Countdown to Euro Dissolution

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

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

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

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

                                        Volatility Blues

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

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

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

                              Hedgefund Extortion

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

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

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

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

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

                              Here Is The Bottom Line

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We closed our August position in $SPY puts yesterday with an average gain of 15% and will close out our August QQQ puts tomorrow. Non-farm payroll data will be released at the open of the market and I don’t expect good news. We will be buying more $SPY puts on any rally. We remain long $EGO, $CRZO, $SLW along with our reverse etf on the Euro, $EUO. Yesterday’s 500 point drop in the Dow illustrates the need for hedging strategies. Our profit in Coinstar,$CSTR has dwindled but will average down on the October options likely tomorrow.  At this hour European markets are trading at 14 month lows while gold is rallying about $10. Dow future are off 27 points as we write.

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

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

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

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

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

In other news, Moody’s Investors Service today downgraded Ireland’s debt one notch to Ba1 from Baa3. Yesterday, the Euro began its tailspin when the ECB (European Central Bank) announced that it was looking to expand a fund to include  help for Italy. The ECB also said that the bailout fund may have to be doubled to 1.5 trillion Euros in order to cover a crisis in Italy according to German newspaper Die Welt. Yesterday also witnessed 2 year debt in Portugal at 18.36%, Ireland 17.83%, and Greece at 31.34%. Precious metals rallied today perhaps on investor realization that we are breast-feeding many European banks thanks to our Federal Reserve. If you think this is just Europe’s problem your are sadly mistaken. QE3 was also tossed around today which could fuel further commodity rallies. The chart below shows spreads widening on Credit Default Swaps, (CDS’s) as worries increase on the PIIGS’s economic woes. Goldman Sachs chief U.S.economist Jan Hatzius in an interview with the WSJ yesterday
said there is a 15%-20% chance of a renewed recession next year. If we are having a growth slowdown there is hardly a chance for the PIIG’s nations to survive their upcoming tribulations.

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

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

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

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

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

Based on a profit margin of 44%,  the stock should be priced between $43 – $54.

Similarly based on an average price of $35 a pound for silver Silver Wheaton, $SLW should be priced between  at about $43 per share vs $33 per share.

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

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

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

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

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