The Evening Read

Friday could not have come sooner. Here are some quick reads before the weekend.

• Blockbuster year expected for Buffett's Berkshire - WSJ
• Emerging markets look appetizing...Again - WSJ
• The ham sandwich standard - Economist
• Obama vows Putin faces "costs" if troops intervene in Ukraine - Bloomberg

"Sell a man a fish, he eats for a day. Teach a man to fish, you ruin a wonderful business opportunity."
- Karl Marx

After a strong rally this morning, we saw a dramatic finish to trading - US equity markets swung to an intra-day loss before retaking some of that ground into the close. The S&P closed 5.16 points higher to settle at 1,859.45; the Dow added 49.06 to 16,332; and the Nasdaq actually lost nearly 11 points to finish at 4,308. The day's trading ranges covered nearly the entire week's range - a clearly volatile day.

I would like to spend a quick minute on Ocwen Financial Corp (OCN). Ocwen services and originates mortgage loans - in FY12, $840m of their total revenue ($845m) came from mortgage servicing. Their only profitable business in FY12 was their servicing business, bringing in a cool $274m - lending and "corporate items & other" netted them losses of $260k and $16.6m, respectively.

These mortgage services typically buy MSRs (mortgage servicing rights) from the larger banks in order to service the loans and generate fee income. Servicing entails collecting the payments from borrowers and distributing them among the proper mortgage-backed securities' accounts. In January, New York's top banking regulator put the kibosh on a deal in which OCN was to buy a fairly large amount of MSRs from Wells Fargo. Since, the stock has lost 20 points and looks to be putting in a meaningful bottom.

Not having done a lot of the fundamental legwork as of yet, I cannot put an intrinsic target value on Ocwen; however, the market has taken this stock and beat it senseless. An attractive trade would be to buy ~.80 delta calls 6+ months out (the Jul 32.5s are trading at $7.40 as of this writing) and selling front-month at-the-money calls - basically a synthetic covered call. The idea here being to collect the depreciating time value (theta) of the front-month call and financing your underlying long call until the stock shakes off the bad weather. I have yet to put this trade on, but I am finding myself increasing interested. You would basically be risking $2 (February low of $33.54, vs. today's close of $37.44) to make $8 (or more). Not a bad risk/reward scenario.

I'll be doing some further work on OCN this weekend. Let me know if you would like to see the note.

See you Monday morning. Have a great weekend.

The Morning Read

Happy Friday, everyone. Here's what I'm reading this morning.

• Foreign banks squeezed by Fed may reduce US footprint - MarketWatch
• Cash flies into bond ETFs - WSJ
• I said, you can call me Cleverbot if you want to - Economist
• Do we even need a Fed balance-sheet reduction? - Alphaville
• Templeton braving China's housing bubble - Bloomberg

"I was seldom able to see an opportunity until it had ceased to be one."
- Mark Twain

Following further developments between Ukraine and their predominantly Russian-inhabited Crimea region (evidently Russian "military" has occupied two airports), European markets are trading slightly lower. The Euro STOXX 50 is down 0.58%, with the FTSE lower by 0.20% and the DAX barely off at -0.14%. Today's US open looks eerily similar to yesterday's. S&P futures are off 1.75 points, with Dow and Nasdaq futures lower by 8.00 and 3.75 points, respectively.

Asian markets were mixed overnight - the Nikkei lost half a percentage point, while Hong Kong was flat and the mainland Shanghai Shenzhen 300 was up 1.15%. News-flow, aside from Ukraine, has been rather light. The US economic data calendar begins at 8:30am with 4Q GDP revisions, followed by Chicago PMI, the UofM (that school up North) consumer sentiment index for February, and pending home sales. I expect markets to be most sensitive to GDP data - consensus expectations are for a revision to 2.4% growth.

I still expect the "surprise" move to be to the upside over the near-term. It is hard to pound the table and indiscriminately smash the "buy" button at current levels, but taking some selective longs (while not risking much downside) seems appropriate.

Interestingly, bonds have been rallying alongside the equity market - this is likely a further sign of the lack of "believers" in the rally. I believe strength in the bond market is short-term; they won't be able to hold the bid if economic data continues to improve over the next few months.

Time will tell. Until then, put the odds in your favor, folks.

The Evening Read

Good evening, folks.

• Gold bugs return after last year's rout - WSJ
• Russian, Ukrainian currencies slide - WSJ
• Mortgages delinquency rate, foreclosures lowest since 2008 - CalculatedRisk
• Gold fix study shows signs of decade of bank manipulation - Bloomberg
• Target stock should rise more as data breach fades - Barron's

"You don't need to be a weatherman to know which way the wind blows"
- Bob Dylan

Here's a quick recap of the trading session today: S&P 500 traded 9.13 handles higher to settle at a new all-time high of 1,854; the DOW picked up 74 to 16,272; and the Nasdaq added 26 to 4,318. A somewhat positive sign is that we closed right near the highs of the day, so one could reasonably expect some follow-through tomorrow. Unless, of course, Russia does something stupid.

Traders are clearly concerned about this rally. A quick look at the CBOE Market Volatility Index (the "VIX" or "fear gauge") shows that volatility has been trading between 14 and 15.5 during the S&P's march higher into new chart territory. Compare that to trading ranges of between 12 and 13.5 for the last couple of attempts at resistance in January and late October/early November.

This is by no means predictive - the VIX was rather complacent in January (before the emerging market hiccup) and completely failed to price in risk.

Allow a young (but rapidly becoming old) man to prognosticate: there is going to be a lot of "sorry we're late" liquidity come to the market if we do not see a more significant pullback over the next couple of weeks. I am not going to go out there and trade on this thought, but the more I hear people try to debunk this rally the more I think it has legs.

The VIX looks a little pricey to me.

The Morning Read

Good morning, everyone. Here's a snapshot of what I'm reading today.

• Hopeful signs on new-home supply crunch - WSJ
• Sticking a finger into the ECB's air - Alphaville
• European stocks retreat as tension escalates in Crimea - Bloomberg
• Crimea parliament is seized, raising Ukraine tension - WSJ
• Fall in renminbi heightens derivatives risks - FT
• Why Sweden has so few road deaths - Economist

"The long run is a misleading guide to current affairs. In the long run we are all dead."

-John Maynard Keynes, A Tract on monetary Reform

I hope that you will excuse my lack of writing yesterday. Occasionally, the military must attempt to collect their use from me. This morning I am firmly planted at my desk.

The trading mood across the Atlantic has been affected in no small part by the happenings in Ukraine overnight. The FTSE is trading lower by 0.70% and the DAX is off 1.56%. This "risk off" appetite has spilled over into US futures - currently S&P 500 futures are down 5.5 points, Dow and Nasdaq cohorts lower by 47.00 and 4.75 points, respectively. Ukraine is facing the slight possibility that they might lose control of Crimea (a mostly Russian-friendly Southern region of Ukraine, home to Russia's Black Sea fleet); however, I do not believe this will be a major issue once US markets open and we get underway.

Janet Yellen is scheduled to give testimony (again) at the Senate Banking Committee. The only potentially "new" piece from the Chair of the Fed may be a clarification on policy stance as the unemployment rate falls to 6.5%. No one expects a rate-raise because no one believes too much in the unemployment rate at present - most of the decline has come from historically low labor participation.

US equities have been trading in a pretty tight range, still near highs - I am leaning to the bullish side. Every talking head on CNBC, Bloomberg, FOX, et al seems beholden to the idea that markets are "topped out" and "fizzy" at current levels. Expect the unexpected, I say.

Heads or tails, the relentless pursuit of profit continues.

The Morning Read

This morning's reads.

• Inside the showdown atop Pimco - WSJ
• More folksy wisdom from politicians - Calculated Risk
• BlackBerry CEO John Chen talks 'Jakarta,' 'Q20,' 'BES 12,' - Barron's
• Debt and growth: credit junkies - Economist
• China iron-ore imports set to rise - WSJ

 "In China today, Bill Gates is Britney Spears. In America today, Britney Spears is Britney Spears - and that is our problem."

-Thomas Friedman

Much to my dismay, I will be forced to spend most of the day away from my desk. Forgive me (or perhaps thank me) for the light commentary. 

Asian markets were mixed overnight, as Shanghai continued its sell-off this week losing another 2.56%. Hong Kong was basically flat and the Nikkei added 1.44%. European markets are modestly lower at the time of this writing, the FTSE is off 0.85% and the DAX is down 0.49%.

US futures are slightly lower, although it is only 6:45am so it's anyone's guess. /ES -3.25, /YM -18.00, and /NQ -5.75. Crude oil is down $1.00 in early trading this morning to $101.82.

News flow for today will be focused primarily on housing, with the Case-Shiller home price index and FHFA index releasing at 9:00am. Consumer confidence numbers for Feb hit the tape at 10:00am. Housing data has been weak lately, due to weather and higher prices; however, I still think homebuilders are poised to be a strong performer (see Friday's evening read) over the next 1-2 years.

Put the odds in your favor today.

The Evening Read

Some evening reading material that I found interesting. Enjoy.

• Housing weakness: temporary or enduring? - CalculatedRisk
• Kinder Morgan: Trouble in the pipelines? - Barron's
• S&P 500 just shy of record closing high - WSJ
• Ford to add BlackBerry, drop Microsoft - WSJ

All major US indices showed strength today; however, they were unable to hold on to highs and sold off into the close. My call on OIH had been working since last week, and was a notable outperformer as energy stocks led today's action. I took half of my position in the Mar 47 calls off of the table. I hope you were able to participate in the success.

Game-changer for BBRY? Probably not.

Just how big is Ford's switch from Microsoft's Windows Embedded Automotive technology to BlackBerry's QNX software? I am really not sure, but I thought it might be interesting to take a look. BBRY shares responded well to the news, trading 7.5% higher on the day.

I have spent the last hour or so trying to get an idea of what Windows Embedded Automotive technology costs OEMs on a per vehicle basis to no avail. I did find a WEA development kit, retailing for $3,150 (here), but I think it is safe to say that manufacturers are not paying $3k/vehicle.

Let's get really crazy and say that it costs Ford $75 to install and license WEA on a car (or truck or SUV, etc.). Given an installed base of roughly 7m vehicles, that equates to $525m in sales to Microsoft in aggregate. That's a lot of dough.

Ford cited one of their reasons for switching to BlackBerry's QNX are the cheaper licensing fees (not to mention the fact that automotive manufacturers hold QNX in much higher regard). So, let us say that the cheaper QNX costs Ford $40 per vehicle to install and license. Ford sold more than 2.4m vehicles in 2013 - assuming half of 75% of them have Sync, that gets us to 1.8m vehicles. That's $72m in licensing fees to BBRY.

Given that BlackBerry did $11.07b in sales in FY 2013, this announcement is hardly a windfall for them. I originally intended this exercise to shed some positive light on the company; but, alas, sometimes you get to the bottom of the rabbit hole only to discover worms and dirt.

BBRY could use more than a drop in the bucket to change their outlook.

Tune in tomorrow for another coin flip.

The Morning Read

Good Monday morning. Here on some reads to start the week off right.

• Netflix to pay Comcast for smoother streaming - WSJ
• Seen on an ATM in Western Australia - ZeroHedge
• Shares fall on China property market concerns - WSJ
• Bridging the fiscal chasm - Economist
• Draghi's data jigsaw takes shape as ECB readies showdown - Bloomberg

Before I offer my latest macro missive, let's take a quick look at how the markets are shaping up. Overnight trading in Asia saw declines led by Shanghai's shedding of 2.20%; Hong Kong ended 0.80% lower, and the Nikkei finished 0.19% lower. European markets are mixed this morning, with the FTSE down 0.09% and the DAX posting a tepid 0.10% advance. Aside from mainland China, we open this week with mostly a mixed bag.

The weakness in China was a result of concerns over lending to property developers. The Oriental Morning Post on Friday got their hands on an internal document from Industrial Bank Co. (see WSJ above) saying that the bank had stopped lending to the property sector because of risk.

Are Chinese banks dancing on a volcano?

A few weeks ago, the world learned of a bailout of one of China's Wealth Management Products (WMPs - think mortgage-backed securities in the US, circa 2007). The WMP was named "Credit Equals Gold No. 1" and contained within it ~$500m worth of toxic assets in the form of unrecoverable debts from a corrupt - and now bankrupt - coal mine company. Investors were made nearly whole after the Chinese government stepped in to bail the product out. This is being seen as China's internal "Bear Stearns moment."

A lot of China's astounding growth has come from domestic infrastructure investments. The government forced banks (which are mostly government-ran) to lend to these projects, even if they posed the risk of generating a negative real rate of return on investment. It is estimated that China's banking sector has grown by $14-15t (that's "t" for "trillion") since 2008 to a current level of ~$24t. That is a massive expansion of credit.

China has massive foreign currency reserves and will no doubt try to buy off the crisis (they already "bought off" the aforementioned WMP); though it seems likely the economic situation will continue to deteriorate. Chinese banks' bad loans increased for the ninth straight quarter to the highest level since the 2008 crisis, highlighting pressure on asset quality and profit growth as their economy slows.

Bloomberg reports: "Non-performing loans rose by 28.5 billion yuan in the last quarter of 2013 to 592.1 billion yuan, the highest since September 2008..."

These bad loans only account for roughly 1 percent of total lending, but as the saying goes, "a rolling loan gathers no loss" - it is likely that many loans are waiting to be accounted for as "bad." It is safe to expect that the Chinese will throw good money after bad loans in order to buy time, which will only increase the level of malinvestment and exacerbate the depths of the coming reckoning.

I would watch credit quality in China very closely.

Heads, China has problems. Tails, China has problems.

The Evening Read & the US Housing Market

It's Friday. Grab a beer and have a look.

• Small investors jump back into the trading game - WSJ (a thought comes to mind: "uh-oh")
• Executing insider trades in an account set up under baby mama's name - Dealbreaker
• Whole Foods stock is expensive even after selloff - Barron's
• Brazil pledges $18.5b cuts in effort to woo investors - FinancialTimes

"Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day's financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely."

-Joseph P. Kennedy, after liquidating his position in the market in 1928

In true non-jobs-report-Friday-fashion, US market action was fairly quiet. After a brief move higher in early trading all major indices faded lower - Dow closed down 30 points to 16,103, S&P down 3.5 to 1836 and the Nasdaq shed 4.1 to settle at 4,263. Riveting stuff, folks.

To anyone reading my weekly research notes, it should come to no surprise to you that I am bullish on the home-builders. Specifically XHB, TOL, PHM, and KBH. Today's lower-than-expected existing sales numbers were received with a resounding "whew" as the weather had a smaller impact than some feared. Housing stocks outperformed, much to my delight.

While my bullish call on housing was as much technical as it was fundamental, I read a very interesting piece of research that leaves me even more constructive on the fundamental side. The following is an excerpt from TD economist Thomas Feltmate's note, released today:

"Not withstanding the recent weather related shocks, the housing recovery still remains well intact. Existing home sales are well above their recessionary lows, while affordability still remains at a historically elevated level. Furthermore, significant underbuilding has led to widespread pent-up demand, which taken alongside the exceptionally low level of available supply, will lead to a ramp-up in residential construction in 2014-2016."

I was intrigued with this comment, and reached out to Thomas via e-mail;  I asked to see his data backing up this assessment. He responded with a wealth of information. I will summarize it for "blog etiquette" purposes - those of you who read my weekly note will get a more detailed analysis. Below are some key takeaways.

• Construction average hours worked at all-time high (data back to the 1950s) - this means more construction employment
• Millennials are the largest population cohort in U.S. history, NOT baby-boomers (surprised me, too!)
• Based purely on demographics alone (i.e. new household formations), new housing units of 1.6m units/year through 2016 are virtually required
• Construction employment gains have strong implications for spillover employment gains in other sectors, especially transportation, manufacturing, and consumer goods and service 

All told, the 8-page report was very well thought out and provided some strong foundations with which to be bullish on housing. For you active traders and investors out there, I will have more for you in Sunday's research note.

Heads or tails, make it a great weekend, folks.

The Morning Read

Here are some good reads to start your day.

Ukraine set to sign agreement to end violence - WSJ
Firm stops giving high-speed traders direct access to releases - WSJ
Wal-Mart's big box formula comes under strain - WSJ
Bill Akcman's Herbalife bet drops - WSJ
Demolition Man Renzi rattles Rome with plan to axe senate - Bloomberg

"The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy."

-Milton Friedman

If anyone has any doubt about the political aspirations of Vladimir Putin, you need not look any further than the developments in Ukraine since November. Viktor Yanukovych, after a closed-door meeting with Mr. Putin last autumn, has resorted to casting protestors as "terrorists" and "radicals" in order to justify shooting into crowds. And I am not exaggerating.

It looks like there might be a deal in the works between Mr. Yanukovych and the opposition; however, it is unclear if the mob if protestors camped in Kiev will approve. The latest count shows 77 dead and over 100 wounded from the clash between police and protestors.

A quick look at overnight trading, as US futures are up ever-so slightly at the moment.

Japan's Nikkei snapped back after significant selling to tack on 2.88% at 14,865. Hong Kong was also higher (+0.78%) while the Shanghai index fell just over 1%. European markets are firmer across the board, albeit very slightly - FTSE +0.20% and the German DAX +0.07%.

We are still sitting near highs, resembling a "coiled spring," in the words of Dan Fitzpatrick. I continue to expect markets to clear yet another rung on this worry-ladder.

Heads or tails, have a good day today.

The Evening Read

Another day in the books, another evening read.

• Four reasons Apple is the new Microsoft - WSJ
• Herbalife is not going to answer your questions, senator - Alphaville
• Bullish options activity on Facebook surges after deal - WSJ
• Europe's new battlefield - Economist

Here's a snapshot of today's action.

All major US indices finished the day stronger. The Dow finished up 92 points to 16,133; the S&P 500 tacked on 11 to close at 1,839; and the Nasdaq added 29 points to 4,267. We are still looking like a move to fresh highs over the near-term, and I am still trading that way (albeit lightly). I will still be looking to take profits into strength.

I have been talking a lot about over-hyped companies as of late.

It seems that 2013 was the year of the short squeeze. One of the most notable battles has been that over the legitimacy of Herbalife - in December 2012, Bill Ackman (of hedge fund Pershing Square) announced a massive short position in HLF. His thesis was not that of changing competitive landscapes or absurd valuation; his thesis was that Herbalife was an illegal business and should be shut down by the federal government.

To announce a position and then try to instigate regulators to virtually guarantee your profiting from it by calling on them to shut it down is a touch on the insane side. So insane that if he is wrong, one could argue that Mr. Ackman himself was operating in a legal "gray" area as well.

Carl Icahn - whom I believe deplores Ackman, anyway - soon thereafter announced a massive stake in HLF and has subsequently squeezed Pershing Square to death.

You probably know this part of the story. HLF shares doubled last year, and Pershing's losses on the trade mounted. However, the management of Herbalife has never been straightforward about their business, and seem to fail to answer the most basic of questions. For example, how much of their revenue comes from sales to purely retail customers (i.e. customers not part of the multi-level marketing "business")? To which, management offered that they do not have visibility to that granular a level of their operations.

Massachusetts' junior senator, Edward Markey recently asked Herbalife some very good questions. He and his team wanted an exhaustive response to each question, to remove any doubt of their business being involved in shoddy practices. In response, he received this letter.

Any serious management team, when faced with serious questions about the efficacy and legality of their business, would strive with dying breath to irrevocably destroy any shred of doubt. HLF management - it seems - has not.

I'm not sure how long Mr. Ackman can afford to be wrong before he is right, but I do believe the day he and his investors long for will come.

The Morning Read

Here are some good reads this morning.

A new chapter begins for Wall Street's greatest love story - Dealbreaker
Fed puts rate increase on the radar - WSJ
Facebook to pay $19B for WhatsApp - WSJ
Opting out of evolution: Darwin Shmarwin - Economist
Billionaire Dangote leads record Nigerian syndicated loan surge - Bloomberg

"At particular times a great deal of stupid people have a great deal of stupid money... at intervals... the money of these people - the blind capital, as we call it, of the country - is particularly large and craving; it seeks for someone to devour it, and there is a "plethora"; it finds someone, and there is "speculation"; it is devoured, and there is "panic."

-Walter Bagehot

I happen to have a fair amount of work to get to pre-market today - this morning's post will be a little shorter than usual. The bulls took a breather yesterday as all major US markets ended lower. Overnight trading in Asia followed the tone set here - the Nikkei traded lower by 2.15%, Hong Kong down 1.19% and mainland China off by 0.92%.

European markets are also softer this morning - FTSE down modestly, or 0.27% and the German DAX shaving off 1.12%.

Currently, US futures are slightly lower - /ES -5.00, /YM -37.00, and /NQ -14.50.

Volume on this rally up from early February lows has been somewhat suspect. I will look for the market to catch a bid and trade sideways somewhat if I am to keep my bullish bias; if we do not get that, we could see another test of the lower bounds of the trading range in the S&P 500. Time will tell.

Put the odds in your favor today.

The Morning Read

Here are some good reads to start your morning.

• Emerging currencies drop as stocks fall, treasuries gain - Bloomberg
• Netflix-trafffic feud leads to video slowdown - WSJ
• GM locks up aluminum supplies - WSJ
• Affordability backwards - Alphaville
• New push to throw assets overboard - WSJ
• Ruble hits record low against the Euro - WSJ

 "You can always count on Americans to do the right thing - after they've tried everything else."
-Winston Churchill

Today could prove interesting, my fellow market participants. Weakness in European markets spurred on by violence in Ukraine and Thailand might test bullish resolve on our shores.

Here's a quick look at where US futures stand:

/ES -6.25 to 1,831.25, /YM -50.00 to 16,057, /NQ -7.25 to 3,667. Gold futures also slightly lower, trading down 0.51% to 1,317.7.

In this week's research note (inquire if interested), I highlighted the irrational valuation that has been placed on the shares of 3-D Systems Corp (DDD - I currently have no position). This company makes 3-D printers, which have received a lot of attention in the past 18 months.

Not long ago, 3-D Systems' CEO Avi Reichental commented on the company's potential in 3D printing of human tissues and full-scale human organs, saying it is "immediately achievable... not a question of if it will happen, but when and how."

Immediately achievable? Let's ignore the vast sea of implications that technology (and that statement) would create for a moment.

It seems this hyperbole and borderline illegal corporate cheer-leading has spilled over to another name: Organovo (ONVO). There is a fascinating piece of research on SeekingAlpha (here) done by Richard Pearson that explains in great detail that ONVO's business is substantially misunderstood and recent share price gains are coming from shameful "pump and dump" operations around the world (think "Wolf of Wall Street"). Basically, ONVO went from being worth $2/share roughly 16 months ago, to just under $10/share now on nothing more than an announcement that the company presented demonstrated retention of key liver functions in bio printed tissues.

I strongly encourage you to read the note.

ONVO has cash of approximately $0.58/share, assets totaling $1m, and no real commercial revenues. Current market capitalization? $770m.

This isn't a coin flip. It's a fraud.

The Evening Read

Sit back, grab some expensive (recently more so) coffee and take a look..

• An EM credit crunch, not a sudden stop - Alphaville
• TIC Tock for China's USTs? - Alphaville
• After FRX deal, Actavis could climb 50% - Barron's 

"You must begin to see yourself as already becoming the person you want to be"

I have yet to do a significant amount of  reading tonight, but that should get you started.

US markets were a mixed bag today - S&P closed up 2.13 handles to 1840, Dow lost 24 points to 16,130 and the Nasdaq finished 29 points higher to 4,272.

Of note today was the action seen in commodities. The PowerShares DB Commodity ETF (ticker: DBC) closed 1.44% higher today. Coffee and wheat (to name a couple, see here and here) were notable performers, the former driven by dryer weather in Brazil and the latter by increased international demand.

Commodities had a rough go of it in 2013, and one day's move certainly does not indicate that the wind is changing. One could wager that incremental demand increases are out of the question as emerging economies wrestle with current-account deficits. Further digging looks to be warranted.

I would like to touch on the Market Vectors Oil Services ETF (ticker: OIH) for a moment. It looks like we could see a nice trade here - and before you say anything, I have no positions as of this writing. I will attempt to keep "talking my book" to a minimum here at The Gambler's Fallacy.

Let's consult the charts!



You can see that OIH had been trading lower from highs notched in November of last year. But last Thursday you see a breakout above that upper trend-line, and Friday and today's tape gives you an indication that the selling might be done. Crude and Brent futures did see strong moves to the upside today after an updated weather forecast showing signs of continued frigid temperatures in much of the country.

I would expect to see some offers at ~$48, but after that, $49 does not look too aggressive a target. Consider, also the ETF's 200day moving average at $46.42, just a $1.15 below today's close. That's a 1:1.24 risk-to-reward if you fancy $49 a reasonable target.

Heads or tails?

The Morning Read

Feels good to be back at my desk. I hope your long weekend was as good as mine. Here is what I am reading this morning.

• How activist shareholders turned from villains into heroes - (Economist)
• Alcoa to close Australian aluminum smelter - (WSJ)
• Time to stop obsessing about central banks - (Alphaville)
• Blackberry: Dan Loeb buys 10m shares - (Barron's)
• BOJ surprises markets - (WSJ)
• The risk of Chinese monetary policy failure - (The Market Monetarist)

"Not every mistake is a foolish one." - Cicero

Let's take a quick peek at the markets.

Us futures are modestly higher this morning: /ES +2.25, /YM +29.00, /NQ +4.25

The Bank of Japan sent the Nikkei soaring 3.13% as the central bank announced they will expand loans available to commercial banks (at nearly 0%). They will also lengthen the duration of those loans, giving Japanese banks a better carry trade. This must mean that policy makers (perhaps even Shinzo Abe himself) are growing concerned about hitting their inflation target.

You can build houses on fault lines for a long time before an earthquake strikes.

The Evening Read & the Chocolate Factory

Regretfully, tonight's reading material comes almost completely from the latest issue of the Economist. I have been at Albert J. Ellis airport (never head of it? Exactly.), where the wifi is woefully inept. I am also in mobile mode, so the headlines will not be linked. 

Nonetheless, here are some interesting reads. 

The tragedy of Argentina - (Economist)

Saudi America: the economics of shale oil - (Economist)

Soros trims Herbalife bet after gain that hurt Ackman's Pershing Square - (Bloomberg)

Rosenberg sees inflation after calling housing bust in recession - (Bloomberg)

I'll refrain from giving a complete breakdown of the trading action today, as the mystery will likely have been revealed by the time I get this latest rant off to the presses. I will say this: broad indices want to visit new highs, regardless of the length of their stay. Also, I will look to start taking some GLD profits off of the table. 

The Golden Ticket Illusion

I was struck by a thought while in flight: The ambition of man knows no bounds. Consequently, the skepticism of man knows no more tempting a target than ambition. 

With all of the recent talk of income equality, it is easy to be skeptical of one's ambition. And I am well aware that the privilege and influence of the grotesquely affluent often makes it seem as though the game is rigged. 

But I fear that the rage over inequality may grow so blind that instead of questioning Willy Wonka about his business practices and ensuring he is not bribing cocoa exporters, we will camp in mobs outside the candyman's shop and ransack the recent good fortune of Charlie's golden ticket. 

Let me go a little deeper into this analogy (even if it is rather terrible). 

Charlie, at first glance, was extraordinarily lucky. So much so that a bystander would not see anything more than the exuberant young man delighted that he is one of the chosen few, and ask "why not me?" But is he just lucky? 

His family, cramped beyond measure in a house not fit for a pet, presented him with what little money they could muster for his birthday. They insisted that Charlie take an enormous risk. Take that money and shoot for the moon. Not to mention the regular pain he must have put his digestive tract through with his dream-inspired chocolate consumption. 

In conclusion, yes, he was lucky. But he was also willing and encouraged by his family to take an adventurous risk and subject his body to enormous discomfort. And to the outsider, they might not have been aware of Charlie's situation before he struck gold. 

So, with regard to closing the gap between the haves and have nots, let us be sure that we do not bludgeon the "Charlies" of the world to death. 

Heads, it's chocolate. Tails, it's gold. 

The Morning Read

What I'm reading this morning...

• German thriftiness vexes banks (WSJ)
• Apple carts or Apple? (Economist)
• The promoter problem in Indian banks... (Alphaville)
• A great Indian deleveraging (Alphaville, related to above)
• US bond volatility at 9-month low (Bloomberg)

Happy Valentine's Day, ya' filthy animals.

I am expecting a pretty quiet day - traders complained yesterday of lower volume due to the winter weather that is hammering nearly the entire Eastern seaboard (saw 2" of ice here in NC on Wednesday). Yesterday, after gapping down following the double whammy of weak retail sales and higher initial claims, shares were quickly bid up into the afternoon.

Clearly, a lot of traders want to be (or already are) short this rally. I read Tom Sosnoff's e-mail every morning, and every morning he drones on about being short. I know Valentine's Day is reserved for the romantically-involved, but perhaps I should send him some flowers and a card that reads, "I'm sorry you're taking it 'in the shorts.'"

Do not get caught trading on the notion that "equities have been up X days in a row! We have to see a pullback!" That, my friends, is the Gambler's Fallacy. Even if this rally is one massive short squeeze; short squeezes can still wreak havoc on your P&L. Just Ask Bill Ackman.

Now for a quick look at where we stand. Higher this morning are European markets after stronger-than-expected GDP data. In Asia, Hong Kong and China are modestly higher, while the Nikkei is down -1.5% as of this writing.

Stateside, Futures are essentially flat (/ES +1.50, /YM +15.00, /NQ +6.00), while spot gold is up 1.3%. The gold bounce has worked well for us this week. It looks like we are going to see a test of resistance near all-time highs in the S&P 500 over the near-term, still remains to be seen where we go from there.

Heads, she loves you. Tails, she doesn't.

The Morning Read

Here's a breakdown of what I'm reading this morning:

• Farmland losing its bid - (WSJ)
• Italy braces for government showdown  - (WSJ)
• Cuba's reward for the dutiful: gated housing - (NYT)
• For Venezuela, bonds create a bind - (WSJ)
• From inventory denial to acceptance in aluminum - (FT Alphaville)
• Chart watchers: don't believe the bounce in stocks - (WSJ)

"It is an absurd and silly notion that international credit must be limited to the quantity of gold dug up out of the ground. Was there ever such mumbo-jumbo among sensible and reasonable men?"

Let us take a look at the markets, shall we?

At the time of this writing (6:34am EST) it looks like most major markets have sold off. Asia is being led lower by Japan, with the Nikkei 225 down 1.8%. European markets are a touch off: FTSE -0.7%, DAX -0.30%.

Currently, US futures are pointing to a lower open: S&P -9.00 (-0.50%) Dow -76.00 (-0.48%) and Nasdaq -17.75 (-0.49%), treasuries up a bit, 10-year at 125;175 (+0.24%). The economic calendar this week is light, so I would expect to see a continued pause or some profit taking around current levels for the major indices.

Last night I read an interesting article on Tesla Motors' (WSJ) fight with a car dealer's association in Columbus, Ohio. It seems as though Elon Musk wants desperately to avoid selling his vehicles via the dealer franchise model, and dealers want desperately the state of Ohio to refrain from giving Tesla a dealer's license. Tesla has accomplished a lot of "firsts" in the automobile industry (or, at the very least, a lot of "firsts in a long while"); might this seemingly small battle over distribution carry with it large implications? I'm not sure, but more than willing to take a look.

Put the odds in your favor today.

The Evening Read

Interesting reads for the evening

• Behold the new, new economy - The West values Eastern capital (FTAlphaville)
• An awakening giant - manufacturing in Africa (The Economist)
• Turkey sells 31-year dollar bonds - they're paying 6.7%! (WSJ)

US markets were rather uninspiring today. Unable to hold mid-day gains, the S&P500 closed at 1,819 (essentially flat) and the Dow at 15,963 (-30 points). 10 year notes sold off with the TLT settling at a shade under 106. Like I said, uninspiring.

I am still long-biased, albeit sheepishly. 

"Let's consult the charts!" said the crudely animated treasury official. 

South Park's satirical coverage of the financial crisis a few years back was brilliant. I loved it. The episode climaxed when Stan finally made it to the U.S. Treasury to discover the true value of his father's (defaulted-on) "Margaritaville" margarita maker: $90 trillion. The arrival at that valuation involved treasury officials cutting off the head of a chicken and placing it on an enormous chart - wherever the death knell dance ended was the true value of the asset in question.

I have about that much faith in most charts - which is odd, considering a large portion of my trading is short-term. Tonight take a look at the interesting, and the absurd. Let's consult the charts.

First, the interesting. Ok, it's not really a chart.



Lastly, the absurd, courtesy of the WSJ.



Heads, it's 1929. Tails, it's not.