Wow, let's get this week over with!
What a pain in the neck these consolidations are. Flatlining into the G7 makes sense as we've had no notable economic data this week but soft labor costs have indicated our Fed will have no reason to raise rates, putting a cap on the dollar even as the Yen tumbles.
Next week, in addition to options expiration, we also have Bernanke's semi-annual testimony on the economy and monetary policy along with trade numbers, retail sales, net foreign purchase numbers for January, industrial production numbers, the dreaded Philly Fed and producer prices – no wonder no one is moving this week!
Sometimes a picture is worth a thousand words! I don't think there is anything to add here except that 9/11 had nothing to do with that sharp, early 2001 turn. New York never even got all of the $20Bn that was promised to them!
The Nikkei jumped up 211 points today as machinery orders weren't worse than expected – that's all it takes over there folks! Asia was generally up as commodities took a bounce.
Europe is up across the board with a rebound in commodity stocks leading the way there too. EMI looks like they will be the first record company to take Steve Jobs' challenge and release their music through retailers in an unprotected format.
I've got to say that, as an adult, I certainly will be more likely to buy music if I can easily throw it on my computer, my IPod, my car, my kids' stereo etc.. but, as a college student, I'm pretty sure I would have had a terrabyte of free music… Of course, we all had tapes that we shared (back in the day) and that's what turned us into future consumers.
Speaking of Steve Jobs – now it's time for the Pixar options scandal centering on grants given to director John Lasseter, who was given grants dated 3 months before he came to work! While there is no clear finger to point at Jobs, Apple bashers could care less and you will hear about this for a week at least!
Housing: AutoDogmatic has come up with a bunch of interesting leads to follow up on in the form of an "Implode-O-Meter" to “Track the housing finance breakdown: a saga of corruption, stupidity, and government complicity." I think this is certainly worth discussing over the weekend!
Let's just hope we don't go down today but let's not even get excited unless we retake key levels:
- Dow 12,650 needs to hold.
- Transports need to get back over 2,875.
- S&P just needs to get back over 1,450.
- NYSE must retake 9,350 to keep it's much-needed leadership role!
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Nasdaq was our hero yesterday, 2,500 is just 12 points away.
- SOX holding 470 would be thrilling – more clapping!
- RUT 810 should hold – a breakout over 820 here and we can start placing some bets…
Is that really too much to ask?
Zman had PLENTY to say about oil last night so I won't waste your time with my rantings – go read his column, I'll wait…
… Oh, back already? OK, so Z and I both think the "rally" is BS but this being Friday we aren't going to mess around. Once the manipulators get this thing going there's just no stopping them, at least we've learned that much since October. Let's keep an eye on the thrice-failed-this-week $60 mark as well as my proper resistance point of $58.50.
I'm spending the morning looking for some good oil covers but I just can't find one I actually like so I guess I'll find have to just go for one that is ripe to pop, whether merited or not…
Still watching gold $660 and thinking of getting back into some mining stocks if it goes any higher and we may have to wait until next week to see if we can get that Euro back to $1.28 but once we see the shadow of $1.31 I think we may have 6 more weeks of winter for the dollar.
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Over at "The Big Picture" Barry Ritholtz found a really useful chart for looking at how screwed the builders are in different parts of the country – the chart represents a geographic distribution of housing price risk:
Red is bad, blue is good and Barry points out TOL is a real red-state player. Home price appreciation charts show the northeast and midwest in a race to gain zero this year and I'm pretty comfortable with our builder plays, despite how resilient they've proved themselves to be.
With 32% of new mortgages written as interest-only loans, a lot of people who "qualified" to borrow under the old (6 months ago) lending requirements (which assumed housing appreciation) may find they are not qualified to lock in their mortgages if rates start creeping up. In 2005 43% of first-time homebuyers put no money down on their homes, that means that walking away from a value losing home is not that different to them than leaving an apartment is for a renter.
With $3T worth of ARM mortgages shifting from 1-2% to 6.5% this year, it is easy to imagine that any twinge of unemployment will be leaving lenders with a lot of empty homes to sell. The lenders will then find themselves in competition to sell homes against the builders who want to borrow money to build more homes and you can imagine that the risk profile on those construction loans will shoot up.
I was expecting we would avoid this problem by growing out of it but $65 oil will ruin that plan as OPEC continues to sow the seeds of their own destruction as an economic slowdown can cause a housing collapse that leads to a bank crisis that cripples the US economy, knocking a quick $1T off the GDP (7%), which puts us over $200Bn more in debt ($500B), which forces us to borrow more money, raising rates, throwing more people out of home, causing more layoffs which leads to more defaults…
You slow this economy down 10% and that's 2Mbd backing up in tankers, not to mention another 3Mbd that would not be consumed globally, even if the rest of the world only had half of our recession.
Sorry, it's not pretty but I think it's a good idea that we take a cautious posture here as it's a long way down if we don't break orbit soon!
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Life is good over at MA, they beat very low profit estimates by 100% (.30) on a $17.2% increase in revenues. There is NO indication of a consumer slowdown here with a 17.4% increase in quarterly transactions, to 4.4Bn for a total of $391Bn in charges. 12.3% more cards were issued last year, giving them 817M cardholders (I would have guessed much higher).
Kudos to HappyTrading for spotting that low estimate in yesterday's comments, I'm going to get smoked on my puts but hopefully this will finally wake up my pair trade on AXP, where my Apr $60s have just been gathering dust since my 2/5 entry.
Our SHLDs should be up huge on a big Cramer pump last night, congrats to Julia and others who took this bumpy ride with us!
We got out of HAS way too early as they had really good earnings too and the Feb $27.50s (1/10) will likely put our 39% exit profits to shame. I try not to have regrets but with that kind of gain we could have left half to ride but our rules stopped us out on a 1/23 after a scary dip made us nervous.
YUM has earnings on Monday and estimates have barely budged since their food problems but they're up 20% from 2005, which was up 20% from 2004, which was up 20% from 2004, but earnings are only up 50% from 2003, when the stock was at $30. I like the Apr $60 put for $1.75 or less and hoping to grab $1.50+ later for selling the March $60 puts but absolutely selling for no less than $1.10.
Of course the Fortress (hedge fund) IPO is a big deal today so we'll keep an eye on that but it seems VERY overpriced to me. If you ever wished you could invest in a hedge fund, this is your big chance but, much as I don't like them, GS is probably a better play as a de facto hedge fund.
GFI is getting no respect even though they are on track to double last year's profits (they are in Q3). They missed high expectations last quarter but for $17 they can miss whatever they want with a forward p/e creeping down to 16. The big sell-off was really caused by a massive, 79M (15%) dillution on 1/31 that raised $1.2Bn which helped pay for a major new mining operation. The Jan $17.50s are pricey at $2.50 but I'm willing to take a chance with an eye towards selling the Mar $20s as they go over .50. This trade is pending gold holding $660 of course!
I am telling you I have been racking my brains to find an oil play I can get behind, it takes everything I have not to short every move up they make… CFK is a nice little niche company, supplying pipes and valves and such to Canadian drillers. Stuff that wears out is always a good business and these guys are growing nicely but fell way out of favor last year. The CFO just quit so there could be a scandal but I'll take this for $9.54 with a stop at $8.90.
I don't think you can spin TOL's bounce off the 50 dma at $32.25 as anything more than just that. They gapped down 5% and bounced back about half of it, that' s no reason to shy away from the March $32.50 puts for $1.05 but, like oil, you've got to leave room to DD AND roll!
HOV is another big Northeast builder who may have some trouble. The $35 puts are .85, a .60 premium but I'm going to go for the March $30 puts for .30 – it's a gamble and you MUST take half off with a double as a free ride is the only way you want these. My deeper plan it to take the current $35 puts for .50 or less if the stock ticks up and then buy the March $30 puts and take the $35 puts off the table as soon as they make .20 or more so I'm in the March puts for a dime but there's no way I will be able to run through that in comments!
I still believe in my CTX Mar $50 puts for $1.15.
I dare PHM not to move $2 one way or the other for a month! The Mar $35s are .55 and the Mar $30 puts are .35 but I would buy a few more puts than calls.
KBH is also in the range between the Mar $50 puts for $1 and the Mar $55 puts for $1.45 but I'd rather buy the calls for $1.75 and DD on my puts than buy the calls first.
LEN is one of the highest p/e builders and is a while away from announcing the 66% drop in earnings for this quarter, which ends in Feb. May $50 puts for $1.70 will very likely lead to a nice sale of March puts but I want to see it test $52 first. This one I'm very willing to DD if it heads back to test $56.
