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Monday Cliff Countdown

I'm not worried, are you?

Congress sure doesn't seem worried as they aren't even coming back to work until 11 am this morning with only 13 hours left until 2012 ends and all those horrible, nasty things kick in.  Of course, those horrible, nasty things, in summary, amount to paying more taxes and spending less money – isn't that what we need to do if we are ever going to get serious about paying down our debts?  

Fear of the Fiscal Cliff gave us a horrible day on Friday, more so in the Futures, after the markets closed, than during trading hours, where the S&P technically closed at 1,402, down 1.1% for the day.  After the bell, the fireworks really began, as clearly Congress was not able to make a deal and that sent the thinly-traded futures flying down another 1%, with the S&P hitting 1,382.25 at the low and, even now (7:30), they are still trading at 1,387.

Fortunately, as I mentioned in Friday Morning's post, we had our DIA March $124 puts for a hedge (now $2.65) and, ahead of the close, I reminded Members they were still a good trade at $2.35 for nice cover into the weekend.  We also have our more aggressive TZA hedges, of course, and they will keep us warm on cold winter nights if we have a proper market collapse.  

We also discussed going back to the well on our disaster hedges and, in that same comment, I listed 8 more nice put plays our Members could use for protection should we actually go over the cliff with all the bad reactions the pundits are expecting.   

I hear on CNBC that the the Defense Industry will lay off 800,000 people on Jan 2nd which would, if true, save an immediate $40Bn a year if those are all $50,000 jobs.  Seems to me, it would have been easier just to not build 400 F-35 jets at $107M each as LMT only employs 123,000 total people so, even if they shut down the company due to the loss of the F-35, it would cost 677,000 less jobs that way.  

Daryl Cagle - - Abismo de Año Nuevo Fiscal - Spanish - Dia,Festivo,Año Nuevo,2012,2013,padre,tiempo,abismo,fiscal,bebe,caidaOr maybe CNBC's numbers are complete and utter BS but they feel completely free to spread their propaganda because they know the American people can't perform simple math and that their Conservative viewer base never engages in any critical thinking – as long as what they hear reinforces what they already believe.  

That's the essence of the entire fiscal cliff – we are simply going back to tax rates that used to exist at a time when this country was much more prosperous (cough, Clinton, cough, cough) as well as back to pre-pointless war levels of Military spending.  The truth of the matter is that Defense jobs are not efficient jobs.  In order to put a $30,000 salaried soldier in the field, our military spends $850,000 but it's $1.2M in Afghanistan due to the harsh conditions.  Those are just 2011 figures, in 2012, the number is estimated to move up to $1.4M – none of which includes an improvement in the soldier's salary or benefits.

Are we a bunch of idiots or what?  Republicans are fighting to cut off unemployment benefits and keep the military spending even though extending unemployment benefits for 10M families will cost $30Bn – about the same as it costs to keep 30,000 soldiers in harm's way.  Idiots, definitely idiots…

Why do they do this?  Because nobody in the top 1% makes any money helping 10M families avoid poverty – the unemployed take that $300 a week and just waste it on things like food and heat and clothes for their kids, and most of that money filters back into the local economy and helps other local merchants while $26,000 per week, per soldier, goes to fatten the wallets of all sorts of GOP contributors in highly concentrated payments for items with huge profit margins.  What could be more American than that?  

And, by the way, the WSJ wants people to stop thinking they are in the top 1% and has conveniently broken down the numbers so you people can learn your proper place and stop thinking you're as good as those of us in the top 1%.  According to the WSJ (via Barry Ritholtz):

“The top 1% of U.S. households have a net worth above $6.8 million or at least $521,000 in income, according to data from the Federal Reserve and the Tax Policy Center in Washington. The cutoffs for the top 5% are $1.9 million in net worth, or $209,000 in income.”

That's right, $521,411 a year is the cut-off for the top 1% and you have to fall another 9% just to be earning $148,688 a year so stop putting in applications at our club – you're just embarrassing yourself!  

Even the WSJ is being disingenuous here though, because the top 5% includes the top 1% and the top 10% includes the top 5% because the reality of how much richer the top 1% are than everyone else would really make you sick.  How do we figure it out?  Well, if the top 1% have an average of $6.8M and the top 5% have an average of $1.8M then we can multiply the $1.8M by 5 and we get $9M and then subtract the $6.8M that the top 1% have and that means the next 2-5% (4 brackets) get to share the remaining $2.2M and, in fact, have just $550,000 each in net worth so the WSJ is lying to you by a factor of 3+ even if you are in their core top 5% readership.   Anything to perpetuate the myth that America has a fair distribution of wealth.  

Why does the media keep lying to us?  Because the media is controlled by the same wealthy people who LIKE making 10x more than the people just a couple of percent below them and 100x more than the people who are 10% below them but they also realize that this is so ridiculously unfair that those people would eventually revolt if they knew the ugly truth and they may also, in fact, expect those people in the top 1% (and I include our Corporate Citizens in this group) to pay their fair share to support this nation that gives so much to them.  

You can't balance the budget when people who make 10x more than the average household are taxed at the same rate as the people below them.  Do you know what that leads to?  It leads to them accumulating assets that are 1,000x more than the people below them and, at that rate, it doesn't take very long before the people who "only" make 10x more than the average person to have ALL the assets and then it doesn't matter whether they pay the bottom 99% or not – as they can only use their money to buy what the top 1% are selling – because they have nothing of their own.  

Think of it like a game of Monopoly, where you all do the same job (play the game, roll the dice) but 1 person out of 10 gets 10x more money when they pass go and 10x more money whenever they get bonuses from Chance or the Community Chest.  Why?  Because they were born that way, mostly.  How long will it take before they wipe out all the other players?  

Can you "work harder" than them and win the game or is it fairly inevitable that they will win because the rules are set up to give them a tremendously unfair advantage?  And, more than that, are the rules set up to give you a tremendously unfair DISadvantage?  

Ain't that America?  

That's what this Fiscal Cliff BS is all about – the rich don't want to pay more taxes and they don't care if the whole country goes to Hell in a hand-basket because all those programs they are so eager to cut don't affect them or the rest of their 1% friends and family, nor do they much affect the next 4% who they generally rub elbows with in their day to day life.  

And they'll keep playing that game and do everything they can to convince you to keep playing that game because it's their game and they know that, as long as they can keep finding suckers to play by their rules – they are going to get richer and richer and richer and that makes them more powerful and lets them make more rules that favor themselves.

So happy, happy new year – same as the old year most likely – unless you do something about it.  

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  1. F'in market…..was assigned SPY after the puts went ITM after the market close.

  2. Phil
    Happy, healthy  and prosperous  new year for you and family. Best wishes for everyone here as well!

  3. Well Phil, looks like it's u and me holdin' down the fort…..

  4. Oh wait…there is one other!


    And to all, a very Happy New Year.

  5. I'm here, freshly back from the Stan on Xmas day!

  6. Happy New Year and we are turning green, to end the year on a happy note.

  7. to get the window dressing on the portfolio's!

  8. Good Morning—-looks like everything is peachy king—-we solved everything—what a wonderful world
    Happy New Year to all

  9. Phil, Pharm , Jromeha  and all
    Happy New Year

  10. Awesome article Phil, thanks!
    Do you or anyone (Pharm) have graphs that show that lowering taxes doesn't increase revenues or raising taxes doesn't decrease them? TIA.
    Someone kept trying to convince me that we shouldn't raise taxes because of the damage it will cause to the economy…

  11. Great post, Phil.  That one's a keeper.  Happy new year to you and your family and thanks for a great 2012.  

  12. Phil,  Pharm, St J and all on the board – Happiest of New Years to Everyone and their families!  Be safe  ~ looking forward to the next one.

  13. Morning!

  14. Phil / My last day to trade until Feb 1st.  what's your gut feeling?  Looks like markets are holding up okay.  nice to see Apple rebounding a bit.  I'm about 50% in cash and have some TZA hedges.   Looks like I will stay put for now.  

  15. Good Morning!

  16. Is the market open all day or 1/2 day

  17. Hi Phil, Thanks for all the good advice during 2012 all the best for you and your family for 2013. Did you say AAPL going up the last day of Dec or the 2nd of Jan????
    Stones, do have one friend who had the same problem than you. He decided to drinK strong lemon drinks on a daily basis, He flew to Germany last month for a check up and they could not find any stones any more. Lemon drinks are good to loose weight as well so no harm in trying.
    Happy New Year to all in the group

  18. Phil – I enjoyed your comments on ADD and how being in the here and now, could be what most kids are missing…..
    Now, Grover Norquist on the other hand, ate paint chips when he was a kid…go figure…. :)

  19. Good morning! 

    Nice little recovery in the Futures but good second chance to cover or cash out if you didn't do so on Friday.  No reason today won't be as horrible as Friday's finish unless, of course, Congress comes to an agreement and fixes everything – which is why CASH is better than guessing – even if you think you are clever trying to cover both ends. 

    AAPL is flying up to $520 – this is why we didn't sell calls – way too dangerous.  Bad enough playing with FAS…

    Should be a low-volume, BS day unless some major announcement comes out during trading.  I think it's a full day today – I haven't heard otherwise.  Tomorrow we are closed and then no holidays until MLK day on the 21st (day after Jan expiration day on the 18th).  

    Dollar at 79.74.  Oil $90.50 after testing $90 with a pretty sharp bounce at about 7:30.  Gold hit $1,671 but back to $1,663 now, silver $30.15, copper $3.61, nat gas fell to $3.39 and gasoline $2.75.

    Euro $1.32, Pound $1.62 and Yen STILL going down at 86.38.  Hard for the Dollar to fall with that going on. 

    Keep in mind that we need to spend 2 days below our levels to be officially bearish so let's hope we do get some good news today and take back those 50 dmas so we can treat them as a blip and throw the spike out in our forward calculations.  

    At the open: Dow -0.41% to 12886. S&P -0.34% to 1398. Nasdaq 0% to 2960.

    Treasurys: 30-year -0.29%. 10-yr -0.07%. 5-yr -0.02%.

    Commodities: Crude -0.3% to $90.53. Gold +0.41% to $1662.65.

    Currencies: Euro +0.08% vs. dollar. Yen +0.5%. Pound -0.38%.

    Market preview: Like Sherlock Holmes and Professor James Moriarty, Democrats and Republicans may be about to tumble over the fiscal cliff in a mutual rolling bear hug that could take the U.S. economy with them, but investors remain sanguine as reports filter through that a deal could still be reached. If we can get away from the cliff imagery for a minute, Shakespeare also sums the situation up quite nicely: "As two spent swimmers, that do cling together andchoke their art." The S&P is +0.75%Later: Dallas Fed Manufacturing Outlook, USDA Ag. Prices

    Vice-President Biden took the Democratic lead in fiscal cliff negotiations overnight and he and Senate Minority Leader McConnellmade "major progress" towards a year-end deal, reports Politico. Obstacles remain say sources, most notably the opinion of the other chamber of Congress.

    CNBC's John Harwood posts a couple of promising early signs. Senate GOP source: "Good talks continued late." Democrat source: "Looks like they'll get there." S&P 500 futures +0.3% indicate a flat opening, thanks to the post-4PM decline on Friday afternoon.

    The world's most popular macro trade pays off, with the yen closing 2012 at its lowest level (vs. the dollar) in 2 years. Possibly in the BOJ's playbook: Purchases of overseas bonds. "Foreign countries have no right to lecture us," says finmin Taro Aso, following Tim Geithner expressing his concern over the yen. Does the Treasury Sec. need to be reminded of U.S. policy?

    iShares (BLK) beats a retreat in the ETF price wars, hiking fees Jan. 1 on 40 ETFs, including its $47B AUM Emerging Markets Fund (EEM). This fund is notable as it began drawing assets from Vanguard's far less-expensive VWO after Vanguard's October announcement of a change in the benchmark the fund will use.

    More on the iShares price hikes: Mostly targeted for higher fees is the manager's line of single country ETFs – Brazil (EWZ), Japan (EWJ), Australia (EWA), Hong Kong (EWH), Canada (EWC), and Singapore (EWS), just to name a few of the more popular ones.

    After agreeing to terms on a deal to extend the dairy conditions of the 2008 farm bill, a final vote in the House is still pending. It's a harrowing wait for milk sellers with the prospect that higher wholesale prices won't be able to be passed off in full to consumers. 

    Opec's oil revenues this year are set to grow 2.5% to an all-time high of $1.05T, boosted by a record average daily price for Brent oil of $111.50 a barrel and strong output in H1. Opec's income in 2012 is over five times the $200B that the cartel earned a decade ago and is a record even when adjusted for inflation, topping the peaks seen during the oil crises of 1973-74 and 1979-81.

    Bridas International, which is controlled by Argentinian billionaire brothers, has agreed to invest $1.5B with YPF (YPF) to develop shale oil in Patagonia in southwestern Argentina. Bridas will also lend YPF $500M for the project. Cnooc (CEO) may be involved via a 50% holding in Bridas Corp. (See Chevron's $1B investment) 

    Airline stocks climb higher after a merger between American Airlines (AAMRQ.PK) and US Airways gets the tentative backing of American's pilots. Though Congress has a lot on its plate, industry watchers see the potential for looser rules on foreign ownership of domestic carriers as a potential boost for M&A activity in the sector during the coming year. Advancers: LCC +2.0%DAL +2.0%UAL+1.2%. 

    Retail stocks beat broader market averages this year because of the ability of key companies to "right-size" their inventory and continue to stoke more growth out of emerging markets, according to the debate (video) raging on Bloomberg TV. The trend at the moment is that the increased promotional activity at retailers such as Five Below (FIVE) and Gap (GPS) hasn't scared off investors, while J.C. Penney's (JCP) dalliance with moving away from coupons harpooned sales and its share price.

    JPMorgan expects pent-up demand to help lift auto sales 14% Y/Y in December to 15.4M vehicles, although the firm notes the drama of the fiscal cliff talks in Washington throws a wildcard into the mix. A survey of consumers shows a good portion will rethink their pending automotive purchases due to the uncertainty over tax rates.

    Is this is a sign estimates for PC chipmakers might finally be bottoming? Wells Fargo has actually raised its numbers for Intel (INTC+1%) this morning, citing growing server CPU sales. One analyst afteranother has slashed estimates on Intel (not to mention Nvidia, AMD, etc.) this quarter. 

    VeriFone (PAY) could climb by as much as 35% as the company benefits as more American move away from using cash, according to a weekend piece from Barron's. Despite worries about the demise of payment card terminals, new upstarts such as Square are actually enabling future VeriFone customers by bringing small merchants into the credit card sphere, notes analysts. PAY +0.8%premarket.

    A major bear on Facebook (FB) turns bull, with BMO bypassing Hold, and upgrading the stock to Buy from Sell. The price target is hiked to $32 fro $15. "Facebook is experiencing a re-acceleration of ad spending from large brands that are returning for mobile." Shares +0.9% premarket.

    Shares of Amazon (AMZN) trade 1.7% lower premarket following the resignation of board member Blake Krikorian late on Friday. The co-founder of Sling Media has a home automation startup that is reportedly a potential target of Apple, Google, and Microsoft.

    Three breakfast reads:

    1) Why $100 Brent Will Not Last Through 2013 

    2) Approaching The Fiscal Cliff As A Nash Equilibrium 

    3) JPMorgan: Too Big To Fail May Be Just Big Enough To Succeed

  20. TZA:   Those April 13/17 Bull Calls are back at 1.10! 

  21. SPY/Pharm – Well that worked out OK in the end, right?

    Thanks Spiro!  U2.  And Happy New Year to all to save time today!  

    Welcome back Jrom – glad you are home safe and sound.  

    Thanks Jabob.  Here's one that pretty clearly shows that lower rates = lower revenues but – DUH!  

    It's a tricky correlation because people change the way they invest over long periods of time to take advantage of the tax laws (ie, deprive the Government of as much revenue as possible).  When the Government lowers long-term capital gains or favors inheritance transfers – it can take a decade before the results begin to show up in the revenue stream (or lack thereof).  That's why they fight so hard against an increase.  Contrary to what they tell you – everyone won't suddenly change their investments overnight – they will simply get hit with a bigger tax bill now and make changes over time to take what advantage they can of the new structure.  

    Thanks Dennis, RPeri…

    Last Trade/Terra – I still think we're going to get through this nonsense with a small sell-off and a quick reversal at worst.  It's like getting a shot for your kid after all the fussing – as soon as it's over – all they need is a lollipop and everything is back to normal.  

    You're welcome Yodi.  I thought the AAPL nonsense would reverse as soon as the tax selling is over but we didn't want to be short on them because I couldn't be sure that it wouldn't reverse sooner as the selling was so completely irrational (other than for tax purposes against an unproven hypothesis that capital gains would bump up in 2013.  I do like lemonade so I will check out that connection, thanks.  Currently I drink a lot of cranberry juice, which is supposed to help.

    Thanks 1020 – all these constant media inputs certainly don't help kids to learn how to focus.  Maybe something the schools should teach although Conservatives would probably think it was some hippie thing and try to stop it. 

    AAPL $527! 

    TZA/Jbur – Still a good cover – just in case (April $13/17 bull call spread at $1.10).

  22. Petar Pismestrovic - Kleine Zeitung, Austria - Perspective - English - 2013, New Year, Perpecive, Economy, Crisis, Meney,

  23. Phil—the lower rates lower revenues didn't show up?

  24. Melinda Gates, wife of Microsoft Corp. co-founder Bill Gates, reportedly bans her children from owning Apple Inc. products like the iPod.

    The Telegraph in London reports Gates' kids ask for Apple products like iPods but they get Microsoft (NASDAQ: MSFT) products instead. “The wealth from our family came from Microsoft so why would we invest in a competitor?” Mrs. Gates said during an appearance as guest editor on BBC Radio 4's "Today" program.

  25. Phil
    Any trade on USO with oil at 91

  26. Phil – TM is already helping in schools that need it most….
    …and is helping Veterans with PTSD….

  27. Chart/Jabob – Try this link.  Here's another one showing average rate as opposed to top:

    Here's a great chart showing the effect of people putting off durable goods purchases.  As I mentioned over the weekend, we're getting to the point where these things usually turn around.

    Uh-oh, sentiment turning back down – DIA March $124 puts are $2.50 and still my favorite single cover.  

  28. I'd like to see a post on an updated Income Portfolio. Seems to be doing quite well! Possibly throw in a quick reason behind the companies you picked? I love being here. You guys seem to be the only ones who see the potential risk management with options and not just a "crazy leverage gamble" as I believe my Financial Advisor would say.

  29. Phil LEMON AND WATER NO sugar  lemonade!!!

  30. THANK YOU!!!

  31. Phil, thanks for all the valuable lessons and good advise.  Best wishes for you and your family for 2013!  Of course, the same holds for all the others on this board.
    Happy New Year, and let's hope more con-gress members start reading PSW.

  32. Back from more family visit. Portfolio updates coming up…

  33. Phil, Rest of gang on PSW
    A very Happy and profitable trading 2013.
    More important, GOOD HEALTH to all

  34. That's it for me for 2012 – flying back to the US tomorrow morning and back to my regular schedule!

    Happy New Year (and a healthy one as well) to the entire gang. What makes this group really special is the fact that we can have civil discussions about many interesting topics and still find time to read the market and improve ourselves. Thanks to all who participate.

    And thanks Phil for another great year of insightful comments and commentaries! I look forward to many more years! 

  35. Terrapin – what is cheap right now that will pay you a dividend in january?  If money is expected to flow back into markets Jan 2, how about just buying some DIA or QQQ as bullish offset to your TZA hedges?

  36. Happy New Year everyone.  For Phil and Co., thanks for pushing the system the way you do.  I am very glad I went to LV, it really increased my understanding of the "Phil"osophy put forth on the site.  

  37. SPY/Phil – yeah, but could have been a disaster.  I went to play golf thinking they would expire worthless, and had a roll in the que, but it was not filled and here we are today.  That could have been a big bruise….not that it has been a good year shorting this crazy market. 

  38. FYI….

  39. Phil, did you have a play on GDX? I might have missed it. Just catching up. Thanks and looking forward to a great 2013 with PSW. Happy New Year.

  40. AMZN – boost today from article saying could be bigger than aapl?

  41. USO/QC – It's a bit volatile now but Jan $34/33 bear put spread at .55 is a simple bet that USO is below $90 on Jan 18th and that pays .45 (81%) if you are right and the break even is $33.50, which is .35 higher than it is now (1%) which is about $92 oil so the bet is oil isn't over $92 and very reasonable. 

    TM/1020 – That's nice.  

    Income Portfolio/Dplatt – I do intend to do a major update for the new year.  The problem is it's a pretty intense amount of work with about an hour + of research for each paragraph I write but it does need to get done.  I'm glad you see that re. options.  Unfortunately, they get a bad reputation because so many people use them to leverage rather than mitigate risk – it makes what we try to teach seem counter-intuitive…

    No sugar/Yodi – Now that's no fun at all.  8( 

    You're welcome Hemas – same to you.  

    Thanks StJ – hope you had a relaxing trip and have a pleasant ride home.  Can't wait for 2013 – it should be very exciting! 

    FAS Money – Still pretty much losing on both ends which is, of course, impossible  but it's a great example of how your portfolio balances can tell you things that can't possibly be true with options and, once you understand and accept that, you will truly be free of one of the major bogey-men that panic option investors. 

    $25KPs – We're still giving it a bullish gamble.  I guess I haven't lost faith yet.  

    AAPL Money – Even more faith there but much longer time to pray.  

    Thanks Maya.  

    Thanks MJJ – so glad the seminar was helpful.

    Warrants/Scott – I like how it says "Federal Employees" – does that mean our mailman can access our Email if he wants?  There's a job where you're really in a position to blackmail people…

  42. Phil,  I was looking at selling the Jan  2015 put on MRVL for $1.90 for net $5.10 entry with MRVL currently trading at $7.1, then selling puts against it to lower my basis. For example, May 2013 $6 puts can be sold for $.42. Probably not the best way to play this.  it's got a large patent verdict against it so then again, it may be one just to avoid due to risk.  What do you recommend?

  43. Phil / Anyone – What do you make of the /ES and SPX divergence?  1.2% up vs. .27%

  44. Phil / APA – do you like it here?  looks to be at low end of its range.  

  45. If one likes to play odds, and spreads, YMI is 2.86, buyout is 2.95.  Should close next month, which is 9c/share.  That is 0.6%.  yes it ties up capital, but not a bad return for a few days.

  46. GTAT -i'm not ready to buy in, but here is an interesting and reasoned examination making a bullish case.

  47. jfawcett/spx – The divergence is reflecting the /es retracing it's after hours dump from Friday. Oddly enough the retrace basically happened before the market opened. So in the cash settled index it appears as if there has not been much movement. See what happened to Pharmboy's trade. Happy New Year to you to by the way, it was great meeting you in Vegas.

  48. Thanks Aaron.  The pleasure was mine.  Have a great New year's celebration and a profitable 2013 in your investments.

  49. Phil like you opinion on TSLA
    Jan13 +2 32c @ 4.20 now 1.97
    Jan13 -2 36c @ 2.55 now .35
    Jan13 -2 22p @ 3.00 now .12
    Jan13 -1 35c @ 1.30 now .57 nacket call
    Jan14 -5 15p @ 2.65 now 1.20
    I know you do not think much of the company but at present I am about 1,400 up the long 32 call has still 1.97 of value and ITM, selling the same obviously leaves all callers nacket. you opinion thanks

  50. GE – interesting article asserting GE is a hedge fund in disguise.

  51. HAPPY NEW YEAR everyone !

  52. Not much participation in the futures, very low volume and interest in trading. Target of 1414 in /ES

  53. From Forexlive via Reuters..

    Emerging deal would raise taxes for those earning more than$ 400K
    Higher taxes for families earning more than $450K
    Would include permanent alternative minimum tax fix and extend unemployment insurance for a year
    Deal postpones sequester, includes $600B in revenue
    Majority of Senate Republicans expected to support tentative deal
    Sticking point in deal is sequester delay, which could be 60-90 days
    Estate tax would be hiked to 40% from 35%
    Tentative deal contains no new spending cuts
    Dividends and capital gains to be taxed at 23.8%

    Reuters headlines, citing a ‘source familiar with talks’

  54. Gold breaking out….finally.

  55. SPY/Pharm – Huge relief at least this morning, could have been massively worse.  On gold, I'd pay more attention to the RSI coming off the floor with the MACD looking like it's not going any lower.  A cliff solution should have the dual purpose of goosing the markets and weakening the Dollar at the same time. 

    GDX/Crussell – In the Income Portfolio it was selling 20 2015 $35 puts for $3.90 (now $3.80) and buying the $35/45 bull call spread for $5.50 (still $5.50) with a $3 stop on the bull spread to net in for $34 worst case and a $8.40 upside on the net $1.60 spread if GDX holds $45 for 2 years.  

    AMZN/Scott – Those people are on drugs.   There's nothing unique about cloud services, if it's that profitable then there will be more competition and then it won't be that profitable anymore.  In fact, it's AMZN themselves that undercut the price of all the stuff they do and ruin it for everyone else.  WMT, for example, sells 3x more than AAPL and makes 1/3 less money – AMZN wishes they had WMT's margins and they currently sell the same $45Bn a year that AAPL does but they don't even make $1Bn compared to AAPL's $40+ so I guess "biggest" is very subjective and, of course, everyone has a way to go before catching IBM at $106Bn with $16Bn in profits on the sales side and, once again, just discussing these numbers makes me think how ridiculously underpriced AAPL is…

    MRVL/Crussell – As I said last week – it's a bit early to catch that falling knife.  If the fine holds up, they get hit for 2 year's worth of profits plus whatever ongoing fees charged to their remaining business.  They sure haven't bounced off $7 yet and, because of the holidays, you can't be sure the downgrade police are done with them yet.  Unless you are a patent expert and have a compelling reason to believe their adjusted valuation is incorrect or the patent ruling is likely to be over-turned – then it's not something I would play.  Maybe after they announce that they won't pay their dividend because the lawsuit whacked all their cash – then it might be a good time if they make new lows and hold those.  

    If you want a fun stock to play for 2013 – try CIM, who are a REIT selling below book value ($2.95) and paying a 13.9% dividend and, without getting into a whole thing on why I like them, all 6 board members just bought stock – that's worth noting.   Don't forget REITs are down, in part, due to misconceptions regarding fiscal cliff tax effects.  This is a sub of NLY with the same management that I love over there.   Currently at $2.61, they have gone below $2 a couple of time this year so highly unstable but you can sel the 2015 $2.50 puts for .95 and the $2.50 calls for .60 against the stock for a net $1.06/1.78 entry and that makes the .36 annual dividend 34% while you wait (and knocks your basis down to net .34/$1.42 if the dividend holds up).   This was in the running for my "One Trade" for 2013 (BAC was last year – I haven't decided yet on this year – if I even find one good enough) but I'm not as confident about putting all my money into this as I was with BAC but I think it's a very good place to initiate a regular position.  

    Let's do 5,000 shares in the Income Portfolio so we can begin keeping track – with the short sale of 50 puts and calls, of course.  

    Divergence/Jfaw – They are measured differently, the market isn't counting the 1% dip after hours from Friday and the Futures do so they are showing a better bounce.  

    And what Aaron said!

    APA/Terra – I'm not sure oil or nat gas have bottomed out and especially if we go off the cliff.  Good news from China this morning but it's just one data point so far.  As a serious long-term accumulation, I like them well enough here that I think the 20915 $65 puts sold for $8.50 for a net $56.50 entry makes a nice first position.  That way, if APA drops 20% to $60, you still have room to spare and maybe even a good reason to DD (assuming it's just down with the market in some panic and not for it's own good reasons).  

    YMI/Pharm – Nice arb play.  

    GTAT/Scott – Very good article but they are the AMAT of the solar World and hard to love.  Revenues way down and I'm not sure why that's not a long-term trend but I don't understand enough about the flavor of their manufacturing systems vs. competitors to really judge.  They're very small ($400M) with 600 employees and they are guiding for losses – I'd be very careful with this one.  

    TSLA/Yodi – I will start by reminding you that they are one recall away from bankruptcy.  They simply can't afford a mistake at this stage of their products.  Meanwhile, I was blown away by their showroom and do find them interesting long-term but not with a p/e of 400 (which makes AMZN look like a good deal).  You seem to have taken some very aggressive positions but at least you are taking action before you lose 50% on the longs so fixable.  You lost $2.23, made $2.20 on the first pair so even(ish) so we're really just looking at the 3 short puts which are all good for you and the 5 2014 puts that are good as well so why complain – it's all good.  I'd take the money and run and wait for a dip to get back in.  You don't need to "save" the longs – they are just an unprofitable leg of a very profitable trade.  If you want to take a risk, you can leave the 2014 short puts as you have another $600 to go.  You can gamble against that by picking up the 2015 $37/45 bull call spread at $1.90 and then your worst case (if you get 5 longs) is owning 500 TSLA at net $15.70 and best case is a $7.30 upside ($3,650) but, as I said, I'd just cash out and look for a re-entry if they ever have trouble that you're willing to ride out. 

    GE/Scott – Yes, they are and I like them (see Friday play for GE). 

  56. Holy crap, nice pop while I was writing all that!  

    AAPL still can't break $530 – not happy about that.  

  57. Phil on the CIM trade Jan15 2.50p is only .52 and the 2.50 c .27 What is wrong? you are talking about .95 and .60 on the caller??

  58. Thanks for TLSA

  59. HOV/Phil  Up another 3% today.  Is it to late to play?

  60. yodi – buy the stock, hope for the fill on the swings….may not happen right away.  Was in them a while ago, got out at ~$3, now more attractive, although I missed the 1.81 dip.

  61. CIM / Phil,
    I'd like to understand how you'd get fills on this trade. The 2015 $2.50 Calls are about 0.30 (Bid/Ask 0.15/0.45) and $2.50 Puts are about 0.55 (Bid/Ask 0.35/0.70). Do you try to sell both the calls and puts on a single transaction for a total credit of $1.55, or do you leg into the trade on the two sides? And do you buy the stock at the current price of $2.61 to start?

  62. Pharm Thanks on CIM

  63. Sank1 see Pharm's advice on CIM

  64. CIM/ Phil: how do you feel about SUI?

  65. Happy New Year Lads……Phil/Pharmboy….super job for all of us in 2012.  A heart felt thank you from one of the 'Plank Owners'.  Here's to 2013.

  66. Thanks, yodi, Pharm.

  67. FU OBAMA!!!
    get a deal done!

  68. BA/ Phil: We have them in the income portfolio? any concern around the military cuts and the affect on BA stock price?

  69. Was interesting watching the ticker as Mr. Obama talked the current outcome of the fiscal cliff negotiations.

  70. Does this mean that we are waiting for the entitlement cliff, spending cut cliff, and debt ceiling cliff?

    Senate GOP sources: tax deal 'finalised by both sides'

    Robert Costa from the National Review Online has some good Republican sources:

    Robert Costa@robertcostaNRO

    Breaking: Senate GOP aides tell me tax deal has been finalized by both sides. It's done. Details coming ASAP.

  72. Maybe pull the hedges off???

  73. BAC/Phil     One last question for 2012. I have purchased 40 2015 $7 calls for $3.65 (now 5.17) and 10 2015 $10 calls for @3.10 (now $3.30).  I have been attempting to sell premium on the monthly calls but BAC is running up so fast it is busting through my premium.  Currently I have sold 30 Jan $10 calls for .92 (now $1.55) and 10 Jan $12 for .29 (now .32).  When a stock is running like BAC of late it is probably best to leave the position naked rather then be attempting to sell premium on such a short term basis. How far out would you suggest and any other comments on the play would be appreciated.  Wishing you and all the other board members a happy new year. 

  74. I waiting for the new Cliff Robertson movie!

  75. Phil – TSLA – I wont address the stock – you have all the data.  But if anyone gets a chance – please take a test drive in the car.  This is one amazing car – and a complete ground up different experience.  I would put this car up against any Luxury German or Japanese car in handling and performance and useability.  Yes – there is the matter of electric range and price, but the car itself – is amazing and they really have done a good job of re-imagining everything.  I had the opportunity to drive one for a week (my brother bought one and left it with me over Christmas).  I put in an order for a Model-X (SUV).
    The experience from their onboard electronics, and computer and what it will be capable of as they roll out more software is going to be amazing.

  76. Obama Said some pretty discouraging things in that speach,like he was trying to get (goading them) the house to vote against propoal

  77. Partha—that is cool --buying a TSLA--your /ZB must have worked out well :-0

  78. Savi – My Tesla will be delivered summer 2014 (Model X is only being rolled out in 2014) and my AAPL will pay for it – ZB hasnt paid out yet … :-)

  79. Happy New Year Everyone !!!

  80. AAPL $530.10

  81. Ultimately the Republican leadership can't help but be themselves.  They still have time to photo-bomb the negotiations, and will do so without hesitation.  The realization that they actually believe they are behaving in the best interest of the country is the hard part for me to swallow.  I live in a 98% republican county and can just not believe what my friends and neighbors hold to be true.  And there is no convincing them otherwise.  It's all about guns, taxes and Jesus…. pretty much in that order.  Oh yeah, and minorities need not apply.  I'd move away, but my goodness the terrain doesn't change a whole lot.  

  82. partha—will meet in CA for the 2014 PSW and we can all test drive your car—as to AAPL how did you manage that—wish I could say the same  !!!!

  83.   its likely something gets done, but IF nothing were going to get done the pols would still be saying these same things to boost their big money donors' p&l into year-end.

  84.  its just funny to me that after europe/china and now us that traders pay this close attention to anything govt officials say

  85. NFLX – wtf? i guess doubling the CEOs salary is just what the shareholders were looking for.

  86. I'm not sure Obama's actually got a deal here, more or less a variation on the same theme – telling Reps they are the only reason a deal can't get done.  

    CIM/Yodi – You have to ask for more and be patient.  Bid/ask spread is very wide.  Look at the 2014 $2.50 calls, they are .25/35 so how can the 2015s be less?  Actually, the bid/ask just dropped so the market maker is playing games but don't make the trade if you can't get a reasonable price.  

    HOV/Den – Yes, too late I think but maybe they pull back.  If not, we'll find another builder.  

    CIM/Sank – You have to offer and be patient.  When I called it, I was in range of the bid/ask but the MM has tightened them up at lower prices now due to the surge of interest so he's looking to make a little on the trade.  There's no point to making a trade if you can't get your net so just don't.  The only reason he's been able to drop the prices is because people are capitulating to get the trade – that's silly – it's a two-year trade and there's no rush.  Usually, to get a fill, I offer a higher selling price on each side and, whichever one gets filled first let's me know how much I should adjust my ask for the other.  You'll almost never get a good fill on a combo price as there's a market maker on the other side who's sole interest is to make a nickel when he can on each end and the chance of him matching both your offers and making a dime at the same time is slim so he simply won't fill it until the spread widens on it's own or maybe never – he has no obligation to hit your limit price.  No, I don't buy the stock unless I really love it.  If anything, my preference is to go with the short put first (since it's a discounted entry on 1x the stock anyway), then buy the stock cheaper if it goes lower or after I fill the call.  

    SUI/Newt – They got hit pretty hard in their areas value-wise but the cash flow is good and they never missed that dividend ($2.52, 6.4%) and they are low in the channel that's holding up well enough so, baring another major crisis, they should hold $30 long-term and, at $15, they'd be a great DD so I do like them but I wouldn't expect any big moves and the options only go out to June so not terribly fun to play at $39.68 as the options prices are not too attractive and, like CIM, very thinly traded so hard to get a good price but, if you can sell the March $35 puts for .60 (spread .25/.70, last sale .85), then that's the same as collecting the dividend and you have free $4.68 downside protection so that's the way I'd try to enter it.  

    Thanks Living. 

    BA/Newt – Military is about 40% of BA's revenues so nothing to sneeze at but projections for commercial growth are huge as they ramp up to deliver 800 planes in 2013 (from 585 this year), figure that will drop military to 30% and let's say they take a 20% hit – that's going to be a 6% cut to revenues but the revenues will still be growing significantly and, of course, this is already priced in or BA sure as hell wouldn't be trading at $75 as they are heading into a major delivery cycle.  

    Multi-cliffs/Rpme – Sure, look what fun volatility we'll be able to squeeze out of the markets in Q1 by dragging this out – it'll be a blood-bath for the retailers!  

    Senate/ScotB – Finalized by the Senate is nice but don't mean a thing until it passes Congress.  We went through that in 2008.  

    Pulling hedges/Newt – I'd be careful about going too crazy but wouldn't over-cover either.  

    BAC/Den – I would just roll them up and out when you need to.  Don't think of the Jan $10 calls as a .63 loss but as a .92 cover that is protecting your gains over the holiday weekend.  If we are still heading up next week and BAC looks strong when it's time to roll, you can always buy 40 2015 $12 calls for $2.35 and put a stop on the $7s at $5 and roll the Jan $10s ($1.55) to 2x the April $12s (now .77) and then you have room to make $2 more on the long $7s if BAC keeps going up or, if you get stopped out of the $7s, you can flip to 40 more 2015 $12s and you've got profits off the table and almost 2 years left to roll the calendar spread.  

    TLT down to $121 – that's a good sign.  VIX still $19.50.  

    TSLA/Partha – I agree.  If they solve the refueling issue (I need to KNOW I can recharge pretty much wherever I go without waiting around for 2 hours at a place that takes an hour to find) and get the price down to $60K – I'd absolutely buy one.  If they just put a backup gas engine in the thing like a Volt, I'd be super-interested but, at this stage – it's unrealistic to expect to take that car on any kind of long trips and that's a deal-breaker for me.  It doesn't affect my opinion of the company as they don't need to sell 2M cars a year to be wildly successful – just getting to 100,000 a year would be fantastic and that just needs to fit the needs of 1/2 of 1% of all car buyers so we're already fine selling to the top 10%, who can afford them and only 1/20th of them need to be interested (and that's just the US and I'm sure they'll export 1/3) for this company to grow 50x over the rest of the decade – seems very reasonable to me as it is way cooler than the luxury competition.  They need to get those things in a few movies as a next step.  

    Goading/Bert – I'm sure he's super-frustrated.  I'm surprised how well the markets are reacting to that since there's clearly no actual deal yet.  

    Go AAPL!  

    Reps/Mjj – Where do you live?  

    Attention/Angel – I know, they lie to us 9 times out of 10 but we still act like they're worth listening to.  

    NFLX/Scott – Show of confidence?  

  87. Wow, McConnell agrees with Obama on passing tax relief now – that's pretty amazing.  

  88. Savi – AAPL will pay – has not paid yet either – but I have Jan 2014 plays that should payout if AAPL just takes 575 ..

  89. 1414 /ES, this where the bulls really have to pour it on

  90. TSLA
    I completely agree about the Model "S" and in fact I will take delivery in April of the 300 mile range version.  On game I'm playing with myself is to trade the options on the stock to earn the price of the car in the first three years of ownership.

  91. PHil, at $91.75 is it time for an oil short?

  92. Phil – TSLA cannot be your only car – I have a hybrid for longer trips – the SUV is an urban car – I live in SF bay area and I make maybe one trip a year – that will not work for me with a TSLA.  Every public garage here has or will soon have a Level 2 charger – in the best parking spots in the garage.  I save on parking – by just using those and charging there. So for everyday use – its great.  And the reliability should be much higher – dumping the gas engine (even as a range extender) was the best thing they did.  The only fluid you check/refill is the Windshield wiper fluid.  The brakes should easily last 100K miles (they do on my RX hybrid SUV).  Only maintenance is Tires/Brake pads/ and brake fluid.

  93. Goading/Phil
    He's the President shouldn't goad until after it's passed by senate and HOUSE. About 1/4 of that speech could have waited until after it passed.

  94. Everything at the upper end of targets, should be a lot of resistance here. If we blow through here on the upside its going to really take off, low volume though. Only bad sign.

  95. Partha
    Actually, the Tesla can indeed be your only car.  When someone else asked the sales person the question about going on occasional long trips the sales rep said "I have a two word answer"  -  "Rental Car".

  96. BAC/Phil     Thanks as always. Maybe next year we can get a few more members to join us in Las Vegas for a great conference, good people and some Texas Holdem Poker.

  97. 1,414/Kustomz – Consider it poured.  Futures bounced about 2.5% from Friday's close now – Madness!  

    Oil/Jerconn – If the cliff is "solved" we have to get out of the way as it could be a multi-day rally first. 

    Fluids/Partha – I love that about the washer fluid – very impressive in the showroom when you realize there's essentially no engine.  Still, gotta be realistic – I can't even go to a friend's house and charge the car and I'll have to set up a special bay at home to plug in each night and what if I'm 60 miles from home with half a charge and get a flat?  Will the tow company be able to charge it?  What if I have some other trouble and need to leave the car a few days – again, will it get charged?  I go skiing too often to even consider a car with special needs and, of course, there's our beloved traffic so I'm more concerned with how many HOURS I can count on than miles because I have tried to go to the shore on weekends and spent 5 hours on a 120-mile trip with no exits for 20 miles to get gas – let alone plug a car in.  As with nat gas cars – it needs a Government push to gain widespread acceptance.  The sales subsidies are the way to go for now but, sooner or later, they need to build infrastructure to give people confidence in everyday use of the cars.  

    Goading/Bert – You are assuming it will pass.  I'm assuming it won't and Obama is positioning.  

    Dow volume 70M at 3:11 – low but not dead. 

    Vegas/Den – Yep, that really is a fun weekend.  Maybe we should do 2….

  98. FTR – no bots running this up today..

  99. Happy New Year Phil and everyone. May 2013 be full of blessings and good health!
    About that fiscal cliff: That's it?  We think we may have an agreement…  Oh well.  Happy to be 50% cash and continue INVESTING in 2013.  Single biggest lesson I learned from PSW in 2012

  100. TZA April $13/17 bull call spread now $1 so down .10 on a move like this (since 10:33 – 10 RUT points).  That's why it's a good hedge – lose 10% on a 1% move up in the RUT but keep in mind the $13s are still $1.95, which is .85 more than we paid and they can be rolled to July 15 puts for about .10.  Not that we should but the point is that it's a cheap way to buy another 3 months' insurance when/if we decide to give up on short-term protection.  Also, don't forget, the plan was to eventually sell some TZA puts for $1, maybe at 880 (up 5%) and that should make the April $11 puts, now .40, around $1 and then you can do the roll and have a free hedge (or end up owning TZA after a 10%+ run on the RUT between now and April – not a bad idea).  

    Good lesson Arivera – makes it much easier to enjoy the evening, whichever way things go.  

    Oil topped at $91.99 so far.  Gold tapped $1,681, AAPL $535, S&P 1,420 (futures) RUT 845 (futures).  

  101. Scottmi, what makes you say that? Looks like typical bot action in the futures.

  102. TASR up a big 4% today ($8.95).   My stock of the decade about to break $9 maybe.  

    HPQ up 4% – will wonders never cease.  

    BBY up 4.6% – I guess they won't….

    AAPL up closer to 5%, was rejected at 5% rule at the same time the Nas was challenging 2.5% so certainly to be expected and not a black mark on either as we close the year off with a bang.  

  103. Phil and friends:  Thanks Phil for helping make this a much, much better year this year than last. Your tutelage has been so very helpful.  Don't think I can say Thanks enough.  And I thanks all the members here who were work hard in helping us all to become better traders, and I would say better people as well.  The support many of you offered when we evacuated during the fire this past year helped me immeasurably.
    Happy New Years to you all!

  104. FTR/kustom – FTR not going anywhere today, which suggested to me that the bots are not running it around… as opposed to LULU,NFLX,AMZN..!

  105. HLF more than 20% off our bottom call ($32.71), 11% of it today.  

    Thanks JBur – Very uplifiting.  Have a very happy new year.  

    30 mins left an only a weak bounce off the 2.5% lines (futures) so far.  VIX down to 18.74, TLT still $121.  

    NYX drifting lower since CME offer – maybe trouble in paradise?  Short puts still have some premium (2015 $25 puts at $1.25 are interesting for a short sale as the deal is around $32 supposedly closing in Q1).  

  106. Just filled the TZA hedge, Apr 13/17.  There are still many issues in Washington!

  107. TZA/jfawcett: Isn't there an old trader saw that says something like:  "Buy your puts (hedges) when you can, not when you have to"?

  108. $535 is the 5% line for AAPL.  Bad news is that means they are accounting for half the Nasdaq's gains today.

    Tough call to have faith in our leaders to get this done but the buying volume has been decent and well-distributed (ie. not concentrated on MoMos) and we're over our 50 dmas so we'll just have to take it at face value for the day.  If we do get the solution overnight, Global markets get first crack at our futures and we could be way up on Wednesday morning so dangerous to short as much as it is dangerous to go long.

    Still, quite the finish to 2012 – if 2013 is half this crazy, we're still going to have a wild ride.  Looking forward to taking it with all of you and wishing you a healthy and happy New Year with all my best to you and your family.  

  109. LOL, sorry Scott, I took FTR as in For The Record. Thanks.

  110. CNBC says House will not vote tonight but maybe in a few days.  Not surprising and we'll see how the Futures take that one. 

    No more danger that Wednesday morning will get away so TZA spread still a very good call and DIA March $124 puts now $1.90 also still a good cover but much more volatile.  

  111. Wishing everyone on the board a very happy new year!

  112. Happy New Year all, I look forward to 2013 with each and everyone of you.  And thank you Phil.  I do enjoy your tutelage and your blunt assessments.  Truly a unique site.

  113.  Wish you all a very Happy, Healthy and prosperous in every aspect NEW YEAR!!!

  114. Volume still up into the close, despite that last-minute news.  Finishing at day's highs all across.

    Looks like 145M on the Dow at the bell, about 1/2 in last few minutes.  

    Happy New Year folks!  

    Looks like we'll be starting the new year off with a bang on Wednesday.  

  115. Thanks to everyone for all your help and insight!

  116. WIshing everyone a safe evening tonight, and for the record, best wishes for 2013! :-)

  117. Wishing everyone a very Happy New Year
    Phil—thanks for all the help --your teachings were invaluable
    STJ / Pharm--thank you for all the help and great ideas
    hope to see everyone next year

  118. Phil
    Same to you and your family on health/happiness and good fortune and thanks for all the guidance during 2012.
    Much thanks to all members who have contributed their time and thoughts throughout 2012  helping others learn option strategies and suggesting profit making trades.
    Hope to contribute more in 2013 to return the good will jestures.
    Safe New Year everyone.

  119. Happy New Year Phil!  Wishing you and the fam a healthy, safe and happy 2013!  We're already soaking in it here in Japan and I must say, the water's fine — so jump on in! ;)

  120. All – Happy & healthy new year to all of you. Having been a member for a few years now, I am at the point where it is really starting to pay off for me. I look forward to investing together with this fine group for many years to come. 

  121. Happy New Year to all!
    Ron and Derek

  122. Phil – agreed – not for everyone – but hopefully enough people to get the ball rolling.  
    Have a great New Years and see you in 2013 ..

  123. Phil: thanks. Happy new year.

  124. Happy New Year everyone. Thanks for the great times and knowledge. 

  125. Have a Happy New Year all!

  126. Happy New Year!

    Word is the Senate has a deal and it's an Obama win with immediate tax increases over $400k and phasing in over time to $250k with the one-year $30Bn extension of unemployment and a two-month delay of sequestration but no military cuts off the table.   Brilliant, but I can't see the Reps in the house bending owner and taking this one – it leaves them in a terrible bargaining position on the rest.  

  127. I agree, I do not see how there will be enough votes in the House.

  128. A Happy and Healthy New Year to All!  :)

  129. pstas – also saw that SA article…I wonder when a stock stops being a fad and becomes a serious contender for buyout, as the article claims…SODA may be well on its way…funny that the soda machine is gimmicky but the Cyrstal Light drinks are actually quite good IMHO.

  130. Soda- I have not paid much attention to the company and have never tried their product but note their TV adds are attention getters. Who knows. The "green/environmental" line may get some traction. 
    I picked up some calls for a swing trade the other day- possible breakout at 45. Small position just for fun. 

  131. Lflan has been playing them, you might want to check the Momo portfolio…

  132. Happy New Year Everyone!
    To Pharm, Lflan and St. Jean, Thanks for sharing your insights and all your hard work.
    To Phil, you are the coolest leerless feeder a liberal with shotguns could ever hope for!
    Sorry…I see bubbles.
    FU Congress!
    Go Stanford!

  133. House apparently voting on Senate bill as is at 9pm.   Very good news.  

  134. Phil—hope you are having a great New Year
    Norquist  says vote for Prez proposal—I don't know whether to laugh or cry--

  135. Bill passed!  

  136. Well, 537 lawmakers in congress/WH can pat themselves on the back!  What I don't understand is how we can continually send the same idiots year after year back to DC to represent us.  We need to fire ourselves.

  137. From Warren Buffet
    It will never happen though
    Congressional Reform Act of 2012 

    1. No Tenure / No Pension.

    A Congressman/woman collects a salary while in office and receives no
    pay when they're out of office.

    2. Congress (past, present & future) participates in Social

    All funds in the Congressional retirement fund move to the
    Social Security system immediately. All future funds flow into
    the Social Security system, and Congress participates with the
    American people. It may not be used for any other purpose.

    3. Congress can purchase their own retirement plan, just as all
    Americans do.

    4. Congress will no longer vote themselves a pay raise.
    Congressional pay will rise by the lower of CPI or 3%.

    5. Congress loses their current health care system and
    participates in the same health care system as the American people.

    6. Congress must equally abide by all laws they impose on the
    American people.

    7. All contracts with past and present Congressmen/women are void
    effective 12/1/12. The American people did not make this
    contract with Congressmen/women.

  138. Bertl:
    Something we all can agree on! Cheers.

  139. Back in the US, jet lagged and sick as a dog…. The wonders of international travel!

    Ending the year with a bang! Impressive moves all along and it should continue today with the fiscal cliff averted.

  140. Good morning and Happy New Year to all!  

    Futures not open yet but commodities doing well and other countries doing well so no reason to think we won't follow-through a bit from Monday's rally BUT nothing too dramatic so far.  Of course, we had our anticipatory pop on Monday and the deal is a half-measure and we'll be back to the table in 2 months so nothing to get too excited about and we've still got about 2% to go to break over this rally just looking like a double-top bounce on the way down from our highs.  

    We still have the debt ceiling – that wasn't dealt with and the House is still insane with 150 Reps voting against the bill with just 84 voting for it (so the rest were willing to let the country burn) despite a 90% positive vote in the Senate.  The Dems voted 172-16 for it, not sure what the deal was with the 16 but most likely they wanted more stimulus, not less and less tax cuts, not more.  

    Don't forget, everyone still gets a tax increase as the Payroll Tax Breaks are over – a 2% hit to everyone on the first $100,000 of pay.  

    Even Paul Ryan voted for this Bill, as did Boehner, who may lose his speakership when the new House convenes.

    Here's a great NYTimes chart comparing the recoveries in various global markets – the one they used in the paper was much more extensive and better but I can't find a full chart on-line, unfortunately:

    Here's a great S&P chart:

  141. Wow, Futures just opened to a 1% pop!  S&P right to that 1,440 line.  AAPL $544.  Now we're going to get burned on FAS short calls if this keeps up.  

    Oops, Times chart didn't print right – hit the link and you'll see the bigger version.  

    Notice on the S&P chart that we had a non-stop rally at the beginning of the year into March, with more than 10% gained in that run.  Another great example of using the 5% rule to make non-greedy exits as we then gave it all back before getting an even bigger run starting in June.  

    When we look on this in retrospect – it will be QEInfinity that marks the last leg of this rally in November and going through whenever…

    Keep in mind that life is not a bowl of cherries just because we fixed our cliff issue.  Check out Europe's PMI, for one thing: 

    Wednesday's economic calendar:

    Auto sales

    7:45 ICSC Retail Store Sales

    8:55 Redbook Chain Store Sales

    8:58 PMI Manufacturing Index

    10:00 ISM Manufacturing Index

    10:00 Construction Spending

    2:00 PM FOMC minutes

    1:49 AM As with Asian shares, commodity prices are higher after Congress' passage of the fiscal cliff deal, with gold +0.3%, silver+1.45%, copper +0.7% and oil +1%. Copper is also benefiting from generally decent PMI data out of China.

    3:32 AM Asian and European stocks rally following the U.S. fiscal cliff deal, with Hong Kong and Australia closing at their highest levels since June 2011. However, given that U.S. has hit its debt ceiling and that the agreement contains limited spending cuts, "the upside looks limited," says Piper Jaffray's Andrew Sullivan. Japan closed, Hong Kong +2.9%. China closed, Australia +1.2%, India +0.7%. EU Stoxx 50 +2.4%, London +1.4%, Paris +1.5%, Frankfurt +1.9%, Milan+1.8%, Madrid +1.5%.

    6:19 AM U.S. stock futures join the global party after Congress just about averts the fiscal cliff, for now. However, "the excitement will evaporate, because the buildup does not include raising the debt ceiling or longer-term budget cuts," says GFT Markets' Fawad Razaqzada. Dow +1.95%, S&P +1.5%, Nasdaq +1.5%.

    Fiscal cliff worries may appear on the surface to be a big concern among market pundits, but the word never got to the trenches where buyers have largely held up equity gains for the year. The reason, according to Pimco's Mohamed El-Erian, is the confidence investors have for the Fed. "If you have an institution that has a printing press in the basement," El-Erian says, "you respect it."

    The fiscal cliff deal will probably ensure that the U.S. avoids recession but it will also help cut GDP growth to 1% in Q1 2013 from 3.1% Q3 2012, JPMorgan and BofA economists forecast. "It’s going to definitely present a headwind for the economy," says JPM's Michael Feroli. "We’re looking for a downdraft in growth in the first half of the year, with the economy coming back in the second."

    The fiscal cliff deal will add almost $4T to the deficit over the next ten years, the the CBO calculates, citing the codification of tax cuts for most Americans. However, despite the measures, overall taxes will increase for over 75% of households in 2013, says the Tax Policy Center. Meanwhile, Republicans and Democrats are hardening their positions ahead of the upcoming battle of the debt ceiling, which has around two months to run.

    More on the fiscal cliff deal: The measure ups taxes on household incomes of over $450K to 39.6%, and on capital gains and dividends to 20% from 15%, also for household incomes of above $450K. The estate tax is raised to 40% on inheritances of above $5M from 35% / $5.1M. The hope is to raise $600B in new revenue over 10 years. Meanwhile, the deal extends unemployment insurance to 2M people for a year and delays $110B of spending cuts by two months.

    More on the fiscal cliff deal: As expected, the bill extends some farm support schemes for a year and averts the "dairy cliff" byending fears that the price of milk could double – the measures prevent the revival until September of a decades' old subsidy that would have forced the USDA to buy up milk at prices way above what farmers are receiving now. 

    More on the fiscal cliff deal: The payroll tax cut is allowed to lapse, meaning that the employee portion of the Social Security tax will return to 6.2% from 4.2%. That will cost Americans an estimated $125B a year. The WSJ lays out some of the other tax measures that were known prior to the passage of the bill.

    Eight Corporate Subsidies in the Fiscal Cliff Bill, From Goldman Sachs(GS) to Disney(DIS) to NASCARThroughout the months of November and December, a steady stream of corporate CEOs flowed in and out of the White House to discuss the impending fiscal cliff. Many of them, such as Lloyd Blankfein of Goldman Sachs, would then publicly come out and talk about how modest increases of tax rates on the wealthy were reasonable in order to deal with the deficit problem. What wasn’t mentioned is what these leaders wanted, which is what’s known as “tax extenders”, or roughly $205B of tax breaks for corporations.

    Ladies And Gentlemen: Here's The Date Of Your Next Fiscal Cliff. The other half of the Fiscal Cliff, the sequester (the mandatory spending cuts agreed to in the debt ceiling fight) has only been delayed, giving DC more time to fight over it. That means we've already scheduled a new Fiscal Cliff, and the bill agreed to last night has the date: March 1, 2013 (exactly two months from today).

    A Congregation of Motherf*ckers in the Senate (The Rude Pundit)

    This One Chart Shows That The Fiscal Cliff Fiasco Is The Republicans’ Fault  (Business Insider)

    The number of IPOs fell to 751 in 2012 from 1,277 a year earlier and the amount raised dropped 29% to $113.1B as declines in Europe and China offset an increase in the U.S., where Facebook's listing helped bring a 15% rise in the money raised to $38.9B. Advisers predict continued activity in the U.S. housing and technology sectors, and a revival in China.

    How to Play the Volatility of 2013 (Barron’s)

    Will 2013 Be the Year of Equity Hedge Funds? (Barron’s)

    If declines in mortgage rates matched those in the MBS from which they are priced, the 30-year fixed would be at 2.6% (instead of 3.3%), says the FRBNY. Capacity constraints among mortgage originators appears to be a key reason, say researchers, as big swaths of the 3rd party origination industry were wiped out in the crisis, and, so far, haven't returned.

    Eurozone manufacturing PMI slips to 46.1 (flash 46.3) in December from 46.2 in November. "The downturn remains widespread, with all nations bar Ireland reporting contractions," says Markit. "The region’s recession therefore looks likely to have deepened, possibly quite significantly, in the final quarter."

    EU Power to Extend Slump in 2013 on Weak Demand: Energy Markets. The slump in European power that has driven prices to record lows is showing no sigh of ending as the region's second recession in four years curbs energy use. Electricity for the next year in Germany, Europe's biggest economy, will probably fall 9.2% in 2013, extending its 17% decline last year, according to Credit Suisse Group AG. Power demand in Germany will drop 2% this year, the same amount as in 2012, Bank of America Corp. said.

    German Manufacturing PMI 46 (flash 46.3) in December vs 46.8 in November. New orders fell for the for eighteenth consecutive month, manufacturing output contracted more sharply and the job losses continued. (PR)

    Economy Minister Philipp Roesler says German economic growth may slow further in 2013, citing an interview. "2013 won't be an easy year for our economy," he said.

    U.K. Manufacturing PMI unexpectedly rises to a 15-month high of 51.4 in December from 49.2 in November, boosted by production and new orders expanding at accelerated rates. Manufacturing output PMI 54 vs 50.5. However, "the sector is far from out of the woods," says Markit. A "decline in new export orders demonstrates that challenging global economic conditions and the eurozone crisis continue to act as a drag." (PR)

    The U.K. economy may stall with little or no growth in 2013, citing the Institute for Public Policy Research. The Institute says consumer and business morale has been dampened by talk of years of austerity and the crisis in the euro-region.

    France manufacturing PMI 44.6 (flash 44.6) in December vs 44.5 in November. While the fall in output slowed down, new orders declined at the sharpest rate since March 2009. "The outlook heading into 2013 appears gloomy amid a number of significant headwinds…including a deteriorating labor market, weak consumption and fragile demand" in Europe, says Markit. (PR)

    Spanish and Italian 10-year bond yields start the year on the right note – as far as governments are concerned – with those of Spain dropping 11 bps to 5.16%, the lowest since March 20, and those of Italy dropping 17 bps to 4.35% after touching 4.34%, the lowest since December 2010. The ECB's pledge to buy sovereign debt could help the rally continue well into 2013.

    Big in 2012, but the Future Is Hazy for Bonds (NYT)

    Japan's Nikkei gained 23% in 2012, its best gain since 2005, but the popular EWJ is up just 6.3%, thanks to a declining yen (FXY -11.3%). The DXJ - hedged against currency fluctuations – is up 16.5% YTD. Another hedged fund, DBJP +20.5% YTD.

    Japan plans 'nationalisation' of factories to save industryJapan's government is to take the unprecedented step of buying factories and machinery directly with taxpayer funds, the latest in a series of radical steps to lift the country out of its deep slump. Premier Shenzo Abe is to spend up to one trillion yen (£7.1bn) buying plant in the electronics, equipment, and carbon fibre industries to force the pace of investment, according to Nikkei news. The disclosure came just a day after Mr Abe vowed to revive Japan's nuclear industry with a fresh generation of reactors, insisting that they would be "completely different" from the Fukishima Daiichi technology.

    Japan’s Population Falls by Record in 2012 as Births DecreaseJapan’s population last year declined by 212,000, the biggest drop on record, according to an estimate by the nation’s health ministry. That’s the largest reduction since the ministry started recording the data in 1947 and a sixth straight year of declines. The number of births fell by 18,000 to a record low of 1.03 million last year, the ministry said.

    China's official PMI remains unchanged at 50.6 in December but misses consensus of 51. Along with the HSBC PMI data yesterday, the reading provides more evidence that economic growth is accelerating again. However, some analysts warn that the pickup may reflect renewed infrastructure spending and not the growth in consumer activity that the government believes is necessary to rebalance the economy.

    Australia's December PMI holds steady at 44.3, remaining in contraction territory for the 10th consecutive month. Among the "inhibitors" cited by respondents is, of course, the persistent strength in the aussie. Sydney rises 0.7% in its first chance to react to the big rally Monday in the U.S. Australia Index Fund (EWA+17.3% in 2012. Australian Dollar Trust (FXA+1.5% in 2012, +40% since its 2006 inception.

    South Korea's December PMI rises to 50.1 from 48.2 previously, the first time in expansion territory since May. Yesterday, the country reported an unexpected 5.5% Y/Y decline in December exports. The government blames the fall on fewer working days during the month, but there's also the won, the strongest 2012 performer among major Asian currencies – up 7.7% vs. the greenback. South Korea Index Fund (EWY+21.2% in 2012. 

    There was a time in the recent past that growth in the five BRICS countries looked like it could help offset the stuttering G7 economies, but while China is starting to emerge from a slowdown, Brazil, Russia, India and South Africa face several challenges, including inflation, labor unrest and a lack of foreign investment. The BRICS also behave as rivals as much as they do as allies. 

    On the country ETF dashboard, green all around for 2012 with the exception of Brazil (EWZ -2.5%) and Argentina (ARGT-18.6%). Topping the list were Turkey (TUR +62.3%), Philippines (EPHE +46.6%

  142. On the country ETF dashboard, green all around for 2012 with the exception of Brazil (EWZ -2.5%) and Argentina (ARGT-18.6%). Topping the list were Turkey (TUR +62.3%), Philippines (EPHE +46.6%), Thailand (THD +37.2%), Egypt (EGPT +34.2%) and Ireland (EIRL +32.1%).

    Small-cap dividend ETFs (DESDLSDFEDGSDFJ,EES) led the pack in 2012 performance domestically and globally, followed by mid-caps (DONDIMEZM) and large-caps (DLNDOL,EPS). Among strategy-based ETFs, it was preferreds (PGFPFF) and buybacks (PKW) that outperformed. See here for full dividend ETF performance data. 

    Currency ETFs were largely flat in 2012, with the krona (FXS) and rupee (ICN) leading gainers, and the rand (SZR) and yen (FXY) the biggest losers

    Financial services ETFs (XLFIPFIXG led all sector ETFsin 2012, followed by consumer discretionary (XLYIPDRXI), healthcare (XLVIRYIXJ) and tech (XLKIPK IXN). Utilities (XLU,IPUJXI) and telecom (ISTIXP) underperformed.


    For real-estate investors, the homebuilders ETF (XHB+55.6%) was the place to be in 2012. Retail (RTL +21.2%) outperformed residential (REZ +9.6%) and industrial (FIO -5.2%). Regionally, Asia real-estate (IFAS +39.4%) topped the list, followed by Europe (IFEU +24.5%) and the U.S. (RWR +13.3%). Full real-estate tables here.

    Big winners among commodity ETFs in 2012 include tin (JJT +23.2%), grains (JJG +17.5%), and lead (LD +14.8%). Gold (GLD) gained just 6.6%, while sugar (SGG -14%) and coffee (JO-42.7%) were big losers. See full commodity ETF performance tables here.

    Gold is higher following the CME's Friday announcement of a cut in initial gold margins to $6.6K/contract from $7.425K, effective January 2. The maintenance margin will be a lowered to $6K from $6.75K. 

    Oil may have climbed today as investors eyed a potential budget deal, but the wider picture shows the Texas tea logging its first loss in over four years, and still facing more economic uncertainty and an array of other concerns going into 2013. Aside from geo-political hiccups, gas consumption continues to be weak, leading to bigger stockpiles, while more fuel-efficient vehicles and changing consumer behavior are likely to continue to depress demand.

    Steelmakers are among those profiting from the crashing natural gas prices triggered by the U.S. shale gas boom. By relying on gas instead of coal to purify the iron ore used to create steel, manufacturers are able to lower production costs for the first stage of steelmaking by about 20%. Nucor (NUE) plans to start work on a gas-powered $750M Louisiana plant in mid-2013, and could announce plans for a second plant in the coming year.

    Mosaic (MOS +2.1%), Potash (POT +1.9%), and Agrium (AGU +2.2%) trade higher after Canpotex, the fertilizer companies' offshore sales agency, announces a 1M-ton potash supply deal with China's Sinofert Holdings for 1H13. Though the deal involves a $70/ton price cut from the last contract between the parties (established in March), the Street is pleased in light of surging potash stockpiles. A deal between Canpotex and Indian buyers is expected in Q1.

    Macau's casino revenues rose 13.5% to $38B in 2012, cementing the status of the Chinese special administrative region as the world's largest gambling hub. However, growth fell from 42% in 2011, due to China's slowing economy and the presence of fewer high rollers amidst a crackdown on corruption. Major Macau operators include Las Vegas Sands (LVS), Wynn Resorts (WYNN) and MGM (MGM).

    New-vehicle registrations are expected to grow to 15.3M this year, research firm Polk says, with actual sales possibly reaching 15.4M from 14.4M in 2012 as the industry benefits from increased loan and lease access for consumers, and from refreshes in the midsize-car segment. Sales are also expected to top 16M in 2014 for the first time since 2007. The sales figures for 2012 are due tomorrow.

    Found analysts estimate that Boeing (BAovertook Airbus in the delivery of planes last year for the first time since 2002, mainly due to the U.S. company finally ramping up production of the 787. The forecasts concurs with those from the companies, with Boeing predicting 600 deliveries and Airbus 780. Agency Partners' Nick Cunningham reckons that output will continue rising until 2015, after which it will fall. 

    Top commercial cooking equipment maker Middleby (MIDD) is spending $380M in cash to buy Viking Range, maker of high-end residential cooking ranges, ovens, and appliances. Middleby claims Viking's products will complement its TurboChef, Jade, and MagiKitchn lines, which are partly sold into the residential market. Viking has ~$200M in annual sales. (PR) - I like this company.  They were one we really liked in 2009, when they crashed to the low $20s but $128 now so I don't talk about them any more.  

    The number of drugs that the FDA authorized in 2012 rose to 39 from 30 last year and 21 in 2010, with the figure the highest since 53 in 1996. It also includes 10 medicines with fast-track status. The increase in approvals should help offset the patent cliff, which cost major U.S. and European drug companies $31B in revenues last year. (graph of approvals)

    Two Best Buy (BBY) directors resigned yesterday, bringing to four the number of vacancies on the 11-member board. One director, Mike Mikan, was interim CEO from April-September and was a contender for the top job on a permanent basis; he is going to work for the hedge fund of Edward Lampert, who controls Sears. The second departure is that of lead independent director Matthew Paull, who will retire in April.

    Beaten-down Universal Display (PANL +4.1%) finished 2012 with a solid gain after Cowen and JMP each predicted the company could benefit from CES product announcements. Cowenthinks Samsung could introduce 5" 1080p OLED displays at CES (matching Sharp's LCD panels), and notes it's expected to show off a flexible 5.5" 720p panel. JMP thinks a 55" Samsung OLED TV could also appear, and points out there's growing speculation about phone launches involving flexible displays.

    Cable TV and broadcasting companies have agreed toextend various contracts that expired at the year-end, with Viacom (VIA) keeping its channels on Cablevision (CVC) and Disney (DIS) signing a carriage deal with Charter (CHTR). Time Warner Cable (TWC) is temporarily keeping channels it threatened to drop, including AMC Networks' (AMCX) IFC and WE tv. TWC is also retaining Crown's (CRWN) Hallmark.

    Intel's (INTC) Web-based pay-TV service has reportedly run into the same roadblock that seems to have tripped up Apple,Microsoft, and others trying to change the status quo: a failure to reach deals with content providers bent on protecting ancient business models that involve getting paid for channel bundles whether or not a consumer is interested in a particular channel. One source tells theWSJ an Intel service could launch in mid-2013, while another suggests Q4. 

  143. More on Wells Fargo's Intel (
    INTC +1.1%estimate hike: Analyst David Wong thinks the x86 server CPU market can grow at a mid-teens annual rate over the next several years, and is an overlooked beneficiary of the smartphone/tablet boom. He notes Intel has suggested "122 tablets generate enough data traffic to occupy 1 server, and 600 smartphones generate a similar amount of traffic." Wong also argues tablets aren't powerful enough to displace notebooks, and has high hopes for Intel's next-gen mobile processors.

    Software-security firms are changing their approach after acknowledging that anti-virus products don't work very well - the initial detection rate of 40 programs from the likes of Microsoft (MSFT), Symantec (SYMC), McAfee (INTC) and Kaspersky was just 5% in a study. Firms now don't just try to block malware but also use other technologies such as trying to spot suspicious behavior or "whitelisting."

    10 Incredibly Simple Things You Should Be Doing To Protect Your Privacy (Forbes)

    The latest stats show mobile data traffic growth isn't slowing down in developed countries, observes Tero Kuittinen: booming sales of tablets and large-screen Android phones seem to be responsible. It might be just a matter of time before all this traffic forces carriers to raise their capex – there are some signs it's already happening. That's good news for the likes of Ericsson (ERIC), Procera (PKT), and Ruckus Wireless (RKUS), but less so for European telcos struggling with giant debt loads and declining voice/text revenue. 

    2012 was a year that saw Tim Cook put his mark on Apple, Facebook go through growing pains, Microsoft unveil perhaps the biggest product refresh in its history (though the jury's still out on its success), and the "post-PC era" turn into a reality, notes The Verge in its recap of the year's top tech stories. Looking ahead to 2013, it sees Apple overhauling iOS following a bumpy 2012, Google battling with Samsung over Android's future, and Microsoft, Sony, and perhapsValve trying to invigorate a slumping console gaming industry.

    Apple is rallying in the absence of major news. Likely helping: a weekend Barron's column that made a bull case for the stock while suggesting much of the "fast money" that had joined the bandwagon is now gone. Also, year-end sales made for tax purposes might now be letting up.

     2012: The Year in Graphs (Wonkblog)

    2012: The Year in Economics (big think)

    The biggest hits of 2012 (The Economist)

    ECRI Update: Flunking Recession 101 (dshort)

    MAULDIN: Long-Term Economic Growth Has Downshifted, And It's A Game-Changer For Stocks.

    Great article:  How to Find Your Purpose and Do What You Love (Brain Pickings)

    Which professions have the most psychopaths? The fewest? (Barking Up the Wrong Tree)

    Hack Your Life in One Day: A Beginner’s Guide to Enhanced Productivity (Life Hacker)

    New book slams financial advice industry (InvestmentNews)


  144. PHIL
    Social Security Tax Rate Changes for 2013 increase from 2012 Social Security tax rate of 4.2% on the first $110,100 to 2013 Social Security tax rate of 6.2% on the first $113,700, not on the first $100K.
     Also, the flexible spending allowance (FSA) Limit decreases from $6,000 in 2012 to $2,500 in 2013, to pay for Obamacare, yet another tax increase impacting the majority of working Americans.

  145. Thanks Crussell, I was rounding.  Of course, the FSA is something only well-off people take advantage of so not at all the "majority" of working Americans.  For one thing, if you don't do your taxes with an accountant, like 90% of the people don't – then you probably aren't using it anyway.  Then, for those it does impact, the same 47% that pay "no taxes" will continue to pay no taxes and the 53% that do pay taxes will be impacted proportionately to their income on the rising scale so this was a very sensible deduction to eliminate (from the Dems' perspective) as it was disproportionately benefiting the top tier – which was not the original intention.  

    Oil $92.94!    Gold $1,683.  AAPL looks like $546.  

    Nikkei tested 10,800 at Futures open, back to 10,725 now with 87.04 Yen to the Dollar – new lows.  

    Dollar, meanwhile, testing 79.50 with the Euro at $1.326 and the Pound at $1.6305.  Euro has to get over $1.33 to keep things real (and you should be having deja vu on that comment from our last bull run).  

  146. Phil
    we can agree to disagree on the FSA limit. The majority of people I know making $50-$100K use FSA to help increase their take home pay to pay for much needed family medical expenses. These folks are impacted and they do pay federal and state income taxes in addition to S.S. taxes.

  147. Phil/FSA account
    Phil I use the FSA medical spending account and I make between 50-100k per year even though typically only put about 1500.00 into it at present time.

  148. Hi Phil-are you still hanging onto the march $124 puts?

  149. FSA/Bert – Perfect example.  So this "cut" to $2,000 won't affect you at all – you are not the target.  Even if you upped what you set aside to $3,000 – the first $2,000 would still be exempt.  

    DIA/Cturb – I lost interest in those when we broke our 50 dmas on Monday but, if you still have them, then I wouldn't panic out now – we still need to see if we take back the last batch of highs ont he big chart and hold them.  Of course, they should be a hedge and only cutting off about 1/3 of your long gains – if you are over-covered, you need to pare it back sooner than later.