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Saturday, November 26, 2022

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Monday Madness – G20 FinMins Set Two Week Deadline

Two weeks!  

European leaders have two weeks to settle differences and flesh out a strategy to terminate their sovereign debt crisis as global finance chiefs warn failure to do so would endanger the world economy.  “The risk of a recession would be increased dramatically were the Europeans to fail to accomplish goals that they’ve set for themselves,” Canadian Finance Minister Jim Flaherty said after the G-20 meeting on Saturday.

The Brussels meeting “has the potential to turn into a positive historic moment,” Joachim Fels, London-based chief economist at Morgan Stanley, wrote in a note to clients yesterday. “But it could also easily turn into a negative catalyst.”

Europe’s plan, which has still to be made public, includes writing down Greek bonds by as much as 50 percent, establishing a backstop for banks and magnifying the strength of the 440 billion-euro ($611 billion) temporary rescue fund known as the European Financial Stability Facility.  “The plan has the right elements,” U.S. Treasury Secretary Timothy F. Geithner said in Paris. “They clearly have more work to do on the strategy and the details.” 

The G-20 officials — who met to prepare for a Nov. 3-4 gathering of leaders in Cannes, France (and we're fondly remembering London's 2009 meeting with the graphic on the right) — said in a statement that the world economy faces “heightened tensions and significant downside risks.” European authorities must “decisively address the current challenges through a comprehensive plan.

The policy makers held out the possibility of rewarding European action with more aid from the International Monetary Fund, while splitting over whether the Washington-based lender’s $390 billion war chest needs topping up.  Europe’s latest strategy hinges on putting Greece, whose government forecasts its debt to reach 172 percent of gross domestic product in 2012, on a sustainable path. Austerity has plunged the country deeper into recession and provoked civil unrest that threatens political stability.

My reaction to this in Member Chat this Morning was to call for shorting the jacked up Dow Futures (/YM) at 11,600, saying:  

Speaking of the illusion of power – yet another G20 meeting ends with yet another plan to have a plan but this time, for some insane reason, they only gave themselves a week to fix everything.   I’ll be writing about this this morning but the gist of it is the Finance Ministers have essentially sent their own leaders a message that the situation is dire and must be resolved now – before Q4 turns into a recession they can’t fix.  The whole thing seems contingent on even more Greek cutbacks and is aimed towards, of course, bailing out Banksters and Bondholders with no actual help for the people so (and I need to read more) the whole thing sounds to me like the Banksters pulling the strings of people like Geithner to put pressure on the leadership to get the Free Money train rolling again.  

Well, I've had time to do more reading and I've found no reason to change my mind – this seems like a power-grab by the Finance Ministers who are trying to push the Leaders to throw more money at the Banks to "solve" things (again).  Perhaps the now Global pressure of Occupy Wall Street is making "THEM" nervous and forcing their hands so, if you are one of the 99% – now is an excellent time to pay attention to politics and listen – you'll quickly find out who your real friends are!  

Meanwhile, the Dow has already turned negative, dropping to 11,537 at 8 and that's a nice $315 per contract to pay for a healthy breakfast or two.  We have to be careful at the open as we still may get a pop on the "great" G20 news.  While you can't fool all of the people, all of the time – some of the people really are morons and can be fooled all the time by the same old crap (don't call my a cynic – Lincoln said it!).  

As the Occupy Wall Street movement goes global, everyone suddenly has an opinion about what everyone (well almost everyone) is upset about but it's really not very complicated, is it?  Between 2001 and 2008 (under the administration of "he who must not be named") THE BOTTOM 90% MADE LESS MONEY!  

Doing the same work and making less money makes people angry.  Hell, it makes lab rats angry so why are we surprised when people get upset with a negative reward profile?  If EVERYONE were suffering, I don't think they'd be as upset but that's not the case at all.

The income of the top 10% (pink) grew EXPONENTIALLY from 1978 ($400,000) to 2008 ($1.1M), while the bottom 90% declined 10%.  110% of the economic growth since the last recession has gone to the top 10% and two thirds of that to the top 1% (that's why many of you in the top 10% are saying – "Gee, I don't earn $1.1M a year" – it's THAT skewed, even at the top!). 

This income and wealth disparity is destroying our nation – assuming there is still a nation left to destroy as the top 10% in this country clearly don't believe they are on the same sinking ship as the riff-raff in the lower cabins.  Still, what this weekend's G20 meeting amounts to was yet another call for the First Class passengers to be given all of the life-boats as bond-holders and Banksters get another several Trillion in bailout money to be paid for by harsh austerity measures placed on the bottom 99% (what does a top 1%'er care if the town cuts classroom sizes in the PUBLIC schools or if another clinic closes down or if retirement benefits are cut for Government workers?).   

John Mauldin wrote an excellent article this weekend discussing the dangerous road we're traveling and put up this very important chart on the Velocity of Money – something we often discuss in Member Chat.  My point (and John's) on this is that we are setting ourselves up for a crippling round of hyperinflation as we keep pumping money (supply) into the upper class while sucking it away from the lower classes – who are the people who actually spend the money (70% of our GDP is Consumer Spending).  

The danger is that, as you can see from the chart, we had a 33% decrease in the velocity of money and we have filled that gap by increasing the supply of money (bailouts and Fed nonsense) by 50%.  66% x 150% = 99%, which is about how well our GDP has been holding up in this game.  

But what happens to our GDP when the velocity of money kicks up even 10%?  Well 73% x 150% = 109.5% – that's 9.5% inflation folks (assuming a flat output of good and services).  It's not a very long road from there to some very serious inflation – just ask China!  Should the velocity of money pick back up (and just a little pick-up in housing could do it) and we get back to 80% of where we were – 80% x 150% = 120% and that, my friends is some nasty inflation.  Of course, hyperinflating our way out of debt is probably the best path we can take to solve this crisis.  Just like we did in the 70s – we inflated our way out of debt with just a very minor increase in the velocity of money from 1.63 to 1.85 (7.4%) before Volcker took away the punch bowl in the 80s, which popped that housing bubble but not before our parents all became financial geniuses because they bought a house for $40,000 that they sold for $250,000.  

THAT'S how we inflated our way out of the Nixon Recession and that's how we'll ultimately inflate our way out of the Bush Recession – the only question is, how long do we have to pretend we're fighting inflation while borrowing more and more money (at longer terms, of course) until we're ready to unleash the beast and let the money supply do it's work and give US Bondholders the same 50% haircut Greek Bondholders will be forced to take only we won't call it a concession – we will simply be paying them back with Dollars that are worth substantially less (worthless?).  

That's why we can't afford to be out of the market – it's our best long-term hedge against inflation.  As a fundamental investor – I keep preaching to Members that stocks do have actual values and those values, in good companies, will keep pace with whatever inflation throws at them.  In fact, many companies thrive in an inflationary environment as their ability to control costs and pass on price increases (while holding wages down, of course) can drop quite a bit of extra cash to the bottom line.

BRK.B, IBM, KO, MCD, PFE, FCX, AA, BTU, PM, CAT, CHK, GE, V, T, VZ, VLO, BUD, C and JPM come to mind as companies that make nice long-term investments – especially using our buy/write strategy outlined in "How to Buy a Stock for a 15-20% Discount" – as it sure beats socking your money away in TBills for the next 10 years at 3% and trying your luck with inflation.  

Meanwhile, we'll see how our levels hold up this week but I see nothing positive out of that G20 meeting and expect another 2 weeks of a wildly swinging, rumor-driven market – something we've learned to love at PSW as we play our trading range always to take us back to the center – until proven otherwise but, as I pointed out in our Income Portfolio Review this weekend – it's been a solid tow months and we're still waiting for a reason to stop range-trading.  

It's just not happening yet.  

 

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Phil, 
GMCR– Well well, it seems back when you actually suggested the setup I am in now, you thought it was a winnable trade (and I really don’t think its not a winnable situation with 2 months to go and all that premium–but was just asking if I should do something on the call side to give me more cushion and or balance)… 

GMCR/Amatta –  They’re at $90 so not so bad.  You’re just going to roll the loser.  Once you do a strangle like that your GOAL is to have the stock finish between the two strikes (wiping out premium on both sides).  Keep in mind how badly the Aug $77.50s had burned you, you sold the $95 puts to stop the bleeding and set up for your next roll – now maybe you have to roll both but there’s no sense making adjustments and trying to "win" both sides when they still have premium ($3 on the $95 puts) but you can roll the $77.50s to the Dec $92.50s (now $13.60) about even and those $95 puts (now $7) should be rollable to Dec $75 puts (now $7.50) and then you flip to a range ($75-$92.50) that you can win in.  You could gamble buy buying the calls out if you think it’s a bottom but it’s pretty dangerous with the Fed coming so be very careful.

 Angel; Stone Age hierarchy:  I’m shocked; that is a very culturally insensitive comment you’ve made about those sheep-f-g camel jockeys.  

Thanks jc, that makes better sense.

JRW,  I have to say that the Zacks folks and Steve Reitmeister in particular have been right on for the last 2 months. I follow his portfolio and he called for selling all stocks after we topped out and have been switching between TNA and TZA for the last 2 months with good results, up 17% YTD.
What is a "Take Off" from your previous post?

 Hi Phil,
 
SDS debit spread Oct 22 with short 23 calls, net at $0.42 (did not sell any offsets).  Looking for a roll buying Nov 20C for net $2 (buy nov 20C for about 2.71 sell / close Oct 22 for about 0.71), while hoping that Oct 23 C will expire OR can be rolled, upon expiration.  What would be your recommendation?
 

RPME / Takeoff

Any short move (2 weeks) of more than 10% in the market !!

Phil – CROX – any opinion here ?

IBM numbers look OK, but I guess everybody was looking for an excuse to take profit! Profits are up, revenues are up and they guide higher for the year! But they had gotten a bit expensive especially in the price-to-sale ratio which I like best – it has been rising for the last 3 years. But the company is great – that’s one example of a company who has managed well transitions between CEOs and the has adapted to the demands of the market.  

This is one guy who has run the hero to zero race at a lightning pace:

http://www.frumforum.com/about-that-perry-jobs-plan

No plan, just going to wing it and they’ll love me! Clueless. 

In case we missed it, APPL has sold 4 million iphone 4s units (total) as of this weekend. That’s more than double the first weekend the iphone 4 was launched. Wowzers.

China GDP in the next hour..should be somewhere between 9-9.3% anything above would be a +

China GDP 9.1%…
 

Industrial output +13.8% YoY (13.3% forecast)
September retail sales +17.7% (17% forecast)

China / Kustomz – Gee, what a surprise, the manipulated numbers almost match perfectly the manipulated forecast! 

Apparently, a little bit of profit taking today:

http://www.bespokeinvest.com/thinkbig/2011/10/17/selling-the-winners.html

Or we could be seeing some sector rotation in progress in response to macro environment. Either way, we go up or down from here. 

Josh in full support of #OWS and why:

http://www.thereformedbroker.com/2011/10/17/and-the-men-who-hold-high-places/

The first thing to understand is that Karl Marx actually got it half-right; the philosopher taught that capitalism, left completely unchecked, would ultimately destroy itself.  Marx said that the capitalists would figure out a way to industrialize to the point where workers were no longer necessary and that the result would be a social order and economy that would cave in on itself.  If you can’t see that this prediction was a shockingly accurate depiction of our current Jobless Recovery for the Few then you’re simply not paying attention.

The part that Marx gets wrong – the most important part in my estimation – is that capitalism is astoundingly good at repairing itself after a major fall.  This is because capitalism, while flawed, is, at the end of the day, the closest approximation to human nature that we find among all the different economic theories. 

 

And to the elitists and defenders of the feudalist status quo, I say this: Pay close attention – closer attention than to anything else that currently occupies your thoughts – because when capitalism repairs itself as it always does, your role in administering it may be greatly diminished.

stj, the real # is a mystery certainly…Im guessing Chanos has a better idea.

This is when you want to trade oil..going to be volatile this evening.

RBA earlier made comments about not being concerned with inflation which should weaken AUD.

SALISBURY, Md (MNI) – While he hasn’t made his mind yet about
whether monetary policy should withdraw stimulus, Richmond Federal
Reserve Bank President Jeffrey Lacker said Monday there shouldn’t be any
more stimulus.
“My sense is that we shouldn’t be adding monetary stimulus at this
point,” Lacker said during a question-and-answer session with reporters
following a speech at the Salisbury- Wicomico Economic Development
Annual Meeting.
In fact, “I think the case can be made that withdrawing stimulus,”
he said, “may be warranted soon.” However, “I haven’t decided yet.”

And Moody’s is now looking into the AAA rating of France:

http://ftalphaville.ft.com/blog/2011/10/17/704181/moodys-is-peering-at-frances-aaa-outlook/

I find it fascinating that they think France is more stable financially than the US when they have not had a balance budget since 1974 (I checked), are already collecting over 45% of GDP in various taxes, 25% of the workforce is employed (directly or indirectly) by the government and have entitlement programs in dire need of reform as they will run out funds in the the near future. It seems to me that they have very little margin for error especially in the collection side and good luck reforming entitlements. The problem in the US is not resources (in this case collections), it’s political! It’s a big one, but forced into it, could be solved.

 American in "secret talks" with USair about a merger.  Took their corp jets.  I don’t think that will happen without an American bankruptcy on the horizon.  That last bit is opinion but the meeting is really happening.
 

 I don’t think that WOULD happen, I meant to say.  Most of the time these sort of talks don’t go anywhere, but just thought I would throw it out there.
 

Phil,
I just wanted to say thanks for being there. The world needs more of you. Your site continues to positively change my life daily. 

 Hi Phil, I’ve been quiet for awhile, just getting through grant writing season and the normal turbulence at work.  Thanks for your writing, I still read everything at some point during the day.  I thought you might find this piece interesting on the religious involvement of OWS.  This article reflects on some of the egalitarian philosophy at the heart of the movement and its similarities to the differing opinions and conflicts among civil rights activists.  It also explains why John Lewis was not allowed to speak at first at Occupy Atlanta, as they resist being co-opted, even by people who have relevant experience.  Enjoy:  http://www.religiondispatches.org/archive/politics/5268/god_dissolves_into_the_occupy_movement/

That Dylan is intense…..and right.

Hi Phil,

Thanks for the advice last week. Need some more now as this is my first time dealing with taking spreads into expiration. Sorry if this is long, it’s why I’m posting in off trading hours.

So, I’m in three bull call spreads that I sold puts to offset, like so:

20 TZA     $38/39 Oct bull call spread, net .55, now .33
10 TZA    $35 Oct puts sold for .77, now .46
               
20 TNA $40/43 Oct bull call spread, net 1.65, now .75
10 GS $90 Oct puts sold for 1.49, now .94
               
10 TNA $38/40 Oct bull call spread, net 1.19, now 1.82               
10 OIH    $113 Oct puts sold for 1.16, now 1.39

Now, even I can figure out that in the case of the TNA and GS short puts, and perhaps the OIH (hope not being a strategy!), I need to do nothing but let them expire and collect the premiums.

But the three spreads have me frazzled. Do I need to do some corrections before Friday?

The breakeven on the TZA spread is for the underlying at $38.55, and for the TNA Oct $40/43 it’s $41.65, and the TNA $38/40, it’s $39.80. So, at EOD prices yesterday that looks to me like I’m up 1.29 with TZA and down 2.40 with TNA $40/43 and .55 in TNA $38/40.

So, my “For Dummies” question is how does this play out between now and Friday? A caller isn’t going to be interested in TZA unless it’s over $41.60, and right now the short legs of the TNA spreads look like they’ll expire worthless too. Right? But is this the right way to look at it?

Should I be figuring out what to do with the long calls since they look like they’ll cost me? Or should I figure out a plan and sit tight until Friday?

Oh and yes, the bigger question: Should I have got out of some of these spreads earlier when I saw the net drop? While I get the theory – or think I do – about how bull call spreads work it’s a totally different experience watching them play out in real time and wondering if I’m doing the right thing – or should do anything.

BTW I should also say that, even though I feel totally at sea most of the time, I’m enjoying the hell out of getting my head around all this stuff – and all the great thinking going on in the members’ posts. Thank you so much. It’s fantastic.
 

1% drop in FTSE and DAX in the last 10 mins…

Iflan – AAPL- earnings tonight after close. What , if any position will you be taking and/or holding for the big event?

AAPL – any sense in a quick AAPL 410-440 BCS for around 13 this morning?

 Hi Phil,
Thanks for your response(s).  Yes, I missed your response(s) and should have mentioned that I have margin limitation (cannot hold 23C naked) and probably need some kind of hedge, in case market tanks again.  I did not sell put offsets, again, due to margin limitations.  I have a cash limited, over-allocated bullish portfolio with Jan ’12 and ’13 puts sold which would survive and provide a decent return if market stays flat to down 10-20% but having trouble surviving a high VIX induced margin requirements.

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