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Thursday – PMI Still A Drag on Global Indexes

It's PMI time again and again it's pretty grim.

China's PMI languished at 48.7, up very slightly from 47.6 last month and, although well into contraction (below 50), it's NOT worse and that means the news is not even bad enough to be good (begging for more QE) and so, it's bad news that is bad in China's 11th consecutive month of contraction in manufacturing and the Shanghai Composite index dropped 2% this morning, to re-test the 3-year low at 250, down from 307 in April and down from 388 in April of 2011 – not a good trend

Overall EU PMI was 46, up from 45.1 in August but composite output fell to 45.9 from 46.3 and that is a 39-month low.  "The eurozone downturn gathered further momentum in September, suggesting that the region suffered the worst quarter for three years," says Markit. The flash PMI is consistent with GDP of -0.6% in Q3, "sending the region back into a technical recession."  France, which had been one of the stronger EU nations, dramatically turned sour with a drop from 46 in August to 42.6 for September.  Manufacturing hit a Greece-like 39.8 (down from 45.3) with France's composite at 44.1.  While private-sector output plummeted, "new business and employment also showed accelerated declines," says Markit. "Yet more weak PMI data points firmly towards a contraction in Q3."

Retail sales in the U.K. fell 0.2% in August as the Olympics took center stage in the nation. Despite the sporting distraction being over, economist Samuel Tombs forecasts more decreases for retail sales over the next few months with consumer confidence in the nation still weak.  Back in Asia, Japan's and China are continuing to threaten each other and it's hurting companies who do business in both like Komatsu, who make 15% of their sales in China.  That Nikkei stock was down 3.1% this morning and Japan once again ran a trade deficit for August.  

The Euro remained lower against the Yen, adding to evidence that the region’s debt crisis is sapping growth.   “We think at these levels, Euro is a sell because of the state of the European economy," said Joseph Capurso, a strategist at Commonwealth Bank of Australia (CBA) in Sydney. “The lessons of the last decade have shown that the Bank of Japan’s asset purchases are simply not enough to change the trajectory of the Japanese economy or the currency.  The economy is going to get worse before it gets better in Europe.

The Dollar is pushing up half a point this morning, to 79.65 and that's roughing up the Futures at the moment.  After a 10% drop in oil for the week, we were satisfied to take the money and run yesterday and congratulations to all who played along.  Our first short play (mentioned in Monday morning's post) was the DUG weekly $19 calls at .30 last Friday (where they opened Monday as well) and they closed out at .95 yesterday with DUG testing $20 – up 233% for the week.  We also closed the SCO October $37 calls at $5 – those were in the virtual $25,000 Portfolio (featured Friday) and 10 of those calls purchased for $3,730 on Aug 9th and September 12th sold for $5,000 on September 19th for a $1,270 profit – a 34% gain in a month is not bad

Of course the big winner was the short oil contract (/CL) at $100, which gained $10,000 per contract as it plunged to $90 this week.  If we get another dip to $90 and it holds today, we'll be tempted to pick up a quick long into the weekend but a strong Dollar will not bode well for oil – or for our indexes, which are still struggling to prove themselves despite the massive stimulus:

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  1. The US government also expressed concern at the publication of the cartoons. "We don't question the right of something like this to be published, we just question the judgment behind the decision to publish it," said White House
    What a nonsensical statement. I hope the Danes, Norwegians, and French keep ridiculing religion. In their countries it gets you Police protection and backing for your rights. Here it gets you interrogated by Marshals and lambasted by the press.

  2. That asshole was on parole and violated it!!!! He should be thrown in jail for his full sentence, he was lucky he only got interrogated! He will be killed someday soon. He'll be lucky if those morons don't attack his family as well.

  3. Good Morning!

  4. regardless of freedom of speech etc you have to think of the world as it is at the moment and cannot put others at jeopardy

  5. and Good Morning to all

  6. Good morning everyone

  7. NSC weak earnings.  BofA laying off 16K.  not great news…

  8. Savi – good point. Time to give this sh*t a rest…..

  9. So no free speech for felons. Think of the world and not put others in jeopardy, sounds like what Chamberlain said about Hitler.

  10. Oil Lines are not going to be very useful today withe large move yesterday:

    R3 – 100.08
    R2 – 98.29
    R1 – 94.88
    PP – 93.09
    S1 – 89.68
    S2 – 87.89
    S3 – 84.48

    A more than $15 spread.

  11. Good Morning rpme—let's discuss ath

  12. rpme/? – Seriously…..this is not about "free speech for felons"  and definately not about Chamberlain or hitler.
    You may think it odd, but I have no problem with those idiots who enjoy pissing off others, to be "lit up" as well….Now any parodies or cartoons about romney….bring it on…. :)

  13. StJeanLuc/ 91.30 seems to work well, let s see if 92.50 is the next one up!

  14. Lines / Lionel – $92.25 also seems a good line. It's part of that 5% set that I drew on oil a way back. To summarize, there is some resistance around where we are now!

  15. Thanks StJ

  16. I have a cartoon on Romney, but afraid to post, as Jrom may come back from the bush and "light me up".
    Okay, enough fun for the morning. Good morning all…time for work.

  17. BMRN….very interesting action on them. Breaking out a bit too late, as I still have the Sept 40 calls….

  18. The net on the PCLN Puts is now around $11.44 depending on execution.

    In keeping with the portfolio's setup, I have closed the short SQQQ 40 calls in the 25KP and kept them in the KPA as we can't have 24 short calls in a limited margin portfolio.

    And BBBY is falling a bit more than we would like, but still a profitable trade!

  19. BMRN Nov 42/45 BCS for 1.15.   Selling the Nov 32 Ps for 1.10.  5c debit.  I will be happy to own them at 32.

  20. lflan
    Are you buying more AAPL @ $16.70?

  21. lflan
    I was referring to the OCT $700 calls.

  22. And bar some huge correction today, the last update for the September options in the strangle portfolio:

    Looks like $3360 collected on the September options including all the rolls.

  23. AAPL/lflan – option pain for APPL points to 670 for max pain, 695 for actual pain.. target might be lower than the 700..

  24. DJI vol 18M

  25. scottmi—is there a site where you can get maximum pain calculation?—thx

  26. My Fib lines for AAPL based on this year's action:

    Looks like we need more fuel to go over $705! Maybe some fresh sales number for the iPhone 5.

  27. scottmi / GMO's — A lot of information and good view of lay of the land here:

  28. Good morning!

    Dollar up to 79.72 (up 0.7%), RUT down to 842.50 (down 1%) and other indexes down between -0.5% and -1%.  That's the story for the day so far.  

    Oil not going down so I think that's over with for this contract period, they dumped Oct down to 19Mb already:


    Click for
    Current Session Prior Day Opt's
    Open High Low Last Time Set Chg Vol Set Op Int
    99.03 * 18:46
    Sep 19


    6299 91.98 19357 Call Put
    96.70 * 18:46
    Sep 19


    69748 92.30 347938 Call Put
    88.94 * 18:50
    Sep 19


    15119 92.59 204241 Call Put
    89.25 * 18:49
    Sep 19


    4859 92.91 113479 Call Put

    Notice how all the barrels simply rolled into Nov but Feb is only 65,000 contracts so this next cycle won't be such a catastrophe for the NYMEX crooks.

    XLF took a major hit and it's really an opportunity to get in if you aren't playing FAS money yet.  In FAS Money, let's sell 2 next week $107 puts for $2.15 and a new position I like for XLF in that spread would be (if you are starting from scratch, 10 XLF 2014 $14s at $2.65, selling 10 2014 $18s for .85 (now .70) so you have to leg into it but I think it's a good floor on XLF at $15.80.

    In the $25KPs, let's add 5 TNA Sept $62.50 calls at $2 with a stop at $1.60.

  29. Pharm,
    On your chart of last nite, circa 11Pm, what was the Y axis (x axis appeared to be days b/a QE anouncements)?

  30. savi / max pain — Here's one:, click the strick pegger link.

  31. rainman—thank you very much

  32. Mornin' Phil,
    Is there currently a system in place to capture, on a more immediate basis,  your PSW recommendations via email,?
    I have Windows 7 on my computers and use a droid smart phone.  Any recommendations would be appreciated!  To refresh the link is laborious and I have tried the previousl rss (?) system but it doesn't work well. ???? 
    Is the "Portfolio" material tab, updated to reflect your changes?  I don't see all of them listed, what am I missing… 
    BTW, and not so incidentially, I am profiting from your recommendations !!!  Also, ' some of the member's recs.  However,  I can't be plugged into the computer all day so I am looking for a method to use that isn't day trading, but still take advantages of the momentum, swings and trends of the markets.  I have yet to trade Futures.  Your recs re the short positions with hedging has been very good for me.  I tend to do a TA study on the stock/ETF and place the strike (and my mental stop) according to my comfort zones, and channels.  Finally getting into the tutorials for TOS, and I appreciated your comments as to how your office is set up.
    Again thanks a bunch !!

  33. Savi – i use this one too

  34. scottmi—-thanks

  35. FU VXX!!!

  36. the bottom is in for the day. buy Sept calls on the usual A-holes, AMZN, etc

  37. Thursday's economic calendar:

    7:44 Fed’s Rosengren: Economic Outlook

    8:30 Initial Jobless Claims

    9:00 PMI Manufacturing Index

    9:30 Fed's Lockhart: ‘The Future of Workforce Development’

    9:45 Bloomberg Consumer Comfort Index

    10:00 Leading Indicators

    10:30 EIA Natural Gas Inventory

    12:30 PM Fed's Kocherlakota speaks at Gogebic Community College

    4:30 PM Money Supply

    4:30 PM Fed Balance Sheet

    5:00 PM Fed's Pianalto speaks at Miami University Farmer School of Business

    6:30 PM Fed's Bullard: Monetary Policy

    At the open: Dow -0.41% to 13523. S&P -0.54% to 1453. Nasdaq -0.51% to 3166.
    Treasurys: 30-year +0.57%. 10-yr +0.29%. 5-yr +0.12%.
    Commodities: Crude -0.37% to $91.96. Gold -0.32% to $1763.55.
    Currencies: Euro -0.96% vs. dollar. Yen -0.35%. Pound +0.2%.

    10:00 AM On the hour: Dow -0.47%. 10-yr +0.26%. Euro -0.94%vs. dollar. Crude -0.59% to $91.76. Gold -0.64% to $1757.95.

    Market preview: Chinese PMI, eurozone PMI and U.S.weekly jobless claims - they all tell a depressing story and they'reall weighing on EU shares and U.S. futures, with the S&P benchmark -0.25%. Back in the corporate world, early earnings results are starting to dribble in, sending ConAgra +6% but Bed Bath -5.7%Later: Consumer Comfort, Fed Speak, Oracle earnings. 

    The quiet period is definitely over as FOMC members fan out to talk about the economy and last week's QE relaunch. A strong supporter of the move, Boston's Eric Rosengren says the FOMC will help the country avoid a Great Stagnation, but quickly follows by saying not to expect too much from monetary policy. Wonderful.

    "There are many superb PhD theorists among the 19 members of the FOMC," says the Dallas Fed's Richard Fisher, an opponent of last week's QE∞ policy. "There are only a handful of us (4) who have worked as bankers or in the financial markets." As Jim Grant is fond of saying, the U.S. has swapped central banking for central planning, and the gold standard for the PhD standard. 

    IA Natural Gas Inventory: +67 bcf in-line with consensus. Futures +1.07% to $2.792.

    September Philly Fed Business Outlook: -1.9 vs. -4.0 expected, -7.1 previous.

    More on Philly Fed: Stocks erase a bit of their losses as the index nears the breakeven level for the first time in 6 months. Leading the improvement was a rise in New Orders to 1.0 from -5.5. Maybe boding well for future production, inventories declined sharply – to -21.7 from -6.9. The survey's future indicators rose to 41.2 from 12.5, the highest level since January. (full report, .pdf)

    U.S. Markit Flash PMI for September unchanged at 51.5. The average read for Q3 is the lowest since Q3 2009. New Orders 52.4 vs. 51.9 previous. Backlogs 48.9 vs. 51.4.  New Export Orders 47.9 vs. 48.8. Inventory 49.0 vs. 49.3.  Input prices 53.6 vs. 50.2. Output prices 51.8 vs. 48.9.

    Aug. Leading Indicators: Leading Index -0.1% vs. flat expected, +0.5% prior. Coincident Index +0.1% vs. +0.3% prior. Lagging Index +0.2% vs. 0.3% prior.

    The Bloomberg Consumer Comfort Index rises to -40.8 from -42.2 last week, despite a poor jobs report and continuing hikes in pump prices. A separate forward-looking gauge shows 34% see the economy getting worse, a sharp 11 point drop from last month, and only 8 points more than those seeing an improvement – the narrowest gap since May. Partisanship rules, with Democrats having a far better opinion of the economy than Republicans.

    Retail sales in the U.K. fell 0.2% in August as the Olympics took center stage in the nation. Despite the sporting distraction being over, economist Samuel Tombs forecasts more decreases for retail sales over the next few months with consumer confidence in the nation still weak.

    Perhaps the ECB should change its nickname to the ECP (European Center for Politics), suggests Richard Woolnough, as the idea of an independent central bank has been seemingly scrapped. "Not only has the ECB agreed to become more like an arm of the state, it is potentially attempting to become a state" by setting conditions upon which it will exercise bond purchases.

    Yields fall as Spain auctions €859M of 10-year bonds at a cost of 5.67% vs 6.65% at a sale last month, with the "bid-to-cover" ratio rising to 2.8 from 2.4. The Treasury also issues €3.94B of three-year paper at a yield of 3.845%, up from 2.8% previously. Overall, Spain sells €4.8B of debt, exceeding the goal of €4.5B.

    "As a Western investor, I would take issue with any corporate accounting in China," Jim Chanos tells CNBC. "I wouldn't trust any company's accounting in  China." Corporate profits there are imploding, he says, and now the country has to deal with capital flight. Doing "just fine" with his shorts, Chanos says he's done some covering of late.

    Former high-frequency trader Dave Lauer is set to attack the practice at a hearing of the Senate Banking subcommittee today. Lauer will testify that HFT has allowed some firms to trade profitably at the expense of other investors, and that it has put markets at risk of crashing. "We are truly in a crisis," Lauer will say. High-speed trader Chris Concannon will give the other side of the story.

    The world's biggest banks would have needed $488B in additional capital had the new Basel III rules (scheduled to go in force in January) had instead been in place in January 2012. The finding comes from the Basel Committee and shows lenders have made little progress in raising capital since the last assessment.

    The most over-owned stocks at the top 50 mutual funds are GOOGMSFTTAMZN, and HD, according to a Citigroup report. The most under-owned: CSCO and WMT. (h/t tradefast)

    MasterCard (MA +0.6%) warns at an investor meeting that second-half revenue growth will come in lower than the pace it saw in Q2. The core of the problem could be that it sees worldwide processed transaction growth falling to 24.9%, down from its previous pace of 29.3%. The company also cites foreign exchange as a headwind, forecasting a 5-6 ppt negative effect in Q3 and 3-4 ppt in Q4. (webcastslides)

    Shares of Nike (NKE) move up 1.4% premarket following the announcement that the company plans to buy back $8B worth of its own stock. Not everyone is a fan of the move however, Jeff Macke notes that's "foolish" to do a huge buyback with shares only $10 off of their highs.

    Biogen's (BIIB) BG-12 compound for multiple sclerosis "demonstrated significant and clinically meaningful reductions" in relapses and brain lesions in patients with relapsing-remitting MS, data from two Phase III trials show. BG-12 also slowed the progress of the disease. The drug could be on track to become the third oral medicine for MS, as well as the safest and most effective. (PR) 

    Shares of Bed Bath & Beyond (BBBY) slump even lower after coming off of the company's sluggish Q2 report. Nicole Urken sums it up by noting that what should be a housing and holiday play is ending up as a brick-and-mortar laggard. BBBY -6.1%premarket.

  38. Long put list: Hi! I am down on a few positions: MA, MMM, MO, WMT- I know the 20% rules so my conundrum is shut these down as I have DD and still losing or hold out given the 2013 expiration?

  39. 8800 – one chart was oil, the other was S&P and QE injections.  Bigger chart here.

  40. Pharmboy
    Any idea what moved BMRN  ?

  41. Wheeee – and up the indexes go!

    PCLN/$25KP, StJ – With that net ($11.44) we absolutely want to DD but I was hoping to do it for less, not more.  Would suck if they go the other way on us before we have a chance to press.  I agree on margin issue in KPM.  With BBY, we'll just leave the back end and see if they come back a bit.

    Very nice month of strangles Peter!

    Email/Ron – I'm sure someone can suggest a better RSS reader – some work better than others but I rarely Email my comments specifically.  The portfolios are now updated in Chat by StJeanLuc and, as with everything else, new picks are made in chat.  Why not adopt an attitude that you can't trade all the time but YOU DON'T HAVE TO.  There is a context to these trades and I don't think it's a good idea to latch on to any trade ideas if you haven't even been following the discussion and this site is not about teaching you to be the best robot you can be –  they idea is to learn HOW we trade and come up with ideas of your own.  It sounds like you are on the right track and it is very exciting to trade like this but don't let it control your day – the idea is for you to learn to control your trading so it fits in with the time you do have to spend in the markets.  

    Long Puts/Newt – No, QE3 killed those.  We flipped to the TWIL list last Thursday.

    Manufactured outrage/1020 – Just like the Tea Party!  I wonder if the Kochs sponsor this one too?

  42. qc…no idea.  Rumors….buyout…

  43. Pharm,

  44. Phil-Nice Call on TNA 

  45. DJI vol 31.6M

  46. Phil: Thanks

  47. Phil: I bought 10 GMCR Oct. C at $2.90 and sold 10 Sept 9/22 $31 C for $1.30 and 10 Sept.$28 P at $ $.34 for net $1.26. With the drop today, I plan to hold ( unless there is another major drop) the position with the intent that the Sept P &C expire tomorrow and then sell the Oct. $ 33 C and Oct. $ 25.P. What do u think of this? Thanks

  48. LNKD – fighting to stay up, destined to be one of the great shorts of the season.. insiders and selling at this price.

  49. AAPL looks like it's grinding toward 700. Anyone have an opinion on selling a Sep 695/700 put spread for 2.4 credit? Maybe adding in the sale of the 700/705 call spread for 1.32 also?  Thanks

  50. Phil – What do you think of a new entry on BBY?

  51. World QE
    The concept of all currencies falling at the same time gives meaning to world economy is falling but I don't think there has been a time when world currencies fell together. WW1 is an example of multiple countries having moved to worthles at once but that was still a small part of the world by todays standards but there were also no emerging economies and no world trade as we see today.
    It comes to thought that Bernanke is one up on the world with infinite QE but is this also a plan to stop world trade imbalances? When no currency is trusted will the gold standard come back? Will we all need to start collecting gold as a trading hedge? $10,000, $20,000, and $50,000 per ounce? Without customers stocks would dive and commodities of all types would rise to unthinkable levels. Max pain?

  52. Pawlenty quit Romney's campaign to be a top Wall Street lobbyist.  Have to love the system.

  53. rustle123
    Romney needs to forget the campaign before his wife leaves!

  54. My fun play for the week:  buy 10 each XLF next week $16 calls and $15.50 puts for $.10 and $.06 respectively.   Maybe turn $160 into $500 with a few bumps in the market!

  55. I've been buying the dips on oil all morning, but I'm getting the feeling it's time to start selling the tops.  Anyone else get that same feeling?  Seems like the bulls have run out of steam.

  56. 2 can/ Oil
    Did the same.
    82.50 seems to be a strong resistance for today
    I still think there is one touch up more to 82.80 on CLX2 and then I will short it
    TZA 13.5 call SEP are 70c as well

  57. IWM is well below the QE3 trendline support today. The 38.2% fib line and retrace the boost is 84.35. Going back to July 5 2011  next week could see 83.78 which is the up or down from here line and 83.53 the 50% fib. August 9 was 63.70 and Nov 4 was 60.10. The 3 year trendline support is about 67.4. a scary thought but the world economy was looking better when last we visited this low mark.
    Pharm summed up the money distribution of less dollars chasing more stocks with IPOs yesterday and this QE is being matched by the rest. Why would this work? Deleveraging is needed but it is always painful. This time will not be different, GDP must come in line, and the politico is not moving toward balancing with the income (tax) side.
    How can this work out well?

  58. thanks for the tip on TZA Lionel.  It's 11:20 pm here in Vietnam, and I'm calling it a night.  It was a good day to be long oil.  have fun with it on the way  down.  See ya'll tomorrow.

  59. TNA/Vill – Thanks.  RUT rejected at 850 in Futures (/TF) and now 848.20 with TNA $62.50s at $2.60 so a nice 30% gain but I hope to get $3 but let's set a stop at $2.40 now in $25KP.

    Volume/Rain – Well, one thing's for sure, massive action from ECB and Fed did nothing to get cash coming in off the sidelines.

    GMCR/Dfalm -Other than the fact that I don't like GMCR at all, the strategy is sound. 

    LNKD/Scott – It is a very tempting short up here.

    AAPL/Stock – You don't know which way it will pin tomorrow.  More likely it finishes tomorrow at $697.50 to burn all of you people who think it's going to pin a strike. 

    BBY/Morx – I do still like them.  The IPhone and IPad mini should give them a much better Q4 and Q1 than last year and Richard Schulze is 311 on the Forbes list with $1.5Bn which means the people who don't think he can put a group together to buy BBY ($6Bn) are probably wrong.  So my favorite way to play BBY is to sell the 2014 $15 puts for $2.50 and buy the 2014 $13/18 bull call spread for $3.20 for net .70 on the $5 spread that cashes in at full price if a real offer goes on the table.

    Gold standard/Shadow – Is that what happened in WW1?  No, it didn't.  In fact, that was when countries abandoned the gold standard and people didn't hoard diamonds, or gold or silver – they just demanded more and more currency for goods and services.   We've seen 20 or 30 instances of hyper-inflation since then (Zimbabwe, Brazil, Italy) and in none of those did people panic into gold – it's a scam – it will never happen.  Gold will go up because people read the fairy tales and enough fools buy into it to drive the price higher but give me a call when you're hauling 2 pounds of gold over to the car dealer to pick up a new truck or when you are at a real estate closing and the lawyer shaves an ounce off one of the deposit bricks to settle the quarterly tax bill – it's just a ridiculous that you would think modern man is too sophisticated to be fooled by but, apparently not.

    Romney's team/Rustle  - Ha, that's a problem with crewing your team with heartless Capitalists – they don't go down with the ship!  Now that they know Mitt has no future, I wonder how many defections he will have?

    XLF/Jet – I hope the puts don't hit.

    Steam/2Can – We expected a dip this week.  While QE may be a bit of a let-down and may have been front-run, it still has never not worked to boost the market so it's very hard to bet against it now.   That being said, we're still pretty neutral in our short-term portfolios…

  60. Bed Bath & Beyond Inc.’s (BBBY) fiscal second-quarter profit slipped 2.2% in results muddled by the company’s first acquisitions in nearly half a decade. Shares dropped 5.1% to $65.30 premarket as the company also posted its first decline in quarterly profit in more than three years.

  61. Phil / I was just talking about oil.  Every now and then i get in tune with it, and thought I'd give the oil players a heads up.  

  62. Pharm,  what are your plans for the GLD calendar, buy back the Sept short calls or see if they finish otm?

  63. Phil
    My point is to go to the gold standard the price would have to go past the moon and that is not going to happen. If we start buying trucks with gold it will be a couple ounces or less. You know the stock of gold is so small in comparison to world wealth that $50,000 per ounce is still too low.
    Point is this could end world trade and that is not a bad thing for Americans. The world could return to WW1, WW2 distribution. We don't even need energy if properly utilized. The employment problem would disappear in America. This is not even thinking outside the box just returning to when the box wasn't full of rocks. 

  64. Test

  65. scottmi,
    Did you receive a response from Barf (your 12:14 AM ?) regarding adverse events affecting his approach? My concerns also.

  66. Can someone clarify Phil's TNA 62.5 calls. we are buying the 62.,5 calls? as a hedge to a bullish move . Sorry for the question

  67. Out of TZA calls back in oil

  68. barfinger/8800 – no..not yet… but i'll just chill while i still hope. ;-)

  69. Phil Is this the Bernanke plan? It could solve a lot of problems for us while causing a lot of pain. Is this not the American way of controling the world? About the same as the military.

  70. Amitshenoy/ It is not a hedge but a directional day trade.
    Phil called a bottom earlier this morning and since then we have rallied

  71. Phil- Do you see a short set up for CMG ?

  72. Bernanke probably does want some inflation:


    Bernanke's problem is pretty simple here: he almost certainly wants higher inflation, but he can't say he wants higher inflation. He simply doesn't have enough support for inflation tolerance among his Fed colleagues.

    Nonetheless, higher inflation would be good. The simplest way to see this is to look at interest rates. Once the Fed has reduced interest rates to zero, it can't go any further. But what if the economy is so bad that all the standard models suggest you need negative interest rates to get the economy back on track? The only answer is higher inflation. If inflation is running at 2% and interest rates are at zero, the real interest rate is -2%. If you borrow money, you're effectively being allowed to pay back less than you borrowed, which provides a big incentive to buy a house or expand your business.

    But if even that's not enough, then how about inflation of 4%? As long as you promise to keep interest rates at zero, the real interest rate is now -4%. The Fed is making it almost irresistable to take out a loan and buy new stuff. And there's a virtuous circle here: businesses understand that negative borrowing rates stimulate consumption and demand, so not only is it super cheap to expand production, but they have good reason to think it will pay off as demand increases in the future.

    Obviously the problem is how you control it if it starts getting out of hands….

  73. Scottmi,
    Thks. Winterlight – great sounds to still a trader's frenetic heart.

  74. Hey Phil- what do you think aboutt SDRL Jan 2014 $30 Put for $5.50. It's trending down now, but not sure why – doesn't seem grossly over-valued to me. 

  75. Oil/2Can, Lionel – I see that now 2Can.  $92.50 should be strong support and certainly heading into the weekend it's a very dangerous short so be careful.  Keep in mind it was the contract rollover, now complete, that gave us a big win – not some change in fundamentals or sentiment regarding oil.

    QE/Shadow – While they may not work, they do give us a boost for a little while.  We're probably getting less bang for the buck than we did with QE1 or 2 but that does not mean there will be no bang at all.

    Gold/Shadow – I did work it out once and $50,000 an ounce would be about right.  NIce thought that trade ends but no reason it would really.   LOL on rocks!

    TNA/Amit – We're done with those.  It was just a momentum trade.

    Plan/Shadow – Plan is to bring about massive inflation the triples GDP to $48Tn before the debt can double at $32Tn so our debt to GDP ration is back to "just" 0.75.

    CMG/Villa – I see a lot of short set-ups but I'm trying to get bullish.  Maybe into earnings (10/18).

    Deleveraging/ Rain – Thanks:


    SDRL/Japar – They are a very solid company that may have gotten a little ahead of themselves but I certainly wouldn't buy a put.  If you are selling a put – than I do like selling the 2014 $30 puts 5.50.  

  76. Anyone follow HEES..
    Thnx Lionel

  77. GLD/jr – roll tomorrow.  I assume the Sept 170s?  I have two going.  173s as well.

  78. its funny to hear the same guys that for years…even after china bubble burst….said US doesn't matter anymore…brics driving everything….say now that the entire world doesn't matter…ahahahahaha..

  79. Pharm-- would you be able to post all your positions in the evening if you dont mind. I am new from a couple of days and cant follow your trades so sorry

  80. If anyone is a bit too long on tech and worried about tomorrow, I picked up some QID 27 C for a nickel as tomorrow's Crazy Play.

  81. The problem with these so-called experts Angel is that:

    1. We are not dealing with an exact science
    2. They need to come up with new material to generate TV appearances
    3. The world economy is now so complex  in its interaction connections that it is impossible to model perfectly the consequences of traditional economic tools.

    My guess is that all the CBs are currently flying somewhat blind, hoping for the best but not really knowing what will be the results of their intervention. So how are these TV guys going to make any sense of that? Of course, no one is going to go on CNBC and say that they don't know what the end game looks like!

  82. Pharm,  no I've got the 173's with the Dec 173's long.  When you roll are you going to let us know?

  83. 8800, scottmi: The enemy of any neutral balance strategy is the trend, and of course those can give you heartburn. SIngle event spikes generally are not as serious, but I will admit that the Fed has blown up more balanced plays that I can count. I absolutely hate the Fed. However, when I say "blown up", I mean adjustments were forced. Most adjusted positions work out the next month (or two), but sometimes, a fierce trend takes hold, such as with QE1, and in the end, I was forced to slice away part of one side and take a loss when the margin requirements got large.
    A system such as mine (and strangling is still the core of it) does run sour at times, but not often. On balance, it is a consistent money winner that does not require I outsmart anyone regarding market direction. Bottom line, if there's a system that produces profits for a guy with a cloudy crystal ball, like me, there must be something to it.
    You absolutely must search for the exits before you take a seat, just like always.

  84. I have a strong background in energy and I'm going to tell you right now that this is really really really interesting.
    And I am extremely reticent around controlled fusion in general, but this technology is got a extremely good shot at making it. Now it's just a matter of time and investment.

  85. Total debt load for different countries:

    This include private (personal and corporate) and government.

  86. look at TRAN!!!

  87. Looks great indeed BDC…. That's the promised land!

    But government funded research though!

  88. Gees Phil,  You mention BBY 2014  $15 puts and now 3040 contracts have been traded today, and that was just a chat comment.

  89. I guess it's easy to make money when your are selling products to people like these:

    Can't even tell it's the same phone they have in their pocket….

  90. now 3370

  91. Hello All – Does anyone know where I can find out information on US Treasuries maturing in 2013?  I am curious to see how much and when specifically.  TIA 

  92. Every stock in Transportation Index down with one exception.  The railroads particularly hard hit.  Some down 4 and 5% for the day.  And SOX index not looking good either.

  93.  msb hearts see its the top holding for mutual funds and hedge funds….im worried they have piled in with HUGE weightings because it is outperforming so much…and we get them trimming back into quarter-end to hide they were betting so heavily on it

  94. /cl and /rb worked today into the close

  95. Now it looks like the indexes are getting serious about going higher.

    Dollar testing 79.50.

    Fusion/BDC – I hope so!  What a different World it will be..

    Debt/StJ – Now that's SCARY!

    TRAN/Lol – You would think it maters but it hasn't for a while.

    BBY/Stock – Holy cow, you mention it at 2:14 and 230 contracts trade in 2 mins!  8)   Yes, I have to be careful what I say these days.

    Phone/StJ – LOL, no one ever went broke underestimating the intelligence of the American consumer.

    Treasuries/Ink – Don't know but if no one else does, I can find out from home tomorrow easy enough. 

    SOX and TRANQ/Den – I stopped looking as it's hard to get bullish when looking at fundamental breakdowns like that.  They have been diverging for a long time with no ill effect on their indices.

    AAPL/Angel – I'm sure they can justify $700 at earnings but maybe not this one as the 5 sales won't be reflected yet. 

    Oil and gas/Savi – Amazing how reliable that one can be.  

  96. Pharm-- thanks so much i appreciate it

  97. agree about BBY—-remember your trade of the year BAC!!!! —I could not get near it as it jumped so quickly—you must know, that scarred me for life  ;-)

  98. Scary debt / Phil – And the supposedly cash rich countries like China are already on the hook for 200% of GDP not counting the crap that they are hiding…. 

    I guess we keep printing and hope for the best!

  99. Phil
    And you prove my point. I have no idea why this is made so complicated. I can't shut the auto math in my head. I still think the Bernankster should come clean with the plan and I hope to god that he can stop the devaluation once it starts rolling. The past seems to indicate that it can't be stopped. This is going to push goverment subsidies to 80% of people or a massive reduction of population.
    Maybe the 1%ers should capitulate now because this is not a can being kicked, it is a snowball turning into ice. It will hurt more than a foot.

  100. Phil – how about a spread on NSC as a way to get bullish? Jan '14 60/70 BCS, selling the 60 puts for a $1.5 credit?

  101. Barfinger,
    Thanks for the insights re your mkt neutral approach. Have you found any rules that you live/die by, e.g. exit with a loss if
    you need to roll>twice or if adverse mkt move >certain %? Or, as is the case with most everything else, taking the loss is just experience/Kentucky Windage?
    TIA… again

  102. DJI vol 61.4M

  103. Actually – I think the 57.5/67.5, selling the 57.5 puts looks better – safer

  104. THanks Phil.

  105. What is the expected AAPL earnings this quarter?

  106. Hey all,

    Been awhile…


    Got a trading idea for you all today.


    Added $TGT 65/62.50 Oct20 Bull Put Spread at 0.62. Potential GAIN of 38%! TGT broke key 65 resistance and looks poised to continue higher.


    TGT is Buy-rated by us with $80 price target by end of year.

  107. Treasury market

  108. DJI vol 73M.

  109. SOX and TRAN/Phil:  All that money I spent getting degrees in economics and finance and the time I wasted reading Benjamin Graham!  I'm going to tell my grandkids to forget about college and come right to the website.

  110. IWM is having a little sell program, trendline support now 84.90.

  111. denlundy
    All that money on education, do I ever agree with that!

  112. BAC/Savi – It was near enough our Jan entry (around $6) in May and July.  Last time we ditched out at $10 but there was no QE3 at the time, this run should be good for $12 but don't worry, earnings will very likely give us a nice sell-off or two to construct some good 2014 trades.

    Just keep printing, just keep printing, just keep printing/StJ – It's the way to go.

    Inflation/Shadow – We did it in the 70s, it will stop after a decade or so.

    NSC/Deano – Bit of a falling knife at the moment, don't you think?  I'd give them a chance to settle down first – they haven't even had a visit from the downgrade police yet.

    61M/Rain – Where have all the buyers gone?

    AAPL/Shadow – "only" $8.79 expected and that is revised down from average expectations of $10.36 before their last CC so Cook did a fantastic job of lowering expectations.  That would still put them on track to earn $44.27 for the year and another 20% puts them at $53 next year (p/e 13).  So, if AAPL beats this Q by $1, it's only 1/6 of the year so you'd have to ratchet up estimates by about $6 for next year to just about $60 and that drops their forward p/e to 11 and means they should easily zoom to $800 on the way to $900.   Last year in Q3 they made $7.05, so we're looking for a 25% increase to be in-line and a 40% increase to knock it out of the park.  Notice going backwards, 40% improvements have not been a problem and July was $10.37, April $10.04 and Jan $13.87 – all better than 50% improvements! 

    So, the greatest thing that can happen would be for AAPL to sell-off on earnings but I doubt we will be so lucky.  Hopefully they kitchen-sinked expenses into this Q and put of any recognition of 5 earnings until Q4 – otherwise, this may be the last chance to buy AAPL below $800.

    TGT/David – I like them but not too cheap at $65.  Back to school earnings should be good, though.

    College/Den – I'm going to sit my girls down during their senior year and hand them a suitcase with $250,000 in cash and tell them they can take the money and go start a business or they can go to college.  I really hope they start a business! 

    Dollar 79.485 so they lost 79.50 but they want it back.  XLF can't get back over $16 but on plan from this morning.  I'm leaning bullish for tomorrow's open.  

  113. If I were a hedge fund…I would hire a programmer to screw the algos…..and short the crap out of this thing.

  114. 250K/phil – if you are going to adjust for inflation, better make that a BIG suitcase.

  115. OK, time for me to fly home.

    Have a good evening folks!

  116. I am sitting here smiling as I ponder my battle to accommodate my investing style with the discovery of an alternate reality that has no connection with the economy nor Main Street. Thanks Phil and et al for the navigational tips in this new 4th dimension we call Wall Street..

  117. True Scott, will be more like $400K by then (6 years at 10% would do it).

    LOL Diamond.

    Algos/Pharm –  Harder than you would think.

    ORCL not so great earnings.

  118. GOP to veterans – FU!


    As proposals go, this should have been a no-brainer. The Veterans Job Corps Act of 2012, sponsored by Sen. Patty Murray (D-Wash.), sought to lower unemployment among military veterans, giving grants to federal, state, and local agencies, which in turn would hire veterans — giving priority to those who served on or after 9/11 — to work as first-responders and in conservation jobs at national parks.

    The bill was fully paid for, and entirely bipartisan — Sen. Richard Burr (R-N.C.) had his own set of ideas for the bill, and Murray incorporated all of them into her legislation.

    And yet, all but five Senate Republicans voted to kill it anyway, 48 days before a national election. Even Burr sided with his party to defeat the bill, and it was filled with his provisions.

    It's just so cynical… 

  119. I'll have Chris Christie waiting for you at the airport Phil!

  120. 8800: I am sitting on the cautious side because my extra margin was called into play by QE forever. It was a pretty significant rebalance. I try to follow the 50% rule on rolling, and when I roll, I usually deploy another position on the other side pretty quickly.

  121. If a congressman feels we are spending too much money, and he votes against some new spending, he is sure to make enemies, perhaps many. If you wonder why we have the deficit problem, this pretty much would explain it.

  122. Bitcoin – for those fans out there: Pure Fiat Con.

  123. FWIW:

    Fittingly, gold has experienced a “golden cross” today, which is a technical signal that occurs when the 50-day moving average crosses above the 200-day moving average as both moving averages are rising.

  124. I have to relearn my history. I hope that they will adapt the citizenship tests to reflects these well needed corrections.

    Some samples:

    1619-1808: Africans set sail for America in search of freedom: “Other than Native Americans, who were here, all of us have the same story.”—Michele Bachmann

    1961: The Soviet Union brainwashes its first Marxist terrorist spybot: “Soviet Russian Communists knew of Barack from a very early date… he was raised and groomed Communist to pave the way for their future.”—Janet Porter

  125. ….am I right… barf?……

  126. Pharm – thanks for posting your trades.   Just curious – what are the primary reasons why calendars are your weapon of choice?   
    TRGT –  I got a nice fill price buying back my TRGT puts today.  Decent profit on the trade even after the bad news, so gracias.

  127. Good morning!

    It's good to be home.

    It's IPhone day so very unlikely the market finishes the week on a down note. 

    Dollar down a bit at 79.26, oil back to "normal" at $93.20, gold patriotic at $1,776, silver rejected at $35, now $34.76, copper $3.79, nat gas $2.814, gasoline way down at $2.80 is a good long off that line (/RB) with VERY tight stops (watch Euro).

    Euro struggling to hold $1.30 – not bullish if it fails, Pound $1,6275 and 78.20 Yen to the Dollar 

    News is same old, same old…

    2:51 AM Asian shares are higher as the feel-good factor from central bank money printing offsets some rather poor manufacturing data out of China and Europe yesterday. "The general consensus at the moment is that any major dips in the market will be supported by the fact that central banks are happy to act," says IG Markets analyst Stan Shamu. Japan +0.3%, Hong Kong +0.8%, China +0.1%, India +2%.

    3:31 AM European shares track Asia higher, boosted by chatter that the EU and Spain are working on a bailout for the country. Euro Stoxx 50 +0.3%, London +0.5%, Paris +0.5%, Frankfurt +0.3%, Madrid+0.6%, Milan +0.3%.

    6:00 AM Overseas: Japan +0.25%;. Hong Kong +0.70%. China+0.09%. India +2.12%. London -0.11%. Paris +0.39%. Frankfurt+0.30%.

    7:00 AM On the hour: S&P +0.15%. 10-yr -0.02%. Euro +0.29% vs. dollar. Crude +0.68% to $93.05. Gold +0.3% to $1773.15.

    China's slowdown could last longer than during the 2008-9 financial crisis, state economist Yuan Gangming tells Bloomberg. Gangming forecasts that growth will sink to below 7% by Q1, saying that major factors are weakening foreign demand, the central bank focusing too much on inflation, unsustainable local-government spending plans, and not enough lending to small businesses.

    When California Governor Jerry Brown came into office last year, he said he found a "wall of debt" of $28B. That wall is actually a much bigger $167B-$335B, says the State Budget Crisis Task Force, which was co-founded by Paul Volcker. The task force includes lots of off-book items in its calculations such as pledges to provide pensions to public workers and healthcare for retirees, and $40B to improve drinking water. 

    Deutsche Bank (DB) may slash thousands of jobs in Germany, the Sueddeutsche Zeitung newspaper reports, with the bank set to cut 543 jobs in a first wave as it streamlines back-office services and its IT system. Deutsche Bank had announced 1,900 job losses in July but said that most of those would come from abroad.

    So much for austerity – the U.K.'s budget deficit increases to £14.41B in August from £14.37B in the same month last year. The latest figure is a record for August since records began in 1993, and was caused by a 2.1% fall in corporation tax receipts and a 4.9% increase in benefits payments.

    Greek PM Antonio Samaras heads into meetings in Rome today with his Italian, Spanish and Irish counterparts against a background of huge disagreement. Samaras and his coalition partners have so far been unable to agree on spending cuts demanded by the Troika, who themselves are in dispute over who will provide Greece with extra financing that the country will probably need over and above its current bailout.

    Russian Economy Minister Andrei Belousov warns that the country may restrict grain exports - as it did in 2010 – if domestic prices increase too sharply. The government had previously said it wouldn't limit exports despite a drought that will cause output to fall to an estimated 72M-73M metric tons from a record 94.2M tons last year.

  128. Phil, 
    I'm looking at the Oct /RB contract with a price of 2.92, it doesn't look like it touched 2.80.  Maybe stale information?

  129. Actually TOS and IB differ on /RB.  Both are showing the Oct5 contract, but TOS is showing 2.80 and IB 2.90

  130. I think TOS data is wrong on /RB.  If you look at the NYMEX, the price is in line with IB.
    Nymex is showing /RB OCT at 2.93

  131. Ignore me about /RB.  Phil was right at 2.80, but TOS uses different terminology than the NYMEX or IB.

  132. /RB/Burr – I have /RBX2 (Nov) on TOS at $2.815 now.  

  133. Burrben/Mary Jane    I think it's great news….. :)

  134. test