Stock World Weekly 2-27-11
by ilene - February 27th, 2011 8:22 am
Here’s the latest edition of Stock World Weekly: Irresistible Forces Meet Immovable Objects. - Ilene

Excerpt:
On Saturday, February 27, the Security Council of the United Nations (UN) voted unanimously to institute sanctions on Libya, including travel bans and freezing the assets of Muammar al-Gaddafi and others associated with his regime. Protests have dragged into their twelfth day, and protestors refuse to yield in the face of utterly horrific retaliation by Gaddafi’s loyal forces. U.S. ambassador to the UN, Susan Rice said, “When atrocities are committed against innocents, the international community must act with one voice – and tonight it has.”
The Telegraph reported over the weekend that Gaddafi apparently made good on his threats to trigger a civil war, using irregular forces largely composed of hired mercenaries to launch a counterattack against protesters. “Anywhere we go there is danger,” said one woman, a 28-year-old mother of four who asked not to be named. “All we want is food and fresh water for our children but it is impossible to find. Security is the only concern of the authorities.”
An accurate report of the death toll is impossible to obtain at this time, but on Wednesday, Italy’s Foreign Minister, Franco Frattini said, “We believe that the estimates of about 1,000 are credible.” The situation in Libya has deteriorated since then. Multiple stories coming in from all over the country have cited dozens to hundreds of casualties in each city. It appears that Libya has slipped into the abyss of complete social breakdown and civil war.
This is just one example of the tide of popular unrest that has been unleashed in the wake of the Federal Reserve’s and other central banks’ inflationary policies. The chart below shows the U.S. Adjusted Monetary Base increasing from $1.75Tn in 2009, to $2.0Tn in 2010, and now nearing $2.3Tn, an increase of $300Bn in just two months! This represents an increase of 35% in less than 18 months. (The U.S. Monetary Base is the total amount of currency that is circulating in the hands of the public or in the commercial bank deposits held in reserves of member banks of the Federal Reserve System.)
Another revolt of a more peaceful nature took place in Ireland. The long-dominant Fianna Fail party was brutally rejected by Irish voters, taking just 15.1% of the vote and losing…
When Irish Eyes Are Voting
by ilene - February 27th, 2011 7:18 am
Courtesy of John Mauldin, Thoughts from the Frontline
When Irish eyes are smiling,
Sure, ’tis like the morn in Spring.
In the lilt of Irish laughter
You can hear the angels sing.
When Irish hearts are happy,
All the world seems bright and gay.
And when Irish eyes are smiling,
Sure, they steal your heart away.
Just when I’ve begun saying it’s safe to get back in the water, we get some shark sightings. They are a still a long ways off, but we need to keep our eyes on the deep waters and stay close to shore. This week we will look at a variety of data points and see what conclusions we can come to.

But first, I need some help from a few of you. Official publication date for my new book, Endgame: The End of the Debt Supercycle and How it Changes Everything, is March 8. I will be looking to do as much press as possible. If you are official press, drop me a note and we will get you a copy. Radio? TV? Call me.
Second, I want you to mark your calendars for April 28-30, when I will host, along with my partners at Altegris Investments, what I think will be the single best investment conference of the year. It will be the 8th annual Strategic Investment Conference in La Jolla. Let me give you the Killer’s Row line-up of speakers, in alphabetical order: Martin Barnes (Bank Credit Analyst), Marc Faber, Niall Ferguson (author and Harvard professor), George Friedman of Stratfor, Louis-Vincent Gave of GaveKal, Neil Howe(The Fourth Turning), Paul McCulley (if he ever surfaces from his fishing vacation), David Rosenberg, Dr. Gary Shilling, Jon Sundt (of Altegris) and, of course, your humble analyst. I mean, really. Most conferences have one or two top-tier headliners. We have nothing but the best. These guys are all great speakers, but getting them on panels together? Way cool. Plus some of the best hedge-fund managers (personal opinion) show up to give you their thoughts. And maybe a surprise last-minute guest or two. If this conference lineup were a baseball team, they would sweep the World Series. Oh, and the best part? Your fellow conference attendees. The interaction among them is what truly makes this conference the best.
We (well actually, Altegris) will soon start sending out invitations, but you can register today at …
March Trade Cycle – Portfolio Setup
by IncomeTrader - February 25th, 2011 2:34 pm
Note: This is not a new trade but the way our March Portfolio is currently set up.


Video: Talking Wall Street With Democracy Now!
by ilene - February 23rd, 2011 9:54 pm
Via Matt Taibbi at Rolling Stone
MARK AMES RANTS ABOUT THE INFLATION SCAM ON “THE DYLAN RATIGAN SHOW
by ilene - February 23rd, 2011 12:53 am
Via Mark Ames’s eXiled Online:
Here’s Mark Ames with Dylan Ratigan talking about the hidden inflation that the Federal Government may not count when looking at inflation numbers (e.g. food price increases), while the Bureau of Labor Statistics’ data collectors may simply choose to ignore it. – Ilene
Visit msnbc.com for breaking news, world news, and news about the economy
That’s right, they even rip you off while you’re sitting on the toilet with your pants down, folks! Corporate America, have you no shame, sirs!
More here >
The Game Is Afoot (AMZN)
by ilene - February 22nd, 2011 8:52 pm
Courtesy of Karl Denninger, The Market Ticker
Looks like the rumors are true….
Put a fork in Netflix – they’re

Here’s the problem: You get more than the streaming (which incidentally I counted up at ~1,300 movies alone on Amazon this morning – all of which I can look at the titles of before choosing to buy the PRIME membership) plus you get 2-day shipping included on anything you buy from Amazon.
PRIME membership price isn’t changing – this is just another "fringe" benefit. And it will stream to a huge number of devices – arguably more than Netflix covers.
For PRIME members, they just lost all reason to have a Netflix subscription. That’s going to hurt – a lot. And for non-members, you’re now paying $6.58/month, or less than Netflix is charging, for the streaming video service and the two-day shipping on Amazon purchases is included at no cost.
That’s how consumers are going to see it.
Redbox (CSTR) has announced intent to offer a similar service.
The race to the bottom in margins is now in full-force in this space. The entirety of the business model for Netflix and everyone else in terms of being able to make money on these offerings, and the valuations in their stock prices, was entirely reliant on that not happening. Add to this the pressures that will come from the CDN and ISP side and you got trouble.
Now look at the deferred expense issues with Netflix and what I see is big trouble.
Unfortunately this doesn’t make Amazon a buy. When a market becomes filled with people who are willing to undercut one another by 30-50% to make the sale you’ve moved from a growth model to one of cannibalization. This is not where M&A occurs (which will be what the crooners will try to SELL you), it’s where the sharks start eating each other, having insufficient food available to sate themselves by other means.
Stay away from all of these companies – this is a highly-destructive cycle that is likely to lead to severe margin compression for all of these firms. If I had to bet on someone surviving this it would be Amazon, with Redbox/Coinstar and Netflix being the potential zeros – but even so, it’s going to hurt Amazon’s margins as well.
Nobody wins these wars – if you have positions in these companies get the hell out of them while the getting is good.
Profit Margin Squeeze and Inflation Risk
by Chart School - February 22nd, 2011 1:35 am
Courtesy of Doug Short
Last week one of David Rosenberg’s commentaries included a warning of a potential profit margin squeeze based on his analysis of two indicators. One is the ratio of crude to finished goods in the latest Producer Price Index data for January. The other was an indicator constructed from two data series in the Philadelphia Fed’s Business Outlook Survey. Rosenberg charted the spread between the Philly Fed’s prices paid (input costs) and received (prices charged) data.
I would add that a major factor in the prospect of margin squeeze is the rather stunning increase commodity prices over the past several months, a topic that has been a major focus of business news. The latest turmoil in the Middle East is now putting oil prices in the spotlight.
So let’s take a broader view of these two indicators by viewing them within the context of inflation as measured by the Consumer Price Index. As the first chart clearly shows, the all-time high in the PPI crude:finished-goods ratio was in July 2008, the same month that crude oil and gasoline prices in the US hit their all-time highs. The previous ratio high was in the summer of 1973, a few months before the outbreak of the October Arab-Israeli War and the Oil Embargo. Inflation had already been rising in a series of waves since the mid-1960s. But Middle-East events of 1973 were the primary trigger for the nearly ten years of stagflation that followed.
The Philly Fed Prices Paid Minus Prices Received Index is an extremely volatile series, which I’ve emphasized by using dots for the monthly data points. To highlight the underlying pattern, I’ve included a 12-month moving average (MA). The two date callouts, one for the current monthly data point and the other for the 12-month MA, show that the comparable levels in the past were associated with inflationary peaks.
By official government metrics, the CPI and PCE, inflation is not a near-term threat. In fact, the Federal Reserve has been working hard to raise the level of core inflation.
Meet Income Traders, Kojo and Richard
by IncomeTrader - February 20th, 2011 5:10 pm
By now, you’ve probably seen the Income Traders in action in the Income Trader section. To provide more detail about their approach to trading options, including helpful definitions of terms, I asked Kojo some questions about terminology and strategy. Here’s a transcript of our conversation. - Ilene
Meet Income Traders, Kojo and Richard
Ilene: Hi Kojo and Richard, can you tell me a little about yourselves?
Kojo – Richard and I have similar backgrounds. We met at Washington University in St. Louis, at the Olin Business school where we were working on our MBAs. We both have extensive experience in business consulting in areas such as valuations, financial controls and credit risk analysis. I left consulting to concentrate on credit risk analysis for several years while Richard focused on consulting. Between us, we have about 18 years of self-taught trading experience in equities and options. We have each made our share of investment mistakes and over time, through trial and error, we have reached a point where our returns are fairly consistent.
Ilene: You stated that “Income Trader” uses option strategies, such as non-directional credit spreads, iron condors, and butterfly options, to generate consistent, monthly income, and that your goal is to earn a modest 2% to 8% monthly return on invested capital, using the RUT and SPY indexes specifically.
I have two questions. First, are you planning to provide one option trade per month, or more than that, in your section at Phil’s Stock World?
Kojo: Our goal is to provide at least one trade per month, but if we find more opportunities, we might post “supplemental trades.”
Ilene: Second, what are non-directional credit spreads? Iron condors? And butterfly options? When using one or all of these strategies, are you betting that the stock price will not change significantly?
Kojo: A credit spread involves a purchase of one option and a sale of another option in the same class and with the same expiration dates, but different strike prices. Investors receive a net credit for entering the position and want the spreads to narrow or expire for profit. In contrast, an investor would have to pay to enter a debit spread.
For instance, if a stock is trading at $28 and you buy a call at strike price of $35 but sell a more expensive call at $30 strike price, the price of the…

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(