Click Here for April 14th - May 6th, 2010 Report

Those investors seeking income with limited downside risk are invited to read the past report from Solomon Advisors in PDF format attached above. Our aim is to pick mostly blue chip stocks with stable dividends in the 3% to 6% range. The strategy we are advocating is called a Collar Trade or Collar Spread. Very simply put, the strategy calls for buying a stock and simultaneously selling a call option while buying a protective put option with the premiums. The goal seeks a return of between 6% to 10% comprised of dividend income and capital gain while protecting our principal. See the report for a detailed explanation of the concept.

 Happy New Year!

2012  brings us closer to a Greek default. The list of euro members will look quite different by year-end. I've added a new strategy this year we will be utilizing  called "option strangles". More to follow.

    Friday, January 27, 2012

Market Forecast

Earnings for the S&P 500 rose 14% in 2011 but the S&P 500 was flat. The S&P index has lagged actual earnings. If the S&P were to earn just 6% in 2012 it could rally 20% and thus catch up in terms of the index versus actual earnings. This will likely be another volatile year but despite early stock market improvement, the Dow Jones average will likely give back most of its gains and end with a  5%  gain by year end in my opinion i.e. 12,851.13. Our GDP for 2012 will average between 1.9-2.50% not 3% as some economists are predicting. I am optimistic about our economy but unfortunately it's going to take a few years to get back to the point where our economy is growing at a 3% clip.  I don't feel that the US will slip back into a recession but Europe definitely will.  The Greek default or whatever they'd like to call it  will put  Europe in a recession in tandem with the fiscal austerity measures that will befall most of the euro bloc.  The Asian economy will  continue to outpace all other countries though it will not be immune to the Eurozone recession. 

         Gold vs the Dollar

Gold has risen in each of the past 11 years. The dollar has fallen in six of the past 11 years. The yellow metal has risen while the dollar has fallen and risen when the dollar has risen. In the last six years there has not been a correlation. I expect gold to set a new resistance level above $1,950 an ounce. I suggest the purchase of $EGO Eldorado Gold or $AUY Yamana Gold which also sports a dividend yield of nearly 1%; better than money market funds. Silver should similarly set a new resistance above or at $39 an ounce from current $35.75 area. $SLW Silver Wheaton remains my favorite. See charts below re dollar/gold correlation. On an unrelated note I expect copper to recover to the $4.20 per pound area from current $3.80 level. 

        Monetary Policy

The Federal Reserve will keep rates at current  levels and sluggishness in the economy may prompt QE3. The dollar should rally from the current $80.00 level to $84(Mar futures) against the backdrop of euro sovereign debt defaults and concerns. This dollar rally will be temporary gaining while the Euro breaks parity in the months to come. The bigger the problems in the Eurozone the longer the possibility exists for a sustained dollar rally. Today the Commerce Department reported that the US economy grew at 2.8% less than most economists expected. 1.9% of the 2.8% was attributed to inventory replenishment. The median forecast of 79 economists surveyed according to Bloomberg was 3%. Yesterday the Senate voted to increase the debt ceiling by1.2 trillion to $16.394 trillion. This move triggered the price of gold to move up nearly $24 yesterday to $1724.70. Wednesday Bernanke pledged to hold rates low until late 2014. This clearly shows the the Federal Reserve is still concerned that our economic growth may falter. 

                                                            
 Crude Oil

China is the world's second highest consumer of oil behind the US and more importantly is the most populous country in the world with a population of over 1.3 billion people. (US census bureau). China's GDP has been growing at between 8-10% a year. Their need for energy is projected to increase by 150 percent by 2020. To sustain its growth China will require increasing amounts of oil (IAGS). These facts coupled with the current crisis with Iran's nuclear weapons program leads me to predict that oil will trade within $105-$115 a barrel by year end. My two favorite stocks in this sector are $CRZO Carrizo Oil & Gas, and $COP Conoco. Carrizo engages in the exploration and development and production of oil and gas in the U.S. and the UK. Its focus is in proven producing oil and gas plays in Barnett Shale, Marcellus Shale, and Eagle Ford Shale all in Texas. The Niobrara Formation is in Colorado, and the Huntington Field located in the UK. The company is expected to spend about 70% of its capex (capital expenditures) in  2012 on the Eagle Ford and Niobrara plays which are liquids rich. As the price of crude climbs in the weeks and months ahead I expect CRZO to be priced in the $44 range once again. Conoco will be spinning off its refining unit to its shareholders this year and increasing the dividend. So, there will be two separately traded companies out of its oil & gas and exploration and production/refining units. I expect the stock to trade upwards of $81 a share. At current levels it has a quarterly dividend of about 3.82%. Look for a covered strangle example below.

                Covered Strangle 

The Fed as we have already noted will keep rates low until late 2014. Those seeking income from your investments will need to consider alternatives.  A strangle is an aggressive strategy and can be a risky investment so I caution you to utilize this only on dividend paying stocks you don't mind owning.  I will give actual examples. First of all one begins with buying shares of the underlying stock. We will use AT&T $T. Today the stock is trading around $29.30 which computes to about a 6% dividend yield. The 52 week high low range has been $31.94-$27.20. The strategy involves the simultaneous selling of an out of the money call option and put option with the same expiration date. In this case  it would be October. An Oct. $31.00 call sells for $.71 and an Oct. $28 put sells for $1.70. If you were to buy 500 shares of AT&T the following table applies. 

	Cost of 500 shares of AT&T $14,650
	Quarterly dividend of $0.44 or $220 on 500 shares	May & August pay dates
	Oct $31 call premium $0.71 or $355	Oct $28 put premium $1.70 or $850
	Income Totals $220 $220 $850 $355    $1645 =11.22%

The risk in this trade is two-fold: you may lose the stock at $31 dollars a share (no dollar loss) and or you might be "put" 500 shares of AT&T at $28 dollars a share. This would be a nominal or acceptable risk since it is very close to the 52 week low.

A similar trade could be done with Verizon $VZ. The stock has a dividend yield of 5.37% at $37.13.  500 shares would cost $18,565. Sell the Oct. $39 dollar calls for $1.07 and the Oct. $34 puts for $1.55. Similarly:

$250 x 2 for the dividend

$535 for the call premium and $775 for the put premium.

Total $1810 dividends and premium for a return of 9.74%.

Similarly with $COP: 500 shares =$34,700. June & September Dividend $330 x2 =$660; Sell the Jan 2013 $72.50 calls for $3.75 and sell the Jan 2013 $60 puts at $4.15. That's $1450 in dividends and premium income /$34,700 = 4.17%.                                     

                                                  Countdown to Euro Dissolution

12/17/11 Allow me to give you an historical prospective from November through December of 2011 and we’ll work forward from there. On Tuesday the 8th of November,Dougie Kass, famed money manager with Seabreeze Partners indicated that the S&P “…Will rally 5.1% through the end of the year as European policy makers work to solve the debt crisis and U.S. economic data improve.” The Dow closed up 101 points that day. On the following Wednesday the markets sold off 388 points due to uncertainty regarding leadership in Greece and Italy. This situation triggered selling in the Italian BOT otherwise known as the “Buoni Ordenari del Tesoro”. Loosely translated this phrase means “ordinary bonds of the treasury” in Italian. Bots are short term paper with maturities up to 365 days sold at a discount to maturity like our zero coupon bonds. Italian debt yields rose above 7% from 2 year through 10 year maturities. The three year and the five year yielded more than the ten year.

 On the 11th of November Greece PM Papendreou steps down and Lucas Papademos is appointed PM. Papademos has assured the EuroStates that an affirmation of their commitments will be made by year-end. The new government in Greece needs to affirm in writing their commitment to the demands of the 17 euro member states made on October 27th. Without signed documents there is no way Greece will receive the next loan tranche or bailout funds it desperately needs (8 billion Euros). Troika sources told the Kathimerini (Greek newspaper) that the text to be put before the Greek officials has yet to be drafted but will include a commitment to the terms of the current memorandum of understanding between Athens and its lenders. On November 25th Samaras, the new democracy leader, was said to have sent a note indicating a willingness to make the needed affirmations thus paving the way for release of funds from the Eurozone.

Silvio Berlusconi Italy’s PM resigned Saturday November 12th, ending his 17 year reign. The aforementioned BOT’S selloff paved the way for the resignation after borrowing rates on the Italian bonds soared causing other euro zone countries to seek bailouts. Italy came close to a full scale financial emergency that week after yields on 10-year bonds soared over 7.6 per cent, levels which forced Ireland, Portugal and Greece to seek an international bailout (Al Jazeera). Berlusconi pledged to step down after the Italian Parliament approved austerity measures sought by the European Union. Meanwhile an extemporaneous orchestra and choir played the “Hallelujah” chorus from Handel’s “Messiah,” outside the presidential palace. Italy has a debt the size of Germany but has an economy a third its size. It’s growth-hobbling debt is second only to Greece among euro zone members. On November 13th, Mario Monti, economist and former European Commissioner succeeded Berlusconi. In December, Italian PM Monti introduced a package of spending cuts and tax increases which appears very ambitious. Monti is also proposing an increase in the retirement age.

Spain meanwhile, saw its growth slump to zero in the third quarter of 2011 and most economists see another recession on the horizon. PM Mariano Rajoy is sworn in on December 21st.(Reuters) Spain has an additional problem in that there is no clarity in the banking sector relative to how it will deal with its non-performing assets. These non-performing assets are due to real estate loans, unsellable real estate and a total collapse of the property market.

                                        Volatility Blues

The market in 2011 will go into the history books as one of the most volatile markets ever. The Dow finished the year up 5.5% while the Nasdaq closed down 1.8% and the S&P ended nearly flat up 0.37%. The major averages began their rally in April and by the 29th were up 8%, only to see a fall of 17% by October.  The market did not rally 5.1% as predicted by Doug Kass from November but rallied about 1.34%. Attached below is a chart showing the volatility just from November through December. 

If one were to compare just the range of closing prices on the Dow, one would find  a price swing of 470 points in December and 864 points in November ! All this volatility can make investing difficult and risky. My next blog will outline some strategies one should consider in minimizing such risks. 

The next Euro summit is in March. Collectively, nothing has really been decided. Germany has vetoed any semblance of joint responsibility for sovereign debts. Neither has Germany accepted a Eurobond passage nor backed an ESM(european stability mechanism) expansion and joint guarantee. I doubt the upcoming summit will yield adequate debt reduction expectations by Germany.

                              Hedgefund Extortion

“So where are we now,” one may ask? Well, remember when banks that were a part of the IIF(Institute of International Finance) last year agreed to a 50% haircut or reduction of their Greek bond-holdings (October,2011)? No progress on the particulars of the refinancing thus far.  It is not likely that many hedge funds will voluntarily take the offer and have been adding to their holdings of Greek debt.  Reuters estimates that 20 to 25% of Greece’s creditors remain unidentified. My understanding is that at least half of that number is said to belong to hedge funds. Greece has to have their new round of bailout money by March 20th, when about 14.5 billion Euro bonds come due. It will take weeks to get the paperwork done so I look for February 15th give or take a few days to be pivotal. Troika needs about 80% of bond holders to take the deal. IIF is now hoping 60% of bondholders will take the deal down from 90%. If the 60% number is accurate, it may not be enough to warrant payout of the second bailout package to Greece. Here is the key to understanding all of this. Hedge funds bought these bonds at steep discounts and bought default insurance (CDS's) at the same time. If they force a credit event, their insurance pays off.  Since they own only 10-15% of the outstanding bonds they might be paid 100% on the dollar to entice them to go along with proposed offer.  Bloomberg reported Tuesday (Jan 17, 2012 3:02pm cst) that Greece was nearing a deal with private creditors that would give them cash and securities with a market value of about 32 cents per Euro.  In other words, that means the private investors would get a haircut of 68% instead of the previous 50% according to Bruce Richards, hedge fund manager on the creditor committee. Richards is the chief executive officer for the New York based Marathon Asset Manager LP. What this means is that everyone gets 32,000 euros in the new bonds for every 100,000 redeemed. The hedge funds may get 100,000 euros for every bond redeemed no matter the deep discount they may have bought them at plus 32,000 euro worth of the new bonds. Regardless, I still firmly believe serious obstacles to an agreement remain.

For those not aware, the ECB is not a lender of last resort for the Euro zone. The ECB  bought bonds of distressed countries last year in order to ease selling  pressure, at the behest of top German central bankers Axel Weber (former Bundesbank chief) and ECB chief economist Jurgen Stark. Stark later stepped down in protest to the bond buying program, saying the ECB had compromised their cherished independence. 

The ECB is forbidden to finance the budgets of member states. German finance minister Wolfgang Schauble told parliament last year that it would "... Do everything necessary to combat the dangers for the stability of the Euro as a whole. "But only in such  a way to ensure that the common (euro)currency remains a stable currency....a stable currency with an independent central bank and a central bank that is  not available to finance states". (The Local, Germany's news in English 11/22/11).

Austerity measures will only exacerbate current economic problems as it has in Greece, Spain, Portugal and France. Some reforms are needed but raising taxes in the midst of a "no growth” atmosphere will only make matters worse and Europe is already near recession.
The Eurozone is in trouble and its problems have been many years in the making. Excessive government spending and excessive government debt along with slow GDP growth means the Euro will continue its decline against the Dollar, Yen and other major currencies. What we have here is insolvency of various countries and banks. If something doesn't change, Germany will end up funding Greek, Portugal and French debt. The debt of these PIIG nations is growing faster than their respective growth rates. 

It is  prudent for a country to have ample time to restructure their debt.   Assuming such, one can then decide how to structure maturities,  and then decide what cuts can and must be made. One avoids making hasty decisions that can later plague a country's future growth prospects. Greece is a case in point. They had no plan and will not be able to make their March bond payments. There will be a default of some type very shortly. Greece's fate is bleak whether it defaults and reverts to the Drachma or remains in the Euro zone.  Italy also has  its share of problems but at least the bulk of their debt does not need to be rolled over anytime soon. 

                              Here Is The Bottom Line

The euro zone countries are drowning in debt and can't sell bonds at attractive or sustainable rates. There is little to no growth which makes it difficult to grow GDP to pay down debt. They cannot issue their own currency in order to improve   exports. They can only make cuts. Therefore, I am recommending shorting the Euro against the Dollar.  Rather than using an etf (exchange traded fund) such as "EUO" as I have advocated in the past, I am suggesting either shorting the CurrencyShares Euro Trust etf "FXE" or using January 2014 options as an alternative. The proposed strategy is essentially a synthetic short.  This strategy is similar to the collar trades we have done in the past with the exception that the stock is not bought.  This is an unlimited profit, unlimited risk options trading strategy that is taken when the options trader is bearish on the underlying security but seeks an alternative to short selling the stock.  In this strategy unlike shorting the stock, there is no need to borrow the stock, no need to wait for an uptick and you pay no dividends on the stock you short.

When the Euro made its all-time high in July 2008 ($1.60) against the dollar, ""FXE" coincidently made its all-time high of $155.00. "FXE" yesterday closed At $129.16 and the March Euro Fx futures finished at $1.29.  Historically, the euro has averaged about $1.20 versus the US dollar. The euro/dollar exchange rate currently is about $0.10 - $0.12 higher than the average and mixing in the other variables I put the downside risk at about 20% and a possible 2 to 1 return on the upside.

January of 2014 is the farthest we can extend this trade.  To implement your synthetic short option trade: Sell "to open" one January 2014 $130 call, and  buy "to open" one January 2014 $130 put for each 100 shares of "FXE" you'd like to short.  The $130 calls yesterday were bid $7.50 -$9.20 and the $130 puts we're bid at $11.15 to $12.95. At yesterday's prices,  a single synthetic spread would cost you $545.00

This strategy is risky. Anytime you are short an option or stock it entails risk, but if you think the dollar will strengthen against the euro in the next two years, this could be a very profitable trade. For this trade to not work I would expect one of the weaker euro zone members to depart or for the ECB to become the "lender of last resort" or if Germany were to decide to suddenly endorse the backing of Euro bonds, all of which seems highly unlikely.

Those wanting to mitigate upside exposure might consider purchasing the January 2014 $140 call options.  The price is about $6.33 or $633 per contract representing 100 shares of "FXE". I would suggest purchasing one half of your position i.e. if you sold  ten calls and bought ten puts, buy five call options.

Because of the length of this blog, commentary on gold, crude oil and related stocks i.e.,$CRZO,$COP,$SLW,$POT$AUY and new income strategies will follow this weekend. Don't be in a hurry to place this synthetic option trade. The euro bloc will probably release information claiming to be close to an agreement. Don't beleive it. $FXE will rally on the alledged news. It will just increase the call option we will sell and make the put cheaper that we will be buying.

9/14/11 At about 12:00 pm CST,Gseek PM Papandreou and Meieel will meet. Austria this morning failed to ratify the EFSF saying a special meeting will have to be called. All countries need to ratify the EFSF or no bailout. My fear is that although Merkel  will tell Greece to hang on, this delay may be Greece's deathknell. Buy more $EUO don't take profits.

8/16/2011 Later today, French President Nicholas Saarkozy and German Chancellor Angela Merkel meet in Paris in an attempt to explore measures that can be taken to contain Europe's debt crisis. Last week French banks were hit with panic selling on the rumor that France would soon lose its AAA rating. Well folks, its not just a rumor, it's a matter of when not if. Just a week ago the market was concerned about Europe contagion and since then we have seen a string of rallies for no apparent reason. As of July 5th, 2011, the unemployment rate was litte changed at 9.10%. The number of unemployed stands at 13.9 million people. Among the major groups were teenagers and blacks at 25% and  15.90% respectively.

Over the last  six or seven months, the nations's housing supply has been held at bay by moratoriums imposed on major servicers over foreclosure practices. According to a number of well-known economists including Robert Schiller, home prices will decline another 20-25% over the next several years. Why you might ask?, because the number of homes expected to hit the market is more than double the homes sold in 2010 and 2011 combined year to date.

According to the bureau of economic analysis, the growth of the real  US GDP in the second quarter of 2011 reached 1.3% after the the real US GDP grew by 0.4% in the first quarter of 2011. This rate is well below expectations  and will further fuel the rise of precious metals.

It is often said that consumer spending is 70% of GDP. In these times it would closer to the truth to say that personal consumer expenditures plus healthcare spending (nearly one-half of which comes from the government), is 70%  of GDP. When our parents have a hip or knee replacement, the check for one-half of the operation coming from Medicare is counted as consumer expenditure. Further, when you buy electronic equipment of any kind or clothing,supplies etc. for yourself or your school-age children, how many of those goods were imported? A dollar of consumption spent on imported goods shouldn't translate into domestic production. Bottomline, GDP stats are flawed much as the way our government measures inflation. How can you measure inflation and omit the cost of food and fuel?

Last Friday we sold our entire position in $EGO,Eldorado Gold at a handsome profit of 27% since our purchase in February of 2011. We sold not because I've lost faith in the metal but rather because the CME will likely raise margin requirements again in the next few weeks as gold tops $1800. Will advise of our next gold related purchase. We also averaged down on our positions in $SLW Silver Wheaton and $CRZO Carrizo Oil & Gas. We also averaged down on our position in $RIMM Research in Motion and bought $POT Potash 8/8/11 under $50 and both are in profit, up 2% and 12% respectively. At present we own $TWM as a hedge which is the Proshares Short Russell 2000 Index and are down 17%.

A few weeks ago in my blog I announced that my put position on the equity indexes was down 70%. We closed that position at a 15% profit, I'm happy to report. Anyone not taking precautions for a market reversal with somewhere between 5% to 15% of your overall portfolio will soon be out of retirement and looking for work. One must not only view the market from a long or "buy" perspective but also from a short or "sell" vantage point. Your broker's WallStreet address won't insulate you from impending peril much less your financial planner. As a former broker dealer for nearly 20 years I can tell you that the vast majority of brokers are just salesmen. If your broker is under 45 years of age, he or she may not have even have been around for the crash of 1987 or the meltdown in 1990 or the tech fiasco of 2001. Choose experience over WallStreet address and improve your odds. You won't learn to trade this market by listening to a book peddler,shameless self-promoter like Jim Kramer or the clueless Maria Bartiromo. Hire a professional. Don't try to trade this market from free information you get from the internet. Here are a few things that could happen that could tip the market in a southerly direction:

Germany exits EU and reverts to the Deutsch Mark; Greece is kicked out of the EU;Japan has another severe earthquake/tsunami and tells the truth about the radiation exposure;terrorist act on US soil;Italy is downgraded; France is downgraded;Gold hits $2000 an ounce; silver hits $60 an ounce; EU issues debt and Germany is downgraded; crude oil hits $150;devastating hurricane off US coast; Obama assasination; war declared between North & South Korea; war declared between Iran & Israel; US involved in another conflict;Gadhafi retakes Libya; Fed raises interest rates in an emergency move to quell a major bank failure due to derivative exposure; World GDP stats less than expected; dollar replaced in basket of currencies.

8/7/2011 Its a couple of hours after the Tokyo markets opened and the Dow futures are off 178 points and improving from its opening, down around 344 points from Friday's close. S&P futures are off 21 points and Nasdaq futures are off 38. Gold is up $52.00 @$1703.80 and silver is up $1.86 at $40.08. I'm not surprised. Bernanke convenes the Fed's next policy setting meeting on Tuesday and he will have only two choices:keep rates low and or buy more U.S. government debt. My guess is he will do both. Here comes QE3(Quantitative Easing) and up go commodity prices. Tomorrow or in the next few days, expect municipal bond ratings to be downgraded which are backed by U.S. credit, ie, pre-refunded bonds and agency-backed municipal debt. Chapter 9 filings(bankruptcy) for muncipalities will become more of a reality. Texas allows for municipal bankruptcy incidently.

Sunday, Geithner accused S&P of "showing terrible judgement", referring to the downrade in U.S. debt. However,Dagong Global Credit Rating Co. downgraded The U.S. debt to AA back in July 12th, 2010! Britain and France were at AA-. Spain and Italy at A-. I personally don't beleive that S&P made a 2 trillion dollar mistake. It's likely that S&P is allowing this concession to appease Obama in order to save face. Italy and Britain currently have a higher rating on their debt than we do.

As we approach Monday, Israel stock market was down 7.5%, Nasdaq Dubai -6.9% and Bahrain -4.18%, as expected since our S&P 500 closed lower than 7%. I can't predict how we will open but I would guess that since many hedge funds went to cash on Friday they will be buying on dips in the market then promptly selling ending the day down another 7% on the S&P 500. For those who are not in precious metals, try the $GDX basket of 25 mining companies. For those not hedged buy the Ultra Short financial etf $SKF, the Ultra Short Russell $TWM and the Ultra Short Retail $XRT on a rally unless we go "straight down the tubes". These etf's are not for "boys in short pants", so be forewarned.

8/5/2011 The Dow dropped 500 points today or about 5% and the S&P fell 60 points to 1200 for its worst drop in two years. Neither gold nor silver were able to stave off the onslaught. August crude traded down $5.25 to $86.68 but traded as low as $82.87 on the day. I feel oil will hold the $85 area despite heavy margin selling pressure by hedge funds. Hedge funds were desperately trying to raise cash by selling off any and all assets.  I read a ridiculous article by accounting firm KPMG entitled "The Unaccounted Risk of Fossil Fuel Investments". The company representatives claim there may be a fossil fuel bubble, basing their judgement on the reasoning that the risk of emissions from the fuel burning were not taken into account when the valuations were made. While there may be some validity to their statements, it has nothing to do with yesterdays price action. Companies are largely valued on their earning capability, plain and simple. If you currently do not have oil holdings, tomorrow may be your chance to take a position. Don't let the ramblings of KPMG nor CNBC's Maria Bartoromo and Steve Liesman (who are news reporters by the way), cloud your judgement. If you missed taking a position in commodities, now is a good time to start with crude oil. My favorite remains $CRZO, Carizzo Oil & Gas. While September silver is trading at $38.785, take advantage of the situation and buy $SLW, Silver Wheaton.

We closed our August position in $SPY puts yesterday with an average gain of 15% and will close out our August QQQ puts tomorrow. Non-farm payroll data will be released at the open of the market and I don't expect good news. We will be buying more $SPY puts on any rally. We remain long $EGO, $CRZO, $SLW along with our reverse etf on the Euro, $EUO. Yesterday's 500 point drop in the Dow illustrates the need for hedging strategies. Our profit in Coinstar,$CSTR has dwindled but will average down on the October options likely tomorrow.

At this hour European markets are trading at 14 month lows while gold is rallying about $10. Dow future are off 27 points as we write.

7/18/2011 Well, last week we saw the last of our space shuttle program. NASA now seeks to partner up with Russia in subsequent missions. A troublesome union in my estimation. In regard to our monetary policy Russian Prime Minister Vladimir Putin said last week, "Thank G-d... we do not print the reserve currency. But what are they stirring up? They are simply acting like hooligans."
I'm not defending our monetary policy but it seems like an odd statement for one of our future space mission partners to make. Putin will be trouble as he has been in the past. For him to refer to us as hooligans is laughable coming from a fellow who was one of the leaders of the 2nd Chechen War. Sadly, it will be difficult to make up for lost time in the space race, but we can't afford it any longer.

Tuesday morning, Bank of America announces earnings along with Goldman Sachs, Coca Cola, Harley- Davidson, Johnson & Johnson, State Street, Wells Fargo to name a few. It's hard to predict how the market will react tomorrow but Goldman and B of A will likely drag the market lower is my guess. Housing Starts for June will be released Tuesday as well and a mild increase is anticipated. If there is a chance for a rally this week, Tuesday seems to offer the best odds since Thursday the EU heads meet for a meeting on their debt crisis and Friday the EU meets again regarding their budget. Speaking of the EU, markets continue to worry about a possible contagion. ECB president Jean-Claude Trichet worries bond traders as he calls for new initiatives regarding Greece. Trichet, remember was the one who bought a wagon-load of Greek bonds for the ECB, 40 billion Euros worth of Greek debt is the estimate. This is the same moron who continues to pick and choose what he will and won't do in reference to the Maastrict Treaty.

Last Friday, the European Banking Authority,EBA, released the results of its stress tests. Eight of 90 banks failed the test. This is the same group who passed all of the Irish banks last year. This year, no French banks failed the test. French banks own $53 billion of Greek debt. The stress test issued by the EBA, is just not stringent enough to be meaningful or useful. Thus Italian and Spanish debt yields are placing pressure on their respective banks. There is more danger in Europe than appears on the surface. Tread carefully.

Our positions in gold, $EGO and silver,$SLW and oil,$CRZO, and $EUO,a reverse Euro etf, have helped offset the markets recent downturn. Although our protective option position is still off 50%, our profits in the above listed holdings including $CSTR, Coinstar, the owner of the Redbox video outlets, have balanced and offset the loss in the protective puts which account for between 10%- 16%  of most portfolios. So the loss is nominal but remains an essential hedge.

 7/12/2011 Republicans caved in on their debt limit talks today instead offering to give Obama new powers allowing him to circumvent a government default. A proposal offered by Senator Mitch McConnell of Kentucky, allows Obama to request and secure debt increases of up to $2.5 trillion in three separate installments within the year providing spending cuts of greater size are proposed. The plan would require Obama to outline deep spending cuts. The President has yet to cooperate in this regard for months. This is a stop-gap measure I don't believe the President will endorse.

In other news, Moody's Investors Service today downgraded Ireland's debt one notch to Ba1 from Baa3. Yesterday, the Euro began its tailspin when the ECB (European Central Bank) announced that it was looking to expand a fund to include  help for Italy. The ECB also said that the bailout fund may have to be doubled to 1.5 trillion Euros in order to cover a crisis in Italy according to German newspaper Die Welt. Yesterday also witnessed 2 year debt in Portugal at 18.36%, Ireland 17.83%, and Greece at 31.34%. Precious metals rallied today perhaps on investor realization that we are breast-feeding many European banks thanks to our Federal Reserve. If you think this is just Europe's problem you are sadly mistaken. QE3 was also tossed around today which could fuel further commodity rallies. The chart below shows spreads widening on Credit Default Swaps, (CDS's) as worries increase on the PIIGS's economic woes. Goldman Sachs chief U.S.economist Jan Hatzius in an interview with the WSJ yesterday said there is a 15%-20% chance of a renewed recession next year. If we are having a growth slowdown there is hardly a chance for the PIIG's nations to survive their upcoming tribulations. Follow this link if the chart does not appear. Http://www.solomonadvisors.net

Our $CSTR, Coinstar options are up 113% and Goldman Sach's announced a 12% stake in the company today. $CRZO, Carrizo Oil & Gas is up 13% and our inverse etf on the Euro, $EUO is up 2%. We are up a modest 1% on $RIMM. Research in Motion while $EGO, Eldorad Gold is off about .5%. $SLW,Silver Wheaton is off about 8% and our SPY puts are off 60% and turning which completes our hedge against unforeseen events.

6/30/11 Papandreou and the Greek Parliament narrowly won the majority vote and passed the MTFS, Mid Term Fiscal Strategy yesterday. Later this morning around 7:00am or 8:00 am, the Parliament will vote on the what measures to implement regarding the MTFS. In order to receive the next tranche of payments Greece must adopt the austerity package without major modifications. Secondly, the EU must continue to provide funding in order for the IMF to distribute their share of the quarterly disbursement 12 months later. The agreement yesterday was a vote for the package as a whole. 

Kenneth S. Rogoff, former IMF chief economist is quoted as saying "Greece is basically being bribed not to default..".  As I've said before, Greece is not being bailed out, their creditors are being bailed out; banks primarily in Germany and France but also Japan,China and the US. Papandreou has pledged to find buyers for state assets totalling 50 billion Euros. I feel sorry for the middle class and the poor of Greece who will have to shoulder the burden of these austerity measures. The wealthy of Greece have long since moved their assets elsewhere. I suspect that Greece is being pillaged by planned privatization. These buyers knew Greece wouldn't be able to remain solvent.

Our $CSTR position is up 64% and our position in $RIMM is up a modest 2%. Positions in $CRZO, $SLW and $EGO have offset our temporary losses in our $EUO the inverse Euro etf and our protective $SPY August $127 puts.

Please go back to the top of the Commentary and choose $RIMM, Research in Motion, and pick gross profit margin  as a driver for projected pricing, or follow my link to my .net site where you will find projected pricing for $RIMM and $SLW. Http://solomonadvisors.net

6/21/2011 Deputy Prime Minister for Greece Theodoros Pangalos said in a commentary published in Kathimerini today that ..."the problems that plague the center of Athens are the result of chronic political dysfunction." He further noted that fixing the situation is difficult because of uncontrolled external factors such as global migration flows. What he is referring to is illegal migrants coming in from Turkey. I don't see the correlation. Meanwhile Greece's international creditors are pushing for the government to win a confidence vote this evening mandating new austerity measures which Papandreou has vowed full cooperation (from Athens). Cross party agreements with political rivals won't come easily I'm afraid. Providing Greece survives the vote of confidence tonight,the next round of funding is conditioned on the Medium Term Fiscal Strategy being passed. That being said, we took profits on the SPY August $126 puts and re-bought them by the close last Friday. We are up almost 10% o our CSTR Oct $47.50 calls. We are long $EUO which is an inverse correlated etf  on the Euro and long SPY Aug $126 puts and are down 15% as of the close Monday. I favor being long gold and silver stocks mainly $EGO and $SLW along with $CRZO an oil & gas outfit from Houston inspite of where oil is trading. Friday we also took a small position in $RIMM, Research in Motion. We will surely buy more as traders try to force it to $20.00. $RIMM was last at $20 in 2005. Although $RIMM has lost market share, I expect it to reinvent itself soon. Talk about its demise are entirely not deserved. It trades a less than 1 times it's sales. It could also  be a buyout candidate. The company caught wallstreet analyst's unprepared for their recent earnings release and earnings projections. Stay tuned.

6/16/2011 In April, my girlfriend's daughter Cecelia Z. mentioned that Redbox $CSTR might be able to pick up business from the closing of Blockbuster stores due the Dish Network buyout $DISH. AT the time it seemed like a crowded trade but I told her I would look into it and follow the stock for awhile. Cecelia is both beautiful and bright just like her Mother. She is the Development Director for the Deep Ellum Foundation in Dallas. Coinstar $CSTR who owns Redbox, had moved upward to $57 dollars a share by April 27th. Yesterday it closed just under $47.

Dish Network now owns 1700 stores nationwide from Blockbuster's original 3300 stores. That means there about 1600 locations vacated by Blockbuster and or Dish Network that Coinstar can possibly pickup. That spells earnings increase to me.

Beginning tomorrow, Coinstar $CSTR, video game rentals will launch at more than 21,000 locations nationwide. Video game titles across 3 platforms, Playstation, Nintendo Wii, and Xbox will be featured. CEO Paul Costner has mentioned that they would be looking to form a partnership with an existing company specializing in digital downloads. This company is prime for a take-over. Wedbush has an outperform rating on the stock and expects it to trade between $62-$72. The Benchmark Company has a buy rating and expects it to trade between $60-$70.

Coinstar recently said it will add 1400 coin counting machines at Safeway Stores $SWY. I only see upside to the stock. That in mind, we have bought October $47.50 call options on Coinstar, $CSTR at $5.00.

6/15/2011 British economist John Maynard Keynes was once quoted once as saying,"If I owe you a pound, I have a problem; If I owe you a million, the problem is yours". What Greece wants now is a handout not a bailout. I am not in favor of the former but thr latter is what the Greeks want as exibited by the rioting and violence today. There is not an easy solution to the Greek dilemma. It is a shame to see the privatizaion of the country's assets but let's be fair, Greece entered the EU under false pretense and was eager to accept the easy money. No one will give them a handout now.

Separately in today's news is the warning from Moody's rating agency that it may downgrade the three largest French banks on the potential losses of Greek bonds. BNP, Paribas SA and Credit Agricole SA face a one notch downgrade with Societe Generale SA facing a two notch decrease in rating.

Here's the "skinny". The ECB is is exposed by $444 billion euros from the PIIGS nations. Not all the debt is considered toxic but about $190 euros is Greek debt according to Open Europe a think backed by UK businesses. The ECB is leveraged by more than 23 times which is not that bad in terms of our leverage which is north of 50 but the difference is collateral. If Greece were to restructure their debt by one half, the ECB would stand to lose $45 billion to $66 billion euros which would come close to wiping out its entire capital base. The ECB is taxpayer underwritten by the way.

The collar trade on $TIN did not unravel as planned so I nixed the idea. Yesterday in the face of a strong rally, I bought the August $SPY $126 puts which are up about 40% as I write. I had the pleasure of watching my 7 month old granddaughter after the close so I did not have a chance to advise my readers. My apologies. My clients have first priority.

I still would recommend buying the $EUO etf and $SPY and $QQQ puts on weakness for you latecomers. Although the dollar is rallying due to current perceptions, a Greek default will affect everyone. Bernanke's warning to lawmakers yesterday to keep negotiations over debt ceiling separate from longer term fiscal priorities tells me to own gold and silver and oil positions. Hard commodities is the place to be in these circumstances. $EGO,$SLV, $CRZO.

June 6th, 2011 First of all, congratulations to our Dallas Mavericks. A well fought championship, won with class and persistance. I hated listening to those three bozos from CBS. So much for unbiased coverage.

Back to the EU the ECB and Greece. Everyone seems to agree that all parties involved are simply lying. Don't you find it odd that we've heard nothing from the "Troika" regarding Greece's adherence or failure of the fiscal mandates imposed on them last  year? The easy answer is that they've just ignored the data analysis. In case you've forgotten, Jean-Claude Trichet President of the ECB bought Greek debt. They stand to take a beating as a creditor. According to Barclays Capital ECB owns $40 billion Euros worth of Greek debt. The "Troika" are racing to to a resolution by June 24th. Talk on the street suggests that the ECB is in a state of near insolvency due to their using Greek bonds as collateral for billions of loans that may push them to the edge of catastrophe.

Everyone knows by now that International Paper $IP, made a $30 tender offer for Temple Inland $TIN last week which was promptly rejected. I believe that another offer will surface pushing the price to around $40 a share. Will advise on a collar trade possibility on Twitter or check Solomonadvisors.net to see the Tweeter posting.

6/9/11 A new risk to commodity investors has come into vogue: Margin requirements. The Chicago Mercantile Exchange recently raised margin requirements 5 times in eight trading days. Rates were doubled from 6% to 12%. This results in a requirement of $21,600 per contract. Are you listening Loretta? Is it any wonder that silver dropped 25%. JP Morgan is the custodian for the iShare's silver trust $SLV. JP Morgan incidently perpetually ranks among the largest short positions against silver on the COMEX. This seems like a conflict of interest to me? Also, HSBC Bank, who incidently hold some of the largest short positions in gold, is the custodian of the Spider Gold Trust,$GLD. Morgan Stanley and HSBC profit when gold and silver drop and yet they manage the largest Etf's in the United States. No different than when Goldman Sach's shorted the CDO's they originated then sold to their customers.

Jamie Dimon is Ben Bernanke's boy, despite Jamie's recent challenge of Ben's capital requirement challenge for banks. Silver and gold reaching recent highs was bad for the dollar. Bernanke could have easily insisted that CME raise margin requirements knowing full well that the result would be a cratering of the precious metals markets. Dimon and HSBC Followed suit. Rumors abound inciting that COMEX allows for paper etf gold shares to pass as physical gold in EFP Transactions ( Exchange of Physicals for Futures) whereby the buyer or seller may exchange a futures position for a physical position of equal quantity. Listen closely Loretta, this means that firms like JP Morgan and HSBC could concieveably short silver or gold on the COMEX and close out their short positions by delivering shares of a gold or silver etf.

There is no transparency in the commodity markets. JP Morgan, HSBC and Goldman are manipulating the silver and gold markets. Further, Goldman being one of the largest commodity dealers in the world, can make their own self fulfilling prophecies. If you don't believe me, you're just a moron and deserve what you get. Owning $GLD and $SLV is not the same as owning physical gold and silver.

The dollar is being debased. The Chinese are buying futures contracts on oil and grains as we speak from Latin countries. Call or e-mail for help developing a strategy to thrive in this environment.

 June 6th, 2010 Tim Geithner, today in his address to the International Monetary Conference mentioned that "...based on the changes already achieved and those now underway, we will be able to accomplish what few people would have thought possible at the beginning of 2009." Inferring that our financial system will "...emerge from the crisis not only transformed but in much stronger shape."

Although Geithner claims that the risk in so-called shadow banking system, (those that operate outside the protections and constraints imposed on our banks) has fallen substancially, it is only because Lehman, Bear Stearns, Merrill Lynch, Washington Mutual, Wachovia, GMAC, Countrywide and AIG have either restructured or are now non-existent. Hence the 40% drop of tri-party repurchase agreements since 2007. Asset backed commercial paper outstanding is off one third from its high in 2007 which was often used to fund off balance sheet vehicles. No doubt the Dodd-Frank Act will limit much of the risk though it does not eliminate it wholly. It is still possible to incorporate and do business in other countries not limited to our restrictions. The fact that our banking assets are less concentrated than any other economy means nothing. It just means we have a money printing press. The risk of another melt down is still with us. Not much has changed. We still do not have trained people necessary to even act as watchdogs as of yet. Risk and leverage in the derivative markets are still with us. The only way the Dodd Frank Act would being meaningful is if we had international coordination. There will still be non cleared derivatives which won't be suitable for central clearing. These can easily go to Europe or Asia where there is no derivative reform. Geithner claims "the U.S. financial system is now in a position to finance a growing economy and is no longer a source of risk to the recovery." Doesn't this sound like there will be QE3? (Quantitative Easing 3).

Let me be clear, Greece lied about its standing in order to gain entry into the EU. Last year they became the first member of the eurozone to receive emergency loans  from its partners and the IMF amounting to $110 Euro's. Now with more loans being sought by the Greeks, Fabian Zuleeg, chief economist at the European Policy center think tank in Brussels says, “We are at the crossroads and for people like me who work at a European level, it’s too easy to think that Europe can just continue like this,” he says. “In European integration, there have been periods when we have gone backwards, there have been periods of sustained difficulty and we are facing a period when there are a lot of serious political, economic and social challenges.” According to Frank Schwalba-Hoth, Chief among these inadequacies is that monetary union has not been backed up by true fiscal and political union. The 17 members of the eurozone share a currency but not a strategy. The effort to draw up a common vision under the duress of the debt crisis has led to some rough scribblings rather than a clear outline. Hoth also says, “The aim is not to save Greece but to come out of this crisis for the benefit of all 27 and the rest of the world.”

Since Greece's membership in the EU it has received the equivalent of $78 billion Euros in union funding. Beyond that, the European Investment Bank has also helped finance key projects such as the construction of Athens International Airport and the city’s metro system. It entered the EU with a public debt of 34.5 percent of GDP but an almost uninterrupted upward trajectory means that it has now reached 142.8 percent. Schwalba-Hoth says: “... prime ministers and presidents meet to take decisions. Sometimes it’s like a market, where they haggle over the content of policy. The Greeks rarely asked for stronger or weaker decisions in this or that field. They only offered opposition to get more money. That means Greece’s relationship to the European Union was like a child getting pocket money from its parent. Now, we are in a situation where there is a demand for a very large paycheck.” Under the added pressure of unconvinced markets and skeptical ratings agencies, Greece might not be able to wait that long as it tries in vain to scramble away from what looks like an inevitable default. The government is now entering into a second bailout but in the view of many economists, it will not be enough to save Greece. Some of them are crying out that further measures are needed, measures that require those that form EU’s core to go against the grain and take quick, bold decisions such as encouraging private investors to accept haircuts on Greek bonds or at least longer maturities, using the European Investment Bank as a tool to fund more projects in Greece or even agreeing to part of the Greek debt being transferred to the European Central Bank and allowing Athens to repay it over a fixed period.

Without some creative and united thinking, Greece’s future in the EU looks uncertain and its presence within the euro will continue to be under severe threat. “There is a danger at the moment that we will just lose Greece, that we will not do what is necessary and that the impact on the Greek people is going to be extremely negative,” says Zuleeg. “Technically it is unlikely that it will leave the EU but it could become so marginalized politically and economically that it really won’t be a full member of the Union.”

Friends, in view of current uncertainties in Europe, take this oportunity to establish positions in oil, precious metals if you have not already. In addition, we have bought puts on the Euro $EUO and puts on the $QQQ. Call or e-mail for particulars.($EGO,$CRZO,$SLW, $EUO, $QQQ).In closing,attached is a chart from Zero Hedge Fund showing where wew are relative to CDS (Credit Default Swaps) from 2007 to the present.

 The Stupid Index,acronym coined by Goldman's Jim Oneill stands for Spain, Turkey, UK,Portugal, Italy and Dubai. The peaks in the above chart indicate where the defaults in 2008 and 2009 occured. The trend is continuing higher, meaning defaults lie ahead. I have been warning about this calamity as referenced in most of my past commentaries. Call or e-mail if you are not prepared.

May 31st 2011, this Wednesday or Thursday at the latest will conclude Greece's austerity program review by the "Troika" (three of a kind), EU,ECB, and the IMF(European Union,European Central Bank and the International Monetary Fund). The market appears today to be hopeful for a new Greek Aid Package but everything I read indicates that there could be trouble. Greece has not met their deficit reduction targets and there is no consensus on whether to give Greece new aid or how. A ministry representative who spoke anonymously has said that there has been mention of international tax collection efforts which will be unprecedented if granted and will meet with opposition from within Greece. In addition to the aforementioned, countries are asking for collateral for any further loans which could be cashed in should Greece fail to pay. It is thought that private investors will be asked to extend the maturation of their bonds. No change in our positions.

5/24/2011 NewsFlash, Goldman Sachs last night declared that the commodity decline was over and further that their new target for crude this year is $130.00 a barrel. Goldman's Arjun Murti, recommends $XOM and $OXY in a barbell framework and remains bullish on Canadian oil sands. I'm glad that we took the opportunity to add to our positions rather than bail after their last sell recommendation on commodities. Goldman cites the production lost due to the Libyan conflict and added demand for their recommendation change. I would be careful following their specific choices as they have a tendency to trade ahead of their information release.

Precious metals and industrial metals all closed higher today. Most of the grain complex also closed higher except for corn, wheat and soybean meal. Currencies closed higher except fo the dollar.

On the Greek front, Prime Minister George Papandreou has been looking for support for his midterm economic program which seeks  6 billion euro tax increase and spending cuts. No luck. Should hear more on the country's plea for funds tomorrow.

5/22/2011 Friday Fitch Ratings downgraded Greek debt to B-plus from BB- plus. Fitch cited that aid payments from the European Union and International Monetary Fund may be delayed. Ultimately, the EU and IMF would provide the massive amount of funds needed. A soft restructuring or a re-profiling would be considered a default and ratings would be adjusted accordingly.

For those who might have missed it, the State of Utah inacted the "Utah Legal Tender Act" March 25th, 2011. The law recognizes gold and silver coins issued by the federal government as legal tender in the State of Utah. Nothing new but, the law exempts the sale of gold and silver coins from the state capital gains tax. Now one can use the real value of the coins rather than face value. There is a house committee also studying alternative currencies for the state. There are 12 other states that are considering passage of a similar bill: Colorado, Georgia, Montana, Missouri, Indiana,Iowa, New Hampshire, South Carolina, Oklahoma, Tennessee, Vermont and Washington. Soon, banks will issue debit cards borrowing against those assets. Separately on Friday, Bloomberg reported that China is planning to start their own gold etf's capitalizing on growing demand in China. China has just eclipsed India as the world's largest consumer of the yelow metal.

A Swiss journal NZZ, has been quoted as saying that greek newspaper "Kahtimerini", disclosed that Greece has less than two months of cash left or enough to last until July 18th.

5/19/2011, Well today was a low volume day on the NYSE. No trades today. Yesterday we sold $RMBS and $SKS had enough profit on Rambus to offset the small loss on Saks for a net gain of about 3% for the day. I'm really concerned about Greece and the ECB,IMF implications for the Euro. FT Deutschland reported this morning that Trichet told finance ministers on Monday night that the ECB would respond to a reprofiling by refusing to buy any new Greek debt instruments and further would not supply the Greek banking system with any further liquidity. Reprofiling is just another word for restructuring which would inevitably lead to an immediate downgrade from the rating agencies.This action would make it even harder for Greece to go to the credit markets. Jurgen Stark also a member of the ECB noted that a restructuring would render Greek bonds unacceptable collateral.

Greece is insolvent. Bondholders will have to share some of the burden meaning they will not be receiving 100 cents on the dollar or anywhere close. Persistant tax evasion and a deep recession are making fiscal targets impossible to reach. With no growth, paying back one's debts is impossible. We remain cautious about how all of these things will affect the currency markets and stock markets. We remain long $SLW,$EGO,$CRZO and long inverse Euro etf,$EUO and puts on the $QQQ's.

 5/17/2011 June Light Sweet Crude started off immediately down on the day and hit $95 around noon then rallied to close at $97.98, +$0.55. With any luck support at $95 should hold. Should support not hold at that level, the next stop would be $92.47. Gold and Silver both had a similar trading pattern and I believe support should hold for both at current levels. The Dow also pared losses and made a small comeback on the day from lunchtime on, closing down -68.79 though it was down 3 figures most of the morning. Hewlett Packard reported beter than consensus today but warned of weak 3rd quarter earnings sending the market and tech stocks in particular, in a tailspin. All owing to the recent Japan earthquake and related events. John Paulson of Hedge fund fame bought gold as Soros was taking some profits in his precious metals holdings in the latest required SEC filing. Veteran investor Jim Rogers has not sold any of his precious metals holdings and in fact has added to his positions. I agree, recent raised margin requirements by the CME has caused much of the recent volatility in the commodity markets. But, Kadahfy is alive and well and the Euro,Japanese Yen and the Dollar and (Pound) are all being debased causing me to stay the course. President Mahmoud Ahmadinejad has taken over temporarily the duties of Oil Ministry for OPEC preparing for the upcoming meeting in Vienna. I can't imagine that crude prices will do anything but go higher.

Dell computer profits jumped as the company slashed costs. Michael Dell recently bought over ten million shares of the stock at between $14.21 -$14.42. The stock closed at $15.90 but was trading at $16.78 in after hours last. We bought a little $RMBS, Rambus on weakness today and also bought $SKS, Saks Inc. both for a trade for a likely profit tomorrow. We remain long $CRZO,$SLW, and $EGO and long the inverse Euro,$ EUO as well as long puts on the QQQ.

5/13/2011 Thursday's market action showed crude dropping below $100 to about $95.50 and regaining to just over $100 midday and finally settling at $98.25 down $0.59. Silver similarly rallied just over $35.50 then dropped to $32.50 and by midday crossed over $35.50 and settled at $34.34 down $0.06 cents for the day. Some market pundits have been suggesting that the plunge in crude and precious metals may be  due to QE2 (quantitative easing) winding down in June. I don't agree. I think Goldman's recommendation to underweight commodities sparked the onset of the slide. The volatility that ensued prompted commodity exchanges to increase margin requirements prompting further liquidations from hedge funds and other institutions that were highly leveraged. Bargain hunters and others jumped in hoping to buy on a dip only to panic and liquidate causing further disruption.

 We have not liquidated precious metals positions nor crude positions and are looking to buy more $EGO, Eldorado Gold on any weakness this trading day. In my opinion, the recent disruption's in Egypt, Syria and Libya, Africa and Saudi Arabia have prompted the disenchanted to demand more human rights and social reforms. These social reforms will be expensive and will add to Opec's breakeven on crude oil. This new breakeven level will likely put crude at a level between $110 to $115 a barrel in my estimation. $100 oil is here to stay.

On the currency front, we have Greece on the verge of restructuring with rumors of abandonment of the Euro for the Drachma. A delegation from the IMF is in Greece deliberating as to whether Greece is on track or not which is a prerequisite before the $158 billion is released. The real issue lies with Greece's inability to collect taxes. I don't see how further tax increases will change anything. Two year Greek bonds are yielding over 25% and the ten year is over 15%. Recent rating decreases by S&P will make it harder to raise money in the capital markets. The situation in Ireland and Portugal is not much better. This is a nightmare scenario for the Euro. There is no way to tell what the ramifications could be should Greece default. In this environment, precious metals are the place to be. Middle East disruptions will not abate. People are not afraid to protest. In this light, integrated energy companies, producers and refiners are also recommended. In addition to $CRZO,$EGO and $SLW, we remain long inverse Euro etf's and puts on the QQQ's.

May 10th, 2011  One must remember in these volatile times that most hedge funds are leveraged and when a large block of sell orders hit the floor everyone gets out and out of the way. Then program trading follows the momentum. I didn't expect the broad selloff in the metals and crude. In this environment, firms like Goldman Sachs will create trading opportunities for themselves by making various announcements. For example,  about a month ago Goldman told investors that they should be underweight commodities. Since many of the commodities have since slumped, now they're saying that "Given the magnitude of the pullback, it does create an opportunity for more upside potential."

It seems to me that the precious metals and crude are still headed higher. In fact, cotton has reversed from a recent low of 143 cents per pound and headed higher as are corn, wheat and copper. We remain long $CRZO Carrizo Oil & Gas, $SLW, Silver Wheaton, and $EGO, Eldorado Gold. We added to positions yesterday (Monday).

Last Friday Der Spiegel reported without saying how it got the information, that Greece is considering withdrawing from the Euro and returning to its old currency the Drachma. The Greek Finance Ministry denied the statement saying it had no plan to leave the Euro in an e-mail statement (Bloomberg). In view of the potential fallout regarding Greece, we have bought an inverse ETF,$EUO, which runs contrary to the Euro. As mentioned in my last post, we remain long July puts on the QQQ.

April 28th,2011 12:49am, As I review a  5 year Nasdaq chart and contrast the S&P and Dow Jones averages against it, one can see that when the Nasdaq pulls ahead of the Dow Jones average by 10% and usually ahead of the S&P by 20%, a selloff is usually near. The last time this happened was April 19th, 2010. The market is now at the same juncture. A 10% pullback is inevitable. The problem is that an overbought market can continue on until the momentum changes. In response to this situation, we bought puts on the QQQ(Nasdaq 100 ETF). More specifically we bought the July $57 puts as a hedge against a nasty turnabout. 

We remain long our position in $CRZO, Carrizo Oil & Gas, $SLW, Silver Wheaton, and $EGO, Eldorado Gold, despite anything Goldman Sachs says regarding the price of crude, or the precious metals market. Just a few weeks ago Goldman noted that the price of crude had gotten ahead of itself due to speculators. They further predicted that crude should be around $105. The market promptly dropped from about  $113 to $106.25. Goldman merely created another buying opportunity for themselves by just citing an overbought situation for crude and precious metals. If you believe that Goldman does not have its own interest before their customer's, your're just plain stupid. I fully expect Goldman to say next, that the market is overbought and ahead of itself causing a 10% pullback. Mark my words.

My G-d, things are nuts. Greece is about to pull the plug, yet the Euro is at $1.48. Japan has had a tsunami and a radioactive meltdown and the Yen trades at 12.25, 12.957 was the recent high met on 3/17/11. In the Middle East people are no longer afraid to protest. People expect better and will demand more. Opec once was said to have a breakeven of about $89.00 a barrel. Now that Middle Eastern tyrants are having to give in to protester concessions in terms of sharing the wealth, I would add $15 to that figure. $104 a barrel is the new breakeven. $100 oil is here to stay. $120 is my next target. We have not day traded much in the last week and a half, but that is about to change along with new collar tarde prospects. Stay tuned Loretta.

3/30/11 3:16pm As I write the DOW finished at 12,350.61 +71.60 points and quickly approaching the recent high of 12,391.29 which was recorded on 2/18/11. Last Friday March 25th, I noticed an unusual pattern in the market. My algorithm which basically spits out long (buy) and short (sell) candidates on a daily basis showed a very small amount of short candidates that day. This clearly indicates enormous buy side momentum. Today once again, very few short candidates. Upside momentum is building. Candidates which were on the sell side of the canvas in the last two weeks are now showing up on the buy side. The DOW will likely make a new high tomorrow, quickly approaching DOW 14,198.10 reached 10/10/07.

The nuclear situation in Japan, the restructuring of Portugals debt and or the Middle East situation in Libya could easily turn the momentum tide. Right now it looks like the next target on the DOW will be a new high of 12,618 or roughly 200 points higher than the high made in February. Barring any changes in the aforementioned situations, the DOW should get to my target without any trouble. Let's explore the obstacles. In Japan, Iodine 131, a radioactive material has been detected at greater than 1100 times the safe level at the Fukushima facility. Although Iodine 131 has a half live of 8 days and not regarded as an issue at this time, it was a cause of thyroid cancer among young adults after the 1986 Chernoble incident. The real problem is Caesium 134, which has a half life of 2 years and Caesium 137 which has a half life of 30 years. Caesium is easily absorbed in water, food and or inhaled as dust. Imports to the EU of Japanese agricultural products were worth just over 200 milion Euros in 2010 (AFP).
Over in Libya, the rebels were forced to flee today from Brega in eastern Libya (Reuters). Not only do they need air support, they need arms and experience. I believe contrary to what Obama is saying, we will have to provide land support. Senator John McCain yesterday mentioned that "No Fly Zone" mandate should have come sooner when the rebels had momentum in their favor. I feel that we will still be involved in this skirmish a year from now. In Syria, government resigns after continuing unrest and anti-government protests.
In Portugal, Prime Minister Jose Socrates resigned on 3/26/11, last Saturday. Portugal has to find 4.5 billion Euros in order to repay soverign debt in April.

My strategy remains to stay long oil and precious metals. All else has to be day traded. We bought and sold $TTMI, TTM Technolgies for a 2.25%  return this morning. $CRZO Carrizo Oil & Gas turned up today on my algorithm buy list indicating a new wave of buying pressure. We are long $CRZO,$EGO and $SLW. After the DOW hits my target price, we will be buying the Nasdaq 100 short $PSQ exchange traded fund.

3/24/11 4:52pm Research in Motion $RIMM, released earnings after the close but despite a jump of 32% in quarterly earnings, the stock is trading off 10% in after hour trading because of its report of lower revenues in the current period. Rimm launches its PlayBook tablet April 19th. Gold today finished off $3.10 and Oil finished flat on the day.Silver was off $0.03 cents today. Although precious metals and crude were off nominally shares of Eldorado Gold $EGO, Silver Wheaton $SLW and Carrizo Oil & Gas $CRZO were off more than warranted. No change in my views for the market. Its a traders market. I expect oil and precious metals to resume their rally as the Japanese will seek an alternative to their currency once they realize that matters nuclear are not improving. In fact, in an earlier piece I noted that GDP from the area affected by the earthquake accounted for about 8-10%. I take that back. I believe that the next several weeks will show that the damage is far worse than anticipated and the yen will soon take a hit.

The Euro will also take a hit soon as Portugals debt gets restructured  by the EU. Its the German,French and UK banks that are really getting bailed out not Portugal in reality. ECB president Jean-Claude Trichet plans as many as three rate hikes this  year which will add to the troubles of the PIIGS nations. The Portugese five year note traded a a yield of 8.19% today. The Greek ten year note traded at 12.56% today and the yield on the Irish two year note 10.17% Although the rally in the Yen and Euro will continue for a short while longer,the Dollar should come back into vogue once again in the very near term once reality sets in.

The problems in the Middle East are far from over. I still say Libya is not a player nor Kadafi. Iran should soon surface as the real problem vs Saudi Arabia. Oil and gold and silver will rally towards new highs. Kadafi will have to be killed. He can't be allowed to just walk away from this. His threat as terrorist is simply too high.

 The trend in the Dow is still up but could change in a heartbeat. We remain long $CRZO, $EGO and $SLW as a hedge. All else remains in a day trade status.

3/17/2011 5:01pm The Dow rebounded today 133 points allegedly because of the report from the Labor Department showing that the number of people applying for unemployment benefits fell by more than expected by economists last week (AP). My opinion is that last week hedge fund traders were forced to make liquidations because of wrong way bets hence the reason for the market being down significantly the last several trading days along with crude oil,oil stocks and precious metals stocks. You normally don't see these down all at the same time. Over margined positions would require that the hedge fund traders take profits in oil and precious metals.

As for Japan, according to what I've read, the areas affected by the earthquake account for only 8 to 10% of GDP. The real issue is the posible public health threat by inhalation of airborne plutonium particles. Our west coast could possibly be contaminated should one or more these reactors melt down.  So far the disaster has been averted. The Japanese will be slow to release information to be sure. The Yen to the dismay of the hedge fund community has rallied to new highs since the earthquake. .012957 (12.957) at this writing.

We remain long $CRZO(Carrizo Oil & Gas), $SLW(Silver Wheaton) and $EGO(Eldorado Gold). These positions should sustain us through a Japanese melt down and  possible Iranian takeover of some Persian Gulf territories. There will be opportunties forthcoming in terms of collar trades on dividend paying stocks. On the backburner remains the Euro bloc problems. It's too early to short the Euro though. No country will be left behind. So says the Euro Bloc.

3/9/2011 4:30pm I received a copy of an email from one of my customers about the Bakken Formation which stretches from Northern Montana through North Dakota and into Canada. The email is touting a newsletter which claims to help you get in on the world's largest oil reserve before its too late. It is filled with half truths and exaggeration. The estimate of 500 billion barrels of oil to be recovered from the Bakken Formation is an exxageration. The USGS estimates that the actual recoverable oil at 3.67 billion barrels. The US imports about 10 milion barrels of oil per day according to reuters which amounts to about 3.65 billion barrels per year. If all the estimated undiscovered oil were extracted from the "Bakken" it would only keep us from using crude oil imports for about one year, not 41 years as claimed. The email also mentions shale oil resources in The Green River Formation. I won't go into the exaggeration but just understand that there are impact studies on development and ways to overcome those developmental impacts which have yet to be made. Shale extraction requires massive amounts of water and energy and produces pollution and leaves toxic waste. New accounts of production from the Bakken Formation are less than 500 million barrels a day as of February 2011. Growth assumptions and production levels reported are just ridiculous and are estimated to be 20 years into the future.

For those who have a sincere interest in the Bakken Formation, I will leave you with two names to consider. One is Continental Resources $CLR who has the most acreage in that area. The other is Denbury Resources, $DNR. DNR was picked because it's trading in the $20 range. Both should be bought at much lower levels. Don't buy the penny stocks. $DNR is based out of Plano by the way, and $CLR is based out of Eunid, OK.

In yesterdays news, Bill Gross, Pimco's founder and co CIO is worried about the end of the FED'S QE2 Which is slated for the end of June. This could be "D-Day" for the treasury market according to him. Today Gross dumped all of its US government treasury debt in its Pimco Total Return fund according to Reuters. $236.9 billion was liquidated. Earlier regulatory filings indicate that the fund may start investing up to 10% of its assets in equity related securities.

Today we bought $SLW,Silver Wheaton and $CRZO Carrizo Oil & Gas. We are already long $EGO, Eldorado Gold. As I've mentioned in past writings that on the 11th of March, this Friday, I'm expexting demonstrations in Saudi Arabia. I understand that there will be more demonstrations on the 20th as well. $CRZO by the way has holdings in the aforementioned Bakken Formation. I expect crude oil and the precious metals market to resume their rally posthaste. 

3/6/2011 10:02pm In recent weeks we have bought and sold our positions in $CRZO, Carrizo Oil & Gas and $SLW, Silver Wheaton with attractive profits. We are currently long $EGO, Eldorado Gold; no short positions. Unrest in the Middle East has spiraled crude prices ever higher and April gold reached a new high of $1441.

 I recently read an article by Jeff Rubin, former Chief Economist for CIBC (Canadian Imperial Bank of Commerce). Jeff relates that one would expect great wealth coming into the region by the expansion  of crude prices but such is not the case. Mr. Rubin contends that higher fuel prices is a double-edged sword. It translates directly into prices higher food prices. While oil is subsidized in the Middle East it is not subsidized in major exporting countries such as Russia, Canada and Australia. Egypt for example, imports 40% of its food supply and 60% of its grain. Oil exports are down 50% becase of the demand for the subsidized product, according to Rubin.

As my customers know, we have been in a defensive posture for quite some time. We continue with collar trades and lately have been day trading the markets based on my new algorhthm for a while now with outstanding results. I just feel better about being in cash at the end of the day with the exception of our holdings in $EGO, Eldorado Gold. Although crude finished higher on Friday up $1.34 at $105.76, oil stocks in general had a negative day. My hopes are that Carizo Oil & Gas $CRZO, will back off to about $35.00 and or that Tesoro, $TSO will drop to about $24.00. We need to be back in Oil and in Silver at the next possible opportunity. I don't believe there will be any major sell-offs in crude in the foreseeable future. Although the demonstations in the Middle East don't seem to be anti-American, it would be foolish to assume that there will be a smooth transition to democracy, if at all. Those people want to share in its country's wealth and they want a regime change, neither of which will come to fruition anytime soon. The more chaos, the higher crude will go. For every dollar that goes into crude or gasoline at current prices means a dollar less that will be spent on other essential items.

Last Thursday, I was invited to hear Dr.George Friedman, CEO of STRATFOR and author of "The Next Decade and the Next 100 Years", speak at the World Affairs council in Dallas. Dr. Friedman seems to feel that Libya and Israel are small players in the scope of things political in the coming months. He believes this could afford Iran an oportunity to broaden its control over the Persian  Gulf, as Saudi Arabia quakes at the stakes involved. He does not believe that a war is iminent between the US and Iran. That does not preclude some kind of agreement though.

In my opinion the Saudi's are in for a big surprise. They will not be immune to the rebellion. Demonstrations are scheduled for the 11th and 20th of March in Saudi Arabia(Bloomberg). In Saudi Arabia ther are only three classes of existence; the Royals, the Ex Pats, and whoever is left who have nothing. There is change in the wind Loretta.

Far be it from me to take away anything from the recent job data reports. Just remember, the released data does not include those who dropped out of the work force, or those who have part time jobs but want full time employment or those who dropped off the rolls because their unemployment benefits ran out. Were you to consider all of these factors, the results would not be as rosy. U.S. corporations have cut payroll and have outsourced where ever possible. Corporations are making profits. Unemployment is still with us and at better than a double digit rates.  As I close this report crude futures are at $106.23 up $1.81 and gold is at $1438.30 up $9.70 and Dow futures are off -43, S&P -5.50 and Nasdaq -10.75.

02/10/2011 1:23pm Rumor has it that Egyptian President has already left the country, and his speech scheduled for the night of February 10th was pre-recorded according to the Arabic BBC. Other reports suggest that Mubarak will speak in a few hours, others say he left the country as early as yesterday.This should fuel the market even higher. So far it doesn't look as if there will be  an effect on gold or the prce of crude. He is gone!

02/01/2011 4:46am At this hour gold is up $4.00 at $1338.50. I expect gold and silver to have a few days of gains as the situation in Egypt plays out. Since the miltary in Egypt seems to be on the side of the protesters, I don't expect anything to happen that could cause further market selloff. I did buy $EGO and $SLW on the close yesterday for a quick trade but feel that by next week precious metals will continue their slide. Newly appointed Vice President Omar Suleiman (Egypt) has opened up talks with oppositon groups and quelled market fears for the moment as a million people are  urged to take to the streets today in Egypt. Mohamed ElBaradei former director general of the International Atomic Energy Agency appears to be aligned with the opposition groups. He commented Sunday on "Face The Nation" saying the the US's refusal to openly abandon President Hosni Mubarak "a farce". This was said I believe to garner his support by the powerful Muslim Brotherhood as he has been asked to negotiate on their behalf. In short I believe Mubarak will have no choice but to abandon his post. Mr. ElBaradei is a well respected diplomat and will likely be someone we can work with. In any case, we will have no choice. I am still long a few positions mentioned last week, $CRZO,$INCY,$ENZN,$DRWI,and $ONNN. I am looking to take profits and go to cash. Regards.

1/24/11 9:13pm The markets had a brisk upswing today. The Nasdaq index was up 28 points, the DOW of course gained 108 points with the S&P gaining 7.49 points. Gold sold off $13 to $1331.50 with silver at $26.81 off $0.52. Silver Wheaton,$SLW closed today at $30.57 unchanged and very close to our buy price of $30. Changing my stance and am going to wait for $SLW to get closer to $25. I feel sorry for those who paid $42 a share for it recently, although it should run farther by the end of this year.  Eldorado Gold $EGO, was off $0.21 closing at $15.78. Similarly will be waiting for $EGO to trade between $14-$14.50 before purchasing. If gold can lose another $15 from this juncture it could trigger more selling from the hedge fund community which would give us an entry point at around $1150- $1250.

Across the pond, hedge funds seem to be closing out their short positions on the Euro as Merkel continues to vow to do whatever it takes to shore up the Euro. I continue to be wary of Greece debt and now Goldman Sachs is saying that a restructuring is imminent ater 2011. Today the Euro closed at $1.3648 and I feel it will run to at least the $1.40 level in the short term. Conversely, the Dollar will fall further from its close today at $78.08 to $76 in short order. The ECB (European Central Bank) as been buying the bonds of Greece, Ireland and Portugal, and rumor has it that some of the interest rates on recent PIIGS bailouts will be reduced in exchange for new guarantees. This is nothing short of a restructuring. According to, Eurostat 1/3 of Greece's tax revenue in the first half of last year went to service the interest on its debt.

Wells Fargo has been the best foreign exchange predictor in the last 18 months as of December 31st. They predict a drop to $1.25 by year end on the Euro.  John Taylor chairman of FX Concepts, the world's largest currency hedge fund predicts the Euro will be below  parity with the dollar by year end. I don't think that's possible by year end barring a calamity that might ensue like a Greek restructuring, the death of Hasni Mubarek(Egypt's President 82) fostering Muslim unrest, or war between North and South Korea, humbly speaking of course. A break below parity is definite possibility in 2012. Remember all the new rules take place in 2013 for the Euro bloc.

We will be placing collar trades on AT&T, Verizon and others as we approach the ex-dividend period. All collar trades were profitable by the way. The new algorithm is working quite well. The new market highs make it necessary to continue our current day-trade strategy coupled with our collar trade strategy. I've had a few death's in my client roster in the last year opening three slots for accredited investors. Call or e-mail for details. My take is 15% of profits monthly. No fees if monthly return is not positive with $7.99 stock trades.  No restrictions for those wanting to do collar trades only. Currently long Carrizo Oil & Gas, $CRZO; $ONNN, $ENZN, $DRWI and $INCY. Regards

1/12/2011 Today crude inventory numbers are released at 10:30am followed by the Fed's release of the Beige book report at 2:00pm. House Republicans could bring a vote today on the repeal of the health care law. This day will likely be a volatile one with a slight negative bias. 

I was wrong on my initial call of a head & shoulders reversal for the yellow metal in December including $EGO, Eldorado Gold, and $SLW Silver Wheaton. What appears to be happening is quite  an anomaly.

    The pattern to the left is a complex head & shoulders reversal pattern. The chart shows two heads. In the gold chart below what I thought was the final shoulder forming in December was actually another head forming. January formed the third head! If I'm correct what is forming now is the right shoulder. What should follow is a selloff to about $1200.

 The Eldorado chart below looks like a it has two left shoulders, two heads and three right shouders? The next few days or weeks will tell the tale. If we're lucky, $EGO will drop to about $14 and $SLW will drop to about $30.

 Later today Portugal will try to sell $750 million worth of bonds to mature in 2014 and 2020. Expect yield spreads to widen. Portugal's Prime Minister, Jose Socrates said that he would not ask for a bailout. Pish tash!(check your Yiddish dictionary). I'll give him less than 45 days. 

 I was reviewing the CDS (credit default swap) data, an insurance policy on soverign debt provided by CMA, and the data shows that Greece has a CPD (cumulative probabability of default) of 58.80%. Portugal by comparison is at 35.90% and Spain is at 26.70%. This is based on their matrix over the next 5 years. The market will take Portugal's eventual restucturing in stride. Japan is buying Spain's sovereign debt so that will give them much needed support.  Greece's spreads widened by 32% in the fourth quarter. That's my primary concern.

I have taken most of my profits (12-15%) on $AMLN Amylin and will sell the balance this week. Will repurchase later. Closed out my short on $TXN Tx Instrument's (5% loss). Looking to place a collar trade on AT&T, $T at between $26-$27 which will lock in a yield of over 6%. All other trades are closed out daily. Will try to give purchase data via twitter or check solomonavisors.net.

12/21/2010 8:06am This may turn out to be an exciting day based on recent aforementioned lunar events. Equity futures are up sharply as Oil is hovering close to $90 a barrel. Gold is up $0.80 at $1386.50. Our position in Adobe is slated to open up at least 5%. Will be liquidating that position today and will advise. Considering buying more Amylin also. It looks like I missed the call on the head and shoulders reversal in gold for the meantime. But, another possibility is that a double headed head and shoulders pattern is forming where we will see the final shoulder forming as gold dips to about $1330 then back to $1380. From that point, we may see a 50% correction to about $1115 or there about. That might be our last entry point. Will provide a hart after the close. Trade ideas will be posted on Slomonadvisors.net or Twitter.

 12/20/10 Bloomberg has been quoted as saying that the leading market strategists look for the S&P in 2011 to rally between nearly 11% to 25%. It is definitely a possibility. I have my doubts. We still have increasing fuel and food costs. Unemployment persists which will continue to have a negative wealth effect on the economy. Presently, market exuberance is high and although I've still continue to prefer collared trades on dividend stocks, I feel it necessary to partake of this exuberance on a limited basis. If you're a trader and are nimble you can make money in this irrational market. As I've mentioned in earlier posts, I prefer to use my re-tooled algorithms and filters to find trades for the day only. I will update the solomonadvisors.net site and twitter (@Sol008) with trades as time allows.

I read a recent release by Harold Malmgren of Malgren Global Fund, stating that the European Central Bank is leveraged by more than 300 times its underlying capital levels. Malmgren renders advice to financial institutions primarily. The ECB is considering raising capital to cover possible weakness in its holding of euro sovereign debt. I feel Malmgren is spot on. That's why Germany is still in the EU. It's far cheaper to bail out members of the EU than raise the capital necessary to shore up their exposure to sovereign euro debt. Thursday the EU decided to create a permanent bailout fund for the euro zone. They just made German taxpayers the lenders of last resort. This fund is in direct contrast to the Mastricht Treaty which fostered a no bailout policy. It was instead to require restructuring of debts. This fund will replace the current system when it expires in 2013. Creditors will be forced to take a share of the losses.

We are still long our position in Amylin Pharmaceuticals and have a better than 14% profit in it so far. Still short Texas Instruments and have yet to buy EGO or SLW, Eldorado Gold and Silver Wheaton respectively. Euro weakness may foster some selling in precious metals as the "Greenback" is favored over the Euro for the time being.

The Chicago Fed's National Activity Index will be released early today along with earnings from Adobe after the close. Tuesday Japan ends its two day meeting and will likely post its current monetary policy. We will also have a full moon and a lunar eclipse which has tended to give major turning points in the markets. Wednesday we will have 3rd quarter real GDP numbers. The market is expecting an upward revision. Also will have November existing home sales also expected to rise. Walgreens, Bed Bath and Beyond and Hovnanian report results for the quarter. Thursday we see November personal income. A rise is expected. They must be using VOOdoo. Friday the market is closed for the holiday. Season's Greetings to All.

12/15/2010 7:45am The dollar is up slightly today. Gold is down $15 dollars and Crude is off $.94 as we wind down to the open this morning which should be lower pending the release of Industrial production and Capacity Utilization. CPI showed a modest increase year over year up 0.8%. We have not changed our view of operating with downside protection, but it does appear that the Dow will move higher for no apparent reason so we won't fight the FED. The only change we have made is in our algorithm and certain parameters allowing us to pick equities for the day only. All else is the same. Will place our daily picks on Solomonadvisors.net or on Twitter. Again equities will be bought for the day only; shorts as well. Have a nice profit on AMLN,(stay long) and are still short Txn.

12/2/10 4:48am The market posted a fantastic rally yesterday perhaps based on the EU's mantra to "Leave No Country Behind". Goldman Sachs Group Inc. (GS) on Wednesday raised its outlook for U.S. economic growth in 2011, saying it now expects gross domestic product growth to average 2.7% next year from 2% previously.This obviously added to the market momentum. "We expect growth to pick up further in 2012--to 3.6% on average for the year," said Goldman's U.S. economics group, led by Jan Hatzius, in a research note. "The U.S. growth outlook has brightened significantly in recent weeks," the Goldman team wrote, adding that the new outlook "represents a fundamental shift in the thinking that has governed our forecast for at least the last five years."

Should see more follow through at least by the close, but on Friday the jobs report is due and will probably put a damper on a rally for Friday. Regarding Wikileaks, who cares about comments made about Pakistan anyway,they have more terrorists per square mile than any other country in the world! Spain to sell interests in the country's airport authority and their national lottery in an attempt to shore up public finances. They have a three year bond auction today.

According to a report by JP Morgan, Fedelity Cash Reserves, Schwab Cash Reserves and Legg Mason's Western Asset Money Market fund have billion's of dollars of exposure in Spanish and Italian banks commercial paper investments. This is not a good time to own high yielding money market instruments. I wouldn't doubt that these funds own Greek paper as well. Be forewarned.

Motorola sets Spin-Off date January 4th 2011, for holders of record as of December 21st, followed by a reverse split of 7 for 1 for Motorola shares. Other tech news, SeaGate STX, calls off buy out talks. Talk was that $16 was not sufficient. Would consider purchasing at $13.50 or there about today or tomorrow  for  a quick trade. I think they will get a better bid soon. Also looking at CY, Cypress Semiconductor today on any weakness. Not adding to Amylin Pharmaceutical yet (Amln). Still short Texas Instruments (Txn). Buyout rumors on  GoodYear Tire (GT) 8 to 1 calls vs puts and Tesoro (TSO) nearly had 8 to 1 call activity vs puts. Nvidia NVDA) also had 8 to 1 calls vs puts. Check intraday updates at Solomonadvisors.net or twitter at @Sol008.

Gold could break through the head & shoulders formation rendering the formation false. Still on the sidelines for EGO and SLW.

Equity futures are higher this morning although I don't feel that retail sales are that robust with the exception of internet sales which accounts for about 8% of retail sales. Mark Mobious of Templeton Funds says "The consumer is back". Never the less, I would proceed with caution as we find out whether the S&P 500 can hold 1200.

Some of you may be wondering why Germany is still in the European Union as it appears they are shouldering the lions share of the bailouts to Greece and now Ireland and maybe Portugal and Spain soon? Because German banks own billions of euros of their debt. They wouldn't be in the union if propping up their banks would be a cheaper alternative, but it isn't. Reverting back to the Deutsche Mark would also spoil their trade with China. All I know is that as of July 2013, investors could be forced to take losses as a part of any future bailouts. In fact, I believe that if the future bailouts come sooner than expected, the EU may have to make these haircuts (losses) retro active. That's probaby why the dollar has enjoyed its recent rally as the PIIGS contagion spreads.

Yesterday the Fed released data on their emergency lending activity meant to quell the financial crisis. The Dodd-Frank law formulated in July required the disclosure of the borrowers. To facilitate the Fed's magic, they created the Priary Dealer Credit Facility created in March of 2008 to provide loans to broker-dealers such as Bear Sterns. The problem was that the Fed approved aid beyond the $700 billion alloted for the Troubled Asset Relief Program (TARP). The loans extended were recourse loans. This simply put means that the collaeral pledged was less than the amount borrowed. 1.5 trillion of collateral pledged had a rating of "unavailable".

Precious metals are still rallying despite the recent dollar strength. I can wait. Hedge funds are likely finding ways to bring Portugal and Spain to their knees making their bailout imminent.

11/26/10 3:27pm According to Bloomberg today, the average yield on ten year debt from the PIIGS nations  rose to 7.57%, a euro era record. The cost of insuring a default on the above debt using credit default swaps also rose slightly more than 1/2 point in the last few days. Today December gold futures fell $9.60 to $1365.40 while  March silver futures fell $0.858 to $26.745. EGO, Eldorado gold shares fell 2.34% or $0.40 while the metal itself only fell 0.77%. Silver Wheaton SLW, fell 1.37% to $35.15  while the March silver futures contract fell 3.11%. Eldorado Gold is going through some selling pressure as the metal falls but Silver Wheaton remains fairly robust as more brokerage firms have SLW on their outperform list. The aforementioned head & sholders pattern that is forming in gold should should bring the metal to the $1200 area and silver although stronger will have a sympathetic  move lower as well. The time to buy precious metals equities is close at hand. Sunday will be military maneuver's day with S Korea. Let's see what develops.

11/24/10 3:06am - 8:27am  On Tuesday afternoon North Korea pounded an island in South Korea near a maritime border under dispute. This is the 30th time since the Korean War cease-fire in 1953 that North Korea has provoked South Korea with violence according to the WSJ. South Korea has yet to retaliate militarily. Interestingly enough, gold failed to stage a substancial rally and this morning, the metal is off about two dollars at $1377.50 (Dec). I suspect hedge funds are dumping gold and stocks as the Asian markets were hit after the Korean shelling. Obama affirmed its commitment to defend South Korea. The President is said to be seeking China's support in urging North Korea's rebuke. Since North Korea is China's economic partner, I doubt China will do anything of any consequence. Sunday S. Korea and the US will jointly launch some military exercises.

The Irish government will set out its austerity plans today. The country is slated to receive an 85 billion euro bailout. I understand that Ireland's ultra low corporate tax rate will remain at 12.50%. Meanwhile Portugal and Spain are passing gas as Germany has already announced that nations who do not comply with budget provisions should be kicked out of the EU.

Today will see a rash of economic reports before Thanksgiving. The official unemplyment rate is 9.6%. The actual rate is closer to 17% which also accounts for discouraged workers and those working part-time out of economic necessity.

Still on the sidelines regarding EGO and SLW. Am long AMLN and short TXN. Expect California to file Chapter 9. Title 11, allowing municipalities to restruture their debts.

11/15/10 7:39 pm I had indeed mentioned in a previous posting that one day George Soros would lighten his position in Gold and precious metals.  He has. He also lightened his position in some mining stock positions according to his third quarter filing. He has been quoted as saying "Gold is the Ulitimate Bubble". We won't know what he's doing now until 45 days after the quarter ends; that's when the 13F filing is due for porfolio managers like Soros. December gold is off about $7.30 at $1360.80. December Silver is off $.372 at $25.71.  Chartwise, I see bearish signals for both EGO and SLW. I also noticed that weekly inflows into equity markets in general were the biggest since June 2008.  Buffett has unloaded his entire position in Home Depot. I am still short Texas Instruments and long Amylin Pharmaceuticals (Amln). Tomorrow will be interesting for the metals markets. I think its odd that everyone seems to be worried about Ireland, Potugal and Spain when Greece is the real menancing problem. In other news Apple is rumored to  have acquired the Beatles music rights. They will make an announcement in the morning.

11/8/10 7:00am This morning I'd like to begin with a news release I read from Bloomberg News about Greece and end with the President's trip to India and the QE2 effects. If one were to read my comments this past August-September you would find that I fully expected Greece to default on its debt or at least restructure their debt. I was wrong. I was off on my timing but it's not a matter of If Greece will default, but When. On Friday Bloomberg reported The European Central's Bank refusal to disclose documents showing that Greece used derivatives to hide its debt. ECB President Jean-Claude Trichet rejected the appeal by Bloomberg News stating that the information contained in the documents would undermine the public confidence as regards the effective conduct of economic policy. Six month's after the EU and IMF bailout of Greece, the ECB is still witholding information. The swaps were designed to help Greece comply with the debt and deficit rules it agreed to when it joined the Euro in 2001. According to Bloomberg News, Eurostat,the EU's statistic agency is still trying to figure out how Greece hid the deficit. Some of the swaps were arranged by Goldman Sachs. A spokesman for Eurostat has said that they have all pertinent details from Greece regarding the swaps which are reported to be as large as 5 billion euros.

This is what I think happened. Greece obviously was not transparent with the EU in 2001 regarding their deficits. Germany and France look pretty damn stupid wasting all that money plus they own a substancial amount of Greek debt (bonds). Would it not make since to postpone the elimination of Greece's EU membership until they can better absorb the loss? What about the sudden Basel III reform package? Basel III increases minimum liquidity requirements on common equity positions from 2% (BaselII) to 4.5%. These requirements apply to international bank trading, securitization and derivative activities and are to be implemented by the end of 2011. Additionally over time, various requirements would be raised including a Capital Conservation Buffer on the banks capital of 2.5% not included in Basel II which would bring the total increase to 7%. Sounds like someone knows something that we don't know doesn't it?

Even if Greece did live up to all expectations, by 2014, they would have a Debt to GDP ratio of 149%. In 2008, the debt as a percentage of GDP in Japan and Germany was about 60%. Our percenatage in the US is about 94% for 2010. If Greece were able to bring their deficits down, their massive debt would necessitate a restructuring. I'm afraid its to late to restructure. A default is more likely. This would certainly cause some pain for the Euro and financial markets in the short term but in the long run, the Euro would benefit from the removal of the albatross. For all the reasons listed I continue to be cautious about equities and look for an opening to re-enter the precious metals market.

Our futures market is indicating a lower opening on the Dow of about 20 points and 5 and 3.5 points lower on the Nasdaq and S&P respectively. The recent visit our President made to India did not result in the new job creation at all. The contracts were drafted months before his visit. Everything was sort of packaged to showcase his visit. That is to say these deals would have happened without his visit. As I've mentioned, QE2 won't create jobs but it does appear to be creating a run on the price of crude as the dollar drops in value. This could be a result of the fact that crude is priced in dollars and there are storage costs involved with the purchase of crude. The drop in value of the dollar makes the purchase of crude attractive. That's why China is buying crude along with other commodities. The relationship between crude versus the dollar are not always causal, but it appears to be as of late and could certainly continue. The market is overbought in my opinion for the short term. Purchases should be made with caution. Downside protection is essential. Cisco announces on Wednesday which should be an indicator for the tech sector. Thursday and Friday the G20 meet. My bet is the market will have a negative bias this week.

 11/4/10 4:47pm As you well know by now, the Dow finished at its highest level since the collapse of Lehman Brothers. In spite of what Maria Bartiromo says or Jim Cramer, or for that matter any other self appointed pundit, No one truly knows why the market reacts as it does at any time. At best, it is conjecture. The stock market is dangerously reaching levels that it reached on 8/11/08 before the market tumbled to 6500 by March 3rd 2009. I dare say that our economy has barely improved since then. The job market is stale as is the housing market and there is inflation. Check your grocery cart and the cost of fuel next time you fill-up.

Well enough about you, lets talk about me! I still have not bought Eldorado Gold (EGO), Silver Wheaton (SLW) or Amylin(AMLN) and I'm  still short Texas Instruments. To quote a phrase used by Alan Greenspan, "Irrational Exuberance", is what we're experiencing today. For you historians,that phrase was not originally attributed to Greenspan. I do regret not having bought SLW or EGO but the precious metals market is ahead of itself as is the stock market. Looking at two year data, every time the Nasdaq exceeds the Dow by 20%, we usually have a sell-off of at least 10%, and sometimes 20%. We are there now. Gold relative to the markets is also at a level where it could sell off by at least 10%. My purpose for my customers is to establish a cost basis in precious metals low enough to offset current volatility. We are trying to establish a long term position, so we will wait for a better time. This is still a highly leveraged equities and precious metals market. Portfolio managers get paid to out perform the indexes plain and simple. Most have been absent from this rally and they're playing catch-up. This hysteria will now get the average investor back into the game (equities and precious metals) and look out below.

This market is about momentum. Be nimble or don't play. If we place a position in the next few days it will one like Amylin Pharmaceuticals which has not moved much since the FDA announcement. Will continue to be short Texas Instruments (TXN). Will advise on any changes.

11/3/10 11:15pm Market wise, we have been very quietly lately. We have not placed a position in Silver Wheaton ,Amylin (Amln) nor Eldorado Gold (Ego). Obama lost some important congressional elections last night and lost the House to the Republican party. Now we'll find out if these guys can play nicely together. I won't even attempt to call the market today as I will wait until Bernanke makes his announcement regarding QE2 (quantitative easing) on Wednesday afternoon. Many economists are expecting the Fed to inject about $500 billion into the economy, down from QE1 of $1.7 trillion in October of 2008 when the Fed began injecting liquidity into the market and banking system. The market could rally if the QE2 number is lower than expected or the market could be routed if the number turns out to be higher than expected. In either case, unless you're prepared to hedge your bet via options or futures you should not be in the market today for a trade. You may have to totally reverse your position on Wednesday. Wednesday will give us the future path of the dollar and the course of the precious metals markets. Intraday update reports will be posted only on the blog at http://solomonadvisors.net or on tweeter.

Although our government contends that we have no real inflation. CPI annual inflation was3.1% in September,unchanged from August. What this means is that there was no inflation as long as you could refrain from driving, eating and not seeing the Doctor or be treated by one. It's now  11:23pm and interestingly,the stock market and precios metals are off. Crude is hovering at $84.19 up $0.22.

QE2 Will not create jobs, but its likely the only thing The Fed can do.This is all done for its psychological effect. Bernanke must think he can talk his way into making the economy better and create jobs out of thin air. To truly address the issues at hand one would need to re-visit raising taxes and cutting entitlements. That just won't happen.

Now awaiting the President's announcement and the Fed announcement.

10/28/2010 1:45pm A recap. I recently mentioned Amylin (Amln) in my writings. Last week the FDA delayed approval of their diabetes drug Bydureon. Amylin is partnered with Eli Lily in this venture. The panel wants to study the potental heart arrhytmia caused by the drug. The bottom line is that AMLN lost nearly one half of its market cap on the announcement. I calculated 8 days to cover in terms of short positions which should have ended yesterday. Today the stock is up a few pennies vs dollars in prior trading days and the volume has tapered off substancially. The stock no doubt is a bargain at these levels but I'm afraid I will have to wait and see which direction the market is going to take. The market seems to have stalled and there is way too much positive sentiment. Portfolio managers who have been in cash are anxious to participate. It could mean their jobs if the market continues without them.

My other interests are Eldorado Gold (Ego) and Silver Wheaton (Slw), both are precious metals plays. I am also going to wait on these as well. After looking at the ten year chart on the Dollar Index futures for December, the recent low was made 11/1/09 at 74.21. Currently the index is at 77.49 and could drop further. If the index were to exceed 78.51 in the next few days, I would say that there would be grounds for a valid dollar rally. Were this to happen, you would also see a tremendous drop in precious metals prices, hence my concern. Stay tuned.

10/27/2010 2:45pm Am tempted to buy AMLIN (Amln) today but will wait one more day.Both Gold and silver are off today. Looking at Amln, SLW, possibly Ego for tomorrow.

10/25/2010 3:20pm Existing Homes Sales were released this morning without much fanfare although there was a 10% increase from August. Sales are still down from where they were a year ago. Including the current increase, existing home sales are still down 19.1%. Dec Gold finished at $1341.70 up $16.40 and Dec Silver finished at $23.67 up $0.562. Still waiting for more of a sell-off in the precious metals market.
Keeping an eye on EGO, SLW and Amln. The grain complex is also a little over-heated and have not bought RJA either. The market finished at a six month high today but I am cautious because this rally looks like its forming a double top which is typically a bearish signal. The S&P could reach 1225 before it turns downward. At any rate, the next few days should reveal the market's future path. The Vix closed at 19.87 today.

Last Friday an new ETF was launched ticker GLTR. The ETF is comprised of Gold,Silver, Platinum and Palladium. The ETF actually will hold the bullion rather than being an ETF of ETF's. The bullion will be held at JP Morgan Bank, London and Zurich respectively.

Many traders use the 50 days and 200 day moving average as an indicator for future market movement. I don't as I use a a model that's a little tighter. Nonetheless, When the 50 day average crosses over the 200 day average its called a Golden Cross, a bullish signal. The converse when the 50 day crosses below the 200 day average you have the Death Cross. Many are afraid the latter may be developing. Awaiting the release of Texas Instruments earnings which may well set the tone more the market tomorrow. TXN posted $0.71 a share versus $0.69. Q4 guidance looks light. The stock is off $0.09 cents so far in atter hours trading. We remain short the stock.

10/21/2010 2:33pm I am still keeping an eye on Amlin Pharmaceuticals (Amln) and Silver Wheaton (Slw). I still think it would be a bit premature to be in either, but am watching closely. Amlin has a short cover ratio of 9. Which means simplistically that it would take short sellers 9 days to cover their short position. This translates to the two day rally is as it appears, a short covering rally. Next week will tell the tale. Although on the surface the sell-off does appear to have been overdone, I would prefer to see more confirmation. Looking at the chart on Amln it appears someone had an idea in advance of the FDA announcement.

 Despite Geithner's comments this morning on currencies alligning with the dollar, it's pure pish tosh. Most are concerned that China may raise rates again which is possible, hence the precious metals sell-off. Looking forward to a buying opportunity.

10/20/2010 8:14am Surprisingly, yesterday China decided to raise interest rates 1/25 of a point. The first rate hike since 2007. China's economy grew at a rate of 10.30% in the second quarter. Gold of course dropped $35.00. A 1/25 point hike will not slow down China's economy. I would expect another 1/4 point hike. It could happen anytime. SLW dropped 6.85% on the news and EGO dropped 5.6% on the news. This might lead to the opportunity to get back into the gold and silver market. Looking at the charts, EGO will either hold current levels or drop to $16 a share. Slw is a more difficult call. it could drop to $24 in the next few days. The Vix meanwhile traded over 21 but settled at 20.63. Don't see any oversold situations yet but will advise as I am anxious to get back into the precious metals market for the duuuuration as we say in Texas. At this hour Equity futures are up mildly as are crude and gold. Amylin, (AMY) U.S. regulators said they won't consider approving the companies' new diabetes drug Bydureon until they submit additional clinical studies. Shares of Amylin plunged 50% to $10.13 as Alkermes shares sank 30% to $10.45. Bydureon is a long-acting formulation of Amylin's popular diabetes medication Byetta. Both Bydureon and Byetta were co-developed with Eli Lilly & Co. (LLY  35.44, -2.01, -5.37%) , shares of which were down 5% at $35.66. In a statement Wednesday, the companies said they hope to resubmit Bydureon's application by the end of 2011. Bydureon's application was first submitted in May 2009.

 10/19/2010 1:13am At this hour our equity futures indexes are broadly negative with the Nasdaq off more than 24 points fueled by Apple's 6% loss in after hour's trading. Ipad sales did not meet sales expectation's by Wall Street.

The next couple of weeks will bring about earnings reports for more than 55% of the stocks in the S&P index. Quantitative Easing or QE as it has been called is about to be put into action once again according to the Fed. Typically QE involves the purchase of long term treasuries and or corporate bonds. The end result is usually a rise in prices and a consequential lowering of rates. As purchases of T bonds or corporates increase, yields decrease i.e., a bond yielding 6% at par yields less than 6% if priced at a premium for example, at $1025,the yield would be approximately 5.85%. The lowering of interest rates such as they are now usually results in people turning from CD's or treasuries to the equity market in the past. Not so this time around. Further QE by the Fed won't bring about a different result. My concern right now is chiefly about the Vix being under 20. A move to 21 or higher would soothe my concerns if it happens in the next few trading days. Overall, I would say the market has a positive bias in that the our weak dollar should have benefitted many of the corporations whose earnings are due in the next few weeks. A weaker dollar makes overseas purchases less expensive. As the dollar weakens further,it would make imports more expensive and possibly help our economy as consumers purchase domestic goods over imported.

Now about Silver Wheaton, symbol (SLW). Mention was made in Barron's over the weekend. Granted, silver does have more industrial applications than gold and a $40 price for silver is a reasonable expectation from a current $24 price. As barron's mentions it is clearly outpacing the silver etf. SLW is a mining company deriving its revenue from the sale of silver. To date it has 13 long term silver contracts and two precious metal agreements. It is supposed to have a long term agreement to pay $4 an ounce for the metal and rumored to begin paying a dividend before 2013. I don't know much more about the company but would prefer it over EGO or the gold etf's at current levels. Will advise when I purchase it.

10/18/210/18/2010 2:26pm Apple reports after the bell today and all expect terrific numbers. I'm sure they will deliver. Ipad sales will have a bigger impact than most analysts expected. Tomorrow Housing starts will be released and weaker numbers are expected from August's strong report. Goldman also reports Tuesday before the open along with B of A. Wednesday Morgan Stanley and Wells Fargo report.  The Vix index is almost below 19 as I write. The last time the Vix was at these levels was April 26th, 2010. A few trading days later the Dow dropped from 11,258 to 9600. I am still short Texas Instrumnets (TXN) going into the close. No long positions or new Collar trades.

Nothing came of the G20 meetings. China has not and will not change their posture on their currency. Read an interesting article on Silver Wheaton a few days ago. Will share my thoughts next writing. Meanwhile Uncle Ben, will reflate the economy no matter what it takes. How other currencies and countries respond to this is their problem. 

10/13/2010 7:21am At this hour crude oil is up $1.25 $82.92, gold is up $11.40 at $1357.10. US equity futures are up sharply as the Fed signals that it would take steps to aid the failing economy at its next meeting in November. World markets have rallied on this prospect. Meanwhile countries across the world are trying to force down their currencies. It does appear that the tech sector is likely to set off another rally of 100 to 200 points on the Dow. December dollar index futures are off $0.03 at $77.28 and could fall as low as $74.50 before it reaches any support. Dec Copper is at $3.802 and is gaining steam as it moves toward its recent high of $4.2605. The grain complex is up sharply and Dec Cotton is  at $109.80 off of its recent high of $112.38 a few days ago and likely heading higher as is gold. Look for further updates on our blog at Solomonadvisors.net or on twitter.

10/12/2010 2:57am A few things have occured since my last writing; I've become a grandfather for the first time and the Vix index has broken down below 20. Today it closed at 18.96. The Vix index is a measure of implied volatility for the S&P 500 index options. The index has also been known as the fear index. As the number decreases it reflects a lessening of fear. When the Dow reached a recent high of 11,258, on April 26th 2010, the Vix index was at 17.52. Conversely on March 4th, 2009, the Dow was at 6726 while the Vix was at 48.02. A reading for me on the Vix under 20 tells me that investors are over-confident and the market is overbought and likely to see a sharp sell-off. This isn't a call for panic as confidence could increase further bringing the Vix index to perhaps as low as 16. The Dow could even gain 100 points or more before selling ensues. I prefer to exit the market early and wait for the Vix index to reach 45-50 before entering as a reading of 45-50 exhibits a significant amount of fear in the market also indicating a market that is over-sold. Were the market to sell-off a bit bringing the Vix index over 20, this could induce me to re-enter the market. In general for most investors, now or relatively soon would be a good time to exit.

This market can turn on a dime so Intraday updates will be made on twitter. I can be reached at @sol008 on twitter or for those who don't twitter, go to my blog at solomonadvisors.net and from there one can view the twitter updates and or ask questions on the blog on any market related item. So far I've been wrong on my call for a sell-off in gold but continue to wait for an opening. All the intervention by the BOJ has done virtualy nothning to hinder the rise of the Yen. The grain complex has been raising also with all the drought news and export limits. Last Friday, Corn Wheat and Soybeans all closed limit up. Cotton is at a 15 year high. It's just a matter of time before inflation becomes a serious threat, especially if crude continues to soar.

Meanwhile, Intel and Linear Tech report after the close today. Both should beat estimates but future guidance will likely be weak. Wednesday JP Morgan reports and will similarly beat estimates and will wane on the side of future guidance. Thursday Fairchild Semi reports with results similar as the above companies. Google however announces after the close and both estimates and guidance should beat expectations. Schwab reports before the open on Friday and GE and Genuine Parts report during the market day. The US market futures indexes are all negative at this hour so at this time it appears we're in for a weak opening. We will see if some of these earnings reports will spur the market 100 points to two hundred points higher before it turns. Check at Solomonadvisors.net for intraday updates or on twitter@sol008.

10/6/2010 We closed out our last positions in SanDisk all profitably, and are now are short TXN, Texas Instruments. My prediction for Monday's open was a day early as it turned out. Unbelievably, gold is up $4.20 at $ 1344.60(Dec). All the quantitative easing announced by the bank of Japan seems to have been met with little excitement today as the Yen is trading close to its recent high of .012108, currently .012053. Copper is at  $3.7525 and edging closer to the $4.2605 price made in May 2nd of 2008. Will be looking for Collar trade candidates and will show them on the blog solomonadvisors.net or twitter at @Sol008. Market future indexes are mildly positive but expect the market to take profits today.

10/4/2010 7:19am At this hour Dow futures are off -30, Nasdaq are off -7.55 and the S&P is off 4.30. We have sold most of our position in SanDisk (Sndk),last week at a nice profit and will likely sell the balance this week.

Focus this week and last have been placed on what actions if any, we could take against China. In reality we are essentially powerless. If we were to raise tariffs on their exports they would stop buying our treasury bonds which would sent interest rates higher as our dollar tumbles and bringing the risk of another recession. China will soon become the second largest economy replacing Japan. Its troubles with Japan aren't likely to change any time soon. China is still dependant on external consumption from the west, although they don't think so. We are exactly at polar opposites; we are the largest consumers,they are the are the largest exporters. China's growth rate will wane in the coming years unless they can turnaround their internal consumption. Were they to put more emphasis on their labor intensive sector over their manufacturing sector they could put more people to work. Unless they do that they will join the rest of us in the world dealing with unemployment and slow growth.

The market has come back a bit and is mildly lower. I expect a nice rally today,probably towards the end of the day. We are looking at a possible play on Weyerhauser (Wy) as a possible collar trade. This week's goal will be to execute collar trades as we will wind down speculative trading altogether before we enter December. The goal is to place the collar trades between now and the end of November. Check on our blog site for current updates solomonadvisors.net or twitter @sol008. Will advise.

9/28/2010 Genetically modified (GM) salmon are safe to eat, according to the US Food and Drug Administration (FDA). Michael Hansen, senior scientist for the US Consumers Union, says that the research behind the genetically salmon has been sloppy, misleading and woefully inadequate". Concerns have been made regarding the fact that the data submited to the FDA had been provided by the very company (Aqua Bounty) that stands to profit from the approval of the GM salmon. More to come as the news unravels.

Research In Motion (Rimm), unveiled its new professional grade Blackberry Playbook tablet and Blackberry tablet OS. The notebook supports Adobe Flash Player unlike Apple who has done evrything it could, not to support Flash on its iPhone and iPad products. Rimm also lauched an application development platform, called the Blackberry Enterprise Application Middleware which is supposed to enable commercial and corporate developers to more easily build "super app" services and applications. The tablet will have both Bluetooth and WiFi but no 3G capabilities. My only concern is that it appears that data connection is only possible via tethering to a blackberry smartphone which means you'd have to lug both around with you.

Heard about S. 510, also known as the FDA Food Safety Modernization Act? I found this quote I believe to be from Dr. Shiv Chopra :"If accepted [S 510] would preclude the public’s right to grow, own, trade, transport, share, feed and eat each and every food that nature makes. It will become the most offensive authority against the cultivation, trade and consumption of food and agricultural products of one’s choice. It will be unconstitutional and contrary to natural law or, if you like, the will of God."

As I understand it S. 510 would eliminate the right to clean and store seed.  Therefore, control of the U.S. seed supply would be further centralized in the hands of Monsanto and other multinational corporations. I've not read the bill yet but I don't like what I've heard from the opponents. I doubt the food industry giants have our interest at heart. I'll leave you with a quote I found from Thomas Jefferson,"If people let the government decide what foods they eat and what medicines they take, their bodies will soon be in as sorry a state as are the souls of those who live under tyranny."

9/27/2010 There was an interesting article in AP by Bernard Condon Sunday entitled, "Is it Time to Ditch the Dow?". I"ll paraphrase; were it not for Catapiller (Cat), The DOW, the world's most followed index would be up only 2.5% instead of 4.1% this year. In fact, he further states that if one were to take out the gains of Dupont, McDonalds and Boeing we would be negative for the year. His points are valid but I feel that the thrust should be aimed towards those stocks that have yet to participate. While the tech sector has been has sluggish and earnings growth seems to be waning I feel that the last quarter of the year will bring some earnings surprises by some of the Dow non-performers. Many tech skeptics blame Apple iPad for eating into laptop and netbook profits incidently. A little help from the financial sector may give us the needed impetus we are looking for. This is all very short term by the way. As I've said, I am looking for a severe sell-off by the end of the year. Our excursions into the tech sector have been in stocks that have been extremely over-sold. Our position in Cirrus Logic (CRUS) was sold last week for a near 7% return. Not bad for a few days holding period. We have held on to SanDisk and may add to our position this week, depending on the sentiment on the opening. Getting back to the news article. Looking back at my chart on Goldman Sach's,the stock has formed a bullish triangle with the top leg beginning 8/4/10 narrowing to the present. The opposite leg begins about 8/30/10 and narrows and is well above the $145 support. The stock has room to run to $154 where it should lose momentum from its current price of about $146.76. This tells me that the average investor who makes their investing decision based on the DOW is about ready to exchange from assets from bond funds to equities. They won't be able to refrain from jumping into the market as the DOW moves higher. This could truly set-off a buying frenzy.

Ed Yardeni's Fed model was mentioned in Briefing today. According to his model which measures the earnings yield beween the S&P 500 and the Ten year treasury yield expresses an equity market that is either undervalued or overvalued. The S&P is curently at 7.6% versus Treasury at 2.56%. This means that the market is extremely undervalued. Adjusted for inflation,the spread between the two is on average 153 basis points. The current spread is 500 basis points. Time will tell.

Southwest Airlines bought AirTran for $1.4 billion today. News in Caracas! Hugo Chavezlost the ability to pass new laws after opposition candidates banded together. This means Chavez no longer has two-thirds majority. The opposition clearly has its goals set on the 2012 election. Loretta, the political jackals are back. Expect more riots, more inflation and higher crude prices.

9/24/2010 2:08am The market was in a see-saw pattern today. Germany had a lower than expected PMI (purchasing managers index) reading in September. PMI fell to a seven month low followed by Ireland's report of a contraction in GDP led the early sell-off in the market yesterday morning. Initial jobless claims in September were posted at 465,000, 450,000 was expected. The tech sector pulled the market back from the -80 points on the Dow to a positive reversal, but the market could not sustain the gains. The good news is that December Copper prices are holding and poised to take out the April 5th high of $3.6385 a pound from today's price of $3.589. If prices breakout through $3.63 we may see a test of $4.26 a pound we witnessed May 2nd of 2008 before the market tumbled to a low of $1.255 December 24th 2008. This all tells me that the global economy is not as bad as the markets report. Consumption is alive and well. We should see a return of the market rally.

China is in the news again blocking rare earth minerals exports to Japan. These 17 metallic elements have magnetic properties used in high tech applications from smartphones to smart bombs. Once again China is in control. These elements are crucial in various military applications because of their magnetic strength. Coincidently, Japan intervened today to weaken the Yen. The dollar gained against the yen trading as high as 85.38 yen which should help our market prospects for the open. At this hour Dec Yen is at 11.813 or the dollar is at  84.65 yen (1/.011813).

We are still long SNDL and CRUS. Collar Trade prospects DUK, Sell the April $18 call for $0.65 and buy the April $16.00 puts for $0.55. The stock yields apx 5.48%. ABT, sell the Jan $52.50 calls and buy the Jan $49 puts for even money. The stock yields apx. 3.40%. 

9/23/10 3:07am Obama believes Iran may be willing to negotiate on its nuclear program. The man must be on drugs.

Yesterday marked the two year anniversary of Lehman's demise and the catch phrase "Systemic Risk"(relative to the market). I was in Santa Fe with Loretta when I first heard the phrase. I took the opportunity to buy more corporate bonds than stocks at the time. Being a former broker dealer, I was appalled to see Lehman disappear all the while Merrill was also clearly insolvent. We have had significant repayments of the tarp loans but AIG still owes us $120 billion. The score so far is: Taxpayers batting zero, Tarp recipients batting a thousand. Monday Gold made a new high $1298.00. Still looking for an entry point. Miners in my opinion are still the best way to partipate and EGO, Eldorado Gold, is my favorite. The problem is that EGO and gold are forming a rising wedge formation which is clearly a bearish signal, so be prepared. Research in Motion (Rimm), conversely, displays a falling wedge formation, which is a bullish formation. Rimm in fact could rally 10 points from here. Rimm's Blackpad, their I-pad version is rumored to be tethered to blackberry smartphones. This means it could cut down on service fees; a capital idea!

Equity futures are flat at this hour but the nasdaq futures are up 8.50. We bought SanDisk the last hour of trading yesterday. No new collar trades but will advise.

9/22/10 1:44am
Cotton prices today traded at its highest levels in 15 years. December Cotton hit $1.0237 per pound. This will definitely put some pressure on clothing makers. Levi has already announced that they will have to raiseur jeam prices on some of their products. Better buy your jeans now. In other news, US housing starts rise 10.5% in August. The data appears to show that the housing market is starting to stabilize, but I think its way too soon to make that assumption.

Larry Summers will be stepping down at the end of the year leaving only Geithner as the remaining economic principal who came in with Obama.

More genetically modified salmon news: The FDA said it couldn't require a genetically modified product to carry a different label under current food-labeling rules, unless there was something materially different about the product. For example, if an engineered salmon had a different level of fatty acids from that found in a conventional salmon, the FDA could require a label specifying the fatty-acid content. But a preliminary review of AquaBounty's salmon hasn't found any major differences between it and conventional Atlantic salmon.(WSJ)

BlackBerry maker Research In Motion Ltd. could unveil its new tablet computer—as well as the operating system that will power it—as early as next week at a developers' conference in San Francisco, said people familiar with RIM's plans. The tablet, which some inside RIM are calling the BlackPad, is scheduled for release in the fourth quarter of this year, these people said. It will feature a seven-inch touch screen and one or two built-in cameras, they said. It will have Bluetooth and broadband connections but will only be able to connect to cellular networks through a BlackBerry smartphone, these people said. Since the tablet won't be sold with a cellular service, it's not clear which carriers or retailers will sell the device. (WSJ)  The market should be rather sluggish today as China, South Korea, Taiwan and Israel markets are closed. At this hour US equity futures are up nicely. I don't expect them to hold by the opening bell. No Collar Trades so far but am considering a long position in Sandisk (SNDK)tomorrow after the initial sell-off. Will advise.

9/21/2010 12:46pm US equity futures are showing some profit -taking as we approach the opening bell. The Fed meeting begins later today. Bernanke at the Jackson Hole conference August 27th did say that the Fed would step in to take action if the economy looked as if it were headed for another recession or if the economy were to deteriorate further but didn't give any details. In my opinion, the only thing the Fed is likely to do is launch another round of long term treasury purchases and long term corporate bond purchases which is often referred to as quantitative easing. Sadly while this will add some liquidity to the system it will not produce jobs. Nevertheless, investors will be listening for details of what the Fed will do and under what circumstances.

Pimco launched a new municipal exchange traded fund ticker:BABZ, Build America Bonds. Although the yield may seem attractive, all of the muni etf's my customer's have bought in the last couple of years are still at a small loss and we bought them at a discount.The muni bonds we bought as individual issues are all priced at a premium.  I frankly would rather stay away from the muni market altogether being that we are at the very bottom in terms of interest rates. Rates can only stay the same or go higher. If the fund or funds of this type are yielding more than 5% you can bet the portfolio is leveraged meaning they are borrowing against the assets to purchase more bonds. It works both ways. I guess most have already forgotten that leveraged assets were part of the problem in the 2008 meltdown. We definitely will be a seller of these etf's in the coming weeks and months not buyers. Bonds in many etf's and mutual funds tend to be open-ended meaning they are continual buyers and are at the long end of the yield curve where there is the most volatility and risk when interest rates rise.

In other news, The FDA is close to approving a genectically modified salmon. In its scientific assessment, the FDA said that the genetically altered salmon posed "no additional allergenic risk than control Atlantic salmon." Does anyone remember my rants on Monsanto's Round-up product,(glyphosate). It was supposed to be weed intolerant, remember my accounts of pigweed? If the genetically modified salmon is approved by the FDA for mass distribution, its just a matter of time before some idiot will mix these modified fish with our natural salmon. As our farmers are now dependant on these sterile, genetically modified seeds they buy from Monsanto, one day in the future our fish in the oceans and rivers will also be sterile. Its all about the money Loretta.

9/20/2010 3:35am We have the Fed meeting on Tuesday. No changes are expected, and Bernanke speaks on Friday on "Lessons from the Crisis". High Holy Days (Yom Kippur) ended Saturday at Sundown so this should turn out to be a more typical week with hopefully more trading volume.

I had written earlier that China would not change its stance on its currency manipulation based on their belief that they don't. Saturday the BBC reported that Li Daokui(an adviser to China's central bank) said "China will not appreciate the yuan solely because of external pressure". His comments were likely a result of Geithner's criticism last week. Li had further stated that China was not a country that relied completely on exteral demand. Geithner believes he can use the G20 meeting in November to pressure China into some kind of currency reform. This simply won't happen. China has not responded to threats or suggestions in the past. Expect more of the same.

BP finally sealed their leaking oil well over the weekend. They still blame their contractors Halliburton (Hal) and TransOcean (Rig) for most of the problems since Halliburton did the cement job on the well and TransOcean owned and operated the well. I looked at the charts on Hal and Rig over the weekend and it appears that Hal looks to rise in value while Rig could lose 15 points.

There is a rumor that Facebook is building an iphone of sorts. We are still long Cirrus Logic (Crus). At this hour, US equity futures are are up sharply as are the european indexes. We expect a positive week.

9/17/2010 2:13am The core Consumer Price Index for August will be released today as well as the University of Michigan's sentiment index. The Dax index is up 51 points at this hour and the other European indexs are also sharing in the gains. US equity futures indexes are are up strongly pointing to a strong rally today. December gold is trading at $1283.10 at this hour with $1284.40 being the new high so far. It appears to me that gold is ready for a sharp sell-off. We'll see between now and Monday. December cotton is making new highs and the grain complex is also showing new highs bringing up cattle prices. The market in general seems to be a bit exuberant today for no apparent reason. As I've mentioned before, portfolio managers are going to be pressed for results as the third quarter draws to an end. We are still long our position in Cirrus Logic (Crus) and have a small profit so far. In other news, don't expect China to change their stance on currency manipulation. Geithner has no teeth. He's all hat and no cattle as we say in Texas. The yen is quiet in overnight trading. The VIX index closed at 21.72. When the Vix reaches 20 we will start to pare back our speculation. No new collar trades. Will advise.

9/16/2010 2:42am Early Wednesday the Bank of Japan sold yen and bought dollars in a effort to control the Yen's surge which is sapping the strength of the country's fragile export driven recovery. It was a well timed event as the Yen appeared to be technically ready for a sell-off anyway. I'll venture to say that China was busy buying Yen yesterday and will continue to do so. I also believe that the Yen will soon make new highs again. Did you know that Japan is not allowed to buy Chinese bonds? Chinese investors are allowed to buy Japanese bonds and have been while there is a ban against non-resident buying of yuan bonds. Purchasing yuan bonds by Japan could help stem the Yen's advance. I doubt China will allow that since they have been  consistent purchasers of Yen. Why would the world's largest exporter take an action that would weaken their global position? Not likely. When China decides to unload their huge Yen position, lookout below. That's when a sale of Yen by BOJ along with China's sale could make one hell of difference. The dollar and euro will soar at least temporarily while gold tumbles. I'd love to place a position in gold but can't do it at these prices. I will wait. The amount of gold that is held in etf's is astonding. George Soros alone owns more than 635 million in gold etf holdings. When the tide turns for gold, it will cripple many investors who have bought at recent levels and will turn a gain for others into a nasty loss.

At this hour the Dax is up about 12 points and the US equity futures are off slightly. The CAC is up about 7 points and gold and crude are off a bit. We placed a new position yesterday in Cirrus Logic (Crus). This is a very short term play. No new collar trades as of yesterday. I expect the market to rally into the weekend.

 9/14/2010 12:00am We have August Retail sales later today and Business Iventories. Sales are expected to raise up 0.3% from July. Kroger releases tomorrow before the bell as does Best Buy and Cracker Barrel. Pall Mall reports after the close. John Chambers of Cisco meets with analysts later today. Dicussion will sooner or later revolve around thr company issuing a dividend or at least a special dividend.

We did execute a collar trade yesterday for some of our customers. Buying Verizon with a 6.30% annual dividend. We sold the Apr $31 dollar call and bought the Apr $28. puts for even money  or in this case or $1.42 for each option; or a debit of $30.82 for the stock. This a classic example of how the call pays for the put protection and just as important as the dividend yield is the downside protection provided by the put.

Yesterday I mentioned China's 2010 Yen purchases. Japanese government data showed that China had bought $27 billion Yen through the month of September which turned out to be 6 times the combined Yen buying in thr previous five years. At 2:55am The Dax is down mildly as are the best European markets at this hour. Our US futures equities are down nominally.Eruv Yom Kippur begins this Friday at Sundown so don't expect too much from the market this week but it should  market maintain its positive bias. We sold our position in Sndk and Snps or SanDisk and Synopsis at a nice profit and are looking for other candidates. Will advise.

9/13/2010 3:21am Asian markets finished with a nice rally setting up the Dax and our equity futures markets for a strong rally. September sweet crude is up $0.775 @$77.225 Looks like the dollar will rebound to about $88.00 based on the December futures contract from $82.495 in the next two months while the Euro looks to test the $1.20 area from its current price $1.2801 (Dec) in the same time period. Dec Gold is off of its  recent high of $1266.50. At present Dec gold is at $1246.70. Copper continues to strengthen and the grain complex generally also is strengthening. The Japanese Yen continues to rally as the Chinese government resumes its purchasing of the yen making the Yuan attractive in terms of export prices.

Looks like clear sailing for the market so far in September. As expected the IMF gave Greece their second installment Friday of their loan (2.5 billion euros). The balance of the 9 billion Euro loan would be coming from the EU. In other news data from the second quartered Greece's economy shrank 1.8% in the second quarter. I'm sure that the IMF and the EU will sing thr praises of Greece up until December. Greece Prime Minister rulled out any restructuring of their national debt. I think the PM will change his mind in December.

The International Monetary Fund has predicted a waning in the global economy as we approach  the year end. The IMF briefing note also set forth potential risk factors that could make matters worse, such as a deterioration of the US property markets. This is where the global financial crisis began and the IMF warns that credit may begin to dry up if the number of home repossessions continue to increase.

The quickest fix for the housing problem would be to get a handle on job creation. It will boost demand and help delinquent borrowers stablize their situation.This all tells me that quite a few items are to occur in December and and they all we be trying to dovetail their activities smoothly. Greece will change all that as we begin to get news of the likelyhood of a Greek default. Stay tuned.

 9/10/2010 The drop in people signing up for unemploment benefits dropped to its lowest levels in two months. The market seemed to interpret this as a sign that companies aren't as aggressive in their layoffs inspite of our  economic stalemate. The narrowing of our  trade deficit news together with the drop in unemployment claims eased  recessionary fears for the moment. After the bell Natioal Semiconductor (NSM) posted higher profits due primarily to strong demand from cellphone makers. Revenue forecasts fell short of analyst's consensus leaving the stock to fall nearly 6% in after hour trading. No significant earnings releases on Friday. Wholesale inventory report to be released though.

Back to my rant on the possible default or at least restructuring of debt for Greece. Norway has amassed a sizeable position in Greek,Spanish,Italian and Potuguese debt. Their Sovereign
Wealth Fund sees no default in Greece debt. Pimco, who runs the world's largest fixed income bond fund have announced earlier that they aren't going to buy any of the Greek Debt. The recent lack of transparency in the EU's recent bank audits warns me of the potential for a soverign debt contagion for which we known nothing in terms of exposure to each other's soverign debt. Contagion risk exists and so does solvency risk. A few hours from the open, the futures are pointing to small rally.
 

 Dubai has agreement on its new debt plan restructuring. They claim 99% of its creditors are on board. The IMF estimates the emirate and its web of state linked companies are shouldering as much as $109 billion in debt.

9/9/2010 2:22am At this hour US equity futures are mildly lower. The Dax, Ftse and the Cac 40 are also trading mildly lower. Fed Beige Book reports the following: economic growth continued but showed signs of slowing down, the Fed said. widespread signs of a deceleration compared with preceding periods," the report said. Jobs-the overall labor market remained somewhat slack." Manufacturing-several contacts expecting no turnaround until 2012.Retail-Customers continue to focus on nondiscretionary items while shunning big-ticket purchases."Services- "Most staffing firms report that demand continues to grow at a solid pace and is particularly strong for light industrial, sales, administrative, professional and technical workers."Construction and real estate: "Home sales continued to slide since the last report. Nonresidential construction remains weak.Financial services: "Loan demand continued to trail off. Business lending was especially weak. Energy: "Drilling activity rose since the last report. So far the the market seems to be taking the Beige Book report in stride.

Finance Minister Brian Lenihan of Ireland announced that Anglo Irish Bank would be split into two sectors, a government backed bank that would hold customer deposits and as asset recovery bank which would work out and hold the the bank's bad loans. The later, could be sold in part or whole in the future. Ireland's banks are holding back the country's recovery. In 2008, at the height the real estate boom, the sector accounted for nearly 25% of Ireland's GDP. In the same period Irish households were carrying debt at 175% of their disposable income. I feel sorry for Lenihan who is truly making an effort to right things in their economy. Too bad he's not learned to lie as well as the rest of the PIIG nations. Meanwhile, the Dec British Pound is at $1.541 headed for $1.4355 in short order. Too bad.

In other news Google is coming out with "Instant Search", a predictive search engine.

By 8:12 this morning the trade deficit narrows by 42.8 billion in July and a drop in jobless claims insure a strong open. Goldman Sachs to pay British agency $27 million.

Attached is an excerpt from my last report (April-May) decribing the Goldman Sach's mortgage debacle:

Last month the SEC filed a civil complaint in Manhattan federal court against Goldman Sachs charging the firm had defrauded investors, coincidently raising the angst with congressional members already considering financial reform legislation. It appears that Goldman’s hedge fund client Paulson & Co. had a role in picking the securities he would windup betting against.  Goldman responded adding that it had also lost $90 million in the venture. A possible reason for their exposure was that that they did not sell the remaining long side of the CDO (collateralized debt obligation) offering which they had to take hence their loss in the investment. The end result was that investors in the Abacus 2007-ACI as it was called, lost over one billion in the investment while Paulson cleared over one billion. Abacus was a CDO or a collateralized debt obligation never intended for boys in short pants. However, it allowed Paulson to pick the securities he intended to short giving him an unfair advantage over the purchasers. The portfolio had been seeded for failure. Six months after Abacus was offered, the portfolio was downgraded and 17% of the portfolio was on negative credit watch. The CDO was given a AAA rating initially based on the theory that the bonds wouldn’t all go bad at once. The rating agencies either were not knowledgeable about the CDO market or took Goldman’s word on how they operated which resulted in the AAA rating. The rating that was assigned to these derivatives which in many cases was all that some purchasers looked at other than the coupon.  In a CDO product both sides know that there is a long and a short side to the investment and the buyer doesn’t need to know the seller or vice versa. In the above case however, the fact that the seller (Paulson) had hand-picked the portfolio he would end up shorting should have been disclosed to the buyer. It appears Paulson was given an unfair advantage and if true that would not likely be considered fair disclosure. Paulson was the only one who knew the likely outcome of the portfolio. The fear on Wall Street is that other investment banks namely Merrill Lynch (now owned by Bank of America) and UBS as well as others, will face similar charges. (Barron’s excerpts). The justice department announced today the opening of a criminal investigation regarding Goldman’s mortgage activities.  I will say that Goldman was not alone in their strategy to bet against the interest of their customer. Proprietary trading is the engine that runs the wire houses. My impetus formerly as a broker-dealer for 17 years was based upon the major wire houses taking unfair advantage against the customer. If customers made money that was an unexpected outcome.

9/8/2010 The market seems to be poised to close positively. The financials are positive indicating that we may have a positive spin on the beige book which predicts trends and anticipates changes over the next few months or quarters. There has been recent news about limited disclosure regarding Euro bank's soverign portfolios and linking that with the market sell-off. The problem is that disclosures from euro banks won't be transparent until its too late for most to react. Earlier, Ireland announced that guarantees for shortterm liabilities set to expire September 29th will be extended to he end of the year. These guarantess include corporate and interbank deposits. Individual deposits will also continue to have the same backing until year-end. This date happens to dovetail with the time Greece will be seeking their third stipend from the EU and IMF. This could be pivotal for the market if Greece is refused. Are you listening Loretta? I say this not to be overly negative but rather suspect of all the recent good news coming from the Euro sector. Be prepared. Protect your downside risk, continues to be my mantra. Today I will again include excerpts from last report which may be too lengthy for most to read. Today's excerpt is about the PIIG Nations.

Then there are the PIIGS (Portugal, Italy Ireland, Greece and Spain). We’ll start with Greece. I’m sure all have read in the last few weeks comments in Barron’s made by Pimco’s Bill Gross (“The” bond market maven).Gross  indicated that the firm would not be purchasing any of Greece’s recent debt offering. Greek Prime Minister George Papandreou announced today (4/23/10) that Greece would ask the European Union and the International Monetary Fund to activate an emergency financial support package to enable them to shore up public finances, despite rumors to the contrary. The question is whether or not the EU and IMF will provide funding in time to prevent a default on major loan repayments due May 19th.  Debt today reduced to junk status with a negative outlook. (BB+/B- 4/27/10).

In Italy, unemployment is slated to hit 11% according to the Prometeia think-tank and its public debt of 115.80% of GDP (gross domestic product), the highest in the EU. To quote leading Italian economist Edward Hugh of Italian Economy Watch: “To put things in proper perspective, GDP levels are still well below those of 2003. My opinion is that even in the best of cases, Italian trend GDP growth is now below 0.5% per annum and indeed it may well be approaching zero.”
 
Ireland’s budget deficit could reach 76% of GDP in 2010 following a ruling by Eurostat (the statistics office of the EU on the treatment of public spending on the state nationalized Anglo Irish Bank). Prime Minister Gordon Brown was quoted as saying “that if Goldman Sachs is proven to be wrong, then hundreds of millions of dollars in compensation should be paid to British banks and the UK government. Royal Bank of Scotland paid Goldman $841 million to unwind its position after taking over ABN Amro in 2007. RBS is 84% owned by the British government, after receiving a 45.5 billion pound (70 billion) taxpayer rescue, the world’s biggest banking bailout. (Bloomberg)

Portugal has a public debt of 85% of GDP compared to Greece’s 124% of GDP and that’s probably being generous. Unlike Greece, Portugal is a pioneer of reform. It has linked pensions to changes in life expectancy and incentives for later retirement have been introduced. According to the EU, Portugal’s age related public spending will rise by only 2.9% of GDP over the next 50 years compared to a Euro average of about 5.1% and a breathtaking 16% in Greece. The problem with Portugal is its slow GDP growth, the slowest in the Euro Zone. (The Economist 4/22/10). Debt rating decreased to A-/A-2 on weak macroeconomic structure with a negative outlook. 4/27/10

Now comes Spain. Their unemployment rate is at a staggering 20% and accounts for about 9% of the Euro Zone. Their economy is about 4 times as large as that of Greece. When GDP was growing at 6% per year, the construction industry was growing by 30% a year. At the height of the boom in 2007, construction made up 13% of GDP and about 10% of employment. As a result, now there are about one million empty homes in Spain and no one to live in them. At the same time Spain’s native population is shrinking.  (excerpts from: The Weekly Standard, Christopher Caldwell). Can you spell bubble? S&P cuts Spain’s debt rating to AA on par with Slovenia. 4/28/10. My money bets that Greece doesn’t want to be told what to do by the Germans and Germans will tire quickly of these bailouts and those to come. The most prosperous of the 27 countries making up the EU will simply be transferring their money to the PIIGS nations and others leading to an eventual collapse of the EU in the next five to ten years. That’s a worst case scenario. This is a very real concern that will constrain the Euro for several years.

9/7/2010 2:38am CST Tuesday's US market looks to open softly to the downside. The Dax is off 38.75 while the S&P are off 4 and the Nasdaq is off about 5 and the Dow futures are off about 36 points.Not much is happening on Tuesday. An FDA Committee considers an injectible antibiotic from Forest Labs later today. Euro-zone finance ministers meet today, and are largely expected to approve the next $11.5 billion tranche of emergency aid to Greece. Obama is speaking in Cleveland about the economy. Wednesday the Fed releases its Beige Book report. Jewish New Year(Roshashana) begins at sundown. Well by the open the market turned negative and has been down 60 to 80 points on the Dow. Many floor traders have yet to return from there Labor Day vacations so don't be alarmed. Over the weekend I had the pleasure of having dinner with Loretta and two of her close friends Dana And Rich. All three are brilliant thinkers and they made some suggestions regarding  my blog. At their suggestion, I will be bring back excerpts from my last report that I  feel are necessary to understand some of the dangers looming ahead. So the excerpt this time will deal with collar trades. I found it interesting to read over the weekend that more and more institutions like Pimco for example are using options such as calls puts and even collar trades to protect downside exposure.

I feel that market has a chance to begin a small rally that could last through the first part of December when the Euro-zone finance ministers may likely decide against giving Greece the third installment of their emergency aid. This will cause a default of Greek debt.The other possibility is that Greece may decide to pull out of the EU on their own. Let me reiterate that our biggest immediate danger is the default of Greeck debt or a terrorist act. I feel that a major sell-off in the  market is less likely to be as a result of our economic frailties than the former. On September 1st, 2010 Slovak Prime Minister, Iveta Radicova called for tighter regulations for the EU and for allowing indebted countries to default rather than be given new credit lifelines. Slovakia, the poorest of the currency group, refused earlier in May to be a part of the Greece bailout. This event looks to be the precursor of things to come. In the event of a Greek default, the ECB (European Central Bank) will buy Greek debt used as collateral, acting as a lender of last resort. The private bank would temporarily sell the bonds at face value to the ECB with a promise to pay the loan back at full value, hence the term Repo trade.

Six things need to be done to prepare for the above scenarios.

1.Use collars on your equity trades with solid dividends.

2.Keep speculation to a minimum.

3. Buy gold in some form with any retracement. I prefer Eldorado Gold (GLD).

4. Buying puts on the Yen or sell the etf short when the Dec Yen hits 12.227 where I feel a sell-off will begin.

5. When the dust settles,the Euro will likely be the currency of choice. So Buy Euros after the aftermath.

6. The last part of the plan will be to begin a long position in the grain complex where cotton, soybeens and wheat are the lead commodities. This will likely take place in the first quarter of 2011 after the grain complex has cooled off a bit.

Attached is the collar trade excerpts: STRATEGY Originally Issued April-May 2010.

We must invest in this market albeit cautiously. Our buying opportunity may come in the next few days as I feel there will be a delay in the Greek bailout.  Don’t be in a hurry. The market has not priced in a Greek tragedy as yet. In the pages to come you will find only dividend paying stocks (with the exception of Eldorado Gold) and corporate bonds that I am recommending. The dividend stocks listed have raised their dividend distributions in 2008 and or 2009. Most companies listed will not have descriptions as they should be well known. The corporate bonds featured will be used in lieu of investing in European or Emerging markets as these well capitalized companies are already invested in the local currency and these will also bring in excellent income without purchasing government bonds or bond funds. In both cases one must wait for a sell off before purchasing. 

As this report began in mid April we had not had an eventful pullback in stock prices until the last few trading days. I think the market will post a modest comeback as the S&P holds its 1000-1025 level or Dow Jones 10,250 from which it should bounce back enough to give us an opportunity to employ the collar strategies. These trades work better when put prices are cheaper; they’re cheaper when the market rallies. That should present itself in the next week. (5/6/10) As for the alleged error made on the exchange today causing the 1000 point drop; not likely.  Proctor & Gamble (PG) was trading around $60 when all of a sudden there were no bids for the stock which meant it could then trade on the Nasdaq (the electronic market). Next bid was $40 which set off other computerized program trades in other Dow components. It was said that a wire house had errantly sold 16 billion worth of e-mini’s (futures contract tied to the equity indexes) instead of 16 million; not even possible. The stocks featured should be bought while employing a strategy called a “collar trade or spread”. This strategy is often employed by banks and hedge fund managers. This strategy is employed by selling a call option at one strike price and buying a put option at the same or lower price. The sale of the call option essentially pays for the cost of the put protection so one’s only cost is the cost of the stock.

Terminology
A call option represents 100 shares of stock and gives a person the right to buy stock within a prescribed period of time at a particular price; known as strike price. The money paid for that privilege is called a premium. A put option also represents 100 shares of stock and gives a person the right to sell stock within a prescribed period of time at a particular price (strike price). A call option is considered to be in the money if the price of the stock in question is above the strike price. A put option likewise is in the money if the price of the stock is below the strike price. An option that is out of the money has a corresponding stock price that is below the strike price if it is a call option and above the strike price if it is a put option. A covered call occurs when one sells a call option against their underlying stock purchase. A bull spread can use either puts or call options and involves simultaneously buying a call at one strike and selling a call at a higher strike price. To be long a stock or option means to make a purchase of a position while being short means to sell a position. The stocks featured should be bought while employing a strategy called a “collar trade or spread”. This strategy is created by combining covered calls and protective puts.  From a profit perspective the collar behaves like a bull spread in that the upside is limited beyond the strike price of the short call while the downside is protected by the long put.

Example

Purchase 100 shares of network Appliance (NTAP) at $12.84 in May and want to protect your downside at little or no cost. You would create a collar by buying one July $10 put at $0.80 and selling a July $15 call at $0.80. The long stock position reacts as any long stock position in that it gains when the stock goes up and loses when the price drops. Maximum profit is achieved when the stock is at $15. Above $15 the profit is exactly offset by the loss on the call option that was sold.

Conversely, the maximum loss occurs with the stock at or below $10.The profit of the put offsets the loss from the stock.

NTAP trading @ $12.84
Buy 100 shares of NTAP @ $12.84                            $1284.00
Sell 1 JUL $15 call @$0.80                                       $80.00
Buy1 JUL $15 put @$0.60                                        $(60.00)
Cost of trade                                                            $1264.00

This is a conservative strategy offering a reasonable rate of return with managed risk. The key to this strategy is selecting the appropriate call and put combination that allows for profit with downside protection. Many investors will roll the puts and calls in the collar strategy monthly and lock in 3-5% monthly return. Rolling involves buying back the short calls and selling new calls  in a later month and similarly with the puts but in the reverse you would sell the puts and buy new puts further out. My strategy seeks to improve on the process and return by using dividend stocks paying between 3%-6% and picking up one to two quarterly payments before rolling thus increasing the overall return to 5%-10% while protecting the downside.

I have used British Petroleum (BP) below as a real time example because as I was pricing BP on the close of the 26th,(May) news of the oil spill affected the stock, dropping from an opening price of $59.77 to the closing price of 57.91 where I first priced the collar. This will give you an opportunity to examine just how well the strategy works:

Buy 300 shares of BP at $57.91 a share ($17,373) and Sell 3 Oct. $55 Call options at $3.60 $1080.  Buy protection by buying 3 Oct $52.50 Puts (out of the money) for $2.74 per contract ($822). Had we executed that trade then, here is what it would look like today: BP closed today at $50.94 up 0.58cents today 5/5/10. The call options we sold for $3.60 are now worth $2.85, more importantly the protective put Oct $52.50 that we bought for $2.74 were worth $5.85. (5/5/10)
300 shares BP @57.91                                     ($17,373)    
Sale of 3 Oct $55 Calls                                      $1080.00
Purchase of 3 Oct $52.50 puts                           $($822.00)
Total                                                                  ($17115)
Breakeven                   $17115/ 300 shares       $57.05    
Breakeven Minus today’s put value $5.85      $51.20
Today’s closing price                                     $50.94
Difference                                                    $(78)
September Dividend Payment                        $252.00

Last Friday we were trying a collar trade on Qualcomm (Qcom). The stock has a 1.89% yield. We were trying to sell the Jan $41 calls and buy the Jan $39 puts for even money. The stoch was $40.25 at the time so we entered an order to place the collar at a net debit of $40.25. Nothing done. May try it later this week.  
Some stocks will provide further upside gain than others but our aim is to increase income and the potential for capital gains while providing some downside protection at the same time. Call or e-mail via or blog should you have questions about the strategy.

I encourage your questions, so go to the blog and participate. Feel free to invite your family and friends to join my blog.

Your referrals are our only source of new business. Please keep us in mind. Respectfully,Sam Solomon

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