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Tuesday, February 7, 2023

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Wrong-Way Wednesday – No QE3 For You!

Yesterday, we talked about the BS that is Fox News.  

Ironically, some of the "news" outlets that generally carry my articles (who's names shall be protected because they are wimps) decided it was too controversial for their readers so we know that's not a topic we're allowed to discuss in America, for fear of being black-listed.  Today we'll see if we can make it a two-fer in the Bracket of Evil, as I have a juicy resignation letter from Greg Smith of Goldman Sachs (thanks Rev Todd), who is no small player, but the head of the firm's US Equity Derivative Business in Europe, the Middle East and Africa.  Just a couple of excerpts:

I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.

What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym. 

I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail.

So we established yesterday that you can't trust the MSM and clearly you can't trust your Investment Banker and we KNOW we can't trust the Government (I don't even need to do a post on that, do I?) yet – based on the information THEY are giving you, the stock market is back near it's all-time highs and the VIX (fear index) is back near it's 10-year lows – as if you don't have a thing to worry about – just give them your money and all will be well… 

Are you really that dumb?  Clearly they think you are.  Despite being exposed by Matt Taibbi in Rolling Stone and despite Senator Carl Levin exposing internal GS Emails in which GS division heads called Timberwolf Securities a "shitty deal" at the same time as management made pushing the Timberwolf deal to clients the firm's "top priority."  GS declined from $170 a share at the time of this investigation (April 2010) to $85 a share last Fall but now they are rocketing back over $125 as – hey, it's been almost 2 years – all is forgotten and forgiven, right?  

This isn't about Goldman Sachs per se but about the overall investing climate in which the Corporations and the media they control, along with the puppet Government they fund through their lobbyists, have devised a massive wealth extraction machine that lurches this country from crisis to crisis (real and imagined) in order to justify first excess prices for goods and services, then excess fees for banking and insurance and then, when you begin to run out of money, exorbitant prices for food and energy (which you NEED to live) until you go broke and then they turn around and demand a bail-out to relieve them of whatever jacked up assets they are stuck with when the bubble they created finally bursts.  

WE JUST SAW THIS HAPPEN PEOPLE – yet here we are, getting right back on that horse as if we are none the wiser just 3 years almost to the day after the great bottom of 2009.  Markets don't crash because they were priced correctly – markets crash because the people who are buying the assets do not correctly identify the risk factors that may affect prices down the road.  That's what the Big Business/Government/MSM triumvirate is all about these days – getting the masses to once again believe all is well so the can get you to run back into the markets – AT THE SAME PRICES YOU OVERPAID FOR LAST TIME! 

Again, I have to ask, are you really that dumb?  Just yesterday the market began to sell off after the FOMC minutes (see my comments to Members here) failed to give an indication that additional Quantitative Easing would be coming and the market began to sell off and then, by "accident" JPM (every bit as bad as GS), revealed they had passed the stress test a day ahead of schedule by announcing buybacks and dividends that couldn't occur if they hadn't.  That started the rumor mill and a buying frenzy in Financials (up 3.5% in an hour) that took the market to new closing highs and then the Government backed up Big Business and fed the Media frenzy with an early release of the stress tests.  

This would be truly amazing – if it weren't the exact same spike move up, in the exact same percentage – also making new highs, as we had on January 25th – the day of the last Fed meeting, when they also failed to come through with QE3.  I think the real difference between investors and muppets is that the muppet knows it's being manipulated…

Anyway, we shall see how this all plays out today and into option expirations on Friday.  Less than two weeks ago, we had 10 long-term bullish trade ideas – one per day to add for each day the S&P was over 1,360 – just 50 points higher than the line at 1,310 we drew in January so not too much to ask for a "bull market."  We failed on the 6th and the 7th (back to 1,340) but have been up since and our 10 bullish trades still have a couple that can be played over 1,390 and we'll just keep pushing the line higher until the market does finally break.  Our 10 trade ideas were:  

  • SKX Oct $10/14 bull call spread at $2.20, selling $12 puts for $1.55 for net .65, now .90 – up 38%
  • SU 2014 $25/37 bull call spread at $6, selling XOM 2014 $65 puts for $5 for net $1, now net .70 – up 30% – still playable
  • USO June $40/46 bull call spread at $2, selling SCO Oct $26 puts for $3 for net $1 credit, now .24 credit – up 76%. I like this one because you are long and short oil at the same time.
  • AA 2014 $10 puts sold for $2, still $2 – even – still playable
  • X Jan $25/2014 $20 buy write at $17.04/18.52, now $17.84 – up 5% – still playable
  • PEG Sept $30 buy/write at $27.07/28.53, now $27.20 – up 1% – still playable
  • HOV 2014 $2 puts sold for .90, now .85 – up 5%
  • BAC 2014 $3/7 bull call spread at $2.75, selling $10 puts for $3.30 for net .55 credit, now 0 credit – up 100%. 100% seems like a lot but it's just .20 out of $5.10 (927%) of potential gains so still very playable.
  • HCBK Jan $7 buy/write at $5.14/6.07, now $5.55 – up 8%
  • FTR 2014 $5 buy/write at $2.43/3.71, now $2.37 – down 3% – still playable.

Not too bad, right?  You didn't miss much if you held back as they are well-hedged positions where we really only care if they are "on track" or not.  This Friday will be trading day 10 and I promise to have 10 new trade ideas for the next two weeks if we're still in this technical (certainly not fundamental) rally.  Meanwhile, please be careful out there – this rally seems as fake as any I've ever seen and, while I don't mind playing along – I think it's prudent to always have one hand on the exit and to make sure we're one of the first ones out the door when this party begins to wind down.  

Be careful out there.

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Go Santorum!
 
25% of Mississippians believe interracial marriage should be illegal…
 
Interesting when you consider that these days marriage is intrinsically a conservative option. Never mind small government and personal liberty, then.

Small government / Jmm – With these guys it's small government only when it relates to money… Otherwise, the government can take control of your body or your bedroom! And they don't see a conflict there.

Oil Lines (paid for by Goldman Sachs)

R3 – 109.22
R2 – 108.28
R1 – 107.54
PP – 106.60
S1 – 105.86
S2 – 104.92
S3 – 104.18

On the dollar side I have R1 at 81.01 and PP at 80.36 in play now.

The AAPL portfolio is all in cash now so I can post the update now:

@Felipe
The last of the great Investigative Journalists…..you should get a Pulitzer for finding that letter.
Thanks.

The volatility spreadsheet is up to date with some stocks outside the volatility bands for the week!

266567a04f84012f2fd300163e41dd5b?width=750

Goldman resignation letter
 
Interesting but nothing new in that. In my first job out of college circa 1972, I was employed on commission to sell life insurance policies to students. The sales pitch was that if you bought into a whole-of-life policy at a very young age, you would get a very cheap rate and that you could later convert this into a with-profits policy that could be used as security for a mortgage and enable you to buy a home and pay it off early. It only cost about a dollar a week to start. However after a month or two, I realized that this sales strategy was aimed purely at maximizing the commissions paid to the agency, because the commission paid by the insurance company over the long term was based on a multiple of the sum assured–and the younger the participant, the greater the sum assured per premium. I quit after a couple of months and spent most of the rest of my life in public service of various kinds. For a while I had a part time job as a tax preparer for H&R Block but soon discovered that their main source of profit was selling instant "tax refunds" to poor people who don't get tax refunds, but get Earned Income Credit from the government.
 
That is just how business is. Either you  hold your nose and get on with it, or you find something else to do. The argument has always never been that capitalism is an honorable calling, but that it does a better job of delivering the goods to more people than does centralized planning. A moot point to be sure, but one can point to some successes for capitalism.
 
Here's an example. Here in the Dominican Republic double beds tend to be rather narrow. In the US, you can buy Queen, King, or even California King size beds. Bed manufacturers can offer different size beds, and they will succeed or fail depending on whether people  want to buy them. Excellent when it comes to choosing a bed, but whether the same applies when it comes to health care or education or law enforcement is more debatable. When corporations write the laws or pay off legislators and judges to rule in their favor, then less  so.

Phil- Although I spent 35 years in the brokerage business and had planned on another 10- this is exactly why I am no longer in the industry. Fortunately I was raised by a Mother who taught me right from wrong and I could not, nor did I wish to, be a part of it any longer. I was just not smart enough to resign- instead I tried to fight it- thus I was no longer needed even though I was the number one broker in my office some 25 of 35 years and had the number one office in my region after 4 1/2 years. I was very proud of the fact that during a period my firm had some 1200 plus complaints from customers- my office had zero and during my 35 years in the business- I had zero. Not really difficult if you put the client's interest first!!!!!

Phil – TLT butterfly –
I put the following on yesterday –
All April puts 
Bought 1x 116s for $2.78
Sold 2x 112s for 1
Bought 1 x 108s for .32
Total cost $1.10 
Never imagined TLT was going to move that much that fast – Any adjustment recommended or just be patient. Thanks
Also sold the 1/2 April 118 calls for .82 – reducing cost basis to .69

Phil – you asked me to remind you about bullish puts to offset very bearish portfolio. You said HPQ off top of your head.
It must be a market top bc I am posting about 10x normal for this usual lurker.

Phil / Iflan—-would you sell weekly apple calls at open and if so what strike—-or am I crazy

Phil
Isn’t there a 30 yr bond auction today? What are the implications with TLT continuing its downward spiral? Seems rediculous, but perhaps they had buyers secured before they sell-off occurred? I just don’t see why anyone would belly up to buy after this drop?

Phil,
Do you still think a bullish play on BAC is a good idea, or another bank perhaps (JPM, MS)?
Thanks

Forget May; March Is A Good Time To Sell And Go Away
 
Among the biggest lies in the human language are (A)"I am from the government and I am here to help you", (B)"I will respect you in the morning" and (C) "It's different this time".
http://seekingalpha.com/article/410481-forget-may-march-is-a-good-time-to-sell-and-go-away#comment-3461351

Interesting article.

 
Sounds a lot like where they want to take us nationally.

Anyone have a pdf of the GS article. It looks like the NY Time took it down.

Good morning,

 

IWM      81.41,  81.61,  81.96,  82.12,  82.34,  82.68,  82.94,  83.18,  83.33  and  83.74

Never mind. I can't access NY Times at all.

GS rats leaving/all – Don't know if any of you premium types have posted this yet, but in case,, Greg Smith is not the only guy who's had enough: http://www.thedailymash.co.uk/news/society/why-i-am-leaving-the-empire,-by-darth-vader-201203145007/

PP for today:

Phil – For the DIA puts we had an average cost basis of $0.90 for the previous 10 and we spend $0.41 to roll to the Mar5 128 so our cost basis is now $1.31.

Phil/Resignation
WOW !! Things never change.  In the late 70's I was hired by Shearson… as a "special consultant" to work with the brokers to capture insurance portfolios and pension assets…… I worked for them 18 months and resigned to start my own firm.  The environment was anti client and I thought my manager was a "crook"…… had a tendency to lie and make sure the "top producers" were fed all the new call in clients…. the big thing then was managed commodity funds with private Shearson managers which produced BIG GROSS….. the culture is all about GROSS, GROSS and MORE GROSS….

Cost basis for TZA – $3.05 and for USO puts – $1.99 (1/2 off)

FU MARKET!!!

I guess they decided that AAPL was worth $600 today!

Lflan – what say you?  Will AAPL get to $600 by Friday?

Taleb – seems a day for shocking news. Here Taleb stumps for Ron Paul. I can't believe CNBC ran this.

FU TLT!!!

Pharm – great call on ECYT! not helping my heavy TLT call options today and continuing to get destroyed but the 2 call options I had on ECYT is helping soften the blow… Thx again.

I thought we were trying to get bullish Pharm!

Someone picked up the GS guy resignation letter and turned it into a parody:

http://www.thedailymash.co.uk/news/society/why-i-am-leaving-the-empire,-by-darth-vader-201203145007/

The Empire is one of the galaxy's largest and most important oppressive regimes and it is too integral to galactic murder to continue to act this way. The firm has veered so far from the place I joined right out of Yoda College that I can no longer in good conscience point menacingly and say that I identify with what it stands for.

FAS do not see the play Apr12 Bull call 94/99 have set a stop on the 94 call highly ITM !!!!

And as usual, good article from Matt Taibbi on JP Morgan Chase:

http://www.rollingstone.com/politics/blogs/taibblog/j-p-morgan-chases-ugly-family-secrets-revealed-20120313

 

Linda subsequently found an enormous range of errors. Some judgments, she told me, were not judgments at all. In some cases, she said, Chase actually owed the customer money.

When she brought these concerns to her superiors, what do you think their response was? They told her and others to shut up and just sell the stuff anyway. Her boss, Jason Lazinbat, allegedly told her "she had better go along with the plan to sell the misrepresented asset."

Think of the consequences of this: because Chase was so anxious to make money off this debt sale, countless credit card borrowers would now have collection agents chasing them for money they did not owe. The debt-buyer, too, was victimized by being sold accounts it could not collect on. It is almost impossible to estimate how many man-hours of pointless court proceedings would be lost because of this decision.

Joe Kernen and Cramer were defending GS like it was Mama.  Joe was making up facts and dismissing the letter saying things like: "Well he didn't seem to mind when he made his 100 million over the last 12 years"
 
Steve Lesman –  Do you know he made that much?
 
Joe Kernen – No (but what the hell let's say it anyway and make up a big figure)

Phil / AAPL 10K trade.
Sorry man, you know I'm a big fan and everything, but this trade is just nuts.  It's the trading analogy of stepping in front of a train, Mr Bear…  🙂
Trade:
How about the AAPL March $575/565 bearput spread at $5.60, selling the $570 calls for $4.70 for net $1 to make $9? 10 of those is $9K profit if it hits and an interesting way to put your foot down on AAPL – as long as you don't mind ending up short 1,000 shares at net $566, of course!  

GS resignation letter – Wow indeed! At the end of the letter, i have to wonder, does he have a terminal cancer or something? Does he already know his life is as good as over?

FAS / Yodi – Yup, that 94 call is now almost a double! On the other hand, naked shorts calls seem risky now…

stjeanluc
I agree any naked short is risky but if the call is triggered buy the caller !!

Hello Phil, Is it the time to finally go long TBT/ short TLT? Thanks. Also, would you recommend some shorts? Now I am shorting only DMND with April 25 P. I beleive that the restatement of their financial results will be quite dramatic. Also, their yesterday announcement confirmed various articles about deep troubles in their relationship with nut farmers that defect to their US competitors ( such as JBSS) and
Chinese resellers that set shops in California. But what about some stocks with OK business that just went up too much too fast? IBM? PCLN? REGN? GRMN?

I can't get execution on anything, even after I chased things some. This is turning into a total rout.

ECYT/jro – yeah, little wins.  I am going to be in these types a lot, as my bearish bias gets me into big trouble.

Bullish/StJ – with all the money everyone is making in the market, realestate should pick up.  I am betting on that since my 'other' strategy is not working…although the biotech plays are doing just fine….Go SGEN and PLX.

Play with the abortion law, ya old Republican, and no Viagra for escorts when you visit Washington:
 
http://news.yahoo.com/blogs/lookout/third-female-lawmaker-introduces-bill-limit-men-viagra-204340160.html
 

As a follow up to that GS guy resignation letter:

http://ftalphaville.ft.com/blog/2012/03/14/923731/clients-banks-three-letter-acronyms-and-conflicts-of-interest/

 

In some jurisdictions, intra-group affiliations in respect of authorised participants (APs) also can lead to conflicts of interest; especially when there is a small number of APs.

The affiliated AP, if it has the ability to exercise power over the ETF provider through the group parent, has the ability to channel business through in-house trading desks, in order to gain an order flow benefit. Moreover, the group parent may also have the ability to instruct the ETF provider to authorize and de-authorize competitor APs.

This conflict may have consequences for the fair pricing of the ETF shares on the secondary market and the ability for investors to redeem ETF shares. This conflict may grow stronger in the scenario outlined by the FSB 37 where the group parent gains a funding and liquidity benefit from ETFs.

Synthetic ETFs also may raise potential conflicts of interests where affiliates are involved, for example as the swap counterparty. 38 The conflict of interest risks would be further enhanced by the suspected incentives for banks and financial intermediaries to use ETF assets as a source of funding and/or to reduce their cost of capital under the new Basel III rules 39 . However, these incentives have yet to be confirmed and further work would be required (see Chapter 5).

All crooks…

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