For the S&P 500, December has been the best performing month every year since 1960. That's 49 years of data, and if yesterday's rally was a sign of things to come, bulls are back to finish the year with a vengeance for the 50th consecutive year.
But to continue this trend, the S&P 500 would have to beat September's per cent gain of 8.76. That would require the breadth market to close above 1283.91 (1206.07 today) by New Year's Eve, a feat that traders might not be compelled to do just yet. Given the gains seen since the end of June, many are still anticipating a correction in the stock market. 1283.91 is also 4.63 per cent higher than the 52-week high set on November 5, 2010.
For the market to reach such lofty goals, the problems over Europe must either be resolved or traders must overcome these worries. Positive news from China, India, Japan, other parts of Europe, and America could help quash these fears and provide confidence that the global recovery remains intact.
If you fully believe that December will continue to be another stellar month, even if it does not beat 1284, consider getting positions ready on high-beta stocks on the next down day. Companies like Apple (AAPL), International Business Machines (IBM), Goldman Sachs (GS), Google (GOOG), MasterCard (MA), and Starbucks (SBUX) are a few S&P 500 components that often move substantially more than the index itself.
However, if you're leaning more towards a potential correction or that the month will finish flat from today's close, consider buying some protection in puts or writing calls to earn some additional income for Christmas shopping.
*Disclosure: I do not own any stocks or related derivatives mentioned in this blog. The blog is not intended to be financial advice or recommendations on buying or selling equities mentioned above. Before making any financial purchase, consider your investment objectives, risk tolerance, and liquidity needs (especially during Christmas) and speak to a financial advisor.
Google's Biggest Mistake Coming in Hours
Google has admitted that its three biggest mistakes were Google Wave, dejanews.com, and Gmail (quite surprised by the last), but if reports about Google's offer to buy Groupon is true, Google may see its list of regret grow just a little longer.
Google is expected to announce as early as Wednesday that it will be buying Groupon, the company with the "Enjoy (city) 50-90% off" advertisements seen commonly on Facebook and probably to the right of this blog. The price tag: $6 billion. It's a lot for a company celebrating only its second year this month, but Google is expecting the company to pay off early and often.
Groupon has been touted as the fastest growing company ever, already generating revenues of $50 million a month ($600M annually). And revenues are expected to reach $1.4 billion in 2011. Sounds like the best investment Google has ever made, except that it probably will be more trouble than it's worth.
Groupon's business model, which will probably remain intact, goes against many of Google's business practices. Groupon requires a team of thousands of salespeople negotiating with local businesses willing to offer its services and products at half the cost, with larger discounts often applied too. Google, however, uses computer technology to create its ads by using keywords, phrases, and website content. It's a concept that Google may not embrace or fully understand, which may cause a rift between the two.
Another problem is the unproven track record of Groupon and this industry itself. As mentioned, the company is only two years old, and management have not yet had to deal with long-term issues that often arise in business. This mainly includes competition, which is already starting to become extremely fierce in the advertising business. Redflagdeals.com has started to mimic Groupon's advertising model and have created their own deal of the days. And as more and more entrepreneurs decide to enter this industry, Groupon will face more challenges of competition. Unlike recent history, Groupon can not buy out every company in markets it aims to target.
The company only features one, that's right, one, deal per day (per city). And the company makes money only when the coupons are purchased and only if enough people opt-in to the deal. This business model limits any possibility for expansion in established cities and markets and is at the mercy of individuals looking for deals and nothing to do with its business partners. As a result, local businesses that frequently use Groupon may decide to find other clones if the waiting lists become too long or commissions are lower else where. The company claims 97 per cent of its partners want to be featured again and there are backlogs of over 100 requests in some markets.
The coupons may help create additional customers short-term, but businesses having to rely on low margin customers never survive. To top it off, Groupon earns half the revenue from the purchase of the coupon. So if a video store wants to sell $20 of videos for $10, they earn only $5. That's just 25 per cent of the regular sale. Now that's price-gouging! In business, there are two methods of success: increase margins or increase customer base. The latter is not sustained by Groupon and one website talks about poor customer retention.
Customers using Groupon will almost never turn into loyal customers, as said in the Quora link above. 80 per cent of a company's profits often come from 20 per cent of their customers, known as the 80-20 rule. The idea is that those using Groupon will always be looking out for the next deal. If waiting lists do become too long, companies may have to wait months or years to post up their next deal. In addition, those using coupons make it a habit. I know I do this, and so do many of you. I will never visit many shops and restaurants if I don't have a coupon because the prices are usually too high for my budget.
The article also notes that the customer has no connection to the local business, but only to Groupon. Businesses with no customer base will lack consistency and create volatility in margins. Local businesses also suffer because they are forced to attend to low-margin customers who might take away from high-margin customers waiting in line or leaving due to heavy volume. In fact, one article mentioned a spa company overwhelmed with a massive increase in clients. As a result, the company had appointments for several months, with many unhappy customers wanting their money back.
Many Groupon partners who want to be featured again have also lowered their discount values. That is, instead of offering $50 of fare for $25, they drop it to $40 of fare for $20.
Groupon's business model has been attacked by many of its partners, and although the company does have many repeat features, the truth is that the lack of profitability will eventually become a reality. Many articles have already been written about how Groupon coupons took out small businesses, which, to be fair, was possibly a neglect on due diligence by the owner. The point is that businesses will want to avoid low-margin customers with low retention when the economy picks up.
Google's bid to buy Groupon is a bit of an overvaluation and with only two years of a track record, Google is making one of the largest gambles in its history. It's basically buying a penny stock and hoping it will work out, but with so many negatives impacting business partners, it's tough to say if businesses will want to deal with a company that takes half its earnings when it already discounts its prices.
Google is expected to announce as early as Wednesday that it will be buying Groupon, the company with the "Enjoy (city) 50-90% off" advertisements seen commonly on Facebook and probably to the right of this blog. The price tag: $6 billion. It's a lot for a company celebrating only its second year this month, but Google is expecting the company to pay off early and often.
Groupon has been touted as the fastest growing company ever, already generating revenues of $50 million a month ($600M annually). And revenues are expected to reach $1.4 billion in 2011. Sounds like the best investment Google has ever made, except that it probably will be more trouble than it's worth.
Groupon's business model, which will probably remain intact, goes against many of Google's business practices. Groupon requires a team of thousands of salespeople negotiating with local businesses willing to offer its services and products at half the cost, with larger discounts often applied too. Google, however, uses computer technology to create its ads by using keywords, phrases, and website content. It's a concept that Google may not embrace or fully understand, which may cause a rift between the two.
Another problem is the unproven track record of Groupon and this industry itself. As mentioned, the company is only two years old, and management have not yet had to deal with long-term issues that often arise in business. This mainly includes competition, which is already starting to become extremely fierce in the advertising business. Redflagdeals.com has started to mimic Groupon's advertising model and have created their own deal of the days. And as more and more entrepreneurs decide to enter this industry, Groupon will face more challenges of competition. Unlike recent history, Groupon can not buy out every company in markets it aims to target.
The company only features one, that's right, one, deal per day (per city). And the company makes money only when the coupons are purchased and only if enough people opt-in to the deal. This business model limits any possibility for expansion in established cities and markets and is at the mercy of individuals looking for deals and nothing to do with its business partners. As a result, local businesses that frequently use Groupon may decide to find other clones if the waiting lists become too long or commissions are lower else where. The company claims 97 per cent of its partners want to be featured again and there are backlogs of over 100 requests in some markets.
The coupons may help create additional customers short-term, but businesses having to rely on low margin customers never survive. To top it off, Groupon earns half the revenue from the purchase of the coupon. So if a video store wants to sell $20 of videos for $10, they earn only $5. That's just 25 per cent of the regular sale. Now that's price-gouging! In business, there are two methods of success: increase margins or increase customer base. The latter is not sustained by Groupon and one website talks about poor customer retention.
Customers using Groupon will almost never turn into loyal customers, as said in the Quora link above. 80 per cent of a company's profits often come from 20 per cent of their customers, known as the 80-20 rule. The idea is that those using Groupon will always be looking out for the next deal. If waiting lists do become too long, companies may have to wait months or years to post up their next deal. In addition, those using coupons make it a habit. I know I do this, and so do many of you. I will never visit many shops and restaurants if I don't have a coupon because the prices are usually too high for my budget.
The article also notes that the customer has no connection to the local business, but only to Groupon. Businesses with no customer base will lack consistency and create volatility in margins. Local businesses also suffer because they are forced to attend to low-margin customers who might take away from high-margin customers waiting in line or leaving due to heavy volume. In fact, one article mentioned a spa company overwhelmed with a massive increase in clients. As a result, the company had appointments for several months, with many unhappy customers wanting their money back.
Many Groupon partners who want to be featured again have also lowered their discount values. That is, instead of offering $50 of fare for $25, they drop it to $40 of fare for $20.
Groupon's business model has been attacked by many of its partners, and although the company does have many repeat features, the truth is that the lack of profitability will eventually become a reality. Many articles have already been written about how Groupon coupons took out small businesses, which, to be fair, was possibly a neglect on due diligence by the owner. The point is that businesses will want to avoid low-margin customers with low retention when the economy picks up.
Google's bid to buy Groupon is a bit of an overvaluation and with only two years of a track record, Google is making one of the largest gambles in its history. It's basically buying a penny stock and hoping it will work out, but with so many negatives impacting business partners, it's tough to say if businesses will want to deal with a company that takes half its earnings when it already discounts its prices.
Potash Overpriced: Still Trading Above BHP Bid Price
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| Photo source: AP and the Wall Street Journal |
If the theory were upheld, the shares would have dropped back to $110. The surge in the stock's value was primarily due to a rumour that BHP would increase its $130/share bid after its original bid was being rejected by shareholders. After BHP ran into political games against the Canadian federal government and provincial government of Saskatchewan, the Potash board, and Canadian citizens, it decided not to pursue the world's largest fertilizer company. Once it was dropped, this padded value should have been removed from the price, but this did not happen.
What fundamental or technical conditions have allowed the price of Potash to remain above the BHP bid?
One possible reason to justify the current 26 P/E ratio would have to be the positive earnings report on October 28. Potash reported earnings of $1.32 per share trumping estimates of $1.10 and increasing year-over-year net income 60 per cent. But initial reaction had the stock overpriced; traders sent the shares down below $135 on the news.
Another possibility would be the $2 billion buy-back program recently approved. The company, which only has $300 million in cash, will be selling bonds to finance the deal. But $2 billion represents less than 5 per cent of the company's outstanding float, which would only move the shares about 5 to 6 per cent up from normal valuations.
No positive changes have occurred on the fundamental front since August. Its timid dividend, paying out just 0.28 per cent yield, has been unchanged. The board and management team remains the same and even potash fertilizer prices estimates for 2011 have not seen drastic upward movement. Upgrades and downgrades by JPMorgan and Standards & Poors have done little to push the price up or down, and the S&P currently has a negative outlook on the company too.
Of course, an argument is not completely valid until we have a precedent. Fortunately, this is not the first time in recent history where a Canadian company was a target of a buyout which failed to transpire.
Back in 2007, BCE surged in the spring from $25 to $45 CDN on anticipation that the company would be bought out by the Ontario Teacher's Pension Plan. It easily passed legal concerns and received financial backing by a multitude of banks, even with stricter restrictions after the sub-prime crisis. It was one step away from privatization. But almost two years later in November 2008, a statement of solvency could not be produced by KPMG, a requirement of the deal, thus the deal was cancelled. As a result, the shares dropped back to $25 and would even trade below $20 for a few months.
The point is, even after two years including seven earnings reports, which would have showed changing profitability, changes in the Canadian telecommunications landscape, and changes in the global economy, the extra value in BCE shares directly due to the privatization were ultimately removed from the stock. Conversely, Potash Corp has yet to correct back to $110 to reflect this, even temporarily.
This Canadian Angry at Unemployed Americans
Billions of dollars have been leached from the American taxpayer over a short two-year period, but earlier today, the bleeding may have come to end, at least on this front. No, I'm not talking about the General Motors IPO, which pays back a large portion of TARP, nor am I referring to some big banks which are now making profits. I'm talking about the millions of unemployed Americans who have continued to live off the backs of their fellow working man.
Earlier today, the House blocked a jobless benefits bill that would have seen Unemployment Insurance (UI) benefits extend until the end of February. Instead, the House of Congress decided to put an end to fiscal recklessness, and said enough is enough. I was expecting an uproar from Americans, but I discovered the complete opposite.
As a Canadian living outside the border, I was shocked to see so much division and anger from Americans towards other Americans. Today, there is a very negative sentiment at those who are unemployed. It turns out that many, and I mean many, Americans are purposely unemployed because the UI benefits are more than many jobs are willing to pay. UI currently pays $300 a week for 99 weeks. That's almost $30,000 in just under two years. It might not be a lot to live off, but it's better than the alternative: working hard and getting the same amount of money.
Whatever happened to integrity and character? Hard work and ethics were once great characteristics in a human being, but I guess that's a fool's game now. The entire country is in debt and unemployment rates are sky high; fingers should be pointed at these lazy slobs for creating debt and not accepting jobs (to be clear, I'm referring to those who rejected job offers, not those who really are suffering). I've heard story after story of people writing about their friends who were offered two or three jobs, but declined because they wanted the easy way out.
I used to think that things were really that bad in the US, but it turns out that's not entirely true. Economic data shows nearly ten per cent unemployment and trillion-dollar deficits. Now I actually wonder what the figures would be if all these unemployed, at least the ones who are purposely unemployed, took a job.
But like all short-term, ill-conceived decisions, the consequences are often dire. UI benefits are coming to an end in December; millions of Americans will suddenly need to hit the job market and competition will be more fierce than ever. Call it poetic justice, or karma, or just the natural order, but we'll be seeing many Americans wishing they took that $100 a day job instead of having to fight for a $50 a day job.
I remember reading a story a few months back. A wife made his husband take on a job as a chicken delivery driver. The pay was much less than UI payments, but his wife, reluctant on taking money for free when he had a job offer, made him take the job. So for 9 months, he drove around his city delivering chicken. Then one day, things got better. He stumbled upon an opportunity that would never have existed if he did not take the chicken delivery job. I don't remember what it was, but it was along the lines of an IT job with the company or he met a customer who owned an IT company and needed a specialist. The man now makes significantly higher pay and has great benefits and job security.
It's a lesson that all Americans need to revisit. Opportunities only exist when your skills are being marketed through employment, education, or networking. By hiding your skills, you do yourself no favours.
The government took a big stance on fiscal responsibility today with a side effect of a lesson. The government will not take care of you forever. Good luck living on welfare and food stamps. If it makes you feel any better, you're still going to be living and eating better than half of the world's population.
Quotes from a MarketWatch forum attesting to the above
"I have a friend who turned down TWO jobs because he made more on unemployment. How many know someone like this?"
"Or everyone could finally grow up & learn how to take care of themselves, all by themselves. Like the other 90% of working people already do. "
"I've been trying to hire for months now. It's a high skilled, high paying job. Wish some of these people would've spent some time going back to school or acquiring some marketable skills in other ways."
"Re: I have the same problem. Going on 3 weeks. I think people are spending all their time whining on the net instead of training."
"There may be a role for government to play, albeit a limited one. There are other resources to tap - church, family, and other non-profits. I get tired of everyone looking first and last to government. The only money it has to give out either came from someone else so it is simply redistributing what it took, or it printed/borrowed it. This is the time for neighbors to be neighbors!"
"I believe that a honest man will do whatever he has to do legally to feed family. No matter if he has to work more than one job. I have family members that make $6 per day in the Philippines. Do the math, that is about $1200 a year. And while people are so quick to ignore this because I'm talking about the Philippines my family members have lived frugal lives in order to ensure their family is taken care of. None of the kids had Ipods or PSPs. They didn't have a TV. They ate rice and occassionally had a small amount of chicken on holidays."
Earlier today, the House blocked a jobless benefits bill that would have seen Unemployment Insurance (UI) benefits extend until the end of February. Instead, the House of Congress decided to put an end to fiscal recklessness, and said enough is enough. I was expecting an uproar from Americans, but I discovered the complete opposite.
As a Canadian living outside the border, I was shocked to see so much division and anger from Americans towards other Americans. Today, there is a very negative sentiment at those who are unemployed. It turns out that many, and I mean many, Americans are purposely unemployed because the UI benefits are more than many jobs are willing to pay. UI currently pays $300 a week for 99 weeks. That's almost $30,000 in just under two years. It might not be a lot to live off, but it's better than the alternative: working hard and getting the same amount of money.
Whatever happened to integrity and character? Hard work and ethics were once great characteristics in a human being, but I guess that's a fool's game now. The entire country is in debt and unemployment rates are sky high; fingers should be pointed at these lazy slobs for creating debt and not accepting jobs (to be clear, I'm referring to those who rejected job offers, not those who really are suffering). I've heard story after story of people writing about their friends who were offered two or three jobs, but declined because they wanted the easy way out.
I used to think that things were really that bad in the US, but it turns out that's not entirely true. Economic data shows nearly ten per cent unemployment and trillion-dollar deficits. Now I actually wonder what the figures would be if all these unemployed, at least the ones who are purposely unemployed, took a job.
But like all short-term, ill-conceived decisions, the consequences are often dire. UI benefits are coming to an end in December; millions of Americans will suddenly need to hit the job market and competition will be more fierce than ever. Call it poetic justice, or karma, or just the natural order, but we'll be seeing many Americans wishing they took that $100 a day job instead of having to fight for a $50 a day job.
I remember reading a story a few months back. A wife made his husband take on a job as a chicken delivery driver. The pay was much less than UI payments, but his wife, reluctant on taking money for free when he had a job offer, made him take the job. So for 9 months, he drove around his city delivering chicken. Then one day, things got better. He stumbled upon an opportunity that would never have existed if he did not take the chicken delivery job. I don't remember what it was, but it was along the lines of an IT job with the company or he met a customer who owned an IT company and needed a specialist. The man now makes significantly higher pay and has great benefits and job security.
It's a lesson that all Americans need to revisit. Opportunities only exist when your skills are being marketed through employment, education, or networking. By hiding your skills, you do yourself no favours.
The government took a big stance on fiscal responsibility today with a side effect of a lesson. The government will not take care of you forever. Good luck living on welfare and food stamps. If it makes you feel any better, you're still going to be living and eating better than half of the world's population.
Quotes from a MarketWatch forum attesting to the above
"I have a friend who turned down TWO jobs because he made more on unemployment. How many know someone like this?"
"Or everyone could finally grow up & learn how to take care of themselves, all by themselves. Like the other 90% of working people already do. "
"I've been trying to hire for months now. It's a high skilled, high paying job. Wish some of these people would've spent some time going back to school or acquiring some marketable skills in other ways."
"Re: I have the same problem. Going on 3 weeks. I think people are spending all their time whining on the net instead of training."
"There may be a role for government to play, albeit a limited one. There are other resources to tap - church, family, and other non-profits. I get tired of everyone looking first and last to government. The only money it has to give out either came from someone else so it is simply redistributing what it took, or it printed/borrowed it. This is the time for neighbors to be neighbors!"
"I believe that a honest man will do whatever he has to do legally to feed family. No matter if he has to work more than one job. I have family members that make $6 per day in the Philippines. Do the math, that is about $1200 a year. And while people are so quick to ignore this because I'm talking about the Philippines my family members have lived frugal lives in order to ensure their family is taken care of. None of the kids had Ipods or PSPs. They didn't have a TV. They ate rice and occassionally had a small amount of chicken on holidays."
Khabibulin to Blame for Poor PK
They allowed 4 PP goals against Minnesota and lost that game 4-2. The Oilers could not hold the fort against the Flames, allowing a PP goal in the third period, which broke a 3-3 tie, resulting in a 5-3 loss including an empty netter. And last game, the Oilers allowed 2 PP goals and lost the game 4-3 to the Canucks.
The coaching staff implemented a new aggressive system that worked great in the first two games, but has been exploited. Some people are saying that teams have scouted this team's aggressive manner and have been able to score goals, but I don't think this is the case.
I know it's a little unfair, but I'm putting the blame on Khabibulin. In hockey, your best penalty killer is the goalie. Khabibulin has been in goal for all PP goals and has one of the worst GAA in the league (3.44) and a poor save percentage too (.897). Poor goaltending is destroying this offensively gifted team, ranked 7th in goals per game. And if you have seen any game, you may have noticed most of the PP goals scored occur very early and on the first shot too.
In the Minnesota game, M. Koivu scored two PP goals in less than a minute, on successive power plays, both goals occurring in the first minute of the power play. Against Calgary (Oct 26), the Oilers received a penalty in the second period with 32 seconds to go, and Calgary scored 12 seconds later before the period could end.
Dubnyk on the other hand, who has only started one game this year, faced 7 power plays and did not allow a single goal against Columbus. The team ended up earning a single point by forcing OT, but lost in the shoot out. They were key saves that kept the team in the game and the Oilers offensive talent allowed them to tie it up.
I know it's not scientific or even fair to compare Dubnyk's one game to Khabibulin's nine games played, but the facts are there. If the team's poor penalty killing was because of an aggressive system exploited by scouting, then how can a game in which the Oilers took 7 penalties, the most in one game this season so far, be perfect when Dubnyk started? I won't bet on it yet, but the next time Dubnyk starts, he will be able to stand tall and keep the Oilers in the game, unlike Khabibulin, who has been riddled with personal issues, injury, and aging muscles.
Now, I'm definitely not saying this team would be an elite PK team if Dubnyk started. Heck they'd probably be in the bottom 10 still, because there are still many things that need to be worked on, like net presence and shot-blocking, but without a goalie being able to make the big save, especially on a man advantage, how can this Oiler team expect to beat the pundit's and make a playoff run?
Fed Buying Bonds Again...
Before I start this post, I just wanted to write a big thank you to HongT, a recent follower who wrote a wonderful compliment about my blog. If you ever have personal requests or even questions I don't normally discuss on this blog, please comment or find me on Facebook (please include a message who you are so I don't ignore your request) and I'd be glad to talk to you.
The Federal Reserve will be meeting Tuesday and Wednesday this month and economists expect the Fed to announce another round of bond purchases as a way to stimulate economic activity by keeping borrowing costs low. A majority of economists polled predict purchases will exceed $500 billion, adding to their never-ending debt. But continued reckless spending by the government will be in focus today, as millions of unemployed, angry, and hopeless Americans cast their votes for or against change in levels of federal government.
Bond purchases by the Fed is nothing new and it's recently been occurring at an outrageous pace. The plan, more famously termed as Quantitative Easing (QE), is to ignite the economy through lowered borrowing costs. Sound familiar? That's because it's the same description used to explain low interest rates. But because rates are so low, QE has been a strategy continued to be played out by this administration that continues to fail 300 million people.
Very little positives have resulted through QE measures, but the Fed insists on maintaining their course of action. Meanwhile, 17 million Americans are still out of work and jobs are being shipped out of the country because major corporations are hesitant on hiring with no clear signs that economic growth is sustainable. Don't be surprised if drastic changes occur in Congress, the House, and the Senate later today.
Many investors and even non-investors ignore these headlines, thinking that it does not affect them, but this is simply not the case. So why does the Fed keep trying it if so many believe it's not working? Their decision is based on the fundamental theory of a loose monetary policy.
It all starts with the Federal Reserve. The Fed, which by the way is a not a government agency, but a private cartel of its member banks overseen by the US government, buys bonds in the Federal Reserve Market, not the bond market. This is done by printing money, which creates inflation. The purchases of the bonds are done to work with the member banks in keeping rates low. This allows consumers the ability to borrow from banks at low rates or increase investment spending by businesses, also known as capital goods. If the business is successful, it expands and hires more workers, expanding spending, and expanding the overall economy... well that's the theory.
QE has done none of the sorts, at least not yet, and probably won't do anything in the near future. All it has done is decrease the US currency, in turn, increasing the value of nearly every asset in the financial market, except housing.
Low interest rates and an appetite for risk has pushed the stock market higher over the last six months because the yields in the bond market have been just plain ugly. Even corporate bonds are trading extremely high because their prices are in direct correlation with government bond prices.
You may have noticed that many companies, like Microsoft and IBM, recently announced major bond offerings. With rates in the bond market so low, they are selling debt and using that cash to buy back shares or pay for dividends. When a company buys back shares, it reduces the outstanding shares or the supply of shares, which results in a small increase in its price. This is important because public companies are valued by the EPS, not always the actual net income. Instead of trying to create more profit during poor economic times, they can sell debt for cheap and maintain their dividend payments, pleasing shareholders.
Hewlett-Packard mentioned that it plans to buy back up to 25 per cent of their shares. That's a significant amount! HP's market capitalization is roughly 97 billion (at the time of this posting). If 25 per cent of their shares are bought back, and the value of the company does not change for the worse, then the shares, which are $43 right now, would be valued at $57 in the future, an increase of 33 per cent. I bring this point up because more and more companies are issuing bonds, and it is very important that you review your investments and see how this will impact your portfolio.
A devalued US currency has also sent gold and many commodities to record prices. It has been a joyride for those enjoying the second gold rush, without having to set foot in California or the Yukon, but the rally in gold is a sign of inflation. Gold is often used as a hedge against currency devaluation and inflation. And with America printing more and more money to buy bonds, it is only a matter of time before the inflation bomb really affects America and the rest of the world. 17 million Americans are still out of work and another estimated 18 million are not making enough today... how in the world are they going to be able to afford food after inflation ripples through the economy?
The Federal Reserve will be meeting Tuesday and Wednesday this month and economists expect the Fed to announce another round of bond purchases as a way to stimulate economic activity by keeping borrowing costs low. A majority of economists polled predict purchases will exceed $500 billion, adding to their never-ending debt. But continued reckless spending by the government will be in focus today, as millions of unemployed, angry, and hopeless Americans cast their votes for or against change in levels of federal government.
Bond purchases by the Fed is nothing new and it's recently been occurring at an outrageous pace. The plan, more famously termed as Quantitative Easing (QE), is to ignite the economy through lowered borrowing costs. Sound familiar? That's because it's the same description used to explain low interest rates. But because rates are so low, QE has been a strategy continued to be played out by this administration that continues to fail 300 million people.
Very little positives have resulted through QE measures, but the Fed insists on maintaining their course of action. Meanwhile, 17 million Americans are still out of work and jobs are being shipped out of the country because major corporations are hesitant on hiring with no clear signs that economic growth is sustainable. Don't be surprised if drastic changes occur in Congress, the House, and the Senate later today.
Many investors and even non-investors ignore these headlines, thinking that it does not affect them, but this is simply not the case. So why does the Fed keep trying it if so many believe it's not working? Their decision is based on the fundamental theory of a loose monetary policy.
It all starts with the Federal Reserve. The Fed, which by the way is a not a government agency, but a private cartel of its member banks overseen by the US government, buys bonds in the Federal Reserve Market, not the bond market. This is done by printing money, which creates inflation. The purchases of the bonds are done to work with the member banks in keeping rates low. This allows consumers the ability to borrow from banks at low rates or increase investment spending by businesses, also known as capital goods. If the business is successful, it expands and hires more workers, expanding spending, and expanding the overall economy... well that's the theory.
QE has done none of the sorts, at least not yet, and probably won't do anything in the near future. All it has done is decrease the US currency, in turn, increasing the value of nearly every asset in the financial market, except housing.
Low interest rates and an appetite for risk has pushed the stock market higher over the last six months because the yields in the bond market have been just plain ugly. Even corporate bonds are trading extremely high because their prices are in direct correlation with government bond prices.
You may have noticed that many companies, like Microsoft and IBM, recently announced major bond offerings. With rates in the bond market so low, they are selling debt and using that cash to buy back shares or pay for dividends. When a company buys back shares, it reduces the outstanding shares or the supply of shares, which results in a small increase in its price. This is important because public companies are valued by the EPS, not always the actual net income. Instead of trying to create more profit during poor economic times, they can sell debt for cheap and maintain their dividend payments, pleasing shareholders.
Hewlett-Packard mentioned that it plans to buy back up to 25 per cent of their shares. That's a significant amount! HP's market capitalization is roughly 97 billion (at the time of this posting). If 25 per cent of their shares are bought back, and the value of the company does not change for the worse, then the shares, which are $43 right now, would be valued at $57 in the future, an increase of 33 per cent. I bring this point up because more and more companies are issuing bonds, and it is very important that you review your investments and see how this will impact your portfolio.
A devalued US currency has also sent gold and many commodities to record prices. It has been a joyride for those enjoying the second gold rush, without having to set foot in California or the Yukon, but the rally in gold is a sign of inflation. Gold is often used as a hedge against currency devaluation and inflation. And with America printing more and more money to buy bonds, it is only a matter of time before the inflation bomb really affects America and the rest of the world. 17 million Americans are still out of work and another estimated 18 million are not making enough today... how in the world are they going to be able to afford food after inflation ripples through the economy?
The Square Root of 1764 Is...
I was watching Arthur earlier today (yes I still watch that show) and Buster asked "the Brain" what was the square root of 1764. Unlike most people, I knew the answer without having to find a calculator.
The question of "What is the square root of ...?" is a common question people ask geniuses. I won't lie, I used to get this question all the time because I was a math whiz, but as a child, I was unable to recognize the simple pattern that existed in numbers. As a result, I never really knew the correct answer, just an estimate.
As I grew older, I soon realized that finding the square root of a number, which would have a rational number as the answer, was actually very simple, and here's how you can show your intellectual superiority to your friends by finding the square root of a number without a calculator, using the example of 1764.
When finding the square root of a number, there are two key components: the last digit (4) and the entire number itself (1764).
The last digit of the number can be used to determine the final digit of the square root. Since numbers are merely a set of patterns, you need only know the squares of the first 9 numbers (0 will always end in 0). The table below illustrates this point.
Using the above method, 1764 has only two possible outcomes: _2 or _8.
The second component now lies within the enitre number itself. Since most people are familiar with the squares of the first ten digits, even twelve, we can use this information to determine that the nearest squares (of a multiple of ten) are 1600 (40x40) and 2500 (50x50). At this point, we realize that the first digit must be a 4_, since anything above 2500 would start with a 50, but because there are two numbers whose square ends in a 4, we must now determine if it is either 42 or 48.
The "distance" of the entire number will result in the final answer. In this case, the distance of 1764 is closer to 1600 than it is to 2500, indicating that the number is closer to 40, than it is 50. Therefore, the answer must be 42!
Here are some other examples for you to try:
3136, 6561, and 1849. You should get 56, 81, and 43. Try getting a friend to ask you what is the square root of ...? and see if you can solve it without using a calculator. As you can see, it's quite easy.
The question of "What is the square root of ...?" is a common question people ask geniuses. I won't lie, I used to get this question all the time because I was a math whiz, but as a child, I was unable to recognize the simple pattern that existed in numbers. As a result, I never really knew the correct answer, just an estimate.
As I grew older, I soon realized that finding the square root of a number, which would have a rational number as the answer, was actually very simple, and here's how you can show your intellectual superiority to your friends by finding the square root of a number without a calculator, using the example of 1764.
When finding the square root of a number, there are two key components: the last digit (4) and the entire number itself (1764).
The last digit of the number can be used to determine the final digit of the square root. Since numbers are merely a set of patterns, you need only know the squares of the first 9 numbers (0 will always end in 0). The table below illustrates this point.
| 1 x 1 = 1 | 11 x 11 = 121 | 21 x 21 = 441 |
| 2 x 2 = 4 | 12 x 12 = 144 | 22 x 22 = 484 |
| 3 x 3 = 9 | 13 x 13 = 169 | 23 x 23 = 529 |
| 4 x 4 = 16 | 14 x 14 = 196 | 24 x 24 = 576 |
| 5 x 5 = 25 | 15 x 15 = 225 | 25 x 25 = 625 |
| 6 x 6 = 36 | 16 x 16 = 256 | 26 x 26 = 676 |
| 7 x 7 = 49 | 17 x 17 = 289 | 27 x 27 = 729 |
| 8 x 8 = 64 | 18 x 18 = 324 | 28 x 28 =784 |
| 9 x 9 = 81 | 19 x 19 = 361 | 29 x 29 = 841 |
Using the above method, 1764 has only two possible outcomes: _2 or _8.
The second component now lies within the enitre number itself. Since most people are familiar with the squares of the first ten digits, even twelve, we can use this information to determine that the nearest squares (of a multiple of ten) are 1600 (40x40) and 2500 (50x50). At this point, we realize that the first digit must be a 4_, since anything above 2500 would start with a 50, but because there are two numbers whose square ends in a 4, we must now determine if it is either 42 or 48.
The "distance" of the entire number will result in the final answer. In this case, the distance of 1764 is closer to 1600 than it is to 2500, indicating that the number is closer to 40, than it is 50. Therefore, the answer must be 42!
Here are some other examples for you to try:
3136, 6561, and 1849. You should get 56, 81, and 43. Try getting a friend to ask you what is the square root of ...? and see if you can solve it without using a calculator. As you can see, it's quite easy.
NHL Bans Fighting
Social Similes: A Parody of Our World - Set 7 Volume 1
Gary Bettman announced in a press conference earlier today that the NHL and AHL have agreed to ban fighting from their respective leagues starting November 1, 2010. Below is a written document of the entire press conference.
"Starting November 1st, the NHL will be fining players $2,500 or $500 for every penalty minute received in a fight. This move will serve three main purposes.
The first is player safety, which has been a top priority for the NHL. Last season, a handful of fights caused some players to miss lengthy time from the ice due to head injuries received from big blows or landing on the ice helmet-less. These injuries are potentially NHL-career ending and life threatening injuries which could be prevented by removing fighting from the NHL.
The second purpose is to create more offense in the games. By now removing unnecessary enforcers from the line up, a more offensively talented player can now enter the game and increase the offensive component in the game.
The third purpose is to prevent Sheldon Souray from fighting and making a fool of himself, potentially ending his NHL career on a whole different spectrum. After several hours of laughter, we as a league decided to make the unpopular move and ban fighting to protect players - players who are obviously unaware of their body's capabilities at the age of 34."
Gary Bettman also noted that the league may remove this ban in the near future if Souray were to retire from hockey altogether.
"Starting November 1st, the NHL will be fining players $2,500 or $500 for every penalty minute received in a fight. This move will serve three main purposes.
The first is player safety, which has been a top priority for the NHL. Last season, a handful of fights caused some players to miss lengthy time from the ice due to head injuries received from big blows or landing on the ice helmet-less. These injuries are potentially NHL-career ending and life threatening injuries which could be prevented by removing fighting from the NHL.
The second purpose is to create more offense in the games. By now removing unnecessary enforcers from the line up, a more offensively talented player can now enter the game and increase the offensive component in the game.
The third purpose is to prevent Sheldon Souray from fighting and making a fool of himself, potentially ending his NHL career on a whole different spectrum. After several hours of laughter, we as a league decided to make the unpopular move and ban fighting to protect players - players who are obviously unaware of their body's capabilities at the age of 34."
Gary Bettman also noted that the league may remove this ban in the near future if Souray were to retire from hockey altogether.
Make Three Paycheques a Month
In less than six months, weekly options have already surpassed the traditional monthly options in terms of volume. For options buyers, the minimal time value attached to the price along with the shortened time horizon during this continued bull market rally has made weekly options much more attractive.
For options writers, the 5-day life of the calls and puts gives longer-term stock holders the ability to make money every week without capping gains. It's quite common for an options writer, especially long-term holders who generate income via the covered call strategy, to see 17 days later that their covered call is deep in the money, capping their gains. This common problem has pushed many traders to head towards the weekly options, which allows the investor to gauge the value of the stock on a weekly basis and gives investors the opportunity to roll out or roll up their call.
Over the past month, big-name technology equities have posted decent weekly option premiums. Last week, Netflix, because of earnings, allowed an at-the-money options writer to make over $700 per contract, when the stock was trading around $155. That works out to 4.5 per cent in a week. That's more than some people make on a two-week pay cheque! In general though, most of the options trading at the money are providing about 1.5 per cent return for the week.
October 29 options for some larger name equities priced in the $100 range, which I find the most suitable for myself because of the lowered costs on options commission per contract, are paying out about $200 today. The table below illustrates how weekly options on some majorly helds could pay out 50 to 75 per cent a year without capital appreciation.
If you would like me to continue posting the weekly numbers for the above equities on this blog, or include other stocks, please let me know and I will do this every Monday.
- Return (%) assumes only the option premium received and subtracts assignment differences if the option is in-the-money.
- Option premiums will differ every week due to outside factors, including, but not limited to volatility, news releases, dividend payments, mergers, etc.
- Prior to implementing option strategies, discuss all trades with your investment advisor. The information provided is not designed to be professional advice, but shared stories of personal strategies that have worked over the past month. Past performance is not indicative of future gains.
For options writers, the 5-day life of the calls and puts gives longer-term stock holders the ability to make money every week without capping gains. It's quite common for an options writer, especially long-term holders who generate income via the covered call strategy, to see 17 days later that their covered call is deep in the money, capping their gains. This common problem has pushed many traders to head towards the weekly options, which allows the investor to gauge the value of the stock on a weekly basis and gives investors the opportunity to roll out or roll up their call.
Over the past month, big-name technology equities have posted decent weekly option premiums. Last week, Netflix, because of earnings, allowed an at-the-money options writer to make over $700 per contract, when the stock was trading around $155. That works out to 4.5 per cent in a week. That's more than some people make on a two-week pay cheque! In general though, most of the options trading at the money are providing about 1.5 per cent return for the week.
October 29 options for some larger name equities priced in the $100 range, which I find the most suitable for myself because of the lowered costs on options commission per contract, are paying out about $200 today. The table below illustrates how weekly options on some majorly helds could pay out 50 to 75 per cent a year without capital appreciation.
| Stock Name | Current Price | Strike Price | Option Bid | Weekly Return (%) |
| Bank of America (BAC) | 11.15 | 11.00 | 0.34 | 1.70 |
| General Electric (GE) | 16.12 | 16.00 | 0.23 | 0.74 |
| Intel (INTC) | 19.92 | 20.00 | 0.13 | 0.65 |
| Microsoft (MSFT) | 25.25 | 25.00 | 0.57 | 1.27 |
| Microsoft (MSFT) | 25.25 | 26.00 | 0.18 | 0.71 |
| Baidu (BIDU) | 109.90 | 110.00 | 2.08 | 1.89 |
| Goldman Sachs (GS) | 157.56 | 160.00 | 0.96 | 0.61 |
| Netflix (NFLX) | 166.59 | 165.00 | 4.20 | 1.57 |
| Netflix (NFLX) | 166.59 | 170.00 | 1.83 | 1.10 |
| Amazon (AMZN) | 169.38 | 170.00 | 2.33 | 1.38 |
| Apple (AAPL) | 310.26 | 310.00 | 3.25 | 0.96 |
| Google (GOOG) | 617.90 | 620.00 | 5.50 | 0.89 |
If you would like me to continue posting the weekly numbers for the above equities on this blog, or include other stocks, please let me know and I will do this every Monday.
- Return (%) assumes only the option premium received and subtracts assignment differences if the option is in-the-money.
- Option premiums will differ every week due to outside factors, including, but not limited to volatility, news releases, dividend payments, mergers, etc.
- Prior to implementing option strategies, discuss all trades with your investment advisor. The information provided is not designed to be professional advice, but shared stories of personal strategies that have worked over the past month. Past performance is not indicative of future gains.
NFL Aggressively Tackles Hits to the Head, NHL Should Follow
The baby steps taken by the NHL started with a round table discussion leading to the current $2,500 fine players receive with a possibility for a suspension. Considering all players make more than $500,000 US per year and there are 82 games in a season, these fines and suspensions are a drop in the bucket. It will not serve as a deterrent and is nothing more than a public relations strategy aimed to please the media and the fans after devastating hits to Savard and Booth plagued the image of the NHL last season. Does the NHL take its fans as dummies?
Meanwhile, the NFL decided two days ago that fines would be handed out to hits to the head, or helmet-to-helmet hits, which might actually make an impression. Meriweather (New England Patriots), Robinson (Atlanta Falcons), and Harrison (Pittsburgh Steelers) all received fines of $50,000 to $75,000 for the latter.
Both leagues are starting to crack down on dangerous hits because of the potentially life-threatening and most certainly life-altering hits that are taking out men from their careers. Take for example Marc Savard (Boston Bruins) who was hit last season and has not played an NHL game since. And just last weekend, a college football player, Eric LeGrand, was paralyzed from the neck down after his helmet went head first into a kick returner's body (see video). On a side note, thoughts and prayers to the LeGrand family and hopes he will one day walk again.
The NHL's lack of response to this situation, a situation that has been on the forefront of hockey for years now, has left many fans and commentators wondering if their recent fines and suspensions will really crackdown on hits to the head. I think not. It's no secret that players of the NHL want hits to the head removed, including Doan and Gilbert who were suspended and fined respectively, yet players continue to do so. Yes, the sport is very fast. Yes, players are acting instinctively. Yes, big hits are often praised. Yes, players are responsible for their positioning. But those are not excuses for blind side hits to the head and other dangerous hits.
I've heard the mantra that a player in a vulnerable position should also be blamed, but is this really fair? A player in a vulnerable position, whether it be in the NHL or NFL, is in that position for a reason. He is trying to make a play to create offense or catch an errant ball. A massive hit by a 250 pound player is not required. A person whose center of gravity is elevated and balance is unstable needs barely a tap to knock them over. And an average hit to the torso would do enough to prevent the play from going forward.
Major injuries that ended Lindros's career a decade ago is not a joke anymore. Players are now forever changed on and off the ice. Significant research and better information about brain injuries are now available and all sports, and every job for that matter, should take better control of these situations. If the NHL really wants to adress hits to the head, let's not charge players with fines even I could afford. Let's hit them with massive fines like the NFL. It won't take long before a star player like Crosby or Ovechkin takes an illegal hit and gets removed from the game altogether. That won't be good for the NHL's marketability, that won't be good for anyone really.
The Dow Jones: Evolving Beyond Its American Industrial Roots
Since 1928, the Dow Jones has consisted of 30 companies. Unlike its origins, today's "Industrial" portion of its name mainly holds tradition, with companies in the field of finance, retail, pharmaceuticals, and food bearing a larger portion of the Dow. These companies include Bank of America, Wal-Mart, Pfizer, and McDonald's, better representing today's current composition of the American economy. They can be found in the heart of down towns of metropolitan cities, in strip malls of suburban neighbourhoods, and concentrated commercial areas of small towns. The American economy has grown well beyond its industrial roots, focusing heavily on services and consumer goods, now the biggest driver of American GDP.
But over the past two years, America has struggled to emerge out of a economic hardship, dare I say recession? Meanwhile, the Dow Jones and other American financial instruments have soared since the financial crisis of 2008 that triggered a near collapse of the American empire. And why? Low interest rates and a dropping US currency has helped add to boost the value of many investment vehicles, but the bulk of the growth in the market is the continued global expansion of the 30.
Companies like McDonald's, Wal-Mart, Coca-Cola, Hewlett-Packard began expanding to the Far East more than a decade ago, and investments in Asia, mainly China, are starting to pay off. China continues to develop economically at double digit growth, very similar to the early 1900's of the United States, as well as Canada. But the major difference is that China had 1.2 billion people at the turn of the century when it was becoming a more capitalist country, and Canada and the United States had less than 1/10th of that, roughly 85 million.
Middle-income earners in China now have the luxury of better food, computers, vehicles, and furniture, trying to emulate the American way, which was once the envy of the world. As a result of this increased power, middle-incomers in China have given American companies more and more money by purchasing their goods. And more jobs in China are being created by Dow companies than are being created in America by all companies combined. As we head into 3Q earnings season, we will see many companies post profits that would have been unattainable in the 1980's during economic hardship in the United States.
Disgruntled traders have mistakenly shorted the market basing their strategies on a distressed American economy. Perception is reality, not always. Traditional trading methods may have proven profitable, but globalization has weeded out poor traders unwilling to admit to the reality of the 21st century.
Over the past year, earnings reports from multinationals have been stellar, but many admit that less than half their revenues now stem from America. And with Q3 earnings now underway, we could soon see more conglomerates share this information.
The companies of the Dow Jones reliance on the American people for profits will continue to diminish if China's expansion is for real. In a not-too-distant future, the Dow Jones, which will still consist of 30 of the largest and best American companies, will no longer represent the state of America, but represent the global economy and how the shift of power has moved to the East.
Consider this: America's estimated population is about 310 million, about one quarter of the population of China, and only 4.5 per cent of the world's population. The Dow Jones, which turns 126 years old this month, has seen itself start off as a railroad heavy index focused solely on American growth turn to a more consumer-based index focused on global expansion. Over the next 126 years, there will be major changes in the world and the directional flow of money. It is highly conceivable that growth in every part of the world will be fairly equal, meaning the 30 companies of the Dow Jones will earn only 5 per cent of their income from America and evolve well beyond its American industrial roots.
Double Down Comes to Canada
The Double Down Sandwich, contains two strips of bacon, two slices of cheese, and sauce ensconced between two chicken breasts, instead of the traditional bun. But before you become the head spokesperson for healthy living and condemn this sandwich, this heart attack-inducing burger's "nutrition" is comparable to many other burgers in the market.
The Double Down contains 540 calories and 32 grams of fat, healthier than the Whopper from Burger King, boasting a calorie count 670 calories and 39 grams of fat. It is also similar to the Big Mac, containing 540 calories and 29 grams of fat. But the Double Down contains 1,310 mg of sodium, almost half the maximum required daily intake of the average person. So the sandwich would give you a stroke before you clog your arteries.
KFC also admits that this sandwich is not a healthy choice, claiming it as an indulgence food, not a replacement item.
The lines at KFC on the first day of release probably will not be as chaotic as the lines at the Apple store on the first day of a release filled with hypnotized tools of marketing, but be prepared to wait a few minutes in line, most likely surpassing the average Toonie Tuesday line.
Will I try it? Probably, but only half a burger, because I don't really like the taste of chicken, but I definitely have to try one. KFC claims it will be temporary, but if it is as successful as it is in the US, don't be surprised if the Double Down becomes a staple in the KFC menu.
Budweiser Rules
We've all seen the ads, but who here remembers all the rules? I don't know where Budweiser Canada came up with these but it's definitely caused a buzz throughout consumers.
I've compiled a list of all the rule numbers I've seen and will update this as soon as possible, even if it takes us ten years. Nearly all the links are sourced back to Budweiser Canada's Facebook fan page videos, with some linking to other sources. Some rules were not available on video and were witnessed from other Budweiser sources, such as, but not limited to, their website, newspaper or print advertising, online banners, and radio. If you know of any rules, please comment and I will update as soon as possible. Please post real "rules" only. Thanks.
Rule #12, Buds don't let buds drink and drive
Rule #15, It's not over, till it's over
Rule #16, Keep the faith (unverified)
Rule #19, Keep your friends close
Rule #20, Keep your enemies closer
Rule #23, Leave no man behind
Rule #26, There are no small victories
Rule #32, Live the dream
Rule #34, Be a gentlemen
Rule #36, Show your true colours
Rule #37, You can't win if you don't get in the game
Rule #38, Make the call
Rule #41, Take one for the team
Rule #42, Take it in stride
Rule #47, Own the party (website)
Rule #48, Chart a course
Rule #72, Live Large (unverified)
Rule #73, Go Big or Go Home (unverified)
Rule #75, Buckle up
Rule #76, Choose your friends wisely
Rule #79, Set the pace
Rule #88, Sundays are sacred
Rule #93, Seeing is believing
Rule #95, Party as hard as you work (unverified)
Rule #99, Follow detours
Rule #117, Cut loose (Calgary Stampede banner)
Rule #145, Rise to the occasion
Rule #186, Don't pay for something you can get for free (website)
Rule #196, Bring your game
(Last updated Apr 5, 2011)
Redden Waived, Souray Should Be Next
The Edmonton Oilers situation with Sheldon Souray continues to be overshadowed by the bright future of the team, and thankfully so. Souray's attitude last year and down-right awful play, especially from a former all-star defencemen, would have booked him a flight to 29 other destinations, but in a salary-cap world, trading Souray has proven extremely difficult.
Two main problems exist in this situation: his tendency for injury, as observed last year, and his $5.4 million cap hit with two years remaining. General Managers should be reluctant on trading for a player whose cap hit is $900,000 above his salary, and is possibly not going to perform up to the standards of a $4.5 million player, not to mention his high-risk style of play.
But the Oilers might have an out and a low-risk one at that. Many had already suggested that Tambellini send Souray down to the Oklahoma City Barons (AHL), allowing the team to free up the $5.4 million cap hit. And earlier today, 11-year veteran Wade Redden (New York Rangers) cleared waivers and was sent down to their AHL affiliate, the Hartford Wolf Pack, suggesting that no NHL team is ready to pick up an overpaid defencemen, even for half the price. Although there are no guarantees, given the lack of responses from the other NHL teams, Souray has a very good chance of clearing waivers too.
If Souray were to clear waivers, the Oilers would be able to free up precious cap-space. I also assume that the Barons would be willing to have Souray in the line-up.
Rumours have also circulated that Redden is speaking to others teams about signing a contract, possibly even smaller than his current salary, which pays him out $23 million over the next four years. If Redden refuses to play in the AHL, the Rangers would be able to release Redden as an unrestricted free agent and would not have to pay the remaining money, and in turn, Redden can sign with his new team, assuming the talks are true.
If Souray balks at playing in the AHL, the Oilers would also have the luxury of releasing Souray to the open market, allowing him to play for another team, or even in the KHL, Swedish Elite League, or elsewhere.
It's pretty clear that the Oilers no longer want a part of Souray, and would be quick to rid jersey 44, which has proven to be a curse over the last five years (Pronger also wore #44). Tambellini has said that no beneficial bid has emerged for the team with Souray, so why not consider sending him to the minors? The team is paying $9 million a year for the next two years regardless of where or if he plays. And if a team does put in a claim from waivers, Tambellini should not be so quick to believe that the team lost him for nothing. Ownership would no longer be responsible for his contract, the management team would be free from distractions, and cap-space would be open to sign or trade for other promising players.
Although it is probably the last resort for Tambellini, it may prove to be the best move. The Oilers want to end the Souray saga immediately, and what other way then to take control by putting the ball in Souray's court? Let him decide if wants to finish his career in the AHL or not. If he really wants out, as he proclaimed last year by requesting a trade, he'll do it when he has no other choice.
Understanding the "End of the Recession"
Earlier this week, the National Bureau of Economic Research (NBER) released data concluding that the American recession had ended nearly 15 months ago, back in June of 2009. But for those living outside the world of numbers, also known as reality, the recession is still hitting hard.
Recent data suggests that about 1 in 7 Americans are living below the poverty line, which is a direct result of a "jobless recovery." Unemployment in America has steadily held just under ten per cent for a few consecutive months, and underemployment, a better indication of the job market, shows that almost 19 per cent of Americans are not working the amount of hours they want. With so many having trouble making ends meet, many question how the NBER claimed that the recession ended 15 months ago.
The reason is that a recession is defined only as two or more consecutive quarters of negative GDP growth. The image (see below) shows that negative growth ended in June 2009, preceded by four quarters, or one full year, of negative growth. However, those impacted via the job market, falling credit, and increasing debt will argue that the recession is still a reality for too many.
Courtesy of www.tradingeconomics.com
The chart also tells a tale of a potential double-dip recession. The last two quarters have seen GDP growth decelerate and it is not unlikely for the next report, due in October, to show negative growth, the first criterion for a new recession. To be clear, GDP growth is a net figure, which accounts for inflation. For example, if the real economic output increased 5 per cent, but inflation rose 3 per cent, GDP growth would be reported as 2 per cent.
Inflation can mean either the increase of money supply, which we are seeing today, or the increase in overall prices. A lack of inflation in the American economy is the only reason they are not yet back in a recession, but as the US continues to print money, it is only a matter of time before inflation kicks in.
The reason I point this out is because worries about deflation (a prolong drop in the prices of goods) was brought up at the last Fed minutes, released Tuesday September 21. If deflation some how became a reality, GDP figures could show substantial growth, even though economic output may decrease. But, with the US continuing to print money, ever increasing their debt, it is more likely that inflation will take place before deflation.
What is troubling is that the potential for inflation will co-exist with tepid economic growth. It is highly possible for many Americans to earn next to nothing and be forced to battle increasing costs of goods, which could lead to cost-push inflation, a type of inflation caused by increasing costs to producers (such as raising wages demanded by workers to pay for goods) passing the buck on to consumers. It would just be a never ending cycle only to be resolved by real economic growth, if that ever happens.
Recent data suggests that about 1 in 7 Americans are living below the poverty line, which is a direct result of a "jobless recovery." Unemployment in America has steadily held just under ten per cent for a few consecutive months, and underemployment, a better indication of the job market, shows that almost 19 per cent of Americans are not working the amount of hours they want. With so many having trouble making ends meet, many question how the NBER claimed that the recession ended 15 months ago.
The reason is that a recession is defined only as two or more consecutive quarters of negative GDP growth. The image (see below) shows that negative growth ended in June 2009, preceded by four quarters, or one full year, of negative growth. However, those impacted via the job market, falling credit, and increasing debt will argue that the recession is still a reality for too many.
Courtesy of www.tradingeconomics.com
The chart also tells a tale of a potential double-dip recession. The last two quarters have seen GDP growth decelerate and it is not unlikely for the next report, due in October, to show negative growth, the first criterion for a new recession. To be clear, GDP growth is a net figure, which accounts for inflation. For example, if the real economic output increased 5 per cent, but inflation rose 3 per cent, GDP growth would be reported as 2 per cent.
Inflation can mean either the increase of money supply, which we are seeing today, or the increase in overall prices. A lack of inflation in the American economy is the only reason they are not yet back in a recession, but as the US continues to print money, it is only a matter of time before inflation kicks in.
The reason I point this out is because worries about deflation (a prolong drop in the prices of goods) was brought up at the last Fed minutes, released Tuesday September 21. If deflation some how became a reality, GDP figures could show substantial growth, even though economic output may decrease. But, with the US continuing to print money, ever increasing their debt, it is more likely that inflation will take place before deflation.
What is troubling is that the potential for inflation will co-exist with tepid economic growth. It is highly possible for many Americans to earn next to nothing and be forced to battle increasing costs of goods, which could lead to cost-push inflation, a type of inflation caused by increasing costs to producers (such as raising wages demanded by workers to pay for goods) passing the buck on to consumers. It would just be a never ending cycle only to be resolved by real economic growth, if that ever happens.
Has Disney Lost Its Magic?
Time and time again, I've heard adult's say that children's shows today aren't as good as when they were younger. Now, whether this is an accurate representation of the decreasing quality in television programming is debatable. Many argue that it is the maturing of an individual and their evolving taste that results in this belief, all the while, still adoring their own childhood favourites because of the dose of nostalgia that it brings. I once heard an older gentlemen tell me that the programming of my childhood were downright terrible, and could never replace his favourite shows. But growing up as a child of the 1990's, I personally believe that I was treated to a myriad of great cartoons, including my favourites the Ninja Turtles, Aladdin, and TaleSpin.
Many of these shows shaped my life and probably the lives of many other kids too. Why, the reason I love pizza is because of a quartet of mutant turtles who also loved them too.
Disney is, and always will be, an integral part of the lives of youth in North America. It has created dozens of great tv shows and movies that made childhood so fun. When most of us think of Disney, we are immediately reminded of Mickey Mouse, Disneyland, or princesses finding a handsome prince. But, as I have evolved into an adult myself, I have noticed a shift in Disney's programming line-up that may potentially end Disney's roots.
For decades, Disney brought magic to the forefront of their cinemas and captured audiences around the world. These timeless tales will be shared for generations and have been immortalized in the Disney theme parks. But starting around the turn of the century, the same time Robert Iger became president, and later in 2005, CEO, we have seen a large shift in the paradigm of Disney programming. I for one believe that Disney's reputation as a magical company will soon be lost and Iger could be to blame.
The resurgence of Disney occurred during the Eisner era, considered the Disney Renaissance. Michael Eisner moulded Disney into a dominant corporation which reached children and parents through family-oriented movies that revolved around fairy tales and stories of heroism. The movies released during his era include The Little Mermaid, Beauty and the Beast, Aladdin, The Lion King, and Pocahontas, each having won two Oscars. But as his reign ended, and Robert Iger took over, so too did the quality of Disney movies and programming. Tarzan (1999), the last movie of the Eisner era, was the last time any Disney film won an Oscar award, a testament to the success of Eisner or possibly the lack of success of Iger.
Disney's large focus on teen dramas for television programming has created successful shows like Hannah Montana and That's So Raven. But unlike Disney creations of the past, shows today focus on youth problems, such as relationships and family, not heroes battling mobsters, evil wizards, or space aliens. These major shifts in programming leads me to believe that Disney is attempting to attract a different target audience, mainly pre-teen girls.
Another major alteration to Disney's programming and marketing is the subtle focus from teams or groups to one main character. Even the titles in today's television programming suggests the star of the show is Hannah Montana or Sonny Monroe, not The Rescue Rangers or the Gummi Bears. These changes will ultimately decrease the longevity and long-term popularity and nostalgic commerciability. In fact, some of the most popular cartoon series of the 1990's are team-related shows, including the Ninja Turtles, Care Bears, and Power Rangers. Side note, there is a running joke that the Power Rangers was racist because of their suit colours, but really, it is marketing technique.
The idea behind teams and groups was not only designed to promote team work, equality, and unity, but to market to a wider range of children and their different personalities. So many shows, not just Disney, used colours and varying personalities to attract children. They would include an athletic character, a shy character, a smart character, a clumsy character, and a humourous character, alongside many other possible personalities. This is how children create "favourite characters," something that seems to be lacking in today's shows because of its one-character focus.
Adult hit shows, like Friends, The Big Bang Theory, and How I Met Your Mother have also developed multiple characters with multiple personalities. I'm sure everyone had a favourite Friends character because of how we identified them. Chandler was the witty-remarked one, Monica the clean-freak, Rachel the ditz, and so on. It was a formula that has proven to work in all genres.
Disney's new format of live-action teen dramas has proven to be profitable, but its longevity wears off. Lizzie McGuire and That's So Raven, two shows which ceased productions years ago, were once extremely popular, but do not sell merchandise anymore. Meanwhile, shows like Duck Tales and TaleSpin continue to sell DVDs and memorabilia because of the nostalgia. Even Lilo & Stitch, a show made after the Eisner era, continues to sell merchandise because of Stitch's cuteness. Other brands like Hello Kitty and Ninja Turtles also prove popular in today's market with adults and children. Walk into a Disney Store or outlet and see what plush toys, dolls, or collectibles are up on stock. It's usually Winnie the Pooh, Mickey, and the Chipmunks, characters which never age and carry that longevity that I keep bringing up. Or, consider going to a Disney theme park and notice what characters continue to play a large role in upkeeping the Disney magic. It's Snow White, Sleeping Beauty, and Jasmine, as well Mickey and Minnie.
Even with the purchase of Pixar Studios in 2006, Disney's magic touch is still lost. Films like Finding Nemo and Toy Story are considered the best CGI films ever for its originality, its quality of story-telling, its creativity, and its imagination. Almost five years later, viewers of Disney-Pixar collaborations, like Up! and Toy Story 3, still give credit to Pixar, not Disney, a sign that movie viewers regard Pixar as a separate imaginative entity. This is because people regard Disney as the king of hand-drawn animation, which brought the company to its pinnacle in 1999.
But many do not know that Disney had planned on halting 2-D, hand-drawn animated films. John Lasseter, who once as an employee criticized Disney for being uncreative in the past, helped create The Princess and the Frog in 2009, saving Disney's spirit and roots as a classic movie creator. What would have become of Disney if hand-drawn movies were no longer a staple in Disney's video vault?
The former king of cartoons, Walt Disney, if he were alive today, would have seen his company evolve into something he would have hated. Disney was once a company that told creative stories of fantasy and fairy tales. These stories gave children of all ages and of both genders magic and wonderment, memories and inspiration. But we have seen major changes in programming during the reign of Iger that have resulted in the production of teen drama programming and regurgitated movies during the 2000's, titles that bombed at the box office and have very little chance at future success.
Where did all the creativity go once Iger took over? It would not be fair to blame it all on him for the disappearance of the magic of Disney, but considering the decisions and results that have come out of Disney Imagineering, it could be justified.
Revenue Streams Shifting
Disney's revenue stream from its Studio Entertainment division, once represented half of the company's overall profits, but as the company grew, so did its other divisions. However, growth from Studio Entertainment peaked in 2004 and has since declined (see Wikipedia link). Revenue from this division now generates less revenue than it did before it merged with Creative Content in 1996. Consumer product sales have also declined sharply at the end of the Eisner era, evidence supporting that the lack of creative and memorable shows have proven to be profitable only in the short-term.
Now, nearly a half of the company's revenue comes from the theme park and its Media Network, which include television stations like ESPN, Disney Channel, and ABC, which make their money from advertising.
So what can Iger do with Disney to revive its name and identity? The first step was making sure Lasseter continues to lead the creative team. Disney's identity was almost lost in the mix of Pixar movies, and Disney must reclaim its reign as cartoon king. Secondly, if Iger insists on creating live-action shows, consider adding villains back into the picture. Classic television needs heroes to guide children because more children look up to heroes, not teenagers. It worked with Power Rangers, it can work again. Lastly, focus on creating shows with longevity and tie it in with Disney Media Networks. Memorable characters allow fans to collect toys, purchase products and merchandise that will add to the top and bottom line. Adults today, who grew up in the 1980's and 1990's are now buying DVD sets, toys, and clothing from their favourite shows, generating huge profits.
Iger took over a company whose brand was highly regarded, but today is being trashed. Major shifts back to an Eisner-like era would be easily accepted in today's market and would be inexpensive to pursue. Iger has to remember that the profitability of Disney, as important as it may be, must be secondary. The magical world of Disney (also a title of their Sunday night movies) must be upheld to the highest standards with integrity. The money will come along once Disney's reputation as a magical company is restored.
Many of these shows shaped my life and probably the lives of many other kids too. Why, the reason I love pizza is because of a quartet of mutant turtles who also loved them too.
Disney is, and always will be, an integral part of the lives of youth in North America. It has created dozens of great tv shows and movies that made childhood so fun. When most of us think of Disney, we are immediately reminded of Mickey Mouse, Disneyland, or princesses finding a handsome prince. But, as I have evolved into an adult myself, I have noticed a shift in Disney's programming line-up that may potentially end Disney's roots.
For decades, Disney brought magic to the forefront of their cinemas and captured audiences around the world. These timeless tales will be shared for generations and have been immortalized in the Disney theme parks. But starting around the turn of the century, the same time Robert Iger became president, and later in 2005, CEO, we have seen a large shift in the paradigm of Disney programming. I for one believe that Disney's reputation as a magical company will soon be lost and Iger could be to blame.
The resurgence of Disney occurred during the Eisner era, considered the Disney Renaissance. Michael Eisner moulded Disney into a dominant corporation which reached children and parents through family-oriented movies that revolved around fairy tales and stories of heroism. The movies released during his era include The Little Mermaid, Beauty and the Beast, Aladdin, The Lion King, and Pocahontas, each having won two Oscars. But as his reign ended, and Robert Iger took over, so too did the quality of Disney movies and programming. Tarzan (1999), the last movie of the Eisner era, was the last time any Disney film won an Oscar award, a testament to the success of Eisner or possibly the lack of success of Iger.
Disney's large focus on teen dramas for television programming has created successful shows like Hannah Montana and That's So Raven. But unlike Disney creations of the past, shows today focus on youth problems, such as relationships and family, not heroes battling mobsters, evil wizards, or space aliens. These major shifts in programming leads me to believe that Disney is attempting to attract a different target audience, mainly pre-teen girls.
Another major alteration to Disney's programming and marketing is the subtle focus from teams or groups to one main character. Even the titles in today's television programming suggests the star of the show is Hannah Montana or Sonny Monroe, not The Rescue Rangers or the Gummi Bears. These changes will ultimately decrease the longevity and long-term popularity and nostalgic commerciability. In fact, some of the most popular cartoon series of the 1990's are team-related shows, including the Ninja Turtles, Care Bears, and Power Rangers. Side note, there is a running joke that the Power Rangers was racist because of their suit colours, but really, it is marketing technique.
The idea behind teams and groups was not only designed to promote team work, equality, and unity, but to market to a wider range of children and their different personalities. So many shows, not just Disney, used colours and varying personalities to attract children. They would include an athletic character, a shy character, a smart character, a clumsy character, and a humourous character, alongside many other possible personalities. This is how children create "favourite characters," something that seems to be lacking in today's shows because of its one-character focus.
Adult hit shows, like Friends, The Big Bang Theory, and How I Met Your Mother have also developed multiple characters with multiple personalities. I'm sure everyone had a favourite Friends character because of how we identified them. Chandler was the witty-remarked one, Monica the clean-freak, Rachel the ditz, and so on. It was a formula that has proven to work in all genres.
Disney's new format of live-action teen dramas has proven to be profitable, but its longevity wears off. Lizzie McGuire and That's So Raven, two shows which ceased productions years ago, were once extremely popular, but do not sell merchandise anymore. Meanwhile, shows like Duck Tales and TaleSpin continue to sell DVDs and memorabilia because of the nostalgia. Even Lilo & Stitch, a show made after the Eisner era, continues to sell merchandise because of Stitch's cuteness. Other brands like Hello Kitty and Ninja Turtles also prove popular in today's market with adults and children. Walk into a Disney Store or outlet and see what plush toys, dolls, or collectibles are up on stock. It's usually Winnie the Pooh, Mickey, and the Chipmunks, characters which never age and carry that longevity that I keep bringing up. Or, consider going to a Disney theme park and notice what characters continue to play a large role in upkeeping the Disney magic. It's Snow White, Sleeping Beauty, and Jasmine, as well Mickey and Minnie.
Even with the purchase of Pixar Studios in 2006, Disney's magic touch is still lost. Films like Finding Nemo and Toy Story are considered the best CGI films ever for its originality, its quality of story-telling, its creativity, and its imagination. Almost five years later, viewers of Disney-Pixar collaborations, like Up! and Toy Story 3, still give credit to Pixar, not Disney, a sign that movie viewers regard Pixar as a separate imaginative entity. This is because people regard Disney as the king of hand-drawn animation, which brought the company to its pinnacle in 1999.
But many do not know that Disney had planned on halting 2-D, hand-drawn animated films. John Lasseter, who once as an employee criticized Disney for being uncreative in the past, helped create The Princess and the Frog in 2009, saving Disney's spirit and roots as a classic movie creator. What would have become of Disney if hand-drawn movies were no longer a staple in Disney's video vault?
The former king of cartoons, Walt Disney, if he were alive today, would have seen his company evolve into something he would have hated. Disney was once a company that told creative stories of fantasy and fairy tales. These stories gave children of all ages and of both genders magic and wonderment, memories and inspiration. But we have seen major changes in programming during the reign of Iger that have resulted in the production of teen drama programming and regurgitated movies during the 2000's, titles that bombed at the box office and have very little chance at future success.
Where did all the creativity go once Iger took over? It would not be fair to blame it all on him for the disappearance of the magic of Disney, but considering the decisions and results that have come out of Disney Imagineering, it could be justified.
Revenue Streams Shifting
Disney's revenue stream from its Studio Entertainment division, once represented half of the company's overall profits, but as the company grew, so did its other divisions. However, growth from Studio Entertainment peaked in 2004 and has since declined (see Wikipedia link). Revenue from this division now generates less revenue than it did before it merged with Creative Content in 1996. Consumer product sales have also declined sharply at the end of the Eisner era, evidence supporting that the lack of creative and memorable shows have proven to be profitable only in the short-term.
Now, nearly a half of the company's revenue comes from the theme park and its Media Network, which include television stations like ESPN, Disney Channel, and ABC, which make their money from advertising.
So what can Iger do with Disney to revive its name and identity? The first step was making sure Lasseter continues to lead the creative team. Disney's identity was almost lost in the mix of Pixar movies, and Disney must reclaim its reign as cartoon king. Secondly, if Iger insists on creating live-action shows, consider adding villains back into the picture. Classic television needs heroes to guide children because more children look up to heroes, not teenagers. It worked with Power Rangers, it can work again. Lastly, focus on creating shows with longevity and tie it in with Disney Media Networks. Memorable characters allow fans to collect toys, purchase products and merchandise that will add to the top and bottom line. Adults today, who grew up in the 1980's and 1990's are now buying DVD sets, toys, and clothing from their favourite shows, generating huge profits.
Iger took over a company whose brand was highly regarded, but today is being trashed. Major shifts back to an Eisner-like era would be easily accepted in today's market and would be inexpensive to pursue. Iger has to remember that the profitability of Disney, as important as it may be, must be secondary. The magical world of Disney (also a title of their Sunday night movies) must be upheld to the highest standards with integrity. The money will come along once Disney's reputation as a magical company is restored.
Oilers 'Big Three' Run Down
The city of Edmonton is ready to witness an exciting Edmonton Oilers team. The Oilers showcased their top prospects in Penticton yesterday at the NHL Rookie Tournament, beating the Vancouver Canucks rookies 4-1, with their 'Big Three' players all hitting the score sheet.
Taylor Hall, along with Jordan Eberle and Magnus Paajarvi, are grabbing the focus of the media and hockey fans at this tournament. Although, only one game has been played, Oiler and general hockey fans were treated to some fancy skating, puck-handling, and passing plays that will ultimately land them a job in the Oilers line-up, come October.
The three players have shown that they are capable of playing well in a competitive environment. Many are not taking too much stock in their one-game performance, but if all three players finish top in scoring, consider those skeptics believers. Considering the Oilers entire rookie team is under the age of 21 and their opposition consist of players 21 to 25, we should remind ourselves that the team, not just the Big Three, outplayed people about 5 years older than them. At that age, 5 years is huge difference in terms of strength and maturity.
Paajarvi, 10th overall in 2009, who is considered the most NHL-ready, scored two goals in the first game of the tournament. Many in Oil Country believe that Paarjavi has the better chance of winning the Calder this year, not Hall, but if all three players compete for that trophy, without hurting the team, Oiler fans will be treated to great hockey. Eberle, 22nd overall in 2008, also scored a goal, receiving a nice pass from Hall, something I'm hoping to hear a lot of when the real season starts.
Comparisons to Gretzky, Messier, and Kurri, the Oilers Big Three of the 1980's, have emerged in the City of Champions, and many are expecting this team to one day hoist the Cup again. It's probably too soon, no, it is too soon, to say this is the next dynasty, but if the players live up to their hype, and can get better productivity from their past "kids" Gagner and Cogliano, we could see this last place team really be a Cup contender in just a few seasons. Oiler fans have seen many promising prospects flop, like Schremp, or play in the KHL, like Mikhnov, so it would be nice to see some prospects want to play here and one day win.
Last year's dismal performance by the team had one silver lining - nabbing Taylor Hall. He has won at multiple levels, including the two Memorial Cups with the Windsor Spitfires and a gold medal at the U18 in 2008 (with Eberle). Hall also won three gold medals in 2008 alone, one at the World U-17 Hockey Challenge, the IIHF World U18 Championsihps, and the Ivan Hlinka Memorial Tournament (also known as the U-18 Junior World Cup).
Eberle has also shown he can show up and win big games. At the end of the NHL regular season last year, Eberle proved he can play with men in the IIHF World Championships in Germany, although Canada finished in a disappointing 7th place. After being called up to the AHL from the WHL late in the season, Eberle tallied 14 points in 11 games with Springfield, and was even rumoured to hit the ice for the Oilers in one regular season game, but of course nothing transpired.
Paajarvi, the biggest Swede to impact the Oilers since Tommy Salo, has a lucrative tradition of winning as well. Although not as successful as Hall and Eberle, Paajarvi has two silver medals and one bronze medal in the annual World Junior Championships Tournament, one bronze medal at the World Championships (2010) and was the youngest Swede to ever play in the under-18's. Paajarvi also won a gold medal in the J20 SuperElit (the highest junior level hockey league in Sweden, comparable with the OHL, WHL, CHL, and ECHL in North America).
With three players who have won so many titles and medals in their days, what's to stop them from winning the Stanley Cup? Just themselves.
On a side note, I really want to see Hall and Eberle play together with Crosby, Nash, or Perry and so many other talented players at the next Olympics in Russia. The 2010 decade for the NHL looks very promising and high-calibre players from all over the world are emerging in this sport including Russia's Malkin (Pittsburgh) and Ovechkin (Washington), Calgary prospect Backlund (Sweden), Los Angeles forward Kopitar (Slovenia), and Washington forward Backstrom (Sweden).
Well, that's my basic run down of the Oilers 'Big Three' prospects. It should make for a heck of a season, even if this team fails to reach the post-season again. Fans will be treated with creativity and imaginative plays beyond Hemsky and that should make it worth it. The development of the players from boys to men should also allow many superstars to realize the Oilers will be a legitimate contender very soon, and could bring greater talent to the city. For now, that's my run-down of this season. I hope to bring more updates of the Oilers in my blog. Good luck to the boys in copper and blue.
You can watch the entire tournament unfold for the Oilers, Flames, Canucks, Ducks, and Sharks at http://youngstars.insinc.com.
Playing the Expiry for September 10, 2010: Netflix (NFLX)
Netflix [NFLX:NSD], trading at $142.70, has seen its shares touch a 52-week high again, with a strong push of more than 15 per cent in the last four trading days. The chart below, courtesy BigCharts.com, shows that the shares are now above the Bollinger Bands, indicating the rally will probably cease and a probability in a price drop has increased. The only fundamental that could allow the shares to rise in the next few days would be a positive report from the Beige Book - to be released Wednesday Sept 8 at 2 PM EST.
With a higher potential for a negative trade in the next few days, we could implement two types of trade: A long put or a bear put spread.
A long put is a pure play on a negative move, but with time value on the weekly option representing almost half the option value, a move below $140.40 would be required to make a profit.
Instead, if we take a look at the 145 ($4.60) and 140 ($2.20) puts, we can create a debit spread of approximately $2.40 (this spread may change based on the underlying price of Netflix), thus requiring a drop below $142.60. If the stock drops below $140 on Friday, your total potential earnings per contract is $2.60 or 108.33 per cent! The only risk is $2.40 per contract (or $240), a safer bet than shorting the stock.
With a higher potential for a negative trade in the next few days, we could implement two types of trade: A long put or a bear put spread.
A long put is a pure play on a negative move, but with time value on the weekly option representing almost half the option value, a move below $140.40 would be required to make a profit.
Instead, if we take a look at the 145 ($4.60) and 140 ($2.20) puts, we can create a debit spread of approximately $2.40 (this spread may change based on the underlying price of Netflix), thus requiring a drop below $142.60. If the stock drops below $140 on Friday, your total potential earnings per contract is $2.60 or 108.33 per cent! The only risk is $2.40 per contract (or $240), a safer bet than shorting the stock.
Playing the Expiry for September 3, 2010: Google (GOOG), Goldman Sachs (GS)
Before I begin this week's PTE, I wanted to make sure people understood the reasoning for creating spreads, instead of writing the options uncovered. Spreads, which do lower one's profitability, increase protection. In the last two weeks, the long portion of the spread was not required, but due to the high cost of the underlying security, one contract can eat up a lot of margin, thus, we create a spread, so that the total margin used is only the net debit of about $800 versus the uncovered margin requirement of about $13,500.
This week, we have two trades that I want to bring up, both are bear put spreads. The first is, once again, Google [GOOG:NSD]. This week we will implement a bear put spread on Google, trading at $461.10. The overall market's two-day rally will more than likely halt on Friday, and if there is a bad jobs report, we could see more selling. This week, I suggest you go long the 470 put (in the money) and sell the 460 put (out of the money). The current natural prices respectively are $9.30 and $2.00, creating a net debit of $7.30, meanwhile, the stock is at $461.26.
Unlike the previous recommendations, this trade has an out-of-the-money option. In this scenario, your break-even is $462.70, but you can also make money two different ways. The first is having the long option increase in value. If Google were to close on Friday at $460.05, your long option would be worth $9.95 (increase of $0.65) and your short option will expire worthless, allowing you to capture the $2.00. The maximum profit is $2.70 for a $7.30 trade, or 36.99 per cent.
Disclaimer, my fills, prior to writing this, were $8.00 and $1.70 (net debit of $6.30 and a max profit of $3.70).
The second trade is a bear put spread on Goldman Sachs [GS:NYSE]. The company, trading at $139.10 now, has had trouble creating real support at $140. Today, I tried to buy the 145 put for $5.10 when the stock was at $139.99, but due to my broker's requirement on trader review, I cancelled the order; I did not want to wait a minute just to get the order opened and approved. Anyways, implement the bear put by buying the 145 put and selling the 140 put. As of right now, the stock is down, and time value has disappeared on the 140 puts, but if the stock rallies back near 140, consider buying the 145 put for $5.20 and selling the 140 put for $1.00 (natural values when the stock was at $139.99 earlier today), creating a net debit of $4.20. Your break even price is $140.80, and your maximum profit is $1.20 for every $4.20 spent, or 28.57 per cent.
Remember, you can follow all P.T.E. recommendations above, or clicking here.
This week, we have two trades that I want to bring up, both are bear put spreads. The first is, once again, Google [GOOG:NSD]. This week we will implement a bear put spread on Google, trading at $461.10. The overall market's two-day rally will more than likely halt on Friday, and if there is a bad jobs report, we could see more selling. This week, I suggest you go long the 470 put (in the money) and sell the 460 put (out of the money). The current natural prices respectively are $9.30 and $2.00, creating a net debit of $7.30, meanwhile, the stock is at $461.26.
Unlike the previous recommendations, this trade has an out-of-the-money option. In this scenario, your break-even is $462.70, but you can also make money two different ways. The first is having the long option increase in value. If Google were to close on Friday at $460.05, your long option would be worth $9.95 (increase of $0.65) and your short option will expire worthless, allowing you to capture the $2.00. The maximum profit is $2.70 for a $7.30 trade, or 36.99 per cent.
Disclaimer, my fills, prior to writing this, were $8.00 and $1.70 (net debit of $6.30 and a max profit of $3.70).
The second trade is a bear put spread on Goldman Sachs [GS:NYSE]. The company, trading at $139.10 now, has had trouble creating real support at $140. Today, I tried to buy the 145 put for $5.10 when the stock was at $139.99, but due to my broker's requirement on trader review, I cancelled the order; I did not want to wait a minute just to get the order opened and approved. Anyways, implement the bear put by buying the 145 put and selling the 140 put. As of right now, the stock is down, and time value has disappeared on the 140 puts, but if the stock rallies back near 140, consider buying the 145 put for $5.20 and selling the 140 put for $1.00 (natural values when the stock was at $139.99 earlier today), creating a net debit of $4.20. Your break even price is $140.80, and your maximum profit is $1.20 for every $4.20 spent, or 28.57 per cent.
Remember, you can follow all P.T.E. recommendations above, or clicking here.
Playing the Expiry for August 27, 2010: Google (GOOG)
Last week, my first installment of "Playing the Expiry..." proved popular and profitable, so here is another post for option traders to consider. Again, as always, before implementing any strategy, understand the full risks of all trades discussed today.
Again, Google [GOOG:NSD] appears to be back in play. It's highly-priced stock comes in handy for those looking to the options. Today, we will do a bull call spread for the Aug27 weekly options. Here is the strategy and its potential profit.
Google is currently trading at $453.23, down $1.39. The 440 call (long) is priced $13.60 x $14.40 and the 450 call (short) is priced at $5.50 x $6.00. In a worst case scenario, if your fills are at the market or natural price, your net cost is $8.90 or $890 per contract excluding commissions. Because of significant support at $450, Google has a high probability of remaining in the money, allowing you to profit $1.10 or $110, which is a 12.35 per cent return. Not a bad return if you do ask me.
Your profits can be improved by attempting to fill your buy and sell in between the bid and ask prices. My fills were $14.30 and $5.80, saving me $0.40 a contract, allowing me to earn an additional 5 per cent profitability and lowered break-even points.
Remember to close both options out (if needed) before the 4 PM EST close on Friday, to avoid paying exercise/assignment costs on the options.
P.T.E. record book located at the top bar, to the right of "MAIN".
Again, Google [GOOG:NSD] appears to be back in play. It's highly-priced stock comes in handy for those looking to the options. Today, we will do a bull call spread for the Aug27 weekly options. Here is the strategy and its potential profit.
Google is currently trading at $453.23, down $1.39. The 440 call (long) is priced $13.60 x $14.40 and the 450 call (short) is priced at $5.50 x $6.00. In a worst case scenario, if your fills are at the market or natural price, your net cost is $8.90 or $890 per contract excluding commissions. Because of significant support at $450, Google has a high probability of remaining in the money, allowing you to profit $1.10 or $110, which is a 12.35 per cent return. Not a bad return if you do ask me.
Your profits can be improved by attempting to fill your buy and sell in between the bid and ask prices. My fills were $14.30 and $5.80, saving me $0.40 a contract, allowing me to earn an additional 5 per cent profitability and lowered break-even points.
Remember to close both options out (if needed) before the 4 PM EST close on Friday, to avoid paying exercise/assignment costs on the options.
P.T.E. record book located at the top bar, to the right of "MAIN".
3PAR (PAR) Trading Opportunity
3PAR Inc. [PAR:NYSE] has found itself caught in the middle of a war, but unlike most times, this has proven beneficial. A week ago, the company announced that Dell [DELL:NDQ] was planning to buy them out for $1.1 billion. Shares surged from under $10 to $18. Then, late last Friday, Hewlett-Packward [HPQ:NYSE] announced it was going to buy the data-storage system for $1.6 billion, or $24 a share. Shares surged once again, to nearly $27 on speculation that Dell would raise its bid and has three days to make a new offer (from Aug 25).
Both Dell and HP have billions of dollars in cash laying around, so a bidding war is anticipated, especially since both companies want to compete with IBM and others.
So what can a trader like you do to profit? With $24 a share a near guarantee on the valuation, consider buying in-the-money September calls to replace the purchase of the underlying security. The Sep 20 calls have almost no time value to worry about, and a final number is expected in the next few days. If Dell decides not to make a move, the most one can lose as of today is $2.60 a contract (or share if equity bought). And rumours are circulating that the $24 a share may be bumped by 3PAR management, with an average estimate from 9 brokers of $29 a share, representing a 7.5 per cent premium. And to the option trader, a profit of around 35 per cent.
Note: these figures are based solely on current available information and speculative information. These figures are not guaranteed and likely to change if a new bid is placed by Dell lower than $27/share or HP decides not to negotiate with 3PAR from its current bid of $24/share.
Due to the speculative nature of this trade, highly consider its risks with your financial advisor before implementing any strategy or similar strategy discussed within this post.
Both Dell and HP have billions of dollars in cash laying around, so a bidding war is anticipated, especially since both companies want to compete with IBM and others.
So what can a trader like you do to profit? With $24 a share a near guarantee on the valuation, consider buying in-the-money September calls to replace the purchase of the underlying security. The Sep 20 calls have almost no time value to worry about, and a final number is expected in the next few days. If Dell decides not to make a move, the most one can lose as of today is $2.60 a contract (or share if equity bought). And rumours are circulating that the $24 a share may be bumped by 3PAR management, with an average estimate from 9 brokers of $29 a share, representing a 7.5 per cent premium. And to the option trader, a profit of around 35 per cent.
Note: these figures are based solely on current available information and speculative information. These figures are not guaranteed and likely to change if a new bid is placed by Dell lower than $27/share or HP decides not to negotiate with 3PAR from its current bid of $24/share.
Due to the speculative nature of this trade, highly consider its risks with your financial advisor before implementing any strategy or similar strategy discussed within this post.
Should the Fed Raise Rates?
I read an interesting article last night on Bloomberg suggesting that Bernanke should consider raising interest rates from its current historic lows.
Traditional methods of monetary policy implemented during this recession have failed to lead the United States out of recession. Growth continues to stumble, questions about a double-dip linger, unemployment hovers around 10-percent, and the housing market lacks a foundation. So what argument can be made for raising rates, a tactic normally employed to slow down the supply of money?
When the Fed dropped rates to record lows near zero per cent, it was hoped that the banks would increase loans to small businesses and home buyers, but tightening credit policies and risk management strategies by the banks prevented these loans to enter the economy. Instead, financial institutions used their "free" money to invest in themselves through trading and building other assets. The government has unintentionally rewarded the banks for their bad behaviour and is creating another potential crisis.
"Blow the system up, we'll come back and reward you with very low interest rates that allow you to build up capital, and then you could try it again next time around," Rajan said.
Concerns about inflation, a usual suspect during times of low-interest rates, were valid, but with low consumer demand, prices of goods still remain low in America, even as commodity prices, like wheat, base metals, and soybean rise from Chinese demand. The Fed's current stance of deflation (when prices fall for extended periods of time) prevention is currently the number one issue blocking a rise in interest rates.
Rajan also points out that low interest rates are artificially "propping up" the housing market in America by creating demand from speculators. Americans continue to carry large amounts of household debt, near record levels in fact - $11.7 trillion as of June (according to the article). With debt levels so high and banks managing credit worthiness more conservatively, those looking to get loans may be out of luck. Foreign speculators in the housing market is historically high, a possible link to Rajan's argument.
If the government does not want to raise rates to prevent deflation, the government should cut out the middle man, the banks, and go directly to the American citizen. Instead of providing loans to the banks and being at the mercy of new credit policies, provide loans directly to the small businesses that want to expand and to the credit-worthy American who is unable to obtain a loan. Some stimulus plans proved effective long-term too.
The Cash for Clunkers program, which ended months ago, re-ignited the auto industry. Providing temporary jobs to Americans via the census earned the economy a respectful quarter of growth.
Although these programs will cost tax payers billions, the government's current policy of low rates has created a cheap way to sell treasuries and notes, and why not take advantage of super-conservative investors willing to take just 2.5 to 3 per cent yields on a 10-year?
With Christmas just one quarter away, the government could also provide incentives for companies that hire immediately after summer ends when students head back to class. I'm certain many companies would go along with it in hopes that it spurs the economy and ultimately, their top and bottom line too. Companies are hording trillions of dollars in cash, since risk-free assets are paying so little, so CEO's may be more willing to spend if the right tax benefit or other incentives proves beneficial.
I remember saying the day of his inauguration, if Obama and his administration can get the US out of its deep recession, he would be considered one of the greatest presidents ever.
The Fed must think outside of the box, outside of traditional monetary policies to stimulate this economy. Banks are building up assets for free and creating a potential bubble, again, but this time without strengthening the economy. Raise rates and force banks to make money on interest again by expanding loans to Americans. If banks fail to lend, governments should directly lend to citizens, which would create new jobs and provide a second source of income other than tax, which could be used to pay off debt. Allow the housing market to finally collapse, providing very affordable homes for Americans with newly approved loans and hopefully improve the flow of money.
When the Fed dropped rates to record lows near zero per cent, it was hoped that the banks would increase loans to small businesses and home buyers, but tightening credit policies and risk management strategies by the banks prevented these loans to enter the economy. Instead, financial institutions used their "free" money to invest in themselves through trading and building other assets. The government has unintentionally rewarded the banks for their bad behaviour and is creating another potential crisis.
"Blow the system up, we'll come back and reward you with very low interest rates that allow you to build up capital, and then you could try it again next time around," Rajan said.
Concerns about inflation, a usual suspect during times of low-interest rates, were valid, but with low consumer demand, prices of goods still remain low in America, even as commodity prices, like wheat, base metals, and soybean rise from Chinese demand. The Fed's current stance of deflation (when prices fall for extended periods of time) prevention is currently the number one issue blocking a rise in interest rates.
Rajan also points out that low interest rates are artificially "propping up" the housing market in America by creating demand from speculators. Americans continue to carry large amounts of household debt, near record levels in fact - $11.7 trillion as of June (according to the article). With debt levels so high and banks managing credit worthiness more conservatively, those looking to get loans may be out of luck. Foreign speculators in the housing market is historically high, a possible link to Rajan's argument.
If the government does not want to raise rates to prevent deflation, the government should cut out the middle man, the banks, and go directly to the American citizen. Instead of providing loans to the banks and being at the mercy of new credit policies, provide loans directly to the small businesses that want to expand and to the credit-worthy American who is unable to obtain a loan. Some stimulus plans proved effective long-term too.
The Cash for Clunkers program, which ended months ago, re-ignited the auto industry. Providing temporary jobs to Americans via the census earned the economy a respectful quarter of growth.
Although these programs will cost tax payers billions, the government's current policy of low rates has created a cheap way to sell treasuries and notes, and why not take advantage of super-conservative investors willing to take just 2.5 to 3 per cent yields on a 10-year?
With Christmas just one quarter away, the government could also provide incentives for companies that hire immediately after summer ends when students head back to class. I'm certain many companies would go along with it in hopes that it spurs the economy and ultimately, their top and bottom line too. Companies are hording trillions of dollars in cash, since risk-free assets are paying so little, so CEO's may be more willing to spend if the right tax benefit or other incentives proves beneficial.
I remember saying the day of his inauguration, if Obama and his administration can get the US out of its deep recession, he would be considered one of the greatest presidents ever.
The Fed must think outside of the box, outside of traditional monetary policies to stimulate this economy. Banks are building up assets for free and creating a potential bubble, again, but this time without strengthening the economy. Raise rates and force banks to make money on interest again by expanding loans to Americans. If banks fail to lend, governments should directly lend to citizens, which would create new jobs and provide a second source of income other than tax, which could be used to pay off debt. Allow the housing market to finally collapse, providing very affordable homes for Americans with newly approved loans and hopefully improve the flow of money.
Playing the Expiry for August 20, 2010: Google (GOOG)
It's a new segment in my blog, and hopefully I can continue to do this weekly (or at least monthly). I will have a new layout soon so it should give you a chance to visit it every Thursday before close to make a trade.
With the market having taken a beating today on bad employment news, some stocks have taken a larger drop than need be. Today's focus is on Google [GOOG:NSD].
The following trade was executed today in my account creating a bull call spread on Google, trading at $470.25. I purchased the Aug260 call ($11.00) and sold the Aug270 call ($3.60). The total net debit is $7.40, meaning my break even is $477.40 on the underlying. My reasoning for this trade is a technical one. Google fell below the Bollinger Bands today, which indicates that a technical rebound is more likely than a drop. My trade is not trying to capture a big up move, but a lack of a continued down move. If Google remains at $470.25 (now $471.20 as I write this), I will be able to capture about $250* per contract (or 33% profit), not too bad for a $740 investment for one day.
*The 460 call will gain $0.20 and the 470 call will lose $2.40, netting about $250, allowing for spreads and commission.
As with all trades, profits are not guaranteed and losses may occur. Ensure options trading is suitable for your investment needs and objectives. Talk to a financial advisor if you are always unsure.
With the market having taken a beating today on bad employment news, some stocks have taken a larger drop than need be. Today's focus is on Google [GOOG:NSD].
The following trade was executed today in my account creating a bull call spread on Google, trading at $470.25. I purchased the Aug260 call ($11.00) and sold the Aug270 call ($3.60). The total net debit is $7.40, meaning my break even is $477.40 on the underlying. My reasoning for this trade is a technical one. Google fell below the Bollinger Bands today, which indicates that a technical rebound is more likely than a drop. My trade is not trying to capture a big up move, but a lack of a continued down move. If Google remains at $470.25 (now $471.20 as I write this), I will be able to capture about $250* per contract (or 33% profit), not too bad for a $740 investment for one day.
*The 460 call will gain $0.20 and the 470 call will lose $2.40, netting about $250, allowing for spreads and commission.
As with all trades, profits are not guaranteed and losses may occur. Ensure options trading is suitable for your investment needs and objectives. Talk to a financial advisor if you are always unsure.
Retail Data Paints a Gloomy Picture
The Canadian economy, which is growing at around 6 per cent and has created thousands of new jobs and as such, consumers are able to support a recovery. However, in the United States, the country's unemployment level remains between 9.5 and 10 per cent.
The "pros" believe that the continued strength in corporate profits is proof there is an economic recovery in America. Why just today, Wal-Mart [WMT:NYSE] and Home Depot [HD:NYSE], also Dow components, reported earnings beating estimates; Wal-Mart even raised their guidance for the remainder of the year. This trend of great corporate profits has been the story of 2010. 75 per cent of S&P 500 companies have beaten the estimates. These figures are being used as a crutch to support the idea that the American economy is on its way back, albeit, very slow and lacking job creation.
But wait, is this really an accurate picture of the American economy or a story of American companies being able to make money globally? The companies that have reported giant profits are companies that have stores all over the world. Wal-Mart has more than 4,000 stores in 15 countries, including China, which is now the second largest economy in the world, passing Japan just recently. Home Depot also has a substantial foot hold in Canada and Mexico, and some stores in China.
Companies have been saying for months that US sales are slow, yet the "pros" continue to believe in a recovery. Wal-Mart said today that their US sales were down 1.8 per cent and "steep price cuts did not boost sales as hoped". And Wal-Mart only beat by 1 cent a share today through cost-cutting measures. And revenue came in lower than expected. Wal-Mart earned $103.73 billion versus an expected $105.33 billion: $1.6 billion short.
Last week, Nordstrom [JVN:NYSE], a higher-end retailer only in the United States, provided earnings that were considerably weak, knocking the stock down over ten percent by Friday. Unlike the majority of retailers that have, or will be releasing earnings this week, Nordstrom has not exposed itself in the key Asian market, where growth is pacing nearly ten per cent a year or more.
Tomorrow, we will receive an earnings report from Target, the second largest US retailer, which also has limited exposure to Asia, if any. If Target's profit and guidance, along with other data, prove to be below expectations, I believe the "pros" should really take a second look at their predictions if they ever stumble upon my blog.
Yesterday, a report on BNN, Canada's business network, noted that junk bonds are pricing in a 25 per cent probability of a double-dip recession. That's a substantial figure, especially when 99 per cent of people believe a double-dip is very unlikely.
The US economy will be unable to grow if companies do not hire in the United States. We have seen that jobs are not created by government stimulus; it is small and large businesses that ultimately shape the landscape of any economy. They are the ones that price material goods and create services that consumers buy, and create jobs to maintain the cycle. But if nobody is coming to buy their products in the US, why should they hire more workers?
A few months ago, I was very optimistic about the American economy because there were signs of growth, but 8 months later, this growth has stalled, and I truly believe that a double-dip recession is very likely.
Image source: The Guardian (http://blogs.guardian.co.uk/ethicalliving/shopper.jpg)
Apple (AAPL), Goldman (GS) Trading Opportunities
Apple [AAPL:NDQ] took a huge hit today, along with the rest of the market, but has shown a key support at $250.00 - at close: over 20,000 shares bidding. The stock dipped below the level intraday but surged above and held on for the remainder of the day. I decided to take advantage of the weekly options to capture two more days of time value. I purchased the AAPL Aug13 240 call and sold the AAPL Aug13 250 call, that is, a debit or bull call spread. As of 3:12 PM EST, the security was hovering $250.55, the 240 call was asking $10.90, and the 250 call was bidding $2.53, creating a natural trade of $8.37. If the stock remains above $250, you simply close both options on Friday and capture the $1.98 on the short, and take a $0.35 loss on the long.
For traders with excess margin, you could consider writing the 250 puts for Aug13 for $2.00, but if traders decide to push Apple lower, you could see larger losses than the bull call spread strategy.
Goldman Sachs [GS:NYSE] broke the (up) trend line on Tuesday, which could be a bearish signal. The MACD and the DMI are also converging into bearish territory. My only concern is that the volume was not significant, only average, and today's large drop could be a result of market sentiment, not a technical drop. I bought puts late last week, but unfortunately sold them yesterday before the FOMC announcement. If this drop is indeed a technical sell off, GS would most likely trade down to the lower bollinger band, which is $140.
For traders with excess margin, you could consider writing the 250 puts for Aug13 for $2.00, but if traders decide to push Apple lower, you could see larger losses than the bull call spread strategy.
Goldman Sachs [GS:NYSE] broke the (up) trend line on Tuesday, which could be a bearish signal. The MACD and the DMI are also converging into bearish territory. My only concern is that the volume was not significant, only average, and today's large drop could be a result of market sentiment, not a technical drop. I bought puts late last week, but unfortunately sold them yesterday before the FOMC announcement. If this drop is indeed a technical sell off, GS would most likely trade down to the lower bollinger band, which is $140.
Bienvenido a Miami
Social Similes: A Parody of Our World - Set 6 Volume 5
It was the biggest sports story of the summer: Chris Bosh and Lebron James were headed to Miami to join forces with Dwyane Wade. The Heat, now considered a power house in the East, has a chance to win its first NBA Championship since 2006. But recent documents uncovered suggest that James moved to the city sung about by Will Smith for more than just a championship.
Both TMZ and ESPN have evidence that Lebron James moved to Miami for the natural, year-round, free sun tanning capabilities of the city because he is in fact a Caucasian.
TMZ uncovered an old clip from "America's Funniest Home Videos", the ones with Bob Saget, with a white 6-year old child trying to do a slam dunk but failing and landing on his head. Then a lady, presumably his real mother, asks, "Lebron, are you okay?" The boy responses, "Yes. I'm a James boy! I'm always okay."
ESPN reporters followed up on the story and found hundreds of documents from a local sun tanning salon supporting TMZ's theories.
It turns out that Lebron spends over $1 million a year at the salon to keep his skin a dark colour. And the new Obama 10 per cent tax was too much for the all-star to handle financially. His addiction to sun tanning started at the end of his middle school days and trended into high school. One story suggests that Lebron faced much racism during his first few days of high school when he entered an all-white school, as many students believed him to be black. He would later change schools and end up at St. Vincent - St. Mary High School, where his future stardom became recognized.
The NBA wanted to market his talents and ensure they could capitalize on it properly. NBA arenas are filled with thousands of fans, but the majority of these fans are white. The league knew that it had to expand to a larger audience, including Hispanics, Asians, and more blacks if it wanted to compete with more professional sports entering the market.
The city of Cleveland comprises of 52 per cent blacks, meanwhile, the NBA team was selling mainly to white fans, and were not always selling out. So, the NBA requested to the franchise to finish last and pick Lebron. Since that day, the Cavs profits surged and the NBA royalties rolled in.
But Cleveland was not the first city to enroll in the program. Houston was the first, drafting the first Asian all-star to play in the NBA in 2002. And since, an Italian and an Australian have also been drafted first overall, bucking the nearly all-American trend.
Like all conspiracy theories, this one holds very little merit. TMZ said they will be scouting his home in Miami to see if his real parents show up. For now, Lebron, go out and win a championship.
Both TMZ and ESPN have evidence that Lebron James moved to Miami for the natural, year-round, free sun tanning capabilities of the city because he is in fact a Caucasian.
TMZ uncovered an old clip from "America's Funniest Home Videos", the ones with Bob Saget, with a white 6-year old child trying to do a slam dunk but failing and landing on his head. Then a lady, presumably his real mother, asks, "Lebron, are you okay?" The boy responses, "Yes. I'm a James boy! I'm always okay."
ESPN reporters followed up on the story and found hundreds of documents from a local sun tanning salon supporting TMZ's theories.
It turns out that Lebron spends over $1 million a year at the salon to keep his skin a dark colour. And the new Obama 10 per cent tax was too much for the all-star to handle financially. His addiction to sun tanning started at the end of his middle school days and trended into high school. One story suggests that Lebron faced much racism during his first few days of high school when he entered an all-white school, as many students believed him to be black. He would later change schools and end up at St. Vincent - St. Mary High School, where his future stardom became recognized.
The NBA wanted to market his talents and ensure they could capitalize on it properly. NBA arenas are filled with thousands of fans, but the majority of these fans are white. The league knew that it had to expand to a larger audience, including Hispanics, Asians, and more blacks if it wanted to compete with more professional sports entering the market.
The city of Cleveland comprises of 52 per cent blacks, meanwhile, the NBA team was selling mainly to white fans, and were not always selling out. So, the NBA requested to the franchise to finish last and pick Lebron. Since that day, the Cavs profits surged and the NBA royalties rolled in.
But Cleveland was not the first city to enroll in the program. Houston was the first, drafting the first Asian all-star to play in the NBA in 2002. And since, an Italian and an Australian have also been drafted first overall, bucking the nearly all-American trend.
Like all conspiracy theories, this one holds very little merit. TMZ said they will be scouting his home in Miami to see if his real parents show up. For now, Lebron, go out and win a championship.
RIM vs. Apple 2.0
The war between Apple and Research in Motion is heating up as rumours on a new tablet device from RIM is expected to be announced some time tomorrow.
RIM, maker of the Blackberry hand held device, recently purchased the domain name "blackpad.com." The move triggered speculations that RIM plans to name the device the Blackpad or at least has some major interest in the name. It is believed to have been purchased for about $1,500.
RIM's move to enter the tablet device and take major market share from Apple and Amazon will be tough. Based on the information available, many do not expect RIM to penetrate with profitability. It is believed that the Blackpad, to be released in November, will be used as an add-on to Blackberrys (or is it Blackberries) and will not function as a stand-alone device. This limited versatility could prove to be the downfall of the Blackpad because it will be unable to maximize its market.
The name Blackpad, if true, is also being remarked as a terrible name. By using the suffix -pad, it will surely promote the iPad even more so if RIM's device fails in popularity. Many are asking RIM to change it to Padberry or even Blueberry or Raspberry. It seems like loyal BB users prefer the berry aspect of the name, not the black.
Research in Motion has continued to grow quarter after quarter, but that has not improved their share value. The stock is down nearly 60 per cent from its all-time high, reached in the spring of 2008. Meanwhile, its archenemy Apple is trading near its all-time highs. It is clearly a tale of two companies going in opposite directions.
Other notes
Research in Motion still dominates the smartphone market, holding a 33 per cent market share in the United States and is ranked 3rd worldwide. Apple iPhones dropped to number 3 in the US today. Google Android phones have surged to second place and is on pace to sell more phones in one year than the total number of iPhones ever.
RIM, maker of the Blackberry hand held device, recently purchased the domain name "blackpad.com." The move triggered speculations that RIM plans to name the device the Blackpad or at least has some major interest in the name. It is believed to have been purchased for about $1,500.
RIM's move to enter the tablet device and take major market share from Apple and Amazon will be tough. Based on the information available, many do not expect RIM to penetrate with profitability. It is believed that the Blackpad, to be released in November, will be used as an add-on to Blackberrys (or is it Blackberries) and will not function as a stand-alone device. This limited versatility could prove to be the downfall of the Blackpad because it will be unable to maximize its market.
The name Blackpad, if true, is also being remarked as a terrible name. By using the suffix -pad, it will surely promote the iPad even more so if RIM's device fails in popularity. Many are asking RIM to change it to Padberry or even Blueberry or Raspberry. It seems like loyal BB users prefer the berry aspect of the name, not the black.
Research in Motion has continued to grow quarter after quarter, but that has not improved their share value. The stock is down nearly 60 per cent from its all-time high, reached in the spring of 2008. Meanwhile, its archenemy Apple is trading near its all-time highs. It is clearly a tale of two companies going in opposite directions.
Other notes
Research in Motion still dominates the smartphone market, holding a 33 per cent market share in the United States and is ranked 3rd worldwide. Apple iPhones dropped to number 3 in the US today. Google Android phones have surged to second place and is on pace to sell more phones in one year than the total number of iPhones ever.
Using VIX to Predict Market Direction
The Volatility Index, also known as the VIX or the Fear Index, is a tool often remarked by investors and traders. It is a measure of implied volatility, as a per cent, and is used by many to determine where the market may be headed in the next month. A high VIX, above 30, suggests that market volatility is occurring and the market may be headed downwards. A low VIX suggests the market will remain calm and potentially be positive for the next month.
However, I have found that the VIX is a very reactionary index. Having traded the VIX options many times, one will recognize that the VIX makes significant moves only when the market has a large move in one day. A 200-point drop in the Dow may move the VIX up 2 or 3 points. Many would say that this rising VIX suggests more volatility ahead, but this is not always true.
Today, the Dow opened 110 points lower, with the VIX reacting, peaking at 27.32 up 3.19 points. As the day progressed, the Dow pared losses and flirted with positive territory, thus the VIX sank to back 24 and change. As you can see, it's not a very good tool to measure volatility if it's a reactionary device, but this is where the VIX options come in to play.
Using the VIX options to predict the market's next move is something I have been using ever since I noticed its strange behaviour and pricing back when I worked at the brokerage. It's good for those that have trouble with technical analysis or get caught up in emotional trading. Deep in-the-money options often paint a nice picture of the market's next move. Here's how it works.
First, we simply find the value of the VIX, ignoring its level and its "meaning." Then, we use the front-month options. If the VIX options expire in a few days, check the following month contracts. Find the deep in-the-money options and you will notice that either the calls or the puts will be under priced. That is, it will be missing intrinsic value. That missing intrinsic value will eventually be filled by a move in the VIX. This move can then be interpreted as a reactionary move against the market. Make sense? Here is an example using today's options level.
The VIX is currently at 24.19. So, let's check the August18 calls and puts. If the VIX were an actual security, we would know that the 20 call should be worth at least 4.19 and the 30 put should be worth at least 5.81, but the VIX does not trade like that. In fact, the 30 put is only worth about 5.30, missing intrinsic value of 0.51. This will mean that the VIX may move up 0.51 to correct this option mispricing. A move up in the VIX indicates a short-term down ward move in the stock market.
This is not a fool-proof method, but has proven more often than not to be accurate. Today is July 30, and the Dow is 10,421 as I write this. I am making a bold prediction using this technique that we will see it be worth less in the next few days.
However, I have found that the VIX is a very reactionary index. Having traded the VIX options many times, one will recognize that the VIX makes significant moves only when the market has a large move in one day. A 200-point drop in the Dow may move the VIX up 2 or 3 points. Many would say that this rising VIX suggests more volatility ahead, but this is not always true.
Today, the Dow opened 110 points lower, with the VIX reacting, peaking at 27.32 up 3.19 points. As the day progressed, the Dow pared losses and flirted with positive territory, thus the VIX sank to back 24 and change. As you can see, it's not a very good tool to measure volatility if it's a reactionary device, but this is where the VIX options come in to play.
Using the VIX options to predict the market's next move is something I have been using ever since I noticed its strange behaviour and pricing back when I worked at the brokerage. It's good for those that have trouble with technical analysis or get caught up in emotional trading. Deep in-the-money options often paint a nice picture of the market's next move. Here's how it works.
First, we simply find the value of the VIX, ignoring its level and its "meaning." Then, we use the front-month options. If the VIX options expire in a few days, check the following month contracts. Find the deep in-the-money options and you will notice that either the calls or the puts will be under priced. That is, it will be missing intrinsic value. That missing intrinsic value will eventually be filled by a move in the VIX. This move can then be interpreted as a reactionary move against the market. Make sense? Here is an example using today's options level.
This is not a fool-proof method, but has proven more often than not to be accurate. Today is July 30, and the Dow is 10,421 as I write this. I am making a bold prediction using this technique that we will see it be worth less in the next few days.
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