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Will We Hold It Wednesday – Nasdaq 2,603 Edition

Watch the Nasdaq.

That's the index we need to catch up to the Dow now that the S&P is halfway to goal at 1,297 (from our Must Hold line at 1,235).  The Dow is in La La Land, led by MCD (up 31%), IBM (up 26%), PFE (up 24%), HD (up 20%) and KFT (up 20%) while this year's Dogs of the Dow are BAC (down 59%), AA (down 43%), HPQ (down 39%)  and JPM (down 22%).  

While the losers may seem to outweigh the winners, that's not how it works as the Dow is price-weighted so BAC dropping from $14 to $5.50 "only" costs the Dow about 68 points (roughly 8 points for each Dollar), IBMs rise from $145 to $185 added a whopping 320 points.

So a 26% rise in one component and a 59% drop in another nets out to a gain of 252 points!  At the beginning of the year, they had roughly the same market cap ($150Bn) but IBM has gained $70Bn and BAC has lost $100Bn which, of course, translates into a net gain of 2% on the entire Dow – BECAUSE IT IS THE STUPIDEST INDEX ON EARTH!  

Our Members, of course, know this.  I wrote "DJIA: The Most Useless, Overused Tool on the Planet" back in 2006, when GM was still part of the Dow so no need to rehash it all here other than to mention the fact that a 30-component index has made 5 substitutions in the 5 years since I wrote that article only serve to highlight how ridiculous it is to use the Dow to draw long-term conclusions.  The Dow is manipulated because it's easy to and Uncle Rupert sits with the other Masters of the Universe to decide how to use this headline tool to make things look as good as possible in the US markets.  


That's why CSCO and TRV replaced C and GM in June of 2009.  C was at $28.80 and is down a bit, GM went BK from $45 (which would have been a 360-point loss in the Dow) while CSCO was disappointing but essentially flat and TRV is up $20, adding another 160 points so a 520-point swing (5%) on those substitutions alone.  In September of 2008, AIG ($135 at the time) was swapped for KFT ($32).  KFT is just $37.70 but AIG was another BK avoided by "coincidental" substitution in the Dow – AND THEY ARE NOT EVEN IN SIMILAR SECTORS!  

Before that we had the Feb 2008 substitutions of MO and HON for BAC and CVX.  CVX worked out but not BAC and again – actual things Americans produce (cancer and electronics) are substituted for things that we consume and leave no lasting value (bank fees and oil).  So the Dow's "success" is a measure of America's failure.  Anyway, this isn't a post about the Dow – in fact, it's starting to sound a little "Alice's Restaurant" so let's get back to the topic of Charts while we still can:  


SPY DAILY Above we have the S&P weekly chart, annotated with our 5% Rule Lines that we've been using since March of 2009 to target our expected market range – up and down 10% from our Must Hold line, which is actually 1,236, just off the Fibonacci line (see "Fibonacci Rules – Sometimes, the Old Ways Are the Best!" for more on the Prognosticator of Pisa) but we're nailing 1,359 at the top 1,035 seems to be a sturdy bottom, with only a brief spike below (Greece) last year so not at all bad for 3 year-old predictions, right?  

At the moment (see David Fry's chart), we're matching volume and movement pretty closely with the 2009 holidays and that's keeping us Cashy and Cautious into January earnings.  We also have the Holiday Weekend and I hate to say it, but on Christmas Day, 2009 passengers jumped a guy on a Delta flight who was trying to detonate a bomb in Detroit and there have been two New Year's Eve plots foiled in the last 5 years so it's simply not a good weekend to be complacent in our positions.  

Our primary hedges remain EDZ but now that the Russell is testing the old Must Hold line at 774, we can also go domestic with TZA as well as our old pal SCO and I'll add a couple of hedging ideas for Members in this morning's chat as there are still some really nice bullish offsets we can take advantage of like RIG ($39) and BTU ($33.70).  We already have oil an Dow shorts and we nailed the oil Futures in Member chat for the night crew at 2:07 am, where I said:

Oil (/CL) at $101.43 – If I wasn’t going to bed, I’d short it with a stop at $101.53.  Hopefully we get a drop back to $101.20. 

See that top between 2:30 and 3?  $101.51 – nailed it!  We dumped out at $100.60 at 5:38 (not too much sleep) with a call to re-short at $101 and we hit $101.10 at 7:15 and now back to $100.70.  The drop from $101.43 to $100.60 alone was 83 cents at $10 per penny per contract so $830 there and another $300 so far on round 2 is enough money to upgrade to croissants for breakfast this morning!

With that, I'll bow out as I'm off to the slopes.  Hopefully the markets don't go downhill as fast we will but I'm still very concerned about Europe, Terrorism, Retail Sales, Oil Prices, China Collapsing, Home Sales, Home Prices, Unemployment, Iran and whether or not Congress can agree on anything in 2012.  So forgive me for being a bit bearish as we wait to see which end of our trading range breaks first and it did seem prudent to speculate on the downside into the weekend as we, like the Mayans of old, are just patiently waiting:  



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  1. Up early Phil…

    Oil Lines

    R3 – 104.62
    R2 – 103.19
    R1 – 102.22
    PP – 100.80
    S1 – 99.82
    S2 – 98.39
    S3 – 97.42

    Yesterday’s high and low – 101.77 / 99.37

    Breakout – 105.65 / 93.08 

  2. China blames 54 officials for bullet train crash
     A long-awaited government report said design flaws and sloppy management caused a bullet train crash in July that killed 40 people and triggered a public outcry over the dangers of China’s showcase transportation system.

  3. Dow is the only major world index up so far this year. The Dow will be up in 2012 too, even if they have to replace all 30 stocks.

  4.  AAPL 50k Portfolio:    Morning analysis…….Yesterday the portfolio increased significantly in value so I sold 1/2 of our Jan 390 calls at close, intending to repurchase them this morning if futures and AAPL are looking upward.   And they are.   I’ll probably be buying the Jan 400s this am rather than the 390s, as there is more profit to be squeezed from the 400s with a move above 425 by mid January, which is where I think we’re headed.  We have to be cautious this last week of December.  There may be some profit-taking on AAPL before the New Year.   I may even decide to go to cash before the week’s out.  We’ll see how it goes.   But my overall premise is that AAPL is going to ramp up as we move closer to earnings in January.  

  5. lflan, thanks for the information yesterday. I didn’t get back to you last night because of the time difference. I updated the portfolio now. From my calculations, you are left with 10 Jan 390 calls and 10 of the July spread.

    Regarding posting the last couple of trades, it’s difficult since I list the trades as they are entered, but they might be closed in a different order so the last trades might not be in the last rows. I could sort the trades by the date that we closed them just to post the status and see if this works!

    I also started the calculations for the margin used, but the problem is that you have so many different possibilities that it’s a bit tough to track – long contracts, short ones against the long, BCS, BPS, etc… I could track the margin for the long contracts quite easily though.

  6.  Good morning stj……Thanks.   One of the reasons I’m interested in posting the margins used for trades is that this reflects the true cost of trading.   Whenever you have money tied up in margin then you have money tied up in the trade.   I think some of the new members don’t get this clearly enough.  Not to mention that the trading techniques used for making money using no margin and for those using  margin are very very different.   Anyway, just an idea for enhancing the learning experience for the members.  

  7. Good morning!  

    Good news for HOLI, again, on China finally placing the blame where it belongs and not scapegoating them.  We sold the Jan $7.50 puts for $2.40 back in July on the crash news and those were already in good shape with HOLI back at $7.  Our more conservative play was the August buy/write with the stock at $6, selling the Jan $7.50 calls for $1.40 and the $5 puts for $1.70 for net $2.90/3.95 in the Income Portfolio – 30 of those are on track (get it?!?) to make $6,300 off $8,700 committed in just 5 months – that’s why we love to play the Fundamentals when other people are panicking!  

    Speaking of which, the 2nd part to Buffett’s Rule is to be fearful when others are greedy and seeing IBM, MCD, KFT, CVX (forgot them above), KO and even PG near all-time highs simply DOES NOT MAKE SENSE in this environment.  

    The Dollar is down at 80.06 and below 80 is a good reason to be bullish but, other than that – IT DOES NOT MAKE SENSE.  So it’s all up to Europe but I’m skeptical as I don’t see the math without QE3 in the Trillion Dollar range.

    So I won’t be around until this afternoon but our goal is to get out of our WCP positions on a dip if we can.  We had a nice one in the futures but now we’re all pumped back up but that’s all the better to buy Disaster hedges with so here’s my 3 favorites:

    • EDZ Feb $19/24 bull call spread at $1.25, offset with the sale of the $17 puts at $1.50 for net .25 on the $5 spread.
    • SCO Feb $34/42 bull call spread at $3, selling $32 puts for $1.70 for net $1.30 on the $8 spread.
    • TZA April $26/38 bull call spread at $2, selling Jan $23 puts for $1 for net $1 on the $12 spread.  

    Alternate offsets (to make the trade less bearish and don’t forget, you can do half or less to mix it down!):

    • CHL 2013 $40 puts can be sold for $2
    • RIG May $30 puts can be sold for $1.20
    • BTU March $29 puts can be sold for $1.42
    • TM April $60 puts can be sold for $2
    • VLO March $19 puts can be sold for .90
    • JPM Feb $31 puts can be sold for $1.22

    That’s a good start for today.  If the Dollar is below 80 – no reason to hit the disaster hedges as confidence is better than I thought but watch TLT as over $120 means panic is still in the air.  

    750 on the RUT and 7,500 on the NYSE make excellent bull/bear indicators today and keep in mind that 1,266 on the S&P is the 2.5% line.  The markets have been so wild that our Big Chart has 5% lines in it but USUALLY we watch those 2.5% lines and consider them significant (in calmer markets).  Let that be the tiebreaker for the RUT and NYSE if they disagree. 

    I’m off to hit the slopes – have fun this morning!  

    Don’t forget, oil it tomorrow at 11, not today and tomorrow we have Unemployment, Chicago PMI, Consumer Comfort, Pending Home Sales, Nat Gas, Oil, KC Fed Manufacturing, the Fed Balance Sheet and the Money Supply – so plenty of excitement tomorrow.  

    Wednesday’s economic calendar:

    7:00 MBA Mortgage Applications

    7:45 ICSC Retail Store Sales

    8:55 Redbook Chain Store Sales 

    2:10 AM Asian markets are down, again, with trading thin and investors facing a continued stream of generally weak economic data. Japan -0.2% to 8424. Hong Kong -0.6% to 18514. China +0.2% to 2170. India -1.0% to 15719

    6:00 AM Overseas: Japan -0.2%. Hong Kong -0.6%. China +0.2%. India -0.9%. London +0.6%. Paris +0.8%. Frankfurt flat

    7:02 AM European shares reverse losses of about 1% and sit near session highs following the "successful" Italian Treasury bill auction. A writer can be forgiven for losing track of how many times he/she has written the previous sentence this year (insert your favorite of the PIIGS for Italy). Broad European ETF: VGK -16% YTD. Italy: EWI-27% YTD

    ICSC Retail Store Sales: +0.9% W/W, vs. +3.4% last week. +4.5% Y/Y, vs. +4.6% last week. The rise in sales, on top of giant last week surge is attributed to last-minute shopping and to redemptions of gift cards.

    The "dirty little secret" about big Black Friday sales is more sales mean more returns, writes Kristen Bentz, remaining bearish on the holiday season. Feverishly spending amidst the hype and promotions, consumers go home, look at their receipts, and remorse sets in. "Black Friday does not a season make … one need(s) to look at November and December together."

    Deflation returns to Japan, as data shows consumer prices(ex-fresh food) dipped 0.2% Y/Y in November, following a 0.1% decline the month before. A preliminary December reading for the Tokyo region, which is seen as a good barometer of the nationwide figure, was down 0.3%. 

    What I was worried about this weekend has gotten worse:  Use of the ECB’s overnight deposit facility hit a new all-time high, with banks depositing €452.034B ($589.7B) last night, up from a high of €411.813B the night before.

    Italy sells €9B worth of 6-month bills at 3.251%, a huge improvement from 6.504% on November 25. The ten-year yield is dipping back below 7%, currently at 6.78%.

    The Brussels-approved Greek government of Lucas Papademos has failed to move ahead with promised actions after securing its €8B bailout check. The top priority – a bond swap with the country’s private creditors to be hammered out before year’s end – looks dead in the water. The privatization program, labor market reform, public sector layoffs, pension plan cuts … all stalled at the moment.

    Tallying it up, the FT‘s Lex finds 15 summits, 5 grand plans, 7 changes of government, yet barely a sign of real achievements since the Greek debt crisis made the front pages in Spring 2010. "Contagion marches on … a recession seems inevitable early next year … and the truly ghastly thought is that there will be another EU summit in January." (see also)

    Make no mistake, writes former Dallas Fed VP Gerald O’Driscoll, the Fed – working through the ECB with its swap lines - is bailing out EU banks and, indirectly, EU governments. Technically not loans, swaps allow the Fed to lend money without reporting it as such, and the figure has ballooned nearly $100B in December. It’s similar to the way Greece hid its mammoth debt through the use of swaps (that worked out well).

    In a Letter to the Editor of the FT concerning drumbeats throughout Europe to solve the debt crisis by leveraging up even more, economics professor Ira Sohn is reminded of Einstein’s line about insanity. With meager economic growth unable to service existing debt, why would adding to it help? The "nuclear" option of a mass writedown and temporary nationalization of banking systems needs to be considered.

    Economists warn the U.K. faces the toughest job market since the early 1990s, with the number of working people working expected to fall by 120K in 2012. The Chartered Institute of Personnel and Development estimates the unemployment rate will reach as high as 8.8% by the end of next year.

    Chinese policymakers – schooled on average capital inflows of $40.5B/month since 2005 – are going to have to adjust their game to deal with the new reality of capital outflows, writes Kevin Yao. The most likely tool is lower bank reserve ratio requirements. This has the beauty of reversing tightened liquidity without easing monetary policy in the face of still-speedy inflation. 

    Despite much talk about an IPO comeback, this year will close out with fewer IPOs than there were in 2010, while money raised in the offerings will be ~6% lower than last year and ~40% below the 2007 peak. Among companies that did manage a U.S. offering, around 2/3 are now trading below their IPO price.

    Michigan appoints a team to review Detroit’s finances after a preliminary review showed "probable financial stress." The move could potentially end in a state takeover of the city, which is struggling with a shrinking auto industry and falling revenues.

    Brent crude falls off 1% and WTI crude trims 0.6%, seemingly oblivious to a little more squawking from Iran’s navy chief about how "easy" it would be for the nation to block the Strait of Hormuz. (previous

    Gold has been a strong investment in 2011, up 12% this year, but gold miners are down almost 16%, with smaller miners down almost 40%. In the past, mining stocks outperformed during gold bull markets, but this time around miners face rising costs, more aggressive tax regimes and warier investors. 

    Goldman Sachs stays bearish on Sears Holdings (SHLD) even after a 27% drop in share price in the wake of an announcementby the firm that it’s closing stores. Analysts with Goldman reiterate a Sell rating, while slashing their price target to $30 from $43 as they see wider losses in 2012-2014. "The weaker fundamentals reaffirmed our view that SHLD’s weak positioning will only be exacerbated in an uncertain environment."

    Samsung (SSNLF.PK), Sharp (SHCAY.PK) and five other Asian electronics companies have agreed to pay $552M to settle allegations of price-fixing on LCD screens. 

    I called this one two years ago:  North American consumers appear to be souring on 3D TVs: DisplaySearch reports 3D sets accounted for a lower share of TV sales in the region in Q3 than the 10%+ share reported for Q2. However, penetration rates are rising elsewhere, and have passed 15% in Western Europe and China. Both TV makers such as a SNEand panel makers such as AUO and LPL are counting on 3D sets to bolster their average selling prices.

    Apple (AAPL) is full steam ahead in its patent war, but its unwillingness to make preemptive IP deals with competitors may hurt shareholders. When Apple wins a court case, competitors often devise workarounds, and when Apple loses, its "scorched-earth strategy" leaves little room for a constructive settlement.

    Oil (/CL) back to $101.50 – still a great short under that line with tight stops!  

  8. iflantheman/AAPL
    How to you plan to manage the trades going forwards with the AAPL Jan 400s? I have a couple of AAPL Jan 390s that I did hold overnight, my thinking being that if the stock opens higher, I will miss out on the gap. My intention is to spike fish today and try to sell the $395s for a decent profit over what I paid for the $390s and then have a free shot at collecting another $500 per contract on January 21st if it holds $395. AAPL announces earnings on Jan 18th, I believe, so presumably call premiums will remain very high until that date.

  9. Margin / lflan – I agree totally which is why I added a margin column in the spreadsheet. Sometimes we forget as we post results based on the option prices but not margin. It’s true for example that if I sell a FAS option for $0.50 and buy it back for $0.25, it’s a 50% win (Phil also calculates that way all the time). But each option ties up $2200 of PM margin so it’s only 1% on margin… With our other trades, it’s easier to track in the spreadsheet as they involve mostly short options and the Reg-T rules can be approximated. But with your trades, it will be harder due to the various setup. I’ll try to think of something over the next couple of weeks to make it simpler.

    Also, I forgot to mention about the trade summary – I mentioned to Phil that I’ll post an article on the weekend with all the trade summaries (as they are getting long) so that everybody can ask questions and post comments over the weekend. 

  10. stjean/margin
    Agree on this. As I trade in an IRA, I need to recalculate every trade to see how much cash it ties up, or whether I can use a spread to reduce the cash necessary. Hence something like the MSFT 24/20 bull put spread is much more profitable than it looks on the surface because the $20 put is extremely cheap and the trade can be done for $4 cash instead of $24.

  11. Dogs of the Dow was a pretty good success in 2011:

    And the list for 2012:

  12.  lflan / Starting out on AAPL
    I don’t have any positions on AAPL right now.  Would you suggest starting out with the 400′s that you are looking at this morn?  Or should I also look to get into the other open positions right now, as they are offering some type of hedge/offset?  

  13.  AAPL/jmm…..It’s fine that you held the 390s.  Keep them. I would advise against selling any calls for extra profit right now.
    Burrben…..The Jan 400s are good.   That’s where I’m going for my next trade.   

  14. Looks like India might be slowing down:

    Once you get past mid-year export growth, there’s not a lot of good news coming out of India. Inflation is near 10 percent, which is even worse news than it sounds, since Indian families spend as much as 30 percent of their income on inflation-sensitive food. GDP growth is down, industrial production is slowing, and investors are shirking away from Indian assets. All that means the India is inauspiciously reliant on a global economy that is feeling even more vulnerable. Twenty percent of its exports go to the EU, which is on the precipice of … well, who even knows right now. Another 20 percent go to Asian economies, many of which are experiencing their own slowdowns. 

  15.  Burrben and others/  AAPL:   Don’ t buy those calls at open.  I’m sensing a pullback.   !!!

  16. Iflan – you don’t think it wud be wise to wait a few days to see how the mkt performs after the New Year?

  17.  Give the markets an hour to expose the pattern.

  18.  nicha/   I’m more interested in how AAPL performs.  I think it would go against a down market in January, were this the case.



  21. Phil, a quick question for you.  Your disaster TZA spread April 26/38 with the Jan 23 puts.  The April 26 have 5.25 of premium and the the 38s have 3.10 of premium.  Most of the time the spreads you recommend always have us selling more premium than we buy.  Why is this case different?  Is this because you are "leveraging" the money more?  I am just curious about the techinique.  Your spread calls are always top drawer.  I hope you had a good time on the slopes!  TIA.


  23. PP for today:

  24. lflan, here is the new status with yesterday’s trades and the current position. Let me know if that works for you.


  25. USD on  nasty tear , 80.57 from 80.10 in 35 minutes

  26.  AAPL port:    I’ve placed an order for …..   Buy 5 january 400 calls for 15.00

  27. FAS Strangle Experiment – No trade right now, I want to wait a bit before doing anything, but my thinking now is to buy back the 72 calls and tighten the strangle by selling the 68 calls. I’ll check again around 10:30…

  28. Should have got a good drop in crude, but they keep hammering this stupid threat from Iran. What a bunch of BS. Crude was around $98 the last time the dollar was this high. But I just that is just not enough to keep pace with the BS meter.

  29. gmarts/USD – on a normal day we would be down at least a 100 points… Not normal today I guess.

  30.  The Jan 400    5 contracts for 15.00 filled.   I’ve placed a second order to buy 5 more at 14.00.    

  31.  SLV taking a nosedive - 

  32.  Phil: PATIENCE
    Since most of the blue chip stocks I want to eventually form the bedrock of a portfolio are at the high end of their ranges, as you noted this morning, I feel frustrated, but not enough to chase. i.e  KFT makes the same amount of money as two years ago and is priced 30% higher.

  33. TLT over $119.

  34. Patience/Lincoln – frustrating is right, especially on the blue chip valuations. I think is reflecting a ‘move to safety’ which is bolstering the few through this end of the year.

  35. I love EDZ and SCO.  So easy to make money with these two.

  36. Rustle – are you in PHil’s EDZ spread, or something else?

  37.  Dollar at 80.85

  38.  AAPL port:    AAPL resisting being pulled below 404, but it might get there if the market continues to retrace today, so I’ll leave the buy order on for 5 Jan 400s at 14.00.     Going skiing!    I’ll check in at EOD.   Good trading!

  39. I just bought EDZ stock over the last couple days.

  40.  Since Phil’s not around:
    10:46 AM The euro continues its near freefall, hitting $1.2944, the lowest level since the first days of 2011 when it briefly fell below $1.29. Other risk currencies are down alongside, the British pound -1.3%; the aussie dollar, solidly higher minutes ago, -0.5% at $1.0107. European shares are at session lows, the Stoxx 50 -1.2%.

  41. FAS Strangle Experiment – Bought back the 72 calls and sold the 67 calls. This is a tight strangle but only 3 days to go in the week so we can be more daring now! And we’ll have new weeklies tomorrow to roll to if needed.

  42. Can’t believe the dollar is up so much yet the mkt is being held back.

  43. Rustle/SCO & EDZ
    two of my favorites!

  44. I wonder why none of us ever talk about BGZ/BGU which are Direxion Large Cap Bull/Bear 3x.  These actually mirror the Dow pretty well.

  45. An other lesson learned TOS if you close a position under .05 value it is commission free however if you do it in a roll like I closed the FAS 71 and opened the 67 they charge you on each trade!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  46. TOS – anybody know if it is possible to chart your account balance?

  47. TOS / Yodi – You can usually get a better price by doing both trades separately – I have had trouble getting good rolls… And also apparently save on the commission! 

  48. stjeanluc
    Thanks I agree as the roll is an other rip off

  49. Lesson learned
    If you want to transfer cash from your brokerage account by ACH transfer to your bank account, make sure that you do not transfer the same amount of money the other way by mistake, because by the time they have waited 3 days to clear the money and taken a 3 day holiday, you will wish you had been more careful, especially if your broker puts the cash in the wrong account and accidentally freezes other cash that you had available to withdraw. Do not ask me about how the research for this was done. I have not yet found the link to Jon Corzine.

  50.  TLT at 120 – per Phil that would  be panic

  51. Holiday spending in Florida
    In states where there are large numbers of migrant workers in agriculture, holidays may have a slight reverse effect on the economy. When Thanksgiving means you lose 2 days pay, and Christmas and New Year costs you another 2 days, that is almost a week’s pay lost, which leads to belt tightening rather than more spending. I had tenants in this position and it was always a nail biter as to whether the rent got paid at this time of year.

  52. This is breakeven time for the DIA Dec 30 121 puts vs the 120′s…but if this is panic maybe hold on to the 121′s…

  53. JR,
    Are you trading today?

  54.  Since the markets dropping with the Euro falling off a cliff [today], I thought y’all wouldn’t mind if I posted this long but quite cogent exegesis from FT:

    "Were you puzzled by the immediate reaction of the euro following Wednesday’sLTRO?
    Icap’s Don Smith, has a rather compelling interpretation.
    And it’s all to do with currency basis swaps and the ECB’s dollar funding operation:
    ‘It might appear odd to some, that in the wake of yesterday’s massive US $33bn allocation at the ECB’s extended 14-day US$ tender to cover the holiday period (against $5.1bn maturing from the previous week), eur/usd basis has moved lower, signaling at face value that this massive US$ tender has had little effect in satiating US$ demand from Eurozone banks, so what’s going on?…
    The key reason relates to the relative nature of these basis markets. The eur/usd basis represents a barometer of demand for US$ relative to euros. And big as it was, yesterday’s US$ tender occurred at the same time as the ECB has completed flooded the Eurozone money market with euro cash through its 1-week, 3-month, but especially its 3-year euro tenders. We think that around €210bn of this was new funding, the remainder being sourced from the maturing 3-month LTRO (€111bn), the 7-day OMO (€123bn) and October’s 1-year LTRO (€46bn).’
    ‘The effect of this deluge of euro cash has been to all-but obliterate strength on the bid-side of the eur/usd basis market (ie those willing to accept euro in exchange for US$). As a result, reduced demand to receive US$ through the basis (or forward FX markets) in the aftermath of yesterday’s US$ supply, which would typically drive the basis higher and offer a signal that US$ demand has been partly satiated has had little effect because on the other side of this trade, demand to receive euros (in exchange for US$) has dropped even further due to the ECB’s euro liquidity splurge.’
    "In short, so much euro liquidity hit the market that it didn’t matter that the ECB had just had a successful dollar funding operation. No one was willing to price currency basis swaps in any other way but one which reflected a dollar drought situation during a euro flood."


  55. FAS / Yodi – If we continue down today, I’ll probably close the 67 by end of day and take the profit as I worry we could bounce back tomorrow. It’s not a prediction, just a concern! 

  56. Speaking of ECB, ZZ – Updated Balance Sheet


  57.  Stj:  Thanks.  It looks the Euro crisis "is back, and it’s bad."  My 1X to 15X Euro short position has been boosted every day, and was up to 7X this morning, and it’s finally working and keeping me even.  We’re below 1.30 and I think all the rabbits might have already been pulled out the ECB’s hat.  I hope not, but I don’t know else the ECB can do to convince the market we shouldn’t be in dollars, or Yen, or oil, or .223 rounds.   I have all of the foregoing, a product of living in Barely Emerging Market countries half of my life.

  58. Good morning,


    IWM  71.87,  72.15,  72.56,  72.98,  73.24,  73.51,  73.92,  74.66,  75.06  and  75.57

    Also, trend line resistance at IWM 74.34

    I am short, of course; good hunting !!

  59. Italy’s next hurdle

    Italy’s 10-year note yield rose, lately at 6.973%, close to the 7% level deemed as unsustainable. The euro fell to 1.2955 against the U.S. dollar.

    Italy’s short-term debt costs fell at auction, boosted by the government’s recent austerity plan and inexpensive liquidity from the European Central Bank.

    The ECB said in a statement that its lending to euro-area banks leapt last week as the Frankfurt-based ECB strived to keep credit moving amidst the region’s debt crisis.

    But Italy could be looking at a harder sale on Thursday when it sells long-term debt.

    “A good test of the appetite for Italian debt will be tomorrow’s bond sales that have maturities past three years,” said Peter Boockvar, equity strategist at Miller Tabak. Read more on the session for Italian stocks and investors’ reactions to Italian debt auction.

  60. stjeanluc
    thanks for the advice FAS

  61.  Anybody playing the yen?  Or any deep thoughts on the yen?

  62. stjeanluc
    I am just a bit concerned over the FAS DEC5 63P 1.23 a bit to close for comfort

  63. JR
    Are you still short?  I jump in long just below S-2.
    Another leg down?

  64. Out of TZA on the double bottom at IWM 73.51 (there’s that level again) !!


    European Bank-to-Bank Lending Mistrust Hits Second Consecutive High; ECB’s LTRO Won’t Stop Collateral Contagion

  66. JRW, sorry to ask, do you have that link that outlines your strategy?  TIA.

  67. That boring AA realy takes a dive

  68. roberthjrfl / Strategy

    Here !!

  69. I just checked and unfortunately, I am not part of the top .01 percent, I did not hit the 200 million mega millions last night.

  70. Healthcare – article in NYT discussing the challenges Greece’s public health system is facing.  Wouldn’t it be ironic if the US found itself broke like Greece right after implementing a new public health system.. I’m sure it could never happner here, though.

  71. JRW –  I didn’t know you hailed from royalty — "Robert the Jerfyll" — impressive!!

  72. "It’s a Mistake To Pursue a United States of Europe" says German Supreme Court Justice in Spiegel Interview ; Interpretation of Interview from Saxo Bank Chief Economist

    Those looking for a reason for a sinking Euro and falling stock markets today just may find the answer in a Spiegel Interview with German Constitutional Court Judge Udo Di Fabio who says "It’s a Mistake To Pursue a United States of Europe".


    • Di Fabio does not see Constitutional Court and Basic Law as Euro unfriendly, actually states the opposite
    • Euro-bonds are “illegal” in his view (p.5 top)
    • Wrong to pursue United States of Europe – you need intra- government coordination but also strong individual states – not one without the other
    • No state can save the world on its own!
    • Europe…a “security construction” – (the good old excuse for slow non-working EU)
    • EY SENTENCE (p.2 top) : “….. Anyone who voluntarily agrees to something has to accept they will be checked to ensure that this contractual obligation is fulfilled. Such a veto could come from Karlsruhe, however, were a violation of the new debt brake (an amendment to Germany’s constitution that requires the government to balance its budget each year by 2016!)

    The last sentence – extremely critical – I must admit I did not know this. However, knowing this, Germany’s position makes sense! – They need “order” before anything and it also makes their compromise with France less “solid” as this exercise of buying time will end by 2012/13 – where they need to “structurally” get their budget down.

  73. FAS / Yodi – We can’t worry about that 63 put yet… and there is nothing we can do for now. Tomorrow there will be new weeklies and we can roll if needed. They are still all premium and there are 2 more trading days to recover!

    The 63 put actually can be rolled all the way to the Jan 49 even so no need to panic… But there will be something next week. That’s really the thing with FAS, there are very good escape path. For now! 

  74. Apparently there are some worries about collateral in Europe:

    For subscribers only but:

    Now some regulators and bankers are becoming nervous that some lenders’ supplies of such assets, which include European government bonds and investment-grade non-government debt, are running low. 

  75. Trying to break North of the 200SMA on the one minute !!

    Trend line resistance at IWM 74.40 ish !!

    2/3 TNA !!

  76.  My dilemma is A/, the Euro shows every sign of tanking big time, now that the giant liquidity injection hasn’t stopped the Euro from diving below 1.30, but B/ if the Iranians don’t back down on the "closure of Hormuz" rhetoric — and won’t, now that the U.S. has quite specifically threatened them today — oil/ energy could panic spike it’s way into the stratosphere if somebody pulls a trigger.  H’m — it’s definitely one of Phil’s "Which Way Wednesday"s on energy.

  77. Out of TNA with a quarter; breaking down through 73.92 !!

  78. Pension funds took a lickin…
    Cash and Security Holdings for the Quarter Ending Sept 30, 2011 and Prior Quarters

  79. Loosing the 200SMA now; 1/3 in TZA !!

  80. JR
    Can’t believe the BOT’s won’t stick this with the low volume.
    What’s your view?

  81. In 2/3 TZA now; looking to go all in on a break of IWM 73.51 !!

  82. exec / Last hour

    No idea; I think "they" will try, but it’s not as easy as it used to be !! (fundamentals do matter, eventually)

  83. We took on a new position in our Earnings Alpha portfolio today. We are selling the 17.50/18.75 spread on PLCM for Jan21 expiration. The company should drop to about 16 into earnings. The 16 put is not a bad supplement. The spread was sold for 0.25…worth 25% if it expires worthless. Has not touched there since mid-November and looks quite broken.

  84. Hey guys!

    Doesn’t look like I missed too much – things going as expected.

  85. So we’re all panicking about Europe again? Oh well, it was a nice week off and now back to reality I suppose…

    Oil $99.50 -Congrats to all the players there! Obviously, we are not pushing our luck and killing all remaining WCP positions.

  86. Thank goodness we got nice entries on the hedges this morning. Don’t they make you feel so much better?

    TLT at $121 – nasty!

  87. Phil,
    Shall we out of WCP positions @ EOD or tomorrow/?

  88. Phil,
    hope the slopes are treating you well. Do you have any feel for oil with invetories tomorrow…very short right now!

  89.  WCP/Neet – Well our goal was to cash out the Dow even and they hit $1 earlier and are back to .50 now but either way, it was never our intention to risk the money we threw in yesterday so happy to cash out even or better and walk away with the small USO loss. 

    The VXX play (the only one left) has short puts that should expire worthless tomorrow so those can wait but, since we were supposed to shut down the portfolio tomorrow and there’s a small profit on the longs – best to just go all cash and be done with the whole thing.  

    We’ll have a fresh start from all cash on Monday in a new $25KP.

    Ol/Sage – As mentioned above, we got a lucky escape at $99 just now.  As a gamble (or a hedge with our SCO play) I don’t mind betting oil goes back to the low $80s but to be "very short" when you have no idea what Iran will do or if Bernanke or Obama will drop the stimulus bomb – no thanks..  Step 1) Take Money, Step 2) Run.

    VERY speculative to short oil over this weekend in particular.  I LIKE it but I wouldn’t play the futures nor would I fool myself into thinking it’s anything other than a gamble. 

    SCO gained $1.20 on a $1.20 drop in oil today – so why not just go for the Jan $37/41 bull call spread for $1.50 and sell the $36 puts for $1.35 for net .15 on the $4 spread and your worst case is you end up short oil at about $100 again.  If you want to be "very short" on oil – that’s the way I like to do it as you can pull the calls and roll to Feb if you have to retreat and I love a good exit strategy!

  90.  im a bit concerned that global pm performance-chasing…out of world and into US stocks and magical sloppy buyers are propping us up more than realized….which could lead to early year swoon…unless significant positive catalyst materializes soon.

  91. U.S. State, Local Pensions Drop 8.5 Percent


    Clearly NOT paying attention to THIS SITE !!

    U.S. public pension-fund assets fell in the third quarter by the most since 2008 as stocks sank amid concern that Europe’s debt crisis would curb economic growth, Census Bureau data showed.

    Assets of the 100 largest public-worker plans decreased $237 billion, or 8.5 percent, from the prior quarter to $2.53 trillion by Sept. 30, the bureau said today in a report. It marks the first decline since the second quarter of 2010 and the biggest since the last three months of 2008, when holdings slid 13 percent during Wall Street’s credit crisis.

    The setback may strain state and local governments that have set aside more money to cover retirement benefits. That’s pressured governments already coping with diminished tax collections and has propelled efforts to reduce benefit costs.

    The asset decline was driven by losses in stock holdings, which slipped $134.7 billion to $769.6 billion, the Census Bureau said. The value of holdings of corporate bonds, U.S. treasuries, and international securities also fell.

    The third-quarter (SPC) rout pushed the pensions’ assets back to where they were during the last three months of 2010, wiping out gains this year.

  92.  FAS Strangle/STJ – Are you still planning on taking the profits on the call side before the EOD?

  93. Angel,
    Amazing……He he doesn’t know then who would?

  94. FAS / Palotay – Looks that way. This seems like the prudent thing to do now…  

  95.  AA is working hard on making it into the ‘dogs of the Dow’ list…

  96. angelcur

    You are here !! Note the date below ( Jan 1212)

  97. New 25K Portfolio / Phil – Do you want to track the next 25K portfolio in the spreadsheet as well? It could be useful for everybody to be able to follow the trades along. 

  98. stjeanluc,
    Where are the portfolios tracked currently? You mentioned a spreadsheet?

  99. Angel/MGlobal
    These jerks are just playing the system. And that is what they will continue to due unless the Justice Dept. hits them with RICO charges, confiscates and freezes all their assets, and lets them sit on their asses in jail until they decide to  squeal.

  100. JMM love to see that perp walk, but I think these guys have too many friends in high places for DOJ to ever get the go ahead.

  101. JRW// its going to be interesting to see how this plays out sentiment is v bad right now…cycles are poor into q 1..if th epublic quit selling it could push th erally out into q2 2012..IF..i wish i oculd get a cleaner copy of that chart of yours

  102.  Swoon/Angel – Yep, these low-volume rallies are the worst – so much air underneath means almost no support and sets us up for "black swan" sell-off on any sort of news shock.

    Pensions/JRW – I need to annex my list of concerns from this morning already.  Although that data may be somewhat misleading as it’s from Q3, when the S&P fell 200 points (almost 20%) and now almost all back so we may see a full reversal in the next report.

    Tracking/StJ – Give me a call next week and we can give it a shot but if it takes more time and doesn’t save it – then I can’t do it.  I think the review format is nice and educational, which is the main purpose..

    Think the Nas can take back 2,603 at the close?  Would be funny if we hit it on the nose… 

  103. GingbaumPSW Portfolios 

  104. JRW, lucky number 13..well at least in my case if that charts prediction is proven correct. With pension funds taking a beating it wont be easy with all the managing done by the "invisible hand". Its going to take an event that they just cannot manage.

  105. FAS Strangle – Closing the 67 calls for the day with a 58% win. Not taking any chance overnight this time. We’ll see about the puts tomorrow… 

  106. Tracking / Phil – I would not want to do it real time like I do with the other portfolios, but just a nightly update of the positions in the spreadsheet and a weekend posting. That should take no time. We’ll talk next week in any case.

  107. Quietly gold briefly hit $1550 today… Losing some momentum! 

  108. All out of TZA with a few more pennies !!

    6% on the day !!

    Beware the gap up open tomorrow !!

  109. Good plan StJ.

    Well, looks like no stick save.   Very pathetic performance.  This is why I couldn’t bring myself to put up any new Secret Santa Hedges – there’s nothing I like at the moment.

    On the other hand, it was no problem at all finding 3 bearish hedges I really liked this morning.

    Off to happy hour, will catch up later.

  110. "Mind the Gap Tomorrow!"  Sounds like a futurist London tube warning.  With the Euro showing every sign of gapping down overnight, I would think U.S. equities will be doing a "Thresher" in the morning rather than spreading cheer throughout the land.  Proving that the Mysteries of the Charts will always befuddle me, although JRW proves again and again that they harbor manna for the adept. 

  111.  FT :  Cailloux, Chief European economist a Rabobank, today:


    This note pays particular attention to the chain reaction that could follow from a ‘wholesale’ downgrade of euro area members, a scenario which we now believe to be very likely. The ramifications of such a decision by S&P, potentially to be followed in Q1 by Moody’s, would be far reaching with supra national organisations such as the World Bank at risk of downgrades.
    The downgrade of the EFSF would also be particularly damaging and could affect significantly the ability of this institution to access the market. Should the EFSF struggle to access markets, a negative feedback loop would likely be created with the countries in most need of financial resources likely to suffer most as market participants would start questioning whether their funding needs could continue being met by the EFSF.

  112. Phil – please tell me if I did the correct thing:  I wanted to hedge, but I didn’t get into your hedges early, so by the time I looked at the EDZ $19/24 hedge it was 1.80 instead of $1.25, and EDZ was already in the money.  So, I went to the EDZ $21/26 Feb hedge, for $1.30, selling the BTU $29 puts for $1.71 to offset – was this a smart move? 

  113. Spreadsheet is all up to date.

    Days like today make me appreciate more market neutral strategies like the Money portfolios especially FAS and IWM Money where we sell strangles all the time. Even on a bad day like today, we don’t see wild swings in the total P&L. Just keep on selling premium… and roll when needed.  

  114. Anyone,
    Where is the best place to buy physical gold? I see some on-line sellers, but would like to know more.  Of course, we know how to sell puts on GLD, GDX, but it’s time to consider owing these shiny ("useless" per Phil) metal, in case the brokerages decide to give my money to JPM or BAC.

  115. can anyone tell me the best way to print this page with all the commentary. I tried to send it to the kindle reader but it sends only the main post and not the commentary.

  116.  Peter, I had used Apmex in the past. The quality of the metal was good. I am not sure about how competitive they are with the commission thought. They ship the metal to you in a brown box which I found a bit scetchy for orders of any value. If I was doing any real investing I would find a place I could go and personally make the transaction and drive away with the metal. Also, I would try to do it such that you do not leave a big trail. Never know what the kinds of rules the government will impose in regards to owning metals.

  117. Pat – copy and paste to Word?

  118. Pat, i looked at the print functionality on chrome and the pages (all 35 for today) look fine.

  119. Phil
    SDS seems to be the best hedge for what I hold. I would like to add further protection for March. I am looking at the March 18/25 ($1.68) BCS perhaps with an offset. Does this make sense as a hedge for 10-15% drop in the S&P? Your advice would be very welcomed. How was the skiing?

  120. Peter Hi buying of gold bars.
    I just had a look at the web page of Apmex. Here in Mexico I deal with gold every day. The gold bars they show they claim to have a .99 % gold contend. This is good. Buying gold is just the same as /GC. Apmex charges between 35 and 50$ more then the daily spot price. I have been buying and selling gold from 200$ per oz. But holding gold is something you have to carry around with you and is more or less a long time investment. If you buy the 1oz bar now for 1600 you find it might go up to 2000.00. To sell it is the same like buying it you need to put it in a box and ship it to the buyer. Need to fix the price before you ship. With a stock you can sell it by the flip of the mouse.
    Gold bars or in my case lots of jewelery, bars, coins etc, is some collection you hold for a rainy day or for your children and you surely do not  use money you do need tomorrow. Considerate it more like an art collection.
    I hope this helps and do not let Phil see my comments

  121. Peter
    I forgot to mention one thing and that is the buying of gold coins. It is like buying a car all have 4 wheels but one cost 100,000 and the other 25,000. It is a buyers opinion but has very little to do with the gold price.

  122. thanks jerconn and dmoroz. I can use both methods to print. has anyone send the page to kindle using the send to kindle app. It is really helpful as you can read it at leisure.

  123. Congress ends corn ethanol subsidy
    The United States has ended a 30-year tax subsidy for corn-based ethanol that cost taxpayers $6 billion annually, and ended a tariff on imported Brazilian ethanol.

  124. stj – Thanks for all the tracking. My unsolicited opinion re tracking PD’s stuff in a live spreadsheet is that it tends to focus, for the lesser among us, on trying to quickly copy his trades as they happen – rather than learning. No doubt I love running with Phil’s picks, but I don’t always get them at first glance – and need time to process. It’s his call, of course, but if tracking at all, I wouldn’t mind having the emphasis being: here’s what I’d do and heres why. Profit results are more fluid and subjective – - often depending on how often someone follows chat, entry timing, etc. In any case, thanks is for all.

  125. Thanks, dmoroz and yodi.  Good information, especially about gold confiscation from our own government.  Yes, this is a buy and hold.  Yodi, for your second post, should gold coins be considered or you are saying that those coins are expensive to buy?
    With the MF Global saga (I don’t have an account with them), Fed money printing and who knows what comes next, the thought of diversifying into physical and other assets had intensified.  It’s no use having tons of money in brokerage accounts and nothing to show for it if the brokerage and banking system collapse.  I’m sure folks in Argentina, Brazil, Mexico and other countries who experienced high inflation have said buying precious metals is a must.  At least my kids would have some protection with gold.

  126. Tracking / NF – I think that the plan would be to track the transactions in the spreadsheet to be able to use that in a weekend recap by Phil and comments on the trades which is the educational part. It’s almost impossible to track these trades in real-time anyway so that could not fit the model of the other portfolios. In all the spreadsheets, there is a comment field so that we could always fill with Phil’s comments at the moment of the trade.

  127.  Kinki -ethanol
    That is huge!  Some how the news slipped past me over the busy holiday weekend.  Imagine, one of the few good things Congress does, they have to hide and do it in secret.  I read a few stories and a couple noted VLO (a PSW favorite) could be hurt since they blend the fuels.  I have not noticed anything discernible in the share price since the vote however.  

  128. Looks like the Italian bond auction didn’t go that great –  10 year at 6.979% and bid to cover at 1.357. Clearly these rates cannot be sustained!

  129. Protection / Peter – Your kids might be better protected with guns and ammo and food supplies! Try exchanging your gold for food when this place falls apart!

  130. Good morning!

    Things seem to be calming down this morning – a flatline here wouldn’t wreck the bullish case as yesterday was a healthy correction.

    I agree that the 10-year auction in Italy is a big negative – the math on paying 7%, or Ben 6% long-term is simply unsustainable unless you have the growth/inflation to back it up.

  131. Very funny on CNBC right now, some guy with actual facts is making fun of Joe and his denial of global warming.

    Gold took a nice tumble ($1,532) and oil can’t get back over $99.50 so far.

    I like this guy John in the blue shirt on CNBC, he seems to have a clue.

  132. i blew a trade yesterday that would have put me up close to 40% since dec 8……….closed it out too early.
    very reasonable position sizing too. in other words definitely not over leveraging. lots of drawdown capacity if needed to ride out swings
    too many of the ‘out to early and not executing’ mistakes. at least i am not picking losers……..the selection of being on the right side of price discovery has improved quite a lot since being here.

  133. Euro is breaking all kinds of lows for 2011… Dollar is as highest since last January! 

  134. Good morning Peter,
    Gold coins, In my opinion Gold coins just have the value of gold however they are priced much higher and the value is in the eyes of the beholder. As you see this morning gold is down an other 30$ why, I guess people need cash to balance their books, as well the dollar is higher gold goes down. I buy a gold coin for what  it weighs on the scale, but many people will dissagree with me. If you looking for a gold reserve I would only buy bars even that the coins are like an old car some go up more in value then when you bought it when it was new. As I said I am to realistic in this.
    A broker will look at a it in this way asking the question in respect of value "for what can you sell it by next Friday"

  135. Just to add to the "corn" theme (agreed, revtodd, they really buried the huge subsidy story for some odd reason):

    Insects Rapidly Becoming Resistant To GM Corn
    "When it was introduced in 2003, so-called Bt corn seemed like the answer to farmers’ dreams: It would allow growers to bring in bountiful harvests using fewer chemicals because the corn naturally produces a toxin that poisons western corn rootworms. The hybrid was such a swift success that it and similar varieties now account for 65 percent of all U.S. corn acres grain that ends up in thousands of everyday foods such as cereal, sweeteners and cooking oil.

    But over the last few summers, rootworms have feasted on the roots of Bt corn in parts of four Midwestern states, suggesting that some of the insects are becoming resistant to the crop’s pest-fighting powers.

    Scientists say the problem could be partly the result of farmers who’ve planted Bt corn year after year in the same fields.

    Most farmers rotate corn with other crops in a practice long used to curb the spread of pests, but some have abandoned rotation because they need extra grain for livestock or because they have grain contracts with ethanol producers. Other farmers have eschewed the practice to cash in on high corn prices, which hit a record in June."
    This has always been the greatest fear of biologists about GMO corn, that it was creating genetic homogeneity and all it would take would be one "immunity" to wipe out the entire stock.  I am assuming MON will be greatly affected if this immune bug turns out to be like some sort of modern-day locust infestation.

  136.  Thursday’s economic calendar:

    8:30 Initial Jobless Claims

    9:45 Chicago PMI

    10:00 Pending Home Sales

    10:30 EIA Natural Gas Inventory

    11:00 KC Fed Manufacturing

    11:00 EIA Petroleum Inventories

    4:30 PM Money Supply

    4:30 PM Fed Balance Sheet 

    1:46 AM Asian stocks are mostly lower amid resurgent eurozone jitters. Japan -0.3% to 8399. Hong Kong -0.6% to 18402. China+0.2% to 2174. India -0.2% to 15701.

    6:15 AM Overseas: Japan -0.3%. Hong Kong -0.7%. China +0.2%India -1.2%. London +0.2%. Paris +0.2%. Frankfurt +0.4%

    Use of the ECB’s overnight deposit facility declined marginally from Tuesday’s record high, dipping to €437B from €452B.

    The eurozone’s M3 money supply grew an annualized 2% in November, according to the ECB, down from 2.6% in October. Private-sector loan growth was an annualized 1.7%, down from 2.7% the month before. - More money for the banks equals less loans for people – just like the US "solution".  

    Libor Gap Hints at Debt Crisis Money-Market Freeze: Euro Credit. The gap between the highest and the lowest rates that banks say they can borrow from each other in dollars is close to a 2 1/2 year high, a sign Europe’s failure to end the debt crisis is straining the financial industry

    Italy sells €2.5B of 10-year bonds at an average yield of 6.979%. The auction was slightly oversubscribed, with a bid-to-cover ratio of 1.357%. All told, Italy raised ~€7B today from bonds of varying maturities; the plan was to sell €5B- €8.5B

    Euro Swan Dive Has Business Insider Asking 2 Questions. "We have two questions: 1) Has the ECB shot its wad as the lender of last resort providing massive liquidity to the banking system and leaving little ammunition for the distressed sovereigns; 2) Will money demand remain stable in the eurozone as the monetary base explodes? That is, will the Germans keep their money in Europe?"

    Risk-avoidance was at the top of U.S. investors’ minds once again in December: TrimTabs reports $30B has flowed into bank savings accounts this month, and $50B has flowed into bond funds. Meanwhile, gold ETF GLD, healthcare ETF XLV, and China ETF FXIhave all seen large outflows.

    Global M&A fell to its lowest level in more than a year this quarter, down 16% from the previous quarter to $457.1B. A 2012 M&A recovery isn’t looking good, as volatile stock markets, the eurozone’s debt crisis and tightening credit markets are scaring cash-rich companies away from major purchases. - Or maybe most companies are simply overpriced vs. the current economic conditions.

    Bond Ratings Show Credit Quality May Have Peaked: Credit Markets. Credit-ratings firms are growing less optimistic about U.S. corporate borrowers, downgrading more companies as they forecast defaults will rise.

    China’s fund managers are bracing for a wave of bad loans to hit the market over the next few years, as lenders dispose of existing bad loans to make way for a new batch of non-performing debt. While nobody can accurately calculate the potential supply, Chinese regulators in March put the figure near $500B, while Fitch warns the actual figure could exceed $2T. 

    China wants foreign investors to focus on hospitals, financial-leasing companies and sectors that bring new technology to the country, and to minimize investment in such traditional draws as automobile factories or petrochemicals. The 29-page list of investment guidelines was released today, and kicks in on Jan. 30.

    Banks are bracing for new U.S. regulations aimed at reducing tax evasion, which could affect hundreds of billions of dollars worth of deposits in accounts across the globe. In response, some banks overseas are alerting customers their accounts will be closed, while U.S. banks are lobbying for changes to some of the proposals.

    JPMorgan (JPMmay have done for towns across Europe what it did for Jefferson County, Alabama - enticed officials into tricky swap agreements that backfired, cratering the localities’ finances. The bank – which denies wrongdoing – and some of its employees are on trial in Milan (along with DB and UBS), and a case is about to begin in Frankfurt.

    Fun with Surveys:  More than 80% of the 36 economists who responded to an AP survey rate Pres. Obama’s economic policies "fair" or "poor," and just five call them "good." But the objections come from both sides, those who say his policies are off the mark – e.g., attempting healthcare reform during the worst recession in decades - and those who believe well-intentioned policies didn’t go far enough- So, when you hear that 80% of economists don’t agree with Obama’s policies, it does not mean he’s too Liberal – in half the cases, he’s not Liberal enough!  That’s why playing the middle is a losing strategy in modern politics.  

    “If I were buying anything I’d be buying agricultural commodities,” says Jim Rogers. “I think ag will be a great place for the next 10-20 years." His play is commodities futures, or the ETFs that track them, and not ag stocks. He’s short emerging markets, U.S. tech, European equities.

    Mosaic (MOS) says it will cut its quarterly finished phosphate production by up to 250,0000 tons, or ~10%, until the end of March as excess supply weighs on market prices. "The current spot prices in this market do not reflect our outlook for the business, nor do we think they are sustainable," CEO Jim Prokopanko says. MOS -2% AH. 

    Oil Trades Near One-Week Low on U.S. Stockpile Gain, European Debt Crisis. Oil traded near the lowest level in a week in New York after a report showed U.S. crude stockpiles surged, indicating fuel demand may be weakening as Europe’s debt crisis threatens to slow the global economy.

    Iran Unlikely to Block Oil Shipments Through Straight of Hormuz, Analysts Say. The latest in a series of Iranian threats to block the vital Strait of Hormuz triggered a sharp response Wednesday from the U.S. Navy, although there appeared to be little chance that Tehran would make good on its warnings. Despite threats to close the narrow waterway if Western nations tighten sanctions on Iran by imposing an oil embargo, the Islamic republic needs the strait at least as much as its adversaries do, Iranian and foreign analysts said.

    Movie theaters are on pace to hit a 16-year low for tickets sold after stay-at-home options gain favor over 3-D movies and titles that offer little more than a rehash of familiar tales and characters. This year’s projected haul of $10.2B is off 3.5% Y/Y, or 4.4% when accounting for higher ticket prices. Movie theater operators RGC,CNK, and MCS have poked out meager short-term returns, while 3-D specialist RLD is off 69% YTD.

    Enjoying recent declines in commercial delinquencies, CMBS owners got a crude post-holiday smack from news Sears is closing 100-120 stores. It’s bad news for CMBS investors, notes TreppWire, as Sears and Kmart both have a sizable presence among CMBS collateral. The improvement in 2011 might just be the "calm before the storm."

    Big Funds Build Case for Housing. Big money is starting to wager on housing. Hedge funds run by Caxton Associates LP, SAC Capital Advisors LP, Avenue Capital and Blackstone Group LP have been buying housing-related investments, betting on a rebound. And formerly bearish research firm Zelman & Associates now predicts a housing pickup, as does Goldman Sachs Group Inc. Other investors seem to be making the same bet. Shares of home builders are up 30% since the end of the third quarter, as measured by the Dow Jones index tracking those shares, topping a nearly 10.5% gain for the Standard & Poor’s 500.

     If the push to legalize online poker in the U.S. comes to fruition, MarketWatch’s Brett Arends says that London-traded Btwin.Party Digital Entertainment (BPTY.PKcould take off. The firm claims 12% of the world’s online poker market, sits with effectively no debt, and recently launched a JV with MGM and Boyd Gaming (BYD) that could set off the three firms as early leaders in the U.S. online poker market.

  137. "Boring" old IBM has been the S&P 500′s best-performing tech stock in 2011, notching a 32% gain on the back of healthyservices orders, a mainframe upgrade cycle, and a booming analytics business. Also benefiting from IT’s analytics boom was data warehousing specialist Teradata (TDC - up 28%). KLAC and MSI are also among the S&P’s tech winners, rising 26% apiec

    In light of Sears’ (SHLDmost recent woes, Felix Salmon thinks it’s worth contrasting the company’s struggles with theoverwhelming success of Apple’s (AAPL) stores. While Apple invested lavishly in its stores, Sears invested far less per square foot than the industry average, choosing instead to spend billions on stock buybacks. Salmon’s takeaway: "Steve Jobs was never very good at financial engineering; Eddie Lampert has never been very good at anything else."

    Karl Rove’s Political Predictions for 2012.

    How wealth of members of Congress has TRIPLED in 25 years – while average U.S. family has suffered a DROP in their worth (Daily Mail)

    The Great Economic Divide Makes Everyone Poorer (Fiscal Times)

    Things That Make You Go Hmm, Such As Looking Back At The Key Events Of… 2012.

  138. Phil, happy skiing!  Can I ask you a question reg yesterday’s hedges?  By the time I got around to hedging it was late in the day and I missed your entries.  I tried my own and I just want to know if it was reasonable; I went for the EDZ Feb $21/26 BCS at 1.30, offset with BTU puts at 1.70 – how is that?

  139. stj……..port update. Hold 10. Aapl 400 calls Jan purchased yesterday at 15.00 and 10 purchased at 14.00, plus the July spread unchanged. Thx

  140. Stj……..that should read……..5 of each, plus the July spread, plus the 10 390s. Only 2 trades were made yesterday

  141. That’s a fine adjustment Jerconn as it’s in the same spirit but the $19/24 spread only went up to $1.80 and that same BTU sale would put you in the $5 spread at .10 that’s already $1.50 in the money – so is it worth saving .50 to be $2 higher or would it have been worth spending .25 to roll down twice to pick up $1 in position if things had gone the other way?

  142. Yeah, thought of that afterwards, thanks Phil.  At that moment, all I could see was everything going down so I wanted to be in a position to catch the down-draft, but in retro would have been better to be in the in the money spread…still learning, as they say…

  143.  leaders lagging, laggards leading today…year-end short-covering

  144. deck trades like it has seriousl problem

  145.  Apple looking good all of a sudden — I wouldn’t think that represents short covering.