Insomniac Hedge Fund Guy

Hedge strategies to consider

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Investors who aren’t yet hedged, and are interested in cost-effective portfolio protection, can consider buying the VIX September 32.50 call and selling the VIX September 37.50 call. When Schwartz modeled the trade, the VIX hedge cost less than $1 during Friday trading, and it provides protection through the bulk of September, which is historically the trading year’s most volatile month. Why? All of the market’s great crashes have occurred in October. Stephen Solaka, managing partner of Belmont Capital, a Los Angeles money-management firm, advised clients to “collar” their portfolios with SPDR S&P 500 ETF Trust (SPY) options. When SPY was at 119.75, … Read more

Before you jump in up to your head, you better read this first.

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  Stocks May Fall Further Despite Massive Sell-Off – Barrons.com Blood Not Yet Running in the Streets By MARK HULBERT | MORE ARTICLES BY AUTHOR Despite the market’s steep plunge, investors are far less concerned and panicked than they were during last year’s Flash Crash. Contrarian-oriented investors may be wondering if Thursday’s free-fall constitutes the proverbial “blood running in the streets” that noted contrarian Nathan Rothschild famously said marked the time to buy. Unfortunately not, according to my contrarian analysis of advisory sentiment. via Stocks May Fall Further Despite Massive Sell-Off – Barrons.com.

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Read this comment from Warren Buffett about the S&P downgrade.  There is no question in his mind that the U.S. debts are money good because the U.S can print money.  He goes on to say that inflation is an entirely different matter.  People that understand Buffett’s thinking, know that he believes stocks are the ultimate protection from the ravages of inflation on purchasing power.  You can be sure that Buffett will be buying, selectively of course, if the market plunges on Monday.   Buffett would rate U.S. ‘quadruple-A’ Published: Aug. 6, 2011 at 9:20 AM Warren Buffett, Chairman & CEO … Read more

Western Leaders Seek to Contain Euro-Crisis Market Turmoil

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Western leaders huddled on preventing the debt crisis from spreading to the core of the euro area after the biggest weekly decline in global stocks since 2008. President Barack Obama and British Prime Minister David Cameron joined telephone consultations with euro-area counterparts yesterday as investors signaled concern a July 21 agreement to expand the 440 billion-euro ($628 billion) rescue fund would fail to stop the rot. Full article available @: http://www.businessweek.com/news/2011-08-06/western-leaders-seek-to-contain-euro-crisis-market-turmoil.html

Berlusconi under pressure as markets lose patience

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(Reuters) – Bond markets may be succeeding where political opponents have failed, pushing Prime Minister Silvio Berlusconi closer to the exit and opening up fresh uncertainties as Italystruggles to avoid financial disaster. The spread between yields on 10-year Italian bonds over German Bunds briefly climbed past the equivalent Spanish/German spread on Friday morning, underlining the perception that Italy now poses the major threat to euro zone stability. Berlusconi’s response to the crisis, blaming international conditions and pledging unspecified measures to boost growth, has fallen flat with markets suddenly focusing on his divided government and longstanding weaknesses in the Italian economy. … Read more

Congress Fails The People

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US voters disapproval of Congress hits all time high Disapproval of Congress rose to an all-time high after weeks of rancorous partisan battles over raising the US debt ceiling took the Nation to the brink of default, according a New York Times/CBS News public opinion poll published Thursday. A record 82% of Americans say they disapprove of the way Congress is doing its job, compared with 14% who approve, the poll found. The disapproval rating for Congress was the highest in the 34 yrs the question has been asked in the poll and up from the previous high of 77% … Read more

A reprint from Zero Hedge about leaving the Euro- a good idea

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How Ireland Can Leave The Euro: One Expert’s View Submitted by Tyler Durden on 02/28/2011 17:15 -0400 Bond Capital Markets Creditors default fixed Germany Greece Ireland Italy Monetary Policy Portugal Via adamsmith.org The following memo, which has fallen into our hands, is a draft of advice to the new Irish Minister for Finance from a British colleague who has a wealth of expertise on how to handle economic crises. He prefers to remain anonymous for professional reasons. Dear Minister, Congratulations on your new appointment. As you read the civil service briefings on the present crisis, you will come to appreciate … Read more

SEC, Rajat Gupta Drop Their Cases, for Now

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NEW YORK—The Securities and Exchange Commission dropped its civil administrative proceeding against former Goldman Sachs Group Inc. director Rajat Gupta, but left the door open to pursue insider-trading charges against him in a civil lawsuit. The agency “is fully committed to the case and will proceed as appropriate,” a spokesman said Thursday. Specifically, the agency said that “it is in the public interest” to dismiss the administrative case but that “dismissing these proceedings will not prevent the Commission from filing an action against Mr. Gupta in United States District Court.” The SEC brought the administrative case against Mr. Gupta in … Read more

Small Firms Hunger for Sales, Not Credit .

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Small-business lending has been in trouble, but is there an explanation beyond the widespread perception that banks are denying credit, and starving small entrepreneurs? Clearly, the financial crisis and recession whacked banks and curtailed lending to small companies. Lending still hasn’t returned to prerecession levels. But here’s an alternative view of the principal cause: A range of observers report that, in many cases, small businesses don’t want loans. Their sales are so weak they can’t justify taking on debt to expand operations. “It’s the sheer lack of expectation that they’re going to grow their company,” says Bernie Kuechler, of Barlow … Read more

I.M.F. Chief to Face French Investigation

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PARIS — A French court on Thursday ordered an investigation into charges that the International Monetary Fund’s new managing director, Christine Lagarde, had abused her authority in a 2007 dispute involving a multimillion-dollar payout to a French tycoon while she was the finance minister of France. The ruling by the Court of Justice of the Republic, which oversees the actions of French ministers, means that Ms. Lagarde may have to gird for a possibly lengthy legal process to defend against the criminal charge. But legal experts said it was unlikely to interfere with her management of the fund, which was … Read more

Bernanke Models Prove Faulty as Fed Forecasts Succumb to Downward Revision

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Chairman Ben S. Bernanke and his Federal Reserve colleagues are preparing to meet next week as two-year Treasury yields at a record low signal a U.S. economy on the knife’s edge between growth and contraction. Guiding their assessment of the outlook for the world’s largest economy will be forecasts contained in the so-called Teal Book, a confidential staff report with a blue-green cover. Policy makers’ confidence in those forecasts may be tempered as the course of the expansion has confounded their expectations. Of 12 Fed staff forecasts since the beginning of 2010, seven have been downward revisions to the near-term … Read more

The “shorts” who popped a China bubble

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NEW YORK/SYDNEY (Reuters) -They are a rag-tag bunch, often working from home or tiny offices scattered round the world, from rural Texas to Beverly Hills and a suburb near Australia’s Bondi Beach. Some have never even been to China; most don’t speak or read Chinese. And yet in the past nine months, this small group of “short sellers” has published research exposing accounting fraud at a series of Chinese companies listed in the United States and Canada, and made as yet unproven allegations against a whole bunch more. As a result they have scuttled a once hot sub-sector of the … Read more

Fannie Mae seeks $5.1 billion more from taxpayers

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(Reuters) – Mortgage finance giant Fannie Mae said it would ask for an additional $5.1 billion from taxpayers as it continues to suffer losses on loans made prior to 2009. The largest U.S. residential mortgage funds provider on Friday also reported a second-quarter net loss attributable to common shareholders of $5.2 billion, or 90 cents per share. Including the latest funding request, Fannie Mae has needed $104 billion in government capital injections since the U.S. Treasury seized control of it in 2008 during the financial crisis. Fannie Mae has paid back $14.7 billion in dividends. Fannie said in a statement … Read more

S&P, Moody’s Under Investigation

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Italy seized documents of S&P, Moody’s over suspected ‘Anomalous’ fluctuations Italian prosecutors seized documents at the offices of rating agencies Moody’s and Standard & Poor’s in a probe over suspected “anomalous” fluctuations in Italian share prices, a prosecutor said Thursday. via S&P, Moody’s Under Investigation | Live Stock Trading News | Equities, Forex, Gold, Silver and Oil Trading.

Bottoms rarely look like Thursday’s rout – Mark Hulbert – MarketWatch

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By Mark Hulbert, MarketWatch CHAPEL HILL, N.C. (MarketWatch) — Market declines rarely end with days like Thursday’s 513-point drop for the Dow. So even if you think that we’re just suffering a mere correction within an ongoing bull market, you still should be prepared for lower prices in coming sessions. That at least is the conclusion that emerged from my analysis of past bear market bottoms. The days on which those bear markets actually registered their final lows typically were rather uneventful — nothing like what we saw on Thursday. via Bottoms rarely look like Thursday’s rout – Mark Hulbert … Read more

Dow down 512.76, 9th biggest point drop ever

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Today August 4, 2011 the Dow was down 512.76, the 4th biggest drop point wise in history.  We are now down 4.58% for the year. Largest daily point losses Rank         Date     Close Net Change % Change 1 2008-09-29 10,365.45 −777.68 −6.98 2 2008-10-15 8,577.91 −733.08 −7.87 3 2001-09-17 8,920.70 −684.81 −7.13 4 2008-12-01 8,149.09 −679.95 −7.70 5 2008-10-09 8,579.19 −678.91 −7.33 6 2000-04-14 10,305.78 −617.77 −5.66 7 1997-10-27 7,161.14 −554.26 −7.18 8 2008-10-22 8,519.21 −514.45 −5.69 9 2011-08-04 11,383.68 −512.76 −4.31 10 1998-08-31 7,539.06 −512.62 −6.37 The third largest one-day point drop in DJIA history, and largest at the … Read more

The President will be asking Congress to raise the debt ceiling again.

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Normally, the strongest  time of year for the market is the 4th quarter.  It may be different this year.   Note this email response from the senior Senator from Utah. “Thank you for contacting me to express your thoughts and concerns about recent debate on our nation’s debt and budget negotiations.  I appreciate your timely input on this very important topic. As you may have heard through the news media, a compromise proposal was negotiated over the weekend of July 30th.  The compromise proposal passed the House on August 1, 2011 by a vote of 269-161, the Senate on August … Read more

U.S. Stocks Rise on Bets of More Stimulus; Treasuries Pare Gains

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Speculation that the Fed will embark on a third round of asset purchases to stem off a recession grew after the Wall Street Journal reported that three former policy makers support the approach. More than $2 trillion was erased from the value of global equities in the past week, and Treasury yields set new lows for the year, amid concern the economic recovery is faltering. Service industries grew in July at the slowest pace since February 2010 as orders and employment cooled, Institute for Supply Management data showed today. Full article provided by Bloomberg @: http://www.businessweek.com/news/2011-08-03/u-s-stocks-rise-on-bets-of-more-stimulus-treasuries-pare-gains.html

Finacial Reform in Greece

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Speaking before Parliament’s plenary session, Finance Minister Evangelos Venizelos referred to the finance ministry’s draft bill stressing that “the scenery should change” and underlined that “this transitional period will have to be managed with prudence, professionalism, caution, consensus and a sense of responsibility.” “The months of August and September should be exemplary in terms of swiftness,” he said, responding to criticism by opposition parties regarding the procedures followed. “We are caught in an worldwide vortex and we have to utilise the opportunities created by us for us. We should be reliable as regards our obligations towards our lenders and meet … Read more

El-Erian Says S&P Will Downgrade U.S. If It Holds to Outlook

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Aug. 3 (Bloomberg) — Standard & Poor’s will downgrade the U.S. after it enacted a law to reduce federal debt by $2.4 trillion over a decade if the credit-rating company sticks to what it outlined last month, said Pacific Investment Management Co.’s Mohamed El-Erian. “It’s not clear that this is enough to preclude a downgrade by S&P,” El-Erian, chief executive and co-chief investment officer at the world’s biggest manager of bond funds, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “We suspect they’re under tremendous pressure not to downgrade, but if they stick to what … Read more

Deutsche Börse-NYSE Deal Moves Ahead

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BY ULRIKE DAUER FRANKFURT—German exchange operator Deutsche Börse AG Wednesday said more than 95% of shares had been tendered in favor of its planned tie-up with NYSE Euronext, removing a major potential obstacle to a deal that would create the world’s largest cash equities and derivatives-trading platform. The exchanges hope to complete the merger by the end of this year, but further hurdles remain. Regulatory approval in a number of jurisdictions is still required, and the European … Full article provided by the Wall Street Journal @: http://online.wsj.com/article/SB10001424053111903366504576485653685890450.html?mod=rss_whats_news_us&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Fxml%2Frss%2F3_7011+%28WSJ.com%3A+What%27s+News+US%29  

China to Move Away from USD

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China, sitting on the world’s biggest foreign exchange reserves of about $US3.2 trillion ($2.98 trillion) as of the end of June, is the largest holder of US Treasuries. Xinhua’s comments came as China’s central bank said it would continue to diversify its foreign currency investments, signalling growing concerns in Beijing over the US debt crisis and economic downturn. “China’s foreign exchange reserves will continue following the principle of diversified investment, enhancing risk management,” People’s Bank of China governor Zhou Xiaochuan said in a statement. “Large fluctuations and uncertainty in the US Treasury bond market will affect the stability of international … Read more

ReInventing the American Dream, Abroad!

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The late George Carlin, the outspoken and controversial comedian and modern day philosopher, said it best: “The reason they call it the American Dream is because you have to be asleep to believe it.”  Well these days that’s certainly true. America’s forefathers and the first colonists risked everything to escape tyranny in Britain, and they fled to the New World to form ‘a more perfect union.’ So what has happened in the last 235 years that has brought the United States to the sorry condition it’s in today?  New American Nightmare First, it’s important to define what exactly the “American … Read more

It is a warning flag if the market is not responding to data correctly.

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Prices move before fundamentals.  It is a warning flag if the market is not responding to data correctly.  This is one of the cardinal rules I write about in the Investment Survival Guide.  I don’t know what happened to the market Tuesday that caused a 265 point plunge on the Dow.   Not that I usually do know or anything presumptuous like that.  Oh sure there are no shortage of pundits offering theories to explain the daily machinations but only the most naive of investors believe they know what they are talking about.  But after seven down days, six hundred points or so and … Read more

Fitch keeps U.S. AAA rating, review ongoing

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(Reuters) – Fitch Ratings said on Tuesday the agreement to raise the borrowing capacity of the United States means the risk of a sovereign default is “extremely low” and commensurate with a AAA rating. However, Fitch pointed out that without significant changes in fiscal policy the U.S. debt to gross-domestic product ratio “will reach 100 percent by the end of 2012, and will continue to rise over the medium term – a profile that is not consistent with the United States retaining its AAA sovereign rating.” The firm said it expects to conclude its scheduled review of the U.S. sovereign … Read more

Italy under fire in widening euro debt crisis

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(Reuters) – Financial market pressure on Italyintensified on Tuesday, sucking Europe’s second biggest debtor nation deeper into the euro area danger zone and prompting Italian authorities to call emergency talks. Italian bond yields hit their highest level in the euro’s 11-year lifetime, ominously reaching the same level as Spain’s in a sign that Rome is overtaking Madrid as the main focus of investors’ concern about debt sustainability. Italy’s stock index fell to its lowest in more than 27 months, dragged down by banks with a heavy exposure to Italian debt. European shares hit a 9-month low amid worries that slowing … Read more

‘ Beta and Leverage

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Even though U.S. politicos appear ready to reach an agreement on the debt-ceiling front, the fiercely polarized debate has introduced uncertainty into what was previously thought to be an obligation with certainty. Some no longer consider U.S. government debts to be risk-free. Some foreign central banks seem to be speaking with their feet by diversifying away from the U.S. dollar and are considering gold to be a safe-haven asset, and its price has continued on an upward tear. Many speculate that the last-minute compromise might avert technical default, but given the inability of the political machine to reach any pre-emptive … Read more

Data Reinforce Economic Malaise

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Americans saved more and cut their spending by the most in nearly two years in June, a broad retrenchment that is both the cause of and a reaction to the slowing economic recovery. Consumer spending—which accounts for 70% of economic activity —decreased 0.2% in June, compared with a 0.1% increase in May, the biggest drop since September 2009, the Commerce Department said Tuesday Full article provided by Wall Street Journal @: http://online.wsj.com/article/SB10001424053111903520204576483882838360382.html?mod=rss_whats_news_us&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Fxml%2Frss%2F3_7011+%28WSJ.com%3A+What%27s+News+US%29

Congress averts default, downgrade fears haunt

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WASHINGTON (Reuters) – Congress buried the specter of a debt default by finally passing a deficit-cutting package on Tuesday, but the shadow lingered of a possible painful downgrade of the top-notch American credit rating. Just hours before the Treasury’s authority to borrow funds ran out, the Senate voted 74 to 26 to pass a hard-won compromise to lift the government’s $14.3 trillion debt ceiling enough to last beyond the November 2012 elections. President Barack Obama, who will seek a second term next year, was expected to immediately sign the deal into law, although without any White House ceremony. His signature … Read more

I hope I can get a way with reposting this good stuff from Barrons

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Barron’s(8/1) Stumbling To The Halfway Mark (From BARRON’S)    By Vito J. Racanelli The Standard & Poor’s 500 Index managed a respectable 6% total return in the six months ended June 30, but that included two brief 7% drops and rebounds in March and June. The volatility was enough to restrain the brokers’ average return to 5% in the same period (see table below). Thus ends four straight rankings, extending over 2009 and 2010, in which the mean return of the brokers’ focus lists — or best stock ideas — beat the index. Blame the waxing and waning macro concerns in … Read more