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Money, Power and Wall Street

Have you seen this?  

 

Frontline did this very good documentary and I'd file it under "those who forget the past are CONDEMNED to repeat it" – let's all TRY not to repeat the mistakes of 2008…   "Wall Street got bailed out and Main Street didn't" is the quote that neatly sums up the present situation.  Wall Street and the top 10% of this country – of this World – are partying like it's 1999 while the bottom 90% continue to languish in the worst Recession since the Great Depression.  

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Despite a myriad of worrying data, the Corporate Media is in full-blown promotional mode – pushing stocks as if it were modern snake oil – the panacea that will cure all your ills.  We often forget that essentially ALL of our news sources are publicly traded companies and have a vested interest in the stock market going higher.  Hell, we have an interest in that too, as our longer-term virtual porfolios are entirely bullish – but that shouldn't preclude us from making a realistic assessment of the CURRENT situation, should it?  

Caterpillar, 3M, United Technologies and ABB are among the manufacturers that have reported weak performances in China in the first quarter as economic growth has slowed nearly to a three-year low.  Caterpillar’s sales in China fell between $250 million and $300 million in the first quarter, pushing the company, the world’s largest maker of earth-moving equipment, to export to other countries a large share of the equipment it made in China.  

Concerns about China overshadowed better-than-expected earnings at the company, which is based in Peoria, Illinois, and led investors to push the stock down 5 percent Wednesday, which was great for us as CAT was on our Long Put List.

ABB, a maker of power equipment, reported profits in the past week that were below analysts’ expectations, caused by weak Chinese demand. “It was a very slow start to the year for China. China in January was extremely weak,” ABB’s chief financial officer, Michel Demaré, said Wednesday.

Our business in China is off to a slow start,” said Gregory J. Hayes, the chief financial officer of United Technologies, whose Otis arm is the world’s biggest maker of elevators. The unit’s China sales dropped 9 percent in the first quarter. “The ongoing government effort to bring housing prices down has negatively impacted the higher end of the residential sector, which represents about half of Otis’s China sales,” he added.

Beijing in March cut its official forecast for 2012 economic growth to an eight-year low of 7.5 percent, which analysts said signaled that the authorities would be more focused on economic reforms than stimulus.  The Finnish escalator maker Kone Oyj said growth in its Chinese markets would slow from 10 percent in the first quarter to between zero and 5 percent in the second. The truck maker Volvo AB cut its forecast Thursday for the Chinese construction equipment market this year to a fall of 15 to 25 percent from an outlook for a flat market.

I could go on but it's almost humorous that I have to make a case that we should be concerned about China.  Why aren't we simply concerned about China?  THAT'S what should concern you.  Why is the topic verboten in the MSM?  What are they keeping from you?  Even the best sports teams in the World get the occasional critical article written about them but when you hear CHINA!!! in the Corporate Media – it is the tonic that cures all of the World's ills, isn't it?  

Meanwhile, here's chart after chart showing that China isn't just slowing down, but plunging into a greater downward spiral than it was in in the spring of 2008, another time when investors were ignoring the flashing warning signs until it was far, far too late.  

Who else is going to save us?  Oh yes, GERMANY!  Germany is another word the MSM clubs you over the head with to get you to BUYBUYBUY because Germany will fix everything.  As you can see form the Markit chart on the left – German is not, and never has been immune to conditions that affect the rest of the Eurozone – they are simply a lagging indicator, which makes perfect sense since their economy is almost 1/2 of the Eurozone and thus slower to move up or down.  

But slower to move does not mean unaffected, does it?  Come on folks, you know how to read a chart(s) – why are we investing in stocks as if it were the spring of 2007 (and even then we were idiots to pay those prices) when the charts are CLEARLY telling us it's really the spring of 2008?  

In both cases, we are CURRENTLY in conditions that mirror the BOTTOM of the 2001-2003 crash, when the S&P was ALSO at 800 – not 1,400.

Keep in mind – these are the results we're getting WITH Trillions of dollars of Global stimulus spending – over 25% of the World's GDP has been thrown into the pot by the G20 in the past 3 years, averaging 8% a year so, in a HEALTHY economy, one would expect an 8% boost to Global GDP.  Obviously, we are barely staying flat and that gives you a pretty good idea of how big of a hole there was to fill.

Yet the media has nothing to say but how "great" things are going.  Pending Home Sales were up 4%, for instance but that 4% was from a run rate of 328,000 homes to 341,000 homes per year.  Between 2003 and 2006, the United States sold and average of 1,100,000 homes per year – the additional 13,000 homes sold (working out to 21 more homes per month, per state) are not even a rounding error to a healthy market – yet we RALLIED on that news as if cold fusion had been invented.  

Doesn't any of this give you pause?  Why is the MSM so afraid to confront reality?  It's an election year and, if you listen to Fox, you would think the US Economy is going to hell in a handbasket – all because of that fiend, Obama and his evil policies (that have led to a 100% rally in the markets) but then you switch to the Fox Business Network and it's all sunshine and lollipops as far as the eye can see.  

The media doesn't make any money unless you watch it and Wall Street doesn't make any money unless you give them yours to play with and politicians don't have any power unless you give them your vote – which is why they all lie to you – over and over again.  They will say anything, do anything, to keep the game afloat and the media, the politicians, the analysts, the "financial advisers", the Central Bankers – are all working together to kick that can as far down the road as possible.  

Who knows, maybe we'll get lucky and the World will end on December 12th.  If not – we still have a Hell of a big mess to clean up!  

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Phil – do you have long term thoughts on ECA? Is it possible the bottom in NG has came and went before anyone expected? So much bearishness on NG out there.

Good Luck Phil!  🙂

http://www.youtube.com/watch?feature=player_detailpage&v=ZxiwmzeCbhw#t=270s

Jim Grant interview- worth the view (for the content, of course)- especially for his recurring "Isaac claw back" provision in lieu of Dodd/Frank (another 2200 page monstrosity). If you don't want to wade through -it is about Min.23.
More here:
http://www.zerohedge.com/news/must-read-jim-grant-crucifies-fed-explains-why-gold-standard-best-option

But what we could and should do, Paul urges, is to claw back that portion of the compensation paid out by a failed bank in excess of 10 times the average wage in manufacturing for the seven full calendar years before the ruined bank hit the wall. Such a clawback would not be subject to averaging or offset one year to the next.  And it would be payable in cash.

Hi Phil, I really enjoy your site, the trading advice, your insights into the bigger picture. Just finished watching "money-power-and-wall street". 2nd episode ends with Paulson forcing the banks to take billions in government money, hardly any strings attached, trusting them to do the right thing and free up credit again. I'd be interested to read your take on Paulson's action.
I just finished reading "The Big Short, Inside the Doomsday Machine", which really improved my understanding of how the whole sub-prime lending/CDO bubble evolved and then burst. I still don't fully grasp all of it, maybe never will, but plan to  keep reading. 

Phil
I'm very interested in how you plan on structuring the "new" Income Port in May with all this bad news lurking in the air and the markets very toppy.  I feel like there are so many fundamental issues, that it's going to be tough to "set it and forget it"

jfawcett 
April 27th, 2012 at 10:34 pm | PermalinkIgnore this user
Iflan / Profit taking – Your suggestion on using GTC profit target oders and ‘fugedaboudit’ Wednesday, you also mentioned the use of stop-loss orders. If you get a chance this weekend can you elaborate? TIF
Yes jfawcett, happy to…….Traders should know that when buying and selling options there is always a bid and an ask.  When buying options, never pay the ask and never put the order in as a market buy.  A market buy will always be filled at ask or higher when buying.   When selling options always place the sell order for the price you want for the option.  Now the reason I like to let the computer have this order is that it takes me out of the picture.  I am a human, with emotional responses such as greed, fear, uncertaintly, and second-guessing.  These responses will interfere with my ability to properly take profits, if I let them.  By deciding beforehand how much I want to earn on a trade, and how much I'm willing to lose before exiting the trade, I can just enter these numbers into the computer as buy orders and as stop-loss orders, then fugedaboudit.  In other words, I can go do something else, with full knowledge that my plans will be carried out without my further emotional responses or intervention.  Doing this will save you and make you reams of money.  How many times have you heard a trader say on this site "I was up 40% but I thought it would go higher so I didn't sell and now I'm angry with myself because the trade is now a loser!"   This scenario can be avoided with appropriate sell orders and with stop-loss orders.   If you want specific examples I can give them, but this is the gist of a trading technique which will serve you well, particularly if you are not able to sit at the computer every minute of every day.

Oh Phil……you’re always looking at the glass half empty…….oh my……my Vodka on the rocks is half empty……..there……full now……..all better………ok…..where’s that buy buy buy button!!!

Lflan / Stop loss orders. Appreciate your response. As you mentioned, this technique takes the emotion out of the equation. I do not think TOS (TD AMERITRADE) allows a stop-loss and a profit target limit order on the same security at the same time. However, the trend will tell you which to have on. Concerning the stop-loss, the 5dma trading rules tell you to not to place a hard stop but to place the stop at the end of the day if the price is below the 5dma in case the price drops and rebounds. Since I work during market hours would it be better to just use stop-loss orders moving that trade up as appropriate? Your insight would be appreciated. TIA

China Foreign Reserves and gold  – Phil, I see one of your charts highlights the lack of growth in China's foreign reserves.  One of the primary reasons for that is its growth in acquiring physical gold.  China's increase in purchases in physical gold in the last year represents about 20% of the total annual global production.  Which brings up another point about physical gold vs paper gold.  There is more paper gold out there than paper oil.   I find it hard to see paper gold as a good hedge if it hits the fan because if it doesn't have adequate physical backing how can it be any better than fiat money?  I think a no risk paired position if it does hit the fan is to hold a long position in physical gold or a physical gold trust (PHYS) and be short paper gold (GLD). 
Attached article talks to the purchases of gold by China and other country central banks among other issues.
http://sprott.com/markets-at-a-glance/when-fundamentals-no-longer-apply,-review-the-fundamentals/
 I have recently been increasing longs in physical precious metals as market heads for fantasy land, (often via writing puts on gold miners as well) as my long hedge for the market moving up in general/or QE3 and I think may work fairly well against a major market correction.  Phil I know gold took a beating in 2008/2009 when the market corrected but since then the US and EU have printed a few trillion or more $ so I am not counting solely on the almighty dollar being the only or best hedge.  I think I'll follow the lead of CB's in China, Russia, Mexico and other countries and use some real gold hedging.  

jfawcett
 
tos has order cancels order  OCO profit target and stop loss if you want

jfawcett….TDA does allow you to place stop-loss orders and a limit sale order simultaneously (they call the latter trade triggers).  I use them both simultaneously all the time.   I don't use the '5dma trading rules' for a stop-loss decision.  I arrive at a price for this by deciding how much I'm willing to lose on the trade before I exit.    Now if you work during market hours and cannot get to a computer for trading, you are going to have to set your trades up very carefully, because you can't monitor or change them during the day.  In this case you are better off with what I term 'no touch' trades, where you just put them on and don't have to make changes frequently.  Phil has described these types of trades in detail and has a portfolio dedicated to this type of trading.  Your need for stop-loss orders and sell orders is really more relevant to short term trades than to long term trades.  I know this one paragraph is probably not too helpful.  The subject of managing your trades could easily fill a book.  And that's where the money is in trading, as I see it.  Not so much stock picking, but rather, trade management.   I truly believe you can give a trader who understands methodology any stock, and he will make money.   Give a  trader who is less knowledgeable about trading methodology a winning stock, and he will not do so well.  

Lflan / Trade Management – Thanks, I appreciate your comments.  I will look into the TOS trade triggers and incorporate stop-loss and profit projections into my short term swing trades.  Your comments, as well as Stjean's, Pharm's Phil's, and others are what makes this site unique. For my particular long term goals, I am looking forward to the start of the new virtual portfolio which will better match my long term investment goals.  Thanks again!

Phil – re. the DIA May 129 puts (my cost after DD and a roll up is $1.35), your thoughts on this roll plan:
Roll the May 129 to Jun 129, selling the May 128 puts for $0.61, so net $0.38 with plan to roll those if needed to the Jun 122, now $0.62. That would leave me with cost of $1.73 and potentially in a $7 spread.
Of course this all depends on what happens on Monday – but I'd like your comments on this plan.
TIA

New Post….happy weekend all.

Williex / OCO TOS – Thanks.  I do see that and have looked up how to enter.

Occupy West Side Story – the shorter street version if you don't have time to watch Frontline.

Phil / ECA
Sorry I'm being slow this morn, but I couldn't get my calculator to figure out how it's a 71% call away above the current price…  I was guessing you mean that the 22 Caller is 71% above your net 12.80 entry price maybe?  How did you figure that number?
—-
ECA is $20.55 now and pay a nice 4% dividends so you can buy the stock and sell the 2014 $22 calls for $2.60 and the $20 puts for $5.15 for a net $12.80 entry with a call away 71% above the current price 

Formula One- Phil, definitely put this on your calender especially if it is in your back yard. I did the Watkins Glen NY way back when and it was a spectacle not to be missed- and the race was great also. These are the best of the best and the cars are technical marvels. Being near the track on a hairpin turn and "feeling" these 4 wheel rockets accelerate up to 200+MPH within a few hundred feet – well if that does not get your blood up .. And OH, the eye candy.
It is a grand international circus.

There’s an interesting article in the NYT today about how PayPal has rolled out an e-wallet of sorts in 2000 home depot locations that requires your cellphone number and a PIN in order to checkout. They’re doing something similar for a food chain later in the year.

http://nyti.ms/KhfAku

Funny how timely this is. A few days ago I heard someone asking how PayPal was going to adapt to today’s “newfangled” payment methods (e.g. Square). I’m pretty sure it was a NYT or Bloomberg article.

Phil ECA just a slite correction I think you looked at the Jan14 22p @5.15 possible not the 20p Jan 14 @ 3.90 so I think we are at a discount of 2.60 (C) + 3.90  on the put = 6.50 not 7.75 but still a b=very good deal!!!

ECA If you would handle your caller on a monthly basis your return would be in the range of 27% until 2014 against the 2.60 it will be only 12.6%. Obviously more work and observation.

ECA sorry taking the montly return only up to 2013 not 14 is 27%!!!

Phil / Formula One – I went to the Singtel Singapore grand prix last October.  It was a blast.  Besides the main event, they also did a race with Porsches that was pretty cool – Porsche Carrera Cup.  It's very loud so be sure to bring ear plugs!!

Phil – Bullish case
The case is simply this.  The SPY had a MACD and DPO  buy signal at the end of last week.  Investor's Business Daily gave their signal of "market in an uptrend" and Mr. Market thinks there will be QE3, 4, 5 before this bubble is blown.  Everything thinks they will be smart enough to know when to get out so they are in buy mode.  So it will be BTFD. I started last week with S, FTR and ABX.  Next in line – THC, BSX, SVU, RF, HBAN, HCBK, MU.  Short-term technical trades only.

FYI, Tuesday is May 1 which is a holiday in most countries around the world so volume outside the US might be lower than expected on Monday and Tuesday. And we might get more volatility.

The following is typical chat on Telechart.  Excepting my contribution of course.  The virulent racism and right-wing extremism go on non-stop.  You can see why PSW is such a pleasant relief for me.
 
[4/29/2012 2:53:27 PM] <DFW1948> The Communist Party moves to endorse Barack Obama. They say "He is the candidate who will advance the Communist cause".
[4/29/2012 2:53:51 PM] <DFW1948> http://www.wnd.com/2012/04/obama-designated-driver-for-road-to-socialism/
[4/29/2012 4:24:07 PM] <kongen1> Republican party platform: trash the environment, shred the safety net, support gun violence, keep healthcare unaffordable, control women, bomb Iran, and aid the rich at any cost.
[4/29/2012 4:27:30 PM] <jimbowie> Kon bettter thasn being a coummunist
[4/29/2012 4:28:38 PM] <jimbowie> dfw no difference between counnist and Democrats in my eyes, look how many were in the FDR Pres. staff
[4/29/2012 4:34:44 PM] <BenTrader1> Kongen, The Democratic platform: Use the environment to trash Individual Initative, Use the Safety Net to Break the Country, Glorify Gun violence by ethnic groups, Use healthcare to take control of more of the economy, make women more dependent on government welfare, and break the producers like the Romans did their conqured cities.
[4/29/2012 4:41:25 PM] <stevek> Kongen likes to call people racist..In fact, those who cry racism…sre the real 
[4/29/2012 4:41:51 PM] <stevek> are the real Racists!
[4/29/2012 4:46:58 PM] <BenTrader1> IMHO, a substantial part of this issue that we refer to as racism, is more Ethnic Culture, which can be correctable, than Racism which can not be corrected. And certain groups don't want to give up the Racism issue, because of the money in it. 
[4/29/2012 4:51:23 PM] <stevek> I did not hear anyone cry racism or hate crime…regarding the recent events in Chicago and Alabama.
[4/29/2012 5:13:06 PM] <MadMaxx> kogen1 is a funny guy :).

Yodi / ECA
Could you explain how you figured out those numbers?  How did you estimate your % return if you sold monthly calls instead of a long term call

Phil, was the dropping asteroids from space remark referring to mining asteroids?

Not much movement in the futures so far. For those interested, the overnight oil lines are as follows:

R3 – 106.55
R2 – 105.77
R1 – 105.29
PP – 104.51
S1 – 104.03
S2 – 103.25
S3 – 102.77

The economic calendar is quite busy next week:

I added the the expected numbers to the calendar when available, but they could of course be off. Although, usually not that much – less than 200% on average.

Burrben ECA Very simple calculation. We do ignore the puts. These are just a cherry on the cake.
For the Jan14 caller  you receive 2.60 x 100 / 20.55 = 12.6% May 12 21 caller .40 x 100/ 20.55 =1.94% in 19 days  1.94/ 19 = .10 per day * the days till Jan13 = 264 days =26.4%. Based on today's stock price and the may 21 caller. That is were the work comes in some month the caller expires some month you will have to roll. With Phil,s proposal you just take a vacation until Dec 13 to the Bahamas smoke some pot and collect the 4% div. Some of these I work hard some of them I sit back at the beach collect the div and watch the girls go by. Your choice.

PHIL, Good evening I recently left a question on the INCOME PORT page. Kindly review at your convenience. Thanks

Burr/Eca,
 
If I understand your question and if you are still unclear, based on Phil's initial numbers,
if ECA is above 22 at expiration, you must sell at 22.  If you bought it at 20,55, sold 7.75 of premium and have an acb of 12.80, then 22 – 12.80 = 9.20 profit. 9.20 profit on a 12.80 investment is a 71% return.
 
"ECA/Burr – Yes, you are buying it for $20.55, selling puts and calls for $7.75 for net $12.80 and your call away is $22.  Not complicated.  If put to you, then you are assigned 1x more at the put strike at $20 and then you have 2x at the average of $12.80 + $20/2 = which is actually, $16.40, not $17.40 so better than I thought.  "

And what yodi said.

Phil – Formula One is a feast for the senses. My wife was agnostic about racing until I took her to an IMSA race at Laguna Seca (Monterey, Ca.) in 1983 and in addition to the race, had a chance to spend time in the pit area as the cars entered and exited…..she was hooked.
We're not fans of racing with only left turns 🙂 Road racing, like F1, gives you the opportunity see the race from many angles and at times, up close…..
 
It would be a cool experience for the entire family…..
 
http://en.wikipedia.org/wiki/IMSA_GT_Championship
 
http://circuitoftheamericas.com/articles/the-new-home-for-the-world-championships

Phil, I'm thinking about taking a position in HBC.  It's an undervalued global banking giant with a fat dividend (6.8%).  Thinking of selling the 2014 $40 puts for 4.50 to begin with and buying the underlying…what do you think?

Aussie cars and LNG
Same thing I was saying about the Dominican Republic, only here they use propane which works perfectly well. The installation only costs about $50 and there is a switch to cross over to gasoline if you are out of gas. Sooner or later some entrepreneur will get enough capital to bribe politicians enough to bring the same technology to the US, or else taxi operators and the like will just start to use it on the black market and it will grow in the underground economy.

jmm1951 / Propane
Do you know the ratio of pounds of propane to liters of gas or diesel?  I'm in Nicaragua where taxi's fill their tanks $5-10 at a time since it's very expensive.  That creates havock at the gas stations for normal people, since there are only 2 pumps usually.  To fill my 4runner it takes about $100 at 29 cordobas per liter.  It would be interesting to compare down here to see if it might be something to start a business on.
 
I wonder though aren't we turning all these vehicles into fast moving gas bombs though? 

Money, Power, Wall St Episode 2 is out on PBS.ORG fyi.  Since I have such a crap connection to the internet I used a cool program called StreamTransport to download the videos, then watch.  Would work equally well to archive the program.

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