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GaltMachine

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  • Weighing The Week Ahead: Approaching Dangerous Curves? [View article]
    Tack,

    Look at XLU, utilities, down big from 52 week high. Keep an eye on DVY as well. Dividend stocks are going to be hammered in the short-term. I have been eyeing XLU for a while.

    Boehner will play tough to extract the maximum he can with the leverage he has so it will take a lot of time to get a deal done. They'll figure something out but it will be a last minute deal.

    Good luck.
    Nov 7, 2012. 12:11 PM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Approaching Dangerous Curves? [View article]
    Tack,

    Sad and depressed today. Intrade was right on. Nate Silver was right on and I was completely wrong about this election.

    Looks we are now the "United States of Free Stuff".

    Today's market reaction looks like a repricing of dividend stocks to account for an increase in tax rates or maybe it isn't :)

    I don't trust my instincts that much after this but having said that it looks like NLY's price action is suggesting we are in for a rough ride until the tax rate issues are resolved.

    This looks like we will have some interesting buying opportunities in the next little while with fear building.
    Nov 7, 2012. 10:29 AM | Likes Like |Link to Comment
  • Jeff Gundlach backs up his public caution on longer-dated Treasurys by taking the modified duration of his Total Return Fund to just 1.59 (the fund would lose 1.59% in value in the case of an immediate 100 bp rise in rates). By comparison, Pimco's Total Return Fund is at 4.02. [View news story]
    Actually that is up from the recent low of under 1.3 years. Coincides with a reduction in the cash position so apparently he is deploying some of that cash into MBS.

    Link to the statistics:

    http://bit.ly/xdhdJY
    Nov 6, 2012. 12:43 PM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Approaching Dangerous Curves? [View article]
    Tack,

    I disagree. I fear you are much too sanguine about an Obama victory. An Obama win is a mandate to ensure that everyone pays "their fair share" and taxes will be raised particularly on dividends and cap gains. The expiration of the Bush Tax cuts is a tax increase on everyone so I don't get your point here. He doesn't have to do anything for taxes to increase next year automatically whearas Congress HAS TO ACT to prevent these tax increases from happening.

    Obamacare unless it is repealed already ensures that investment taxes will be higher.
    http://sm.wsj.com/RzBKkV

    "Through the end of 2012, the Bush tax cuts are locked in. But unless Congress takes action and the president approves (whoever he happens to be at the time) those breaks will expire, and individual federal income tax rates on investment income will increase in 2013 -- especially for higher-income folks. To add insult to injury, a new 3.8% Obamacare tax on investment income collected by higher-income folks is also scheduled to take effect next year. Here's what you need to know to be ready for the upcoming tax onslaught."

    Whether the President can get tax increases through the House or not is a different story which means all taxes could go up with the expiration of the Bush tax cuts and the fear that that could happen will lead to massive uncertainty for markets into year end. A lot of tax-based selling will happen unless there is a clear path to resolution. John Boehner will wait until the last possible moment to strike a deal in this scenario in order to maximize his leverage which will be very painful for markets.

    A Romney victory means the House will vote overwhelmingly to extend the Bush tax cuts and repeal Obamacare. Dems in the Senate who don't want tax increases will also vote with Repubs especially with a diminished majority. Amazingly about 5 Senate Dems will not approve tax increases because they fear losing their seat.

    This will set up a nice buying opportunity in my opinion after the dust settles similar to what happened last year with the debt ceiling debacle.
    Nov 4, 2012. 01:03 PM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Approaching Dangerous Curves? [View article]
    Tack,

    Obama wins = higher taxes on income and investment = lower long term returns on an after tax basis.

    Unless you believe he is just bluffing about raising taxes.

    That's bad, not good for markets in my opinion.
    Nov 4, 2012. 12:39 PM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Approaching Dangerous Curves? [View article]
    Politically speaking the worst possible case is an election that is razor thin in favor of the President. No mandate and very divisive. If he wins big, then he will get cooperation. The House will remain R and the Senate will stay D - pure gridlock again.

    As a Romney supporter, I believe that in the event he loses you will see a major drop in confidence about the future from people like me. If he wins, Dems won't mind as much, and R's and I's will be elated.

    From an investors' point of view it is seemingly straightforward: the President is the candidate of increased taxes for employment income, cap gains, and dividends. All of the above taxes will decrease after tax rate of returns - which is what really matters -and cut after tax incomes for those of us relying upon their portfolios for income. I cannot see how increasing these taxes would be a net positive for the economy and the markets in the near to medium term.

    On the other hand, Romney might be a fiscal hawk which could bring short-term market pain as well but longer term positive if the fiscal position of the government strengthens. I think a Romney win will be tough on markets in the short-term as well as he tries to "clean up" what he believes needs to be changed. This is pretty typical for a new President in the early part of their term.

    Basically with Romney we get a new first-term, Presidential cycle with its attendant risks and rewards.

    Here's hoping/praying the election is decisive for either side.
    Nov 4, 2012. 11:47 AM | Likes Like |Link to Comment
  • Facebook (FB) COO Sheryl Sandberg last week sold 353K Facebook shares, netting her $7.44M, while General Counsel Theodore Ullyot and Chief Accounting Officer David Spillane also offloaded millions of dollars worth of stock. The sales were the first by senior management since Facebook's IPO in May, and came after the latest lock-up expiry[View news story]
    It's not actual, realized wealth until you sell especially with this overvalued trend stock - good for them.
    Nov 4, 2012. 11:22 AM | Likes Like |Link to Comment
  • October Nonfarm Payrolls: +171K vs. consensus +125K, Sept. revised to +148K from +114K. Unemployment rate 7.9% vs. consensus 7.9%, 7.8% previous. [View news story]
    Angel,

    On the other hand I just read this from Dwaine Van Vuren, this morning:

    http://bit.ly/VikqUr
    On the Brink of Global Recession
    BY DWAINE VAN VUUREN
    "The Global Economy is on the brink of a recession with 58% of 29 OECD countries experiencing business cycle contractions. The chart below shows OECD defined global contractions (grey shaded areas) together with the percentage of 29 OECD member countries experiencing slowdowns. It is evident that whenever 50% or more of countries enter contraction (red dotted line) that the odds of global recession are very high."

    The chart is interesting.
    Nov 2, 2012. 09:03 AM | 1 Like Like |Link to Comment
  • October Nonfarm Payrolls: +171K vs. consensus +125K, Sept. revised to +148K from +114K. Unemployment rate 7.9% vs. consensus 7.9%, 7.8% previous. [View news story]
    Angel,

    I agree with the ECRI part - hard to see any recession in these numbers. I thought they would end up being proven right but that seems about as likely now as Gary Johnson winning the Presidency next week.
    Nov 2, 2012. 08:40 AM | Likes Like |Link to Comment
  • Selling Puts - Investing Made Easy [View article]
    UI,

    Thanks for the comprehensive response. I appreciate it greatly. I was a little rusty on the Amercian option rights so that helps a lot.

    I am an accredited investor so I already have all of the trading rights to do what you are describing. I simply haven't done it before mainly due to a lack of practical knowledge of the subject.

    In the case of INTC, this one makes a lot of sense, since I would be happy to own this stock with a cost base of $11.96 if I was forced to buy it as I can't imagine a scenario where this would lead to a total loss in the near future.

    What has confused those following this thread is the difference between the amount at risk and the collateral required. The ROI is calculated based upon the average cash required to maintain the position over the term of the option which is obviously not known until the position is closed. The average cash required is the denominator in the ROI calculation.

    The amount at risk in the case of the naked put above is 100X11.96 = $1,196.

    Thank you once again.
    Oct 30, 2012. 04:54 PM | 1 Like Like |Link to Comment
  • Selling Puts - Investing Made Easy [View article]
    Tack,

    "QED."

    Hardly.

    I assumed it was a margined put right from the beginning so no confusion for me.

    The transaction you are describing is for writing a put on a position you own. I wasn't assuming that to be the case.

    The UI transaction above is a naked put - risky but not a problem if you have liquid capital as I do.

    http://bit.ly/SfjV99
    "A naked put (also called an uncovered put) is a put option where the option writer (i.e., the seller) does not have a position in the underlying stock or other instrument. If the option buyer doesn't exercise on or before expiration, the seller keeps the option premium. Due to the risks involved, put writing is rarely used alone. Investors typically use puts in combination with other options contracts.
    If the market price of the underlying stock is below the strike price of the option on the day the option expires, the option buyer can exercise the put option and force the seller to buy the underlying stock at the strike price. That allows the exerciser to profit from the difference between the market price of the stock and the option's strike price. But if the market price is at or above the strike price when expiration day arrives, the option expires worthless and the put writer profits by keeping the premium collected when the put option was sold.

    During the option's lifetime, if the stock price moves lower, then the option premium may increase (depending on how far the stock falls and how much time passes), and it becomes more costly to close (repurchase the put sold earlier) the position - resulting in a loss. The maximum loss scenario for the put seller occurs if the stock price drops to zero. In that case, the loss is equal to the strike price minus the premium received. Loss is not unlimited, as in the case of a naked call."
    Oct 30, 2012. 03:09 PM | 1 Like Like |Link to Comment
  • Selling Puts - Investing Made Easy [View article]
    UI,

    Is the Jan/15 quoted above - Jan 2015?

    If so, I misread it. I assumed it was a Jan 15th, 2013 expiration. Obviously a 2015 expiration greatly changes the return calculation.

    My mistake. Still an excellent cash on cash return.

    Tack, your analysis of this is incorrect. You can buy and sell options without having to provide the cash to secure the total value of the underlying position until the option expires. Once the position goes negative, the broker will request more margin to support the position or you can close the position at a loss.

    You simply need enough liquid capital available to fulfil your obligations - either to buy the stock or pay off the option to close your position. You can invest that money elsewhere so it is not a factor in calculating the total return.

    UI is writing a put and receiving the premium in return for the risk of being required to buy INTC at $13 at the expiration date. As long as the stock trades over this price point until expiration, he will earn the premium of $1.04.
    Oct 30, 2012. 02:59 PM | Likes Like |Link to Comment
  • Selling Puts - Investing Made Easy [View article]
    UI,

    "The COBE website shows that based on today's price for INTC and with the parameters of $13 strike, Jan/15 expiration, and $1.04 premium"

    People will pay you $1.04 to write this put?

    If I understand this correctly, your worst case scenario is to be forced to buy the stock at $13 if it is put back to you, is that correct?

    So in theory, the stock would have to decline to around $11.96 (ignoring taxes) for you to be in a loss position, is that correct?

    The return on an annualized basis as described is pretty awesome assuming the option expires unutilized - the IRR is over 100%! Am I missing something?

    Do you need to own the underlying stock or can you write a naked put?

    Can you do this with a basic option trading account? I user Interactive Brokers, Scotrade, and Etrade all of which seem to have very extensive option caps.

    Although I understand the "theory" part of this, I personally have never done it and would like to learn more. What is the greatest risk you face on this transaction?

    Thank you for the very interesting conversation.
    Oct 30, 2012. 02:11 PM | 1 Like Like |Link to Comment
  • New York Times (NYT) reports stellar circulation growth numbers for the six-month period through the end of September, with Monday-Friday total delivery up 40% and Sunday rising 28%. Triple-digit growth in digital subscription more than made up for declining print subscriptions. Despite the gains, the company's Q3 report made it abundantly clear picking up digital advertising revenue at the same rate it's losing print revenue is tricky. [View news story]
    Terry,

    When this election is over and the President loses, I will be praying for you.

    According to Pew Research:

    http://bit.ly/VBbiFZ
    "Since 2002, many major news organizations have suffered declines in believability, according to people polled by the Pew Research Center for the People & the Press. After local TV news, the next five most trusted outlets were “60 Minutes,” ABC News, The Wall Street Journal, CNN and CBS News, the study says.

    The New York Times, Fox News and USA Today were the least trusted:"

    They are the LEAST TRUSTED for a reason.
    Oct 30, 2012. 10:25 AM | Likes Like |Link to Comment
  • New York Times (NYT) reports stellar circulation growth numbers for the six-month period through the end of September, with Monday-Friday total delivery up 40% and Sunday rising 28%. Triple-digit growth in digital subscription more than made up for declining print subscriptions. Despite the gains, the company's Q3 report made it abundantly clear picking up digital advertising revenue at the same rate it's losing print revenue is tricky. [View news story]
    This brand destroyed itself.
    Oct 30, 2012. 10:16 AM | Likes Like |Link to Comment
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