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..

Chris christie interview

I was just watching an interview with New Jersey governor Chris christie conducted by Piers Morgan. Christie was asked a leading question about tax rates for billionaires and his answer evolved into a statement regarding Warren Buffet. "buffet should write a check to the government and shutup" was I believe how he phrased it. That is not the right answer regarding Buffets tax situation. It's really simple, every dollar that Buffet is allowed to keep is used to invest in companies with the goal of making them better and more competitive. So far, he has been extremely successful at this. On what planet would it benefit a society to take money away from the people who use it for the greater good and give it to a government that uses it in a comically inefficient way.Every time Buffet has complained about his paying too little taxes the only conclusion I can draw is that he has been so focused on creating wealth through brilliant business management that he never put much thought into the more macro picture regarding economics. Even Warren Buffet can be wrong. Oh, and forgot to mention that Buffet has committed most of his fortune to private charities on the occasion of his death. It's simple to make the argument that Buffet is taxed too much and his opinion on the subject has no greater weight than anyone else's.

notes for tuesday..follow on twitter@jimiuorio

      No longer is europe the only visible threat to the economic recovery. Now we have to worry about the wet blanket of higher oil prices to potentially slow growth. The rally in oil would be fine if its root cause was growing domestic demand. However, when the threat of supply shock takes center stage we must be very cautious. As we have spoken about in the past, im almost never short oil, at least not overnight and that's because of the obvious reason, alot can happen overnight and none of it good. If i was going to make a play in oil i would buy xom above 86 as it has recently broken out of a well defined trend triangle and could have room to run. The last thing to mention regarding oil is that we still have global central banks devaluing fiat currencies at the first sign of any trouble and that has to mean inflation at some point in time.
     Its been almost 2 months since utilities fell out of favor for no other sin than having done too well and i believe they have served their time. Tomorrow i believe  will start scaling into a long position in xlu. The fundamental argument for utilities is an attractive yield when compared to a sub 2% ten year and we buy utilities when we can think of nothing else to buy. Most of the other sectors have had sizable up moves over the last 2 months and have left them susceptible to a correction.
    As always, i like gld and will look to increase long exposure if gld trades above 168
    WARNING--the remainder of this blog post will be about politics
    According to a national poll, santorum has officially taken the top spot among republicans. Here is a message to republicans; the middle hates and is frightened by santorum and he has almost no chance of winning in the general election. It is sad when the gop cant figure this simple math out for themselves. Its a question of compromise, in this case with your own hard right ideals. Support for santorum is the same as support for obama and i guarantee that there are smiles all around the white house every time he gains steam. As a side note i kind of like santorum as president because of his conservative economic policy but that should not be part of the discussion. Electability is the key and they must be able to see past their selfish agendas. I know i didnt say anything that everybody doesn't already know, but it feels good to say it out loud...have a great night....jim

weekend outrage--be warned nothing to do with markets

     I need some help in dispute resolution. My brother and i had a half hour argument regarding the comments on contraception, made by some guy who is a major contributor to the santorum campaign. To my knowledge,this is what he said, and i paraphrase. "In my day contraception was an aspirin...women held it between their legs..." Before we continue i should make a quick confession . I ,like liberals, love to find things to be outraged and indignant about. I think its out of boredom, but it sure feels good to have a cause. Anyway, this creepy old guy, clearly over stepped normal boundaries by making an inappropriate joke about womens body parts. If we as a society want to ramp up punishments on stupid, unfunny jokes, i for one, will not oppose. That being said, its obvious that the guy was trying to say that an effective form of birth control is abstinence. Do the liberals disagree with that thesis? is abstinence ineffective or inappropriate for avoiding unwanted pregnancies. I did not major in biology, but it seems that i would agree with the general point of the creepy guy. At this point of the discussion my brother made the point that its outrageous for the republicans to place the blame of unwanted pregnancies solely on the women.  I couldn't agree more and i dont think thats what he was saying. You could easily make the point that he was saying that women are strong and have choices, one of these choices would be abstinence. At this point of the discussion i was still trying to figure out what i was supposed to be angry about. The last and most important part of the argument is that this is a person who is not, himself, running for any office so who cares what he says. I would have to think that many campaign contributors have radical viewpoints and that's what draws them into the political discussion. I think i should note here that i am not particularly religious and i have never voted for major offices based on any platform other than economic policy. If you have time i would like to know if you side with me in this discussion or my brother. You can indicate via twitter by saying "im with you" or "im with that sniveling little liberal puke paul"

greece follow @jimiuorio

   My partner just asked me, are we supposed to go home short the euro in case something breaks over the weekend? I think the short answer is yes ,i suppose we should,but its not quite the layup it once was. If you are wondering if greece is going to default all you have to do is look at the greek 1 yr and 2 yr and you should realize that the time for that speculation is pretty much over and all thats left is narrowing down the time frame. That being said the euro is slightly higher, equities are slightly higher which leads me to believe that the market is fully prepared and no longer sweats it. That seems crazy to me and i believe there should be a bit more concern regarding the unintended consequences of the default and for that reason i will remain short the euro. On a another note, my guess is that the ecb is not gonna give a penny more to greece. If they were going to, would they have really made an argument about 300 million in additional cuts? thats a rounding error of a rounding error. My gut tells me that time is being bought until the ecb can be satisfied that all the proper ring fences are put in place. That, of course, is different than actually having them in place....thoughts???

thoughts for wed follow on twitter@jimiuorio

   I  think its important to take a big step back in order to get perspective on the situation in europe. The ecb continues to go to extraordinary lengths to avoid a greek default. Greece is a tiny country with an tiny economy and based on that should be insignificant

in the global economy. The fact that it isnt insignificant, is strong evidence of the pervading weakness thats spread throughout the eurozone. So much weakness that the ecb doesnt think it could withstand a default from an economy smaller than at least 20 states in
the u.s. For these reasons i see no point to being anything but short the euro. I try to increase my shorts on big euro up days, but i suspect those days will become less prevalent going forward. That being said, i am not necessarily bearish u.s. equities but i have become very cautious and will scrutinize every down move to determine
if it is the much needed correction. I continue to increase long exposure to vxx. I usually do that by selling the etf and buying a disproportionately higher number of out of the money calls. I do this to try to combat the decay element of the etf thats due to the roll up
in the underlying futures contracts (if anyone wants a further explanation please ask).Natgas is beginning to look attractive and although i would rather cut off my thumbs than be long that pig ung i do think there are decent ways to play it in the exploration and
distribution space. I am long rgp(regency energy). Mcd bounced of a trend line and 50 day ma today and i find that encouraging so i will stay with longs there as well. For tomorrow,as i said before i am on high alert for the correction. If the sp futures stay above 1329 i
will stay reasonably confident and continue to look for good bets in individual names. But if that level gives i may get out of everything and get short.  have a great night jim

thoughts on greece

  The most alarming thing to me about the situation in europe is how the ecb,it seems, is willing to go to almost any extent to prevent a greek default. This is a tiny country who's economy is equally tiny so why does it matter so much?? The only conclusion i come to is that the ecb is absoluttely terrified of contagion risk and if the ecb is terryfied, perhaps we should be a little more terryfied as well. I still think the way to trade it is to use big up days in the euro to increase longer dated out of the money puts longs.
   The broder markets appear to be tiring as it has had a nice run. If the s+p futures trades below 1341 i will begin to get nervous and that will progress to a mild panic if the market trades below 1329. As it stands now i stay long but not adding. As iv said before i like mcd, particularly after it bounced off trend line support on friday and feels bouyant today...

volatility trade

  The vxx volatility etf appears to be a flawed instrument. The problem, as i see it, is that the etf has to constantly roll futures contracts to maintain the proper exposure to volatility, and in doing so is forced to sell cheaper, near term futures contracts to buy more expensive further out contracts. This phenomenon is consistent as long as the vix futures are in contango. Although,there is no way to avoid the resulting decay element of the etf i think there are ways to control losses and still have protection against a vol explosion. A typical trade that i would execute would be to sell 100 contracts of the vxx(currently about 27)/ buy 2 april 30 calls(for 2.60 each)/sell 1 april 23 put(collecting 1.33). Make no mistake about it, this trade is paying for insurance and is not designed to make money. the trade cost a total of $380, but if vol explodes you will end up being long 100 contracts. If the more likely scenario unfolds and we have a continued decline in vol due to the fed policies than the vxx declines and it becomes a scratch below 23.

wed trade notes

   The market is going through a temporary bout of insanity, wherein it believes that the latest round of greek bailout money has taken care of the problems. This will surprise no one, but, i do not agree. However, i do respect the markets decision and i believe that the euro has more room to run on the upside, my current target is around 136.00. That being said, i am not going long the euro, as a matter of fact, i am going to keep some small shorts on as it provides a little protection against my long equity positions. If i am correct and the euro continues higher, i plan on using big up moves as opportunities to put on long dated, out of the money, put packages that are cheap, but will explode in value in the event of a dramatic euro decline.
    I remain a bear of long end treasuries and i have been increasing my long position in tbt, incrementally, as the ten year takes out support levels. The next objective and  support level i have in ten year futures is around 130.00. The fundamental argument for higher rates is that there appears to be better uses for money than what bonds are offering plus i would not be surprised if we start to see some hints of inflation. The prices paid component of one of the ism release i found to be mildly troubling and, although, i am still not "all in" on my ten year shorts, i am comfortable with the position.
   Now on to gold. Whats not to like?? that concludes my take on gold.
   Tomorrow i will probably increase my long vol positions as it is just too cheap and ,although i remain an equity bull, the rally is getting a little long in the tooth. As i have said on twitter many times, i like mcd and yum as my 2 favorite current picks. As always, nothing above is a recommendation and is only meant for discussion purposes..have a great night...oh one more thing..on twitter yesterday someone called me an "asshat". It was a proud moment for me and i felt like i had arrived in some way...Any attention is good attention...
 

thoughts for fridays trade

   Calpers(california  public pension fund) returned just over 1% on their money in 2011. The problem with that is that they had built in an assumption of around 7.5% in their models. Im sure this is being viewed as an unmitigated disaster, and if it is repeated in 2012, heads will roll. Now repeat this same scenario another 1000 times across the country because , just about, every other pension fund is in a similar predicament.This is significant in that i expect money to start crawling further out on the risk spectrum in a desperate attempt to post returns. I suppose this is exactly what the geniuses at the fed want, to push people into riskier assets. So, from a long term perspective , i am still positive u.s. equities and other traditional risk assets. That being said, there is always potential for a correction when you've had the kind of run up that we have had.. I like being long the s+p for now, but if the futures trade below 1307-08(1311ish in the spx) tomorrow i will rethink my near term strategy. The bottom line is that i am enjoying the rally, and i'm on board, but evry day i'm getting more leery and may be quick to reverse if things start to falter. The vix at 18% provides an excellent opportunity to hedge equity risk with options, or to replace long exposures with calls or call packages.
          Both the charts in gld and slv look fine, and i plan to stay long. Tomorrow i may add to long positions in slv as that chart looks like it could have more momentum than gld(will look at a 35-37 call spread). When i pitch a trade i normally like to give a technical argument and then a fundamental, back up, argument. With gold and silver that seems painfully redundant as we are reminded everyday of a global disrespect for ones own currencies. The same argument that supports pm's doesn't translate perfectly to the oil market and todays selloff in crude seems to have other triggers. I wish i could put a finger on what those triggers are but, so far, i have nothing. Probably, the crude market is taking away some of the headline risk premium. As a rule, i dont like to be short crude because of the tendency of explosive moves to the upside so, even though the chart looks bad, i will sit it out. Yesterday i added to longs in msft and i still think that is my favorite play right now as it represents a small step out the risk spectrum and i think that level will  be of particular interest. I also am long yum brands even though i know my italian grandma would roll over in her grave if she knew i had stock in something called pizza hut. Its painful but its just business grandma.
       The last thing i want to discuss are a couple of recent failures; SO was a bad call and it seems like there are some longs that still need to be shaken out,but soon it will flash buy again..And, i have been wrong again on those damn bonds and i am close to a stop out level  if the long end rallies tomorrow.. This will be particularly painful because i already owe a beer to jeff kilburg who bet me that i'd be wrong if i shorted the long end..hav a great night...jim
         
                                                                                                                                                           

notes for tomorrow

The longer the vix stays below 20 the more prone we become to a sharp correction. For this reason i am becoming more cautious and adding to my long position in vol. That being said, there remains nothing on the
technical side that makes me think that the rally is done yet, and there are a couple of things i may look at buying tomorrow. If msft trades 29.75 i will look at increasing my long position. I like msft for a few reasons and not least among them is the association with facebook. Of course i had to say facebook somewhere in these notes...however,both my teenage daughters have told me that the tide is turning from facebook to twitter and although this is pretty anecdotal, iv traded on that before and made some money..But, for now anyway, all things facebook could do pretty well.....The market believes a name like msft represents safety and this becomes more important with the weak numbers that were released today.  BMY seems like it has to fill a gap down in the low 31's but i will probably look to buy it there or sell some puts..If SO shows strength tomorrow i will look at putting on some longs there as well. Yesterday i released a note talking about the dangers of the feds new "transparency" policy but i'm convinced the message needs repeating with more emphasis on how detrimental the policy may turn out to be. The fed has made known that its intention is to keep rates on hold till 2015. The market has interpreted this message to mean that rates WILL be on hold until 2015. It is a huge and illogical jump to think
that anyone has the ability to predict,with accuracy how the economy will do in 3 months let alone 3 years. If we list who the best predictors of  future economic condition are, the fed would not make the list.So all thats happened is fed has forced the market to one side of the boat opening the door to a much larger correction at the first sign of a fed misjudgement... Potential for "fed misjudgement" is the main reason i still like gold and silver. Both of those charts still look constructive but you could make the argument that the gold rally is a bit steep...have a great night...jim  ps trades are not a recommendation they are just what i am thinking about for discussion purposes

keith vs doug on the dollar

The question as to wether the equity market prefers a strong dollar or a weak dollar cant be answered with charts and historical correlations. The answer to the question lies in the stages of the economic cycle that we are currently in. Three years ago the market expected a strong fed response to the recession. The weak dollar that resulted from an easy fed was welcomed, not solely as a boon to exports, but also as a prop to any asset denominated in dollars. After three years of  an inversely correlated stock/dollar relationship, the market now needs to see some results. At this point in the cycle, the u.s. must  graduate to a preferred destination point for global investors or else the market may lose confidence. So both keith and doug can be partially correct dependant on where we are in the economic cycle. My interpretation is closer to keiths and i think a strong dollar would reflect strength in the u.s. economy and should be welcomed by the market with 1 caveat. If the only reason for dollar strength is a deteriorating euro then it may not be interpreted as a good thing...the dollar must also do well vs other currencies at the same time..

quick thought on fed

the new fed policy of increased transparency is irrelevant or perhaps
worse. By proclaiming that rates are on hold for 3 years they end up
creating a sense of complacency within the market. As we have seen in
the past, when too much complacency permeates the market it usually
ends abruptly and dramatically. The mistake the market makes, is that
it takes the fed at their word and doesnt factor in  the feds
inability to accurately predict market shifts.This is not an
indictment of the fed as market shifts have proven impossible,for
anyone, to consistently predict with precision

notes for tuesdays trade

The euro had an outside day higher and finished fairly strong so i'm even more convinced than yesterday that the correction is not over. I am starting to reconsider my plan to sell at 131(ech2 futures) as 132 is starting to look more reasonable. Two things in equities looked interesting to me today. pot(potash) looked like it had put in an inverse head-and shoulders and was getting ready to break out of a consolidation pattern to the upside. They report on thursday. I bought the march 50 calls(i meant to buy feb but i messed it up, but ill live with it). I think the better play would have been to buy the shares when it actually broke out(above 46.20ish) up until Wednesday and then if it hadn't broke out by then , buy the calls , for the earnings play.Tomorrow i will be watching one of my favorites so(southern company)as that pattern looks like it could have some upside. I will probably stop in above 45.55 with an objective around 48.The fundamental argument for utilities has never changed and that 4.5% yield looks pretty sweet compared to a 2.07 ten yr..Crude had a strong reversal today(in candlestick whats the opposite of a "dark cloud cover"? cause thats what crude had) and it looks poised for more upside. I had covered most of my rig and moved whats was left into the longer term portfolio...on to politics.and btw if someone is not interested in my view on politics please stop reading here, my feelings wont be hurt. As i see it my strengths are markets, politics ,dog training personel hygene and how to score with chicks, but you may challenge..As i said yesterday(and doug kass said today, but whos time stamping?) newts momentum could be a fairly serious headwind to equity markets. If mitt gets the nomination the election will be about obama's weaknesses but if newt gets the nomination it'll all be about newt. I'd bet money that every time newt climbs a percentage point in the poll, white house staffers either high five or chest bump cause it becomes way more likely that they keep their gig for another 4 years. I completely understand that mitt, when it comes to conservatism, is kind of  beige but he is our only shot at any conservatism(ps is conservatism a word? i was never strong in english). austin goolsby(who i like and respect...most the time) made a comment on twitter today intimating that mitt has a history of flip flopping on issues. The democrats have been saying that for years and it is completely infuriating. There is nothing even remotely ironic about favoring a health care plan for Massachusetts and opposing a similar plan for the entire country. The demographics are vastly different the economics of the situation are vastly different the scope and scale is not even in the same ball park. You can even make the argument  from a philosophical standpoint and say that the federal government is the one that needs to be reigned in and some responsibilities are handled far better at the state level, but there is no real need for that argument as the debate is easy to win without it.....ps nothing in this post is a recommendation to buy or sell anything just sharing my personal thoughts on my personal trades...have a great night and feel free to criticize anything in the note...

Football night

Its going to be a quick blogpost tonight because of football. I can't decide who I'm rooting for but I'm thinking the giants. I base that solely on remembering Jim harbough,fairy prancing across the lions field ,lifting his shirt up ,to go push that Schwartz guy...Anyway.. Equity markets are lower tonight and I think it's mostly on the back on euro weakness due to he lack of resolution in Greece. A secondary reason is the Gingrich victory in SC. The market is a little smarter than the the south Carolina conservatives ,and it realizes that ,although newt is the better conservative candidate, he doesn't have as good a shot in the general.If Gingrich is the GOP candidate, the odds of 4 more years of regulation and oppressive corporate tax rates becomes much greater. I do ,however ,still believe that the euro has more room to correct to the upside despite tonight's weakness. I'm planning on resetting euro shorts at around 131. The s+p is still in an uptrend, and although that pattern is looking precarious, it hasn't broken any levels that would cause me to liquidate some longs.I will be watching closely tomorrow for a tech sell signal and will keep posted through twitter. The bond market still bothers me as I understand it's value as a safe haven but I also know that I wouldn't invest my ten year money to get a 2% yield. I think yields should back up to 2.4% over the next 2 weeks.I suppose for the 3 previously stated things to happen, we have to get some good news out of Europe..I guess that's what I'm hopeing for and expecting. Have a great night and enjoy the games...jim

more thoughts on the euro

Under normal circumstances i would be very leery of the,heavily advertised, trendline resistance level in euro at 128.70ish(in ech2 euro futures).Normally i would think the situation ripe for the "algo headfake" where the algos push it through the level, flush stops, tempt new longs, and then ram it down throat in the other direction..The reason i dont think that will happen this time is because of the crowded nature of the short euro trade...A violation of the 128.70 level(i would be more comfortable with a settle above 128.84) could set off a feverish"risk on" run that pushes equities higher and bond prices lower..The counter argument to that is losses in euro will force margin calls and actually be a "risk off" signal...Although i think that is an interesting point i think the perception of "risk on" will win...i do want to hear some counter points on this...

Waves and sand and insurance salesman

On my cell phone,I have have an ignore button that you slide across the screen when you don't want to answer a call.I would have never guessed how satisfying that simple act could be when I was buying the phone. At first, I did the ignore slide only for family members who don't know how to have a short conversation ,or worse, needed to borrow money, but very soon it expanded to all numbers that I didn't recognize.After my wife noticed the habit she asked me why I did it and, I thought about it, and said "because there are insurance salesman out there". If anyone reading this is fortunate enough to not be familiar with the strategy of the insurance salesman or "financial advisor" as they prefer, they are tenacious and amazingly persistent. If you say yes to coffee, and they assure you it's "just a quick cup of coffee" you have exposed yourself to a force that is as relentless as waves pounding rocks into sand and as unshakable as herpes. Over the years of their existence the insurance salesman has realised that if you stick with it and call and ask and beg and plead, that over time the chances that the mark will acquiesce and buy something greatly increase. Frankly, I'm surprised that this works because my inclination leans more towards violent outbursts but you cant argue with results. The fed is employing a similar strategy. The fed strategy has been to eliminate any reasonable low risk interest rates by collapsing rates along the entire treasury curve making it tantamount to stuffing cash in a mattress. Corporate and municiple rates have followed suit because they will only pay what they have to ,compared to the "safety" of treasuries..So the game is simple ,the fed throws money into he system and then directs it towards risky assets by making less risky assets unattractive. Up until this point it has been successful only by a broad definition of "successful" and money has not gone out to the far reaches of the risk spectrum and invested in real estate or banks. But the fed knows what the " financial advisor " knows and if you wear them down ,over time ,they will get frustrated and they will jump. As 2012 has begun we have seen a change that I think will continue and that home builders and real estate should finally begin to do well..I also believe that "dinosaur tech" should do well and I am long msft and Cisco in response. The headwind, as always , is Europe and that problem does not appear to be going away so I will stay with my short position in the euro and also increase my longs in equity options volatility.. Tomorrow will be an interesting day for the euro as it had an outside day down on Friday and at the low of a move that is a bad sign. But,as many have pointed out, the euro trade is very crowded and could have a sharp correction to shake out the weak hands but that will just be an opportunity to sell it...

thoughts on this a.m. squawk spot

There are a couple additional points i wanted to make this morning but we ran out of time..Steve accused rick of rooting against the economy to insure conservatives success at the nov elections..I dont think there is anything wrong with understanding that the small amount of economic improvement that we are experiencing now could come at the expense of much greater improvement down the road..None of the structural problems that are keeping gdp subdued have changed, yet there is less inclination for the people to vote for change if things seem  "ok"..The 2 biggest impediments for a acceptable recovery are 1) a policy change that would allow people who are underwater on their mortgage the ability to refinance at the current interest rates and 2)(this one is more important) a vastly changed corporate tax policy that provides incentive for companies to create domestic jobs...The latter is slightly different than the obama plan which is to ASK companies to create jobs by appealing to their patriotism...Is there a bad time for an economic recovery?? Will we have 4 more years of the democrats "everything for everyone" mantra??feedback welcome

the algo headfake

A concept we have discussed on this blog before is how technical analysis has changed with the flood of hfts and algo's into the market...I had one friend describe it to me this way;"its almost like the algo's digest the technical traders handbook and then intentionally push the market through important levels, only to whip it back the other way and rip your face off"..I want to keep my face where it is so as the market moved higher today(above well advertised resistance levels) i invested in some cheap options vol as protection..That being said i do think the market is poised for a leg higher for a couple of reasons..Number one on the list is that the euro appears due for an oversold bounce and ,as yet, we have not had it.. I mean, sure we had a little euro strength, but it was nothing interesting(the euro is currently down at the time of writing)...This mornings strength,in equities, can be credited to china and we know this because there was disproportionate moves higher in the aussie dollar and most of the commodity complex..Every where i turned today i heard people talking about the "buy america" trade, which i mostly agree with based on the tallest midget method of reasoning and i would be long some of the america names..However, there were some other things i liked as well for technical reasons, and the emerging market etf(eem) was high on the list...A ton of buzz today surrounding rig  and the argument goes like this..The technicals look good, oil is flying, and it has been the outcast of the oil sector for a long time...On the other side of the coin, there is rumors of an impending dividend cut and there are clearly some internal problems within the organization...On balance i tend to side with the technicals and the price action because i work under the assumption that there are alot of smart people out there trading the stock, and their consensus is where the share price goes...The other night we talked about gold and since then its been on a rocket...I see no reason for that not to continue....lastly i will take the illini and the 9 points as they have the only post man in the league who can play d on sullinger...that last sentence is of no consequence to most of you guys but the game starts in 20 minutes and i gotta go claim the good tv from my daughters..."he's like soooo mean...i know right??",,,have a great night jim

market for monday and my shrinking dad

20 years ago my dad and i stood roughly the same height. As 65 turned into 85 i became a solid 3 inches taller than him. As iuorio's arent that tall to begin with you should understand that 3 inches is a big percentage...Anyway, it would be stupid, of course, if my friends and family talked about how much taller i've become, as my dad obviously shrunk a bit....stick with me, i promise there is a point here....Its the same flawed rational that has lead people to talk about the fantastic gains in the u.s. dollar...There have been almost no gains in the u.s. dollar relative to anything else beside the euro(and maybe a little bit of the sterling).. If you need any proof of this look at charts(priced in dollars) of corn, wheat, canadian dollar , yen, aussie...etc...ps..some day i will be computer savy enough to include those charts in the blog but sadly today in not that day...All that being said, im currently not positive what that information means to the way we trade, but i have this nagging feeling that its going to be important soon...It probably is an endorsement of gold, however...I covered some of my euro shorts on friday because i thought it was do for a bounce, so far no bounce..There is a distinct and well defined trendline that the euro will be coming in contact with tomorrow and i still believe it will hold, but i'm becoming less certain.. We should revisit that topic tomorrow.....I tweeted on friday that it was becoming less attractive to be short volatility and i was gonna cover some..I think the lesson here is that when the vix gets to around 20ish the "reward " portion of the risk reward equation becomes less worth it...Now i will probably establish some cheap call packages that kick in if vol explodes....Last week i thought treasury yields were going to move higher and so far iv been mostly wrong..For this reason i think that some of the trades that people turned their backs on, over the last 2 weeks have become more attractive as money seeks yield...I will look at utilities and maybe some tobacco...Anyone who has been reading my stuff for awhile knows about the red-neck 20 stock index which is a work in progress but includes my favorite market joke mo+mcd=bmy..i know that when you have to explain a joke that means its a bad joke so i will just hope you get it(it involves plavix...at least i think thats the name of the heart med)...i am looking for additional stocks that will do well over the long run as america continues to its path toward red neck and i need your help...obvious names like coke, smith and wesson , corn products international(make hfcs) jump to mind, but together i think we can refine the index...have a great night and remember god wants the broncos to win...jim

markets and politics

the interesting thing about todays trade is the further evidence of  decoupling of u.s. equity markets and europe...the euro got hammered today and equity markets scratched out a small gain...my objective in the euro is  around 127.40ish...the decoupling has to be good news for stocks, as we can concentrate on the domestic recovery and pay less attention to euro-headlines...gold continues to do well ,and this is understandable, as the fundamental argument for strength has never changed...all roads seem to lead to a weaker euro(and probably a weaker dollar as
well)..there was a huge call buyer today in iag(iamgold) which supports the general theme.....the next thing that needs to happen is to convince ourselves that tying up 10 year money at 1.99 in treasuries is a poor use of our cash...the exit from bonds should,however, be a bit more orderly than some other shakeouts, due to the composition of ownership(fed owns tons of bonds)....best positions should be ; long stocks, long gold, short bonds ,short euro..although i welcome the positive direction of the u.s. economy there is an obvious down side..if we can sustain the small amount of strength for the next 10 months it probably condemns us to sluggish growth for the next four years with stifling over regulation and unclear corporate tax structure. i seriously hope i'm wrong there and i admittedly dont know a tremendous amount about rick santorum as i never really gave him a chance prior to today.hopefully he's our guy....have a great day...jim

Market notes for wed

The "safe havens" of utilities and low end dividend payers got hit today while the assets that have been considered riskier,rocketed higher...banks, commodities,commodity currencies all had convincing breakouts which leaves me no choice but to be bullish. The one "safe haven" that has remained untouched as been u.s. treasuries.. I suppose part of this reaction is understandable ,as one of the biggest holders of bonds is the fed and they're not going to sweat much and scramble for the exit...that being said I do think there is plenty of other bond holders that will rethink current yields as stocks begin to move higher...I'm looking at buying a call spread in the tbt tomorrow...I also like being short the vxx against a long call position...I've had this position on for a few weeks and it has been working well...as today's euphoria fades away I think that health care should be among the best performers because yield is still important ....now a question...is there anyone that believes that part of the stock markets recent strength has anything to do with a perception the the GOP has started to appear like they want an electable candidate as opposed to one who's as far right as they can get?. Cause I do think that this is at least mildly significant...have a great night....Jim