Wednesday Worries - AAPL Makes $76,103 While You Read This

$76,103 – That's not sales, that's profit!

Every minute of every day, AAPL is making $76,103 (at $40Bn a year) on the sale of $316,120 worth of products. No company on Earth comes close to that kind of metric and, overall, the stock's performance clearly indicates that but, if you listen to the MSM, you would think AAPL is finished.

We had a nice, in-depth discussion about AAPL in Member Chat this morning and we not only concluded it's still a buy but we came up with a lovely spread that has the potential to turn $3,000 into $45,000 between now and Jan 2015 if AAPL simply holds $600 – needless to say we're very proud of that as it's always nice to have a trade or two in your portfolio that returns 1,500% and we rarely get a chance to do them with a blue-chip stock like AAPL.

Note in the above chart, that AAPL is still a relative outperformer this year – shown priced against HPQ, DELL, INTC, IBM, CAT and ISRG – all good companies that have simply failed to keep up. We also like HPQ at this level, now $14.30 as their REDUCED guidance has them earning $3.62 per share next year after earning $4.05 this year and that's still 25% back on your money, which sure beats TBills and we're not even counting the $18Bn in cash they have on hand, which is quite a lot when you consider that their entire market cap is now just $28Bn. Small wonder HPQ spent $9Bn buying back their own stock last year, when it was priced 100% higher.

HPQ is a pretty good candidate for a buy/write, where we Buy the stock for $14.30 and Write 2014 $15 puts and calls (sell short) for $5.50 and that nets $8.80 on the trade and, if HPQ is below $15 in Jan 2014, then another round of shares will be put to you at $15 for an average entry on 2x of $11.90, which is 17% below the current price and, if HPQ is over $15 in 16 months, then you get called away at $15 for a $6.20 profit on cash (75%). Buy/writes are our favorite tools for making long-term entries – see "How to Buy a Stock for a 15-20% Discount."

As we mentioned INTC in the above chart, let's look at a similar trade idea for them. INTC is nicely beaten-down at $22 but may go down to $17.50 before stabilizing so this is a bit early but we can buy the stock for $22 and sell the 2015 $20 calls for $3.70 and the $15 puts for $1.50 and that drops the net entry to $16.80, which is 23.6% off the current price and lower than we think it's likely to fall and we're only committing to buying another round at $15, and that's 32% off the current price, which would give us an average entry of $15.90 – worst case. If called away at $20, our gain is $3.20 of our net cash investment of $16.80 or 19% over 28 months – not a bad return for betting Intel simply doesn't fall more than 10% lower than it is now but nowhere near as exciting as HPQ because it's considered less risky and we're being more cautious as we don't think it's bottomed yet. INTC is also kind enough to pay you a .90 dividend while you wait – adding another 5.3% to your annual return! This is better than T-Bills folks…

Now, back to the markets. As we can see from our Big Chart, we're having a bit of a pullback, with the Nasdaq and Russell down 5% from the September highs and the other indices down roughly 2.5% so far.

The Nasdaq made a critical failure yesterday as it fell below it's 2.5% line AND it's 50 dma at 3,082 while the Russell is right on their 50 dma at 824 and in danger of failing their 2.5% line at 820 as well. The S&P is our most important indicator and it looks like they are right on that critical 5% line at 1,440 – our only index not to fail that level and that is all of our remaining hope so we'll be watching them VERY closely this week.

Should the S&P fail – then the Dow has no support down to 13,295 so they'll make a nice short but we're still hoping we won't have to pull the trigger on that one. Going into this dip, TZA was our primary hedge in the Income Portfolio and our April $15s have gained .40 since Friday (16%), well outpacing the 2.5% drop in the Russell for a nice offset.

Otherwise, we're still long-term bullish as nobody notified us that the Fed has withdrawn QE3 and it was just yesterday that China threw another $40Bn into the markets. What's bumming everyone out this week is worries about earnings (not so bad so far) and all these TERRIBLE pronouncements from the IMF's meeting in Tokyo this week on the state of the Global Economy. At PSW, we've been telling you the Global Economy sucks for months so it's not surprising to us but it seems to be shocking the sheeple – who are now running for the exits but, as noted on the Big Chart – certainly not at anything like an alarming pace so far.

In order to climb a wall of worry, we need to first recognize and accept those worries and what we have here is the beginnings of capitulation after a very long period of denial (where bad news was good news into the Fed). This is why we prefer to buy now with a 20% downside cushion – we're a little early to call it a bottom but the FACT of QE3 means we may not make too low of a trough on the way down so we're using this earnings season to do a little bargain hunting.

Tell us when something new happens that we should be worried about but, so far, China's slowdown we've been discussing all year, Europe's mess is 2-years and counting, California Cities in debt crisis also old news, Japan staggering under 220% debt is bad, but just 10% worse than 2 years ago and 7.8% US Unemployment is the best reading since Obama took office and the only thing we have to worry about there is whether or not Jack Welch's head will explode if we go down to 7.7% next month.

So far, earnings are coming in better than expected – we'll see how the week plays out but this correction may be shallow indeed if it turns out we've underestimated the recovery in the US and overestimated the impact of China and Europe slowing down.

169 COMMENTS

169 Comments

Inline Feedbacks

View all comments

Phil

Author

October 10, 2012 2:30 pm

Republicans/Rustle – OMG! The funny thing is she first says you don't want Obama because he'll stop Medicare and then says you don't want Obama because he's a Socialist. He must be the worst kind of Socialist, the kind that will stop Socialistic programs! What idiots….

Nat gas/Hero – Only one I like is long on CHK, still not too expensive at $19.50 and you can sell 2015 $13 puts for $2.50 and buy the $10/18 bull call spread for $5 and that's net $2.50 on the $8 spread and you're effectively promising to own CHK for net $15.50 (20% off) but, because of the $10 calls, your break even is $12.75 (34% off). Over $13, you essentially own it at net $12.50 (because of the $10 calls) and you can make up to $5.50 at $18 (44%). So you don't lose money unless it falls more than 34% and you make 44% if it falls less than 10% – THAT's the way to play long-term!

Oil/StJ – I think people were thrilled to take $93 and run today. Strip is still very heavy with 2 weeks left to trade:

Click for Chart	Current Session								Prior Day		Opt's
Click for Chart	Open	High	Low	Last	Time	Set	Chg	Vol	Set	Op Int	Opt's
Nov'12	92.26	93.66	91.42	91.48	14:16 Oct 10	–	-0.91	228873	92.39	208692	Call Put
Dec'12	92.60	94.02	91.81	91.86	14:16 Oct 10	–	-0.92	83586	92.78	248520	Call Put
Jan'13	93.04	94.46	92.28	92.30	14:16 Oct 10	–	-0.95	34018	93.25	131379	Call Put
Feb'13	93.49	94.87	92.75	92.78	14:16 Oct 10	–	-0.94	19848	93.72	68085	Call Put

The really hard thing is most traders only want to roll 1 month forward but that will make Dec ridiculously heavy (350K max for a month is "normal") and Jan isn't much help either so they are going to take what they can and get out this month.

AAPL/Lflan – I agree, other than our one roll, nothing to do today.

angelcur

Member

October 10, 2012 2:31 pm

REICH/ AN ODD LITTLE FELLOW USED TO SEE HIM WALKING AROUND CAMBRIDGE WITH DP MOYNIHAN THAT WAS AN ODD SCENE..I AM HEARING VERNE TROYER MAY PLAY HIM IN THE ROMNEY ADMINISTRATION

scottmi

October 10, 2012 2:32 pm

AAPL/Phil – "..and do not cover again.." what do you think is in the realm of possible (liekly) that you do not want to cover against? an AAPL pop today/tonight? to..how much?

jromeha

Oil hahahahhahaha! A big FU from Afghanistan OIL! Anyways….
Pharm – would you double down now on AVEO?

October 10, 2012 2:35 pm

JROM..HOWS IT GOING!!??

lflantheman

The chart just turned on AAPL.. 645 weekly AAPL calls in the MoMo port at 4.5

That's 10 of them.!!

lionel

October 10, 2012 2:37 pm

Yes Iflan, riding them from 3.5 and getting more momentum

williex

October 10, 2012 2:42 pm

flan

what are you using to determine a turning in the chart?

October 10, 2012 2:44 pm

The above trade in AAPL exited at 4.40.

Inkarri19

October 10, 2012 2:46 pm

Hello ALl – According to WSJ, the Fed's Kocherlakota, the Fed might run current policies for four or more years.

October 10, 2012 2:47 pm

I have a meeting. I can't watch a daytrade the rest of the afternoon so I have to let it stop out at 4.40. You can ride this trade if you want. Suggest trailing stop of 0.2 and stop out no lower than 4.30. See you tomorrow.

October 10, 2012 2:50 pm

ms tech index broke 200-day today…i think tech is really not in a good situation heading into earnings season

zeroxzero

Iflan: 9 minutes?

October 10, 2012 2:52 pm

Stick – to judge by yesterday, doesn't look like a stick is coming.

October 10, 2012 2:57 pm

Beige Book:

Reports from the twelve Federal Reserve Districts indicated that economic activity generally expanded modestly since the last report. The New York District noted a leveling off in economic activity, and Kansas City indicated some slowing in the pace of growth. In general, other Districts reported that growth continued at a modest pace.

Consumer spending was generally reported to be flat to up slightly since the last report. A number of Districts characterized retail sales as expanding at a modest pace, while reports from New York, Chicago, and Kansas City indicated flat or softening sales. Vehicle sales were also generally characterized as stable but up from a year earlier and generally at favorable levels. Used car sales were mixed. Most Districts described tourism as fairly robust, though Kansas City noted some general softening, while New York and Dallas indicated some scattered signs of weakening.

Residential real estate conditions improved since the last report. Most Districts reported strengthening in existing home sales, while prices were described as steady to increasing, with declining inventories noted in the Boston, Atlanta, Minneapolis, Dallas, and San Francisco Districts. Residential construction was also described as rising in most Districts. Commercial real estate markets were mixed since the last report. Office markets showed signs of softening in the northeastern Districts–Boston, New York, and Philadelphia–while most other Districts reported stable or mixed market conditions. Industrial markets showed some strength in the New York, Philadelphia, Cleveland, and Atlanta Districts, while softer conditions were noted in Richmond.

Conditions in the manufacturing sector were mixed but, on balance, somewhat improved since the last report. The Boston, Richmond, Atlanta, St. Louis, Kansas City, and San Francisco Districts reported some expansion in activity, whereas New York, Chicago, and Minneapolis reported some weakening in activity. The nonfinancial services sector showed modest improvement in the latest reporting period. Richmond, Minneapolis, Dallas, and San Francisco reported some expansion in activity, while New York and Philadelphia indicated steady or mixed conditions.

Overall loan demand was steady to stronger in most Districts. Credit standards were little changed since the last report, and a number of Districts noted improvements in loan quality or steady to declining delinquency rates. Agricultural conditions were mixed, with drought conditions continuing to adversely affect much of the mid-section of the nation. Activity in the energy sector remained robust.

Districts mostly reported little change in prices of both finished goods and inputs. Prices for agricultural commodities and petroleum-based products were generally reported to be higher, while natural gas prices were said to be low or declining. Employment conditions were little changed since the last report. Several Districts continued to report shortages of highly skilled workers, but otherwise wage pressures remained modest. Philadelphia, Cleveland, and Chicago noted increases in the costs of employee medical benefits.

This is pretty good stuff except for the slowdown in Manufacturing evidenced from the terrible PMI reports as well as regional Fed reports but they are not declining – just no longer expanding.

Consumer Spending and Tourism
Consumer spending was mixed but generally reported to be flat to up slightly over the latest reporting period. Retail sales were said to have improved modestly in the Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco Districts, while sales were characterized as flat to softer in the New York and Kansas City Districts. In general, retail sales were reported to be running only modestly ahead of a year ago. A number of reports noted various factors affecting sales, such as rising gasoline prices, political uncertainty, concerns about the "fiscal cliff" and weather. Atlanta and San Francisco noted that discounters have been outperforming traditional department stores. Cleveland reported that back-to-school merchandise sold well, while Chicago said that such sales were below expectations. Boston noted a pickup in furniture sales, Richmond cited brisk sales at building supplies stores, and San Francisco reported stronger demand at restaurants and food-service establishments.

Vehicle sales were mixed but generally at favorable levels. Sales of new vehicles were steady to stronger and running ahead of comparable 2011 levels. Philadelphia, Atlanta, Minneapolis, and San Francisco described sales as strong, while New York and Chicago reported some moderation in sales in September, after a fairly strong August. Kansas City and Dallas reported some softening or leveling off in sales. The Cleveland and Kansas City Districts noted that crossover SUVs have been selling well relative to less fuel-efficient vehicles. Sales of used vehicles were mixed, with San Francisco describing them as robust but New York and Cleveland characterizing them as flat.

Tourism was generally described as steady at robust levels, though there have been scattered indications of some softening. Boston, New York, Philadelphia, Richmond, Atlanta, Minneapolis and San Francisco described tourism as strong, whereas the Kansas City and Dallas Districts indicated some signs of weakening. Even Districts reporting strength noted some pockets of softening: Boston reported a small drop in advance bookings, New York indicated a dip in activity in mid-September, Richmond noted a significant drop in government-sponsored bookings, and Atlanta mentioned disappointing cruise bookings and on-board spending. The Dallas District noted weakening travel demand from Europe and Asia; Atlanta also indicated weakening traffic from Europe but added that Canadian and Latin American visitors largely picked up the slack.

That's actionable (disappointing cruise spending). This is worse than previous reports, where tourism was a stand-out but, again, maybe just a reflection of taking a rest after a good run.

Real Estate and Construction
Residential real estate showed widespread improvement since the last report. All twelve Districts reported that existing home sales strengthened, in some cases substantially. Selling prices were steady or rising. Boston, Atlanta, Minneapolis, Dallas and San Francisco noted declining or tight inventories, which have put upward pressure on prices. Modest price increases were reported in the New York, Richmond, Chicago, and Kansas City Districts. New York and Richmond reported relatively strong demand at the high and low ends of the market, whereas Philadelphia and Kansas City noted relative strength for mid-range homes; Boston indicated a shift in the mix toward lower or medium priced homes. New home construction and sales were more mixed but still mostly improved: increased construction and/or new home sales were reported in the Atlanta, Chicago, St. Louis, Kansas City, Dallas and San Francisco Districts. Multi-family construction, in particular, was described as robust in the Boston, New York, Atlanta, Chicago, and Dallas Districts. Residential rental markets continued to be characterized as strong, even in the New York and Atlanta Districts where rents increased somewhat less strongly than in recent months.

Commercial real estate markets were mixed since the last report. Office markets showed signs of softening in the northeastern Districts–Boston, New York and Philadelphia–with New York remarking on substantial new supply coming on the market in early 2013. In contrast, Atlanta, Minneapolis and San Francisco noted some improvement, while most other Districts reported stable or mixed market conditions. Industrial markets showed some strength in the New York, Philadelphia, Cleveland and Atlanta Districts, while conditions were described as sluggish in Richmond and mixed in St. Louis. Atlanta noted weakness in the market for retail space. Commercial construction activity was also mixed: Atlanta, Minneapolis and Kansas City reported some improvement in non-residential construction activity, while Richmond and Dallas noted that activity was sluggish.

Residential real estate coming back. First time we've heard that and one of the most important components in the economy.

Manufacturing
Conditions in the manufacturing sector were mixed since the last report, though on balance, more Districts reported that conditions had improved than worsened. The Boston, Richmond, Atlanta, St. Louis, Kansas City, and San Francisco Districts reported that activity expanded, though growth was generally seen as modest. Activity was reported as mixed in the Dallas District, while the New York, Chicago, and Minneapolis Districts reported that activity weakened, though declines were mild for the latter two. Significant gains in manufacturing related to the construction, energy, and transportation sectors were reported across several Districts, with particularly robust gains tied to the automotive industry. There were exceptions in the Kansas City and Dallas Districts where manufacturing related to transportation equipment was reported as mixed.

Steel production was said to be flat in the Cleveland and San Francisco Districts, and lower in the St. Louis District. Activity related to machinery and equipment was reported as lower in the Philadelphia, Chicago, and Kansas City Districts. Weaker sales growth in the high tech industry was reported by Dallas, and Kansas City said that growth among high-tech firms remained sluggish in its District. The Boston District noted some weakness in the semiconductor industry, while the San Francisco District said that new orders from the semiconductor industry had improved. Manufacturing contacts in the St. Louis District were tentative about the outlook for 2013, and contacts in the Dallas District noted some uncertainty about the outlook due to the upcoming election.

That's those poor PMIs again. This report is more current, through Sept 28th but indications are we'll get another bad round of manufacturing outlooks this month.

Nonfinancial Services
Activity in nonfinancial services was stable to slightly stronger since the last report. The Richmond, Minneapolis, Dallas, and San Francisco Districts reported that service-sector activity expanded, while such activity was reported as steady in the New York District and mixed in the Philadelphia District. Richmond noted that business activity strengthened for professional, scientific, and technical service firms, and Dallas noted strength in energy, accounting, and audit-related services. There was an increase in activity for a wide range of consulting services in the Boston and Minneapolis Districts. Activity related to health care was reported to be stable in the San Francisco District, but increased significantly in the Boston District. San Francisco reported continued sales growth for a wide variety of technology services, and noted that demand picked up for restaurants and other food-service providers.

Reports on goods transportation services generally remained positive. A pick up in such activity was noted in Cleveland, Atlanta, Richmond, and Dallas, while such activity was said to be flat in Kansas City. Contacts in the Cleveland, Atlanta, and Dallas Districts reported strong shipments of automotive, construction, and energy-related products. Port activity expanded to record levels in the Atlanta and Richmond Districts. Air cargo volume increased in the Atlanta District, but declined in the Dallas District due to weakness in the international sector.

Interesting – who would imagine we have record port activity anywhere?

Banking and Finance
Overall loan demand increased slightly on net since the last Beige Book report. New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, and San Francisco reported stronger loan demand on balance, while Kansas City and Dallas reported flat demand and Chicago reported somewhat weaker demand. Most Districts reported an increase in mortgage lending, especially for refinancing purposes. New York, Cleveland, St. Louis, Kansas City, and San Francisco reported some increase in demand for commercial and industrial loans, while demand for business loans was weak in Chicago and Dallas, and was characterized as mixed in Richmond. Demand for consumer credit, particularly for auto loans, was said to be strong in the Cleveland, Atlanta, St. Louis, Dallas, and San Francisco Districts, while consumer loan demand was more limited in New York, Richmond, Chicago, and Kansas City.

Credit standards were little changed since the last report. However, New York noted some tightening for consumer loans and residential mortgages, while Richmond and Chicago reported some easing for commercial and industrial loans. Still, loans remained difficult to obtain for many small businesses in the Cleveland, Richmond, and Chicago Districts. Banking contacts in the Philadelphia, Cleveland, Dallas, and San Francisco Districts reported stiff competition among lenders. Philadelphia, Kansas City, and Dallas noted general improvements in loan quality, and delinquency rates generally held steady or declined in the New York, Cleveland, and Dallas Districts.

More evidence of housing improvements but not much otherwise.

Agriculture and Natural Resources
Agriculture conditions were mixed since the last report. Drought conditions continued to hurt the agriculture sector in the Chicago District, parts of the Minneapolis District, and the Kansas City and Dallas Districts. However, agriculture activity was reported as higher in the Atlanta and St. Louis Districts, as well as in parts of the Minneapolis District, and was reported as stable in the San Francisco District. The Chicago and Dallas Districts noted that increased rainfall had improved crop conditions. In the Dallas District, crops were reported to be mostly in fair to good shape, with production levels ahead of last year but below average due to ongoing dry conditions. Producers in the St. Louis District reported that crops were generally in better condition than at the time of the previous report, and harvest rates for corn and rice were well ahead of their five-year averages. Contacts in the Atlanta District reported that the rise in some crop prices related to the drought in the Midwest led to an increase in crop production in the Southeast. Higher feed prices continued to adversely affect livestock producers in the Atlanta, Chicago, Minneapolis, Dallas and San Francisco Districts, though the Chicago District noted some easing in higher feed prices which provided a bit of relief.

Activity in the energy sector remained strong, with the Minneapolis, Kansas City, and Dallas Districts reporting robust gains in activity. The Minneapolis District reported that oil production hit a new record high in North Dakota, and the Cleveland District reported that oil and natural gas production held steady. Natural gas exploration was reported as lower in the Kansas City District and in parts of the Minneapolis District. Coal producers in the Cleveland District reported declines in production.

Wow, we really dodged a bullet there!

Employment, Wages, and Prices
Employment conditions were little changed since the last report. The Boston, Cleveland, Atlanta, Minneapolis, and Dallas Districts indicated that employment levels were flat or up slightly, with stagnant demand and uncertainty related to the upcoming presidential election, U.S. fiscal policy, and European debt issues cited by some as restraining hiring. The New York and Chicago Districts noted weaker labor market conditions, and conditions were described as mixed in Richmond. Firms in the St. Louis District reported an increase in hiring plans. Several Districts continued to report that employers were having difficulty filling highly skilled positions. In response, a few Districts noted that firms were starting to increase training programs to meet their staffing needs.

Most Districts reported that wage pressures remained modest since the last report, though an increase in the cost of employee medical benefits was noted in Philadelphia, Cleveland, and Chicago. To the extent that wage increases were observed, they were concentrated among highly skilled workers in information technology, health care, professional services, and some of the skilled trades, according to reports from the Chicago, Minneapolis, Kansas City, and San Francisco Districts.

Price pressures were said to be contained as most Districts reported that both finished goods and input prices were little changed since the last report. Higher prices were cited by some Districts for agricultural commodities and petroleum-based products, although low or declining natural gas prices were reported in the Atlanta, Kansas City, Dallas, and San Francisco Districts. Contacts in the Atlanta, Chicago, Kansas City, and Dallas Districts noted that drought conditions continued to result in higher feed prices. There were scattered reports of higher crop prices starting to show through to food prices at the consumer level. Atlanta reported an increase in corn and soybean prices, while Chicago and Kansas City reported that these prices declined somewhat. Slightly lower prices for some technology-related products were reported in the San Francisco District.

If it's true that employers WOULD hire if not for the uncertainty, things could pick up sharply after the elections and, of course, after someone does something about the fiscal cliff. Overall, it's a much-improved BBook – especially in real estate. Nothing to pop champagne corks over but nothing to panic out of stocks over either.

October 10, 2012 3:02 pm

You're welcome Rhc.

AAPL/Scott – I would think we'll still be 6/10 covered into the close but with 2 now in Oct. I wish I had more confidence but how can we? There was no IPad event announced today – that was the catalyst we were hoping for.

Fed/Ink – We already expect it to go forever but the threat of Romney coming in and firing Bernanke is spooking the markets now.

Volume still very shallow – 61M on Dow at 3.

amitshenoy174

October 10, 2012 3:05 pm

TNA boought some weekly 58.5 calls for 1.35 . Hoping for a small rally tomorrow morning.

pat_swap

October 10, 2012 3:15 pm

Amit/rally
What action do you see and on which charts to predict the rally tomorrow morning? TIA

Pharmboy

October 10, 2012 3:26 pm

AVEO, not yet. I am selling Nov 10s and Oct 10s. I will buy Nov 10 calls when it gets to a doji day……when…when when

newt

Wage divergence graph- does anyone have this graphic showing how the top is getting more income compared to the bottom?

October 10, 2012 3:28 pm

Pat– they need to kill premium tomorrow so usually pattern is mon,tues,wed down — thursday gap up to kill all those spx options.SPX options tells me we see a gap up to 1435 tommorrow.

Also if you observe tape action we should see short covering rally thats my speculation 🙂

October 10, 2012 3:30 pm

Newt – I'm sure you could probably compare Apple with let's say Cisco, swap out the Apple name for 1% and Cisco for everyone else and you would have your chart.

October 10, 2012 3:40 pm

surprised msb having this much trouble lifting broad market given its playthings aapl, euro, xlf firm

October 10, 2012 3:47 pm

I would not be surprised at all to see AAPL gap up tomorrow.

October 10, 2012 3:52 pm

Hard to say what to make of this selling. Not much volume, not that severe.

Wages/Newt – We've used them before, I'll look after close.

MSB/Newt – Perhaps "they" are done supporting markets.

stjeanluc

October 10, 2012 3:57 pm

Income / Newt – Here is a good chart:

http://cdn.theatlantic.com/static/mt/assets/business/Screen%20Shot%202012-09-11%20at%2011.47.03%20AM.png

Wow StJ – that one really hammers it home!

October 10, 2012 3:58 pm

Meanwhile, over in Europe, the Catalan newspaper reported figures that indicate Catalunya has paid over 25 Billion more Euros to the central government for redistribution among the provinces that they received in loans. And they're not happy about it. Now 74% of Catalans want a referendum on self-determination/autonomy. I had thought that Germans would preserve the Euro at all costs, as I thought it would be more costly for them to abandon it. But the costs of mounting a comprehensive "rescue" get worse every day, and the article I posted yesterday showed how Germany could skate on its Euro loans, which are steadily becoming more burdensome, if it reverted to a Deutschemark and let the Euro value fall out of bed. I no longer have confidence in my view, nor do I have a replacement, for the moment.

October 10, 2012 4:00 pm

And this one Newt:

Inequality-p25_averagehouseholdincom

Transports 5,005 – haven't gone down since they failed it – good sign.

SOX got crushed today, down 1.4%. RUT holding 824 – our last hope but very interesting that they held 824 today.

Spain/ZZ – Big mess that won't go away.

October 10, 2012 4:03 pm

Volume barely finishing at 100M on the Dow. CVX and XOM were half the loss and CAT, HD, IBM and UTX did the rest but 25 out of 30 were down.

RUT very encouraging, even the Futures are holding 824.

shadowfax

Phil all aluminum bac
Dpends T6 resists scratches, brushed looks good a do it yourself thing that can be redone over and over, you can repolish it, and you can get some adhesive backed plastic clear film and apply it yourself

Chart / Phil – When you look at the years 1917 to 1971 you see the top 1% going from $300K to $425K and since then, $1.2M. And we want to give them more tax cuts. And they bitch about redistribution… They have been in favor of it for the last 40 years!

October 10, 2012 4:04 pm

Stj: Killer! Thanks.

October 10, 2012 4:06 pm

Here is the chart between 1921 and 1971…

October 10, 2012 4:18 pm

Hard to believe that these guys are actually in charge of anything important such as for example, governing our country:

http://livewire.talkingpointsmemo.com/entry/rep-broun-spox-comments-decrying-science-as-satanic

Rep. Paul Broun (R-GA) told a church group in Georgia last month that embryology, evolution, and the Big Bang theory were "lies straight from the pit of Hell.” The speech was captured on video and provided to TPM at the time by Democratic tracker The Bridge Project.

Now a spokeswoman for Broun, Meredith Griffanti tells CNN Broun will not comment on his remarks. But she added that they weren't meant for public consumption and that Broun was “speaking off the record to a large church group about his personal beliefs regarding religious issues.” The church group posted a publicly available video of his full speech on YouTube after the event.

Unbelievable…

October 10, 2012 4:21 pm

And I guess it's easy to try to score easy political points on the death of diplomats relying on the fact that public will not recall that you are partly responsible…

http://www.motherjones.com/kevin-drum/2012/10/breaking-protecting-our-embassies-costs-money

House Republicans cut the administration’s request for embassy security funding by $128 million in fiscal 2011 and $331 million in fiscal 2012….Last year, Secretary of State Hillary Clinton warned that Republicans’ proposed cuts to her department would be “detrimental to America’s national security” — a charge Republicans rejected.

Ryan, Issa and other House Republicans voted for an amendment in 2009 to cut $1.2 billion from State operations, including funds for 300 more diplomatic security positions. Under Ryan’s budget, non-defense discretionary spending, which includes State Department funding, would be slashed nearly 20 percent in 2014, which would translate to more than $400 million in additional cuts to embassy security.

That's the problem with budget cutting: it sounds great when you're thumping tubs on the campaign trail in front of adoring tea party crowds, but when the actual work of governing comes up, those cuts have to come from actual programs that do actual things. Like protecting our embassies.

October 10, 2012 4:44 pm

1921-1971 – That's the America we all grew up in. The land of equal opportunity and all that – after the 80s (cough, Reagan, cough, cough) that opportunity was taken away from all but the privileged few and I'm sure many Conservatives still believe things are like they were pre-80s, when hard work really could let you get ahead but it's very, very clear from this chart that the only thing that gets you ahead these days is starting out ahead.

At the close: Dow -0.99% to 13340. S&P -0.66% to 1432. Nasdaq -0.43% to 3052.

Treasurys: 30-year +0.43%. 10-yr +0.12%. 5-yr 0%.

Commodities: Crude -1.09% to $91.38. Gold -0.03% to $1764.55.

Currencies: Euro +0.11% vs. dollar. Yen -0.12%. Pound -0.04%.

Market recap: Stocks closed near session lows, with the Dow posting back-to-back triple-digit losses, as outlooks fromChevron, Alcoa and Cummins added to concerns about a global slowdown. The IMF warned that if the eurozone fails to solve the debt crisis, its banks could be forced to sell as much as $4.5T worth of assets. NYSE decliners beat advancers seven to six. – Seven to six is not much!

In an age of popping bubbles, a doozy remains – the "central bank put." "Central banks are neck deep in extreme policy experimentation mode," writes Mohamed El-Erian, and market reaction to failure "will not be pleasant." Most think they can get out at the turn, an idea sounding better in theory than practice.

Bear market may begin Tuesday (Market Watch)

"(The) Fed has created – not a divorce – but a trial separation between stocks and earnings," says David Rosenberg, speaking at a conference. With the stock market the only place to get income, what's an investor to do? Rosenberg's favorite warning sign of a recession –the Y/Y change in the 3 month moving average of CAPEX orders – has begun flashing red

The weak shall inherit the earth (Economist)

Speed Kills: How Superfast Trading Hurts Small Caps (CFO)

VIX was down today: Particularly interesting given the decline in stocks, the VIX (VXX -0.7%) is also sliding. The VIX nearly always rises when stocks decline as investors are willing to pay up for equity index options. Surely one of these gauges is getting it wrong.

Fed Beige Book: The economy expanded modestly in September, though the New York district reported a leveling off in activity and Kansas City indicated a slowdown. Most districts reported strengthening in existing home sales, with prices described as steady to increasing. A number of reports on consumer spending note the negative effect from rising gasoline prices and concern about the "fiscal cliff."

More Beige Book: Office markets showed signs of softening in the northeast, with New York remarking on a substantial amount of new supply coming online. Employment conditions were little changed during the month (don't tell that to the BLS). The energy sector (oil and gas) remains a bright spot for the Minneapolis, Kansas City, and Dallas districts, but not so much for Cleveland (coal).

How Much Trust Should We Have in Economic Data? (The Fiscal Times)

As Brazil's central bank meets, a rate cut isn't assured for the first time in over a year. The benchmark Selic currently stands at an all-time low of 7.5%, but the bank indicated at its last meeting a pause might be in order. For the moment, still-slowing growth will have to be balanced against inflation of 5.28% (vs. the 4.5% top of the target range).

"Our goose is cooked," writes a mortgage trader, imagining a conversation at the trading desk of a pure GSE mREIT like Annaly (NLY). With MBS prices bid to all-time highs (thank you Fed) and refinances on the way up, mREITs face an ugly combination of lower yields and higher prepays. One solution: Unload their MBS at these high prices – tell the staff to take a long vacation – and wait for Bernanke to exit.

Moody's (MCO) is none too pleased about getting passed over on rating a CMBS deal – a part of the market in which it previously had a lock. "Not a single one of these loans merits investment-grade consideration," says Moody's analyst Tad Philipp of the $1.1B security issued by JPMorgan. S&P (MHP) – which got the business – stands by its IG ratings.

Rowan (RDC -1.6%) and Diamond Offshore (DO -1.7%) aredowngraded to Market Perform at FBR Capital, which says it is growing more selective among offshore drillers as the likelihood of sticker shock from deepwater contract news is lower, and offshore drillers could ultimately attract investors looking to increase exposure to U.S. land services once they gain more clarity.

Chevron (CVX -4.1%) shares sink after the company warnedof disappointing Q3 earnings, but several analysts say CVX's long-term strengths will fuel a higher stock price. It's worth noting that much of the weak update comes from one-time issues, including the hurricane, refinery fire and planned maintenance that pressured production.

Costs reportedly are ballooning for several Norwegian field development projects as the tight supply market takes its toll on budgets. Talisman Energy's (TLM) stalled Yme project faces a 188% cost overrun, BP is confronting major cost challenges to its Skarv and Greater Valhall projects, and Eni’s (E) Goliat field shows a 20% cost increase.

Investors should take profits on Alcoa (AA -4.1%) before aluminum prices tank, Nomura advises in lowering its target price on the shares to $9 from $12 "to reflect more conservative forward multiples given continued weakness in aluminum prices and deepening structural challenges as China continues to overproduce and subsidize its domestic industry." (earnings)

Wells Fargo (WFC) says it will provide financing for an 11.3 MW solar project being developed by MEMC Electronic's (WFR-6.6%) Sun Edison unit in New Mexico, the sixth Sun Edison utility scale solar project funded by WFC in the past year. El Paso Electric (EE) agrees to purchase the power supplied by the project for the next 25 years.

Two-for-one Big Macs: McDonald's (MCD +0.4%) starts tostep up the use of discounting in Europe as it attempts to hold on to sales. Though the chain has used promotions before in Europe to increase store traffic, the scope of the most recent push is much larger with most of Germany and France encapsulated. The development has the potential to significantly impact the overall bottom line of the company with close to 40% of its operating profit derived from the continent.

Humana (HUM -0.2%) says it's entered into an exclusive agreement with the Veterans of Foreign Wars, or VFW, to become the exclusive national Medicare Advantage plan carrier for the organization. Humana can now market Medicare Advantage health plans to the VFW's 700K+ members and their spouses who are Medicare eligible, and provide guidance for those who will soon be qualified.

Needham takes a favorable view of 3D Systems' (DDD)$35M acquisition of Rapidform, a Korean developer of object scanning and inspection software for 3D printing. Needham notes the deal is expected to add $15M in revenue and $0.06-$0.09 in EPS to 2013 results; increases 3D's global channel network by 25%-30%, and bolsters its efforts to be a provider of end-to-end 3D printing solutions, rather than mere hardware.

Shares of Barnes & Noble (BKS +6.7%) spike higher as execs presenting at the Liberty Media Investor Meeting (webcast) strike a positive tone. Though Nook revenue is pegged at $3B for 2012, the rosy B&N estimate is drawing its share of skeptics with the firm's track record of shooting too high with its guidance a backdrop.

YouTube (GOOG) now gets a quarter of its video views from mobile devices, says exec Robert Kyncl, who recently hinted a subscription service could be on tap. That kind of mobile video dominance shows why YouTube, which saw its mobile traffic triple last year, may be comfortable with the lapsing of its iOS deal with Apple, given it has cleared the way for ad-supporting apps to be offered through the App Store.

Very Interesting Article: (Statistically) It’s My Birthday Too, Yeah (NYT)

October 10, 2012 4:50 pm

Someone is playing games with BBY… Look at the Put volumes in Nov, Dec and Jan. – 60,000 contracts traded today at the 17 and 18 strikes. Volume for Oct was 1000 for these 2 strikes! Same thing happened on 9/25…

Someone knows something…

October 10, 2012 5:06 pm

Told you so:

At least one analyst is blaming Mitt Romney's better poll performance for today's triple-digit drop in the Dow Jones Industrial Average. Independent analyst Jim Bianco postulates that concerns over Romney pulling off an election victory are causing traders to wonder about the future of the Federal Reserve and Chairman Ben Bernanke. Interestingly enough, the markets have in fact been falling ever since Romney started surging in the polls after the debate. Coincidence? Perhaps..

Also, Spain just got downgraded – made the Dollar pop to 80.11 and futures took a dive.

Spain's credit rating is cut to BBB- from BBB+ at S&P, which also retains its negative outlook on the country. "The deepening economic recession is limiting the Spanish government's policy options." (see also)

October 10, 2012 5:23 pm

Romney / Phil – I bet you a few of them are also worried about the deficit picture… Sorry, I forgot, the $5T tax cut is revenue neutral!

October 10, 2012 5:27 pm

Stj:

"…Rep. Paul Broun (R-GA) told a church group in Georgia last month that embryology, evolution, and the Big Bang theory were "lies straight from the pit of Hell.”, theory were "lies straight from the pit of Hell.”

Stj: I was not aware that the Immaculate Conception applied to everyone, I thought it was just Jesus.
"Embryology (from Greek ?μβρυον, embryon, "the unborn, embryo"; and -λογ?α, -logia) is the science of the development of an embryo from the fertilization of the ovum to the fetus stage."

I guess The Stork is the one bringing babies to all those moms. Kinda makes you wonder why Evangelists are so worked about sex, since it appears to be just harmless fun unrelated to reproduction, and a lot safer than drinking and snake-handling. And you don't need evolution to explain why chimpanzees share 98% of our DNA, since even a Supreme Being has to practice up before being able to create someone in his Own Image. I'm sure his wife complained that the early versions didn't look anything like him.

Now, as for the Big Bang theory, I tend to agree with the good pastor about it being a lie. While the observable universe may well have been created by a big bang, it now appears that quantum mechanical fluctuations can create big bang universes from the laws of physics at any moment, so there is no reason to think that G-d took the time to create our particular universe.

Nor is there any reason to believe that either time or space are finite or otherwise delimited — universes probably pop in and out of existence all the time. The very fact that we can accurately measure the age of our universe [13.7 billion years] in a unit of measurement that has some relationship to our life spans probably indicates that it hasn't been around very long. If a fruit fly [lifespan 30 days] were to measure the age of the universe in equivalent fruit-years, the universe would be @ 960 Billion years old, so we are just measuring time within the frame of reference of very short-lived carbon life forms. Carbon-14 has a half-life of 5740 years, while Uranium-238 has a half-life of 4.468 X 109 years, as a point of reference.

So, while G-d may well have set up the Laws of physics and quantum mechanics, it seems unlikely he had anything to do at all with the local Big Bang to which we owe our existence. I would guess he was styling on some awesome beach in one of the truly bitchin' universes that emerged from his Laws, chatting up some hotties over a Quantum Cocktail. I know I would have been. Of course, none of the foregoing is to be confused with PSW's Big Bank Theory, which is in another universe altogether!

October 10, 2012 5:30 pm

The uranium reference is "10 to the power of 9", doesn't come out in the formatting.

cdel360

October 10, 2012 6:10 pm

stj/BBY – is the put volume you quoted buying or selling?

October 10, 2012 6:52 pm

BBY / cdel – I read buying, but that could mean that these puts were sold on 9/25 when there was a spike as well. The Dec 17 traded around 1.80 that day and were 1.56 today. That's a $0.25 profit on 14,000 contracts – about $350K. The Nov 17 spiked as well on 9/25 and traded at $1.20. They are $0.80 today so another $560K there. Now the Nov 18 puts and Jan 18 puts only spiked today. It possible that someone is placing some sort of calendars. First a Nov/Dec trade and now a Nov/Jan trade.

There is no way it's a coincidence… There are trading 300x the normal volume! Buying a calendar would profit from little movement. Selling one would profit from a large move like for example going private. I am guessing someone is selling the calendar, betting that if the buyout goes through at anything over $19.5, the trade is profitable. And the deal falls through and BBY crashes, they do well also. At $20, the trade makes $500K…

Any idea Phil?

October 10, 2012 6:57 pm

Big bang / Zero – Apparently the Big Bang is not in question, just the source of it. That's good enough for me… Not to say that there could be another billion universes parallel to ours created by that many big bangs.

It's actually the thing that bugs me the most in life – not ever finding out.

October 10, 2012 7:08 pm

50 DMA are in play everywhere except for the NASDAQ where it's already blown…

I wonder if Kudlow will see the correlation between the market performance and Romney's move in the polls! I am guessing traders don't like uncertainty and that level just got higher.

tommyt

October 10, 2012 8:17 pm

Hi,
to implement the following trade from earlier today
AAPL/Cturb – In a perfect world, they will test $600 and really dump out all the weak hands ahead of earnings but it's kind of iffy. I love that you can sell the 2015 $400 puts for $40 for a net $360 entry and you can pair that with the purchase of the $500/600 bull call spread at $50 so you're in AAPL for net $10 on the $100 spread that's 100% in the money and, if you have 3 of those for $3,000 in cash (and about $12,000 in ordinary margin), you can sell 1 Weekly $655 call for $1.50, which is $20 out of the money and if you make 100 sales like that over the next two years, you'll collect $15,000 in premium against the $3,000 cash position and the $30,000 you collect if AAPL is over $600 is just a bonus.
Obviously, this plan is dependent on AAPL holding $500 and I'd avoid selling calls on earnings weeks, when you are most likely to get burned but, otherwise, it plays kind of like the FAS Money spread.
can anyone tell me what month and years to use for the bcs is it same as date for sold put.
thanks in advance

rpme

October 10, 2012 8:42 pm

Interesting thoughts on China and a recession.
I went back into Yum's prior press releases to see how that compared to the recession years.
4Q 2012: expects low single digits to flat
4Q 2011: 21%
4Q 2010: 8%
4Q 2009: 3%- recession year
4Q 2008: 1%- recession year
4Q 2007: 17%
There are several things I took away from the guidance. The first is that China's same store sales growth is plunging off a cliff. The second is that if it comes in flat, it would be an even worse 4th quarter than those during the actual Great Recession.
2009 was by far the worst year for China- as it was globally. Full year Chinese same store sales declined 1%. This year, if fourth quarter comes in flat, they'll be about 9% but that is simply because the first half of the year came in relatively robust. You can really see the Chinese economic slowdown in the second half of 2012.
I trust Yum's numbers. It runs 4000 KFCs and 750 Pizza Huts in China. It is the largest restaurant operator in the country. What the data tells me is that the first half of 2013 is not going to be very pleasant- globally or otherwise. China is slowing quickly.
I'm going to continue to watch this closely.