Fiscally Irresponsible Friday – Proles Swallow $858Bn in Debt for $ 613 and Some Magic Beans
by Phil - December 17th, 2010 8:18 am
Good job Congress!
Way to bend of and take it from your new Republican Masters! Not since Jack sold his cow for some magic beans has a deal like this been made by our "leadership" where families earning between $35,000 and $64,000 go $7,800 further into debt to get a $613 tax break while families earning between $5M and $10M get $38,590 and families earning $50M to $100M get $380,590 and families (or Corporations, of course) earning $500M to $1Bn get $3,859,000 or about 12,590 times more than the average middle class family but, then again, they deserve it because – they are that much better than you are!
Face it, unless you are in an income category where your tax benefit has 5 digits, you are what George Orwell (who worked in England’s Ministry of Propaganda) called a "Prole." In "1984" the Proles (proletariat) were the vast majority of the populace, the working class of Oceana. Though the proles are the majority, they are unimportant. The Party explicitly teaches that the Proles are "natural inferiors who must be kept in subjection, like animals". As one of the Party Leaders observes: "the relative freedom of working-class people is merely a symptom of the contempt in which they are held".
It is not only the Party which regards the Proles as unimportant: the arch-enemy, Goldstein, dismisses them too, referring to the divisions of High, Middle and Low people, in which the Low are essentially destined to remain powerless. This attitude has much in common with the one Huxley shows in Brave New World—the lower castes are mindless enough to be satisfied with little, and can be relied on not to be troublesome.
You’re not going to be any trouble are you? Enjoy your $613, little people. That’s what, about a month’s worth of gasoline and cable TV? Congratulations on your voting acumen – you certainly have gotten the Government that you deserve! I apologize because I had mischaracterized the tax cuts as being fairer to the Middle Class last week, when I said it was only an outrage. I thought that families earning $50,000 would be getting $900, not $613, but it turns out that 12,590 times $287 is another $3,613,330 that could be given to a Billionaire and they NEED that money to buy stuff that might create a job while you would only…
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Toppy Tuesday – Can the Dollar Fall Faster than our Indexes?
by Phil - December 14th, 2010 8:27 am
It’s a race to the bottom!
While we may have thought we were flatlining yesterday near our breakout, Europe and Asia had a different view of our markets as we pulled back -0.5% to -1.73% when priced in other currencies. While you may not care what happens in other countries, there are 6.5Bn people who would disagree with you there and the US is not the World leader anymore (despite what the citizens of the US may think) – we can no longer afford to ignore things like how exchange rates affect us. Here’s the chart for the Dow, S&P and Nasdaq priced in Dollars, Euros and Yen for the past two months:
Fortunately for the bulls (especially the commodity ones), the dollar has resumed it’s pathetic decline as Obama and The Bernank have combined to dilute our currency by another $2Tn over the next 48 months, from about $14Tn to $16Tn (+14%) plus, possibly, the $110Bn of new $100Bills the Treasury is trying to run off. This has sent the dollar back down from it’s Thanksgiving high and now it’s going to be all about whether or not we can hold that 78.5 line as our Congress finalizes their vote on the Obama Tax Cuts and another $1,000Bn of US debt taken by our citizens in order to hand another $650Bn to the top 1%.
When $100Bills are being printed faster than rolls of Charmin are being made, your currency is probably on it’s way to a crisis. You reach a certain point at which it’s cheaper to just wipe your butt with dollar bills than to go to the store and buy toilet paper and, of course, we’ve all seen pictures of Germans in the 1920′s, fueling their fireplaces by burning bills, which were cheaper than wood. Of course stocks and commodities are going up when priced in dollars – they are making more dollars every day, even Disney now has cartoons trying to explain to kids why this is a bad idea.
On top of the relentless devaluation of our dollar-denominated assets, we also have wild rumors driving up demand for commodities by speculators, who are generally those same top 1% who are being handed money by our Government at a rate of $2Bn per day. If you had to put away $2Bn a day, where would you…
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Wednesday Worries – Ireland “Fixed” – Who’s Next?
by Phil - December 8th, 2010 8:28 am
So many things are pissing me off today.
I got my political outrage out of the way in my earlier post: "Thanks for the Gas Money, Mr. President," so we don’t need to talk about that again. Ireland, as of 7:45, has not actually voted to accept the EU’s deal, which will pull $20,000 per Irish family directly from national pension funds to pay for the speculative mistakes of Irish Banks. Additionally, the Irish people are being asked to borrow another $75,000 per family from the EU at about 6% interest, also to pay for the speculative mistakes made by the Irish Banks. While this may seem insane – it’s only a drop in the bucket compared to what Americans are spending to bail out our own speculators so why shouldn’t they join the club?
At least Ireland gets to vote for their obligations, we have a Federal Reserve System where a single man, known as "The Bernank" is able to spend what is now heading towards $3.5Tn of OUR MONEY to bail out his banking buddies. That’s $31,818 per American family spent over two years IN ADDITION to the stuff I complained about Obama and our spineless Government spending in the last post.
As I said, things are pissing me off today! I should be in a better mood – we had a fabulous day trading in Member Chat yesterday. In yesterday’s post, I closed with "One last stab at making some bearish profits for us (see Morning Alert)" and you can click on that Alert, which was posted on Seeking Alpha and check out our trade ideas for the $10,000 to $50,000 Portfolio which included (at 7:22 am yesterday) QID Jan $10 calls, which opened at $1.80 and finished at $2 (up 11%), DIA Dec $114 puts, which opened at .80 and finished at $1.33 (up 66%), XRT Jan $44 puts, which opened at .35 and finished at .55 (up 57%), USO Jan $36 puts, which opened at .66 and finished at .90 (up 36%), PCLN weekly $400 puts, which opened at $50 and finished at $1.40 (up 180%) and NFLX Jan $155 puts, which opened at $1.70 and finished at $2.30 (up 35%) but should look much better this morning, where we will exit.
Of course I featured the idea to short NFLX last Thursday…
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Monday Market Movement – “Like Moths to a Flame!”
by Phil - November 29th, 2010 8:01 am
"Investors are drawn to China like moths to a flame." – Neil Woodford
That’s a great quote. Neil is the head of investments at Invesco, running the UK’s largest investment fund with a decade of 15% average returns under his belt so let’s take the man seriously for starters. Mr Woodford’s concerns coincide with figures showing that food prices in China were 10.1pc higher in October than in the same month last year – a level of inflation not seen since mid-2007. This is deepening concern that China’s economy is now starting to overheat.
"I do not deny that in the long term an economy like China will grow much more rapidly than the West. But I think one has to be very careful about correlating growth necessarily with economic opportunity, and opportunity to make money," said Mr. Woodford.
And so it is that the moths are all drawn to the light, even as it burns them. For they are blindly drawn to its grace, hitting their heads about the light, destroying their senses, going without food, and becoming easy prey to those that hunt them. Even those few moths that will get within the embrase of the light will burn unable to escape, ever.
There was no escape for Ireland this weekend as the IMF and EU pinned the country down and forced them to swallow a $130Bn aid package at (get this!) 6.7%. $17.5Bn of this money is to come out of Irish pension funds all just to make sure Bill Gross doesn’t lose any of the money he lent to Ireland! I honestly cannot tell you who is the more vile, despicable villain in this debacle. Is it the banks, who started this mess with their idiotic lending practices? Is it the lobbyists and lawmakers, who turned Ireland into a tax haven for EU Corporations and destroyed the economy by funneling tax breaks to the wealthy? Is it the Irish Government, who stupidly bailed out the failing banks with guarantees that put the nation on the hook for more money than their entire GDP. Is it the bondholders, who drove up the cost of financing Ireland’s newfound debt to levels that threatened to break the National Bank or is it the EU & IMF, who are effectively playing the role of loan sharks, borrowing $100Bn at…
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Flip, Flop and Friday – Options Expiration Spectacular!
by Phil - November 19th, 2010 8:25 am
I don’t care if I die
Don’t ever leave me
don’t ever say goodbye
Things were going according to plan (even though the plan was horrifying) and everyone was happy but then Uncle Ben had to screw it up this morning when "The Bernank," speaking in Germany, indicated that the Fed would pull the plug on QE2 if they thought inflation would rise higher than "2 percent or a bit less."
WHA-WHA-WHAT? Keep in mind that WE are the only country on the planet Earth that is still pretending inflation is under 2% and he’s making this speech in China, where inflation is 4.4% so what do you think happened?
Of course, if you can answer that, you are smarter than the Wall Street Journal (but then again, who isn’t when it’s being run by people like Roger Ailes, who just said of National Public Radio: "They are, of course, Nazis. They have a kind of Nazi attitude. They are the left wing of Nazism.") who went with the headline: "Dollar Sinks Despite Chines Rate Rise" because they clearly do not understand the workings of International Monetary Policy, which I would find disturbing if the Wall Street Journal were a trusted source of financial information and not just a right-wing mouthpiece. As our friend Jon Stewart so aptly pointed out last night, there’s a pretty large disconnect between Conservatives and reality these days and it should be no surprise to any of us that this carries over to their trading positions.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| George Soros Plans to Overthrow America | ||||
|
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Fortunately, PSW readers are well aware that any indication by The Bernank that the…
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World of Worry Wednesday – The China Syndrome
by Phil - November 17th, 2010 7:52 am
Strap in kids, it’s going to be a bumpy ride!
Nomura Holdings joined Goldman Sachs in advising investors to cash out of China and that sent the Hang Seng down 478 points for the day (2%) along with another 2% loss on the Shanghai. “The likelihood of a re-introduction of price controls on food is growing,” Nomura’s Sean Darby said in a report today. “The recent run-up in agriculture prices worldwide and signs of hoarding appear to have pushed the authorities to reconsider draconian measures.” Premier Wen Jiabao confirmed on state television that the cabinet is drafting measures to counter overly rapid price gains. “Command style economic principles generally mean much lower multiples over time on the sector and stocks,” said Darby.
The US has it’s own "command style" economy with B-B-B-Bennie and the Fed commanding our inflation to go higher while China is trying to get their 4.4% inflation under control. The joke is, like Sidney Poitier and and Tony Curtis, our economies are shackled together through the Yuan peg as well as our codependent trading relationship. That has the World’s #1 (falling) and #2 (rising) economies engaged in a Global tug of war that threatens to tear the rest of the World to pieces and it’s just getting worse every day.
With the US pushing top-down QE2 inflation and China’s Premier calling for consumer price controls on food (and soon fuel too as a severe winter is forecast for China) it’s not surprising that Carlsberg’s Chongquing Brewery Company fell limit down (10%) on the Shanghai this morning along with several other food and beverage distributors. Copper, sugar and rubber also went limit-down in China with copper dropping all the way to $3.60 (down 10% in a week) into China’s close at 3am.
Meanwhile Bernanke is like the Sorcerer’s Apprentice: Given the magic hat – he commands his broom army to fetch buckets of dollars to inflate the economy the easy way but his lazy solution quickly turns into disaster as the waters start rising and he finds he has no way to stem the rising tide of inflation. Already, the rest of the world is drowning and not many have China’s ability to bail themselves out. This is not likely to end well…
Europe (who are caught in the middle) is already under tremendous strain with Matt…
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Tempting Tuesday – Getting in the Zone
by Phil - November 16th, 2010 8:29 am
It’s hard to be in cash, isn’t it?
I’ve been calling for cash for weeks and now I’m starting to feel like Braveheart, trying to get anxious Members to hold, Hold, HOLD in chat every day as traders, by nature, like to trade and sitting in cash waiting for market certainty is pretty boring. Of course it’s a lot less boring than riding the market down all tied up in positions, isn’t it? As you can see from David Fry’s TLT chart, we did get it right when I called a top on Treasuries at $105 (Sept 24th) but it did take it a little while before it really began breaking down – better early than late in your market timing!
I was early with "October’s Overbought Eight" on the 3rd although, obviously, we had a few huge winners on our short-term plays as we caught that first dip on NFLX, PCLN, BIDU and FSLR while AMZN is looking good as is TLT (Dec $102 puts now $8.50 from net .35 entry, up 2,328% and done, of course). MOS, on the other hand, went up and up but is finally backing off it’s run. Dec $62.50 puts at $2.10 should do quite well if they fail to hold the $65 line.
CMG, on the other hand, has become our white whale, now up 27% from where we first looked at them. The original play was a ratio backspread of 4 March $190 calls at $10.75 ($4,300), selling 5 Nov $175 calls for $8.75 ($4,375) which was a net credit of $75 on the spread. The good news is the March $190 calls are now $51 ($20,400) but the very bad news is the Nov $175s are now $56 ($28,000). We have, of course adjusted this trade several times but it is still very painful to wait out.
An example of a simple adjustment on a trade like this is to roll the calls to 10 Jan $210 calls at $28 ($28,000) and rolling the March calls to 8 June $230 calls at $29 ($23,200) so an extra $2,800 put into the trade to buy a more manageable 6-month spread. When you do this, you have to keep in mind that your net entry has gone up from a $75 credit to a $2,725 debit and killing the trade now would cost $4,800 more so the…
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Monday Market Movement – Meaty Beaty Big and Bouncy!!
by Phil - November 15th, 2010 7:40 am
The Fed is in all-out attack mode this week with $35Bn scheduled for release in the next 5 days. If that doesn’t goose the markets, then I think we are screwed because people, $35Bn is A LOT of money for a week. It’s $1.82Tn a year at that pace or 12% of our entire GDP being created by the Fed to give you the illusion that all is well with the markets. So say, thank you Chairman Bernanke, for treating us like children who would rather be lied to than facing reality and making necessary choices.
Speaking of necessary choices, I HIGHLY recommend looking at Barry Ritholtz’s "Fix It Yourself" deficit kit. Barry takes the more complex (but also good) NY Times article and presents the very excellent chart that shows us exactly what budget cap needs to be filled and what the available choices are to fill it. It’s a great way to think about the budget and also it makes you realize that 5 or 6 reasonable people sitting down with this chart at a table should be able to knock this thing out in a weekend if we were living in a rational world or perhaps one where an out-of-control Central Bank cooperated with a deceitful Treasury Department to maintain a status quo that clearly is not working for the American people.
QE2 is not about "fixing" the economy, it’s about FIXING the profits of the Primary Dealers (Gang of 12) who are estimated to reap a $50Bn benefit by simply acting as the conduits through which the Fed distributes our money as if they were the town Santa tossing candy off the back of a fire truck.
POMO spending might keep equities up and that is good for those of us who own them but what is it doing for the great unwashed and unemployed masses? Speaking of unemployed, did you know that 100,000 of Octobers 156,000 jobs created were not actual jobs but a bookkeeping entry as the government changed the "seasonal adjustment" it made to payroll numbers? Our friend, John Maudlin, explained the shenanigans over the weekend:
"According to John Williams at Shadow Government Statistics, the BLS’ fiddling with the figures via what he calls ‘seasonal-factor games’ actually created 200,000 phantom jobs last month. John cites such finagling as the
…
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Testy Tuesday – Dollar 77 Edition
by Phil - November 9th, 2010 8:28 am
The Dollar fell from 77.515 at 3:15 yesterday to 76.835 at 7:30 this morning.
That, my friends, is the story of the markets. A 0.9% drop in the Dollar overnight is a huge move, something that once upon a time would have made headlines as America’s $100Tn worth of household wealth has $1,000,000,000,000 shaved off of it in some overnight catastrophe. But there was no overnight catastrophe, just the horribly normal, shockingly ordinary destruction of the US Dollar, which has now become the plaything of International Market manipulators who boost it to pump the Asian markets up overnight and then crash it to goose the US markets in the morning. It’s MADNESS but we are loving it because, at least it’s predictable madness.
In yesterday’s post I reminded you about our $87.50 short on oil futures and we hit it again this morning and that’s exactly what I said would happen in my 2:21 comment to Members when I predicted they would run oil back up into inventories. We LOVE ranges – they are so much fun to play. Gold is now 20% above our $1,150 line and at the top of that range ($920-$1,380) we’ve been watching since March of 2009 so I updated our "Spinning Straw Trades Into Gold" post with a whole new set of trade ideas to help protect our cash if the dollar keeps getting weaker and gold keeps heading higher.
As I said to Members in yesterday’s Morning Alert, it’s all a huge sham but it’s the only game in town so we just need to learn the silly rules and figure out how to win if we want to keep playing (although I am currently advocating mainly cash and playing just for fun as we test our upside). We did go for an ABX trade in Member Chat on Friday, a play that was also made available to Stock World Weekly readers over the weekend (last chance to subscribe before we’re out of Beta and the rates double!) and ABX is, of course, flying as gold broke through the $1,400 mark yesterday. So we like gold as a small hedge against inflation eating into our sidelined cash but, on the whole, I’d rather short it – I just want to be clear about that.
We can’t short gold with Benny and Timmy running the…
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Bears Take a Bite Out of Las Vegas Sands Corp. Options
by Andrew Wilkinson - November 8th, 2010 5:09 pm
Today’s tickers: LVS, JPM, WNR, PFE, SLW, PCLN & XLK
LVS - Las Vegas Sands Corp. – Options strategists are initiating trades on the operator of casino resorts that suggest LVS shares could pull back further off recent highs. One big player wary of bearish movement in the price of the underlying shares purchased a large-volume ratio put spread in the January 2011 contract. Las Vegas Sands’ shares started the session in the red, but recovered this afternoon, and are currently up 1.65% at $52.84 as of 3:20 pm in New York. The put player purchased 20,000 contracts at the January 2011 $52.5 strike for a premium of $5.50 each, and sold 40,000 puts at the lower January 2011 $45 strike at a premium of $2.21 a-pop. Net premium paid to initiate the bearish spread amounts to $1.08 per contract. The investor responsible for the transaction is prepared to make money, or realize downside protection on a long position in the underlying shares, if LVS shares decline 2.7% from the current price of $52.84 to breach the effective breakeven point at $51.42 by January expiration. Maximum potential profits of $6.42 per contract are available to the trader if shares of the casino operator plunge 14.8% lower to settle at $45.00 at expiration. More than 216,000 option contracts have changed hands on LVS with 35 minutes remaining before the final bell. Options implied volatility on the stock is up 4.1% at 57.43%, the highest reading of IV since the end of July.
JPM - JPMorgan Chase & Co. – Shares of the financial services firm fell 0.85% to $40.59 late in the trading session, but earlier today one cautiously optimistic investor initiated a delta neutral hedge using longer-dated put options in the June 2011 contract. It looks like the investor picked up…
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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
(