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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Phil

Author

February 9, 2012 12:13 am

Thursday's economic calendar:

8:30 Initial Jobless Claims

10:00 Wholesale Trade

10:30 EIA Natural Gas Inventory

1:00 PM Results of $16B, 30-Year Note Auction

4:30 PM Money Supply

4:30 PM Fed Balance Sheet

Notable earnings before Thursday's open: ALXN, BCE,BG, CBOE, CCE, CLI, CPO, IFF, KKR, LO, MFC,

MPEL, NBL, O,OZM, PDS, PEP, PM, SEE, SHPGY, SIAL, SIRI, SNI, SON, SPR,TDC, TRI

Notable earnings after Thursday's close: ATR, ATVI, CCJ,DCT, EXPE, GDI, HME, ITMN, LNKD, NUAN, NXPI, PBI, RSG, SUN,XL

February 9, 2012 12:38 am

Bernanke/Newbie – That's going to depend on what happens to the economy over that time and it's not all in his hands. Much as I make fun of running the printing press – I think hyperinflation is the only viable solution to Global Debt and that's Bernanke's game. In fact, I sometimes think that he's actually brilliant – telling the power elite what they want to hear (low inflation, low rates, Fed backstop) while plowing so much money into the system and encouraging the same behavior World-wide that, by the time inflation kicks in, it will take 10 Volkers to put it back in the bottle and by then it will be too late for the top 1% as their stagnant wealth is quickly gobbled up as the money they loaned out at 6% is repaid in Dollars that are worth 20% and 30% less by workers who once again get 10% annual wage increases to keep up with inflation.

See it's not enough to cause inflation – that can be contained – for Bernanke's plan to work, he has to cause irrevocable hyper-inflation and that is NOT what the top 1% want as they are still positions mainly as lenders and they haven't yet really been able to foreclose and confiscate more assets – which is the usual end-game in these economic cycles. Bernanke has also slowed that process but, by doing it through ultra-low (artificially) rates – he lulls the top 1% into a false sense of security, kind of like the carrot before they get hit with the stick.

We have essentially doubled the Global money supply since 2008 but the velocity of money has fallen by 50% so net global GDP is flat and we don't have any inflation. Once that money begins to move through the system again, even getting back to just 75% of where we were with a 2x money supply will lead to 50% increases in prices (and GDPs). Since National Debts are long-term, the trick is to make inflation rise faster than the loans can be re-set and, of course, home loans are long-term fixed and credit-cards have rate limits that must be approved by Congress so very fast inflation of 8-10% a year that forces wages higher will be good for Governments (GDP and collections rise faster than Debt) and good for consumers (wages rise faster than debt payments) and bad for the people who lent them money.

So 5 years from now, Ben is likely to be the villain as the US and the rest of the World is rocked by some of the worst inflation ever seen but 10 years from now and 20 years from now, after the next Volker calms things down – people will say Bernanke brought the World back from the edge of an economic collapse. At the moment, its amazing how many "economists" don't understand the simple relationship between the supply of money, the velocity of money and GDP.

The classic formula is M*V = P where M is the supply, V velocity and P is price but think of P as part of GDP and it's quite simple and it's the debt to GDP formula that is killing us and other countries around the World and clearly – we can't fix the debt – so we have to fix the GDP and the fastest way to fix the GDP is to expand it through inflation. Sure we can still create more goods and services (and inflation encourages that as things become more expensive and expectations are that long-term purchase can be paid for by wage gains) as a bonus but if the PRICE of all the goods and services we produce goes up by 10%, then suddenly we can grow our GDP by 15% a year.

If we currently have a $16Tn GDP with $16.5Tn in debt and collect $2Tn in taxes (15%) with $2.5Tn of expenses then 15% GDP growth for 5 years (5% real growth + 10% inflation) runs our GDP up to $32Tn and our collections are $4.5Tn a year and even if we added $1Tn a year of additional debt (double), our total debt is "just" $21Tn, which is 2/3 of GDP, down from over 100% – BRILLIANT!

And that is how Ben Bernanke will save the World…

February 9, 2012 12:42 am

Oil crossed the $99 line so game on on (/CL) bullish again with a very tight stop below $99.

dclark41

Member

February 9, 2012 12:59 am

So Phil, how do we prepare for this (Bernanke hyper-inflationary economy) in the interim or is it too far down the road to worry about for now?

February 9, 2012 1:14 am

Catastrophe/Dpast – It's not just Greece. If the Greece deal falls through then the lenders have pushed them too far and that means they can't push Portugal and Ireland and Italy the way they plan and now you are looking at 70% haircuts not being enough on $5Tn worth of debt, not $500Bn and the Fed and the ECB can't print money fast enough to fill that hole. That's why I pulled XLF this afternoon – I just got a vibe that the Greeks aren't going to go fir it in the end. And why should they – there's really not downside to default when paying their debts under these terms is worse than bankruptcy. You hear positive comments from the flunkies the IMF and ECB put in charge of Greece but they then have to sell it to the opposition leaders, who are very likely to be in power in April and would have to live with this crap deal. Of course, it's not set in stone – opposition leaders have offshore accounts that can be filled as well….

A meeting among Greek Prime Minister Lucas Papademos, the parties supporting his coalition, and New Democracy, the opposition conservative party, broke up early Thursday morning without an agreement on economic overhauls sought by the European Union and the International Monetary Fund in exchange for lending an additional €130 billion ($170 billion) to the Greek government.

A single issue was the sticking point: cuts in the Greek pension system. Mr. Papademos said after the meeting that the parties would continue to discuss the issue with EU and IMF officials, aiming to reach a final deal ahead of a meeting of euro-zone finance ministers Thursday evening in Brussels.

Take the money and run/Roro – That would be nice but it's not likely to happen. In fact, the ECB is talking about just giving Greece 40Bn Euros for now (not 130Bn) and seeing how it goes through the elections for exactly that reason. The way they are looking to structure the aid, the money is solely for paying back the bondholders anyway and not one penny goes to the Greek people other than the abstract way that people who previously had 8-20% bonds will now have 4% bonds (and what sacrifice is that as they still got 20% for a while and now they have a safe 4%). Greece has $500Bn in debt and a $300Bn GDP but, if not for $35Bn in annual interest payments, they would have a budget surplus. So walking away from the debt really doesn't hurt them at all – look at Iceland, they told their creditors to go jump in a frozen lake and they're fine now they have one of the best economies in Europe.

“Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks,” says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York. “Ireland’s done all the wrong things, on the other hand. That’s probably the worst model.”

Today, Iceland is recovering. The three new banks had combined profit of $309 million in the first nine months of 2010. GDP grew for the first time in two years in the third quarter, by 1.2 percent, inflation is down to 1.8 percent and the cost of insuring government debt has tumbled 80 percent. Stores in Reykjavik were filled with Christmas shoppers in early December, and bank branches were crowded with customers.

Greece could do a lot worse…

$99.12, we backed the right horse, gold at $1,740. Dollar diving to 78.50 as Euro spikes up to $1.33. Pound $1.584, Yen 77.20 and EUR/CHF $1.2101 so once again it seems Yentervention is now aimed at boosting the Euro and letting the Dollar die.

Meanwhile, this is a crap move in oil for such a big Dollar drop so stop with a .10 gain if we fail $99.10 and we can look to reload on the next cross but I'm going to bed!

February 9, 2012 1:22 am

Preparing/DC – Well, as option players, we have little to worry about. As you can see from last week's trades, we can stay pretty far ahead of inflation and, once it kicks in, we can just buy an IBM 2014 $200/230 bull call spread for $10.50 and sell the $140 puts for $8.20 with a $14 net margin and let's say we do 10 for $10,500 cash and $14,000 in margin and we net $27,700 in profit in 2 years on "just" a 15% rise in IBM. You can do trades like that over and over and over again once you can rely on inflation and the great thing about that is that it takes some serious long-term policy changes just to slow inflation down so plenty of warning.

$99.19 so stop now $99.15 (.05 trailing expands to .10 at $99.35) and reentry would be a cross of $99.25 or maybe if we hold $99 but Dollar at 88.50 is very dangerous for bullish plays so be careful.

February 9, 2012 1:28 am

Phil
I am struggling with what to with an AAPL April BCS spread $425 (24.65/56.27) / $450 (14.05/36.80). Iflan rolled his callers out to the April $475's, but I am worried about some pullback (10% or less). It's easy just to follow him, but I would rather play this trade for my level and ability to adjust (worried Iflan will adjust in a way I can't down the road). If I think AAPL is at or near where it will ultimately be in late March early April ($480), but in the near term will pull back, is it safer to roll the calls upward and take some money off the table? Later, if it does correct, I can roll the calls down and out and leave the callers to expire or roll out to a higher strike creating a new BCS? I don't have the ability to sell AAPL puts. Thanks as always.

February 9, 2012 1:40 am

Good plan Mvex!

Moral Authority/Roro – Very good point on that.

Transports/Diamond – A lot of Dow Theorists still have power in the markets so never discount the power of the Transports to lead the market. Watch the SOX to confirm a move down though, generally they both get weak before we get a nice sell-off.

Weapons/Barf – That's funny. I think it gets to know you as mine tends to show me a lot of kid activities but maybe it's a function of where I live.

Come on Lincoln, there are no dumb questions – only dumb people… 8)

78.48 on the Dollar! $1.3305 on the Euro, $1.5843 on the Pound, 77.20 Yen to the Dollar, EUR/CHF at $1.2100. Oil $99.13, gold $1,741, silver $34.05, copper $3.8985. When I see the Dollar dive like that and not much reaction from the commodities – I'm pretty sure the commodities are overbought. Indexes also not being helped much by a 0.5% drop in the Dollar – does not bode well if Greece isn't making progress and people dump the Euro back to Tuesday's $1.31 lows (down 1.5%).

February 9, 2012 1:44 am

AAPL/DC – The bottom line is you took a $25 spread for $10.60 and now it's $19.47 with 3 months to go in which you can lose 200% of your original investment as you try to make 25% more on your $20 and you are worried AAPL will pull back and you actually have to ask me what to do? Come on DC, this is not a tough one – take the double off the table and find some other way to make $5, like selling DMND puts tomorrow!

February 9, 2012 2:01 am

February 9, 2012 2:04 am

http://www.youtube.com/watch?v=qdFLPn30dvQ
Thank you sir may I have another! DC just got the GREEDY smackdown (and deservedly so)! 🙂
Thanks Phil-I have been better with that. Just trying to keep pace with Iflan!

diamond

February 9, 2012 2:15 am

Phil – Thanks! That is VERY interesting about also watching the SOX to confirm a move down.

Question: which one … Red or White? 😉

February 9, 2012 2:36 am

How Deleveraging Looks – Macro Story

February 9, 2012 2:39 am

Groupon/Lincoln – We roll and DD on MON because MON is a $42Bn company with very fixed earnings and costs that is not likely to fluctuate much and has a lot of institutional ownership so, on the whole, it's fairly steady and we don't expect to be blown out. We DO NOT short sell MoMo stocks that might jump 20% for no reason and then another 20% for no reason and then Cramer tells his sheeple that, if they are over $25, they should be at $30, etc. I'm glad it worked out but you are really playing with fire applying that strategy to stocks that have no fixed value.

Chambermaids/JMM:

I ain't got a million dollars, no-one I can call mine

Ain't got no future at least that's what they say

This girl is going to take those kind of blues away

Uh uh uh uh uh hotel chambermaid hotel chambermaid

DMND/Diamond – Of course P&G has to "weigh options" as the deal was they give DMND Pringles to run and take 57% ownership of the new, combined company as a theoretical $2.4Bn payment. That deal was based on DMND having a cap of about $1Bn at $40 before the merge. Now the CEO is gone and we can assume PG has to care about that and the Financial guys they were working with are gone too so PG HAS to officially weigh their options but I don't think the DMND board would have taken such drastic action without having already cleared it with PG so we may have a period of uncertainty but the reality is that PG can raise DMND back to $40 by simply stating they will go ahead with the deal so, if I were PG, I'd be talking down the deal, selling the crap out of DMND puts and loading up on calls and then "deciding" we can go ahead with the deal after all. This is what Cramer is engineering on his end as his Fund buddies make a fortune from The Street scaring everyone out of DMND ahead of the resolution. There's blood in the water and they have to scare all the kiddies out of the pool before the reality of the restated earnings shows that the company does, in fact, make $50M a year, which makes their p/e, at $20, about 9.

Selling votes/JMM – Someone should set up an EVote site, like an EBay for votes. You could have "buy it now" buttons.

Le Bernadin/ZZ – I hate that crap but the meal is an experience so very cool for people who don't get to come to the big city often. Foodwise, I prefer Bouley, where I've been going since the original place. Brushstroke is cool if you haven't tried it, Bouley trying an Asian fusion thing but they're not getting me to quit Nobu as I prefer simple stuff done right to all these fancy dishes. As to being a capitalist with social conscience – Buffett, Allen, Gates, Cuban, Turner, Branson, Bloomberg, Perelman, Soros, Cargill – pretty happy people on the whole – certainly not the miserable misers that parade out on Fox and CNBC, screaming for the Government to leave their piles of money alone. Making money is much more fun when you use it to help other people. I'm not saying you can't go out and have fun yourself – but I think people who realize that they have enough and decide to share the excess are, on the whole, much happier than those who think they can never have enough for themselves.

Settlement/Jabob – They got off pretty light on the whole. Amount was roughly known and most of the banks already reserved the cash so I doubt much effect.

NOK/Scott – I think maybe longer to "find their legs". I will point out that AAPL sells Millions of $30-$50 IPod shuffles and Siri is a first step towards a phone with no buttons and no on-board processing – just a dumb node that connects to the cloud and tells you what you want to know and connects you to whoever you want to speak to while holding your messages and appointments, etc. How's NOK going to compete with a $50 talking phone/secretary? Other phone companies don't even see the game AAPL is playing and they are pouring their R&D in the wrong direction. Someone needs to partner with IBM and convince them Watson needs to come out of the closet and compete with Siri before Apple gets momentum to refine it up and up in an open field.

No problem DC, just trying to keep you grounded!

Definitely red Diamond – I love the Sox from my college days – especially games at Fenway, which is harder to get tickets for than Yankee Stadium.

OK, now I really do have to go to bed!

roro

February 9, 2012 3:35 am

Closed out for break even on fx trades and up some on the ITA…………Europe opened up so back in cash and waiting.

February 9, 2012 4:28 am

Troika gives Greece 15 days to find another 300 million in cuts.

jmm1951

February 9, 2012 5:32 am

"Greek Prime Minister Lucas Papademos…"

If I am translating properly, his name means "son of the people" which is a good name for a politician. Romney translates from the original Welsh as "winding river" or figuratively as "flip-flopping bastard".

Actually I have a teensy-weensy bit of sympathy for Romney (but not much) because electoral politics is just a charade. The candidates pretend to adopt certain positions ("I am and always have been opposed to all forms of sin" or "Not only will I keep the death penalty, but I will strangle the villains with my bare hands" or "My favorite dish is apple pie") and the TV pundits and commentators pretend to believe that this is serious or relevant to governing the country and conducting foreign diplomacy. It is all The Emperor's New Clothes all over again, and nobody wants to be the little boy who blew the gaff.

***

Nevertheless, some of the animals were disturbed when they heard that the
pigs not only took their meals in the kitchen and used the drawing-room
as a recreation room, but also slept in the beds. Boxer passed it off as
usual with "Napoleon is always right!", but Clover, who thought she
remembered a definite ruling against beds, went to the end of the barn and
tried to puzzle out the Seven Commandments which were inscribed there.
Finding herself unable to read more than individual letters, she fetched
Muriel.

"Muriel," she said, "read me the Fourth Commandment. Does it not say
something about never sleeping in a bed?"

With some difficulty Muriel spelt it out.

"It says, 'No animal shall sleep in a bed with sheets,"' she announced
finally.

Curiously enough, Clover had not remembered that the Fourth Commandment
mentioned sheets; but as it was there on the wall, it must have done so.
[Animal Farm: George Orwell]

lionel

February 9, 2012 5:44 am

There seem to be the last few days some Euro institutionals who have stepped in and are buying European shares and in particular major financials with solid volumes.
May be someone knows that the Troika has won?
But so far a Greek deal without pension cuts is no deal.
The Greek problem reside mostly in a flawed pension system.
Greece has accumulated Euro 230bn of debt since their entrance in Eurozone.
And more than 100bn has been spent (on Greeks) in subsidizing a too generous Greek pension system.
Greece like many other European state has been borrowing away their socialist welfare for the last 10 years!!
Cuts are needed because from now on it will be cash only…
Greeks will either have to contribute more (and their 1% definitely can) or receive less.
Back to reality

February 9, 2012 7:04 am

Good morning!
My guess is that, if one of the Greek parties was looking to block the deal – they would have done so loudly in the press by now so they could be the hero. It's possible they believe they can wrangle more concessions from Troika so there will be back and forth until the bitter end but there's not much sense to walking away from this deal without claiming it as a political mandate.
I miss all the good sell-offs it seems as we turned sour at 4:30 with a big Dollar spike back to 78.70. Now oil is being brave at $99.45 but gold back to $1,735. Euro fell from $1.3311 to $1.3253 and looking weak on that line, Pound back to $1.583 and 77.11 Yen to the Buck with the Swiss back in control and rock steady at $1.210 so even more evidence that the BOJ has thrown their lot in with the Euro as a rising Dollar now raises the Yen as well (because the Euro fell more than the Dollar rose). This is getting really complicated.

BOE holds rates at 0.5% and adds 50Bn Pounds ($76Bn) of QE, which was pretty much expected. If anything, the fact that it's not more should be a negative for commodities.

yodi

February 9, 2012 7:33 am

Phil Hope you had some sleep DMND do you recommend a selling of puts today thanks

February 9, 2012 7:37 am

Thursday's economic calendar:

7:00 BOE Rate Decision

7:45 ECB Rate Decision

8:30 Initial Jobless Claims

10:00 Wholesale Trade

10:30 EIA Natural Gas Inventory

1:00 PM Results of $16B, 30-Year Note Auction

4:30 PM Money Supply

4:30 PM Fed Balance Sheet

2:05 AM Asian markets post some mild losses: Japan -0.1% to 9002. Hong Kong -0.3% to 20952. China -0.1% to 2345. India -0.3% to 17655.

Oh, that's how it works! The pound pops higher on news the BoE will be printing a lot more of the currency. Markets had expected an additional £50B in QE, but whispers had suggested it would be £75B or more. The additional £50B brings the total size of the bank's QE to £325B. Sterling +0.3% at $1.5860. U.K. shares remain as they were, +0.2%. – We should look into this money-printing thing to strengthen the Dollar too…

U.K. industrial production +0.5% in December on a monthly basis vs. +0.2% expected. On an annual basis, production -3.3% vs. -3.1% expected. – These two things, of course, do not make sense together, do they?

Greek December industrial production -11.3% Y/Y vs. -7.8% in November. Manufacturing production -15.5% Y/Y. "This is what a death spiral looks like," writes Ambrose Evans-Pritchard. "This is not a cultural issue … it is the mechanical consequence of capital flows into a country that cannot handle it, as Germany … in the late 1920s." (previous)

Welcome to the Machine: Japan’s machinery orders fell a larger-than-expected 7.1% in December, the fastest pace in three months on a strong yen and growing uncertainties about the global economy. Companies are still somewhat optimistic, forecasting a 2.3% increase this quarter as earthquake reconstruction work kicks in. – This is why PMI is disconnected from reality. Despite ACTUAL, TERRIBLE orders – they still have optimistic forecasts. "If you build it, he will come" may work in movies but, in the business World, it leads to bloated, unsold inventories that eventually do more harm than the good intentions that optimistically created them.

China's consumer prices rose 4.5% in January from a year earlier, vs. expectations of +4%, though the figure is somewhat distorted because of a week-long holiday. The unexpected acceleration in inflation puts pressure on officials to hold back on any immediate additional cut in banks’ reserve requirements.

World food prices rose 1.9% in January to record their largest gain in 11 months, according to the United Nation's Food and Agriculture Organization main gauge. Prices of all the commodity groups that make up the FAO's index registered gains, with oils, cereals, and sugar making the largest jump.

Pump it up! The rally in emerging-market stocks will probably continue as “ample liquidity” and appealing valuations persist, says Citigroup, noting "we would be buyers of any pullback." The MSCI Emerging Markets Index will probably climb to 1,225 this year, ~15% higher than yesterday's close.

The Treasury and five European nations reached a broad agreement yesterday on a proposal to prevent U.S. citizens from evading taxes through the use of foreign accounts. Officials also proposed regulations to implement a 2010 law requiring foreign financial firms to report detailed information about U.S. account holders or face penalties. Notably missing from the list of five nations: Switzerland.

The House is today expected to OK its version of the Stock Act, which will ban insider trading in Congress and require public officials to reveal their stock dealings within weeks rather than once a year, as is now the case. The Senate passed a similar measure last week, although the House bill removes a key provision on disclosure.

Greek leaders fail to agree on a reform and austerity program after an hours-long meeting, felled by disagreements on the issue of pension cuts. As a result, Greek finmin Evangelos Venizelos heads to a Brussels summit today without the Greek support seen as key to the receipt of additional bailout funds.

Greece's jobless rate rose to 20.9% in November, a new record, from 18.2% in October. In comparison, the average eurozone unemployment rate is 10.4%.

Officials are on the verge of announcing an agreement worth as much as $26B with the nation's top mortgage banks, with an announcement possible as soon as this morning. The five banks involved are BofA (BAC), Ally Financial, JPMorgan (JPM), Wells Fargo (WFC) and Citigroup (C). (see also)

The SEC reportedly plans to send Wells notices to several major banks over mortgage-related bonds linked to the financial crisis. It's unclear which banks are being targeted, though sources say the focus of the civil investigation includes BofA (BAC), Citigroup (C), Deutsche Bank (DB) and Goldman Sachs (GS).

Quick Robin – to the scapegoats! More than a dozen traders and brokers in the U.K. and Asia have been fired or suspended as regulators accelerate a multinational probe into possible manipulations of interbank lending rates. (previously)

New York's courts face an estimated 100,000 foreclosure cases, with tens of thousands more expected, and the courts are largely at a stalemate. Officials say the situation in New York, which has been one of the most aggressive states in trying to protect homeowners, underscores the inability of states to cope with what is essentially a national problem.

"I see your country is struggling, perhaps we can exploit you?" Kazakhstan signed an agreement yesterday allowing German companies the right to search for and mine rare earths and other raw materials in the country in exchange for technological and other investments. The agreement is worth around $4B, and could have at least some impact on China's stranglehold of the market.

Jefferies downgrades Joy Global (JOY) to Hold from Buy with a lower price target of $90 on a valuation call. Analysts with the firm say JOY cruised right up to their original PT of $100 and see a potential negative margin mix with underground parts and service revenues under pressure. Shares -0.9% premarket.

BP (BP) is reportedly in negotiations with U.S. officials to settle pollution claims related to the Deepwater Horizon spill. The government is seeking fines of up to $4,300 for each of the 4.1M barrels spilled, which could leave BP liable for as much as $17.6B. BP is also said to be in settlement talks with other firms tied to the spill.

Pepsico (PEP): Q4 EPS of $1.15 beats by $0.03. Revenue of $20.2B (+11% Y/Y) beats by $300M. (PR)

The good news is we're making record profits – the bad news is, we don't need you to make them! More from PepsiCo (PEP): The company announces plans to cut 8.7K employees or 3% of its workforce by 2014. Dividend is raised 4% to an annualized rate of $2.15/share. It expects 2012 share repurchases of at least $3B – financed through a combination of free cash flow and additional debt. Shares -1% premarket.

February 9, 2012 7:38 am

Vodafone (VOD) Q3 revenue -2.3% to £11.62B, in-line with consensus, due to ongoing difficulties in Europe, its biggest market. The company reaffirms FY guidance for adjusted operating earnings of £11.4B-11.8B.

Vodafone (VOD) follows other firms, moving cash out of Greece "every evening," to guard against an exit from the euro, according to its CFO Andy Halford. GlaxoSmithKline (GSK) takes it a step further, moving its cash from all of Europe (save Germany) into the U.K. each day.

Rio Tinto's (RIO) FY net profit -59% to $5.8B because of an $8.9B impairment charge relating to its aluminum business. Underlying earnings rose 11% to $15.5B. CEO Tom Albanese and CFO Guy Elliott waive their bonuses. The company is "cautious" about near-term prospects because of uncertainty in the financial markets and elevated price volatility. Shares -1.6% in London.

Credit Suisse (CS): Q4 net loss of 637M Swiss francs ($698M) after taking a 981M franc charge to speed cost cutting and offload risky assets. Consensus had been for a 430M franc profit. The "disappointing" performance reflects "adverse market conditions" and the impact of responding to "evolving market and regulatory requirements." Shares -5.6% in Frankfurt.

ING Group (ING): Q4 EPS of €0.31 in-line. Underlying pre-tax result of €793M, including €79M of realized losses from selective de-risking at ING direct and €133M of re-impairments on Greek bonds. Tier 1 ratio of 9.6%. Decides not to pay a dividend over 2011 because of uncertain financial environment, increased regulation and the need to repay the Dutch government. Shares -1.3% premarket. (PR)

Facebook (FB) jumps to $44 per share in the latest auction at SharesPost – tipping off that the company may debut with a 12-digit market cap. The trading on 150K shares of the company's Class B common stock on the private market implies a market cap of close to $102B – the highest valuation yet.

Procter & Gamble (PG) calls the flareup at Diamond Foods (DMND) "very disappointing" as it evaluates new options for the sale of Pringles after originally working out a $2.35B cash and debt deal with the embattled firm. Though it's been a long road of P&G sticking by Diamond for the most part through its troubles, Jefferies says this time the deal looks to be off. Premarket: PG +0.8%, DMND -42.7%.