, with the swing in hiring likely magnified by widespread snow-storms, which may have held down the employment figure for January. Initial claims for unemployment insurance trended lower through early March, and surveys of hiring plans had improved this year. The unemployment rate dropped markedly in January after a similar decrease in the preceding month, then ticked down to 8.9 percent in February; the labor force participation rate was roughly flat in January and February. The share of workers employed part time for economic reasons declined further over the past two months, but long-duration unemployment was still elevated.

    Total industrial production was little changed in January after a strong rise in December. Manufacturing output posted a relatively subdued gain in January, likely held down somewhat by the extensive snowfalls during that month; in addition, a scheduled step-up in assemblies of motor vehicles reportedly was restrained in part by some temporary bottlenecks in the supply chain. As a result, the rate of capacity utilization in manufacturing was essentially unchanged in January, and it remained well below its 1972-2010 average. In February, indicators of near-term industrial production, such as the new orders diffusion indexes in the national and regional manufacturing surveys, were at levels consistent with solid increases in factory output in the coming months. Moreover, motor vehicle assemblies picked up in February and were scheduled to rise further through the second quarter of this year.

    Consumer spending appeared to have increased at a modest pace in early 2011 after rising briskly in the fourth quarter of 2010. In January, total real personal consumption expenditures (real PCE) were essentially flat. In February, nominal retail sales, excluding purchases of motor vehicles and parts, rose moderately; sales of light motor vehicles posted a robust gain. Consumer spending was supported by a solid increase in real disposable income in January, reflecting in part the temporary cut in payroll taxes. Household net worth rose in the fourth quarter, as the increase in equity values during that period more than offset the further fall in house prices. However, consumer sentiment dropped back in early March, retracing its increase over the preceding four months.

    Very mixed and unexciting stuff.  Keep in mind wages are down and labor is up – no extra money in consumer pockets.  

    Activity in the housing market continued to be depressed, held down by the large inventory of foreclosed or distressed properties on the market and by weak demand. In January, starts and permits for new single-family homes remained near the low levels that had prevailed since the middle of 2010. New home sales moved down in January; existing home sales stepped up somewhat but still were quite low by historical standards. Measures of house prices softened again in December and January.

    Real business investment in equipment and software (E&S) appeared to rise further in recent months. Nominal shipments of nondefense capital goods excluding aircraft increased, on net, in December and January, and the expanding backlog of unfilled orders pointed to further gains in shipments in subsequent months. In addition, readings on business conditions and sentiment remained consistent with solid near-term advances in outlays for E&S. Credit conditions continued to improve for many firms, though they reportedly were still tight for small businesses. In contrast to the apparent increase in E&S outlays, nonresidential construction expenditures dropped further in December and January, constrained by high vacancy rates, low prices for commercial real estate, and persistently tight borrowing conditions for construction loans for commercial properties.

    How good can the economy really be if no one is renting space or buying homes?  The economy is picking up for the survivors only

    Real nonfarm inventory investment appeared to have picked up in early 2011 after slowing markedly in the fourth quarter. In the motor vehicles sector, inventories rose slightly, on net, in January and February after having been drawn down in the fourth quarter. Outside of motor vehicles, the rise in the book value of business inventories was somewhat larger in January than the average monthly increase in the fourth quarter, while inventory-to-sales ratios for most industries covered by these data were similar to their pre-recession norms. Survey data also suggested that inventory positions were generally in a comfortable range.

    In the government sector, the available information suggested that real defense spending in January and February was below its average level in the fourth quarter. At the state and local level, ongoing fiscal pressures were reflected in further job cuts in January and February. Construction outlays by these governments fell again in January.

    Notice definitive language on things that go down and lots of couching language trying to paint a better picture where they can.  

    The U.S. international trade deficit widened in December and again in January, with rapid gains in both exports and imports. The largest increases in exports were in capital goods, industrial supplies, and automotive products. Nominal imports of petroleum products rose sharply, reflecting both higher prices and greater volumes; imports in other major categories rose solidly on net.

    Overall consumer prices in the United States rose somewhat faster in December and January than in earlier months, as consumer energy prices posted further sizable increases and consumer food prices responded to the recent upturn in farm commodity prices. The price index for PCE excluding food and energy (the core PCE price index) rose slightly in January, boosted by an uptick in prices of core goods after four months of declines; the 12-month change in this core price index stayed near the very low levels seen in late 2010. Recent surveys showed further hefty increases in retail gasoline prices in February and early March, and prices of nonfuel industrial commodities also rose sharply on net. According to the Thomson Reuters/University of Michigan Surveys of Consumers, households’ near-term inflation expectations increased substantially in early March, likely because of the run-up in gasoline prices; longer-term inflation expectations moved up somewhat in the early March survey but were still within the range that prevailed over the preceding few years.

    Labor cost pressures remained muted in the fourth quarter, as hourly compensation continued to be restrained by the wide margin of slack in the labor market and as productivity rose further. Average hourly earnings posted a modest increase, on net, in January and February.

    Growth in real activity in the advanced foreign economies appeared to pick up after a lackluster performance in the fourth quarter. In the euro area, monthly indicators of activity, such as retail sales and purchasing managers indexes, were generally positive in January and February. But the divergence in economic performance across euro-area countries remained large, as economic activity appeared to have expanded strongly in Germany but to have contracted in Greece and Portugal. Prior to the earthquake and tsunami in mid-March, economic activity in Japan had shown signs of firming. The upbeat tenor of the incoming data for the emerging market economies suggested that the economic expansion in these countries continued to outpace that in the advanced economies. Foreign consumer price inflation, which stepped up noticeably in the fourth quarter, remained elevated in early 2011, largely because of higher food and energy prices.

    At least they are now willing to say the word "inflation".  

    Staff Review of the Financial Situation
    The decisions by the FOMC at its January meeting to continue its asset purchase program and to maintain the 0 to 1/4 percent target range for the federal funds rate were largely in line with market expectations, as was the accompanying statement; they elicited only a modest market reaction. Over the weeks following the FOMC meeting, nominal Treasury yields and the expected path of the federal funds rate in coming quarters moved higher, as market participants apparently read the incoming economic data as, on balance, somewhat better than expected. After mid-February, however, Treasury yields and policy expectations retraced their earlier rise amid concerns about the possible economic fallout from events in the Middle East and North Africa (MENA) region. In the days leading up to the March FOMC meeting, the tragic developments in Japan spurred a further decline in Treasury yields. On net, expectations for the federal funds rate, along with yields on nominal Treasury securities, were little changed over the intermeeting period.

    Measures of inflation compensation over the next 5 years rose, on net, over the intermeeting period, with most of the increase concentrated at the front end of the curve, likely reflecting the jump in oil prices. In contrast, measures of forward inflation compensation 5 to 10 years ahead were little changed, suggesting that longer-term inflation expectations remained stable.

    This is key.  Watch for a change in long-term expectations to signal the time the Fed has to change their tune.  It will be way too late by then but that’s the game we’re playing.  

    Over the intermeeting period, yields on investment- and speculative-grade corporate bonds edged down relative to those on comparable-maturity Treasury securities. The secondary-market prices of syndicated loans continued to move up. Strains in the municipal bond market eased as concerns about the budgetary problems of state and local governments seemed to diminish somewhat. Conditions in short-term funding markets were little changed.

    Broad U.S. stock price indexes were about unchanged, on net, over the intermeeting period. Option-implied volatility on the S&P 500 index rose sharply in mid-February in response to events in the MENA region and remained somewhat elevated thereafter. The staff’s estimate of the spread between the expected real equity return for S&P 500 firms and the real 10-year Treasury yield--a measure of the equity risk premium--narrowed a bit more over the intermeeting period but continued to be quite elevated relative to longer-term norms.

    In the March 2011 Senior Credit Officer Opinion Survey on Dealer Financing Terms, dealers reported a further easing, over the previous three months, in the price and nonprice terms they offered to different types of counterparties for all of the categories of transactions covered in the survey. Dealers noted that the demand for funding had increased for a broad range of securities over the same period. In response to special questions, dealers reported some increase in the use of leverage over the prior six months by traditionally unlevered investors--in particular, asset managers, insurance companies, and pension funds. In addition, dealers reported an increase in leverage over the past six months by hedge funds that pursue a variety of investment strategies. More broadly, while the availability and use of dealer-intermediated leverage had increased since its post-crisis nadir in mid-2009, a review of information from a variety of sources suggested that leverage generally remained well below the levels reached prior to the recent financial crisis.

    So the Fed is pleased that they have turned us into a nation of risk-takers, with even the insurance companies gambling with leverage.  

    Net debt financing by nonfinancial corporations was solid in January and February, although it did not match the sizable amount seen in the fourth quarter. Net issuance of investment- and speculative-grade bonds was robust in the first two months of this year. Commercial and industrial (C&I) loans outstanding also increased, on balance, while the amount of nonfinancial commercial paper outstanding was little changed. Gross public equity issuance by nonfinancial firms was relatively subdued in January and February. Measures of the credit quality of nonfinancial firms continued to improve.

    Financing conditions for commercial real estate generally remained tight. So far this year, issuance of commercial mortgage-backed securities (CMBS) appeared to have maintained its modest fourth-quarter pace. Data on delinquency rates for commercial real estate loans were mixed.

    Rates on conforming fixed-rate residential mortgages, and their spreads relative to the 10-year Treasury yield, were about unchanged over the intermeeting period. With mortgage rates remaining above the low levels seen last fall, refinancing activity was tepid. Outstanding residential mortgage debt was estimated to have contracted again in the fourth quarter. Rates of serious delinquency for subprime and prime mortgages were little changed in December and January.

    Consumer credit markets showed further signs of improvement. Total consumer credit expanded moderately in January. As was the case in the fourth quarter, nonrevolving credit expanded while revolving credit ran off. Delinquency rates on credit card loans in securitized pools and on auto loans at finance companies continued to decline through January, nearly returning to their longer-run averages. The issuance of consumer asset-backed securities, which had weakened around the turn of the year, posted a moderate gain in February.

    Bank credit declined, on average, in January and February as a result of a contraction in core loans--the sum of C&I, real estate, and consumer loans; holdings of securities were about flat on net. The Survey of Terms of Business Lending conducted in the first week of February showed that spreads of interest rates on C&I loans over comparable-maturity Eurodollar and swap rates decreased somewhat but remained elevated.

    M2 increased at a moderate rate, on average, over January and February. Liquid deposits, the largest component of M2, expanded somewhat less rapidly than in the fourth quarter of 2010. Nonetheless, as has been the case for some time, the composition of M2 shifted toward liquid deposits, likely reflecting their higher yields relative to other M2 components. Currency continued to advance at a relatively fast rate in January and February, likely boosted by a strong expansion in foreign holdings of U.S. bank notes.

    Money not being loaned out but shipped out of the country to be held by foreigners – nice!  Also, money inside this country moving to liquid is a sure sign of the big boys expecting some major inflation to the point where they don’t even want to be tied up in a 6-month note!  

    In financial markets abroad, equity prices in the advanced economies rose early in the intermeeting period, but they turned down in mid-February as oil prices increased and then fell sharply in mid-March in the aftermath of the earthquake and tsunami in Japan. On net over the intermeeting period, stock prices were down in most of the advanced economies, with Japan’s index having fallen most significantly. Emerging market equity price indexes, which had been underperforming in previous months, generally ended the period lower as well, and emerging market equity funds experienced outflows. Movements in 10-year sovereign bond yields in Europe and Canada mirrored those in equity prices, climbing early in the intermeeting period but falling later.

    In part because of downgrades by credit rating agencies, yields on the 10-year sovereign bonds of Greece, Ireland, and Portugal rose sharply, relative to those on German bonds, through early March. These spreads subsequently declined somewhat in response to a general agreement among euro-area leaders to expand the capacity of the area’s backstop funding facility, to extend the maturity of the facility’s loans to Greece, and to lower the interest rates on those loans.

    That didn’t work for long, did it?

    The European Central Bank (ECB) left its benchmark policy rate unchanged at its March meeting, but the emphasis on upside risks to inflation at the postmeeting press conference led market participants to infer that the ECB might well tighten policy at its meeting in April. In the United Kingdom, market-based readings on expected policy rates indicated that investors anticipated some tightening of policy before the end of this year. In addition, authorities in several emerging market economies took steps to tighten policy. The broad nominal index of the U.S. dollar declined about 1 percent, on balance, over the intermeeting period.

    Staff Economic Outlook
    The pace of economic activity appeared to have been a little slower around the turn of the year than the staff had anticipated at the time of the January FOMC meeting, and the near-term forecast for growth of real gross domestic product (GDP) was revised down modestly. However, the outlook for economic activity over the medium term was broadly similar to the projection prepared for the January FOMC meeting. Changes to the conditioning assumptions underlying the staff projection were mostly small and offsetting: Crude oil prices had risen sharply and federal fiscal policy seemed likely to be marginally more restrictive than the staff had judged in January, but these negative factors were counterbalanced by higher household net worth and a slightly lower foreign exchange value of the dollar. As a result, as in the January forecast, real GDP was expected to rise at a moderate pace over 2011 and 2012, supported by accommodative monetary policy, increasing credit availability, and greater household and business confidence. Reflecting the recent labor market data, the projection for the unemployment rate was lower throughout the forecast period than in the staff’s January forecast, but the jobless rate was still expected to decline slowly and to remain elevated at the end of 2012.

    The staff revised up its projection for consumer price inflation in the near term, largely because of the recent increases in the prices of energy and food. However, in light of the projected persistence of slack in labor and product markets and the anticipated stability in long-term inflation expectations, the increase in inflation was expected to be mostly transitory if oil and other commodity prices did not rise significantly further. As a result, the forecast for consumer price inflation over the medium run was little changed relative to that prepared for the January meeting.

    So the Fed is completely clueless.  There is no inflation if wages fall faster than factory input costs.  THAT’S HOW THEY MEASURE IT!!!  If you are not in the top 0.1% – these people do not have your interests in mind AT ALL.  

    Participants’ Views on Current Conditions and the Economic Outlook
    In discussing intermeeting developments and their implications for the economic outlook, participants agreed that the information received since their previous meeting was broadly consistent with their expectations and suggested that the economic recovery was on a firmer footing. Looking through weather-related distortions in various indicators, measures of consumer spending, business investment, and employment showed continued expansion. Housing, however, remained depressed. Meeting participants took note of the significant decline in the unemployment rate over the past few months but observed that other indicators pointed to a more gradual improvement in overall labor market conditions. They continued to expect that economic growth would strengthen over coming quarters while remaining moderate. Participants noted that recent increases in the prices of oil and other commodities were putting upward pressure on headline inflation, but that measures of underlying inflation remained subdued. They anticipated that the effects on inflation of the recent run-up in commodity prices would prove transitory, in part because they saw longer-term inflation expectations remaining stable. Moreover, a number of participants expected that slack in resource utilization would continue to restrain increases in labor costs and prices. Nonetheless, participants observed that rapidly rising commodity prices posed upside risks to the stability of longer-term inflation expectations, and thus to the outlook for inflation, even as they posed downside risks to the outlook for growth in consumer spending and business investment. In addition, participants noted that unfolding events in the Middle East and North Africa, along with the recent earthquake, tsunami, and subsequent developments in Japan, had further increased uncertainty about the economic outlook.

    Participants’ judgment that the recovery was gaining traction reflected both the incoming economic indicators and information received from business contacts. Spending by households, which had picked up noticeably in the fourth quarter, rose further during the early part of 2011, with auto sales showing particular strength. Although some participants noted that growth in consumer spending so far this year had not been as vigorous as they had anticipated, they attributed the shortfall in part to unusually bad weather. While participants expected that household spending would continue to expand, the pace of expansion was uncertain. On the one hand, labor market conditions were improving, though gradually, and the temporary cut in payroll taxes was contributing to rising after-tax incomes. Some easing of credit conditions for households, particularly for auto loans, also appeared to be supporting growth in consumer spending. On the other hand, declining house prices remained a drag on household wealth and thus on consumer spending. In addition, sizable recent increases in oil and gasoline prices had reduced real incomes and weighed on consumer confidence. Business contacts in a variety of industries had expressed concern that consumers might pull back if gasoline prices rose significantly further and persisted at those elevated levels.

    So we got our tax break to offset declining wages and then we were able to borrow more money to pay for gas and food – Yipee!  

    A further increase in business activity also indicated that the economic recovery remained on track. Industrial production posted solid gains, supported in part by continuing growth in U.S. exports. Business contacts in a number of regions reported they were more confident about the recovery; a growing number of contacts indicated they were planning for an expansion in hiring and production to meet an anticipated rise in sales. Manufacturing firms were particularly upbeat. Some contacts reported they were increasing capital budgets to undertake investment that had been postponed during the recession and early stages of the recovery; in some cases, firms were planning to expand capacity. Consistent with the anecdotal evidence, indicators of current and planned business investment in equipment and software continued to rise and surveys showed a further improvement in business sentiment. In addition, although residential construction remained weak, investment in energy extraction was growing and spending on commercial construction projects appeared to be bottoming out.

    Meeting participants judged that overall conditions in labor markets had continued to improve gradually. The unemployment rate had decreased significantly in recent months; other labor market indicators, including measures of job growth and hours worked, showed more-modest improvements. Several participants noted that the drop in unemployment was attributable more to people withdrawing from the labor force and to fewer layoffs than to increased hiring. Even so, participants agreed that gains in employment seemed to be on a gradually rising trajectory, although the recent data had been somewhat erratic and distorted by worse-than-usual weather in many parts of the country. In addition, surveys of employers showed that an increasing number of firms were planning to hire. Participants noted regional differences in the speed of improvement in labor markets; scattered reports indicated that firms in some regions were having difficulty hiring some types of highly skilled workers. Participants generally judged that there was still substantial slack in the labor market, though estimates of the degree of slack were admittedly imprecise and depended in part on judgments about a number of factors, including the extent to which labor force participation would increase as the recovery progresses and employment expands.

    Credit conditions remained uneven. Bankers again reported improving credit quality and generally weak loan demand. Large firms that have access to financial markets continued to find credit, including bank loans, available on relatively attractive terms; however, credit conditions reportedly remained tight for smaller, bank-dependent firms. Participants noted evidence that the availability of student loans and of consumer loans--particularly auto loans--was increasing. Indeed, bank and nonbank lenders reported that terms and conditions for auto loans had returned to historical norms. In contrast, terms for commercial and residential real estate loans remained tight and the volume of outstanding loans continued to decline, though there was some issuance of CMBS backed by loans on high-quality properties in selected large metropolitan areas. A few participants expressed concern that the easing of credit conditions in some sectors was becoming or might become excessive as investors took on more risk in order to obtain higher yields.

    Pretty good stuff but mostly forward looking so a lot of what-ifs to the good parts while the bad parts are pretty firm and in your face.  

    Participants observed that headline inflation was being boosted by higher prices for energy and other commodities, and that prices of other imported goods also had risen by a substantial, though smaller, amount. A number of business contacts indicated that they were passing on at least a portion of these higher costs to their customers or that they planned to try to do so later this year; however, contacts were uncertain about the extent to which they could raise prices, given current market conditions and the cautious attitudes toward spending still held by households and businesses. Other participants noted that commodity and energy costs accounted for a relatively small share of production costs for most firms and that labor costs accounted for the bulk of such costs; moreover, they observed that unit labor costs generally had declined in recent years as productivity growth outpaced wage gains. Several participants noted that even large commodity price increases have had only limited effects on underlying inflation in recent decades.

    In contrast to headline inflation, core inflation and other measures of underlying inflation remained subdued, though they appeared to have bottomed out. A number of participants noted that, with significant slack in resource utilization and with longer-term inflation expectations stable, underlying inflation likely would remain subdued for some time. However, the importance of resource slack as a factor influencing inflation was debated. Some participants pointed to research indicating that measures of slack were useful in predicting inflation. Others argued that, historically, such measures were only modestly helpful in explaining large movements in inflation; one noted the 2003-04 episode in which core inflation rose rapidly over a few quarters even though there appeared to be substantial resource slack.

    Participants expected that the boost to headline inflation from recent increases in energy and other commodity prices would be transitory and that underlying inflation trends would be little affected as long as commodity prices did not continue to rise rapidly and longer-term inflation expectations remained stable. However, a significant increase in longer-term inflation expectations could contribute to excessive wage and price inflation, which would be costly to eradicate. Accordingly, participants considered it important to pay close attention to the evolution not only of headline and core inflation but also of inflation expectations. In this regard, participants observed that measures of longer-term inflation compensation derived from financial instruments had remained stable of late, suggesting that longer-term inflation expectations had not changed appreciably, although measures of one-year inflation compensation had risen notably. Survey-based measures of inflation expectations also indicated that longer-term expected inflation had risen much less than near-term inflation expectations. A few participants noted that the adoption by the Committee of an explicit numerical inflation objective could help keep longer-term inflation expectations well anchored.

    Participants generally judged the risks to their forecasts of growth in economic activity to be roughly balanced. They continued to see some downside risks from the banking and fiscal strains in the European periphery, the continuing fiscal adjustments by U.S. state and local governments, and the ongoing weakness in the housing market. Several also noted the possibility of larger-than-anticipated near-term cuts in federal government spending. Moreover, the economic implications of the tragedy in Japan--for example, with respect to global supply chains--were not yet clear. On the upside, the improvement in labor market conditions in recent months raised the possibility that household spending--and subsequently business investment--might expand more rapidly than anticipated; if so, the recovery could be stronger than currently projected. Participants judged that the potential for more-widespread disruptions in oil production, and thus for a larger jump in energy prices, posed both downside risks to growth and upside risks to inflation. Several of them indicated, in light of recent developments, that the risks to their forecasts of inflation had shifted somewhat to the upside. Finally, a few participants noted that if the large size of the Federal Reserve’s balance sheet were to lead the public to doubt the Committee’s ability to withdraw monetary accommodation when appropriate, the result could be upward pressure on inflation expectations and so on actual inflation. To mitigate such risks, participants agreed that the Committee would continue its planning for the eventual exit from the current, exceptionally accommodative stance of monetary policy. In light of uncertainty about the economic outlook, it was seen as prudent to consider possible exit strategies for a range of potential economic outcomes. A few participants indicated that economic conditions might warrant a move toward less-accommodative monetary policy this year; a few others noted that exceptional policy accommodation could be appropriate beyond 2011.

    So inflation is just fine with the Fed as long as it isn’t WAGE INFLATION.  If there is any sign whatsoever that wages may press upward, then they are ready to take extreme measures to slow down the economy.  This is a very, very sick system we have in this country – our Central Bank is working for Big Business and Big Business isn’t even hiring Americans – that’s a completely flawed premise that is dooming this country.  

    Committee Policy Action
    In their discussion of monetary policy for the period ahead, Committee members agreed that no changes to the Committee’s asset purchase program or to its target range for the federal funds rate were warranted at this meeting. The information received over the intermeeting period indicated that the economic recovery was on a firmer footing and that overall conditions in the labor market were gradually improving. Although the unemployment rate had declined in recent months, it remained elevated relative to levels that the Committee judged to be consistent, over the longer run, with its statutory mandate to foster maximum employment and price stability. Similarly, measures of underlying inflation continued to be somewhat low relative to levels seen as consistent with the dual mandate over the longer run. With longer-term inflation expectations remaining stable and measures of underlying inflation subdued, members anticipated that recent increases in the prices of energy and other commodities would result in only a transitory increase in headline inflation. Given this economic outlook, the Committee agreed to continue to expand its holdings of longer-term Treasury securities as announced in November in order to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with the Committee’s mandate. Specifically, the Committee maintained its existing policy of reinvesting principal payments from its securities holdings and reaffirmed its intention to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. A few members remained uncertain about the benefits of the asset purchase program but judged that making changes to the program at this time was not appropriate. The Committee continued to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, were likely to warrant exceptionally low levels for the federal funds rate for an extended period.

    Members emphasized that the Committee would continue to regularly review the pace of its securities purchases and the overall size of the asset purchase program in light of incoming information--including information on the outlook for economic activity, developments in financial markets, and the efficacy of the purchase program and any unintended consequences that might arise--and would adjust the program as needed to best foster maximum employment and price stability. A few members noted that evidence of a stronger recovery, or of higher inflation or rising inflation expectations, could make it appropriate to reduce the pace or overall size of the purchase program. Several others indicated that they did not anticipate making adjustments to the program before its intended completion.

    With respect to the statement to be released following the meeting, members decided to note the further improvement in economic activity and in labor markets. The Committee also decided to summarize its current thinking about inflation pressures and to emphasize that it will closely monitor the evolution of overall inflation and inflation expectations.

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

    "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability."

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

    "Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.

    To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

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

    The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate."

    Voting for this action: Ben Bernanke, William C. Dudley, Elizabeth Duke, Charles L. Evans, Richard W. Fisher, Narayana Kocherlakota, Charles I. Plosser, Sarah Bloom Raskin, Daniel K. Tarullo, and Janet L. Yellen.

    Voting against this action: None.

    The Committee then discussed a recommendation, from its subcommittee on communications, that the Chairman conduct regular press conferences. Participants generally saw such press conferences as a potentially useful way to enhance transparency and strength-en the Committee’s policy communications. They discussed various implications of, and alternative arrangements for, such press conferences. They generally endorsed holding press conferences after the four FOMC meetings each year for which participants provide numerical projections of several key economic variables, conditional on appropriate monetary policy. While those projections already are made public in the minutes of the relevant FOMC meetings, press conferences could be helpful in explaining how the Committee’s monetary policy strategy is informed by participants’ projections of the rates of output growth, unemployment, and inflation likely to prevail during each of the next few years, and by their assessments of the values of those variables that will prove most consistent, over the longer run, with the Committee’s mandate to promote both maximum employment and stable prices. The outcome of the discussion was a decision that the Chairman would begin holding press conferences effective with the April 26-27, 2011, meeting.

    It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, April 26-27, 2011. The meeting adjourned at 2:35 p.m. on March 15, 2011.

  122. 0×0 / android — In theory, closed source should only help GOOG. It will stop the fragmentation that they see. On the flip side, is that Google is terrible at software developement (which is why most things stay in beta for years). So I’d expect more buggy releases of major updates. Of course they might also be able to make a profit from android as well.

  123. Despite some rumors that we’re printing money, we simply don’t have enough to give it to banks, people and build infrastucture. So we’re giving money to those who need them the most – > BANKS, cause people who control banks don’t have enough only 40% of total and they want 60%.  

  124. cclark
    Do a search on Phil’s old posts and you will find that he has spoken about doing those exact things many many times.

  125. Entered JBL @ 20.45 and sold the May 20p’s and 21c’s for 1.76 for net entries of 18.69/19.35 or a gain of 12% if JBL can gain 3%. in 7 weeks.

  126. CRIS CRIS CRIS…gggggooooo   ggggoooo….

  127. Phil – We are Japan, now!  When we start saving, the final nail goes in the coffin.

  128. Pharmboy / saving — You have to have a job to be able to save! Oh, wait…  no you don’t. I forgot we pay the unemployed.

  129.  Amata
    you can get paper money account with TOS and check there everything you need, if you need help with TOS just let me know and I’ll help as much as I know

  130. Another ‘lil stat – families/people on food stamps went up 12% YOY.

  131. Shadow  welcome back,  did you make the move to MA?  I’m looking forward to seeing your levels that complement JRW’s 

  132. Dollar/ZZ – If the dollar goes up, gold goes down – that’s a pretty direct relationship.  Dollars are much more convenient to hold than gold but people have to trust them and, as you can see from the Fed minutes – that’s probably a bad idea.  

    Finally oil fails $108 again – that’s the stop now and we’re done for the day.  

    Storm/Rain – I think long-term the story is inflation but I just don’t see how Q1 earnings AND Q2 guidance can lift this market.  As to the Job growth – see the Fed notes – job growth is NOT what the Fed and Big Business want.  Labor costs are much worse for companies than commodity costs and if Obama starts hiring people it will screw up their whole game.  I really don’t think there are any jobs left to outsource at this point other than retail if AMZN et al mange to take over and put all the malls out of business.  Until that happens, they just need to keep US labor costs as low as possible without inciting a revolution.  

    USO/Lori – Inventories rolling as we speak, oil down to $107.67 (stops in futures now $107.75) and tomorrow’s inventories will give them an excuse to dip down to $105 ish without admitting there is simply too much oil in general.  That’s when I’ll want to look over options. 

    Futures/Jrom – Sure, Silver below $39 (now $39.17) and gold below $1,450 but very tight stops on both.  

    S&P fails to hold 1,333 yet again!  

    USO/Lol – Well it’s $43/108 so that ratio applies to all of your prices subject to divergence over time (usually USO falls off).  

    Page/Highlander – I’m sure a lot of things will be different now.  GOOG off sharply and that can snowball into a big drop if people start blaming Larry.  Open Apps is a silly idea anyway – I picked up tablets from several other people and in 5 minutes of playing had either crashes or crazy slowness I never have on the IPad.  There is, in fact, a right way to design an App and somebody should enforce it! 

    DIA/Manimal – It’s just too crazy risky.  I’d cash out 2/3 at least and then if the 1/3 doubles up you still make 33% on the whole amount.  

    Bad connections/Shadow – That is a very nasty thing.  

    Infrastructure/CC – I wrote a whole post on that a while ago.  It’s criminal how the infrastructure of this country has been neglected but then that jackass Boehner gets on TV and says "We don’t have a revenue problem, we have a spending problem."  Imagine if that was your attitude in caring for your house – it’s not about going out and getting a job and sacrificing your pleasures to keep up the house – the problem is spending money on care and maintenance!  So you go out and party like it’s 1999 and the paint peels and the walls crumble and the roof leaks and the pipes burst and then you say the best way to fix things it to contribute LESS money to the house.  Yes, it’s that idiotic!  

    Actually it’s even more idiotic when you then decide to spend Trillions of Dollars going overseas to break other people’s houses….

    Development/Rain – That’s a good point, you can’t just decide to be an Operating System company.  MSFT isn’t even a good one anymore.  AAPL has been at it for years – it gives them a nice advantage.  

    Hear hear Vic!  

  133. rainman
    I would like to see you pay your bills, buy $3.50 gallon gas (to go look for a job), pay taxes on your unemployment (yes you have to pay income taxes on unemployment) and buy groceries for your family all on $300 per week. Save, get serious!

  134. Phil: As always, nice summary, market commentary and highlighting of the Fed Minutes!

  135. Tx Phil--out of most of DIA

  136. Phil – Thanks, just wishful thinking on my part. I think I’ll sleep better taking 100% off the table. It looked grim as I was typing my question but now the indicies are back at DJI – 12,400 and S&P 1,333.  All in all, another great call!

  137. Finaly Transports are giving up. Usualy they are the first to go down in correction.

  138. 1:00 PM On the hour: Dow +0.22%. 10-yr -0.26%. Euro flat vs. dollar. Crude -0.44% to $107.99. Gold +1.47% to $1454.10. 

    02:00 PM On the hour: Dow +0.23%. 10-yr -0.37%. Euro -0.05% vs. dollar. Crude -0.45% to $107.98. Gold +1.33% to $1452.10.

    03:00 PM On the hour: Dow +0.11%. 10-yr -0.42%. Euro +0.03% vs. dollar. Crude -0.41% to $108.02. Gold +1.49% to $1454.40.

    Bernanke and other inflation deniers receive a scolding from Bill Gross, who says it’s naïve to keep thinking that the threat will pass. The notion of "mean reversion" ignores the role of emerging economies: "Citizens are demanding more for their money and they’re reflecting that in the form of higher commodity prices. To expect that to revert over the next several years is a little Pollyannaish." 

    Sean McLaughlin sums up his Minimalist Trader philosophy: “If you aren’t willing to adapt, to learn new tricks, and to occasionally mix things up a little bit, the markets will eventually knock you down a peg. And in many cases knock you clean out. “ 

    FOMC minutes: Fed members saw no need at their March 15 meeting to ease bond buying before June. A few members said that economic conditions might warrant the beginning of the end later this year, and a few others said that Fed policy may be appropriate "beyond 2011." Economic growth appeared to be on "firmer footing."

    More on FOMC minutes: "With longer-term inflation expectations remaining stable and measures of underlying inflation subdued, members anticipated that recent increases in the prices of energy and other commodities would result in only a transitory increase in headline inflation."

    Morgan Stanley joins the chorus warning of an equities sell-off at the end of QE2, pointing to Japan’s experience with intervention from 2003 to 2006 as a harbinger of the turning point ahead. (earlier)

    Last night’s hike in Chinese interest rates came as a surprise to analysts who had interpreted recent PBoC statements as being on the dovish side. It’s hard to see how policymakers could pause, given expectations for official inflation figures to soon rise above 5%, even if forecasts for the 2nd half of the year are more benign.

    Still loathe to call it a bailout, Portuguese officials are talking with the EU on a solution to its immediate cash flow problems. A bridge loan proposal has been rejected as unallowed under EU rules, but other ways are being discussed to ensure Portugal can make its debt payments in April and June.

    Dollar bashing by Gang of 12′er:  With the yen at its 2011 low vs. the dollar, JPM’s chief currency strategist reiterates his call for the yen to strengthen. Most of the selling has been from overseas speculative accounts, says Tohru Sasaki. These shorts will need to be unwound when repatriation really starts. FXY -0.7%

    Jamie Dimon (JPM) believes new rules regulating derivatives are "downright idiotic," and new international bank capital standards "will stifle economic growth." Derivatives "had nothing to do with the crisis," he says, and new rules will drive business offshore. “Singapore is licking its chops at this. They are hiring people to build big derivatives trading floors." 

    After Transocean (RIG), one of the firms involved in the Gulf spill,boasts of the “best year in safety performance in our company’s history,” the New Orleans Times-Picayune responds: “That’s like the owners of the Hindenburg claiming they had an ‘exemplary’ safety record – except for the dramatic explosion of the blimp over New Jersey in 1937."

    Just because a company gets acquired doesn’t mean the entire sector goes up, so Josh Brown implores: "Don’t chase the analog chip stocks." (SOXX +1.2%) Most of the companies making these chips are "not high-growth or sexy," he says; their stocks "will jump up 5%-7% apiece today and then give it back over the next five days." 

    Intel (INTC +1.3%) shares rise despite a lowered price targetfrom Canaccord, citing a Q2 slowdown in PC production. Street expectations of a 10%-15% rise in notebook sales likely will be undercut by supply chain turmoil from Japan, and the iPad2 (AAPL) tablet computer may cause notebook computers to “see weak sell-through” in the quarter.

    The head of Xstrata’s (XSRAY.PK) copper’s business brushes aside concern about the metal, saying the recent buildup in stocks will soon end. Of rumored Chinese stockpiling, he’s aware of the stories and gives them weight, but doesn’t see that copper "coming back onto the market."

    Forget the kerfuffle over David Sokol’s resignation; Jack Hough finds five better reasons to sell Buffett (BRK.A). Reason no. 1: "The merchandise seems fully priced." At the end of 2010, Berkshire represented underlying assets worth just over $95K/share, but investors who buy today would need to pay more than $124K.

  139. Thanks Jbur!

    DIA/Savi – Nice job! 

    Thanks Manimal!  

    This is what range-trading is all about guys – you wait PATIENTLY for tops to go short and bottoms to go long and, in between – it’s a lot of nothing.  The good news is that something is always topping and something is always bottoming – as McLaughlin says above – the key is to stay flexible!  

  140.  And wheeeee!  

  141. Phil,
    Interesting – gold and silver are up 1.5% but copper and oil is slightly down. Feels like inertia trade  in gold/silver and some confusion and indesion in the reflation trade.
    I still belive in April 7 for dollar turnaround.

  142. Don’t blame the Dollar – only up to 76.13.  

    Everything off but Gold so GLL $26 calls for .50 are a fun play into tomorrow.  

  143. Meanwhile TZOO makes an all-time high at 80.70 with a p/e of 99.25 – you’ve gotta love this market!  

  144. Phil / AAPL — Well, like always (and like you), I’ll have to take a shot at the other side of the argument. Consumers are making the choice of android phones over iphones lately as demonstrated by sales stats and I think having open hardware is part of  android’s advantage. There are many, many, android phones and tablets, there are only a couple choices each for aapl owners (similar arguement to having iPhone only on AT&T which I recall some complaining about). Some of the early android tablets are even sub $100 now. Having competition in the hardware space helps to drive the price down. I do think many apple customers have found "religion" and that will keep appl in the game so I think both will exist for some time (not to mention I think Microsoft will slowly take some share on benefit to corporate users). As far as AAPL software being solid, I’ve never used an apple product so I can’t comment but I don’t have problems with my android phone so it’s not an issue for me at least, others might be choosing adroid because they would rather spend less for their hardware and deal with the occasional crash (not everyone’s time is as important as ours!) I still like to stay agnostic though I must admit that I own some MSFT and an android phone.

  145. Even etrade said the problem is Verizon, the CNBC feed keeps going to overriding everything including my charts and trading page. Am I having fun yet?

  146. This is a very, very sick system we have in this country – our Central Bank is working for Big Business and Big Business isn’t even hiring Americans – that’s a completely flawed premise that is dooming this country.  
    Ding, ding, ding, ding!

  147. OMG!  Travel Zoo is still in business??  How is it that we are having a second internet boom?  What gives?  Have folks learned nothing?  Or are there even ‘folks’ trading that thing..

  148. matt / doomed — I agree, but that reminds me of the joke about a the guy that always gets his limit when fishing. The game warden wants to see how he does it so the guy takes him out the next morning. The fisherman lights a stick of dynamite and the warden says "hey you can’t do that". The guy hands the dynamite to the warden and asks "Do you want to talk or fish"? 8)

  149. EDZ looking sexy again at $16.68.  May $15/17 bull call spread is .90 and you can sell the $15 puts for .60 for .30 on the $2 spread that’s $1.68 in the money.  Of course you can offset with anything, like the SPX weekly 1,300 short puts at $1.05, which is a bet the S&P holds 1,300 through Friday.  That one is not a good offset if you aren’t swimming in margin, of course but it pays miles better than SPY.  

    AAPL/Rain – I’m not going to argue the religion of the two, I just like things that work and AAPL does that for me.  I admit it, I’m a person who buys $5/ounce tea and $800 tablets – I’m sure they make cheaper stuff but I don’t even go on-line to look for discounts because the Apple store takes good care of me and I don’t have to wait for tech support and my kids phone broke and they just gave her a new one and my old IMac broke and they didn’t charge me to tell me I was screwed and then they didn’t charge me when they offered to pull the drive and clone everything over to a new computer.  I compare that experience to the time my VZ Razr phone had a one key that wasn’t functioning and they told me that wasn’t covered under my contract and I’m happy to pay up for AAPL.  

    TZOO/Matt – I am just baffled by these travel sites going like gangbusters.  Maybe we are underestimating Chinese travel growth…  

  150. At the close: Dow -0.05% to 12394. S&P -0.02% to 1333. Nasdaq +0.07% to 2791.
    Treasurys: 30-year -0.36%. 10-yr -0.38%. 5-yr -0.3%.
    Commodities: Crude -0.54% to $107.88. Gold +0.32% to $1457.10.

    Currencies: Euro 0% vs. dollar. Yen -0.92%. Pound +0.94%. 

     Market recap: Stocks lost steam down the stretch, as concerns over a weak economy and rising inflation mount. Bernanke’s comments last night suggested that inflation won’t last, but FOMC minutes showed the members are thinking hard about it. A weak ISM number sent goldrallying above $1450; crude oil pulled back. NYSE gainers and decliners finished roughly even. 

    A federal judge throws out a $625M patent infringement verdict against Apple (AAPL), overturning one of the largest patent awards on record. In October, a federal jury said Apple was infringing on three Mirror World patents and awarded damages of $208.5M per patent in the case.

    Reversing 7 decades of policy calling for open investment flows, the IMF officially endorses the use of capital controls. The subject has gained renewed importance thanks to strong emerging market growth leading to a flood of often speculative capital entering those countries.

  151. Thaipov, thanks man I appreciate it. I have the account, I am going to try to enter all positions into it and see if I can get the delta there….

  152. Phil – I just watched an interview with Dylan Ratigan and Ron Paul – Would I be voting "Republican" if I were to cast my vote for Congressman Paul for President?  

  153. 1020, not if Ron Paul runs as an independent!  And if he does, you might get the added bonus of voting for his Vice President Ventura!  Now that would be live entertainment!
    rainman, uhhhh… fish?
    Phil, TZOO is up over 400% since Sept. 1st.  There is no way anyone is underestimating anything!  Furthermore, it’s going parabolic on huge volume.  Surely a sign the top is near!

  154. Here’s today’s levels.


  155.  Phil
    If QE2 is going to end abruptly, and if APPL is going to be reduced in weight on NAS in favor of MOMO stocks--I don’t get it, why isn’t this the best opportunity to buy QQQ puts right now?

  156.  Paul Ryan’s magical plan:

    According to Ryan Avent, the Heritage Foundation analysis upon which Paul Ryan is relying is even worse than I realized: “That sounds unbelievably good, and for good reason—the figures in the Heritage analysis are simply outlandish. According to the study cited above, Mr Ryan’s plan will bring the unemployment rate down to 6.4% next year, 4.0% in 2015, and 2.8% in 2021.”
    Not sure where this guys get their numbers! I guess it would also be easy for me to balance the budget if I pull fake numbers from my hat… 

  157.  I don’t know how some of these politicians sleep at night:
    Summary - Of course this doesn’t mean that cutting Medicaid won’t save money. It very well might. Thanks to Paul Ryan some families who can currently afford to take their kids to see the doctor won’t be able to take their kids to see the doctor. That will reduce aggregate health care expenditures and increase aggregate “kids get sick and die” nationwide. Of course a lot of kids who get sick and don’t get treated won’t die. It’s not as if the death rate from illness and accidents was 100 percent in the era before modern health care. People just suffer and life goes on. And with the extra budgetary headroom created, rich people can pay lower taxes and buy more really expensive refrigerators.

  158.  Matt:  I have inferred from the Fed’s behavior that the "sick system" to which you refer amounts to the Fed’s stopgap solution to problem of  semi-skilled Americans in large numbers having been replaced by foreign workers at 10%-20% of what those Americans cost.  In the U.S., the unskilled are most Mexicans, and the highly-skilled are in short supply.  What to do?  It’s not something that is really fixable by manipulating the money supply, which is all the Fed controls.  Lowering rates was intended to support the housing market, or, at the least, keep it from further decline.  It is also intended to lower the dollar, which would tend to make the semi-skilled cheaper relative to foreign competition.  Many think that the Fed is acting is a dastardly way. I rather think the Fed is, by its nature, a one-trick pony, banging its hoof over and over in the hopes of supporting the price of stocks in all those 401[k]s, since housing is a lost cause for now, and computers have replaced the semi-skilled and administrative workers.
    I am struck by the stark contrast between the opprobrium leveled against the Fed with the lack of criticism for the Congress, which has almost infinitely broader powers, such as actually initiating infrastructure projects, cutting wasteful spending [must I enumerate?] or even taking a salary cut.  American’s bottom line problem is not its monetary policy — it is free trade.  Free trade [e.g., outsourcing jobs and factories overseas] punched a hole in the dike that was holding down EM wages and holding up U.S. wages.  It resulted in cheaper products to help offset declining real wages in the U.S.caused by foreign competition,  But, longer term, that had to be a poisoned chalice.
    Fed-bashing is fun, but I have yet to hear a plausible explanation as to how the Fed could "fix" America’s real problem — unsustainable levels of income and consumption relative to the rest of the planet — on it’s own.  

  159. GMCR in 25KP
    The official position is +10Apr60P basis 1.98 now 0.32 for a $1660 loss
    The simplist roll is to the -10May65P/+10Jun65P now 0.93 less the 0.32 from selling the Aprs or net 0.61 or $610.  This position recovers the $1660 loss between 62.75 and 67.50 and the position makes money between BE 57.70/74.00.
    Another interesting roll I found was a combination of two calendars: -5May60P/-5May65P/+10Jun65P which costs $1,825.  This position recovers the $1660 loss between BE 57.90/65.30 and the position makes money between BE 0/70.00.  Yes, the lower BE is 0 because the long Jun65Ps have a higher delta and make more money than the shorts loose.
    The June long puts will still have value and will add to the potential profit of the position.

  160. Hi Phil:
    I like PFE for the dividend so I bought PFE at $16.67 and sold Sept $19 C at $1.19 (now $2.00) and sold Sept. $19 P at $ $1.45 ( now $ .77) for net $14.03/$16.52 in my taxable account. With the stock increase, I’m thinking I should convert to a vertical spread by selling stock and buying Dec. $15 C at $5.50. Make sense to you? Thank you.

  161. Hi, Tcha,
    I am interested in your strategy of selling SPX and RUT calls against your longs.  How do you determine how many SPX/RUT calls you sell?

  162. Phil and hanna5, thanks a lot for my TZA trade yesterday.

  163. I  was just approved for spreads in the Fidelity IRA acct—I know we had some posts about this a few days ago —you need to fill out a spread agreement and also a new options agreement (if the one on file is over 30 days)--it took a day for processing--hope this helps

  164. Savi
    Was wondering how well Fidelity has worked for you (outside of the spreads)?  Was thinking about transferring there since my 401K and stock options from work are there.

  165.  Seer – not that you asked me, but I’ve been w/ Fidelity a long time, and I find their execution flawless and their $8 per trade flat fee very reasonable.  I have never had a blown execution — not once — and my trades must number in the thousands by now.  Just today, I pushed the "buy" button by accident [for the first time ever]  and less than 2 seconds later, pushed cancel.  Too late.  Done.  I was actually please to see that. Two seconds later and another button push, sold.  If you need investment advice, it’s not the place to find it, and their analytical packages are nothing special, never use ‘em.  But if you know what you want, it is extremely consistent in providing it.  

  166. Trying out the new Amazon Cloud tonight, 14 hours to upload about 5GB. I would be quite old
    if my entire library went there at this pace! Just an observation it seems ITunes and Amazon
    have changed their view on generating traffic. For the past year Amazon has been offering 3-4
    tracks a day for free, for the past 6 weeks its down to 1 a day. Meanwhile Itunes went from 1 a week
    to 4-5 a week. But Amazon has really ramped up the discounts on full albums sub $5. Reminds
    me of the old BBY tactic, take a small loss to get them in the door to look around.
    Recommend: Robbie Robertson, R.E.M. and Ha Ha Tonka all on sale.

  167. seer--I am quite pleased with them (with the spreads even more so)--I use their ATP platform--they are quick to respond to queries --if you are a private access client you can deal directly with one acct rep which is convenient--also depending on the no of trades you do, you can negotiate your commission

  168. dflam/PFE – just so that I understand, what would be the reason for selling the stock and buying the $15 call? Thank you.

  169. Hi, Tcha,
    I am also interested in your strategy of selling SPX and RUT calls against your longs.  Thank you.

  170. AMSC down 40% due to inventory build at Chinese customer who is refusing shipments according to zero hedge.

  171. Qs/Streth – AAPL goes down at the same time the impact of it is reduced in the S&P and the other stocks go up so I don’t think there will be a big negative on the Qs.  Perhaps right now, before the rebalance, people will sell AAPL first and then buy others so maybe a dip but I wouldn’t go gung ho unless we see some levels failing again.  

    Paul Ryan/StJ – I think there was a line in his budget projections stating that the average unemployed person will poop 3 ounces of gold per day – that’s where a lot of the savings come in!   8)

    Same goes for the Medicaid BS – I don’t understand how the Dems let the crooks spin this so far against them.  It’s very simple, the Government acts as a large buyer of goods and services and commands a discount that smaller groups can’t match.  The people who don’t want this are being funded by the Health Care Industry, who are currently charging Americans a World-leading $2.5Tn a year (15% of GDP) for Medical Care and want to be able to charge more and the despicable bastards who pass themselves off as our elected representatives are willing to sell their nation down the river in exchange for campaign contributions.  See – that fits in a 30-second commercial…

    That fridge is cool!  

    Skills/ZZ – The US needs $3Tn in urgent infrastructure maintenance and another $3Tn of wish list items could easily be added to the list.  That’s enough to employ 15,000,000 "unskilled" workers a year at $40,000 a year for 10 years digging ditches, building roads and bridges, upgrading our electric grids and water systems, etc.  Since we waste 50% of our energy through the grid now, the project pays for itself and since 30% of that money comes back to the Government through taxes and another 30% of the money is handed out as unemployment and welfare anyway and 70% of the money flows back through the local economy and creates more jobs and we add 15M contributers to SS and Medicare and we put 15M consumers back on their feet who can pay the mortgages on 15M homes, it’s pretty easy to see how the Government would get far more than a 130% return on their investment.  That’s what to do!  

    Oh yeah, here is my article on Infrastructure from last year.  

    As to what the Fed can do.  They can follow their mandate to promote price stability, which a rational person would say means a strong dollar and who cares if things get cheaper as long as they promote the other mandate, which is MAXIMUM EMPLOYMENT.  That doesn’t seem like it should be arbitrary, does it?  Maximum employment does not mean IN CHINA but the Fed makes no effort at all to make sure American workers are hired.  Giving out money is easy – giving out money with conditions that are enforced take vision and commitment.  

    Congress already did do something.  In the 70s they amended the Federal Reserve act to make the Fed responsible for the things it currently fails to even come close to achieving.  What Congress really needs to do is SPEND money to put people to work and develop new industries but, unfortunately, the people have elected the idiots we have now instead.  

    GMCR/Edro – I was trying to avoid dragging it out but it’s probably the best way to go.  I am still worried they drop like a rock one day but it’s a good spread.  

    PFE/Dflam – You are in for net $14.03/16.52 and you get a .80 dividend (5.7%).  I’m not sure why you want to blow that off.  The Sept combo is still $2.77 so still $1.32 in premium is 9% of your basis still to collect between now and September so, overall, you want to throw a virtually certain $2 away why?   When the premium is gone from the Sept combo, the 2013 $20 puts and calls are $5.10 so figure you pocket another net $2.50 (17%) for the next 15 months plus another $1 in dividends to push you well over $20.  Don’t forget, if PFE goes up and up from inflation, they increase the dividend and the options get more and more expensive all against your constantly diminishing basis.  Sell $2.50 every 18 months and collect another $1 in dividends and you are just 6 years away from having free stock that you can still make $3 a year against.  Isn’t that worth working towards?

    You’re welcome Bob!

    Good article ZZ:

    The issues of jobs, health, taxes, the environment, regulation to protect kids’ health, oil drilling, workers’ safety, education, guns – they are all dictated by lobbies just as overbearing as AIPAC.

    All we do up here is cater to rich, selfish people and their special interests. And their interest is cutting all social programs so we can keep cutting taxes to make them even richer.

    True, most of them do not brag as much as AIPAC but that does not make them any better or worse, just smarter (AIPAC gets more negative attention because of its swagger). Big deal. The public is getting screwed eight ways to Sunday by special interests and AIPAC is just one of them.

    Do not mislead your readers into thinking it is unique. Not only is it not unique, it is insignificant in the sense that it is not the guys robbing the poor to put money in their own pockets. They own US Middle East policy. But the real fat cats own everything else.

  172. Krugman charts Paul Ryan’s projections for unemployment under his "plan":


    Also a good note from Paul:  "The Truth (about climate change), Still Inconvenient":  

    Prof. Richard Muller of Berkeley, a physicist who has gotten into the climate skeptic game, has been leading the Berkeley Earth Surface Temperature project, an effort partially financed by none other than the Koch foundation. And climate deniers — who claim that researchers at NASA and other groups analyzing climate trends have massaged and distorted the data — had been hoping that the Berkeley project would conclude that global warming is a myth.

    Instead, however, Professor Muller reported that his group’s preliminary results find a global warming trend “very similar to that reported by the prior groups.”

    The deniers’ response was both predictable and revealing; 

    Just a few weeks ago Anthony Watts, who runs a prominent climate denialist Web site, praised the Berkeley project and piously declared himself “prepared to accept whatever result they produce, even if it proves my premise wrong.” But never mind: once he knew that Professor Muller was going to present those preliminary results, Mr. Watts dismissed the hearing as “post normal science political theater.” And one of the regular contributors on his site dismissed Professor Muller as “a man driven by a very serious agenda.”

    Of course, it’s actually the climate deniers who have the agenda, and nobody who’s been following this discussion believed for a moment that they would accept a result confirming global warming. But it’s worth stepping back for a moment and thinking not just about the science here, but about the morality.

    For years now, large numbers of prominent scientists have been warning, with increasing urgency, that if we continue with business as usual, the results will be very bad, perhaps catastrophic. They could be wrong. But if you’re going to assert that they are in fact wrong, you have a moral responsibility to approach the topic with high seriousness and an open mind. After all, if the scientists are right, you’ll be doing a great deal of damage.

    But what we had, instead of high seriousness, was a farce: a supposedly crucial hearing stacked with people who had no business being there and instant ostracism for a climate skeptic who was actually willing to change his mind in the face of evidence. As I said, no surprise: as Upton Sinclair pointed out long ago, it’s difficult to get a man to understand something when his salary depends on his not understanding it.

    But it’s terrifying to realize that this kind of cynical careerism — for that’s what it is — has probably ensured that we won’t do anything about climate change until catastrophe is already upon us.

    This was a related read from Popular Science – not sure how many people know that the Bush Administration scrapped a NASA project that was designed to accurately measure climate change – because the last thing they want is actual facts!  Obama is threatening to launch it now and the Koch Brothers and other anti-climate fanatics are freaking out:

    “The Bush Cheney administration canceled the launch within days of taking office on January 20, 2001, and forced NASA to put the satellite into storage.” Warren Wiscombe, a senior physical scientist at NASA, blames a Bush-era “hostility” to earth science at NASA. “As to who ordered the axing of the mission,” he says, “we’ll never know, but the word we got was that Dick Cheney was behind it.”

    Mitchell Anderson, a Vancouver-based reporter who has obsessively covered the DSCOVR story, also suspects Cheney’s hand, citing an unnamed NASA informant. Over the course of three years, Anderson filed five Freedom of Information Act requests for documents related to DSCOVR. After querying NASA in 2006, he waited 11 months to receive the documents. “They told me they were consulting with their lawyers,” says Anderson, who was then writing for “When they finally e-mailed me the documents, they were scanned sideways. I couldn’t read the top and bottom of the pages.” The 70-page packet contained mostly letters that prominent scientists had written in defense of DSCOVR. All correspondence relating to the mission’s mothballing was excluded.

    Wiscombe doesn’t buy it. He says DSCOVR was stigmatized: “People called it GoreSAT, and NASA found people who would be the most hostile toward DSCOVR for the workshop. They handpicked the assassins.”

    Since DSCOVR was shelved, Valero has persistently and publicly raised questions about the direction of NASA’s earth-science program, and he has questioned where funds earmarked for DSCOVR have gone. In 2004, when Ukraine offered to send DSCOVR to L1 on a Ukrainian rocket—for free—Valero lobbied NASA to accept. “The satellite was built, the launch was free, and what did NASA say? The launch wouldn’t be safe for the satellite.” He shook his head in disdain. “I tell you, I lose sleep thinking about this stuff.” 


    The Earth’s Energy Balance: Solar energy that reaches the Earth can reflect off cloud cover, be absorbed by the ground, or diffuse back into space. But if more heat is going in [orange arrows] than coming out [blue arrows], then some of that energy is being trapped at the Earth’s surface, and our planet is warming.  Kevin Hand

  173. Phil, or anyone.  Why is wed. the best day to adjust positions?

  174.  I was frankly shocked by the MJR article in Al Jazeera. I rather thought that U.S. income inequality was the inevitable result of economic globalization, which brought billions of people into the workforce of the global economy and quite naturally diluted the incomes of U.S. labor while boosting the net worth of those who could deploy liquid capital into Emerging Markets with very high growth rates; richer more through luck than design. 
    What I describe did happen.  What I underestimated was the extent to which the owners of capital undermined American politics with their expanding wealth to ensure that the other 99% of their fellow citizens took 100% of the resulting hit by virtually eliminating taxes on those with capital, who were then perfectly happy to export  it to more fertile fields abroad.  As you know, the idea that the wealthy "only pay 15% tax on average" absurdly overstates their effective tax rate.  In Spain, there is a net worth tax — 2% per year — even if you lose money!!  No such thing in the U.S. —  if your $500M copper position turns into $1B, you only pay 15% on the very few shares you sell to fund your ski trip to Gstaad, and it doesn’t take an army of high-priced lawyers to explain it to you.
    The corollary of this thesis is that U.S. polticians, as a group, have also become irremediably corrupt in order to shield themselves as well from the decline of U.S. fortunes, not to say dine out on it.  
    Aristide just returned to Haiti.  He is widely feared, having been the first and only Haitian politician in their history to organize the poor electorate behind him and force a victory in their first democratic election over a long-entrenched oligarchy. 

  175. PFE/Phil – i like your outline for dflam of working the cost down. to clarify, when sellign the 2013 put/call short, in this example, for $5.10, you then follow wtih "make $2.50 every 18 months"…  so we roll that put/call every 18 months? not clear on how this progresses beyond called away or another round put to you.. do you mean just write calls against for, in this case, approx $2.50 every 18 months out?  would appreciate a little more extended  step through when you can. i also have PFE, and CVX and other LT stocks that i want to keep and still tyring to sort out how to eake more from..with the low VIX am thinking it really just writing LEAPS against the stock?

  176. Good morning!

    They broke over 3,000 on the Shanghai and Europe is up a bit so of course our futures are all excited (as usual).  They smacked the dollar down to 75.84 with the Yen down to 85.12 so we now have Yen down and Dollar down day after day while the stronger Euro lets’ them ignore $122.50 Brent prices.

    Our oil touched our $108.50 short entry yet again at 5:30 and now $108.37 but inventories at 10:30 should give us the day’s high either before or after, maybe $109 but that’s no reason not to play our $108.50 line for now. 

    Gold back at $1,461, silver $39.50, copper $4.33, nat gas $4.21 (so they are now diverging) and gasoline $3.18, so that’s not keeping up with oil.

    Wednesday/Joel – It’s not Wednesdays per se but the Wednesday before expiration day that we like to adjust.  This is the day (10 days to go) when front-month premiums go into rapid decline so it’s madness to hold a long put or call – if a move goes against you, you have no time to adjust or recover.  It’s a time when the next month is usually a reasonable price to roll and very often that roll can be still be paid for by selling those last 10 days of premium to some other sucker.   As a rule of thumb, if you are in a front-month position on the Wednesday before expiration and you don’t like it enough to roll it to the next month – it’s time to cash it out.  

    Inequality/ZZ – The pooling of money in the hands of a few individuals AND individual corporations (getting back to Monday’s comments) is really the fundamental flaw in Capitalism.  The end result of this behavior over time is that we simply go back to a monarchy, where a very few men of power rule from the top and make all the laws.  Even worse, without adequate "death taxes," the money is allowed to grow, out of control, for generations so Bill Gates II can start his life with $50Bn and if he takes $1Bn to live on and puts the rest away in something that compounds 6% annually for 60 years, he will leave Bill Gates III $1,616,396,850,000.  Even with inflation, you can see where that might put other people (and nations) at somewhat of a disadvantage considering the net wealth of the entire planet is currently under $300Tn.  

    Corporations are, of course, immortal but at least they spend their money and put it back into circulation but that’s another alarming trend as you have companies like AAPL who have $50Bn cash sitting in the Bank and have no particular need to use it.  All it takes is a few Bill Gates’ and a few Corporations to decide to spread a few Billion around to protect their wealth (a sensible thing to do) from taxation, confiscation, etc. to the detriment of other people who have to foot the bill for the country and POOF – there goes Democracy.  Some would argue this already happened…  

    One man, one vote is a totally BS concept when there are mountains of evidence indicating elections are won with money.  It’s kind of like deciding who will lead us by putting each candidate in a pool with lead shoes and filling the pool with water and whoever doesn’t drown wins.  The rule is that, other than the lead shoes, the only thing the candidates can use is money to stand on.  There are some people who can fill that pool with cash and walk out and there are some people who will drown – every year the system ratchets up the amount of cash it takes to win an election – no matter how much money you think you have – someone can fill a bigger pool than you!

    PFE/Scott – Yes, you just try to knock another $2 off your basis each year.  You are starting with a $14.03/$16.52 buy/write and let’s say PFE finishes at $18 and your $15 calls are $3.  So you roll them out to the 2015 $20s for $5 and that drops your basis to $12.03/16.02 and let’s say PFE goes up to $23 in 2015 – wash, rinse, repeat.  If PFE drops to $15 in 2015, what do you care – your basis is $16.02 and now you sell the 2017 $15 puts and calls for $5 and now your basis drops to $11.02/13.01.  All the while you are getting your dividend as you grind your basis lower.  Of course this is a "dumb" example assuming you take no action other than reacting on the last day to movements and, of course, a simple downside hedge can improve your performance considerably on a dip.  

    The point is (see The Man Who Planted Trees) that you work your long-term positions down to lower and lower basis and, eventually, you have a free trade that is still producing cash for you every year and, since that trade is free, you have plenty of cash to develop your next position (plant your next tree) and soon your portfolio is 2x, 3x, 4x – all producing income for you through premium sales.  You know your grandparents who retired off the stock dividends they got?  That’s how they did things in the old days – they bought a stock, they left it alone – the dividends reinvested and the stock grew over time so the $1,000 worth of GE your grandfather bought in 1940 became $1.4M in 1990 (100,000 shares) and paid a $50,000 annual dividend.  

    Anyone can do this if they stop being so short-sighted about their investments.  Even if you don’t have time to do it for yourself – setting up a $50,000 account for your newborn grandchild now will, like Bill Gates II, give them $2.2M when they retire (at 6%).  Even if the money doesn’t keep up with inflation, if your Grandfather had done that for you with $5,000 and you had $220,000 coming to you – you wouldn’t be too upset, right?  

  177.  Thanks Phil
    Maybe there will be a shorting opportunity if QE2  ends.

  178.  Good morning everybody,  I know I have kind of vanished for a few days.  But the Craigbot is still alive and kicking.  I should be able to post a report and some ideas some time soon. 

  179. phil, your advice?  i have some AAPL shares at net cost of $247 (recent entry).  Hold and keep selling calls against them ? or given the anticipated nasdaq-related selling, cash out, take loss now, try to make it back with a 2013 short put and a vertical call spread?