Calendar & Diagonal Spreads

Selling Put Strategies

9/21/09 Newsletter

Covered Calls

9/14/09 Newsletter

And they cant find anywhere to cut??

I find this most interesting.
Now you can visualize why businesses cannot make a go. But then this comes from a nanny state.
Could you imagine getting licensed in this state?? Could you imagine the red tape to run a company in this environment?
But then this is what you vote in....
Enjoy


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Financial overseer

If Obama gets his way, the federal reserve will be the watch dog over "all' financial transactions.

For those new to this blog, I blasted Bush as well. So this is not a party thing. I have repeatedly said both parties are corrupt.

This Federal reserve is not even elected. It meets in secret, no press in their meetings, they are appointed...I can go on and on.

We are witnessing the end of the greatest economy ever in the history of mankind. Those seeking power grabs will not stop at just this.

So why the spouting on this blog?? Because it will effect your entire future.

I am beginning to agree with Rogers. Move to Asia (Singapore I think) While masking as communism, they are more capitalistic than we are.

From your retirement accounts to your jobs, we are falling off a cliff here. Better be well prepared. It is going to jolt the masses and you need to be ready. You need to get your house in order.

Inflation/Deflation

This will be a subject talked about. Since the next few months trading depends on getting this right, much will be discussed. As we look at the latest gov figures today, (what part you can believe) we see that inflation did not rise as much as expected. This is deflation winning.

But do not be surprised with another "bailout" "stimulus" from the gov. deflation is much worse in the eyes of the feds than inflation. Problem is the deleveraging is going to take more capital than the feds will be able to pump into it.

So...tangibles will be falling as a result of this latest round. At what point are the feds going to stop pursuing the printing? Who knows.

For now the breather in tangibles should be looked at as a chance to get in. Also the breather in falling bonds should be looked at as a chance to get short.

Time will tell when deflation is defeated. With the credit markets imploding all around, my guess is deflation for longer than most expect.

Housing starts Jump 17%

Yet the market as I write is going down. Why? Isnt this good news? NO! What started this mess? Housing meltdown. It is terrible but builders only know how to build. This will just put even more pressure on an already over supplied housing.

I guess if I was a builder, I cannot make money unless I build, but then those houses need to sell in a glutted market.

This is not the news you wnted to hear in spite of the media spin.

Shorting Bonds

In this weeks newsletter I mentioned that many analysts (ones I respect anyways) feel the trade for the next decade will be short bonds and long energy.

While I agree, I missed the best point on this trade back when TLT was at 123 or so. I am waiting for a nice run up to get along diagonal put spread going on this.

Leaps are not out of the question either. Although those trades take more capital and as such the returns can sometimes lag the shorter 6 months out trades. The nice thing about doing the leaps is you can basically sell way out of the money and only want to capture time decay and let the leap run in the money for a long while.

This should be a very long ride and with those rides, we will see many volatile swings that will make many give up the ship. All the factors are in place to make bonds a bad investment gong forward for a very long time (in my opinion). This Will also effect Cd's at banks and other fixed income investment so steer clear if you can. Annuities would fit into this as well. The locked in rates will lag the upward pressure on interest rates.

As a long term advocate of whole life, it might just be a term and invest the difference decade. Many insurance companies will struggle. Remember that those state funds are for only the guarantee on the policy when a comapny goes belly up. Most of those guarantees are in the 4-5% range.

If you have a universal life policy sold back in the 80's or 90's, you need to have a serious talk with someone and see where you stand.

I would be glad to assist.

Once again Deflation/Inflation

The war rages on. If the efforts by the Feds massive amount of cash sloshing around going to reinflate or not? Bond traders are specualting it will, commodity prices are acting like they agree.

What most are not considering is the fact that the very thing that caused the bubble to pop (Real Estate) is still imploding and spreading to the commercial sector.

For the agressive traders buying into the comodity run may just be a good trade. However watch for the run to fade in a few months. What most are banking on is the inflation forcing tangibles. While I agree this could happen, I also see the implosion of trillions of dollars in Real Estate that the banks still will not disclose. If the reality of this does come home to roost and production (see euro production article)drops, then there will be too much suply once again haging around and prices will once again drop.

To play this, get on board a few commodity ETF's for the summer and be careful. This could turn fast and furious.

Or you can trade super conservatively like I do and wait for the rally to halt and then sell diagonals on the way down. Either way will make for a wild summer.

Want a scare?

Go to bloomberg.com and search for Davidowitz. Listen to a few of his podcasts.

Not that he is not saying what we have been here for over 2 years, just that a mainstream analyst is saying it, must mean it is far worse and ca no longer be covered up.

Let me know what you think

Here is a sample enjoy

Time to hunker down and get serious isnt it?

Is the rally over?

Far from me being able to prognosticate markets timing, but have we run the course of the bear market rally?

It really has the appearance of a Japan style economy. Throw some money here, wait and see, Throw some there wait and see. Hide the bank problems, hide off balance sheet losses, etc.

What did Japan get for all of its tricks? 20 years of a spiral down. Mind you some of the rallies were impressive and sustained a year on many of these rally's. 40%-50%even 60% retracements only to falter and eventually continue lower.

The only question in my mind is are we exactly like Japan or similar. These rallies will be long and appear to have the bottom in sight. Reality tells me otherwise.

How to trade this stuff is taking the long term bear approach and selling shorter term against the long term. These rallies could be 6 months or more in the making.

You could wait until a decent rally in the 30% range then take positions to the short tide as well.

Secular bear markets make a very select few very wealthy. Because only the few recognize what it is. The "Professionals" i.e. financial planners, insurance, brokers etc. have a mind set and compensation set up to make money only as markets rally.

For the most part the many will buy on these dips only to see much lower prices later on. The very select wise traders will see the rally points as opportunities to get more short positions and ride out the temporary rally.

There is going to be much more pain to come. The best thing you can do for folks is to show them what is really happening and how to get on board.

p.s. I do take referral, but as most of you know it is only the very select few that want to come on board.

Dow component

If I am wrong, wasnt the Dow supposed to drop CITI and GM today and replace them with cisco and another one?

If so, the Dow sure went nowhere for having a switch like this.

I would imagine all of the funds that need to adjust their portfolios to reflect this change should have made more of a rally.

But then if I am wrong on the date....

Employment numbers

If anyone noticed, the adp jobs loss was revised (as usual) down. If anoyone wants to use data such as this for fundamental analysis, they need to look to an average of revisions. Are the revisions getting better or worse. the news hardly ever reports the revisions, if the revisions arre worse each and every month, then you have a trend.

The best way to use this information is the take 6 months average, that take out the wild swings so to speak. If yoou want to llok at these each and everytime, then make sure you look at the revisions as well. I think Friday fed numbers on employment are coming out. Look to the revisions and see if they are revised down or not. My guess is they will be.

the markets can act irrational longer than you can stay solvent.

GM the largest industrial bankruptcy ever and the 4th largest.

The market jumps at the open. Do the masses understand what this will trickle down too? Not only GM shriking, but auto suppliers as well not to mention dealers in every state.

But hey just as in the gaga years of the dot.com, these all dont matter for it is up up and away.

Sheer Lunacy

Since I last posted on this blog there has been nothing but sheer lunacy coming out of D.C.

We now are watching central planners in action. GM (government motors) will come out with the politically correct car, not that any of us will buy it but then who ever said the gov. is efficient.

This debt has to be paid. The only way I ca visualize at this stage is a massive dollar devaluation. Of course that has happened ever since we gave up our banks to the federal reserve.

Now stay with me here...The treasury needs to auction of our debts. But no one is coming to the auction other than the 16 that are mandatory show, but the bids are getting high now. So the reserve is going to buy these bonds. I ask with what money? Why of course made up money they can just print and so the U.S. treasury ends up owing to private bankers backed by my and yours taxes. And you thought Ponzi had a scheme.

We are now a banana republic. We will lose our AAA status and go the way of all fiat currencies.

That leaves us with tangibles. Dont believe it, look at commodities lately.

Global Currency

Here it is...And all the players are lining up.

Those of you on fixed incomes with bonds, annuities etc had better pay attention. The central planners have already figured the only way to pay for this experiment is to devalue all of this debt (which is bonds etc)

It did not help that the auction today was soft. Seems the world is getting tired of our debt.

Here comes the devalue. Better take care.

Where's the bear?

Many folks are wondering just where the ravaging bear is right now. Remember some of the largest gains are in secular bear markets. Taking a look at the chart we can see this secular bear started in 2000. The average secular bear has been 18 years. So you can see this ne is still in the infancy stage. So we wait patiently for the inevitable rally back to a regular descending line to take another position. Now this could be fro a huge rally, of just going nowhere for months.
Hope this helps.

World Currency

We spoke on this subject a few weeks back. Now Russia and China are climbing on board.

What this does is basically do away with debt. So those holding dollar debts are converted into the new world currency. Whatever value they place on it.

This will definitely dissolve debts, but the debtors are going to take it in the shorts. This will make gold the true world currency. Once the dollar is no more the reserve currency, it can drop out of site.

We spoke of this being the only way to dispose of the trillions without bankruptcy. But then bankruptcy is really what you are doing. Kind of like when a company files for bankruptcy, the old shares are done away with wiping out shareholders. Now the bond holders receive the new shares, selling them on the markets to new investors.

This is what will happen should we adopt a world currency (which looks likely)

Fixed income investments are going to get clobbered.

Last weeks actions

Now the talking heads will be all over this. Is the bottom in? Are we there yet? Best buying opportunity in a generation etc.

One thing to remember in bear markets. You will see some of the most spectacular rallies.

My SPY puts (88,89,85,84,82) etc are so far in the money I cannot believe it. Even after the 9% rally last week. The perfect thing to happen would be for another week like last week. That would give me the perfect storm. But as anyone that has traded for more than one bear cycle, you rarely get what you want or expect. You need to trade what is given to you. Right now the bear is growling big time.

Stay tuned (or watch for the newsletter) some ideas on this weeks trading opportunities.

Webinar

Sorry everyone, we had technical problems.

6 more days like today

and we will be at the target of 500 or so.

This meltdown is happening far faster than I had even imagined. 2 years ago (for those that remember) when we were talking about all of this hitting the fan, the very thought of a Dow at 4000 or S&P at 500 was laughable. Now 500 S&P may not be low enough.

The real problem now will be that the masses have lost all of this and expect it to just bounce back as in all the other sell offs the last 70 years. But the big concern is that it may just take another 20 years to get where we were. I doubt many have that much time.

Not to worry, we will find ways to make the gains we have all (well at lest those that have been involved around here) become accustomed to.

The best thing you can do for the masses now is to help them see how they can make back those losses. Not now. But when the bottom if finally in.

An up day

Looks like today will finish to the upside. We still have 4 hours as I write this.

This is good news for me. I have cash on the sidelines waiting to get in, but not at these levels. I expect more downward pressure, but I want a nice rally to get short positions. So a day like to day makes me take notice.

I am still looking for a 500 S&P and 4000 dow. But it does not go straight down. the rally gives us a Chance to get into position. Now I know you will hear otherwise, so do what you will, but this rally is not the bottom. (In my humble opinion)

I am looking to get long SPY puts out to the first of the year and sell the short months. Depending on what the price is when I enter, I may be for 5 point strikes.

Not looking good

AIG is at the trough once again. No end to these bailouts.

The stress is showing in the government. Bids to insure government debt has skyrocketed. What this means is that with all of the bailout we have done, investors are now concerned about the solvency of the U.S.

This is not good at all. Now when the treasury auctions this horrific debt coming due, the rates will shoot to the moon. That is the only way investors will grab the debt.

So Uncle Ben can lower rates to zero and it will not work.

Credit is going to get ever so expensive (if you have not had your credit card interest increased, it will....). Just when the central planners were wanting to "thaw" the credit markets.

These are fun times if you have been on the right side. If not, it has (and will continue to be) very frightening.

Finally a pencil to this madness

Call me lazy or that I have other things to do, but this new administration is on a collision course Most capitalist have known this all along, but now someone has taken the time to "do the math".

What this means is the middle class that zealously voted this mess in are now going to reap what they sowed. When they finally realize the mess they are in, it will be no hope or change.

So that everyone knows my politics here. I think both parties are corrupt and sell us down the river any chance they get. There so that shows I am not partisan here.

For me to trade off of this, it is very obvious we are heading for very troubling times. This does not bode well for equities or housing or just about anything. If you are the many reading this that have not got your house in order, then you will pay the consequences. This rally we are witnessing the past few days may very well be your last chance to get your house in order. If you do not know how, get some help. But make sure the help you are getting is from those few that understand. If your advisor is from the company line you are going to get hammered big time (if you have not already)

Best of luck to everyone. So far this year has been pretty good.

Best comedian

Uncle Ben hands down.

I read this and could not stop laughing or is it LOL!

Anyways, this coming from the same man that told us sub prime was contained.

I think he is on the same stuff most everyone else is on. Trying to make it legal.

On a serious note, I did mention to watch for the inevitable "New thing" from Washington to give hope (pun intended) only to be dashed.

So looks like 410 billion more and uncle Ben's words will give those late comers one more chance to salvage what is left of their "buy and hold" portfolio. Will they take advantage of it? Will they secure a future for themselves? Well if I were a betting man (as a trader I am sort of) I would bet against them. Instead look for more whining and more gov. intervention.

As a capitalist, I just hope there is any "free" company around to trade when all this is said and done. If not, I may have to trade like Rogers in Chinese "communist" stocks. Oh the irony huh?

11 year low

Dow index, S&P index, it is coming unglued.
Normally consumer staples hold up in a recession, not now. Wall Street journal has a good article.
I am not so sure which banks, insurance companies or any financial institutions are immune. I guess the only question is which ones can survive. Not thrive. There are many listed by various analysts that are in dire straits. Just remember the states have "reinsurance" or guaranty agencies for your insurance products. However, you will need to read the policies and notice the "guarantees", because that is all you are getting if the insurance company goes under. I have in the past had people approach me and complain that they got an unfair settlement. Again remember it is the guarantee and not the projected....

These are interesting times. I preach constantly about this happening. I only hope some listen, obviously the majority are not, but then that is why the few make money in the markets.

If you have not made adjustments to your portfolio to the downside, you may need to be patient here for the next "official announcement" to have the market rally and then get in. You may not have this luxury. We could go to S&P 500 like a hot knife through butter. I doubt it, but confidence is not there.

Fundamental Analysis-Market "Means"

Investments swing from over valuations to under valuations, back and forth continually. What we want to do is find the mean and trade it. One of the best ways is the P/E ratios. P/E stands for price to earnings. If a company has 1 million shares and earns 1 million dollars, that is a p/e of 1. So if the stock were trading for 10 dollars, we have a p/e ratio of 10.

If you are still awake keep following here. Over 70 plus years of countless costs and time and energy spent, many "smart" analysts have concluded that the average p/e is about 18 or so (there are many arguments as to precisely what that number is). So when you get a p/e of 20 for example, you are paying too much and we would expect a drop to the mean of 18, but in order to have a mean we know the p/e will shoot past the 18 into 16 or so. That is how you get your mean.

Now we just came off a 48 S&P average p/e.....Repeat this 48!!

If the average is 18, does this give you an idea of where the low would be expected?

Now is what happens is stocks drop, then earnings drop which makes stock p/e's pricey once again so stocks drop etc.

Myself? I am looking for 8 p/e or so before I expect the next bull market. At that time, you can buy and hold again for the next decade and have fun. Until then, we still have much more pain here folks. Last I checked we are at 20.

That is just the way it is. Bubbles go to far and corrections go to far.

As an investor, I personally cannot wait on the sidelines for another 5-10 years for the next bull to gain traction. I want to capitalize on this. So I trade from the short side. Some day there will be a time to go long.

What we are witnessing now is stocks being priced a bit high only to have the earnings season show less than analysts expected, forcing prices down until the next earnings round. This feeds on itself until most everyone gives up and the mantra changes to stocks are a suckers game etc. that is where you would expect 8 p/e's and you would expect to get on board to a new bull market.

Confidence issue

We are now at the level of no confidence. This is a bad scenario. People tend to hord at this phase. for the consumer shell shocked, savings appears to be the only way out. So they start to pay down debt. It is a fantastic idea. We have been so low on savings that it is about time. Problem is this will aggrevate the already slowing economy. To all of those pundits I say "too bad" the last 10 years was a phantom prosperity and we are headed for tough times but a good foundation to grow from.

"Tea party" this link says it all.

When you get this sort of reaction you know confidence is gone.

For those new here, read past blogs. If you are not, stay the course.

A problem with analysts....

I am talking analysts that are not paid by the usual sources i.e. investment firms, media etc. are sometimes stubborn. I fit in the stubborn category. As a trader you have to. It does not always pay off.

I need to stick with my opinions of the markets until proven otherwise. At times that means a severe draw down (loss on the portfolio) before I give up the trade.

This does not mean to say that I go down with losing trades, to the contrary, I am stating that in order to stay in this and become profitable, you need to take an opinion almost always contrary to the masses (after all the masses are most of the time wrong) this takes courage in the face of almost every outlet of information you get (that is unless you get your sources off the beaten path).

I like to have 12 or so analysts that I like and when they agree on any particular sector, I jump on it. Most of the time they are in agreement, often times they are not.

75 billion for housing

I just keeps getting more rediculous.

At what point do these central planners say enough is enough?

Last I read, between what has acutally been given and what has been promised to prop up this mess could pay for 90% of the mortgages out there.

If they take and pay off mortgages and all debt, they could easily double your taxes and still have the biggest boom.

Selling puts (one more time)

Since I have suggested selling puts on UYG, there has been several asking about this. So much so, that I felt another post about selling puts were in order.

Selling puts is a bullish (want the stock to go up) move. Since I would be assigned the stock (have to buy it) then I would want the stock to be on the move up. Selling calls the opposite.

Everyone knows I am a bear at this time in the cycle. So why be selling puts? UYG is an ETF of financial stocks. Financial stocks are being hit very hard. But the expectation is that financial stocks will still be around. CITI may not, but financials will. It is the job of the ETF managers to see that there will be some around after this problem.

So if we think that eventually someday financials will rebound, we will want to be there. If the stimulus works and everyone starts to spend again, it could be real soon. If it does not work, we could be in for a longer span than most want to admit.

If I sell 3 or 4 strike puts on UYG, I receive premium in my pocket. If UYG goes to 1.00 I am now down from the 3 range now. But when I roll (buy back the front month and sell the next month, I should get around .30. I am doing this with a total of 3.00 in cash held in my account (earning interest).

I have done this with stocks before rolling out for years. The biggest fear is that the stock goes to zero and you have to buy a worthless stock for 3. However each month that you roll gets you closer to a no cost trade. If you are collecting .30 each roll, then in theory 10 months the trade should be free.

Will the financial sector be around for 10 months and will this stock still have value by then? That is the probabilities we are working with.

Japan recession more severe than thought

Europe and Asia had a down day as we spent the holidays relaxing.

What will this bring for tomorrow? Not sure. But for the week it should be a wild ride.

With the stimulus passing, there should be much fanfare. How long it lasts will be the key. Most agree (at least in my circle) that this will not work. But then we have been wrong before. Once again if you are to nervous, stay in shrot term treasury money markets. If you want to take advantage of this, using options limits your risk while allowing you to take sides of the issue.

Here is a thought. Go long with 80% of your portfolio, and then buy 3x inverse ETF's for the balance, this should give you a pretty good hedge, then sell calls against the ETF and against the portfolio (hopefully your portfolio is in an index like SPY) this way you can gain premiums as the market swings back and forth.

Not what I would likely do, but it does make for some sense to those nervous.

Food for thought

Federal Obligation exceeds world GDP

If that does not scare you into taking some action with your finances, I do not know what would.

But again we will have head fakes all along the way down. If you missed this weeks drop, wait as the masses jump on this stimulus propaganda. Once that hoopla wears off and the fear starts to take hold again, take the short side.

I have followed this website for a few years. Take a long serious look at the shadow government statistics website. It gives you some perspective as to what you "sense but cant put a finger on it" is happening

You want these guys to take care of you?

Latest news....Only one house or senate politician admits to reading the 1 thousand page pork. Yet they are in session to vote on this right now.

Some one give me these guys their addresses, I have some great Real Estate they can invest in with fantastic terms. Don't worry about reading the contracts they are good as my word.

Anyone that still believes we are not headed for some serious financial woes has their head in the sand.

This market is very hard to trade. Up on a rumor down on a fact, up on another gov bailout only to be crushed by reality.

If you are a fast trader (which I am not) you can be nimble enough to get in and out. If you are more like me, buying options will get you killed with the gyrations.

Take the conservative side and hedge the strategy.

Perusing the internet

The topic of this huge stimulus (if you can call pork stimulating then I guess) many sides are being drawn in the sand. Either this will work and has inflation like the 1970's or it will not work and we just added debt to our great gandchildren to pay back. Either way the argument for fiat currencies to collapse looks in the books.

Some comments from others say "well if the entire world is in the same boat, then the Dollar will keep its value relative to the other currencies. To this I have to agree. But because the dollar stays par to a collapsing Euro or pound, does not mean it is keeping par to tangibles. Gold, Oil, Grains etc.

So the question that needs to be addressed here is. Are we inflationary or deflationary? If you have no idea or do not want to guess until proven, then stay in short term treasuries. If you feel this will be inflationary, go long tangibles. If you feel we are deflationary, short things.

While it is my belief (and it can change over night) that we are in deflationasry times, the rush to gold as a hedge (fear here) should keep the prices where they are. Record bullion sales and record ETF hording have me convinced most do not trust what is coming out of politicians mouths. So the hedge is on.

Treasury

I can see why this guy messed up his turbo tax.
Not very inspiring words were there.
This baby is going down. Dow below 5,000 and the S&P around 500. The financials will lead the way and the rest will go with them.

Long puts and stay the course. There will be a trillion here a trillion there but to no avail. Take each rally as a chance to get short. This could get dicey real fast. If you do not have the stomach for this, stay in Short term treasury money markets. I k now these returns are a pittance, but at least you have your original investment intact. Sometime the best position to be in is cash.

Dow to 5000, S&P to 500

Gone is the euphoria of 30,000 dow. Gone is the nasdaq catching and surpassing the dow. These have all gone by the way side. Now is the time to either gather what is left of your assets and stay in short term treasuries, or take advantage of the downside and trade that way.

In the newsletter next week I will go into many reasons for the indices to continue down. With the run up we have had of late, it might be a time to get more short positions.

Diagonal puts, calendar puts, etc.

Understanding your risk tolerance

"Anonymous" made an excellent comment that I would like to expound upon.

While the DOW they believe will trend up they also believe the stocks will trend down.

As an investor you need to decide (even if this is managed money, the manager needs to understand your wishes)what you want to do. Obviously "Anonymous" is trading the market and trying to capture some movements. I have at times approached this way too. I have a neighbor that works for the SEC. His claim is that we have already dropped enough that he is interested in getting back in. I said I expect 5000 on the DOW before it is over. He calmly said to me, the DOW has already dropped enough that even if I am early it has still done 80% of the damage.

Now his risk of not being in the market when it runs is more over powering for him then the risk of a potential 10-20% more drop. Is he wrong? Not at all. In fact when I was rolling clients 401ks that they had no control of into income funds way back in May of '07 he stayed in until Aug of '07. If he gets back in now he is fine with this.

I use this only as a long response to what others are thinking in this market.

As anyone knows I am ultra conservative in my approach. That is my risk tolerance.

GE puts anyone? If you missed it, don't try it now.

Later

GE-Puts

I do not know about anyone out there in the real world, but I will not sleep a wink until Geithner unveils his plan. By golly jees wiz guys a man that cant get turbo tax right is going to show little ol me just how this game of economics is played.

Is their any capitalists left? Are we a dying breed? Is the road to ruins paved in socialism our only way? Alright already I did mislead the post with GE.

Okay now Ge is imploding. 10.88 or so as I write. If it goes below 10 it will be a candidate to be excluded from the all boys club of the Dow industrial. So who cares they were taken off once before.

My point here is that GE is probably an okay run company other than a few over leveraged entities. They should weather the storm okay. Selling Mar. 7.50 puts for .37 is not all that bad considering that you will have to have about 4.00 for every option so that is not quite 10%. For those more aggressive, the 5-7.5 spread will cost 2.50 and is right at 10% and for those that have not listened to option trading and want to lock in a 10% dividend and sell the calls more power to you. The point is, this may be a good one.

If not you then who?

Who is going to take control of your finances?

I hear it all the time. what should I have done? Well first off, if you think guys (some gals) that cannot even get their taxes right (Dodd, Daschle, Gunt...whatever) but are in charge of our nations trillions, are in the know, think again. This is just a glaring example of central planning. Both parties are guilty of this. I for one do not like either party. The republicans had control for 12 years and we still went the wrong way.

Why all the political junk in my post? Because if you do not take control, or at least have some one competent to do this, then you are going to be stuck with morons at the helm that either are corrupt(my personal view) or are so inept that they could not find their way out of a room with 500 doors.

You have a small window of opportunity that is closing very day to take advantage. Either you are in the financial crisis, or you are in the opportunities. If you do not want to understand and have no faith in the same old financial advice that 99% of planners give (remember your long term strategy, hold for the long term etc.) then park your assets in short term treasury money markets until this passes.

Economic stimulus

Wasn't it just 4 months ago we were told that all they (central planners) needed 700 billion and all would be well? This is getting so absurd it reminds me of the part in the jerk where Steve Martin is walking out a broken man and saying "all I need is this phone, and this whatever it was, but as he was walking out it was more and more and more.

We are told now that a mere 900 billion (you see politicians have learned the sales skill. Do not ever round up, you know only 19.95, not 20 bucks) It would be much easier to call it 1 trillion but then that would be misleading of 100 billion somewhere. Not to worry, they will get there so we might as well start talking in trillions. Many pundits are throwing around numbers all over the place. The number I like is the 3 trillion for '09 deficit. Are we there yet? Have we finally gone bankrupt?

Then a read some knot head spouting off that the American consumer is saving more now but that is bad for the economy. It is stupidity like this that has us where we are. If I save a buck, it has to go somewhere. If it is in the bank the bank lends it out, if it is in a business it gives employment.

Why bring this up? Well if you look at bonds, they tanked the past week and prior weeks as well. This is simply too much debt and treasuries sloshing around out there and so supply and demand. This is telling me at least that more and more folks are cleaning up their debt. Something those idiots in DC should be doing but no....

What this does for investing means it will be a long time before the retail sector begins to rebound, or the building or the banking. However, have no fear. If we feel that these sectors have been hit hard enough, it just might be time to do some long calendars or selling puts if the price of the underlying is low enough i.e. UYG.

If I were to buy and hold these sectors, it could be a long time to get the reward I want. But by selling close month calls I can now collect premiums. In order to do this I need a large amount of capital sitting there gaining a pittance in interest. I can either buy the underlying thereby lessening the capital required, or buy a far away option to cover the sold close months.

On another note, Gold seems to have broken out. Did we miss it? I did, but then I usually miss the beginning on things. Not to worry, when it pulls back get in.

The dollar is sitting on a bounce here. Will it continue or will the multi year slide once again take over? I have no clue. Many analysts I respect are on differing sides on this. Time will tell. Once it does, I intend to get in using ETF's. See the Philadelphia stock exchange for the symbols for these

Covered calls have their place

At times covered calls can be very profitable. The most significant problem arising from covered call "mentality" (I say that because many firms used to let you do these in IRA's but not other strategies, the idea being that these were conservative) This was left over from the gaga nineties of markets always come back and buy and hold syndrome. Time has proven both of these absolutely wrong. (see my latest newsletter regarding why the myth lasted so long) Anyways, as we know now (at least the main stream media will finally admit) this flawed attitude made covered calls fall from grace. If the underlying is falling, you are now going to have to sell calls closer and closer. A bounce and the underlying is now higher than your strike price and you have not recouped any profit thereby locking in a loss.

But with the advent of a bear market, we can now buy many low priced and use the covered call strategy once again. It is not as good as the calendar for most cases, but if you are in an archaic broker that will only allow covered calls in retirement accounts, then this will work.

One of my favorites now is ERF. This is a Canadian trust in the energies. It has a 11% dividend. So if you hold it, you get at lest 11% (not bad in this environment) taking the strikes above, you now can enhance the return. Since oil has taken a severe beating, this should have found a bottom in the 22.00 area.

Failing banks

There is plenty to be nervous about. Bof A, Citi are in serious trouble as well as JP. So the next question out of folks mouths is, "If the banks are in trouble, why are you buying a bank index? Particularly UYG?"

While I am not actually long UYG, I am in essence betting that it will eventually be above 3-4 dollars. If we look at the holdings, the 3 majors that are almost certain to be different in the coming months, they are 15% of the ETF. If they should go to zero ( which they wont since they will be merged sliced diced or other sorted things, but for our example, if they should go to zero, that is a 15% hit on the ETF. At 3 and change, this would mean .45 (cents)

then what? I would expect the ETF to buy sound banks and have the ETF move higher. Now if I were to sell a 3 Feb put, I would collect the same amount as the potential of the ETF to drop. .45 I am only banking (pun intended) on the ETF eventually being above my strike and expiring worthless. If it takes a few months or even a year, I can roll out each month collecting more premium.

Fundamentals

Once again I will try to give some insight to the fundamentals.

In todays trading, too often action like today with the employment numbers folks will ask why? Dell, you talk of fundamentals, but when the news comes out the markets does opposite what the fundamentals say. Well first off, these numbers are not fundamentals. These numbers are manipulations. Statistics to prove anything that the individuals putting them out there wants them to show. If you look into those numbers (and I refuse to anymore) you will see things like Nov. revised up even Oct revised up. So which is worse to days numbers or the messaged numbers a month from now.

Employment numbers lag the markets and as a result you get head fakes all the time watching these things. What these numbers do tell you is fundamentally, we are not improving. Take the swings out, and you will see these numbers sink in in the next few trading sessions.

Remember economics is supply and demand. Knowing where the supply is short or too much leads to profitable trades. That is fundamentals.

Just because economists "polled" expected 525,000 and it was only 524,000 does not mean anything at all other than a day trader takes a spike and gets out with a loss or profit. For my style of trading, it is a mere blip on our radar screen.

Bonds WOW!

Hope everyones holiday was fine and are ready for a new year. I read where the media is postulating that thank heavens it is over (2008). I myself found 2008 quite rewarding and not just for money sake.

We did post about the possible bubble in treasuries. This fast unusual run up is now having an unusual quick drop.

We just move from one bubble to the next the last decade or so. Who ever thought you would get double digit returns from bonds? Now look at the drop in them.

If you missed the pop, dont fret, these things have other chances. Wait for the next run up to get a position. My favorite is a diagonal put on TLT. This ride down although will have moments of fast movements, will be a longer period than most will expect. Much like the unwinding of R.E. in its 2nd year and equities in their 14 months. This too will take a few years to reach bottom.