Phil's Stock World Newsletter - Week of July 17, 2011


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Phil's Stock World Newsletter - Week of July 17, 2011

  1. 1. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 Dow Jones 12,480 (-1.4%) S&P 500 1,316 (-2.1%) NASDAQ 2,790 (-2.4%) NYSE 8,227 (-2.2%) Russell 2000 829 (-2.8%) Oil 97.37 (+1.0%) Gold 1,594 (+3.2%) THIS WEEK’S Our bearish outlook heading into this week proved accurate as U.S. equities traded sharply lower. We caught a glimpse of “No Mo POMO” NEWSLETTER: in action. Not surprisingly, without POMO money from the Federal Reserve propping up stocks, the market behaved poorly. As Lee Adler MANDARIN MONDAY of the Wall Street Examiner  warned last week, “Normally, even with MELTDOWN - AGAIN! QE [quantitative easing], we’d expect some pressure to show up Stocks plummet as Dollar soars either in the stock or bond markets around such a large settlement. It should be a lot more ‘interesting’ without QE. This will be the first TREASURY TUESDAY - real test of the market without it since last August.” (Stock World WHAT A COINCIDENCE - Weekly, July 10, p.11) CAPITAL FORCED INTO TBILLS Europe is facing its own challenges. The European Debt Crisis of FOMC Minutes hint at QE3 the Twenty-first Century, “The Black Debt,” continued spreading across Europe like the plague. (Originating in China, the Black Death WHICH WAY swept through Europe from 1348 to 1350, killing 30% to 60% of the WEDNESDAY - population.) Our modern era’s fiscal contagion may be less lethal, but WHEREFORE ART THOU it still threatens to tear apart the economic fabric of the Eurozone by QE3? unraveling a complex arrangement of debt owed between member Dollar drops as Bernanke warms up to more easing nations and eroding confidence in the continued viability of the Euro as a currency. The magnitude of the collateral damage to other JOBLESS THURSDAY - countries is not known, but given the black box nature of the BERNANKE GETS 2ND derivatives market, it is likely substantial. (See e.g. Derivatives Cloud CHANCE TO GIVE US the Possible Fallout From a Greek Default) HOPE Mood changes as Fed tries to Uncertainty surrounding Greece’s second aid package and the role say it didn’t really mean more of private creditors in future funding, prompted Fitch ratings service easing to cut Greece’s credit rating down three notches, to CCC. Fitch contends that default is “a real possibility.” Greek 10-year yields FINANCIAL FRIDAY - EU increased to 17.10%. As fear of contagion spread, Ireland’s 10-year STRESS TESTS AND US yields rose to record highs of 14.13%, and Italian and Spanish 10-year DEBT MESS U.S. Debt ceiling talks yields climbed to 5.63% and 5.86% respectively. (Italian, Spanish continue without resolution as Government Bonds Fall After Italy Auction, Austerity Vote.) deadline looms On Thursday, hoping to prevent the third largest economy in the THE WEEK AHEAD Eurozone from succumbing to the debt pandemic, the Italian Senate approved a $68Bn package of tax hikes and spending reductions. Finance Minister Giulio Tremonti compared Europe’s problems to the Titanic, warning “not even first class passengers will be saved.” (ItalyP h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 1
  2. 2. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 slashing budget to fend off debt crisis) Compared to Greece’s €329Bn debt (143% of its GDP), the s h e e r s i z e o f I t a l y ’s €1.84Tn debt (119% of it’s GDP) is ominous. (See chart to right.) The U.S. has not been spared the Black Debt. The August 2 deadline for raising the debt ceiling, before unfunded obligations come due, is looming. Republicans and Democrats are battling over tax hikes and spending cuts. While Democrats are demanding a “balanced approach” of both spending cuts and tax increases, Republicans are U.S. bond rating “on review for possible refusing to consider tax hikes. Tensions have been downgrade.” Standard & Poor’s warned of a 50% escalating. Senate Majority Leader Harry Reid (D) chance that it would also downgrade U.S. debt. declared House Majority Leader Eric Cantor (R) On Friday, S&P declared it might downgrade a was “childish” and “shouldn’t even be at the large part of the U.S. financial sector, including table.” Senator Chuck Schumer (D) complained “if the Depository Trust Company, multiple Federal Eric Cantor decides everything, I fear we’ll be in Home Loan Banks, Farm Credit System Banks, and default.” Republicans countered with accusations Fannie Mae and Freddie Mac. Peter Niculescu, a that President Obama is “demagoguing” the debt partner at Capital Markets Risk Advisors, surmised, talks. (Debt ceiling talks grow more tense) Salon “S&P is firing a warning shot, saying the entire reported that House Majority Leader Eric Cantor financial clearing system is in question.” (S&P has a glaring conflict of interest. “Hes the GOPs threatens downgrade of U.S. financial companies) chief debt ceiling negotiator. Hes also invested in a fund that will skyrocket if theres a default.” As legislators wrangled over plans for the budget deficit, Ben Bernanke testified at the Economist Michael Hudson argues that there is semiannual Monetary Policy Report to Congress. no real need to raise the debt ceiling. Rather than During Wednesday’s appearance before the House slashing social security, medicare and other social of Representatives Financial Services Committee, support programs, we could cut military spending, Bernanke declared, “The possibility remains that end Wall Street bailouts, claw back outrageous the recent economic weakness may prove more profits and bonuses, and raise taxes on the top persistent than expected and that deflationary 0.1% ultra-wealthy elites. (Deficit Deal Deception) risks might reemerge, implying a need for additional policy support.” He claimed the Fed Moody’s and Standard & Poor’s issued warnings “remains prepared to respond should economic on U.S. debt as a result of the impasse over the developments indicate that an adjustment of debt ceiling. On Wednesday, Moody’s placed theP h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 2
  3. 3. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 monetary policy would be appropriate.” (Bernanke’s Prepared Testimony for From SWW, March 20, 2011 Congress) “ FLASHBACK Hints about another round of QE sent a jolt of “I was interviewed by BNN Tuesday hopium into the veins of the stock market, while and they were "shocked" that we the Dollar quickly fell in reaction to the threat of were buying on Tuesday – especially that we more money printing. Unfortunately for stocks, were buying HIT ($47 entry), GE ($19.20 entry) the rally was short-lived. Bernanke delivered an and SHAW ($31.50 entry on Monday)... So many antidotium on Thursday, quickly distancing himself ways to win on this trade – why not?” - Phil, from his statement on Wednesday. He reiterated (SWW, March 20, 2011, p. 7) his previous position that further easing is off the table, for now, barring a major downturn in the As of July 17, HIT is $61.98 (up 32%), GE is economy. (Bernanke Tries To Walk Back Market’s $18.41 (down 4%), and SHAW is $26 (down Expectation For QE3 On Day 2 Of Testimony, Stocks 17.5%). SHAW was up well over 20% ($39.91) in Give Up Gains). May. Once a stock moves up over 20%, we set very tight stops, trying not to give up more than Thus, the stock market, now a mutant 20% of our profits. In SHAWs case, the move in offspring of the Federal Reserve and federal April to $39.43 was up $7.93 from the original government, got whipped around by Dr. entry. We’d set a stop at 20% of that gain, or Bernankenstein this week. But mission $1.59 lower. So a pullback to $37.84 would accomplished. As Lee Adler writes, “The Fed and trigger a stop, resulting in a 20% gain! This is an Treasury have, with the help of the Europanic, example of why, quite often, it makes sense to succeeded at Job One, keeping yields down during take a 20% gain off the table or at least have a big long term auction weeks, mostly at the mental stop loss. expense of the stock market.” We have reviewed several trade ideas from earlier issues of Stock World Weekly in the box above and on the next page. I n D e c e m b e r, w e h a d anticipated that stocks and commodities would do well as a result of QE2. On December 12, 2010, we presented two trade ideas based on going long DBC (DB Commodity Index ETF) and FAS (Direxion Financial Bull 3X Shares). Details of the original trade ideas and how they worked out are in the inset box on the next page. We also have details on Pharmboy’s trade idea on MNTA from SWW March 13, 2011, below.P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 3
  4. 4. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 From SWW, December 12, 2010 In Stock World Weekly, March 13, 2011 (p. 11), we presented a trade idea from our “ FLASHBACK resident biotech trader Pharmboy. Pharmoby described a bull call spread on Momenta “Last Friday (December 3), we had Pharma (MNTA), combined with the sale of a two high-reward trade ideas featured put: “The Jan 2012 $10/15 bull call spread is in the main post. The first one was the FAS April approximately $2.40 (buying the $10 call and selling the $15 call) and 100% in the money. $20/25 bull call spread at $2.70 (now $3.20), Also selling the $12.5 put for $2.10 or better selling the April $21 puts for $2.55 (now $1.75) makes a total cost of $0.30 for the position.” and that net $0.15 spread is already net $1.45 - MNTA was trading at $14.17 at the time. a pretty good gain (833%) for a week.  Our other upside hedge was DBC and again I liked April for Results? MNTA is now at $19.51. Our net a simple play to just buy the $27 calls for $1 cost was $0.30 (price of the bull call spread minus proceeds from selling the (now $1.10) as well as the more complex spread put). As of the close of markets on Friday of the short 2012 $22 puts at $1.10 (now $1) to those positions were worth $2.50, a gain offset the cost of the 2012 $26/30 bull call of 830%. (The put can be bought back for spread at $1.40 (now $1.50).  That one is still $1.20. The call sold can be bought back for playable if you need an inflation hedge and the $6.70, and the call bought can be sold for LACK of commodity performance during this $10.40.) week-long stock mania is what still gives me pause. Keep in mind that I do think this is all BS, but now we have support lines to play off and, as you know, losing 3 of 5 is a signal to flip bearish again for sure!” - Phil Phil followed up on that trade idea this week: “The FAS trade was, of course, a home run with FAS finishing at $29.28 on April 15, which gave us $4 on the $20/25 bull call spread. The short puts expired worthless for a 2,566% gain off the net $0.15 investment. DBC hit $31.17 on April 15 so the $27 calls finished at $4.17, up 317% but its the 2012 $26/30 bull call spread, now $3 and the short 2012 $22 puts, now $0.20, can be taken off the table for net $2.80 for a net of $6.97 back in our pockets off the original net $0.70 investment (up 895%). As inflation (so far) this year has been much less than 895%, let alone 2,566%, we would have to call both of those trades successful inflation hedges and congratulations to Stock World Weekly readers who played along!” P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 4
  5. 5. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 Mandarin Monday Meltdown - Again! Stocks were down sharply on Monday. The “ Nasdaq lost 2%, the S&P lost 1.8% and traders lost “Now, as in the summer of 2010, confidence as the Black Debt Plague of Europe we are beginning to drift back to dominated the financial news again. The European the lower end of our channel markets dropped, and the U.S. Dollar soared to a (our -2.5% lines) with the occasional run- high of 76.5 during the day. ups on pretty much any rumor that QE3 is just around the corner. Unless we break According to the Wall Street Journal, “the cost of insuring peripheral sovereign debt surged to BELOW our -5.0% marks, I doubt we’re record highs” suggesting that markets are going to get a QE3 intervention any expecting some form of default on Greeces earlier than we did last year, which was sovereign debt. “Italian and Spanish bond yield at the September Fed meeting in Jackson spreads over safe-haven German bunds Monday Hole. (See chart on Friday’s page.) soared to their widest levels since the inception of the common currency, approaching a threshold viewed as unsustainable by the markets as “The problem is that, this time, we concerns grew that a potential Greek default have already run-up in anticipation of QE3 could engulf larger economies.” (Italian, Spanish – over and over again! Also, as mentioned Yields at Record Highs) Michael Darda, an in our weekend reading, we are at a point economist with MKM Partners in Stamford, of diminishing returns on QE programs. So Connecticut noted, “Spain and Italy are nearly the Fed is going to have to come up with five times the size of Greece, Portugal and Ireland and carry nearly four times the volume of something bigger and better than just a debt. Thus, they are a much larger threat to the plan to buy another Trillion in TBills to integrity of the Eurozone itself.” (European accommodate our brand-new $17Tn debt markets plunge as debt crisis worsens) ceiling.  - Phil European stocks had a terrible week as fears take the same risk for the market as we did of fiscal contagion spreading to Italy and Spain before 2008 because now we have a public debt intensified. According to Jean Borjeix, partner at problem. We are not in the same environment, so Paris-based Platinium Gestion, “Markets are too it is not possible to price today at the same expensive considering the risk. It is impossible to level.” (European Stocks Post Biggest Weekly Retreat Since March) One bright spot was that Monday’s Treasury auctions went off well, as yields on 10-year notes dropped to 2.92%. Lee Adler warned last week (p. 10), “It will be an especially tense standoff this week, because on Friday, the market must settle $66 billion in net new notes and bonds. That in itself could be enough to light the fuse” sending yields upwards. Instead, the markets experience a mini-panic that helped corral investors into the “safety” of Treasuries.P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 5
  6. 6. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 Treasury Tuesday - What A Coincidence - Capital Forced into TBills The markets declined on Tuesday and the five “ major indexes we track lost further ground. “Despite Asia’s poor performance Moody’s downgraded Irish debt to Ba1 from Baa3, and Europe’s terrible open, the run dropping it out of the range of “lower medium up in the Dollar to 77 early this grade” debt and into the unfortunate realm of morning looked like our typical 3am trade. I “non-investment grade speculative.” Moody’s sent out an Alert to Members at 3:40 outlook on the ratings remained negative. am suggesting we go long on the Dow Futures Release of the FOMC minutes revealed that (/YM) over the 12,400 line (contracts pay $5 some members of the Fed are willing to consider per point) and on the Nasdaq Futures (/NQ) additional QE if economic growth remains too slow over the 2,350 line (contract pays $20 per to make progress in reducing unemployment. Phil point) as the Dollar (/DX) fell below 77... The surmised, “[This] is nice bullish bone for the dogs early bird may get the worm but we’re busy - if it can’t move stocks higher, it’s not a good sign.” As it was, the minutes gave the markets a making enough money for a gourmet mild albeit short-lived mid-afternoon boost. Mark breakfast!” - Phil Gongloff noted, “The market could also focus on the hawkish group described in this section of the “Of course a little inflation isn’t stopping the minutes: ‘On the other hand, a few members unstoppable US consumer as ICSC Retail Store Sales viewed the increase in inflation risks as suggesting are up 0.4% for the week and up 5.5% year over that economic conditions might well evolve in a year.  The strength in sales is attributed to demand way that would warrant’ the FOMC ‘taking steps for seasonal goods tied to hot weather and back- to begin removing policy accommodation sooner to-school sales but it seems a bit early for back-to- than currently anticipated.’ But the stock market school (I’m a parent) so I’d have to say the truth is is populated by optimists, unlike the bond market, that they haven’t got a clue why sales are picking which is totally unmoved by this news, which is up despite weakening Consumer Confidence.” not news at all.” (Fed Minutes Show Predictable Divide on QE3, Stocks Assume This Means More Tuesday’s Redbook report revealed strong QE3) same-store sales, growing 5.4% Y/Y, and Thursday’s Commerce Department Retail Sales report showed China’s economy expanded at an annual rate of sales up by 7.9% Y/Y, excluding motor vehicles. 9.5% in the April-to-June quarter, slightly lower However, the good news in the retail sector was than the 9.7% first quarter reading, but ahead of tempered by Tuesday’s NFIB Small Business the 9.4% anticipated by economists. Analysts Economic Trends report, which dropped one-tenth welcomed the data as countering expectations for of a point (0.1) in June, settling at 90.8 - solidly in a hard landing. According to Global Insight, “We recession territory. While June may have marked expect gross domestic product growth deceleration the second anniversary of the recovery, small to continue in the second half, though the business owners are not optimistic. “Poor sales” slowdown is unlikely to be severe.” (China continue to be the #1 problem for small economic growth slows to 9.5%) businesses. The percentage of small business owners expecting higher real sales fell by 3 points The ICSC-Goldman Store Sales report was to a net 0% (seasonally adjusted), which is 13 better than expected showing same-store sales points below January’s reading. (Small Business growth up 5.5% year-over-year (Y/Y). Phil wrote, Optimism Stagnates)P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 6
  7. 7. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 Which Way Wednesday - Wherefore Art Thou QE3? The stock market was up on Wednesday, “ bouncing back after Monday’s sharp declines, “Keep in mind, this rally has 100 and the Dollar dropped sharply. Expectations Dow points to go just to get the of additional quantitative easing were Dow back to Friday’s close reinforced by Bernanke’s testimony before the (12,660) so don’t be impressed with less. House Financial Services Committee. Bernanke comments were widely interpreted to mean (The S&P was 1,344, Nas 2,860, NYSE 8,411 that he is increasingly receptive to the idea of and RUT 852). a third round of easing, QE3, notwithstanding his apparent resistance to the idea just last At the moment, we’re not even getting month. The power one man, Bernanke, has to a 50% bounce off this morning’s bottom and move the markets is staggering. (Bernanke Friday’s close was way below Thursday’s. Says Fed ‘Prepared to Respond’ If Stimulus It’s very easy to give us a "rally" by tanking Needed) the Dollar and floating rumors of MORE FREE MONEY but, for now – it does nothing to change the greater reality.” - Phil Eurozone government bond yields...reflects a crisis of market confidence in the European policy response...rather than deteriorating sovereign credit fundamentals.” (Fitch gives thumbs up to Italy’s austerity plan) This positive news on European debt was countered by an announcement by Moody’s placing the Aaa bond rating of the U.S. The inverse correlation between the Dollar government on review for a possible and the Dow reasserted itself this week, but downgrade “given the rising possibility that not strongly. Other factors influence the the statutory debt limit will not be raised on moves of both, and the relationship is not a timely basis, leading to a default on US cause and effect (see the INDU versus UUP Treasury debt obligations... Moody’s considers chart above). The Dollar popped sharply on the probability of a default on interest Monday, going as high as 77.2 on Tuesday, payments to be low but no longer to be de before dropping all the way down to 75.4 minimis.” Wednesday, when the stock market staged a bounce back rally. “ The Euro popped after Fitch Ratings gave “That was a VERY nice rally – its approval of Italy’s €40Bn deficit-reduction and a good opportunity to get plan, which it found consistent with more cash!  (Notice a theme to s t a b i l i z i n g I t a l y ’s c r e d i t p r o f i l e . F i t c h my comments?)” - Phil explained, “The sharp rise in Italian and otherP h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 7
  8. 8. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 Jobless Thursday - Bernanke Gets 2nd Chance to Give Us Hope The markets reverted to a downward trend on “ Thursday. Hopes of another round of quantitative “We got nothing useful from Bernanke easing were dashed when Bernanke backed away yesterday. But that’s not stopping the from his earlier statements which were widely futures from running the Dow up 100 interpreted as signals that more easing would be points off of Wednesday’s bottom. We’re back on the way soon. (Bernanke Pumps Brakes On QE3 Talk In Second Day On Capitol Hill) to that kind of BS market where you go long at the close (or after the close), and then short The U.S. Department of Labor reported that after the morning pop, because the data Initial jobless claims dropped by 22,000 to a (reality) is TERRIBLE, but the manipulation is seasonally adjusted 405,000 in the week ended so rampant that it’s reliable.   July 9. This is the lowest number since mid-April, and below expectations of 420,000. Continuing “Fortunately, we have our 5% rule as a Claims were up 15,000 to 3.73M. guide, and we haven’t had to change these Moody’s and Standard & Poor’s both issued charts in months (see Friday’s page). The warnings that the U.S. may have its credit rating market is obeying our ranges perfectly. These slashed if the current budget impasse is not are the same lines we’ve been using since last quickly resolved. Moody’s put the U.S. on review November as the market is right where we for the first time since 1996 citing concerns that predicted it would be for Q2 earnings.” - Phil the debt ceiling won’t be raised in time to prevent a missed interest or principal payment on The U.S. Bureau of Labor Statistics released outstanding bonds and notes. (Moody’s Downgrade the Producer Price Index report for June, which Warning Adds Pressure on U.S. Debt Deal) showed core PPI inflation rising from 0.2% in May to 0.3% in June. Energy prices declined 2.8% after “As Abraham Lincoln once observed, you climbing 1.5% in May. Phil noted, “A 3% drop in Crude Goods and a 2.4% drop in Food Prices can fool some of the people all of the time masked some VERY NASTY inflation everywhere and all of the people some of the time and, else – it’s that Core PPI that the Fed uses to as PT Barnum pointed out – we just need the pretend inflation is in check and now that’s fools with money. That’s what the oil market growing at a 3.6% annual pace and energy and is all about because fools and their money food are already up 20% in the "non-core.” are soon parted and the lack of regulation, EconMatters similarly concluded, “this  latest set of BLS inflation numbers seems to indicate  the dark pool trading and blatant manipulation actual catch-up and pass-through of higher input make this the World’s longest running (and costs from the producer to  the consumer side is most costly to society) con game in already taking shape. The recent history. Still, if Da Boyz at the NYMEX want economic,  employment indicators  and consumer to pretend they want 185M barrels of oil at sentiment  basically  have given QE2 an F on the $98.50 or higher for delivery next Thursday – report card...QE3 should never  even have been brought up in any kind of monetary policy we will be thrilled to sell it to them!” - Phil discussion. (U.S. Economy: R.I.P. Deflation)P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 8
  9. 9. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 Financial Friday - EU Stress Tests and US Debt Mess The stock market moved higher on Friday. Citigroup reported second-quarter profits rising “ “We had 185,000 NYMEX contracts 24% to $1.09 a share, beating expectations. J.P. Morgan also released an upbeat earning report to work with so plenty for with second-quarter profits up by 13%. It beat everyone and, as per our June 1 estimates and revenues reached an all-time high. plan to break the NYMEX speculators by using their own crooked game against The Empire State Manufacturing Survey them. This is a PSW trade idea we share General Business Conditions Index for July came with everybody.  And why not? The out Friday morning and was not encouraging. The headline number was -3.76. Numbers below zero speculators gang up to screw the American indicate month-to-month contraction in business people. It’s only fair that the American conditions. While better than June’s awful reading people return the favor by calling their of -7.8, July’s number indicates that conditions for bluff!  manufacturers remain challenging. There was some good news buried in the report - shipments “We called their bluff right on schedule were in positive territory at +2.2 versus June’s at the 10:30 am Natural Gas inventory reading of -8.0. Employment was also in positive territory at +1.1, but far below June’s reading of announcement, and it was a slam dunk for 10.2. our futures players as well as our option traders, who picked up 250% ($500 turns The University of Michigan Consumer into $1,750) in just 4 hours!  That’s a full Sentiment Index showed consumer spirits day’s work, don’t you think? continuing to erode. The Index fell to 63.8, a greater than two-year low and a steep drop from “Even a stock trader could have done the 71.5 level reported in June. Expectations declined to 55.8, a level indicating widespread well as USO plunged from $38.70 to $37.20 pessimism over the economic outlook. The gloomy (4%) right on our schedule. But we were outlook of consumers was reinforced late Friday after bigger fish as those 185,000 NYMEX evening when Goldman Sachs released a report contracts took a $647,000,000 hit so plenty downgrading its expectations for the U.S. of profits to share for all of our readers. Economy. It cut its estimates for real GDP growth A n d T H AT i s h o w y o u p u n i s h t h e in Q2 and Q3 to 1.5% and 2.5% respectively, down from 2% and 3.25% previously. Goldman also said it speculators – with the only thing they care expects the unemployment rate to come down about in this world – Money!  We can stop “only modestly” to 8.75% at the end of 2012. the con game by playing the con game so (Panic at the White House? Gloomy Goldman Sachs congratulations and thanks to all the wild sees high unemployment, possible recession) and crazy people who participated in this experiment in social engineering, Phil was busy with oil-based trade ideas this week. He posted several ideas on our Seeking something I like to call profit with a Alpha, Facebook and Twitter  pages. (Two based purpose!” - Phil on /CL Oil Futures and USO did very well and can been seen in the chart on the next page.)P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 9
  10. 10. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 Friday’s Levels 7/15/11 Dow S&P NAS NYSE Russell FRIDAY 12480 1316 2790 8227 829 5% UP 12810 1365 2877 8694 856 2.5% UP 12505 1333 2809 8487 835 MUST HOLD 12200 1300 2740 8280 815 2.5% DOWN 11895 1268 2672 8073 795 5.0% DOWN 11590 1235 2603 7866 774P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 10
  11. 11. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 The Week Ahead As the clock ticks down to the impending “ August 2 deadline for lifting the debt ceiling, “We’re getting bigger moves up negotiations between the White House and after hours than we had during Capitol Hill are growing increasingly tense. the day! That’s good because that Lawmakers and the President attempt to arrive puts on a show for Asia and gets them to at a compromise that will inevitably satisfy no o n e . Pr e s i d e n t O b a m a , p u s h i n g f o r a buy, and then the EU comes in and buys, combination of spending cuts and tax and then we open higher on Monday, and increases, reached out to the American public then the Boyz can sell all the crap they during his weekly radio and Internet address, bought today at higher prices before they declaring, “We have to ask everyone to play pull the rug out. THAT’s my prediction for their part because we are all part of the same country. We are all in this together.” (Congress next week!” - Phil seeks debt solution, Obama goes to public) months, Republicans have used their new Obama has embraced some measures that majority in the House of Representatives to block any move to lift the artificial cap on the members of his own party deeply oppose, including proposed reforms to Medicare, while amount the US government can borrow. If by the Republican opposition has taken a hard line this Friday they still refuse – insisting on up to against any tax increases. Portraying the crisis $4 trillion of spending cuts, excluding defense, as being a result of Washington’s political and no tax increases as the price of their support – then the US will be unable to service culture, Republican Senator Orrin Hatch o p i n e d , “ Wa s h i n g t o n h a s c o n s i s t e n t l y its public debts. The biggest economy on Earth demonstrated that it cannot control its urge to will default... spend.” (Debt limit crisis: what’s happening today) Will Hutton at the Guardian writes, “For “But the Democrats cannot agree to the Republicans absolutist demands, in part because the arithmetic of deficit reduction does not work without tax increases and cuts in defense spending, in part because they passionately believe that with taxes the lowest for 50 years, the USs rich should share in the pain and in part because in any human exchange there is an element of horse-trading.” (What hope is there for us if America is driven to the brink of meltdown?)P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 11
  12. 12. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 Financial economist and historian Dr. Michael Hudson was recently interviewed by Bonnie Faulkner on Guns N Butter. When Ms. Faulkner asked his opinion of where the U.S. economy is headed, Mr. Hudson replied, “The economy’s going under because Wall Street and investors realize that it’s a done deal. That Mr. Obama is going to succeed in pushing the economy much further into a depression. We need the depression in order to cut living standards and depression. We’ll buy back all these stocks labor by 30 percent. We need a depression in after they go but meanwhile, the game’s over. order just to lower the wages of America and Let’s grab what we can and just bail out. And to have an excuse – of course, a depression is that’s what’s happening now.” going to make the budget deficit even larger and the solution to the depression has already Ms. Faulkner: “What is your assessment been written up, just like the invasion of Iraq over the current debate in Washington was all written up before 9/11, the solution is concerning the raising of the debt ceiling? going to be that the government is going to This debate seems to be taking place sell off its land, whatever is in the public between the Obama administration and the domain. Republicans without much input from Democrats.” “The American government is going to look just like Greece and just like Ireland. They’re “It’s a good cop-bad cop deal, a charade going to be told, ‘The states can’t pay, there’s that they’re both playing. The Republicans are no federal revenue to share with Minnesota or playing the role of the bad cop, saying, ‘You Wisconsin or the city of Chicago. They’re going have to not raise taxes on anybody, no to have to sell off their roads, sell off their progressive income tax at all, no closing of the streets, sell off their infrastructure, sell off tax loopholes, not even a prosecution for their public utilities, sell off their business. income tax fraud. And by the way, we can get a The government will sell whatever it has, the lot of money if we just give a tax holiday to all Postal Service, to essentially buyers who will of the companies and the individuals that have now borrow the money from the banks making been keeping their money offshore. Let’s just a huge new market for banks and investment free wealthy people from taxes altogether and bankers, in privatizing and cutting up what that will help recovery.’ So they’re being sort used to be the public domain and turning it of the bad cop so Obama can pretend to be the over to the wealthiest 10 percent of the good cop and say, ‘Hey, boys, let me at least economy. So people realize yes, the class war’s do something. You know, I’m willing to cut b a c k i n b u s i n e s s . We ’ r e g o i n g i n t o a back Social Security, I’m willing to take overP h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 12
  13. 13. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 really what was a George Bush program, but Ms. Faulkner: So this is a way of getting you have to let me get a little bit of revenue away with all of this? somewhere.’ And at the very end the Republicans will say, ‘Oh, okay, you can throw “Yes.” (Wall Street’s Euthanasia of Industry) us into the briar patch.’, and they’ll give something and they’ll essentially get their In spite of all the tension, drama and program and Obama will have sold out his political posturing on Capitol Hill, we currently constituency.” believe that some kind of a deal will be worked out prior to August 2, and that it is highly Ms. Faulkner: Would a U.S. default send unlikely that the U.S. will actually default on interests rate soaring and if so, what would its debt obligations. We remain moderately be the economic effect? bullish on stocks for the long term, but bearish in the near term. Consequently, we are more “An interest rate wouldn’t matter if you likely to look for bearish trade ideas than default. I mean, if you tell me I can write you bullish trade ideas early next week. an IOU but you’re not going to collect, I’ll give you 20 percent. What does it matter if you One bearish trade idea comes from Phil, default? No, it wouldn’t send interest rates and is based upon expectations that the Nasdaq soaring at all. It wouldn’t have any effect at is likely to go down next week. all. This is all a just pretend argument to create the crisis to give Mr. Obama the “ opportunity to do what politicians do – to sell “I’m still liking SQQQ, Aug out his constituency to his campaign $22/23 bull call spread is $0.55 contributors on Wall Street. He’s going to go now and you can sell the $21 down as a Herbert Hoover, or rather a Warren puts for $0.50 for net $0.05 on the $1 Harding probably. He’s going to go down as the spread.” - Phil man who brought on the depression that the Republicans never could have gotten away In case your portfolio is needing a bullish with. Only a Democrat posing as a left-winger play to offset your bearish positions, we like a could support the anti-labor, anti-wage, pro- bullish trade idea from Pharmboy. Wall Street policies that his advisors have been pressing. And there again, that came out in the “ “Ariad (ARIA) has an mTOR in the New York Times interview with Sheila Bair.” clinic with Merck (MRK). The compound has stellar data, and Ms. Faulkner: I see. So this is a charade the NDA should be filied soon with the put on for public consumption, the business FDA. ARIA was recently upgraded with a of a possible debt default. price target by Jefferies of $16. We have been in ARIA since it was in the mid-$3s at “It is to create the illusion of a crisis. No PSW, and I still like it. politician or Wall Street really likes a crisis but what they do like is the illusion of a crisis For an options strategy, I like the to create a pretense for introducing a solution January 2012 $10/15 BCS coupled with the to the crisis that actually makes fortunes for sale of the $10 puts for a net debit of $1.” them all. And the way in which Obama resolves - Pharmboy the non-crisis of the budget limit is going to make fortunes for Wall Street – and impoverish the population for the next decade.” As always, be careful out there!P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 13
  14. 14. S t o c k W o r l d W e e k l y N e w s l e t t e r We e k o f J u l y 1 7 , 2 0 1 1 Next Week’s Economic Calendar Monday 18 Tuesday 19 Wednesday 20 Thursday 21 Friday 22 9:00 AM: Treasury 7:45 AM: ICSC-Goldman 7:00 AM: MBA Purchase 8:30 AM: Jobless International Capital Store Sales Applications Claims 10:00 AM: Housing 8:30 AM: Housing 10:00 AM: Existing 9:45 AM: Bloomberg Market Index Starts Home Sales Consumer Comfort Index 11:00 AM: 4-Week Bill 8:55 AM: Redbook 10:30 AM: EIA 10:00 AM: Philadelphia Announcement Petroleum Status Fed Survey Report11:30 AM: 3-Month and 11:30 AM: 4-Week Bill 10:00 AM: FHFA House 6-Month Bill Auctions Auction Price Index & Leading Indicators 10:30 AM: EIA Natural Gas Report 11:00 AM: 3-Mnth, 6- Mnth, 52-Wk Bill Announcements 11:00 AM: 2-Yr, 5-Yr and 7-Yr Note Announcements 1:00 PM: 10-Yr TIPS Auction 4:30 PM: Fed Balance POMO DAY POMO DAY Sheet and Money ($2.5 - $3.0Bn) ($0.5 - $1.0Bn) Supply Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Philstockworld, LLC (PSW) nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, Oxen Group or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.P h i l ’ s S t o c k W o r l d w w w . p h i l s t o c k w o r l d . c o m 14