Inflation... Inflation... Everywhere...

Inflation... Inflation... Everywhere...
My children have a kiddie pool. When we are not at the community pool, we fill the kiddie pool with the hose, and let them play. We will the pool with toys, squirt guns, and sponge balls. One time my daughter turned the hose back on and filled the pool to the rim. The pool filled so high that water started running over the sides, but it was such a slight over-flow that all the toys rose to the rim of the pool.

I think the equities market is a lot like that pool. The government has turned on the spigot and allowed Treasury to continue pumping money into the economy to avoid a depression. Loans are cheap, money is readily available (to those who qualify), and Obama et al. have parlayed a recovery to easy money and government spending. Trading volume of this "rally" is still low compared to 2007. And it would appear to any outsider that Wall Street has utilized the easy Fed. money to create a rally in which they have been the primary beneficiary. All that money flowing through the economy has also created an effect just like the kiddie pool. Equities have risen right along with inflation. However, one must note the continued deterioration of the U.S. Dollar and conversely the rise in metal prices in general, and gold in particular. When there was a gold standard this could never happen... Benton Woods has opened up Pandora's Box.
http://money.cnn.com/2009/11/08/news/international/g20_dollar.reut/index.htm

While the auto industry has reported signs of life with quarterly profits from Toyota and Ford, neither are willing to say that the red ink is over. Sure Cash for Clunkers gave them a profits jolt, let us understand that adrenalin injection is over. Sure reports are trickling out that Ford and Toyota are revamping plants to meet the anticipated recession end, most experts agree that non e of the manufacturers are out of the woods yet. Tom Libby who is President of the Society of Automobile Analysts believes that "even though the auto companies have done a good job cutting costs, that won't be enough to produce sustained profits unless there is a significant increase in demand for vehicles worldwide." http://money.cnn.com/2009/11/10/news/companies/auto_turnaround/index.htm It might be a good time to consider a short position on one of the automakers like Hyundai which saw record numbers during Cash for Clunkers.

John Williams makes a few assumption on the "real" state of the economy, and it is not good. His site entitled Shadow Government Statistics paints a rather grim picture of the real employment picture. According to one of the charts he has created, Williams suggests that "real" unemployment should be rolled into a number based on a collection of those who are 1. currently unemployed, 2. those who are unemployed and benefits have run out and 3. the under-employed. Williams' number reflect a 22.3% figure which even if moderately accurate belies a more troubling figure. That being said, it appears as though Williams' opinion is not important when it comes to rolling with this market. No news has been bad enough to derail this rally. However, should the inflation-equities factor through a tightening of rates, or a sopping up of dollars by Treasury, or a slower than expected recovery, they John Williams will be able to say "I told you so."
http://www.shadowstats.com/alternate_data

One for Me... One for You...

One for Me... One for You...
I guess I have always thought people from Ohio to be a little smarter than most others... Maybe in part due to the images from places like Texas, Nevada, and California... Maybe it is just a bit of the Midwestern common sense... Our work-ethic... Our lifestyle... Whatever it is, it just seemed like people from Ohio just had it together more than most other states... The Reverend Thomas Grey from NCALG told me ten years ago that Ohio is too smart to allow casinos into the state... Evidently, a lot has changed over the last 10 years.

Yesterday constituents from the states of Ohio voted to allow casino gambling in Cleveland, Columbus, Cincinnati, and Toledo. That in of itself is bad, but the average voter doesn't realize that the state constitution will now be amended for the the best interests of two private entities... Dan Gilbert (see Quicken Loans and The Cleveland Cavs) and Penn Gaming (see gambling operation in Pennsylvania). Sure there's the promise of jobs, tax revenue, and entertainment...but let's face it... the casino interests are only rich and opportunistic millionaires trying to become billionaires at the public's expense.

I explained to my students that Ohio has granted Dan Gilbert a piggy bank in Cleveland and Cincinatti that is guaranteed to take in more than it pays out... And that Gilbert and his casino cronnies were willing to spend more on this campaign than Obama did to win in last year's election. I wonder why anyone would spend $35 million on a campaign...

I'm not just a bit bitter about this whole thing... I am actually pissed off. This thing is a loser for the people of the state and it is another tear in our moral fabric. There are a couple of options:

1. Contact your State Congressman to support a ballot measure that would tax these institutions into oblivion.

Ohio House Ohio Senate
2. Do not go to these casino in hopes that they go belly up.

3. Support grass roots efforts for another referendum to strike casino gambling from the state.

A lot has changed in Cleveland over the past 100 years. In 1909 Standard Oil and John D. Rockefeller brought business and wealth to Northeastern Ohio. This created good jobs and many secondary businesses sprang up as a result. One hundred years later, we have replaced Standard Oil with a business doesn't give to Ohio, but only takes away. One thing is for certain, Gilbert is no Rockefeller.

Economic Watch...
Ax is right... This is one crazy market which really does not seem to have a real direction. Gold continues to inch up and silver is going along for the ride. But there really is no leader in the market anymore. I do note that China, India, and Saudi Arabia are hedging their bets in equities and the dollar by loading up on gold. (India finalized a purchase on two hundred meteric tons of gold from the IMF!!!) While this move could be good for India as a future hedge of inflation, let us not be fooled that it can also be seen as a hedge against future erosion of the U.S. Dollar.

I will look to enter into PQ calls again... 1/8s are sounding pretty attractive right now. As reports of China's oil consumption rose 14% yoy, the report was rather quick to brush off any suggestions that China would have little to no impact on global demand. Still though, if pundits are still preaching a recovery, then demand will automatically go up. I say this because there is no coincidence that Buffet's market saving announcement to purchase BNSF was done as a hedge against higher oil prices... somethng that inflation will naturally egg on!

I am counting on a dismal employment number Friday... followed by a further slash in consumer credit. Obama et al. may be looking for banks to start lending... the question is to who? For the full Economic Calendar click here.

Ride the Wave? Reality Check...

Keeping up with this blog has been a challenge. I am back in season... that is transitioning from soccer season to wrestling season. Demands on time limit my opportunities to write the blog. However, that is no lack of observations on this end.

First and foremost, I have traded out of PQ... and traded back into to it the other day. The former garnered me a 300% + profit.... I have limits on all of my options as of now... and allowed this trade to execute. I entered back into to OTM calls on PQ now hoping that the few cents that I wagered will in fact role into a nice bankroll just in time for me to make another go at the housing market this spring.
I was also able to reap a 75% profit on CLF puts which I knew were in for a sell-off. Still though, LVS and a few other January puts could be what the doctor ordered.

I find it interesting that the market was selling off on interest rate worries yesterday, and today phony GDP numbers (laced with stimulus and cash for clunker dollars) paved the way for a 200 point rally. Maybe another component of the rally deals with increased demand for American products due to a weakened dollar. Regardless, this is the market we have... and it is the one we have to play.

Reality Check
If my wife and I are and indication, then Generation Xers are definitely living in a state of denial if not complete oblivion. My wife and I visited the STRS counselors on Wednesday evening. We are doing a bit of retirement planning... and retirement planning these days is like trying to catch a speeding bullet with your teeth. The counselor said that we are the youngest couple she has ever seen at one of these retirement meetings. If this is the case, then I will assume that most people really do not put much thought into retirement until it is too late. My wife and I are both kicking around small business ventures that will generate passive residual income, while not compromising our family life. My suggestion is that all followers of this blog should see a financial professional sometime int he future if for no other reason than to plot a future.

Issue 3 and the License to Steal...

Issue 3 and the License to Steal...

I have always been one to enjoy a friendly wager. A football game here... a poker game there... all in the sport of playing the odds. It is, in its most basic form, a source of entertainment.

However, I do not like Issue 3 for Ohio. Maybe it has something to do with the fact that Ohioans have voted down casino interests on four... FOUR separate occasions. Maybe it is the fact that Ted Strickland and the state legislature attempted to do the old end-around and by-pass voters and legalize gambling in state racetracks through the legislative slide of hand. I know one thing for certain, that whoever wins in the casinos, the real loser is Ohio. Here are some reasons why Ohio should vote NO on Issue 3!!!!

Gambling increases crime, poverty, drug and alcohol abuse, child neglect, bankruptcy, divorce, and suicide. Quite a mouthful huh? Every entity that promotes gambling will fail to mention the human impact of casino gambling. According to one source, the state of Utah alone could have up to 88,000 problem gamblers in their state alone. "Dr. Michael Kalm, president of the Utah Psychiatric Association, believes that gambling can be as real an addiction as cocaine or alcohol." (1) Addictive behaviors suggest that the harmful effects of gambling can lead to compulsive and obsessive behaviors as well. Chances are that 1-2% of people who enter a casino become compulsive gamblers losing everything that they have. Will the casinos be there to pick these people up when they crap out?

To say gambling is good for the economy is like saying that a leech is good for your body. Casinos drain away precious economic resources from the daily lives of people. Chances are that gamblers who lose will be less likely to spend their money in a local establishment like a pizza parlor. Casino do not create any product. In the most basic form, casinos are involved in the transfer of wealth from patrons to casino operators. Casino operators see themselves as businessmen. However a local business like a grocery operates on a 5-6% profit margin... casinos are more along the lines of a 30-35% profit margin. They are nothing more than cash cows for those privileged few who own them. Rich and opportunistic millionaires trying to become billionaires on the public's dime.

Finally, and maybe the most troubling aspect of Issue 3 is the fact that the government is supporting casino interests. On four occasions Ohioans have voted against legalizing casinos in Ohio. Now, it appears that maybe people in our own state government are willing to cannibalize fellow Ohioans for a few bucks in tax revenue. Gambling makes losers out of people. Chances are that parents will not hold casinos up as the model to become a successful and productive human being. Why then would we allow the government to push these interests? (2) Quite simply, when the government stops looking out for the best interests of its people, and starts making sweetheart deals with those who would do us harm, then it is a government that must have lost its moral authority to rule by the people.

In closing, arguments abound as to why we should have gambling in Ohio. New York has it, Pennsylvania has it, West Virginia has it, Michigan has it, and Indiana has it... and we are losing billions of dollars in economic revenue. But I like to think along the lines of Warren Buffet who used the analogy of a dog that fouls up every one's yard. If gambling is fouling up everyone else's state, does it make sense to allow that institution to come to Ohio? I encourage all readers to vote No on Issue 3.

1. http://www.deseretnews.com/article/600144921/Gambling-spurs-social-legal-woes.html
2. http://spgfoundation.org/gambling_&_government.html

College Football Selections...

College Football Selections
S. Carolina -10 KY
West Virginia -10 Syracuse
Wisconsin +16 Ohio State

Economic Trends and Bends... Stock Watch... College Football Results...

Stock Market Trends and Bends...
Gold reached another 52 week high today, and silver moved in close concert. Metals in general have been on the move as more and more countries speculate on the death of the dollar. There is a concerted effort among several nations to stop using the dollar as the world's reserve currency. Oil of course would be the first item switched. This fear alone has caused a dramatic rise in oil and precious metals. But, I would like to warn readers that there is another part to this scenario. Let's just call it the "what if" scenario. What if the Federal Reserve decided to raise interest rates in a rapid succession... to give the dollar legs once again. What if, the world government's move to abandon the dollar goes afoul, and there is no other currency that can be used as effectively. What if the Fed, in some way, shape , or form is able to reign in inflation without leaving the debtor nations holding shopping bags full of useless American dollars. This is not so much a warning, but more or less an argument as the Devil's Advocate and why the dollar is... and still remains the world's reserve... and why gold could be ready for a correction.

But let's face it. There are a lot of problems the United States must work out before the dollar regains its good as gold status. To think that the like of FDR, and Truman worked like the Dickens to make the dollar the envy of every nation, only to let it crumble under the weight of excessive debts and entitlements that would make anyone dizzy... Congress as well as every American should be put on notice... This is not a good thing!!!

Several years ago I looked at a couple of rental properties. I liked the idea of owning a piece of land... having someone else pay ti off for you... and of course the tax write-offs. Yet, the more I looked at rentals, the more I noted that many of the "deals" that were out there would have me supplementing the renter's property. This is not good. I think the government is the only entity that has found supplementing someones property a good idea. And trust me, I don't have deep pockets like the government. If a rental deal was to be had, then I believed that the property had to (at the bare minimum) stand on its own two feet. It if could not meet that basic requirement, then it was not an investment nor and investment.

I bring up this anecdote because it appears that the government has embarked on a variety of programs. Each and everyone discourages people from standing one their own two feet. From TARP, TALF, Cash for Clunkers, stimulus packages, and health care public options... in almost every scenario we are heading down a path that discourages people to take care of themselves. Instead, we are creating more and more of a nanny state. My point is quite simple. At some point in time in the future the government will have to remove many of the stimulus programs. And the economy will have to stand on its own two feet... and if it is not able to do so, then we have in many ways caused a degree of our own long-range problems.

The super-rich... those who have $500,000,000.00 in assets or above are feeling a bit of discomfort these days as well. Before you start to laugh, he are reminded that America needs a rich class. the are often the course of financing and innovation that stimulates the rest of the economy. However, it appears that the rich are particularly worried about government intervention in the financial system in general, and the impending commercial real estate downturn. Many of these lovelies are thinking of playing it safe these days... thinking more like middle class people and not like the meat-eaters that created the original wealth. Regardless of whether you like this class of folk or not, we need them... their greed... and their innovation to keep capitalism alive and well in the united States.

Stock Watch

Let's start with the loser...
LVS is now down 20% from my original purchase price... yet as I expected the stock to get punished once again, I noted that the put options were unchanged today. This suggests that many other market players are looking for a sell-off between now and the end of the month.

PQ has been the story of the month thus far. In after-hour trading PQ breached the 7.00 mark driving the 1/7.5 calls toward grand-slam territory. The real question I may have is whether to make the money and run... milk the time-frame of the calls out a bit more... or even exercise on the options... If I choose the later, it will require a small fortune... and balls of steel to ride this one out. If... if this scenario were to playout, I wouldn't need a visit from Santa at Christmas... and rest assured, the Salvation Army would get a little gift from me in their kettle!!!

College Football...
2-1 is nothing to beat your chest on. However, after the pathetic run I have had, I will take it. This runs my current season record to 6-11... If I was in Vegas playing those games, I might be looking for the casino to give me a complimentary bowl of soup...

College Football... Stock Trades...

College Football...

I am not sure if any reader at this juncture would/should follow my college football selections since I have have managed to go 0-6 the last two weeks. However, I will look toward vindication, as I have never had a losing season in football selections. This week I like:
S. Florida-6.5
C. Florida-7
Army-6.5

Stock Trades...
I entered into 1/7.5s calls on PQ at .35... It was... was.. on a terror until the Purchasing managers report on Thursday left off a bit of steam. News that three more rigs will be on line soon. Couple this with a weaker dollar and this one should have a decent run.

I entered into LVS 11/13s puts... and was immediately rewarded with a 10% loss in the option value. However, I look for a rather bleak economic picture to take a bit of sap out of this tree.

NEOP reached a 52 week high of 1.40 before selling off a bit. Should make another run at 1.50