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TGI Fixed Again – The Rube Goldberg Solution

Europe is FIXED (again)!  

While we are, of course, thrilled (again) – the final solution that Germany has come up with this time for some reason reminds me of a Rube Goldberg machine – with way too many moving parts that all have to work together perfectly in order to get something (a bailout) that you could have gotten from a sane person in one step (borrow/lend money at low rates).  

The European Union and the euro area have done much over the past 18 months to improve economic governance and adopt new measures in response to the sovereign debt crisis. However, market tensions in the euro area have increased, and we need to step up our efforts to address the current challenges. Today we agreed to move towards a stronger economic union. This implies action in two directions:
- a new fiscal compact and strengthened economic policy coordination;
- the development of our stabilisation tools to face short term challenges.

That’s the official statement from the European Council, which goes on to outline 16 intended changes, which boil down to a Declaration of Interdependence except it’s not the people of Europe that this new treaty is meant to protect, but the holders of European debt (PIMCO, et al), who have been asked to give up nothing while being given every possible guarantee that even really atrocious behavior – like lending Greece money at 20% interest – will be rewarded.  

Behold the power of bond-holders!  Merkel, at first, insisted that the private sector share some of the pain but, less than a year of manipulation later and the Masters of the Universe have brought even Germany to their knees as EVERY OTHER EU NATION insisted that bondholders be made whole – except the UK, who are so disgusted by this new treaty that they have opted out – all 26 other Euro Zone Nations have signed on.  

We ended ended our day playing bullish yesterday on the assumption that there would be some sort of agreement reached either today or over the weekend but THIS agreement does nothing to convince me to stay bullish into the weekend so we will be back to cash on this news – as I’m really not sure this ridiculous mechanism will stand up to a weekend of scrutiny.   

Fortunately, we picked up our Egg McMuffin money already this morning as I sent out a 4:17 Alert to Members saying: "Dollar was all the way up to 79.20 at 3am and now back at 78.92 and that popped us 100 points on the Dow (/YM) just under 12,000 and playable up off that line, of course but let’s see if we make it first!  EU says they have an agreement but no details yet." 

We got a beautiful pop at 5:45 that took us up past 12,050 (up $250 per contract) before falling back to test 12,000 again just after 8 (where it’s playable again on the next cross over that line with very tight stops).  Europe is up about 1.25% this morning and I expect us to get move of a pop than this as some of the more bearish bets will be forced to cover (we jumped the gun and covered yesterday).

Had we had a simpler agreement – I’d be all gung-ho for a Santa Rally but, due to the complex nature of the agreement (allowing the Punditocracy to poke it full of holes before the first Euro is placed) and due to the fact that our own Treasury has to hawk off $60Bn worth of debt next week – I’m not longer willing to stay bullish over the weekend.  Being bearish is still scary but being bullish is just foolish, I think.  If we are rallying again next week, I’m sure we’ll find something to buy off a cash position (short-term trading, long-term we’re still bullish).  

Why are we bullish at all?  Because the EU has not yet begun to fight.  How much have they spent bailing out countries and Banks?  Two Trillion?  Three?  Ha, I say – HA!  That is NOTHING compared to our own Fed who, by the figuring of the Levy Economics Institute at Bard College is well over the $29,000,000,000,000 (Trillion) mark in "direct lending, asset purchases and all other assistance."  It does not, as Barry Ritholtz points out, include indirect costs such as rising price of goods due to inflation, weak dollar, etc


Cumulative facility totals, in billions

Source: Federal Reserve

Facility Total Percent of total
Term Auction Facility $3,818.41 12.89%
Central Bank Liquidity Swaps 10,057.4(1.96) 33.96
Single Tranche Open Market Operation 855 2.89
Terms Securities Lending Facility and Term Options Program 2,005.7 6.77
Bear Stearns Bridge Loan 12.9 0.04
Maiden Lane I 28.82(12.98) 0.10
Primary Dealer Credit Facility 8,950.99 30.22
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility 217.45 0.73
Commercial Paper Funding Facility 737.07 2.49
Term Asset-Backed Securities Loan Facility 71.09(.794) 0.24
Agency Mortgage-Backed Security Purchase Program 1,850.14(849.26) 6.25
AIG Revolving Credit Facility 140.316 0.47
AIG Securities Borrowing Facility 802.316 2.71
Maiden Lane II 19.5(9.33) 0.07
Maiden Lane III 24.3(18.15) 0.08
AIA/ ALICO 25 0.08
Totals $29,616.4 100.0%


Now THAT’s a bailout!  As Barry points out: "Overnight lending, by its definition, is temporary, short term, lower risk, modest impact. It exists to allow slightly over-extended banks to meet their reserve requirements. But rolling overnight lending repeatedly for 3 years is none of those things. And it makes a mockery of these same reserve requirements, and the protective purposes they are supposed to serve.

"The amount of overnight lending reflects how broken our financial system really is. A well capitalized, moderately leverage system does not require this massive liquidity from a central bank — interbank lending should be sufficient. What the data reveals is that the financial sector remains dangerously under-capitalized and overleveraged.

"To pretend these were merely minor overnight loans, rolled over once or twice, is foolish, dangerous nonsense."   

Foolish, dangerous nonsense – yep, that about sums up the Global Financial Situation.  Why then, are we bullish?  Because $29,616,400,000,0000 is A LOT of money and EVENTUALLY some of that money will begin to flow back into our $16Tn economy and, even if the Fed manages to put 90% of the monetary genie back in the bottle after accomplishing it’s task – that’s still a bonus $2.6 Trillion sloshing around at some point.  Add that the the $1.5Tn in excess reserves that banks are already sitting on plus the $2Tn in cash sitting on the books of our Corporate Masters and we are preparing for on grand mother of an inflation party – at some point.  

Consider that a template for the ECB, the BOJ, BOE and even the PBOC to follow as our Global Leaders all desperately look to pump some life into the Economy (as well as their fading political careers).  This is the kind of stuff the Fed can do without you knowing, without Congressional approval – without oversight – other than that of Ron Paul, of course:  

As Dr. Paul points out in his smackdown of The Bernank –  Americans did, in fact, get poorer in Q3 with the net worth of households dropping $2.4Tn to $57.4T, even as the money supply increased astronomically.  That’s over 4% folks – IN A QUARTER!  It took us 235 years to amass $60Tn and we blew 4% of it in a quarter?!?  Household wealth, or net worth, is the value of assets like homes, bank accounts and stocks, minus debts like mortgages and credit cards.  At the same time, as I mentioned above, Corporations are amassing record cash stockpiles — $2.1 trillion at the end of September.     

And here’s something for the Occupy Wall Streeters to hang their hat on: working Americans are now getting the smallest slice of the income pie on record. The labor share of Q3 productivity — the amount paid to workers instead of businesses and other income-earning entities — was reported to have fallen to 57.1 cents on the dollar, its lowest level since it was first reported by the Bureau of Labor Statistics in 1947.  

Meanwhile, the wage slaves continue to shop ’till they drop as Americans are pounding the plastic again, as reports Q3 credit card debt jumped $16.8B, or 154% Y/Y. "The speed at which consumers are garnering new debt in 2011 is unprecedented… the first time in the last two years that a Q1 paydown has been completely eradicated by the end of Q3." CardHub results include charge-offs not counted in the Fed’s consumer credit report

So, as I said, CASH IS KING into the weekend.  Our long-term positions should be well covered and our short-term positions should be non-existent, other than perhaps speculating on a big drop next week into the TBill auctions.  

Have a great weekend but my sentiment after reading those reports is more like Merry F’ing Christmas:  


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  1. Oil Lines

    R3 – 104.89
    R2 – 103.31
    R1 – 100.75
    PP – 99.17
    S1 – 96.61
    S2 – 95.03
    S3 – 92.47

    Yesterday’s high and low – 101.73 / 97.59

    Breakout lines – 108.42 / 86.75

    Huge volatility but oil below $100! 

    And crack spread sill low:

    One-Year Chart for Bloomberg Nymex WTI Cushing Crude Oil First Month 321 Crack Spread (CRK321M1:IND)

  2. @Felipe
    Sorry to go off topic:
    What ISP’s are being used by members?
    Verizon FIOS? Any others?

  3. Collected thoughts on the agreement in Europe from the FT:

    Best quotes:

    For those of us of a certain age, the fiscal language looks to be copied and pasted from the original Stability and Growth Pact with a few bells and whistles added to imply that ‘this time we mean it.’ – Steven Englander, Citigroup


    UK as isolated as someone left on the dock in Southampton as the Titanic sailed away - Terry Smith of Tullett Prebon

  4. George Soros buys $2B worth of EU debt once owned by MF Global.  Same guy who broke the UK bank is optimistic on Europe

  5. Probably the best barometer on the effect of EU activity, Italy 10yr Bond yields:
    Up means failure, pulling the Euro down (along with our equities), of course.

  6. Phil/Final Solution
    Obviously not the first time the Germans have come up with a Final Solution, but at least this one does not involve the extermination of banking genes, so maybe it has a chance. I am inclined to go along with Soros on the survival of Italy.
    Interesting that the borders of the Eurozone closely match the territories of the old Roman Empire, except for the UK, which was a latecomer to the Empire anyway. This ties in nicely with the delusions of the religious fundamentalists in the US, because the Book of Revelation contains all kinds of veiled prophecies and curses to be rained down on the Roman Empire in the Last Days Of The World, and for those of the nutcase persuasion the Eurozone looks a lot like the Roman Empire redux. The real reason that Romney is so unpopular with the Republican faithful is that Mormonism is regarded as heresy, and  does not subscribe to this particular method of putting the Fear of God into the populace.
    Now the only question that remains is how to exploit  the vulnerability and superstition of the US population so as to make money for ourselves. I guess we remain rangy, cashy, and wary. There is an obvious fallacy in going short the human race, but plenty of money to be made by remaining long insanity.

  7. Yet one more way to use Watson: 

    Incorporating the Strategic IP Insight Platform, IBM has now programmed Watson to scan millions of pharmaceutical patents and biomedical journals to discover, analyze, and record any info pertaining to drug discovery. SIIP can then look for the names of chemical compounds, related diagrams, the company and scientist who invented and works with the compounds and related words to determine a patent’s rightful owner. The SIIP function can also highlight which patents could be targeted for acquisition by trolls looking to control a property via a lawsuit or licensing agreement.

  8. Thought this was very funny and not a bad deal:
    I’ll Sign It, Wrap It & Climb Down Your Chimney — IF You Order My Book as a Christmas Gift …an offer from Michael Moore

    Friday, December 9th, 2011


    Right now, your conservative brother-in-law, your HR person at work, your next door neighbor who just found Jesus, are all wondering — "Who will give me Michael Moore’s book for Christmas?" They can’t be seen going into a bookstore and walking out with an object that has me on the cover (even if it is the adorable 13-month-old version of me on a scooter). They can’t order it from Amazon because then they’ll be on a list somewhere that is probably controlled by George Soros, or worse, George Clooney. Yet, they want to find out about me, they want to read a good story, and they want to know — can I be like Mike and still spend my weekends at gun shows?

    How badly do I want you to give HERE COMES TROUBLE as a Christmas gift to your friends, your family, or the person you’ve been on the phone with for the past hour at Blue Cross? How ’bout if I told you that I so want you to give this book to everyone in your life, the naughty and the nice, that I will personally gift-wrap the books for you, personally sign each and every one of them, and then have an associate at one of our fine overpriced for-profit shipping companies hand deliver it to you (or those you’re giving it to) before Rudolph even leaves the barn before Christmas?

    "But Mike," you say, "surely you have something else to do during this holiday season, like help Donald Trump get ready for his Republican Presidential debate, or perhaps help Newt corral a bunch of 12-year-old poor kids to clean the toilets of the RNC?"

    Yes, those are on my list, but what I really want is for you share this book — "the best damn thing he’s ever written!" according to Pope Benedict XVI. The Crown Prince of Brunei called it, "the best damn way to identify future troublemakers," and the New York Times said "it belongs on the same [damn] shelf as books about or written by Rachel Carson and Thomas Paine!" It’s a book for those who would love a good read or would simply like to know the real Me. Not the Fox News version of me. This book is nonfiction and It’s all here, revealed for the first time, a rock-em sock-em account of a boy who mysteriously crossed paths in his youth with Ronald Reagan, Richard Nixon, Bobby Kennedy, John Lennon and a whole cast of characters and events that defined the second half of the 20th century. Nothing is held back, no sacred cows are spared, but most of all, you and your loved ones will get to read 24 short stories from a very strange, funny and profound life.

    So, if you will order my book, right now, online, from one of my favorite local northern Michigan bookstores (it’s just one click right here), they will send a signed copy from the final batch of first printing/first editions of HERE COMES TROUBLE to whomever you want it to go to for Christmas — and I will guarantee its gift-wrapped arrival before Christmas! If you do this you will be helping me help the local economy in Michigan, and you will also be helping my nonprofit arthouse theater in Traverse City, Michigan, because five dollars from each of these books will go to support the theater. And the bookstores will charge nothing extra for the autographed copy. Oh, and I won’t charge for the gift-wrapping (just make sure to state in the comments box on the site that you want the books gift-wrapped).

    If you order copies of HERE COMES TROUBLE as Christmas presents (or if you just want to read it yourself!), well, it’ll mean the world to me. I don’t see any $$ personally from these sales; what I get is the pleasure of knowing I’ve helped out the local economy of the Michigan town I live in — and the joy of having shared with you a book that means a lot to me.

    So, here’s the deal: Christmas is only two weeks away! Hanukkah, only 11 days! And we only have a few hundred first printings left! So PLEASE order RIGHT NOW. Click here and order as many as you want and we will send them to anywhere in the U.S. in time for Christmas. But the deadline is now, so don’t move on to your next email until you take a second to send HERE COMES TROUBLE to your favorite troublemakers! Do it now — after Sunday it will be too late.

    Thanks again and enjoy this holiday season…


    Michael Moore

  9. Kinki – George probably had inside knowledge on "no more haircuts" from the EU (which Corzine probably had too), and just got a sweet deal at firesale prices.   Today’s "compact" just shows how corrupt these bankers really are!!

  10. Why do people send me this stuff.  I’m sure people don’t want to be poor, however, I do agree that government has engineered the system to lock people into the system.
    Does anyone know what the numbers are in Europe?

  11. kinki/Soros
    Yes, I like that, but one just hopes that Soros has not been put up to this precisely for the purpose of reassuring the markets. There is a disturbing pattern of this line: Buffett is in BOA, so he must think they will survive. Soros is in Italy, so that looks good for this year’s spaghetti futures. Supposing these guys are being told by the White House: "Look the fucking end of the world is nigh anyway, the least you can do is put up a few billions of your pocket change to delay the Apocalypse a couple of years by making the rubes think you know something."  Maybe Corzine refused to play along, so he became the severed horse’s head on the pillow. Not a conspiracy theorist, but if you watch the movie of the Wizard of Oz, the fjnal message is "We have nothing to fear, but fear itself" and when the curtain is torn away, it is all rather pathetic and just a bag of tricks.

  12. Phil / LLY Buy Write for a long term "income port"
    From SA:

    Lilly has an AA- rated balance sheet, a low beta (.71) and provides a 5.2% dividend yield.
    It is selling at the bottom of its five-year valuation range based on P/E, PB, P/S, and P/CF.
    If Lilly is successful with it Alzheimer’s drugs it could add 50% to 100% to its stock priceaccording to an analyst at Sanford Bernstein. A very nice upside to a stock that already pays a 5% dividend.
    LLY is dirt cheap from a cash flow perspective as it sells for less than 6 times trailing 12 month operating cash flow.
    Insiders are holding tight as there has been only a trickle of insider selling over the past six months.
    Lilly is selling at just over 9 times trailing earnings, which is a 40% discount to its five-year average.
    Eli Lilly is at a 52-week high and looks poised to break out of a narrow range.

  13. Holy crap, they have removed the private sector provision for haircuts?  What a joke – as many have said, and lvmoda reiterated this morning, it is a solvency crisis, not liquidity crisis.  I hang my head in shame at the idiocy of these people. 

    >$500B of maturities come due the first part of next year, and how are they going to pay for it?  With austerity in full force, and Congress in deadlock, remember, the E in P/E is going to fall, so companies are either 1) fairly valued now, or 2) sumpin’ is up in tinsel town. Texas Instruments is the first to show its poker face.

    PP for today:

  14. lvmoda:  I don’t doubt that Soros has some privileged knowledge, but it seems that he thinks Italy is save-able… for now at least.
    Anyway, just to provide a little mix-up into the Euro pessimism, heres a blog-post by a Swiss trader discussing the Germanic socio-capitalistic philosophy of "Ordoliberalism"  and the emphasis on fiscal discipline and growth as opposed to the American/U.K. model of money printing and debt.
    Although the ramifications are uncertain, why the new incarnation of the Euro-zone minus some peripheral participants like the U.K., Greece etc, will ultimately be a leaner, meaner stronger trading bloc.
    "The Anglo analysts, and economists had this theory that if you just kept going up the food chain jobs would magically be created. The reality is very different as with every recession since the 90′s the Anglo world is having a harder and harder time getting back up to speed. The jobs are then created with debt. Look at the UK, and US, as they are issuing more and more debt to get jobs. It simply does not work.

    In contrast in the Euro region a different game is being played out. In this game the focus is on creating a clean balance sheet and then thinking about creating growth."

  15. Burrben: in regards to LLY, the Alzheimer’s drugs are, in my mind, very long shots.  Pfizer and LLY own the same drug (well, the drugs go after the same target), but one works in the blood stream (LLY), the other in the brain (PFE).  Now, IF I were a betting man, I would go after the brain for Alzheimer’s, not the blood – but that is just me.  Pfizer’s drug failed, or is failing in trials by the way, so…where does that leave LLY.  LLY loses >50% of their revenue, and they have nothing in the pipe to replace it.  I would look elsewhere like BMY, MRK or GSK.  Otherwise, cover the stock very aggressively, as I don’t see them keeping up.  My 2 c.

    Here and here.

  16. From Doug Kass:

    It’s Not Easy Bein’ Green

    Dec 9, 2011 | 7:32 AM EST

    Buying into weakness requires fortitude and level-headedness in a risk-on/risk-off environment.

    The E.U. made some progress last night, and the S&P futures are responding positively now. When I started my trading day at around 3:00 a.m,. EST, however, futures were down by 6 handles — they are now up by 11. As I have written, it’s so sick.
    Consider, though, that this volatility that has frightened so many investors and traders might be the precursor of a reasonably strong up move as renters and noncommitted holders have been shaken out.
    When the Street is ruled by the fear of uncertainty and wild daily price moves, isn’t that precisely the time one should be seeking long-term investment opportunities?
    Unlike almost any strategist on Wall Street (and many of the talking heads that are paraded on CNBC), I have been bearish on the market for most of the year — until recently. I have been keenly aware of the  worldwide risks associated with the impact of the current balance-sheet retrenchment and the challenges associated with numerous secular headwinds. Lord knows I have been writing why it is different this time for quite a while. (Screwflation, anyone?)
    The world’s economic recovery is imperfect, and, with the U.S. economy exhibiting only moderate growth, there is little margin of safety from exogenous shocks. But imperfection and vulnerability are now universally recognized (contrasted with the optimism that existed a year, six months and three months ago) and are arguably reflected and more than discounted in reasonable/current valuations.
    I continue to see the potential for a vast rotation out of bonds (which have pint-sized yields now) and into stocks (e.g., the S&P 500 yields more than the 10-year U.S. note).
    Equally important, the relative economic and profit position of the U.S. and its large corporations over many other regions in the world favor buying American. And, in the fullness of time, I can see a rotation, too, out of nondomestic stocks into large-cap S&P names.
    Yesterday afternoon, I upped the recommended long exposure (from 70% to 80%) for the Kass model portfolio into the market’s swoosh lower.
    It’s not easy to be green, and it is not easy to buy into weakness — it requires fortitude and level-headedness in a risk-on/risk-off environment. But I believe that buying dips and capitalizing on panics/overreactions will continue to be the ticket to delivering superior investment returns in the months ahead.
    Color me more bullish and, as always, opportunistic.

    Position: None

  17.  So its take whatever money there is in the bullish short term positions and run this morning?

  18. BTW correct me if I am wrong, but I seem to remember the MF Global bonds coming to maturity in 2012, so I think Soros is making a short-term bet on Italy.

  19. kinki – Soros may also have guarantees from the EU or Fed, since no one else would buy them…..?

  20. Phil
    Europe is fixed….again! How long do you think this fix will last before (like all previous fixes) it begins to unravel at the edges and we return where we started? My question is important with regards to EDZ January hedges I hold. Is it time to roll the long side further out or do you think this will unravel as quickly as all the other plans to solve the crisis have?

  21. Pharm, any thoughts on STEM?

  22.  Ohil what do you think of selling EWJ put ) dec , 0.8?    

  23. STEM – I am not a fan of stem cell companies yet.  There is a ton of science to work out. IF they get below 70c, then we can talk, but they are too expensive and high risk for me at this juncture.


    TOL – buying March $19 puts based upon this chart from ETF corner….

  24.  Phil what do you think of selling EWJ put 9 dec , 0.8?  

  25. Dr. John L. Faessel
    Commentary and Insights
    Quote of the day
    “Central planning, judicial activism and the nanny state all presume vastly more knowledge than any elite have ever possessed.”
    ~ Thomas Sowell ~
    Declining Tops Resistance Still Rules Charts
    Stock Market in Constructive Pullback
    EuroLand Bond Yields Continue Precipitous Retreat
    Italy 10-year (gross) bond yield – 6.49% off from 7.26% on 11-24
    Spanish 10-year (generic) bond yield – 5.77% - off from 6.7% on 11/24
    The McClellan Oscillator is in NEUTRAL @ minus 61
    Yesterday the stock market tumbled on increasing and average volume as worries over Europe again took center stage. The S&P 500 (SPX) was off 2.1%.
    Price closed right about on its lows yesterday that put it at six-day lows. Price also hovers just above a significant trading void where there is little price support down to (SPX) 1197 / 94.
    So far, pullback appears constructive.
    Interesting is that the 2.1% pullback occurred after the McClellan Oscillator had posted back-to-back narrow range days of a neutral and plus 65 and 62 that are usually prescient of a 2% move.
    I said on Tuesday that, “From a technical perspective the key declining Tops line resistance at (SPX) 1270 that comes off last July’s top tick will be the overriding wall of resistance. The 200-day moving average that comes in at (SPX) 1264 is likewise formidable. The McClellan Oscillator is in neutral at plus 77 so there is "room" before we reach any overboughtness considerations. European headlines will continue to tweak the daily or hourly trade.”
    Today the University of Michigan consumer sentiment index for December will be released along with October’s trade balance. No notable companies are reporting earnings. Euro bond prices should continue to rule the trade.
    The (SPX) closed yesterday at 1234.35
    S&P 500 (SPX) – Short term price support is at 1231
    Then at 1244 and 1240 and 1233
    The 50- moving average support is at (SPX) 1217.
    (SPX) support at the August 8th lows is at 1101.
    Support at the October 4th lows is at 1074.
    Key “declining tops” resistance is at (SPX) 1268
    The 200-day moving average resistance is at 1263.
    Short term price resistance is at S&P 500 (SPX) 1247  
    More formidable price resistance is at (SPX) 1267
    Price resistance at the top- tick of the near four month old consolidation is at 1292 then at 1277.



  28. jmm:  Well, "short Apocalypse" has traditionally been a good trade, so they definitely have history on their side, heh. ;)

  29.  stjean
    I met Terry Smith in 2010.  
    Like Phil he is a big fan of Norway.


  31. HI, Phil,
    I am still holding some USO Dec $37 call. Do I need to cut them with some loss now or just wait for next week?


  33. Portfolios links again: 

    I know Jomptien had problems viewing but I see other logged in. Let me know if the link doesn’t work.

  34. Gann predicted that the market top would be two days ago, did we just extend his prediction by a few weeks?

  35. Pharm, look what else George Soros is buying – he picked up 500,000 shares of ARIA.  Now if he would just buy the whole company for, oh, $25 a share, that would really make my decade!

  36. Pharm—GTHP. :-) . Sold 1/2@.95——sell the rest?

  37. Hope the news is good..need it to kick us over the resistance here…

  38. GTHP at my target, selling 1/2 more.

  39. Soros should hire me…..we were in at $3.XX.  Now, buy CRIS plz….

  40. OK, my order for GTHP is in at 1.24, ask is 1.26 in TOS… they are now front running us, or it is veeerryyyy slowwww…..

  41. Good morning!  

    Nice play again off the Dow (/YM) futures at 12,000 but, as you can tell from the above post, I’m a bit skeptical.

    When in doubt, sell half and, in this case, I want to get back to more cash by the day’s end in the White Christmas Portfolio as the WCP is too bullish and I’m just not in the mood to risk it so we’re not going to be too brave if the "rally" stops or even slows down:  

    So we are thrilled to stop out of the XLF $12 calls, now $1.05,  GNW can stay, SCO will expire worthless (most likely), I want to sell the FAS Dec $66 calls now ($3.40) and leave the $67 calls open and cover them with a Jan $67/72 bull call spread at $2 (cover first, stop out later) – so we’re taking at least net $1.35 off the table, which is more than we could have gained on the spread – and covering the possibility of a move up with the longer spread. 

    The TNA Dec $41/43 spread with the short JPM puts I like for a bullish hold over the weekend and we can keep the XLF Dec $13 calls as that was a fun bet (now .32) but if they hit .40 or better – we’ll take 1/2 and run into the weekend.

    That leaves us a bit bullish and we’ll pick up a leveraged bear play later – just something fun for if the market collapses into the TBill auctions on Tuesday and Wednesday (although we may also get QE3 on Tuesday’s Fed meeting).  If I were the Fed, I’d extend the meeting a day to panic the markets, get all the notes sold (30-year auction is Wednesday at 1pm) and THEN announce QE3 and rip the bears’ faces off again.  

    We’re probably OK as long as the Dollar is below 78.80 (now 78.75) so we’ll watch that closely but without taking 735 back on the RUT (now 725) any move is meaningless.  

    Consumer Sentiment is a big beat at 67.7 – way better than expected which explains all the manic charging going on.  

    Friday’s economic calendar:

    8:30 Trade Balance

    9:55 Reuters/UofM Consumer Sentiment

    At the open: Dow +0.38% to 12043. S&P +0.41% to 1239. Nasdaq +0.27% to 2289.

    Treasurys: 30-year -0.06%. 10-yr 0%. 5-yr 0%.

    Commodities: Crude -0.67% to $97.69. Gold 0% to $1713.35.

    Currencies: Euro -0.01% vs. dollar. Yen +0.02%. Pound +0.12%.

    Market preview: U.S. stock futures cling to gains (S&P+0.2%) as EU leaders agree to stricter budget rules but fail to secure treaty changes among all the countries, meaning a deal may involve just eurozone states. Also, China’s central bank reportedly will design a forex vehicle to boost its returns. Chipmakers TXN -5.4% and ALTR-4.5% after lowering guidance (III). Later: consumer sentiment.

    Oct. Trade Balance: -$43.5B vs. -$44B expected and -$44.2B (revised) in September. Exports $179.2B. Imports $222.6B.

    December Reuters/UofM Consumer Sentiment: 67.7preliminary vs. 66 expected and 64.1 in November.

    EU leaders are meeting the press as the summit breaks up. Merkel: "Fiscal union is to develop over the next few years… Despite the opt-out, the U.K. is always a reliable partner." Barroso: The next step is to flesh out treaty details, i.e. little was decided and more summits are necessary. Risk markets are higher on this?

    Did he just say that? Finland PM Jyrki Katainen tells reporters this is the "beginning of the beginning of the end of the crisis." Of maybe more interest, he also says there may not be a need for another summit before year’s end. To repeat: Risk markets arerallying? (previous

    More comments from EU leaders hitting the tape, these giving a boost to markets. Italy’s Mario Monti calls it "incoherent" to rule out eurobonds forever, while Greece’s Papademos says leaders did not reject eurobonds, but will discuss at a later time. Stoxx 50 nowup 1.6% 

    A new crisis has been created without resolving the existing one, writes the FT‘s Wolfgang Munchau. The decision to go outside the treaty to set up fiscal union virtually guarantees a breakup of the EU, he says. "The only way to save the eurozone is to destroy the EU," but today’s result may end up destroying both. Munchau’s spot-on commentary after the Oct. 27 summit. 

    The S&P 500 has tacked on nearly a hundred points since Thanksgiving, but amid the holly jolly mood in equities, keep an eye on volatility, as the VIX has floated up 21% in the past week and closed over 30 for the first time since October. BBH: "Should the VIX continue its rise, equities will more than likely struggle to hold ground."

    Changes to the S&P 500: In – AGL Resources (AGL +3.9%), BorgWarner (BWA +1.9%), Perrigo (PRGO +0.1%), Dollar Tree (DLTR +1.2%). Out – Nicor (GAS +0.4%), AK Steel (AKS +0.2%), Monster Worldwide (MWW -0.5%), MEMC (WFR +1.9%).

    Told you so!  Mosaic (MOS -2.2%) is cut to Neutral from Overweight at J.P. Morgan, which also lowers its 2012 EPS forecast to reflect lower estimates for phosphate prices and potash volumes. Prices are moving lower and may continue to do so following capacity additions in the Middle East, JPM says as it reduces price targets for MOS,POT -1.1% and [[AGU] -1.6%

    There are plenty of reasons why PC sales were down 8% Y/Y during Black Friday week, writes Morgan’s Katy Stanley, but the bottom line "is simply weaker end demand." The exception, as usual, is Apple (AAPL), where unit sales were 17% higher Y/Y.

    If Horace Deidu is right, street estimates for Apple (AAPL) Q4 earnings ($9.75/share on revenue of $38B) are going to lookwoefully short. He’s pegging iPhone sales growing 120% Y/Y – thanks to pent-up demand for the iPhone 4S – leading to earnings of $12.30 on $44.6B of sales.

  42. Pharm —- sold another lot @ 1.24—--wow thanks for the double—-any other doubles in your bag of goodies?

  43. Savi – buy and holds, CRIS, PLX, IMGN, SGEN, MITI, ARIA……

  44. Pharm—-have Cris and Plx —still trying to add to Plx—- I would like to add one more—which one would you suggest?

  45. ISP/Flips – Min is optonline from I think Cablevision.  Very reliable with good speed – we can’t get Fios where I live but I run a pretty robust system plus Tina and the kids are online all the time and we stream Hi-Def on demand for the TV’s – all at the same time and it’s not a problem but we are lucky to live on a small street in a small town, I think.  

    Getting a really nice move, not even a pullback – YET.  Dollar 78.73 so now we can use 78.75 as a stopping point.

    DAX up 1.8%, CAC up 2.14%, FTSE up 0.77% (maybe they should have joined!)

    Quotes/StJ – Both great! 

    Doomed/Rpme – Already?  

    Soros/Kinki – Always a step ahead, that guy…

    Bonds/LV – I’d wait to see where they settle next week, after this is digested.  

    Final solution/JMM – I was wondering if that word choice was too subtle.  Long on insanity is a good model to follow – especially as we still have at least a dozen more Republican debates to get through.  

    Woops, 78.79 – I personally see no reason to be brave!  

  46. AAPL traders.  Good morning!        Buy back the 10 short Dec 9 395 calls at market.  (I got them  back for .46 but they may be even cheaper now).   We have made $1,340 on the trade in 24 hours (74%) and although AAPL will probably not get over 395 today we cannot take the chance!   Take the profits now!  

  47.  Phil – BA financing – I have BA as long term holding, Bought @ 63 last year selling C&Ps well hedged now.
     Do you think the possible financing issues from European banks shrinking their commercial lending and Boeing having to step in and provide financing for sales is a  downside risk? Article Wednesday by Bruce Krasting. Or also the risk if we have a liquidity event locking up commercial financing for a while in Europe impacting deliveries. 

  48. stjluc, I must be doing something wrong as all I see on the portfolio link is a gogle sign in. Do I have to be reistered?

  49. Pretty good week so far on AAPL Iflan…


  50. There is a trailing space on the link, just click it, then delete the last space, and hit it again and it will work.  I’d re-post the edited link, but I wonder if something is adding the space by mistake?

  51. jomptien – Try this link: PSW Portfolios

  52. SOROS/ laways a step ahread because he wears his shoes on the wrong feet so he can get around CORNERS faster…

  53.  jomptien: google
    I think you have to copy and past the link, you can’t just click on it.

  54. credit gauges worse across the board…this is feeble so far given the stakes and the perceived "can kicking"…all this euro news what out last night and NO response in asia…hong kong terrible

  55. Jomptien – I have checked on a different PC and it looks like this particular link is broken. It has happened before. I’ll check and post another link.

  56. Portfolio Link – Thanks Lincoln, this does seem to work that way, which is kind of counter-intuitive! 

  57. Thanks Diamond! 

  58.  How can MS go up and down 5% + every single day! And, this is the stock! The options move far more! Oh well….i guess its just trading as a proxy for europe and EU banks. 

  59. Thanks guys.

  60. Good morning,


    IWM  71.87,  72.15,  72.56,  72.98,  73.24,  73.51,  74.12,  74.62,  74.80  and  75.06

    73.61 is the key today; buy a break above !!

  61. Phil—I have the following as a hedge—would you adjust or go to EDZ?
    Dxd long Jan 17 @ 1.77 ( now .75) sold Dxd Jan 20 call @ .92 (now .35)

  62. GOOG Android App Market exceeds 10 Billion Downloads. About one year after Apple App Store I believe.   Nice infographic at that link.  Looks like biggest exposure is in Asia. 

  63. Hi Phil,
    Remember the FAS Dec 9, 61/63 bcs? Wondering about the best way to close it. Sell the 61s first and then wait on to see the 63 decay? Or not?

  64. RUT is strong today

  65. Do we see the last of the rally as Europe closes??

  66. PHIL
    what do you recommend CSCO
    Have Jan 12 20 puts
    Jan 17.5 calls
    Roll    ?  down on call up on puts

  67. AAPL/lflan:
    Great work!  Thanks!!

  68. Ooops. disregard earlier question on FAS 61/63 bcs. Obviously keep it the way it is for now.

  69. Looks like 74.18 on IWM target

  70. Steeping on the dollar now

  71. Phil—sorry about this— but my day for adjustments-- have the following spread on Fas
    Long Jan 65/80 bcs. 12.00/5.80 now 8.8/3.4—-- sold Jan 55 @ 7.30 now 5.00—any changes or keep as is?

  72. kustomz / Target

    I have 74.44 – 64. fwiw !!


  74. Watson/StJ – I wonder if some future version of Watson will be browsing patents one day and come up with an invention on its own?  If so, what will be the point of us?  

    Moore/Rustle – I never understand why people bend over backwards to sell books.  Seems really strange to me but, if I ever get my book finished, I’ll be sure to give you guys a play by play of how this process works.  I already know the publishers love to give you an advance that obligates you to do all sorts of undignified promotions (so, of course, I didn’t take one) but I don’t get how someone like Michael Moore, who’s already plenty famous – ends up sitting at a desk personally signing books all day.  It can’t be fun…

    Corruption/LV – That’s not even an adequate word.  They engineer the crisis to drive up debt which is, in effect, the borrowing cost placed on the people of various nations – and then they manipulate the Governments to guarantee the debt as if was without risk – yet they continue to receive the interest rates they got under duress.  AT LEAST you would think the EU would pay off all existing high-rate bonds and re-issue bonds at reasonable prices – THAT would at least benefit the actual Nations and people they are supposedly doing this for, rather than giving the Bankster’s AAA-rated Greek 20% debt to sit on for 3 more years. 

    Stuff/Exec – What a tool that guy is!  There are more people on food stamps so it’s not poverty that we need to fix but the food stamp program that keeps the people from starving…  Will eliminating prisons prevent crime?  That’s the BS logic this guy is using – sounds like Bill O’Reilly.  

    Bread and Circus/JMM – The old ways are the best ways. 

    LLY/Burr – That news seems kind of baked in as they’re up 20% in the last few weeks.  And, as Pharm says, there’s no sure thing there – not even a likely thing…  As with many stocks that are up in the range – I’d rather wait for them to establish a new, higher range or hope for a crash to give us a better discount.  If we say that $30 is a good price, however, you can just sell 2014 $35 puts for $5 and, if you want to be more aggressive, you can take $2.20 of that money and buy the 2014 $45 calls and that means, worst-case, is you end up in LLY for net $32.20 and your upside is at least $2.80 over $35 with no limit to your gains over $45 if the stock flies.  So, most of the upside with much less of the risk in that combo since, technically, you only miss the donut-hole of gains between $41.80 and $45 vs. buying the stock.  

    Poker face/Pharm – All roads lead to Gaga.  

    Soros/Kinki – You think a guy who is a known currency manipulator wasn’t thrown a bone by the EU and begged to play nicely in exchange for a chance to make a few hundred million?  I find that unlikely.  As to Ordorliberalism, I like the German model – it’s Socialism done right for the most part.  

    EDZ/DC – I said yesterday, as a bet, I’d take the money but as a hedge, I’d sleep much better at night with them. 

    EWJ/Smala – I think if the EU is really fixed, the Bond Vigilantes will move on to China and Japan next so no, I don’t like being bullish on Japan, tempting though it is at this level.  If you like Japan, I’d take advantage of TM’s weakness and volatility as they are a perfect example of the kind of stock we’d like for our "Build a Berkshire Workshop" – they are a World-class manufacturer with strong sales that are impacted, at the moment, by currency issues.  

    These are the kind of things that pass over time so now is a good time to accumulate a position and you can sell the 2013 $62.50 puts for $5.70 and buy the 2014 $65/80 bull call spread at $6.10 for net .40 on the $15 spread with the worst case owning our first round of TM at net $62.90 (10% off).  TOS says net margin on the short puts is $6 so that plus the .40 cash means, if you are willing to own $6,290,000 worth of TM at 50% margin ($3,145,000) for the long-term – you can allocate just $640,000 cash for 1,000 spreads which, if successful, can return $1.500,000 in 2 years.   THAT’s a good way to play Japan bullish!

    Constructive pullback/Rustle – Yep, we’re still in that zone. 

    FAS Money/StJ – We’re down to the wire on the $64 calls, now $1.30 with the Dollar at 78.70 but we could still pop for a big rally so tricky.  I guess they can be rolled to one Dec $68 call (now $2.60) so that’s the move if XLF goes over $13.15 or, you could sell one Dec $68 now to lock in the $2.60 and put a stop on the $64s at $1.50.   The puts seem fine and will expire worthless with just the next week $58 puts to balance the $68 call and that should be fine into the weekend as it represents about $350 in sold premium and that’s fine for a week’s income!  

    AA Money/StJ – Looks good to me.  Still, BORING!  

    IWM Money/StJ – Also right on track and no sense in adding risk over the weekend.  In fact, for $125 – I’d say let’s take out the puts and calls and go clean into the weekend, ready to sell into the excitement next week in either direction.  

    78.65 gave us a little pop but it’s holding so far and we’re already back to 78.72.  Presumably short covering the Euro into EU close in 15 mins and then the Dollar more likely to drift up than down.  

  75. JRW…thanks! one resistance at time please.. ;-)
    No way Im taking a chance with  this market..I will take half off shortly.

  76. I noticed that Yahoo finance shows TLT with a 3-year beta of 4! And here I was, thinking it was something like -0.75. This is making quite a statement about the financial markets have changed recently. Any comments?

  77. Moore/Phil
    Those books were all signed before and given to the store.  Once they’re out of them, that’s it.  Think there was 162 left when I looked at the site.

  78.  Phil--your articles are amazing and your crystal ball is as impressive as Big Ben’s toughness (the other Big Ben--if you saw the game last night). 
    I love this site!
    FU me for not joining it earlier!!!!

  79. Phil/Moore  Bah Humbug Phil!   :)
    The books Michael is signing are only available from Northern Michigan bookstores and part of the proceeds go to a non profit theater he supports in nearby Traverse City….

  80. FAS Money – Selling one Dec 68 Call (now 2.53) and putting a stop at 1.50 for this week 64 Call.

    IWM Money – Buying back the TNA Dec puts and calls.

  81. Phil – I posted this last night. What are your thoughts?
    We could use a few more ceo(s) like AMR’s ex-ceo, Gerard Arpey…..


  82. That didn’t take long – this week’s 64 FAS Calls are gone at $1.63. That was one fast move!

  83. Nice little pop in GE after they raise quarterly dividend by $0.02 to $0.17.   Boom!

  84. IWM Money – We now have only the IWM BCS in play



  86. 1020 / AMR CEO
    He sounds like the type of leader US corps used to have in every industry.  Sadly greed has replaced that moral thinking.
    Thanks for posting that article.

  87. India 3rd largest buyer of arms from the US.

  88. Here is a really good interactive on the EU situation !!

  89.  Phil -
    Any thoughts on basic materials lagging while also getting hammered yesterday.

  90. Europe / JRW – Yesterday in Le Monde they had a list of all the meetings that had to solve the problems and it was comical the way that politicians qualified the meetings while kicking the can down the road:

    March 11 – One of Europe’s last chance meeting
    June 25 – The week of living dangerously
    July 21 – A decisive step
    October 26 – Now or never
    November 1 – Greek referendum sends a chill
    December 8 – Toward a new European treaty

    It would be funny if it was not so tragic! 

  91.  Thx JRW great graphic on effectivenesss of meetings among politicos in EU

  92. Savi / IMGNHere is Pharm’s post from yesterday regarding that trade.

  93. USO/Smart – I’d say, if you don’t get a pop into the close, it’s not worth the risk over the weekend. 

    Gann/MrM – Yes, we are extending AND pretending.  

    RUT kissing 735 – now we see what’s real.

    Good call Iflan.  

    BA/Tx – I don’t see BA providing financing as a negative – it’s another revenue stream and they are in a better position than a leasing company to re-market old planes.  I think (see above Fed chart) that the liquidity issue for AAA-rated companies, if it exists at all – is not a problem for BA trying to borrow some of the Billions that are floating around in the US.  While I’d keep conservative covers, I’d certainly keep BA!  

    MS/Hannah – On the whole, they’re much better off than September.  I don’t like MS, too small and can be affected by a single item.  

    DXD/Savi – So you are in for net .85, now net .40 but you can pull the Jan $17s for .60 and buy the April $15/20 bull call spread for $1.05 (+.45) and sell the $14 puts for  $1.05 and then your whole spread is free if the Jan $17s expire worthless and, if they don’t, your long play is $2 in the money and you’re not in trouble until DXD is over $22.  

    FAS/Zip – That’s kind of risky with the markets still rising.  Check with your broker but if they expire in the money on both sides, they might net it out in your account.  Since the $61s are currently $4.40 and the $63s are $2.45, I think it’s a bit of a hassle as well as a risk trying to squeeze out an extra dime.  

    CSCO/QC – After TXN guidance, I’d take the call money and run but I’d leave the puts in case we rally further and, if not, they’re rollable and you get to buy more call cheaply.  

    FAS/Zip – Disregarded.  8)  

    FAS/Savi – So, you’re down $1 on the FAS bull call spread – that’s a reasonable insurance fee and, of course, brilliantly offset by the gains on the short puts.  The short puts seem very safe but they look like a lot less than $5 to me, or is that 2013?  Anyway, the Jan $65 calls are still $8.80 although out of the money and I would flip to the April $55/75 bull call spread at $9.40 and leave the $80 caller naked as you don’t owe him $1 until you are $20 in the money on your Aprils. 

    TLT/Barf – Yep, them markets are CRAZY!  It’s a symptom of a manipulated market and manipulated rates.  Certainly doesn’t tell us anything about what’s really going on.  

    LOL Jabob – FU and Roethlisberger’s leg too!   8)  That guy is a man’s man…

    Moore/1020 – Well that’s a good reason I guess but just seems so hokey to me to hawk books like that.  

    Pritchard/Kustomz – I like his viewpoint.  

    Arpey/1020 – Yes, but what does it say when men of good conscience are forced out by the machine of Big Business?  Both sad and hopeless, I think….

    FAS/StJ – That’s what I was worried about.  

    GE/Kinki – That’s nuts.  

    FAS Money/StJ, All – So this does seem to be working out as a less stressful way to play and we’re still doing pretty good on the return, right?  

    India/Nicha – They are silly, Iran gets weapons from us for free!  

  94. Careful here, key resistance !!  I will be selling (taking profit) on a failure of the signal line now at IWM 73.85 and climbing.

  95.  Euro not happy. 

  96. stjeanluc
    FAS what happened to the 2nd Dec2 64 c I rolled the two to 68 ??

  97. Great EU charts JRW!  

    Materials/Samz – That’s what happens when you inflate the banking sector but forget to give money to actual people.  There’s nothing in the EU that does anything to spur demand so materials, quite rightly, are selling off.  

    Sarkozy leaves Cameron hanging/Kustomz – Blair would have wasted him for that!  


    ECRI Sticks With Its Recession Call

    Email this post Print this post
    By Barry Ritholtz – December 9th, 2011, 12:00PM

    Chick to enlarge:

    Source: Bianco Research LLC

  99. Seems like place your bets on black or red….but look out for the greens

  100. Steady, steady, stay on target !!

  101. button – You’re Welcome!  :)

  102. Phil—thanks very much. I would never have figured out those adjustments

    Mrm—-appreciate the link very much

  103. Phil/hokey  As a Northern Wisconsin native, we embrace "hokey"  ;)

  104.  Phil / Inflating the banking sector:  
    "“What I’m saying is that banking is a vastly profitable industry, far more profitable than any other, and, with its disproportionate clout and seeming indispensability, it brings costs that aren’t only financial. One is over-reliance.
    What incentive had the past couple of governments to reform Britain’s economy, or encourage our technology industries… with this huge gushing money tap in London EC2?  Pour your efforts into manufacturing — woo foreign companies, invest in universities, try to make it hip to become a chemist — and GDP sneaks up by a tiny fraction of a per cent over the next decade. Deregulate the City, as Margaret Thatcher did in 1986 with the Big Bang, and watch London become the centre of the financial world without you really having to do much else.
    Then there’s the human cost, for the rest of us.
    What would they all have done, these undeniably brilliant minds, without the banker’s lure of becoming stinkingly, stupefyingly rich? I suppose it’s too much to hope that they all would have become engineers or medical scientists. But they might have started businesses, founded modest empires, created jobs.”

  105. FAS Money / Phil – As expected, 97% of the profits so far come from selling the FAS options. The long dated BCS will decay very slowly now anyway! But collecting over $1800 by tying up about $11,000 of margin (depending on your broker) in 4 weeks is not bad! That’s 16% return on margin which would be 200% on a yearly basis. Not counting the BCS decay that will kick in later assuming that XLF holds!

  106. ….and a quick "Go Pack Go"  :)

  107. GL JRW!! May the schwartz be with you friend!

  108. FAS Money / Yodi – We sold 1 Dec 68 Call and set a stop at $1.50 on this week’s 64. The stop was blown away as FAS rocketed upward so the 2 calls are now gone with a slight profit. 

  109. Phil….DBC…Currently have Jan 12 26c @ 2.90. Sld 30 caller a few months ago for 1.20 profit. Whats best adjustment,as it appears we’re going to have some inflation soon. thanks

  110. Some reactions to the Europe deal from various financial journalists:

    Felix doesn’t seem to like it a bit:

    Europe’s leaders have set a course that leads directly to a gruesome global recession, before we’ve even recovered from the last one. Europe can’t afford that; America can’t afford that; the world can’t afford that. But the hopes of arriving anywhere else have never been dimmer.

    And Yglesias puts it in perspective (emphasis mine):

    The bottom line here is that you can’t make contentious decisions with winners and losers while operating under a 27 country unanimity rule. The smaller 17 country Eurozone seems to work only because they operate under an "if France and Germany agree then it’s unanimous" version of 17 country unanimity. But the UK has a history of national greatness and a small independent nuclear deterrent so they don’t play by those rules. The price is "isolation" but so what? Meanwhile, Merkel is left to try to work out a 17 country "intergovernmental" agreement of some kind. Just remember that not only is the euro a currency without a state, it’s not even a currency with a supra-national entity behind it. It’s a currency of a sub-set of members of a supranational entity. 

  111. ZZ  Along those lines. Did you read the ZH article about Re-Hypothication, and the UK loophole that lets US brokers send US client assets to the UK where there is no limit to the amount that they can be levered against their net value?

  112. 11:00 AM On the hour: Dow +1.26%. 10-yr -0.17%. Euro +0.2% vs. dollar. Crude +0.29% to $98.62. Gold +0.51% to $1722.15.

    12:00 PM On the hour: Dow +1.36%. 10-yr -0.34%. Euro +0.22%vs. dollar. Crude +0.08% to $98.42. Gold +0.22% to $1717.25. 

    11:52 AM European shares close sharply higher despite little havingbeen achieved at the summit other than the isolation of a major country from the EU. Then again, shares always seem to sky on summit results. The days and weeks after, not so much. Stoxx 50+2.4%, Germany +2%, Italy +3.2%, U.K. +1%. Euro +0.3% to $1.3375.

    "(Merkozy) have more or less bulldozed Britain out of the EU for the sake of a treaty that offers absolutely no solution to the crisis at hand," writes Ambrose Evans-Pritchard. "The system will lurch from crisis to crisis until it blows up in acrimony … As for Britain, let us seize the moment of liberation, and enjoy it."

    Felix Salmon on Europe’s "disastrous" summit: "Somehow, in Brussels, EU leaders have contrived to pull defeat out of the jaws of victory… It is now, officially, too late to save the Euro zone: the collapse of the entire edifice is now not a matter of if but rather of when… Europe’s leaders have set a course which leads directly to a gruesome global recession."

     "I don’t trust Spain will remain in the eurozone," says the chief of Grupo Gowex, joining other companies moving their cash out of their home countries. The trend is showing up at the Bundesbank, which registered non-bank inflows of €11.3B in September. Germans are nervous too, with GEA Group (GEAGY.PK) setting maximum deposit amounts allowed at any one bank.

    Bill Gross on the EU summit: "Oh what a tangled web the EU has weaved. Never ending story, hard to trust. Risk off." In the meantime, risk is definitely on, with markets across the board at session highs. S&P 500 +1.4%, Stoxx 50 +2.4%, Germany +2%.

    Little noticed in the EU press statements is a line from Sarkozy suggesting yesterday’s move to ease bank access to ECB funding will allow lenders to buy nearly unlimited amounts of government debt. "This means that each state can turn to its banks, which will have liquidity at their disposal." There you have it.

    DuPont (DD -5%) is by far the Dow’s biggest decliner after the chemical maker cut its Q4 and full-year outlook, citing slower growth and “global economic uncertainty.” Earnings season doesn’t ramp up for at least another month, but early indications aren’t pretty (see also: III); as Europe’s crisis grows, the resiliency of corporate America will be tested.

    Sterne Agee lowers it outlook for FedEx (FDX +0.3%), saying "conservatism" in inventory management by companies and anecdotal reports of tepid consumer demand for airfreight could impact earnings. Analysts with the firm clipped EPS estimates on FDX for FY12 and FY13 to $6.38/share and $7.67/share, respectively.

    An EPA report released yesterday on contaminated water in Wyoming is sure to draw out political hotheads on both sides, argues an op-ed in the LA Times. The anti-EPA faction of the GOP will call it a jobs killer, while environmentalists will try to leverage the report to win the battle over TransCanada’s (TRP +0.5%) Keystone XL pipeline. Meanwhile, caught in the middle are the citizens of towns near fracking operations where their well water smells like a cross "something dead and diesel fuel."

    Fitch Ratings weighs in with a mixed report on the restaurant sector, calling for "limited" margin growth and "contained" credit risk. Though analysts point to rising protein prices as a force that will likely erode margins, they see limited-service restaurants having a chance to offset the hit with low-cost franchising and steady same-store sales growth.

    More on Fitch Ratings’s take on restaurants (previous): Global restaurant operators such as McDonald’s (MCD +1.1%) and Yum Brands (YUM +0.8%) currently getting hit by minimum wage increases in China of 15% YTD could see some moderation as monetary policy tightens. The relief to the margin of the two companies could help them keep same-store sales percolating along in the mid-single digits despite sluggishness in the U.S.

    Consumers are not only charging up a storm but they are betting it all on black!  Nevada gaming revenue rose 8.1% to $960M in October, as Las Vegas casinos posted 13.3% gains to $560M, the Nevada Gaming Control Board reports (.pdf). Slot revenue rose 5.4%, and table game revenue jumped 20.9% (excluding baccarat). LVS +2.1%,MGM +1.8%WYNN +0.6%BYD +2.4%

    Coverage of Sirius XM (SIRI +2.3%) is launched at Citigroup with a Buy rating and $2.20 price target, reflecting "healthy" subscriber growth, high operating leverage, solid free cash growth and "potential equity shrink" starting in the 2012 second half. Citi sees "many years" of subscriber growth ahead, with a terminal user base of ~34M.

    The board at General Electric (GE +3.3%bumps up the firm’s dividend, approving a $0.02 hike to $0.17/share. The stepped-up yield on shares of GE is now right at 4% – just about double what a 10-year Treasury offers

    Waste Management (WM +2.2%) announces plans to boost its quarterly dividend by 4.4%, making it the eighth straight year the nation’s largest trash hauler and landfill operator has boosted its shareholder payout.

    Here’s a great scam!  GNC Holdings (GNC +3.5%) says it’s buying back up to $70 million of its Class A common shares to mitigate dilution from employees redeeming their stock options. - In other words:  FU ordinary shareholders, it’s time for management to cash out and we’ll raid the company piggy bank to hold up the share prices while we do!  

    Accusing Transocean (RIG -2.8%) of "willful misconduct," the Justice Department asks the New Orleans district court to deny the oil drilling contractor’s request to protect itself against civil penalties stemming from last year’s Gulf of Mexico spill. The move suggests the U.S. government will seek the maximum possible penalties against RIG and possibly against BP

  113. At least seven brokerages cut price targets on Texas Instruments (TXN -2.2%) after the chipmaker cut its outlook for the current quarter and warned of lower demand as customers reduce inventories. Declines in TI’s product lines have been larger than expected due to macro issues including flooding in Thailand, although its OMAP application processor is seen as a bright spot. 

    RIMM-bashing in our time:  Think things can’t get much worse at Research In Motion (RIMM)? Sure they can and probably will, Citi says in offering a list of10 specific reasons why. There’s are "no short-term fixes," as potential for delays of the rollout of RIM’s new QNX operating system, continuing loss of share from Apple’s iPhone 4S, shrinking earnings and declining carrier support paint a bleak picture.

    Neal Razi fires up the Apple (AAPL +0.5%dividend chatter again after citing a string of companies that have stepped up to the plate recently to start paying out cash to shareholders for the first time. He argues that a slightly new direction at AAPL and its $26B cash hoard earnings close to nothing may finally tip the scales.

  114.  Sparky: No, I’ll look for it.  The broad point is clear: turning the global economy into a casino, where "big winners" are lionized for their billions, earned without producing any tangible value, has become a disease.  I spent years on Wall Street, but actually financed stuff that was built.  There’s nothing wrong with rational finance, which is borrowing to build things with productive yield over time.  "Time" is the critical variable.  Money changing pockets takes no time at all, is utterly jejune, and debilitates economies by sucking all the best minds away from productive activity.   To modify an old saying: money corrupts, and infinite money corrupts absolutely.  

  115. Phil,
    What would be a good hedge now?
    I can only log in a few times during the day.  If you already answered the question, apology.

  116. Phil, what’s your opinions on JNS? worth to go long via options? thanks

  117. AAPL 50k      Buy 5 AAPL Jan 390 calls at 18.75

  118. No problem Savi! 

    Excellent point ZZ!  

    DBC/490 – As DBC includes oil, I’d be careful there.  You have a net $1.20 profit, and that’s nice but it’s pretty doubtful we move up 10% by Jan so I’d cash the $26s for $1.60 and move out to a July $24/28 bull call spread at $2.50 so you take your $1.20 profit and spend .90 of it to leave yourself $3.17 in the money on a $4 spread.  That way, it won’t take much inflation for you to do very nicely and, if we get a dip in DBC, you can sell $23 puts (now .75) for $1.50 and use that cash to buy back the caller or roll your calls lower.  If DBC never dips, then you’ve got a nice 50+ gain coming to you. 

    Yglesias/StJ – Wow, great point but I can’t believe he gave up the singing career to comment on economics.  

    So far, I’m perfectly happy with our exits.  Dow has been the outperformer this week by a point so RUT is playing catch-up today (up 2.4%) but I think the Dow is the best short for a Black Monday.  DXD Jan $15 calls are $1.25 and the FCX Jan $33.25 puts can be sold for $1.15 for net .10 on the the long play.  TOS is showing me $3,300 in margin on the sale of 10 so I like this spread (10 and 10) for the WCP as nice weekend protection.  If all goes well, we have a good expectation of getting out with a very small loss and, if all goes badly, DXD was $18.50 3 weeks ago!  

  119. You increasing my workload Iflan!


  120. I don’t follow the gaming stocks but does anyone know why baccarat isn’t part of the table game numbers?  "and table game revenue jumped 20.9% (excluding baccarat)."

  121. Exit / Phil – To keep in mind, last week I rolled my FAS calls on my strangle right after lunch as they were pushing the market up and I got worried I was losing a favorable roll and we sold off at the end and it ended worthless anyway! Cost me $1.30 of premium. I wonder if it’s worth waiting until the last minute to roll these weeklies as they bleed premium at great speed on Friday.

  122. Yglesias / Phil – Hey, Jesse James gave up highway robbery to build motorcycles! 

  123. Arpey
    I kind of liked the guy, though I only knew him from his editorials in the AA flight magazine. He was a guy who had been with the company from birth, and who loved aviation and  flying. He was a finance guy, but he had a pilot’s license himself. A change from corporate gangsters like Corzine and Blankfein. Then again, Tony Hayward (ex-BP CEO) started out as a geologist and eventually steered BP onto the rocks.

  124.  1020/Go Pack Go: Have you purchased your share(s) yet. Now there is a sustainable business model. I am a proud shareholder, fwiw.

  125. Phil,
    For the DXD/FCX trade in WCP, JAN FCX 33.25 Puts have no volume today. I have gotten some errors from TOS in my order combinations.

  126. Whats not to love about the banks? They’ve got their very own printing press! We all know how much Bernank loves to printy print. Im sure the chopper is fueled up and ready to go..

    EUR/USD 1.3384/86 could be the spring..otherwise she may be spent here

  127. kallen—I think Phil meant fcx 35.25 puts or at least I hope so

  128. After paying $1.2B for Palm and their webOS, HPQ makes webOS Open Source. Better than letting it just die, I guess.
    HP to Contribute webOS to Open Source
    BTW: Did anyone else read that blurb by Phil about "Neal Razi" and mix up the first two letters in the names?

  129. Well, WS needs to protect their bonus I guess.  DD warns….TXI shows the same……this is what is coming…patience young padawan…patience.  SPY Feb 125/120 put spread is 1.72.  Selling Mrk Jan13 $30 Ps for 2.30…….

  130. barfinger/TLT correlation
    I don’t think it’s 4. TOS says -.44, but I don’t know what their time frame is. I maintain a four-year graph of TLT vs. SPY. They’re clearly negatively correlated, so the correlation sign from Yahoo seems wrong at least. Over 4 years, SPY is down 14.42% while TLT is up 29.43%.
    I have come to view Treasuries as more volatile than blue-chips. Won’t touch the former. Only trade the later for option premiums and dividends – since they never really go anywhere.

  131. FCX/Savi – Kallen — I don’t think the 33.25 puts are operative…order rejected by TOS.

  132. kallen – FCX same error on the $33.25 puts.

  133. Trump thinking about cancelling his GOP debate after only Gingrich and Santorum accept to be part of the circus!

    That’s one big ego being bruised now! Karma really is a bitch sometimes. What an arrogant fool! I am sure he’ll keep up the pretense of running as an independent as long as he needs to in order to sell books and the TV show. 

  134. FCX – maybe Phil meant Jan $35.25 puts for $1.15

  135. Corruption/ZZ – That’s the problem with inadequate taxation, you end up steering the reward curve to whatever makes the most money, irregardless of social value.  What’s really amazing to me is how many empires fell after struggling to support a burgeoning upper class at the expense of the peasants but WE HAVEN’T LEARNED A THING!  

    Hedge/Cwan – Great timing, see above.  

    JNS/Jop – It’s so hard to know what these mid-sized Financials are up to.  They are big in Hong Kong and Japan which is a good and bad thing these days but I’d stay away as they are certainly going to be knocked off their growth path and, again – we’re certainly not out of the global woods yet.  I like XLF/FAS as we are diversifying the basket and I like JPM because it’s JPM – other than that, I think individual picks are like flipping a coin at this stage. 

    Baccarat/Rain – Surprisingly, Baccarat is roughly 30% of table revenues but it’s a very volatile game for the casino as there is effectively no house advantage so it’s excluded because it’s really not useful in determining the "business" as the odds on other games make them fairly reliable money makers with only slight fluctuations from streaks of good or bad luck.  High rollers, especially Asian ones, who are good at math (I know, sterotype) and don’t like to play the normal games where the odds are stacked against them, love Baccarat and bet $1M on single hands so the game can make or break a month for any casino.  

    Waiting/StJ – If you consider that you are, primarily, in the premium selling business than I’d say yes, waiting 50 times and netting $50 in premium over a year allows the occasional one to get away from you.  Good point, what is with these celebrities reinventing themselves – especially Madonna – you’d think she would just retire after birthing the Messiah instead of prancing around in her underwear…   Also, WTF with YouTube – you can’t find a single video anymore that doesn’t have a friggin’ commercial before it starts – talk about jumping the shark! 

    Hayward/JMM – I don’t know about that.  They had a spill – that’s going to happen.  He could have handled it better but, to some extent, you should appreciate how amazingly strong that company was/is to withstand that crisis.  In reality, what did Hayward say that was wrong – he said it was a spill that would be bought under control (it was) that would have a limited environmental impact (it did) because the size of the gulf relative to the size of the spill was a factor completely ignored by the media (but was the basis of our own investment in BP after I did that math – 650 quadrillion gallons/100M gallons spilled!).  The guys who really blow things up are guys like Corzine or Fiorina, who think a degree from Harvard or Wharton means they know more than the people who paid dues their whole lives building a company they get put in charge of.  

    FCX/WCP, Kallen – I’m not getting an error but it won’t fill either.  FCX Feb $33 puts are trading at $1.25 so let’s call that an official switch as the new offset to the DXD calls.  

    FCX/Savi – No, I meant the $33.25s as they were paying a good price but it turns out that’s because they were stuck.  Nothing wrong with the $35.25s with FCX at $39.60 and you can always roll if you have to so I wouldn’t switch if you are sitting on the others.  

    Real Nazi/Kinki – Yep, first thing I thought of when I saw it.  Kind of Scooby Dooing the name.  

    Trump/StJ – Oh that sucks.   I’d go with just the two – such fun!   Bad move by the Reps (the GOP urged candidates not to attend) – that dude is a bad enemy to make!  

  136. stj—-so agree with you on Trump—his son went to Georgetown with mine—apple does not fall far from the tree—but must say the son was really scared of his father

  137. oops on FCX—will keep the 35.25s

  138. TOS commissions – noticed where TD Am’s rate for options is $9.99 + 0.75 per while TOS users pay $9.95 + 1.50 per. I asked about this and was switched to the TDA rate. If you using TOS no need to waste time doing this over the phone, just open a LiveSupport chat request. You’ll be done in just a few minutes.

  139. BRK/B, BRK/A  – The stock isn’t really moving much on the news on Warren Buffett’s plans to appoint his son Howard, a farmer, environmentalist and philanthropist as his successor.  I find it interesting that Buffett ended up going with his son (he’s known for being tough on his kids when it comes to inheritance and legacies) and that Howard is not an investment professional.  Not sure how to read this move other than that Warren really wanted someone he could trust and someone he considered a good-guy to run the company as opposed to an investing wiz.  Kind of makes me like Warren more.

  140. Trump / StJean – Years ago I was watching an NBA playoff game that had Marv Albert and Mike Fratello doing the call. It was half-time and the two were offering their thoughts on the game so far, what to expect in the 2nd half etc. Suddenly, Trump with his current honey Marla Maples taps Albert  on the shoulder and offers to shake his hand, thus interrupting the man doing his job on live television. In the process Trump leans down and smiles directly into the camera. I’d never seen anything like it. What a clueless arrogant fool.

  141.  Pharm,
    Speaking of stem cells. Is anyone working on the possibility of rejuvenating the flexibility of the eye muscle used for focusing. As we age the muscle becomes stiff, resulting in the inability to fcous. 
    Stem cells from a healthy muscle, with alteration in the dna to retain the flexible component should be fairly easy to achieve.
    The result would be the elimination of eyeglasses and contacts for millions of people, with an increase in the quality of life as one ages.
    What are your thoughts?

  142. Savi – I would add in a bit of ARIA.  Sell a few Jan $10 puts.

  143. Pakdog/commissions
    if you trade frequently you should be able to request at least 6+.75 from TDA, takes 5 minutes on the phone

  144.  Phil / Pharm : LLY
    Thanks for the comments on LLY, both make sense.  Maybe I’ll just wait until after Jan Ex to reload on some more income port things.

  145. Thanks Pharm

  146. l4real – not that I know of.  Stem cells have many, many applications, but the problem I see right now is how do we give all the right ‘stuff’ to make the cells differentiate (multiply/divide/change form) into what we need them into.  I know they are working on skin, and that is fairly complex, but muscle, kidney, liver, etc is a different beast….

  147. Phil,DXD
    if its a pure weekend play, what about the Dec 15c for 0.80 or better, and sell the Jan 15p for 0.65 for a net debit of 0.15 or better?

  148. Commissions / sagemi – Cool, thanks.

  149. Trump / Phil – I don’t know about the guy’s influence anymore. They had polls showing that his endorsement was actually a negative on someone’s numbers!

    He was on CNBC 2 days ago (when is he not on TV) bragging about his high IQ… I am no psychotherapist but this guy has some insecurity issues he needs to deal with! The constant bragging, the big name on the building, etc…  This guy gives the top 1% a bad name!

  150. esc--hello--have not seen you around

  151. Chaps: thanks for the info on TLT. I am actually relieved that Yahoo is wrong – my head was spinning trying to figure how things could have changed all that much. I don’t actually know how to calculate beta (is it daily, or what?) but your 4-year implied beta is -2. something. I am considering actual long positions on TLT to be a hedge. I am trying to sell puts to ladder into a long position. It does pay 3.2% or so.

  152. kustomz/ratings
    This will be timed perfectly to sell the treasury bonds.

  153.  Trump’s silliest claim is that he is an amazingly successful businessman.  He isn’t; he simply mastered one trick: when you owe banks $1 Million that you can’t pay, they own you.  When you owe them half a billion, you own them.  Simple.

  154. pat, I’m sure the timing will just be a coincidence..

    December 9th, 2011 at 11:12 am | PermalinkIgnore this user
    kustomz / Target
    I have 74.44 – 64. fwiw !!

    Marvelous darling…as usual :-)

  155. Trupm / Zero – It doesn’t hurt to start with the family backing both in connections and financially. I recall him stating that he got where he was starting with only $10 millions his father left him. Which he managed all the way to bankruptcy a couple of times! I would have love to give it a try. He is just a buffoon!

  156.  pakdog – I pay $1.25 per contract, no ticket charge. They offered me the rate you mentioned, but since I usually trade less than 10 contracts this rate is better. I don’t know if they’ll still give it to people (I got it before the TDA switch), but it might be worth asking. 

  157. Trump – And if he really is a billionaire (which is another thing in dispute), he only managed to multiply his starting capital by a factor of 100! Based on what I received from my parents to get started, I am a factor of infinity better than he is! 

  158. Phil/Hayward
    No, I was just being flippant. He got a lot of stick for his "want my life back" remark, apparently because he used a UK expression meaning that it was in his interest as much as anybody’s to get the leak plugged quickly and get everything back to normal so. In the US this seemed to be misunderstood as a flippant reference to those who had lost their lives in the accident and would not get their lives back. Two nations divided by a common language, and all that. The problem was precisely that he was a lifelong company man and not a transatlantic PR expert. His interest in sailing might have been spun to show how he appreciated clean water.
    How is this for an IRA trade?
    Buy 10 JAN VLO 2013 $22/$25 bull call spreads for $1.10
    Sell 5   JAN VLO 2013 $17.50/$10 bull put spreads for $2.10
    Put spread is to reduce IRA cash margin. Requires $3750 cash instead of $8750.
    Best case returns $3000 on margin of $3750. Worst case buy 500 VLO at $17.50.

  159. Don’t let that 7% profit get away; sell any break of IWM 74.62 !!

  160.  Thanks Pharm! I was curious!

  161. To go back to trading, SPY is now within 0.25 of its DMA. As I pointed out yesterday, it has been a tough line to cross over the last couple of months!


  162. JRW..thank you…I must say your a great check valve.

    Although what I really wanted to hear was…stay the course next stop 75.15!! 8-)

  163. Great call JRW

  164. Big phantom bar on FAS…. 

  165. stjeanlac/phantom bar
    What is the significance of this? Does it show a gap or a weak price action? Do you have more information on it?

  166. Bar / Pat – No clue on what happened there…  

  167. Berkshire/Kinki – That’s funny as I keep telling my kids they’ll have to take over here for me when I retire too!  Madeline will do it as long as we can rename it Maddie’s Stock World.  Hopefully, I have a few more years to train her…  Howard’s no slouch and, don’t forget, he’s been a Billionaire almost all his life.  He did a stint as VP of ADM and chaired GSI and Lindsay at some points and he’s been a director of Berskshire for a long time as well as of KO.  While of course it’s a bit of nepotism, as I’m sure there must be SOMEONE more qualified than Warren’s son – if you look at how bringing in "experts" to run things usually works out – I think I feel better about this choice than when, for example, Harvard lost it’s long-time manager and went through a series of bad decisions that cost them Billions.  

    DXD/Canuck – My assumption is that if we go down, we go down hard and stay down so the Jans make sense.  The Decembers will get blasted if we have a big up move and you don’t know for sure that FCX will offset.  Selling the Jan $15 puts makes it a hugely aggressive play that massively screws you if we gap up 200 on Monday.  

    Trump/StJ – He’s a walking circus act.  In NY, we think it’s fun but that’s because he’s like a NYC WMD we send out to attack the rest of the country (he’s already destroyed NYC, so we’re no longer afraid – kind of like Tokyo learning to love Godzilla).  

    That’s a good trick ZZ!  Iceland pulled it off but no one else seems to be able to figure it out.  

    Hayward/JMM – Sure, I just wanted to set the record straight.  People can say whatever they want about Trump but if I think someone got unfairly shafted, I’ll stick up for them.  On VLO, I guess if you have margin issues but boy are you screwed if they crash as there will be no exit to that trade and you don’t even get to own them as a consolation prize.  Meanwhile, the 2013 $15/20 bull call spread is $2.90 so $2,900 makes $2,100 profit at $20 without messing around and your break-even is $17.90, about the same as your two way but you get paid in full at $20, over 20% below your target.  

    SQQQ is a fun hedge when it’s below $20.  $17.84 was the low for the year but then there’s decay issues, of course.  Still, the Jan $16/19 bull call spread is $1.50 for 100% upside if the Nas fails to go higher (now 2,645 and 57 on the Qs).  That $1.50 can be offset with a GOOG Jan $500 put ($1.20) or an AAPL $320 put ($1.25) or a MSFT 2013 $20 put ($1.10) to make that upside much higher but I think getting paid 100% for a flatline is pretty good money.  

  168. BRK: Buffett appoints his son as his successor?  What do you folks think about that?  Histories are not kind to nepotism like this.  Wang Laboratories and RCA come to mind.  Maybe I should sell my BRK/B shares?

  169. barfinger/beta:
    I’m pretty sure a one year period is the standard, though you can calculate it over any period you want.
    It’s not something you generally want to calculate on your own. Statistically, it’s the covariance of the asset (TLT here) with the market, divided by the variance of the market. All done over some given time frame. So you need to come up with estimates of these things based on historical prices. Best left to computers and statisticians.

  170. well if he wondered about running as an indie you can bet he is now going to do it..perfect for obam…same old asshats running the gop..also thye are pushing romney who has 0 chance of winning.."so dey got wat de desoived" paraphase christy whitman

  171. to stick or not to stick…

  172. Phil
    Are we holding XLF Dec 13 calls bought at $.28 over the weekend?

  173. Interesting re Buffet successor.
    (CBS News) 
    Berkshire Hathaway’s founder Warren Buffett says his son Howard, a farmer with no college degree, would make a good successor because he would serve as a guardian of the company’s traditions and practices. Howard also understands the "values" of his company says Buffett. He wants his son to become "non-executive chairman" after he dies, an unpaid position in which Howard would not direct the strategy of the multibillion dollar investment firm.
    Howard Buffett says he’s just fine with that role, as long as he can keep growing corn and soybeans. Lesley Stahl reports this odd-couple tale of a father and son who could not be more different on "60 Minutes" Sunday, Dec. 11 at 7 p.m. ET/PT.

  174. kurww – At $12.50 you’re better by $4.99 every 10. At least I’m down from $25. I’ll ask about the deal you’re getting but I’ll guess they say that was then this is now.

  175. 1:00 PM On the hour: Dow +1.39%. 10-yr -0.38%. Euro +0.24% vs. dollar. Crude +0.08% to $98.42. Gold +0.27% to $1717.95.

    2:00 PM On the hour: Dow +1.42%. 10-yr -0.38%. Euro +0.25% vs. dollar. Crude +0.28% to $98.61. Gold +0.18% to $1716.45.

    3:00 PM On the hour: Dow +1.58%. 10-yr -0.41%. Euro +0.23% vs. dollar. Crude +1.12% to $99.44. Gold +0.28% to $1718.25.


    12:45 PM Energy shares trade higher as crude oil futures pare some of yesteday’s losses: ExxonMobil (XOM +1.8%), ConocoPhillips (COP +1.2%), Chevron (CVX +2%), Occidental Petroleum (OXY+1.8%), BP (BP +1%), Schlumberger (SLB +1.8%).

    Parsing the comings and going of voters on the FOMC, SocGen points out the makeup of the group is going to be significantly more dovish in 2012. In fact, there will only be one member considered even moderately hawkish that has a vote next year

    Perhaps what markets are celebrating is the end of the acute phase of the eurozone crisis and the beginning of the chronic phase in which the EU countries slog through several years of little to no growth while national budgets are brought in line with the size of economies. It may not be pretty, but at least collapse is off the table.

    Like a mechanic fixing the engine on a car with faulty breaks, EU policymakers have again failed to address the necessary issues, says Mark Dow in an outstanding description of the situation there. However, just because recession is about the best outcome to be hoped for doesn’t mean there can’t be a strong rally now, he cautions those who would sell risk at this point.

    Goldman upgrades Europe’s banks from underweight to neutral, believing the new funding arrangements by the ECB (and Fed) should help the lenders make it through the economic downturn. Of particular import is the ECB offering 3 year loans which should allow "banks to detach their funding cost from that of sovereigns."

    The stock market is pricing in a drop in earnings -understandably, perhaps – but what if it doesn’t happen? Eddy Elfenbein asserts that in the event of an earnings multiple, which is hardly excessive, a 2012 year-end S&P 500 target of 1723 is reasonable. 

    Carload traffic in November rose 2.3% Y/Y – highest Y/Y percentage increase in eight months – and intermodal traffic increased 3.8% Y/Y, the Association of American Railroads reports. AAR’s John Gray expresses hope that "this improvement in rail traffic is a sign that the pace of economic growth is increasing." 

    FedEx (FDX +0.6%) says December 12 will be the busiest day in its history, and expects to process approximately 17M shipments – almost double its daily average volume – through its global networks on that day. To handle the surge, the company is adding 20K seasonal positions, and is offering additional shifts to current team members working at facilities around the country.

    The USDA increases its projection for ending corn stocks to 848M bushels vs. expectations for a decline to 831M (from 843M previously). The reason: soaring production around the globe, now expected to hit 34.2B bushels, about 1% higher than the last estimate. Grain futures are off again. CORN -1.2%JJG -1.6%

    The prospect for increased oil drilling in Cuba’s territorial waters close to Florida catches the attention of federal officials and local politicians. Successful drilling could put pressure on the U.S. to open up its water around Florida to exploration, while a spill under the jurisdiction of an underesourced Cuba could be all but uncontainable. The issue is forcing U.S. officials to negotiate with Cuban counterparts after decades of near silence.

    Goldman Sachs plans to issue 4 CDs with returns linked to the stock market in its first move into the structured equity CD market. Investors can expect to see each issue have its own minimum and maximum rate of return – so in essence market participation is limited on both the upside and downside. 

    Phil Falcone’s Harbinger Capital receives a Wells notice – a head’s up civil action could be filed – from the SEC. No stranger to this sort of thing, Harbinger is being investigated for market manipulation as well as questions surrounding the disclosure of a $113M loan Falcone took from the company. (8-K)

    Yay – Voltgate!  House Republicans increase the pressure on the Obama administration and GM to answer questions as to why a fire with a crash-tested Chevrolet Volt wasn’t disclosed for several months. Transportation Secretary Ray Lahood counters the agency needed to determine if in fact the Volt was the cause of the fire before releasing the information publicly.  - Funny how NOW they want to know why there isn’t more Government regulation…

    The Machinists Union officially pulls its complaint against Boeing (BA +2.4%) from the National Labor Review Board afterratifying a four-year deal labor agreement. The deal ensures that Boeing’s new 737 jet will be built by union members in Washington state while allowing part of the production of the 787 Dreamliner to move to South Carolina.

    Who says being a director at a public company is harder than it used to be? Digging through International Game Technology’s (IGT) new 10-K, Footnoted finds IGT’s nine non-executive directors will receive base compensation of as much as $400K for meeting four times per year. With that sort of payday, can those directors really be independent?

    Shares of Cooper Companies (COO +10.4%) post a double-digit gain after knocking out a significant FQ4 earnings beat. CEO says in an earnings CC that the firm expects to see 6% growth in 2012 – falling in the midpoint of its guidance range. He also tips off the company expanded its salesforce by 25% as it looks to cover a greater geographic area.

    Green Mountain Coffee (GMCR +4.3%) and Starbucks (SBUX +2.3%) trade up on positive comments out of William Blair, saying K-Cup sales at Starbucks appear to be stronger than initially expected. Checks indicate the company sold about $4M worth of the single-serving product last month alone, without any promotional or marketing support. 

    It’s not just brick-and-mortar retailers who are unhappy about Amazon (AMZN) luring away shoppers with its new Price Check app. Sen. Olympia Snowe asks AMZN to drop its promotion because it gives consumers an incentive to gather price data from small retailers and leave stores without spending money – "an attack on Main Street businesses that employ workers in our communities."

    Mobile payments startup Square lands Sir Richard Branson as an investor when the Brit kicks in (SEC filing) $3M to the company that is now reported to be valued at over $1B. The "disruptive" firm continues to gobble up market share for processing credit cards with one report highlighting that even some Salvation Army bell ringers are using Square’s card reader to swipe donations.

  176. pakdog – contact scott @ thinkorswim dot com and tell him you are a PSW member and you want the PSW rate which is $1.50 per contract. Depending on your trade history you can even qualify for less than a $1. I am at $1.25.

  177. F’in joke…….

  178. XLF/WCP, Crussell – Yep, taking a flyer that Asia and Europe love the solution next week.  They topped out at .37 and I would have loved to have been able to get out but it just wasn’t meant to be.  

  179. Buffett/Phil:  How about the fact that Howard’s expertise is in agriculture and conservation and Berkshire’s Mid-American division is buying the solar farm from FSLR.  Just coincidence? Or maybe a Warren wants to move towards more natural resource and green energy related stuff.

  180. FXlive says…


    Futures markets are long a net $14.3 bln, down 19% from the prior Tuesday

    Looks like last Wednesday’s short-squeeze in EUR/USD after the rate on the Fed dollar-swap facility was lowered shook out some of the shorts in EUR/USD.
    Mr. Market is mega-short Swiss francs, anticipating a move in the SNB peg next week. The position is 19% shorter than a week ago at $1.5 bln.

  181. ^^^US $^^^Futures markets are long a net $14.3 bln, down 19% from the prior Tuesday

  182. Ahead of the treasury sale next week.  SPY 120s for 35c.  Holding.  This is horrific.

  183. Selling the next weeks SPY 129-131 call spread for 35c as well.  That offsets the buy.  Pick a direction boyz……

  184. Buffett/Kinki – I doubt it signals any major change for the company.  What are Warren’s particular qualifications prior to starting Berkshire?  I like the fact that they consider the Corporate Culture something that needs to be preserved.  Too bad more companies don’t see themselves that way but the emphasis is usually on re-inventing themselves rather than remembering what made them successful in the first place. 

    Well that was a nice recovery for the week.  Last Friday we closed right about 12,000 and today just under 12,200 so that pretty much sums things up, right!  

    Have a good weekend everyone!  

    - Phil

  185. Great weekend Phil and the gang..

    JRW..thanks again enjoy the weekend.

  186. Phil/VLO
    Thanks, I like your trade idea better. Actually with the $17.50/$10 bull put spread there is an exit and you can get the consolation of getting the stock if it crashes. Simply sell the long puts if they increase significantly in value well before expiration and go naked to get the stock put to you. Of course you would not want a whole lot of trades like this going bad at the same time and if VLO crashes, it probably would not be alone.

  187. Phil: Thanks for the insight.  Enjoy your weekend!

  188. Could not have planned it better; 7% on the day !!

    Have a good weekend, all !!

  189. A little help from weekend chartists in the group please – it looks to me like Microsoft MSFT is forming a perfect pennant on the 1 year and 10 year charts, is there a generally accepted way to predict which way it’s most likely to break when it leaves the pennant?  TIA.

  190.  ARNA up nicely today – on options volume:
    Unusual Volume Movers
    Bullish flow detected in Arena Pharmaceuticals (ARNA), with 3834 calls trading, or 3x the recent avg daily call volume in the name.

  191. mrm – looks like $25 will be a tough nut to crack, so if it holds, it should go up.

  192. mrmocha/mrsoftee
    I’m no expert on charts, but MSFT has a lot of support around $24 which is also around the 200 day moving average. I have always suspected that the upside is constrained by the founders of the company selling huge amounts of stock any time the price sticks its head up, but maybe I am wrong and this is not a factor. However, given the dividend, the prospects of dividend increases,  and the AAA credit rating of the company, its huge stash of cash, plus a generally hopeful outlook for Windows 8, it is hard to see any downside below $24 unless there is a general stock market crash. Therefore any breakout is surely more likely to be to the upside.

  193. Here’s a weekly summary of the AAPL 50k portfolio, started on 12/6/2011:   Bought 15 Jan 390 calls this week for average 18.70, now worth 18.90 , for   + $ 300.    Sold a bull put spread Dec 380/375 ,  20 contracts for 2.75/1.75  for credit of $2000.   This now worth .98/.53 or  .45 for   + $1,100.    Sold to open 5 Dec 9  390 calls for 4,.85 and repurchased for 3.85 for  + $500.   And finally, Sold to open 10 Dec 9 395 calls for 1.80 and bought them back for .46 for   + $1,340.    The account is up $3,240 or 6.5% for the week.   Account balance:  $53, 240  less commissions.  ( I hope I’ve done the calculations correctly) Our open positions are the Jan 390 calls , 15 of them, and the bull put spread Dec 17  380/375, 20 contracts.   My plan for next week will depend on how the week unfolds in the markets, and with AAPL.   I want to thank Phil for giving me color for the board and I want to thank the members of this site for your interest and support.   I will work diligently to have us all profit from options investing in Apple!  

  194. Phil:
    The above article talks about a list of companies that the author feels will be dumped by big mutual funds for their year end window-dressing and he feels they will go up in the early part of next year.
    What do you feel about that argument? And how would you play it through options, if one does subscribe to this view?

  195. Good job lflan!!

  196. lflan- a suggestion- is it possible to send and email alert when you post a trade? Technically, I don’t know how this is done but works great for Opt, as you know.

  197. Hey, Peter D!
    Where have you been?  Vacationing in an exotic place?

  198. Iflantheman
    I just saw your summary for week one. Fantastic performance!

  199. Lfan, great results. Just trying to understand the method why add the 5 390 J C’s? 

  200. lflan- another suggestion- perhaps at the end of the day, or periodically could you flesh out the thinking behind your posted trade/trades?

  201.  Goals for 2012 – I’m spending some time the next two weeks thinking about trading goals for the new year.  I’m looking at setting realistic expectations for myself, the amount of time I spend, evaluating what went well or poorly from the past year, my trading style and weak points.  If others do this kind of thing, I would be interested in the kind of goals you set, and how they fit your style of trading.

  202.  pstas/post 7:06 p.m.  Have no idea how this could be done.  
     doro165/ post 11:54p.m.   Sensing pop next week so upping the ante.

  203. pstas/7:06 a.m. I will do this periodically, but generally not when the trade is made.  Once I’m sure of a trade I want to make it and post it immediately.  May have to explain later. 

  204. lflan- agreed, getting the trade out in a timely manner is most important. Perhaps Phil could get something set up for trade alerts?

  205. Iflan—-- thanks for the super trades—-I screwed up on the 380/375 one —-for some reason thought you wanted that closed, but it was for a profit—thanks again for your input and diligence

  206. Revtodd
    Every year I do the same type of evaluation and give a thorough review of my current holdings. I can tell you that it has been a very tough year and a half re-learning how to invest. On the bright side, my portfolio is starting to look a lot better than it has in past years. I like what I hold and like the net prices I paid for those positions. I also like my hedges. It took me a long time to figure out how to hedge properly. I think I have figured that out.
    This year I want to continue to work on building my long term portfolio and concentrate on being more discipline in my day trades. It is very easy and tempting to get involved in every trade that Phil recommends. Instead, I have decided to learn as much as I can about Phil’s USO trades. They happen frequently enough and there is enough volatility to make them very worth while when available. In addition, I am very interested in what stjean and iflan are doing. I find myself trading much less (a good thing) and reading and doing much more due-diligence on positions I own and anything I am considering. This site and it’s members are simply the best!

  207. Howdy, cwan!  I’ve just been quietly collecting premium in the past month.  At the close on Friday, I have very little December options premium left to collect with 1 week to expiration.  A nice problem to have indeed as there is no panic in the expiration week.  This whipsawing is tough to handle, especially with big gain/loss happening in the Futures overnight. Such a dangerous market. I’m sure most of us are not happy about those overnight movements.

  208.  Jeffrey Sachs interview, Al Jazeera.  I don’t why he’s considered "controversial" because it’s hard for me to imagine a more sober, balanced, realistic view of U.S. economic policy and the global economy.

  209. I have a nephew who’s working on a very interesting topic for an economics class, and he’s needing a bit of a hand. I thought some of you here could point him towards information sources. Here’s the question: "What were the profit figures from the sales of contaminated Factor Vlll during the early 1980s by Cutter Laboratories, a subsidiary of Bayer". I assume many of you are aware of this, surely a horrifying example of corporate crime.

  210. snowLink to article:
    "… Cutter Lab’s heat-treated factor VIII was approved for sale by the FDA in February 1984, but that Cutter continued to sell untreated product in Asia and Latin America, infecting hemophiliacs with AIDS …"
    "… All told, Cutter appears to have exported more than 100,000 vials of unheated concentrate, worth more than $4 million, after it began selling its safer product …"

  211. lflantheman/APPL
    Thanks for the fun and profitable week.
    Was thinking. I’m a journalist — way back in the day in New York for News Corp (no excuses: good training, but they would never leave me touch their political coverage — just cops and courts :) ) and I still write for Bloomberg. But, as the past week’s trading has gone down, it flashed to me that I’d love to document your AAPL trade history — be the Boswell to your Johnson — as I think this series of  trades are going to make a fascinating story, especially given the $1MM in 4.5 year target you set.
    I was thinking that this history could be collected in the PSW wiki as a story — different from stjeanluc’s invaluable spreadsheets, in that it would follow the thinking behind the moves, and could be added to by your or other members. Check this link to a Google doc
    where I’ve put a sample of what I was thinking of doing and see what you think.
    Needless to say, I would not go ahead with this unless we had the members’ and Phil’s blessing. But I sense an interesting story here and would like to document it — as well as give something back to the community from which, even in the two months I’ve been a member, have been learning a bundle from every one of you. 
    You can reach me at

  212. Zipla/sapling

    This is terrific. I want to read this every day for 5 years.

  213. Good morning!

    Breakfast with the kids and then I will catch up on comments.

    Here’s Barry’s succinct summation of week’s events:


    1) EU summit that actually accomplishes something, that of codifying greater fiscal hand holding amongst its members

    2) ECB cuts rates 25 bps, adds 3 yr lending facility, lowers its collateral standards, and cuts RRR to 1%

    3) Eurozone banks take advantage of Fed swap line price cut with massive uptake from ECB to ease yr end $ funding stress

    4) Monti gov’t in Italy announces 30b euro/3 yr budget reduction plan

    5) UoM confidence best since June, almost 2 pts better than expected, now back in line with avg ytd

    6) Initial Jobless Claims at 381k, lowest since Feb

    7) MBA said refi’s rise 15.3% from lowest since July and purchases jump to most since April

    8) CPI and PPI in China moderates, retail sales stronger than expected

    9) RBA cuts interest rates


    1) S&P threatens downgrades for all 17 Euro zone countries

    2) Euro basis swap flat on week, remaining still very elevated notwithstanding swap line price cut

    3) Shanghai index falls to lowest since Mar ’09, IP gains at slowest since Aug ’09 and HSBC PMI services falls to 3 month low

    4) Australia jobs figure disappoints

    5) US ISM services index falls to lowest since Jan ’10

    6) TXN, ALTR, LSCC, and DD all preannounce negatively with still 3 weeks left in the year, collateral economic damage from European slowdown and more to come?

    7) Brazil’s economic growth slows to 2.1% y/o/y, the slowest pace since a contraction in Q3 ’09

  214. Great presidential debate. Many interesting questions.
    Who would have thought that Ron Paul would start to look like the sanest candidate? Romney now accused of illegal betting. Where do Mormons stand on betting? Being a Mormon, Romney has been a politician since birth, if not before, and will remain one after his death.
    Can a man who has had sex with more than one woman really win the White House? Should not the candidates all promise to be castrated if they win office, to make sure they are not distracted from their duties every time a bitch on heat crosses their path or appoint a cute female who knows nothing about National Security to advise them on National Security.
    Are Americans actually a people, or just a bunch of descendants of refugees from the British Empire?
    If Ron  Paul becomes a contender how will this bode for defense stocks?

  215. At the close: Dow +1.64% to 12195. S&P +1.8% to 1257. Nasdaq +1.68% to 2321.

    Treasurys: 30-year -1.2%. 10-yr -0.45%. 5-yr -0.16%.

    Commodities: Crude +1.32% to $99.64. Gold +0.1% to $1715.05.

    Currencies: Euro +0.22% vs. dollar. Yen -0.17%. Pound -0.23%.

    Market recap: At least collapse isn’t likely after an EU summit that early consensus seems to consider at least a mild success, so stocks rose and Treasurys slipped in risk-on trading. Downward guidance from DuPont and Texas Instruments was largely overlooked, but could come back to haunt down the road. NYSE advancing issues led decliners five to one. 

    Don’t get your rally hats on yet, Mark Hulbert says: Markets still have to work off the extra optimism they built up in October’s rally. Only then will the wall of worry be strong enough to climb up; in fact, he figures we may be closer to excessive optimism than excessive pessimism. 

    Something we’ve known for years:  2:30 is the new 7:30 as European events becoming the driver of financial assets across the planet force traders to monitor their screens throughout the pre-dawn hours. "We have a new credo: carpe noctem – seize the night," says Doug Kass. "Who would have thought we would have to be looking at Italian sovereign debt yields to figure out what Morgan Stanley’s stock will do," says Mike Mayo. 

    Believe it: The financial sector’s share of GDP now sits at 8.4% - bigger than it was before the recession hit. Deploying capital from here to there has apparently never been quite so important.

    Not $1.5T… not $7.7T… The cumulative total the Fed has lent, spent and guaranteed in response to the financial crisis, according to a Levy Institute study: $29.6T. Barry Ritholtz comments: "A well capitalized, moderately leverage system does not require this massive liquidity from a central bank… the financial sector remains dangerously under-capitalized and over-leveraged."

    While we were taking the kids to after-school activities, waiting in line at Starbucks, and watching reality TV, America became Japan. The group at Credit Suisse points out next week marks the 3rd anniversary of the Fed’s ZIRP.  Fed Funds futures 2 years out show rates only 23 bps higher than now, thus pricing in at least another 2 years of the policy.

    Bill Gross increased Pimco’s holdings of Treasurys and mortgage debt in November, adding to its bet that U.S. interest rates will stay low for years. Government and Treasury debt as a percentage of the $241B Total Return Fund climbed to 23% from 19% in October. Treasurys have returned 9.3% in 2011, in what would be their best year since the depths of the financial crisis in 2008, while the fund has returned just 3.4%, trailing 72% of rivals.

    Democrats and the GOP are considering boosting the feesthat Fannie (FNMA.OB) and Freddie (FMCC.OB) collect from lenders as a way to finance the payroll tax cut. The idea could raise up to $38B over 10 years, but critics say the costs would be passed onto borrowers. Others don’t want the giants to be used as a "slush fund." 

    The Telegraph’s well-connected Ben Brogan provides some inside baseball from the summit, saying David Cameron’s team is of the view the French blame the Anglo-Saxon model for the crisis and packed the treaty full of proposals the U.K. could never accept. Funny thing is, Sarkozy could be gone in elections last year, and his move today likely increased Cameron’s stature back in the U.K.

     FT‘s Philip Stephens: “Ever since it negotiated the single currency opt out at Maastricht nearly 20 years ago, Britain has managed by dint of power and skilful diplomacy to be both within and without the European club. Mr. Cameron’s decision to leave an empty chair at negotiations for a fiscal union in the eurozone marks the end of that road.”

    The White House says the IMF has substantial resourceswith which to deal with Europe and shouldn’t expect anything more from the U.S. "Our position hasn’t changed," says WH spokesman Jay Carney, "American taxpayers are not going to make any more commitments to the IMF."

    If you watch the renminbi, you can easily see that the wheels are coming off the bus in China, says Simon Black. It’s traded down to the lower limit of its strictly-controlled trading band for the past seven trading sessions in a row as investors flee. After decades of placating the masses with state sponsored hyper-growth, official GDP numbers are now slowing, real estate prices are falling, and inflation is quickening – meaning the day of reckoning is drawing ever closer. - Gotta love that EDZ! 

    China is still a developing, low income country, and not likely to blindly backstop Europe’s crisis, says China Investment Corp. chairman Jin Liqun. The country has worked hard to build up its reserves, and might be willing to invest in Europe’s infrastructure once a credible plan is in place and reasonable steps are taken by the euro zone to reduce its debt. It’s simply not our job, Liqun says, to come to the rescue of any country in distress. (video

    China Nov. trade surplus $14.53B ($13.8B forecast) vs. $17.03B in Oct. Exports +13.8% (+10.4%) vs. +15.9%. Imports +22.1% (+19%) vs. +28.7%. Exports to EU slow but accelerate to U.S. "Exports have been holding up better than expected," says GS economist Yu Song. "The implication…is less policy loosening likely in the near term."

    Did I just not say Russia was up for another revolution?  This isn’t Lenin’s revolution: Reports out of Russia indicate that protests there are largely Internet-based grassroots movements, unsponsored by opposition parties. Planned on Facebook and documented on YouTube, the large-scale protests occur even with pro-government messages getting churned out by organized hacks on Twitter as they desperately try to drown out messages rallying around the hashtag #triumphalnaya

    Tens of thousands of people yesterday demonstrated in Moscow and other Russian cities, demanding an end to Vladimir Putin’s rule and a rerun of the recent Duma vote, when corruption isalleged to have taken place. Experts believe Putin is in little danger ahead of March’s presidential election but say his authority has been damaged.

    There’s always a bear market somewhere. Cocoa prices plunge again, continuing a 9 month skid that’s the worst run for the commodity in 50 years. At $2,067/ton, the price is 45% below the March peak when unrest in Ivory Coast got bad enough French troops had to be sent in. Buy (or in this case sell) on the cannons, they say.NIB -2.7%.

    Big Business vs. small Government:  The door is opened for an even harder line against those protesting a $4.8B gold and copper mine to be opened by Newmont (NEW) and Buenaventura (BVN) in Peru after Salomon Lerner – arguably the 2nd most powerful man in government - resigns. President Humala – who would have sided with the protesters a few years back – this week ordered the military to step in against the demonstrators.

    Trading errors – whether they’re executed outside the bid-ask spread, or they blow through a stop-loss order, are happening more than you’d figure. And as you might expect, it’s the smaller investors (and those with day jobs) who stand to lose the most. 

    The 194-party UN climate conference forges a deal that would for the first time force all the biggest polluters to cut greenhouse gas emmissions, with the Kyoto Protocol extended for another five years also. Environmentalists say the deal doesn’t go far enough, while the greenhouse skeptics could well ask how much it will all cost.

  216. Big Chart still in a nice break-up consolidation – a big dip on Tues/Wed for the note sale to retest the lines and then we can be off to the races into the end of the year. 

    Window-dressing/Etrad – It’s very valid in a normal market but I don’t know if this is the right year to play historical trends.  As you know, I wouldn’t touch AIG, FSLR I don’t believe in and NFLX is worthless but BAC I picked above and ANR and WFR are in the income portfolio and X I like too, long-term.  

    Goals/Rev – Good idea.  Mine will be posted in the form of a year-end review! 

    Alerts/Iflan – If you don’t have a list of alerts you can send below the button that says "Submit Comment" then just ask Ilene and Greg to set it up for you.  When you make a comment you want sent out, you just check the box and it creates an Alert.  Also remind them your box color should be shaded lighter.

    Sachs/ZZ – Smart guy.   He’s considered "controversial" by the Conservative media because he dares to work for Fundacion IDEAS, which is a (gasp!) Socialist think tank (yes, Socialists have think tanks too, but they wouldn’t admit it in this country):

    "The banks have said, leave us deregulated, we know how to run things, don’t put government in to meddle. Then with that freedom of maneuver they took huge gambles, and even made illegal actions, and then broke the world system. As soon as that happened then they rushed out to say ‘bail us out, bail us out, if you don’t bail us out, we’re too big to fail, you have to save us’. As soon as that happened, they said ‘oh, don’t regulate us, we know what to do’. And they almost went back to their old story, and the public is standing there, amazed, because we just bailed you out how can you be paying yourself billions of dollars of bonuses again? And the bankers say, ‘well we deserve it, what’s your problem’? And the problem that the Occupy Wall Street and other protesters have is: you don’t deserve it, you nearly broke the system, you gamed the economy, you’re paying mega fines, yet you’re still in the White House you’re going to the state dinners, you’re paying yourself huge bonuses, what kind of system is this?

    When I talk about this in the United States, I’m often attacked, ‘oh, you don’t believe in the free market economy’, I say, how much free market can there be? You say deregulate, the moment the banks get in trouble, you say bail them out, the moment you bail them out, you say go back to deregulation. That’s not a free market, that’s a game, and we have to get out of the game. We have to get back to grown-up behaviour." 

    Jeffrey Sachs, Columbia University

    Time to go see the Jets!  

  217.  Quotes from NYTimes review of M. Lewis latest book Boomerang [by John Lanchester,Dec 8, 2011]:   "It’s easy to diagnose a basic failure of responsibility as one of the causes of the debt crisis…that…took place on the widest imaginable scale, from individuals up to governments….I think that the failure of responsibility was linked to the failure of agency  -- the individual’s ability to affect the course of events…It is difficult to feel responsible when you have no agency…The decisions that affect their fates are taken far above their heads, and often aren’t conscious decisions at all, but the operation of large economic forces over which they have no control."
    "…The collective momentum of a culture is, for more or less everybody more or less all the time, overwhelming.  This is especially true of anything to do with economics. The evidence is clear:  it is easy to mislead people about money…both individually and en masse, because when it comes to money, most of us, most of the time, don’t know what we’re doing."

  218. zipla/appl – nice summary – very informative, educational and hopefully it will become a regular
    lflantheman/ appl — thanks for sharing with us.

  219. FT: "Nick Clegg, the deputy prime minister, says he was “bitterly disappointed” bythe outcome of the Brussels summit…Mr Clegg said. In a rebuke to jubilant Tory Eurosceptics, the deputy prime minister said: “Of course [Tory MPs] think it’s a triumph, but in my view they are spectacularly misguidedy ”.
    My first reaction to Britain’s opt-out on Euro treaty negotiations was "what a clever move  - the U.K. is out from under the massive subsidy program that will have to be put in place to manage Euro debts [such as E 330 billion of Italian debt to be rolled over in 2012]"  But, on reflection — for those who trade currencies — this might lead to a substantial smackdown of sterling.  Britain is the most "financialized" of the Euro economies.  In fact, "The City" is responsible for the lion’s share of UK growth over the last few decades since the "Big Bang" sudden deregulation of the U.K.’s financial markets in 1986.  
    But the cultural tide seems to be slowing turning against this "financialization" of developed country economies, and it would not be uncharacteristic of Germany and France to behave vengefully in response to Britain’s apparent abandonment of willingness to shoulder their share of the load of bailing out the GIIPS, principally Italy and Spain.  I can think of a dozen ways for them to take revenge: transaction taxes, income recharacterization, you name it.  Bottom line:  GBP might be cruising for a bruising — perhaps not immediately [Britain will still have chances to repent] but, if I were the UK, I’d start thinking about how to manufacture something more useful than Rovers and chips.

  220.  Apropos of which:   "Financial services share of UK GDP Financial services contribution to UK GDP has increased steadily over the past decade from 5.3% in 2001 to 10.0% in 2009 (Chart 1). This is slightly higher than the US share of 8.4% and also of Japan 5.8% (Chart 2). In France and Germany financial services’ share of GDP is lower at 5.1% and 4.3%, respectively."

  221. ZZ, Phil, anyone,
    Apparently, it is up to the individual investor to arrange limits on their financial firms actions regarding their own assets, and MF Global clients could have individually negotiated that their funds not be rehypothecated. Does anyone have a handle on this? 

  222. ZZ,
    The move was clearly to protect "The City", but the larger threat to the City may be that the shadow banking system is beginning to come out of the shadows, and not in a good way.  I’m watching what happened to the MF Global investors and I don’t seem to be the only one wondering to what extent all clients at large international brokerages are subject to the same risks from shadow banking activites, with many trails leading to the City.  It seems to be a double edged sword, as the shadow transactions are responsible for much of global liquidity.

  223.  Sparky: I’m unclear on how an agreement, however phrased, might have prevented MF from invading client accounts to cover margin calls on their prop trading.  If that’s what happened, although I find other explanations implausible.

  224. zipla is a journalist,  which the dictionary defines as a person who gathers and disseminates information about current events, trends, issues and people.  After reading his summary of my posts last week on the AAPL 50k portfolio I see that he is an extremely good one!   He took a number of posts and summarized them in an extraordinary way which is quite readable and understandable.  I will work with him to make his work on the portfolio available to anyone who is interested.  He’s a very good organizer and writer.   I think it would be interesting sometime to delve deeper into what people on this site do at their other jobs.  I’m sure some of you did that at Vegas, which I was unable to attend.  For instance, does anyone know what JRW did before he started minting cash?       :)

  225. ZZ,
    I’m sure you’re right, all a separate agreement would be likely to do is put an investor in a slightly more favorable legal position-that is if there were any assets left to go after. I believe that the agreement that MF Global investors signed gave the brokerage the right to lend their assets, but mentioned nothing about the loophole that allowed them to move the client assets to London to get around the 140% leverage limit in the US.

  226. Here’s an IMF working paper on the subject.

  227. The link didn’t work but anyone who is interested can search the site for wp0942, and the pdf is still there.

  228. Phil:  You are aware of my views on the  longer-term economic implications of the 87%/13% East-West split of the global population.  And I think we can agree that global tensions have ramped up over the last few years, the "Arab Spring" being the most notable, while, in the West, only the U.S. shows signs of political tension, and our representative democracy is, I hope, sufficiently developed to avoid outright revolution. Canada & Brazil are quiescent, and not a peep from the rest of the countries in our hemisphere.
    But with the Russian people now showing some revolutionary spirit, [ ] , the assymetrical hemispheric population distribution has the potential to turn into a full-blown investment theme sooner rather than later.
     I realize that sounds more than a little oligarchic, like summing up WWII as "a great shorting opportunity," but I tend to more towards buying the West [Suncor and Petrobras, anyone?] than selling the East.  In fairness, you have shown considerable enthusiasm for EDZ, so I am perhaps not alone in this.

  229. Good evening Phil
    I am going to india in February and my wife is hell bent on spending my portfolio returns on gold jewellery. I was thinking of buying gold coins here and exchanging them for jewellery there. What do you think the price will be in the next month so that I can start legging in to buy?

  230.  Phil, a question.  I bought WHR and sold the 2014 40 Puts and the 2013 45 calls.  This is a common scheme for you in getting into value stocks that are bottoming, and it has worked out very well for me.  Question: what do you think of also selling the 2013 40 or 45 puts? This further reduces cost and requires no additional margin, but it does add a bullish slant to the position.  I’m sure you’ve considered this – what do you think?

  231. Whoa – really screwed that up – question is whether to sell the 2013 57.5 calls to further reduce cost without increasing margin.  It adds bearish slant to the position. 

  232. Phil or other board member:
    Could you please explain in better detail the following article?

    Specifically, the impact of the indirect bidders on this 4 week bill. I don’t understand why this is so bad in the authors opinion. Thank you.
    At the same time, foreign central bank purchases of Treasures are falling off a cliff again. But the markets aren’t paying attention or have not noticed these negatives because they have not had to. Massive tidal waves of panic capital flight have been overwhelming the Treasury market in never before seen numbers.
    The indirect bid tendered on the 4 week bill last week was a mind blowing $61.8 billion, or 5 to 10 times the norm!
    Even more startling, Primary Dealers (PDs) bid $268 billion on that issue. That’s over a quarter TRILLION! One third of the PDs are foreign banks. Seven of them are European banks. Is something rotten in Denmark, Brussels, Rome, and Paris? You bet your bippy.

  233. Markets opened at 6 with the Dollar way up at 79.34.  So far, we haven’t seen a big sell-off but I do like shorting the S&P futures (/ES) below the 1,250 line (now 1,250.50) or, of course, the RUT (/TF) below 740.  Not oil because too easy to pop pre-market and also, they already blew $100 and the Dow already failed to hold 12,150 so a bit chasey at 12,118. 

    UK/ZZ – You don’t get ON the Titanic while it’s sinking – simple as that.  The UK was not stuck with the Euro and the new treaty was designed to give them all of the obligations with few of the benefits – wasn’t going to be sellable to the Brits anyway as they are willing to save Ireland (because they still think they own it) but certainly not France and not a chance Germany.  Also, if the EU implodes, the British Banks rule once again so it’s not like the Government has any pressure at all to bail out the Continent. 

    Also, consider the UKs logic that clearly the EU won’t be there to bail out Canada or Australia (still commonwealths) if they run into trouble, which they certainly will if the EU fails to get itself together.  

    MF/Sparky – Above my pay grade.  Never give your money to IBanks is a lesson I learned in 2000.  

    Zipla + Iflan – I am liking this project idea.  

    Implications/ZZ – You lost me when you called the US a "representative Democracy".  8)  Don’t forget we’re not having outright revolutions yet – you can call it that but a few thousand dead to oust a dictator is getting off lightly overall.  A full-blown war in the streets in a major country like Russian would freak out the markets World-Wide.  I like EDZ because we’re exporting our inflation (one of the reasons it hasn’t hit us very hard yet) and clearly the emerging markets led us down in 2008 so, if we are doomed to repeat the mistakes of the recent past – then we can expect a similar leading collapse as inflation pushes civil unrest in the BRICs.  

    Gold/Nicha – Are you sure you’ll get a fair exchange swapping coins for gold?  Coins are 24K and you’ll get back 22K so 10% knocked off right there.  Price for gold in January should be about $1,550 and I think it’s a terrible time to buy gold.   How about selling some Feb $155 puts for $2.50?  If you sell 4 for $1,000 – you can tell your wife if gold holds $1,550 higher, then you have $1,000 to spend on jewelry but, if gold goes down, it was a silly idea and you can roll the puts to the 2013 $115 puts (which is a good re-entry if gold crashes anyway), now $3.20 and tell her – better luck next year.  

    WHR/Kongen – If you sell more puts, it will be more margin.  It depends on your overall strategy but the point to scaling into a position is that, even if you are wrong, you are able to adjust your trade down 20% each time you DD.  What you end up doing by also selling another set of puts is opening yourself up to tripling down if they fail to hold $40,  WHR was $20 in 2008 so never get to thinking it could never happen.  

    WHH/Kongen – Oh that’s different but also the same, you sold the $45s, there will be more margin to also selling higher puts.  Now the problem is, what if WHR gets bought for $65?  You can wake up down $7.50 with no way to recover…  The point of buy/writes is to follow a long-term conservative strategy that is very likely to return 10-20% in any years where the market is down less than 10% (which is most).  Over time, that makes plenty of money – unless you blow it by impatiently going after bigger gains and turning a conservative strategy into a risky one.  

    TBills/DC – Well this is where I keep telling you guys it’s all going to fall apart.  The US borrows a stunning amount of money every single month – averaging $140Bn a month to fund our $2Tn deficit.  Probably the scariest thing in the article is right up front, where they mention we have an ADDITIONAL $9Bn WEEKLY shortfall.  That’s Greece’s ENTIRE ANNUAL debt as just or "oopsie" number for a week.  US debt is like a black hole, sucking up all the money in the World.  Foreign Central Banks (Direct Bidders) have their own problems and have lost interest in our debt but the Primary Dealers have stepped up (via Operation Twist and backed by the Fed) are buying Dollars in droves out of fear of a Euro collapse.  I’d take the whole thing with a grain of salt because they are extrapolating data that happened during the recent pre-fix panic.  Again, what really concerns me is declining receipts for our Government but I’m sure it’s nothing another tax cut for rich folks won’t fix…  8-) 

  234.  From Rolling Stone:  The Republican candidates share a single, radical vision:  to trash the environment, shred the safety net, and aid the rich at any cost.

  235.  When Goldman traders can no long screw investors, they change sides and sell protection from being screwed:—

  236. Wow!  The Walmart Heirs Have The Same Net Worth As The Bottom 30 Percent Of Americans. The combined worth of the Walton six equates to the total wealth of the entire bottom thirty percent ~ 92 million people.