Europe Likes Crack

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Includes: CHK, DE, GS, IR, JPM, M, MOS, VXX
by: George Acs

I typically feel a need to be at my best on Mondays, because that's the day that I find myself with cash to spend after having been assigned shares that had calls written upon them. The previous week was highly unusual in that I had absolutely no cash to spend. This week, however, I was at the low end of my weekly range, when I expect anywhere from 20-40% of the portfolio's assets to be available for redeployment, following my weekly look forward.

Trading positions and letting others in on what I'm thinking is my job, and I believe in being at your best when on the job.

As usual, after pulling my carcass out of bed, I started the morning looking at the futures and saw they had come down appreciably from where they had been at 3 AM.

That gave me time to sink into my ritual of coffee, Dilbert and the New York Times Obituaries.

Having lots of cash on a Monday morning is certainly better than finding yourself flush on a Friday afternoon after emerging from a check cashing place that's next door to a crack house.

Typically, in that case, come Monday, there's not much left. My Monday dynamic is very different and socially much more acceptable, even though I still have slight pangs of guilt for being at home on Monday mornings rather than being gainfully employed.

Even though I don't have the same kind of enticements available to me, maybe because of zoning regulations, I still am usually quickly parted from my cash due to a need to feed my personal beast.

Today was no different, although initial signs were suggesting that it would be.

On Saturday word had come that Spain had agreed to a bail out of its troubled banking system. Spain needed that crack and the European Central Bank, while knowing that it's probably wrong to feed the habit created by dysfunctional economies, just has to keep that cycle of dependence going, for all concerned.

In the past, that kind of news was met by a very positive reaction by the worldwide markets and then by our own.

Having sold longer term options, using the two weeks remaining on the June 2102 cycle, rather than my preferred weeklies, in order to lock in some premiums on beaten down positions, I was hoping for some mild upside. I only wanted to see prices slowly approach the strikes that I had written.

Beyond that, when you're flush with cash and you have to feed the beast, you really would prefer not to see a ramping up of prices on Monday morning. There's very little satisfaction buying stocks at their high point.

So I started to think of alternative approaches to start the week, in anticipation of that European fueled rally. I don't know why I even bothered playing that scenario through my imagination. Past history didn't justify thinking rationally.

But then came news that Goldman Sachs (NYSE:GS), the very company that forecast $200 oil and a new bull market in gold, very recently, believed that the amount of the proposed bailout was insufficient.

That's all we needed to put a damper on the European party and the pre-opening futures, although I'm not certain why our futures were as high as they were on Sunday evening, given Goldman's sentiment. From my perspective, Goldman is far from irrelevant. It still has clout, whether it is correct or not in its assertions. Yet, I heard no one credit Goldman for seeing things through an unfiltered lens.

As it turned out, it was just about the best of all weeks, starting with an opening market rise into which calls could be sold and also the perfect environment into which to sell Barclays Volatility ETN (NYSEARCA:VXX) puts.

Before that first hour was up the market gave it all up as the high just worked its way out of the addict's system and planned stock purchases became more reasonably priced.

Most of the time, especially if I'd had lots of shares assigned, I look forward to a down Monday in the hopes that I could pick up my assigned shares at cheaper prices.

What I should have realized was that more likely the market would do precisely the opposite of the reasonable man standard, with me being the reasonable man.

Despite a nearly 90 point climb by the open, this had to be one of the most quiet and news devoid days in quite a while. Today had one of those "which way do we go now" feelings except that no one today seemed to focus on the market Doppler that would alert us to the next wave. That has to still be Italy, just as it was last year.

Sure, the market had its brief up movement and then went down and then went down even further in, but there was just no excitement.

With the commitment to ennui, I had the opportunity to repurchase Chesapeake Energy (NYSE:CHK) that had just been assigned, but as often is the case, I was able to do so at a cheaper price than Friday's assignment. You could add JPMorgan (NYSE:JPM) and Mosaic (NYSE:MOS) to that list, as well. What seemed like ridiculously stupid decisions to sell their calls on Thursday and Friday, for last week's expiration, in an attempt to squeeze out some additional pennies of premium, turned out to work, as it seems to do so very often via the process of collecting crumbs.

I also added Macys (NYSE:M) and Ingersoll-Rand (NYSE:IR), specifically in an attempt to capture call option premium and dividend, as they go ex-dividend Tuesday (June 12) and Wednesday, respectively.

With all that money burning a hole in my pockets, it seemed like a good time to bring Deere (NYSE:DE) back home.

And then it occurred to me. Fatter having sold call options on all of those new purchases and feeling all good, warm and happy with the premiums, share prices fell even further and I just wanted to do it all over again. I wanted to buy back my options and wait for another high and then sell them once again.

European dysfunction is my crack.

It's been the market's crack. We've all gotten addicted to the news, the rumors and the news of upcoming news.

Of course, the rumors of upcoming rumors was as good as it could ever get. With Greece seemingly out of the way, at least until this Sunday's election, we're on an intermission. A much needed break from the roller coaster, although there may be some unexpectedly expected detours.

European VacationWe all know that Italy is going to be next, once Spain is temporarily out of the way. Although Cyprus may intervene, as a member of the EU's C.R.A.P. Nations (Cyprus, Romania, Austria and Portugal), no one really cares.

It was barely a year ago that the European financial crisis was beginning to unfold. In that time we've seen key characters come and go. Sarkozy, Papandreou and even Berlusconi.

The world is a far sadder place without current events being punctuated by party related stories about Berlusconi and his play things.

The crisis began just as much of Europe was leaving for its annual vacation pilgramages. The nature of the crisis was clear as many key figures left behind their summer retreats to return to the nation's capitals.

Europeans don't say no to vacation, unless it interferes with retirement. They don't say "no" to bailouts. either.

Imagine if the USA was patterned after the United States of Europe, with each member state being able to hold the central government hostage for their own dysfunction and addiction to mortgaging their tomorrow for their fix today. Although the congress is patterned upon that model, at least our confederation isn't.

Just a few short years ago we were led to believe that Italian indebtedness wasn't a problem, since most of it was being held by Italian citizens.

Funny thing, though, it wasn't. We all still decided to ignore the obvious and just hoped the addiction would cure itself.

So it turns out that much of Europe is actually on the hook for Italian debt, if there's anything left over after Greece and Spain.

Since we're not idiots, although we do sometimes believe what we're told, and we know that Italy is on deck, why weren't there any real worries today until the final hour?

Crack, in whatever form, will do that to you. Reality is either distorted or deferred.

No one knows how Spain and Italy will unfold or what may come next, but at least we know that Italy will be more entertaining than Greece turned out to be.

Watching people throwing Molotov cocktails wasn't going to win a lot of sympathy or sustain or interest for very long. After all, we even get bored after watching Tomahawk missiles rain down on a Middle East capital after just a few days.

Molotov cocktails? That's the equivalent of how are you going to keep them down on the farm once they've seen the city lights?

Italy will have more flair.

Disclosure: I am long CHK, JPM, M, IR, MOS, GS.

Additional disclosure: I have sold puts on VXX