Friday, December 10, 2010

10 December 2010 “Will It Pass?”


10 December 2010 “Will It Pass?”

Of course not everyone cares or not if it passes. It won’t really impact that many people. Sure one or too people really really care and want it to pass right now, this very moment. It's going to hurt, they always do. Again it is going hurt some more than others. But it is important to know these actually hurt filthy dirty greedy rich people as well as the most needy of our society. It is important enough to see the status of the situation scrolling across the bottom of the Bloomberg screen on TV. Funny thing, when it passes and they almost always do, we won’t even give it another thought.

Oh sorry, I was not talking about the tax bill. I was talking about Treasury Secretary Guietner’s Kidney Stone. If you didn’t hear, he is in the hospital because of a kidney stone.

But seriously it was an average day in the market but still moving a bit up. The S & P 500 hit a 2 year high at $1,240. That could be good news as it is testing some high end resistance numbers.

We were a bit surprised that the international trade report from this morning did not get more attention. The negative trade balance was improved by about 7 billion dollars. That means we imported 7 billion less than the month before. That is a big positive surprise and the market did not react. To add to the total number it is worth noting that we exported 3.2 % more than before. Consumer sentiment came in stronger than expected. We were expecting 72 (actually we-me was expecting a more positive number than 72) and we got a 74. Good stuff. On the down side we did have a look into the government’s checkbook today and the deficit increased by another 20 billion dollars. (When you actually go to the report-CAUTION HUGE FILE BUT CLICK ON IT IF YOU WANT-you will see there were some timing issues regarding the release of data).

Ok you can read all of the economic details, elsewhere, but let’s take a look at the pin action in the Salve Lucrum portfolio. Remember, we said that if there is no upward inertia or down ward inertia its difficult to get the results for short term trades but especially with options. So we are happy to say that despite the market we had a couple of gainers to take off the table.

On Dec 2, we told you about some positive guidance on TSCO, Tractor Supply. Now you could have bought the stock long and you would be enjoying about a 7.2% unrealized gain assuming you did not sell. We chose to get some April 2011 call options at 3.00 a call. We sold them this morning at $4.20. You can get out the abacus and figure it out, or I can tell you it was a 40% realized gain. Is it a good stock? I still think so. Did I get out too early? Probably. Could I have squeezed out more? Maybe. But I do know I am drinking the 15 year old single malt tonight.

We have on several occasions mentioned MDR, McDermott. We bought into this stock in June and July. We have enjoyed a spinoff of their Nuclear division (BWC Babcock Wilcox) we currently enjoy a 44% gain in MDR and 9.9% in BWC. We still though there were some legs on the stock so we could have risked more capital at 20 bucks a share OR we could work the upside with some call options. We did just that. As we mentioned here we picked up some 15 dollar May calls for 4.23 a call. We sold them this morning for $5.20 a nice 22% realized gain. The stock is up 12% since the 24th. The big difference is we made the 22% with only 423 dollars per 100 shares, not $1,700.

Now there are some horror stories in the options market. This morning 6:32 am to be exact, we discovered some positive earnings guidance statements about ALE Allete. Without doing due diligence, we found some value in a May 2011 35 dollar call. We tried and successfully picked it up some at 2.40 a call. We were shocked to see the calls selling for 10 cents a call at the close of markets today. A 95.9% loss. Now this might be a fluke as there were only three contracts executed at that price. Or it might have been someone having to liquidate their portfolio, but it would have only generated 90 dollars, and they could have sold them for 2.00-2.40 at a market order price. We will know more tomorrow, but my point is you have to be able to open your portfolio and see a 95% drop and not soil your pants.

We did execute a couple of new positions today. We like the momentum and direction of CVX Chevron. Their 2.6 billion cap spending program for properties in Nigeria and Australia have some long term impact, but a short term bump as well. Like the MDR example we could tie up 95 dollars a share or we could pick up some June calls for 1.64 a contract. Think about that. You can control 100 shares of CVX worth 9500 dollars for 164 dollars. You will see a gain of the stock goes up and you get to participate in the dividends if you hold the options on their distribution day.

We also picked up options in PLL and STR as we mentioned last night.


A couple of days ago we mentioned my desperation to actually quote Bill Clinton. We hope you witnessed the rather historic moment when President Obama introduced former President Bill Clinton in the White House press room to gather support for the tax compromise bill. I will be the first to admit he did a great great job. He was charming and sincere and made it very clear that this compromise was the best deal for the moment and 2.2 million unemployed needed a deal at this moment. He did it without disparaging republicans or threatening political armament in the election two years from now. If President Obama uses this weapon of mass appeal more often, the republicans better watch out.

Position Open:  Driver To The Royal Family

We have had the pleasure of being guests in London on many occasions.  One thing you learn very quickly is the disciplined education that the "black cab" drivers go through before they are let loose on the streets of London.  For years they ride bikes and memorize EVERY single street and side street of the huge city.  One might assume that anyone trusted with the life of the Royal Family might have the same if not superior knowledge of the city.  If we can sit across the pond and watch the social unrest regarding a 150% increase in University tuition throughout Great Britain, one might also assume that the drivers of the Royal Family might be up to speed on such issues as well.  That is why we found it a bit surprising and might we say amusing to see the following picture:
Now might the driver be messin with Prince Charles or did he really not know he was in the vicinity of the area the students had been rioting for two days?  Got to love those Brits.

Salve Lucrum


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