Illinois ongoing talent drain

   I took my daughter to her first illini football game when she was five.  As with many things I do, there was several layers of motivation. I wanted to have fun but I also wanted her to remember the campus when it was 65 and sunny, the leaves turning and marching bands playing. When the time came, I wanted her to think fondly of the university of Illinois and make it her top choice for college.  I graduated from Illinois in 1983 and I have 5 siblings who are also u of I graduates. We are all fiercely proud of our alma mater and hoped that we could share that experience with the next generation. My plan was successful and my daughter made plans early in her academic career  to study business at Illinois. She even asked us if she could paint her room orange and blue, to which I said of course and my wife said absolutely not. I guess you win a few, you lose a few.  My daughter turned out to be an outstanding high school student receiving straight a's and a near perfect score on the act's. I don't mention this to boast of her success, but only to illustrate an important component of the talent drain that currently exists in the once great state of Illinois.  At the time of college applications it became painfully apparent that neighboring states like Indiana and Ohio were far more interested in luring top students to their states with significant financial incentives. Aside from the individual frustration my family feels there is a far more compelling macro economic issue at play here. Law makers in this state don't understand the scenario that plays out when a top student pursues academic goals outside the state.  If we send the best students ,in the state ,to Michigan or to penn or to Indiana we greatly increase the likelihood that they leave the state to pursue careers in other states.  Lets look at it this way,  when the university of Illinois attracts a talented student from Dallas or from Mumbai, to study business,there is probably a 50/50 chance that they return home after school as opposed working in Chicago. If a talented student from northbrook studies business at Illinois the chances of them staying local are far greater.  It is obviously difficult to figure out the exact statistics on this migration of talent but the university of Indiana has figured out something as evidenced by their Kelley business school consistently beating the university of Illinois in national rankings.  I'm certain that the law makers and administrators in Springfield have a difficult time seeing the long term economic benefits of extending scholarships to local students when juxtaposed against appeal of foreign students paying retail.  This suggests to me that few of them studied macro economic theory at the university of Illinois. Yes, that last sentence was an attempt to be cute and a little harsh but not to obfuscate the fact that the state of Illinois continually makes decisions that erode our competitiveness with neighboring states.  Up until several months ago, Illinois had a program where law makers could waive tuition for state university's for a certain number of recipients.  That program was scrapped amid allegations of misuse and corruption.  The reason I bring that up is to illustrate that this is a perfect time to institute a merit based scholarship program for Illinois residents. 

I have a fear that any proposed program will immediately  morph into a need based system. Although , I fully understand the importance of helping those less fortunate I am strictly talking about the highest achievers regardless of race or economic situation as a means to keep our brightest at home. My family has been fortunate enough to be able to pay for an education no matter what we decide.  But, make no mistake about this, we would never pay 25,000$ more to study finance at Illinois instead of Indiana. Anyone who would do that has failed their first lesson in finance.

Thoughts on Paul Krugman

  I appreciate the tremendous amount of responses Ive received today regarding the criticism of Paul Krugman piece in the new york times. I hope we are not bored to death with the topic because here are a couple final thoughts on why its garbage.
  1) His entire premise is designed around the defense of the democrats plan to raise taxes on the countries highest earners. In its defense, he sights historical statistics on those making roughly the equivalent of 2.5 million 2012 dollars. The problem here is that the current proposal  focuses on those making one tenth of that amount (250k). The only conclusion i can draw is that its omission is intentional because it severely erodes his argument.
   2) Throughout the entire op-ed he never makes any mention of the multitude of additional taxes that have surfaced over the last 50 years. Real estate tax, sales tax, gas tax, state and local taxes and many more have significantly risen over this time period. Its absurd to think that anything other than total tax burden is at all relevant when gauging the economic impact of taxes. The biggest problem I have with this is that Paul Krugman know this and its omission can only be viewed as an attempt to lead people to a predetermined conclusion with disregard for truth.
  3) At the end of the article he makes some absurd comments about how conservatives are anti gay rights and woman's rights. Its hard for me to even comment on something this ridiculous. I was pretty sure the discussion was on the economic impact of tax policy. He has to understand the mindset of the "business conservative" and understand that we argue for the most stimulative tax policy. Im pretty sure accusing us of hating gays is counter productive. In truth, if i had an argument that was this flimsy i may try to steer it in another direction as well.
   Please someone tell me where and why i'm wrong on this.
 

king dollar..notes for monday

 Seems to me that the dollar is still the dog and other markets remain the tail. The dxy(dollar index) has bumped up against a down slopping trend line at  79.71.  This is a trendline that connects a series of daily highs beginning on july 25th. At this point there is no reason to abandon a longer term thesis that the dollar is still in decline. Conveniently, that theory still fits in nicely with both the s+p and nasdaq futures. Nqz2, after having broken the neckline of a distinct head and shoulders pattern , has met the downside objective of  2675(trading below it to 2660) and bounced. At the same time the s+p(esz2) traded down to well defined support at 1420ish..What im trying to say is that nothing has happened to cause any alarm, and equities should now resume uptrend.. Also supporting this theory is that open interest declined  in s+p minis after fridays trade, suggesting long liquidation, not new short positions...
  The obvious question is what are we supposed to buy as overall markets recover?. There are a couple of ways thatwe are considering playing it. The fact that long end treasuries essentially ignored fridays sell-off suggests serious reluctance to add to long treasury positions. If equity markets begin a risk-on phase treasuries could be hit hard. We may buy otm calls in tbt or puts on the cme ten-year. Banks have held in well and as market recovers probably should out perform. I have bac and will consider adding on a trade above 9.61. Still like the homebuilders and have hov and ryl on.  Im not sure how sensitive homebuilders are going to be to short term swings in overall market but it obviously cant hurt..
  Tonight should be a big night on tv and if the bears win...wait...i mean if governer romney continues to gain momentum that could add to markets tailwind..I will try to watch both events mostly because if this is the moment in our nations history where i debate erupts into fists, we dont want to read about it second hand...enjoy...
  As always, if you have questions re; managed futures, hedge fund allocations or assitance with overlay strategies please contact us jiuorio@tjmbrokerage.com

notes for wednesday

    We are at a critical point in equities, weakness into today's close will make me believe that the correction has begun. This downturn should be standard and ordinary for two reasons; firstly, this rally has been characterized by lack of participation which lowers the likelyhood of a deep selloff. In other words, bear markets are generaly caused by a move from strong confidence to mistrust. The point here is that we lack any realsense of confidance, therefore we lack the fuel for a broader downward move. Secondly, there has been rampant talk of the evils of hft's and algos' increasing the potential for a flash crash. It seems to me that flash crashes can only occur if they catch the market completely off guard, and this is clearly not the case. A close below 1430.00 in spx should be the confirmation of weakness. In this case the objective becomes 1387.00..
   It seems odd to sight global economic worries as the reason for the downdraft as we have drawn that arrow from the quiver many times before.  Sometimes it just is what it is. Recent numbers out of China suggest a slowdown and this should be cause for some alarm. If we agree that China tends to cook the books, (I hope that doesn't get me in as much trouble as Jack got into...) perhaps signs of a little weakness means there's really a lot. Global barometers like CAT and Alcoa are flashing warnings. Two shorts that I currently have are Intel and IBM.
  The dollar should strengthen as the stocks correct, but all pairs shouldn't behave uniformly. I am interested in shorting the Aussie vs the Canadian dollar as China weakness should drag down the Aussie.
   As I've been typing, the S+P has lost a couple handles making the above scenario seem more likely...stay tuned....As always, if anyone has questions re; managed futures, hedge funds or information on using options to protect your portfolio or goose yields contact me through the tjm website www.tjmbrokerage.com

  

notes for Monday follow on twitter @jimiuorio

   Tomorrow begins the first full week of trading since the fed unveiled plans to inject 40 billion per month into the system perpetually. What the fed hopes to accomplish here, is to lower mortgage rates to spur a wave of refinancing and maybe kick people off the sidelines and into home purchases..The problem, is that there were approximately zero people who were waiting for lower rates in order to refinance their home, so im pretty sure that it will have no effect in that regard. The new program will ,however, have several interesting effects and ramifications in financial markets. The new fed program has already begun to hurt the u.s. dollar and make holding cash a very uncomfortable position..Savers are forced between choosing to stay on the sidelines and watch their buying power decline or jump into riskier assets to try and counterbalance the dollars drop. Where do reluctant risk takers go when pushed, against their will, into riskier assets??
     The first place i will look tomorrow is into some of the dividend paying names that fell out of favor over the last few months. SO, southern company is one i will look for an entry point into,as it has had a fairly steep decline over the last few weeks..I also may take a look at clorox (clx)the reasoning for clorox is that it has taken a hit and people gotta buy bleach.
    After reading the previous paragraph please dont make the assumption that i am becoming defensive, because i dont think i am..I have long positions in higher beta names like bac, hpq, f and hov.  Many different things can rally with the tailwind of unending fed money.
    Five years from now i think that we will agree that last week marked a change in the trajectory of home prices. After years of being out of favor its become apparent that people need to own hard assets in order to offset declining dollar values. Im beginning to think that homes will replace long term treasuries on the hierarchy of safe haven vehicles. I exclude, sadly , Illinois real estate as the state appears to be in for a self inflicted swan dive. man that's a tough sentence to write since i have a decent size position in Illinois real estate..oh well...We all new what was going to happen in the cpu teachers strike. they get whatever they asked for because they've learned a little secret,,,the people they are negotiating with are on the same side..odd system...tomorrow i will post some option strategies i am looking at so stay tuned and have a great night...
   

notes for thurdays trade..follow on twitter @jimiuorio

  Tomorrows big data point is the spanish bond auction. My thoughts are
that the auction will go off without a hitch thanks, largely, to the
sponsorship of the ecb. What this means, in the short run, is that the
euro probably rallies and u.s. equities rally in response. I expect
the s and p to retest those old highs of 1420ish but i will only get
long if it takes out  yesterdays highs. The euro rally has been
interesting and fairly costly to me over the recent days and i have
decided to lay off aggressive shorts until the futures settle below
130.00. Of course, I've had that same opinion for about a week but
that doesnt stop me from trying to front run the action each day and
ending up with a depleted college fund and a margin call. Tomorrow i
will try something new, discipline.
    The euro's rally deserves a good deal of pondering. The ecb has
decided to go to great lengths to accommodate and liquidate in order
to save the euro. Normally, this type of policy would soften a
currency from a dilution standpoint, but i guess when the alternative
is a crash and burn scenario, dilution is the preferred outcome.
Remember, that at some point printing tons of euro's will be euro
negative and it will pay to be short, but not today. There is also a
theory that part of the euro's recent bid is do to a repatriation
trade by european banks. In other words bank stress(particularly
french banks) have caused them sell their dollar based assets to bring
back money in the form of euro's in order to shore up reserves. Im not
sure i buy this theory but it deserves more research.
   The way to play the euro trade is to sell a ratio back spread
wherein you sell the 130.00 puts to buy a greater number of the 129
and 128 puts...The advantage of this is that its cheap, but in order
to profit you will need a major down move in the euro. Thats fine by
me because at some point i believe it will come.
   If you follow me on twitter you know that i established longs in
intuit(intu) and seagate(stx) early yesterday and they turned out to
be decent trades. I still like both those trades and may look to
add....oh i like the chart on southern company again and i may re-up a
long position in that.

is president too blame for high oil prices?

   Ace Greenberg was just quoted on cnbc saying that blaming the president for high oil prices is like blaming him for rain. That's not completely true and although he has played a minor role in oils spike its still undeniable. Most obvious on the list is fed policy.  I understand that the fed is supposed to be an autonomous organization but reality suggests they are not, and they most probably have bowed to pressure from federal government to keep rates low which, consequently, has played a major role in oils spike. The president also took a very soft approach on "Arab spring" and that, certainly, has increased the likelihood of headline risk from the middle east. Last on the list would be blocking the keystone pipeline. I also completely acknowledge that increased demand from china and u.s  coupled with Iranian hostility have played major roles in the spike in oil and I'm merely pointing out that the president has squandered whatever small opportunity he had to assist the situation..