As I always do before options expiration I reviewed our Buy List, which, this quarter, is a list of 37 stocks we’ve been playing since late December and, sadly, after reviewing 37 of our favorite investments very carefully this week – I could only conclude that cashing them out was the only decision I could be comfortable with this week. Of 66 trades we had on our 37 stocks, 64 are winners with an average return since 2/8 of 28% – since most of the trades were designed to make 40% for the year – it just seems silly not to take the money and run now, on March 19th.
You are not supposed to have 64 out of 66 winners in 6 weeks, you are not supposed to make 3/4 of what you anticipate for the year in 6 weeks – that is NOT how the markets are supposed to work! When the markets go against you in some ridiculous "black swan" fashion, it is easy to throw up your hands and walks away but when the markets go in your favor in some ridiculous, "white swan" fashion – maybe it’s also a good idea to use those same hands to stuff your pockets with cash and walk away.
There’s nothing wrong with cash – the Fed tells us there will be no inflation in the foreseeable future and, in fact, they are fighting deflation so our sideline dollars will gain more and more buying power while we wait. Actually, despite my best efforts, there are still 15 positions that weren’t worth getting rid of (too much reward, not enough risk), even in a worrying market. Generally they are positions we expect to get at least another 20% from by January – still a pretty good return in this low-VIX market.
Our plan is to take opportunistic trades between now and April earnings – we’re still expecting a pullback and I’d be very motivated to go back into our old friends if they go back on sale but most of those picks were made for a defensive market posture that won’t be necessary if we break over our levels from here and they certainly weren’t worth riding back down after hitting 75% of our goal in 25% of the year!
We have Health Care Reform passing this weekend and there should be some great opportunities…
A Bubble in Search of a Pin
Unemployment Numbers: A Mixed Bag
A Bubble in Search of a Pin
And Speaking of Bubbles
Help in Europe, California, Tampa, and Becoming our Parents
Should Greenspan and Bernanke have seen the bubble in housing and other assets and acted, or should we accept their defense that you can’t know whether there is a bubble until after the fact? We will look at research that suggests they should have known, and, at the least, policy makers should no longer be allowed to say, “How could I have known?”
Of course, the employment numbers came out this morning, and the results are mixed; but that is better than they have been for the past two years. We dig into the numbers to see what they are really saying. And finally, we examine why the markets are so volatile. Is it just Greece, or is there more? There’s a lot of very interesting, and important, material to cover.
But first, and quickly, as I wrote in Outside the Box a few weeks ago, I am starting to very selectively buy biotech stocks, and mostly, though not exclusively, companies associated with the regenerative genetic revolution that is coming our way. I am convinced that this is going to be a decade of the most amazing medical breakthroughs, which will literally change (and in many cases extend) our lives, as therapies to treat all sorts of diseases become available.
This is the last time I am going to mention it, but here is the link to that OTB, which analyzes why we may see a bubble in biotech stocks before the end of the decade. The OTB was written by my friend Pat Cox, who covers these stocks and other technological marvels in his newsletter, Breakthrough Technology Alert. I have been following Pat for some time now, have talked extensively with him, and think he is one of those guys who have a handle on what by all accounts is going to be an amazing decade of breakthroughs.
I have asked his publisher to offer my readers a very discounted subscription price for one more week. (Ignore the deadline of February…
Last night, at about 11:30 EST, Abu Dhabi gave a $10Bn bailout to Dubai(until the end of April, anyway) with the following statement from Sheik Ahmed bin Saaed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee: "We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices." That was enough to send the Hang Seng from down 300 points to up 300 points in less than 30 minutes of trading (on both sides of their lunch break) while the Shanghai went from -2.2% to +1.7% and the Nikkei also reversed a 100-point drop, but only managed to get back to even at the close.
US futures trading also went wild, up over 100 points at the time but we’ve given up about half of those gains as of 7:30. Does it make sense that the Dubai crisis, which dropped us from 10,450 back to 10,250 when it came up, should be the catalyst to get us over 10,500 just because they were bailed out? Of course it doesn’t – that’s why we went to cash. This is one of the most ridiculously irrational markets I’ve ever seen. The other "good" news this morning is also the same old songs: Citigroup will repay their $20Bn TARP loan by diluting their stock by about 20% and GS says oil will go to $85 early next year.
I don’t know why they even bother to pretend anymore – they should just put 10 market-boosting statements on a chip that randomly plays one of them whenever the MSM needs a quote for the morning. People don’t seem to notice it’s the same thing over and over and over again so why even bother with the pretense? Speaking of pretense – I mentioned in the Weekend Wrap-Up that we expected this nonsense this morning but, had I realized that Greenspan AND Cramer were going to be on Meet the Press yesterday, I would have gone more bullish as those are the two biggest market hypers GE could have used for this week’s quotes.
Europe seems happy enough with Asia’s recovery and all the bull*** commentary (that’s bullISH – what were you thinking?) and they are up about a point ahead of our open DESPITE the FACT that Q3…
Federal Reserve policy makers like to explain the world in terms of feedback loops, except those of their own making.
Last year, a negative feedback loop threatened to deepen the financial crisis as a weak economy and a teetering banking system led to layoffs and production cutbacks, which led to even bigger declines in output and employment.
Last month, officials heralded the onset of a “positive feedback loop,” wherein better financial conditions and stronger growth in employment and output lead to a stronger stock market and improved financial conditions, according to minutes from the Fed’s Sept. 22-23 meeting.
At some point, of course, the loop gets broken. Otherwise, the economy would head in one direction, up or down, forever.
Where is the discussion of the Fed’s inflation expectations feedback loop, which yields no feedback and less information?
Expectations Loop-de-Loop
If I have this right, we’re waiting for the Fed to do or say something to help us decide whether we should hoard cash (because we expect the dollar to buy more tomorrow if prices are falling) or buy and hoard hard goods (if we expect inflation to diminish the dollar’s purchasing power).
The Fed, in turn, is waiting for us to do something so it can decide what to do: either raise the volume on its anti- inflation rhetoric with talk of exit strategies and price stability; or talk softly to allay fears of premature rate increases to keep market rates from rising.
If I read the minutes and other Fed communications correctly, policy makers are relying on us to tell them what to do, we’re relying on them for direction, and we’re locked in this no-way-out feedback loop that provides no useful information for either party.
To say that you and I have the ability to create inflation on our own flies in the face of monetary theory. If we did have a set of keys to the printing press, the Fed would have more
Ron Paul has a bestseller. That sounds so nice I’ll say it twice. Ron Paul has a bestseller. His new book, End the Fed, is number 30 on Amazon as this is written — with 167 mostly glowing reviews — and his reception last week on Jon Stewart’s Daily Show was hugely positive. Stewart, more-or-less a left/libertarian, clearly sees Paul as one of the good guys, and his audience seems to agree.
With all these doors suddenly slamming open, it’s easy to forget that just a couple of years ago Ron Paul was an obscure, eccentric Texas congressman whose presidential run was met with a yawn in the mainstream media. But when he stood up in the debates and made the case for limited government, sound money, and adherence to the Constitution, he struck a chord. It was clear (to libertarians at least) that he was telling the truth and that the political hacks who were treating him like a deranged uncle were the ones with the vision/character problem.
Paul didn’t win many votes (though out here in Idaho he did get 24% in the Republican primary) but he made an impression. And when pretty much everything he warned us about came true -- while virtually everything the hacks of both parties said turned out to be disastrously wrong — he even gained a bit of mainstream cred. So when he introduced HR 1207 to audit the Fed, the response was at first respectful, and then enthusiastic. Instead of instantly dismissing him, people began asking their representatives why the Fed isn’t already audited. This law might just pass, with unpredictable but almost certainly amusing results.
But of course auditing the Fed is just the beginning. Paul’s ultimate goal is to eliminate the whole institution, along with other golems like fiat currency and fractional reserve banking, and to reinstitute sound, honest money and limited government.
For those new to this subject, End the Fed is a clearly written primer on how dangerous delusions like unsound money and expanding government have gradually become the unquestioned conventional wisdom. For more seasoned gold bugs the book provides some interesting history, along with plenty of useful debate ammunition.
Some of the high points:
• Paul makes it clear that the Fed isn’t the whole problem. It’s just one part of a system that first…
Featured Trades: (OBAMA), (BERNANKE), (TBT), (PCY)
1) Boy, are the Republicans really screwed. I was awed with Obama’s performance on the David Letterman show last night. This guy is relaxed, polished, cool, and a fabulous advocate and salesman of his policies. When asked a question, he is so focused you feel like he is burning holes straight into his interviewer with his laser eyes. Obama has never really stopped campaigning, with five talk show appearances on Sunday, constant reminders about the mess he inherited, and relentless attacks against the right. His online network is still operating with full force. I have noticed that the spending of the government stimulus package is being carefully metered out to create an economic miracle by 2012. What can the Republicans offer? Reigned in government spending? They just doubled that national debt from $5 to $10 trillion. Regulatory reform? The financial system blew itself up on their watch. The environment? Bush came into office arguing that global warming was a myth. A better life? Most Americans have either just lost everything, or saw their net worth drop by half.
The big problem for the GOP is they took their own moderates out and shot them. Moderate ideas and input might get a hearing in this environment. The end result is that the lunatic fringe has taken over the party, like Sarah Palin and Rush Limbaugh. Death panels? No one rational and substantial wants to step up and become the sacrificial lamb, the blame taker. This in fact could be the beginning of a 20 year reign for the Dems, much like Roosevelt brought on from 1932-1952, on the heels of Herbert Hoover’s great stock market crash. The Republicans could be in the wilderness for a really long time. Better structure your portfolio for the one party state before elephants become an endangered species. Think endless trillion dollar budget deficits, a weak dollar, continued massive debt issuance, ultra low interest rates as far as the eye can see, and strong commodity, energy, gold, and silver prices. I’m not trying to be partisan here. I’m just trying to call them as I see them.
2) I spent the evening with David Wessel, the Wall Street Journal economics editor, who has just published In Fed We Trust:…
The global downturn was effectively declared over yesterday, with the Organisation for Economic Co-operation and Development (OECD) revealing that "clear signs of recovery are now visible" in all seven of the leading Western economies, as well as in each of the key "Bric" nations.
The OECD’s composite leading indicators suggest that activity is now improving in all of the world’s most significant 11 economies – the leading seven, consisting of the US, UK, Germany, Italy, France, Canada and Japan, and the Bric nations of Brazil, Russia, India and China – and in almost every case at a faster pace than previously.
Each of the 11 economies saw an improvement in July, the OECD said, with only France improving at a slower rate than in June. The July figures are the most encouraging since the indices began ticking downwards during the first quarter of last year.
The OECD’s leading indicators are considered a key economic yardstick because they measure the sectors of countries’ economies that tend to react first to upswings and downturns. As such they provide early evidence of the way in which the overall economy is progressing.
Unemployment Likely To Rise For A Year
If you don’t have a job or your job is in jeopardy you may not feel like partying much. Unemployment is likely to rise for another year.
"It takes GDP growth of about 2.5 percent to keep the jobless rate constant. But the Fed expects growth of only about 1 percent in the last six months of the year. So that’s not enough to bring down the unemployment rate."
Pray tell what happens if GDP can’t exceed 2.5% for a couple of years? What about a decade (or on and off for a decade)?
If you have come to the conclusion that we are going to have structurally high unemployment for a decade, you have come to the right conclusion. Ask yourself: Is that what the stock
My sense — having gotten my undergraduate degree in the field from UCLA — is that most economists are incompetent "whores." There is a herd instinct that governs them, and they do not dare to get out of step with their brethren; and they tow the "company line" religiously. Hence, at best some of them are moderately competent in deciphering the past, but utterly incompetent in predicting the future. Rather than be perceived as "wrong," they are like lemmings marching to the sea, in lock step.
That is among the reasons why when one economist with credentials breaks from the pack — as Roubini did before the so-called "recession" was upon us, and says that the emperor has no clothes — he (or she) has such an impact, because the other members of his profession are essentially saying nothing. In a real sense, the profession’s "poster boy" is Alan Greenspan who has admitted that he never saw the housing crisis coming. What planet was he living on?
Ordinary Americans saw the bubble — and all bubbles burst at some point in time, and the bigger the bubble, the deeper the fall — but Greenspan and his brethren missed it. That speaks volumes.
We’re at a truly fascinating crossroads in modern economic times. Financial theory as we have come to know it will be changed forever based the recent actions of Ben Bernanke and global central bankers. Millions of textbooks will be rewritten in the coming 10 years and careers will either flourish or die on the back of the actions of these bankers. Those in favor of Bernanke’s legendary helicopter drop are celebrating a 6 month rally in equities, but a vital piece of the recovery puzzle remains missing. While Bernanke and Co. fire up the printing presses, and the banks sell the recovery hook line and sinker to the investing public, we continue to see very weak consumer trends.
As we sit on the one year anniversary of the demise of Lehman Brothers it’s most appropriate to ask what we have achieved over the last few months and years in regards to policy action. Many say we avoided the second great depression and praise Bernanke for his innovative and swift actions. Others (myself included) believe we have simply kicked the can down the road and foresee an end to Bernanke’s career that very much mirrors Mr. Greenspan’s. As we noted back in August, Bernanke’s real report card is less than impressive:
• 4 million lost jobs
• 4.6 percentage point surge in the unemployment rate
• 20% decline in the S&P 500
• 30% plunge in house values
• A 3.5% reduction in real GDP per capita
• 11% decline in the trade-weighed dollar
• 109 failed banks (almost matching the total from the prior 13 years combined)
If you think about the cause of the credit crisis (excessive debt, excessive leverage and a banking sector that is too large and too powerful) and what we have solved in the last year it’s actually quite apparent that we haven’t solved any of the structural problems that actually caused the crisis. The debt in this country is still extraordinary, leverage is making a comeback and the banks have grown larger in what has to be the most incredible power grab in modern economic times. Meanwhile, Bernanke is like the doctor who keeps the cancer patient…
Improvement in first time unemployment claims is slowing. Actual, not seasonally manipulated data, including an adjustment for the usual weekly upward revision, shows that the year to year rate of change is on the cusp of a possible upside breakout, which would be good news for stock market bears if it happens.
Initial Unemployment Claims Chart- Click to enlarge
Here’s why it’s mind blowing. I’ve plotted it below on an inverse scale with the S&P 500 overlaid.
Unemployemt Claims and Stock Prices - Click to enlarge
Major US Markets including (NYSEARCA:DIA), (NYSEARCA:SPY), (NASDAQ:QQQ), and (NYSEARCA:IWM) dropped over 3% each on Italian bond fears and an increased worry that Europe will not be able to bail out its 4th largest economy. Furthermore, the iShares MCSI Italy Fund (NYSEARCA:EWI) wiped out over 9% today, further illustrating the dire situation in Italy and the European Union: ...
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -...
Bloomberg reports that Diana Containerships (NASDAQ: DCIX) files to offer stock up to $172.5M. Diana Containerships says that Diana shipping will also buy $20M of stock.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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...
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Well now we’re officially cashed out!
There’s nothing wrong with cash – the Fed tells us there will be no inflation in the foreseeable future and, in fact, they are fighting deflation so our sideline dollars will gain more and more buying power while we wait. Actually, despite my best efforts, there are still 15 positions that weren’t worth getting rid of (too much reward, not enough risk), even in a worrying market. Generally they are positions we expect to get at least another 20% from by January – still a pretty good return in this low-VIX market. 
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What a morning it’s been already! 
Ron Paul has a bestseller. That sounds so nice I’ll say it twice. Ron Paul has a bestseller. His new book, 
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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
(