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Thursday, March 30, 2023


Wednesday Worries – Yentervention, Euro Style

78.50 on the Dollar!

The Yen finally got back to 77 and EUR/CHF back to 1.21 so my theory that the BOJ has given up on the Dollar and moved to boosting the Euro is playing out nicely.

This does not make me more bullish (expecting falling Dollar to boost the markets) because, in the grand scheme of things, this is kind of like now there are two kids building a sand wall on the beach instead of one – sure it will last longer than the wall just one kid was building but, eventually, the tide will get it anyway or, as Jimi Hendrix said more poetically: "Castles made of sand, fall in the sea, eventually." 

Once you start messing around with Forex markets, you are messing with major macro forces that are hard to control.  Japanese banks have $7.5Tn of Japanese bonds at 1% – what happens to the value of those bonds if the BOJ does push the Yen down 10%?  Who takes that $750Bn hit?  What if rates go up to 2% – what's the value of the bonds then?  Who will bail out the Japanese Banks when they have a multi-Trillion Dollar (several hundred Trillion Yen) hole in their balance sheets?  Do Japanese spreadsheets even have room for Quadrillions?  They are going to need it!  

Then there's this Bloomberg article on the Central Banks, who have doubled their balance sheets since 2006 to $13.2Tn but, magically, have caused no inflation (according to Ben Bernanke – not according to people who actually buy food and stuff).   China is now sitting on $4.5Tn of other people's TBills (mostly ours) and that's up $1.5Tn in a year.  The ECB is right behind them with $3.6Tn and another $1Tn supposedly coming in the next EFSF round and the Fed has $2.9Tn plus whatever nonsense they are running off book.   

So, how is it that WE are the bad currency here?  If the Dollar is a problem, then China, who's GDP is only about $8Tn (optimistically, possibly $5.5Tn depending on who's measuring) is almost as insane as Japanese bankers and maybe more so as they are betting on our country's ability to pay and maintain the value of the Dollar (already a fail, right?).  I suppose no one can ever recognize losses and just carry more and more junk on their balance sheets forever but that's kind of a scary plan because, all it takes is that one little boy to point out that the Emperors have no clothes and this whole thing can collapse like the house of cards that it is.  

Anyway, my point is that Forex traders do get this and that's why you can't fight the tide.  You can fool stock investors all the time, they are generally sheep who don't even understand what it is they are putting money into and, as we well know, between the low volume and the BS ratings and the pumpers on TV and the completely inaccurate guidance given by the companies themselves and the insane analysts and the people who follow them – it's a total joke.  That was made evident in 2008 when the markets were "worth" what they are now in August and then, 60 days later, they were "worth" 50% less.

That doesn't happen with Picassos or Baseball Cards or Classic Cars or Comic Books or Houses or other things of actual value – they generally have enough sophisticated investors that there is genuine price discovery that holds up over time but stocks, on the other hand, can go up and down 20% on rumors because there are plenty of uninformed buyers and uninformed sellers on both sides of the aisle.  

The S&P is up 22.5% since October 1st.  The US Equity market is about $50Tn, with $10Tn added in the last 4 months.  At the current volumes of under 2Bn shares a day, let's say it's a generous average of $50 a share ($100Bn) and let's say we had 100 trading days (also generous).  That's $10Tn too.  So I guess we could say that the move in the market is justified if EVERY SINGLE TRANSACTION that has taken place in the past 4 months has been a buy with $10Tn pouring into equities (as you can see from the chart on the left, only $1Tn came from the Fed and the ECB) and supporting a move in the market that is almost the size of our entire economy and, of course, globally, it's double that.

The Central Banks have taken advantage of the low tide to build some beautiful-looking sand castles and investors are flocking to admire them with the Mainstream Corporate Media simply falling over itself to congratulate them on their epic victory over reality but how many of those investors are really planning on moving into those sand castles – or will they all run out as soon as the next crisis wave laps on the walls and the begin to crumble once again?  

I said to Members in early morning Chat

Unfortunately, I've been reading the news so it all seems completely ridiculous to me and I'd say shorting the RUT (/TF) below the 830 line (just tested 833) and shorting the Dow below 12,850 (now 12,854) look like the most attractive plays in addition to same old shorting gold at $1,750 line. 

I would love to have a bullish play but I just can't do it – I'm sorry, I'd rather be in cash than pay these prices just because the Dollar is driven down to ridiculous levels against a currency (Euro) that is 1/3 it's size and just did a $750Bn round of QE and is about to do another $1.5Tn round and all that, so far, has barely "fixed" their smallest member state.   This is like us fixing Rhode Island and the rest of the World declaring America all fixed…

Obviously, we need to watch that 78.50 line on the Dollar – below that and we can't be bearish but it should hold. 

I know I promised to try to get more bullish but it is literally impossible to read the actual news (see Member Chat for today's rundown) and buy at these levels – certainly not with any long-term conviction.  So this is my little therapy session where I will try to get it all off my chest as we TRY to disconnect our brains and follow this rally – assuming the madness continues just because Greece is fixed – which, as I said, is the same as declaring America's finances fixed if we bail out Rhode Island

Speaking of Greece:  Government revenues in January are down 7% year over year versus the 8.9% increase expected by Econonomorons, who were sure that drastic austerity was the key to prosperity.  VAT receipts are off 18.7% and I guess that explains why Greece is only up 0.5% today – someone must have accidentally read this report!  I'm sure the next round of austerity measures being demanded by the Troika will do the trick and turn Greece around – after all, how many times has austerity failed to produce a recovery?  

I'm sorry, that was a trick question as austerity NEVER works, not in the past 200 years, at least.  Even Forbes knows this and those guys are pretty slow on the take…  

Austerity does work for the people the victim owes money too – much the way that donating 8 pints of blood works works for the vampire, but tends not to have a positive outcome for "donor."  Like vampires (and I'm not the first to make this comparison), the bondholders will simply move on to their next victim once Greece is drained dry. 

There are Trillions riding on a successful Greek bailout – not because of Greece itself but, by making it look like Greece is "fixed" and harsh austerity measures including pay cuts, benefit cuts, reneging on retirement promises made to the people while the Rich continue to enjoy their special loopholes – they set the stage to run rampant across all of Europe, the US and Japan with the same song and dance, just like they did in the 30s – until the "recovery" came crashing down around the World and plunged us into WWII.  Ah, good times for the Military-Industrial Complex indeed!  

Anyway, so that's what's bothering me but we can't let it stop us from playing the market to higher – we just need to recognize that it probably won't last.  Last week on Thursday and Friday, we featured 10 bullish trade ideas, as promised, to take advantage of the insanity because – as we often say – we don't care IF the markets are fixed, as long as we can figure out HOW they are fixed and take advantage of it.  Our plan was to add one bullish trade each day we were over our breakout levels and here we are at day 5 already so let's see how we're doing:  

  • FAS Feb $77/80 bull call spread at $2, selling $75 puts for $1.50 for net .50, now net $2.25 – up 350%
  • FAS March $75/80 bull call spread at $3.05, selling $70 puts for $3 for net .05, now $2.15 – up 4,200%

Not bad for a week's work, right?  As a bonus, in Thursday's post, we also featured some alternate bullish offsets that were less aggressive than selling short FAS puts:


  • CHK Jan $17.50 puts sold for $2.05, now $1.74 – up 15%
  • GE 2014 $17 puts sold for $2.50, now $2.23 – up 10%
  • GOOG June $450 puts sold for $4, now $2.35 – up 41%
  • ISRG Jan $310 puts sold for $10, now $7.66 – up 23%
  • KO Jan $62.50 puts sold for $3, now $2.60 – up 13%
  • MO 2014 $23 puts sold for $2.15, now $2.05 – up 5%
  • PFE 2014 $20 puts sold for $2.65, now $2.80 – down 6%
  • XOM Jan $65 puts sold for $2.50, now $1.95 – up 22%

I know – so dull!  Still it's a great way to enter positions and a great way to use your sidelined cash to generate a little additional income – a strategy we concentrate on in our Income Portfolio, which was also updated this weekend.  You don't want to sit around in a bull market like a deer in the headlights – just because you think it's nonsense.  Surely there must be SOME stock you would be willing to buy if it drops 20%?  If so, then sell the put at that strike and someone will be paying you just for promising to buy a stock at a lower price than it is today.  This is not complicated, folks

In addition to our aggressive FAS trade ideas, which were meant to make big money if the rally held up to help balance out too-bearish positions, we had a few longer-term trade ideas featured in Thursday's morning post:  

  • CHK 2014 $15/20 bull call spread at $2.65, selling 2014 $15 puts for $2.35 for net .30, now $1.16 – up 286%
  • AA July $8/10 bull call spread at $1.40, selling 2014 $10 puts for $2.10 for net .70 credit, now .40 to buy back – up 42%
  • AMZN Jan $170/180 bull call spread at $5.20, selling Jan $110 puts for $4.15 for net $1.05, now $2.90 – up 176%

Friday we continued to concentrate on long-term trade ideas as FAS was already looking promising and there were no aggressive plays I liked better:

  • BA 2014 $60/80 bull call spread at $11, selling $65 puts for $8 for net $3, now $3.45 – up 15%
  • F 2014 $8/12 bull call spread at $2.40, selling $10 puts for $1.50 for net .90, now $1.25 – up 38%
  • GS 2014 $80/110 bull call spread at $20, selling $90 puts for $12.50 for net $7.50, now $8.10 – up 10%

I ran out of time in the post but, in the Morning Alert to Members, we added:

  • SVU at $7.10, selling 2014 $7 puts and calls for $3.70 for net $3.40/5.20, now net $2.97 with SVU at $6.87 – with buy/writes, we're either on or off track but .13 below our exit strike is still on track on this one and an even better entry now than it was on Friday for a possible double in 2 years. 
  • HPQ 2014 $20/30 bull call spread at $5.60, selling $23 puts for $3 for net $2.60, now net $2.97 – up 14%
  • SKX July $11/13 bull call spread at $1.20, selling $11 puts for .90 for net .30, now .70 – up 133%
  • 2 BTU 2014 $30 puts sold for $5.40 ($10.80), buying 1 Jan $40/50 bull call spread at $3.20 for net credit of $7.60, now $5.30 to buy back – up 30%

So let's not fear the rally.  Of course we balance out our winners with a few bear hedges (see yesterday's Member Chat for TZA spread) to lock in some of our quick gains.  Also, there's nothing wrong with taking some cash back off the table here as this "rally" is just ridiculous and, if the tide comes in this week or next, we'll be thrilled to get back to cash but, if we're going to head up forever – we can do this week after week so we're not going to miss much by sitting out a few! 

Let's be careful out there…  


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Apparently, what is good for AAPL is bad for the carriers…



Since Apple's iPhone debuted on Verizon's network in February 2011, Verizon's "EBITDA service margin" — a closely watched metric that carriers use to measure their core profit as a percentage of their sales — has tumbled.

Between 2009 and 2010, Verizon (VZ, Fortune 500) averaged EBITDA service margin of 46.4% per quarter. In the first quarter that the iPhone went on sale, that fell to 43.7%. Last quarter, when Verizon sold a record 4.2 million iPhones, its margin plunged to 42.2%.

Verizon had just one "good" stretch this year: the third quarter, when its margin bounced back up to a record 47.8%. That's the same quarter in which iPhone sales stalled, as customers waited for Apple to unveil its heavily anticipated new model.

AT&T (T, Fortune 500) and Sprint suffered an even worse fate. AT&T posted a stunning 28.7% EBITDA service margin last quarter, compared with 37.6% a year earlier. One contributing factor: AT&T sold nearly twice as many iPhones as Verizon last quarter.

After selling nearly 2 million iPhones last quarter, Sprint's adjusted wireless margin fell to 9.5%, down from 16% a year ago. The company said Wednesday morning that its margin was nearly 9 percentage points lower than it would have been due primarily to the iPhone.

AMZN    weekly 175/190  short  straddle sold on feb 3 acting very well.    Stay right where you are AMZN!

Real Estate – I am in downtown LA and there is a fair amount of rental housing building going on(higher end buildings) where the average rent is at least $2,000/month.  I have lived in LA almost my entire life and I don't see how building can be increased by any significant amount.  JMO 

That's actually a short strangle folks, for the astute out there…..

Nice /DX stick.

There are so many layers to the Greece problem…


Finance Ministry officials attribute the slump in VAT receipt figures to the major cash flow problems that enterprises are facing. Some of the latter are choosing not to pay for their VAT in order to plug other holes caused by liquidity problems.

That might not be the whole story. Companies have complained that the government is the one so short of cash that it’s not paying them VAT rebates in time. The IMF’s most recent report on Greece’s bailout in any case also hinted at these problems, observing that a drop in firms’ social security contributions reflected how cash is tight across the system.

And above all, there are continued postponements to the official eurozone credit that keeps the lights on in the Greek government. When this last happened in late October and early November, the state’s cash-flows had to be tightly managed. But it avoided issuing actual IOUs — T-bills, paper with a specified maturity, what have you — in place of cash, which is a relief.

It just cannot end well…

AAPL – My guess looking at industry trends is if AAPL takes a dip, it will be in May after it posts good earnings for Q1 based on China and intl market success, iPad 3,  iTV hype etc. The Samsung Galaxy S III is expected to be released in May.  It will be a beauty (large 4.6" super AMOLED screen 7mm thick, curved body, 12 MP camera) and it will support LTE so it should get a big push from Verizon and AT&T since I suspect it will be available for both networks unless one party signs an exclusive.  
Apple needs to watch the time gap on the 5S release to support LTE vs Android devices, likely more from a hype perspective than actual global results since LTE is relatively nascent outside of North America.  Looking ahead to 2013 if Apple agrees to build a TD-LTE iPhone for China Mobile who doesn't  sell the iPhone yet (650 million subscribers) and Clearwire (pretty much irrelevant to Apple but important to CLWR) then that's what I call a decent market expansion opportunity which should support further stock appreciation in 2013.  

StJ – So according to that article, Greece managed to not issue IOUs but yet last year California did issue IOUs and may do that again in a month from now…

MON getting smacked down today back around 79 with some interesting put activity on the Feb 77.50 strike w/ over 1100 contracts traded today

JRW, are you making any trades?

As I was pointing out the other day, Nat gas prices are taking a toll on UNG and now they will do a reverse split. But some people are not happy about that…


Now, in our outrage-of-the-year column: the managers of the UNG (the US Natural Gas ETF) have decided to do a 4-to-1 reverse split to boost the value of the quote on the UNG. Doing reverse splits on commodity ETFs? How can this be allowed? The UNG is losing value because there is a contango and because Natural Gas is coming down; it does not look good but that’s the way it is. What is the point of having commodity tracking ETFs if it is to artificially boost their reference price through reverse splits just because you think that the quoted price does not look sexy enough? As per the filings the UNG will do a reverse split to increase the marketability of the UNG and to ensure that the value of the UNG is above the NYSE minimum listing requirements…

Feb. and March Vix futures are starting to move ahead of spot vix

California / lnk – True, no IOU yet from Greece, but California is not yet asking for a haircut on their bonds… Not a good situation on either side!

Does anyone follow INFN?

Phil – Yes, you did. Sorry for repeatedly asking about it, just have a small account and get antsy! Plus, Im at kabul international waiting to go to Kuwait via Kandahar for a week and have nothing else to do…Already hit the gym.. Already got my 18$ hour long massage…Now Im just sitting around waiting for my flight tomorrow and trying to make some $ with following your expert advice 🙂  

kustomz / Trades

I'm short looking for IWM 82.65, but we are on trend line support

Gee Willikers!…………….Those OPEN calls I sold 20 minutes ago are already 40%  profitable!

From Forexlive…Swiss nuclear power plant shut down
Not sure if that is the catalyst for the euro slide to 1.3235 but it as good as anything I can find…Nutty price action.
Makes sense for a quick sell off but, if its nothing serious we should bounce back ….thanks JRW

Um, 10:30 (7:30 PST) low is in…be careful.

over $2?

AAPL – Just came across this suggestion that iPhone 5S could be as early as July based on Foxconn starting to hire as many as 100,000 people and that from production to release can be in as little as 5 months.  Being ready for back to school would be huge since that market is now as big for North American carriers as the year-end Christmas period.  This is of course still speculation but the possible launch date is better than earlier speculation.  

Some reality check for CMG and AMZN.



Hi Phil,
i hold 15 sqqq bcs 15/17  march @.65 and 10 @.40 now @ .35
10 edz april bcs 15/22 .00 + 10@ 1.70 now @.60
what could i do with them?thanks

Phil, I'm showing TLT high of $1.68 but you mentioned they're above $2 now. Did we switch from the weeklys to the Febs or was that a typo? Thanks

exec / Target

We may be there IWM 82.42, then 82.22 and 81.92

St J: AAPL and margins
That Iphone margin issue to T/VZ/S is something I can't help thinking will have to start coming out of AAPL margins at some point.  I'm not trying to hate on AAPL but it just seems that they are partners with the carriers and it can't be good long term when one benefits to the others detriment. IMHO


What are you using for the next TL support?

HOV above $3 for first time since last May.

Euro just broke through minor support and could be heading below 132

For the DMND players:
Diamond Foods' (DMND) audit committee is supposed to complete the results of its probe into the company's accounting methods within the next week or two. Last month, Diamond said that the committee's investigation into payments made by the company to its walnut growers would be completed by the middle of February. In a February 7 note to investors, Deutsche Bank predicts that Procter & Gamble (PG) will not commit to the sale of its Pringles unit to Diamond until the SEC and Department of Justice complete their own probes into Diamond's accounting issues. On the other hand, the firm thinks that the probability of Pringles being sold to Diamond will increase significantly if the results of Diamond's internal probe are favorable. Deutsche Bank continues to see three possible scenarios for Diamond's stock: If the Pringles deal is completed by FY13, the firm thinks that the stock will be worth $65. If the deal is altered due to added risk, the firm values the shares at $58. Finally, if the deal collapses but Diamond isn't forced to restate its results, the shares will be worth $30, Deutsche believes, which maintains a Hold rating on the shares. In early trading, Diamond dropped 70c, or 1.86%, to $36.96. :theflyonthewall.com

reason for the euro move:

Let's hear it  82.22,  82.22, 82.22 –

AAPL / Lincoln – I guess it would easier on the carriers now to renegotiate deals since the 3 biggest ones now carry the iPhones. Apple could always stop selling to the squeaky wheel, but that would help sales I am sure… But it's a lot of money for these guys when margins get squeezed by 5%. 

Biotechs are getting hammered…..risk is off.

"Europe" may have  problems, but "there'll always be an England".  From FT:
"The Bank of England meets on Thursday with expectations running high that a further large dose of quantitative easing will be announced by the MPC. Even if they pass this month, which seems possible, this is likely to be only a temporary postponement. Whenever it comes, the next move will be another bout of “plain vanilla” QE, involving the purchase of £50bn-£75bn of government bonds, and taking the overall Bank of England holdings to over one third of the total stock of gilts in issue."

exec / Support


Euro dropping like the proverbial stone.

My guess was 83.23 top and 82.10 bottom. May go to 81,92.

Dropping / Zero – Market not far behind…. Euro was up 180 pips yesterday which was unreal. Giving back about 1/2 today would be nice.

82.08 was the low yesterday on IWM!

And I have S1 at 82.21! We'll see….

My S1 is 82.14 the low so far.

You might want to take profit on shorts here (IWM 82.00) !!

TLT not able to make the push higher. Guess we are also waiting for the results of the treasuries sale today.

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