That's all we have lately. Greece's silly $171Bn loan is meant to distract us from Europe's $17Tn debt hole and the US continues to borrow $171Bn PER MONTH to cover it's deficit and we don't even talk about Japan as the debt climbs over 220% of their rapidly declining GDP and who knows what's going on in China but, generally, when you have double-digit declines in home prices on a monthly basis – there's going to be a problem down the road.
This may be my last bearish post before drinking the technical Kool-Aid this weekend and we've already selected 5 trades for our Members that will make 200-500% if the market keeps moving forward and there are still plenty of stocks we can make a lovely Buy List out of if this rally has legs – especially the way we like to bet, since our hedges allow us to make very nice returns, as long as we simply hold our current levels.
There's the rub though – are the current levels sustainable? The nice thing about consolidations like the one we've been having this year is that they firm up a floor and give us a very obvious exit point on the way down so we can move some of that sideline cash into play – as long as we hold 12,500 on the Dow and 1,300 on the S&P and 2,800 on the Nasdaq – pretty simple strategy, right?
Notice the 2nd row has our major indices priced in Euros and our third priced in Yen. My main issue has been that we've been much weaker than it seemed as the Dollar's relentless decline masked a downturn in the inflation-adjusted price of our stocks (and the weak Dollar also serves to inflate revenues reported by multinational companies) but, at the moment, we're at our breakout levels by any measure so we may as well go with the flow until we see a proper reversal.
First we need to get past our NFP report at 8:30 of course. I'm expecting a miss but will the market even care or will that just mean Uncle Ben has an excuse to pump up the QE according to their new "formula"?
Keep in mind that what Bernanke said last week regarding the Fed's system for determining policy boils down to – As long as US corporations don't hire American workers, he will continue to give them money at historically low rates. I don't know about you but if I'm GE and I'm thinking about hiring 10,000 workers but I'm also looking to borrow $100Bn – I think I'd put off the hiring until after I get my loans lined up in the very least.
8:30 Update – Well, I'm wrong (or so it seems from the headline number) – 243,000 jobs were added, almost double the 125,000 officially expected and unemployment dropped to 8.3%. Hours worked up is up as well so this is a strong report. Private-sector employment grew by 257,000, with the largest employment gains in professional and business services, leisure and hospitality, and manufacturing. Government employment down slightly for the month. Manufacturing added 50,000 jobs, mainly in the Durable Goods space – another positive. Even Construction added 21,000 jobs.
On top of all this good news, they bumped November up from 100,000 to 157,000. While it's horrible to think that the figure we have today could swing 57% one way or the other, the trend does look good with the initial adjustment to December going from 200,000 to 203,000. I guess the Conservatives will have to start calling Obama the Great Job Creator now…
NOW we get to see how much gas the market has left in its tank as there is no possible excuse not to bust out to new highs on this one. The big drag I see is that more people working means more demand for Dollars to pay them and less QE per the Fed's formula (especially if prices also kick up) and that is, of course, Dollar bullish which is oil bearish (not that oil should need any help with Shell saying oil may fall to $70) and other commodity bearish and makes for a tough dollar-adjusted gain in our indexes the same way that a week Dollar gave us an artificial boost before.
So let's keep an eye on that Dollar as it can really hold back the rally and this would also be a great time for the BOJ to run a Yentervention as they've been waiting for a chance to goose the Dollar into clear market strength and we're not likely to get a stronger number than this and we have TBills to sell next week so this should be the spot to run the Yen back to 77 at least.
As I mentioned, we had our 5 bullish trades in yesterday's post and it looks like we can look at 5 more already. Our plan was to add one a day, beginning yesterday, to layer up for an extended rally. Of course we've been doing this every week with FAS, BAC, TNA, etc. as we're never all bear or all bull (70/30 is EXTREME in our balance).
Since we are going to be popping into the open, let's concentrate on some longer-term trade ideas that will be less affected by the morning move. Keep in mind, as long as the net of the trade is the same, it doesn't matter what each leg trades for:
- BA ($75.22) is still very cheap at $75. If the World economy isn't going to collapse, then BA has over 3,000 planes to deliver against a current capacity of under 500 planes a year so a 6-year backlog and last year they grossed $65Bn with a $3Bn profit delivering older and less profitable planes as just ONE 787 was delivered in 2011. Although they pay a 2.5% dividend, I think it's unnecessary to own the stock as the 2014 $60/80 bull call spread is just $11 and you can sell the $65 puts for $8, which TOS says has an ordinary net margin of $6.50 so net $3 of cash to make $20 (566%) if BA gains $5 into Jan 2014 is better than holding and covering the stock for the $1.76 dividend. Don't forget, when you have those calls, you CAN exercise them and become an owner – if they raise dividends, for example (doubtful with their current cash-flow profile as they ramp up).
- F ($12.26) is still down in the dumps and their volatility makes them a fun stock to sell calls against. As I said, the way we hedge, we don't need the markets to go up, they can just stay flat and with F, you can pick up the 2014 $8/12 bull call spread for $2.40 and sell the $10 puts for $1.50 for net .90 on the $4 spread that's 100% in the money to start. TOS only wants $96.50 per contract of ordinary margin on this trade that makes $310 if F flatlines or better for 2 years. Meanwhile, SINCE you have a 300% upside, you can buy 10 of the long spreads (net $900 cash, $3,100 potential) and sell 2 March $12 calls for .65 ($130). If you get away with a $130 sale every couple of months, you have a free trade by the end of the year and you're giving yourself a very nice 15% bi-monthly dividend while you wait for your 300% pay-off!
- GS ($115.45) may be the devil but don't you think they know how to profit from a market that NEVER goes down? Let them worry about day-trading while you pick up the 2014 $80/110 bull call spread for $20 and offset that with the $90 puts at $12.50 for net $7.50 on the $30 spread that's $35.45 in the money to start. Your worst case is you end up owning GS long-term for net $97.50, which is 15% below the current price. TOS says net ordinary margin for shorting the $90 puts is just $9 – not bad..
Oops, out of time, I'll have a few more in Member Chat, of course – looks like we'll be closing this week off with a bang!
Have a great weekend,
Having a crazy busy weekend – thought I'd be around today but my daughters have other plans. They both made 1st honors AND Jackie's 10th birthday is tomorrow so who am I to say no? It's a good thing actually, as I'd otherwise be tempted to read the news and that could lead to thinking and we certainly can't have any of that so GO GIANTS and I'll see you guys later!
I like and support the idea of the less than 25K stand alone portfolio… the can't loose mindset and thought process around this definitely would be educational. People with more $ who like the approach can then trade in multiples.
Phil, congrats on your daughters accomplishments and bday! Family is to be enjoyed!!
Thanks for thinking about the concept, however risky it may be…
the original idea was to invest a small enough amount that if lost would not cause loss of sleep.
perhaps through knowledge and skill of members here, reduce likelihood of loss, and possibly make some mullah and have fun while doing it
The decline in the BDI has been discussed previously- oversupply of ships – but this article has a chart showing what is coming on line. Seems this indicator will be shot to hell for some time.
What this table cannot tell you is when or why the ships are coming on line. In many cases, the new build is not because of higher demand – but higher efficiency (hull and propulsion) to reduce costs. Unfortunately, most of the less efficient ships are not being scrapped but just sold off. This just adds more tonnage to an already oversupplied market place.
So yes, just a small increase in the supply of ships can make a major difference in a very competitive marketplace. It makes the BDI an inoperative economic indicator, and one less tool which can be used as an economic metric.
Retail in the USA
I just spent 2 days in the USA on a flying visit. Apart from the inedible food (MCD, DPZ), like many people visiting Florida (FL) from the Caribbean or Central America, I shopped for electronics.
I wanted a Netbook computer for a gift and I knew they were in stock in all branches of Walmart for $250, but I wanted to see if I could get a Toshiba (TOSBF), which I had before and liked.
In Best Buy (BBY) they told me they do not carry Netbooks any more, because tablet computers can do everything that a Netbook can do. "OK, I said, show me a tablet that can run Windows programs." The salesman immediately capitulated, and said they could not, but showed me an Asus tablet that came with a docking station/keyboard that could effectively turn the tablet into a Netbook, but for about double the price of a Netbook.
He told me that the Apple (AAPL) iPad was pretty good, but when I asked if it had a USB port so I could attach a Magic Jack, a camera, a hard drive, or a mouse, he has to admit that it could not be done. (Actually it may be possible to use USB devices using the extra camera attachment device, but is not guaranteed to work. But I don't think my BBY blueshirt knew this.)
Again double the price of a Netbook. I then asked for a handheld document scanner. No luck with that either. They did say they could order me the items for later pickup, but I informed them that I was already familiar with the concept of Internet shopping, and that if I wished to order online, I would not go to a store to look for something. [I also noted the Blackberry Pad was "on sale" for $499, though since Radio Shack (RSH) had the same item for $199, I daresay Radio Shack had the edge on that one. In any case my helpful BBY blueshirt dude told me the BB tablet was useless and that I didn't want it.
I also tried Sears (SHLD). They had two Netbooks on display, but were unable to sell me one. I went to Target (TGT), where they had one Netbook on display, but again this was just to give the impression they had Netbooks and didn't actually mean they sold them. Office Depot (ODP)where I had previously bought my iPod touch also had no Netbooks and doubled down when I asked about iPods. They didn't have them either.
All in all pretty dispiriting, so I went to Walmart (WMY) and got an Acer (ASIYF) Aspire for $250. It only took 10 minutes for 2 employees to operate a bunch of keys and extract the computer from a metal cage. However, it was worth it, because the recipient is totally delighted with it. With the addition of an $8 mouse and a $30 rechargeable speaker, it was now converted into a powerful boom box cum Skype telephone cum photo album cum photo editor cum Internet surfer cum word processor that would fit into a handbag. Although the new owner has never owned a computer before after a couple of hours she was already able to identify some potential improvements to Windows 7 that she would be happy to forward to Microsoft (MSFT)
I feel like I am the little boy who called out that the emperor had no clothes with regard to Netbook vs Tablet computers. Has no one else noticed that this tablet fever is all about charging consumers more money for less performance and about getting them away from Windows which has thousands, probably millions, of excellent freeware and open source programs available, for example Open Office,or programs that can play music archived in noncompressed FLAC format, or Paint.Net a free program that is a very good competitor to Photoshop. (It should be noticed that there ARE WIndows 7 tablet computers, but Best Buy doesn't want to sell them, and some are not available in the US.)
Another observation. The Nook Color (BKS) now selling for the same ($199) price as the Amazon (AMZN) Kindle, which is supposedly a loss leader. (Whomever chose the name Nook was probably not familiar with vernacular English.)
Also saw the new Nokia (NOK) phone in Walmart, but it was looking a bit sad, just sitting in a glass case with some other sick puppies, and no special display stand or anything to trumpet the presence of a Windows phone or of something new or different. It looked OK, but they did not have a demo model up and running.
Jmm: Had more luck with BBY in NYC a few months back, lots of small PCs [that's what a netbook is, right?]. I picked up a Sony Vaio with a 13" screen. It's great, I can easily pick it up when open and running with one hand. I have an iPad, useful for a number of things, mostly because of zero bootup time — like showing a plane reservation to an agent, with codes attached, etc. But I gave up carrying around an iPad bluetooth keyboard to simulate a netbook — the Sony weighs the same as iPad + keyboard, is integrated, has all kinds of USB and other i/o slots [I connect it to a 48" TV screen to trade, where the lack of resolution is more than compensated by the immense size], is compatible with all my Windows files back to the Stone Age, etc. etc. Tablets have their place, but it's always horses for courses.
As for mating peregrination, yes, males of all species have a tendency to wander far afield in search of mates, probably because genetic distance tends to create healthier specimens. But i a lack of shared cultural premises is can be very challenging to a relationship, even to someone like myself who has spent only of my life in my country of birth. Throw in a bunch of kids, and you have a situation that would flummox Freud.
"half" of my life.
Lflan and all, I also love the idea of the 25k portfolio and would assist in any way I can. As a beginner ( but with a decent size portfolio) I would find this a great way to really learn the skills and disciplne that Phil’s wonderful site teaches but on a level that would be more comfortable for a novice. Sounds great.
First impressions of USA 2012
Flying in to Fort Lauderdale at 5:00 a.m. one cannot help but be overawed by the might of America. Even at that hour from the air one could see thousands of electric lights stretching as far as the eye could see in a superb display of conspicuous consumption of energy. And then the huge airport complex with many gateways, hallways, and signs to tell you what not to do.
And then you get to immigration. Only two agents to process 150 or more arrivals, many of whom are foreigners. After half an hour the lines had hardly moved and then a supervisor (a woman) showed up and assessed the situation and decreed that one agent was to wave through the arriving US citizens while the other took on the "aliens". In the meantime she would watch, direct traffic, and exort passengers who were traveling on Spirit (discount) Airways on the joys of paying $100 or so for super automated immigration clearance for future travel. Soon the line got moving again, and we were out.
The whole thing seemed like a parable of USA in 2012. The massive, if crumbling, infrastructure, the understaffed government services, the ingenuity and problem solving spirit of employees at the managerial level, and the dull wittedness of those they supervise. Was this the first time a flight had arrived at 5:00 a.m. and they yet had to figure out how to get so many passengers through immigration with so few officers, or were they dealing with absenteeism in a demoralized work force? And then you exit to the car rental center, a magnificent building like a Greek temple with mirrored marble floors, and where the men's bathroom walls are lined with tasteful lime green tiles, (but you can hardly get enough water to get your hands wet) and there is a car rental agent for each passenger and the cars are cheap and comfortable and equipped with all the latest dashboard gadgets, USB connections, and so on.
Could we subcontract the stamping of passports out to Avis or Hertz and get some company to figure out a way to collect rainfall from the roof to use for flushing toilets and washing hands?
I was wondering if you could explain the bullish trades you outlined above in today’s article. For example when you use this strategy and what you want to happen by buying the very in the money calls. It’s this a strategy that you use when you are moderately bullish and are waiting for the sold call to decay.
A wealth of stats on rail shipments–
Political / Exec. Of course the manipulation is political. Hard to prove, perhaps, but easy to connect the dots. However, I don't see any need to bring foreign money to the market to effect manipulation, although it's certainly possible. There is enough money flowing from the Fed at 0% interest into the wall street banksters hands to prop up whatever they decide to prop up. A trillion dollars a year is a lot of power. Apply a trillion a year to the overnight futures market, and to the large cap leaders of the markets at just the right times during the day. But we don't need to use only politics as a motiivation.
I won't repeat what's been discussed at length on this site about the money that the banksters can make by manipulating the market with unlmited free money from the Fed. So politics, power, and greed. That's my take on it.
I've no idea when the Age of Aquarius ended, but I think it's fair to say that its over for now. Lots of blood and hot air emanating from the desert regions these days. You would have thought that, since the original Jewish Exodus in 1313 BC, these Middle Eastern folk would have reached some sort of entente cordiale over the ensuing 3,000 odd years.. http://www.youtube.com/watch?v=a3WcuvL737A
Cool Hand Luke, Zero……….Captain says you have to get your mind right.
The basis of my comment: http://www.wnd.com/2012/02/ayatollah-kill-all-jews-annihilate-israel/
Cool Hand Luke was one of my favorite films……….and, that line.
Winston, Nice February 4th, 2012 at 10:10 am post!
freud was flummoxed many times…he was a particular schlamazzle regarding cocaine…and cigars speaking of tubular fixations
Giants 21 – 17……….Go Phil!!
Looks like the Pats receivers forgot the Stickum.
Good morning from SL—–go Giants !!!—was able to watch the super bowl with the American Embassy personnel—worth the trouble
ICE Futures put out a video this weekend with Mark Longo of "The Options Insider" discussing the rise of weekly options – the most important characteristics of short-dated options, situations in which traders use weekly options, and some strategies for using them .,..which are different for stocks vs futures. quite interesting and helpful. it is here.
Winston – a teriffic write up. thank you! re the liberating idea of selling puts for other underlying to finance directional spreads, do you try to keep expirations to the same date, or does not matter? I'd be interested to hear your experience/conclusions as to how far out you find your monthly premium sales to be structured.. next month? 3-6 months? more? Presonally, i'm moving more toward 6 month max sales (unless writing buy writes to build an underlying position) and preferably less, to get that decay up. And even the 3 and 6 month out sales get to be feeing "too long."
Savi – cool that you were able to do that.
it turns ot the BLS has some kind of secret 'magic formula' for computing the numbers of employed that only the BLS knows, and now it is back down to the wire on Greece as Papademous has set 0500 AM EST for parties involved to decide on bailout terms with Merkel and Sarkozy scheduled for a press conference at 0645 AM EST.
flip a coin?
Greece? What is this Greece thing? Never heard of it…. Why is gold $1,717? Should we be buying the dips?
This is a hell of a bad start to my first officially bullish day, isn't it?
Dollar 79.62, Euro $1.304, Pound $1.5735, 76.666 Yen to the Dollar and EUR/CHF $1.2062.
Oil $96.66 (many signs!), silver $33.36, copper $3.85, Nat Gas $2.457 and gasoline $2.8927.
This really sucks because now I have to read the news (of course I read my NYTimes over the weekend but really, that was all) and I know that's going to put me back in a bearish mood. Maybe we'll get lucky, who knows?
So here's my challenge for the day – I will attempt to look on the bright side of the news this morning!
Monday's economic calendar:
10:00 Employment Trends Index
3:12 AM Asian shares mostly rise following the strong U.S. jobs report on Friday and despite the various Greek debt talks continuing to rumble on without producing that all-encompassing deal that will prevent a meltdown. Japan +1.1% to 8929.2. Hong Kong -0.3% to 20685. China flat at 2331. India +0.6% to 17708.
3:59 AM EU shares are lower in early trading, with worries about the interminable Greek debt talks overshadowing the fading euphoria over U.S. jobs data on Friday. Euro STOXX 50 -0.8%, London -0.3%, Paris -1.1%, Frankfurt -0.4%, Milan -0.5%, Madrid -0.7%.
Notable earnings before Monday's open: HAS, HCA, HUM,L, LAZ, NNN, SOHU, SYY, UDR, USG
Notable earnings after Monday's close: AGNC, AMLN,APC, CSTR, LEG, NCR, PMCS, PXD, SPF, SUN, TMK, UNM,VECO, YUM
There, that wasn't so bad, was it? I have no idea how to take out the double graphic – I wasn't purposely doubling it for emphasis…
C’mon Phil, I thout you were on top of tthese things.
Google “ny post rubber room” and catch up on all the currentand past articles about Alan Rosenfeld and other miscreants who are bilking us sucker taxpayers.