Phil's Stock World Newsletter - Week of July 17, 2011

S t o c k W o r l d W e e k l y N e w s l e t t e r

We e k o f J u l y 1 7 , 2 0 1 1

Dow Jones

12,480

(-1.4%)
S&P 500

1,316

(-2.1%)
NASDAQ

2,790

(-2.4%)
NYSE

8,227

(-2.2%)
Russell 2000

829

(-2.8%)
Oil

97.37

(+1.0%)
Gold

1,594

(+3.2%)

THIS WEEK’S Our bearish outlook heading into this week proved accurate as U.S.
equities traded sharply lower. We caught a glimpse of “No Mo POMO”
NEWSLETTER: in action. Not surprisingly, without POMO money from the Federal
Reserve propping up stocks, the market behaved poorly. As Lee Adler
MANDARIN MONDAY
of the Wall Street Examiner warned last week, “Normally, even with
MELTDOWN - AGAIN!
QE [quantitative easing], we’d expect some pressure to show up
Stocks plummet as Dollar
soars either in the stock or bond markets around such a large settlement. It
should be a lot more ‘interesting’ without QE. This will be the first
TREASURY TUESDAY - real test of the market without it since last August.” (Stock World
WHAT A COINCIDENCE - Weekly, July 10, p.11)
CAPITAL FORCED INTO
TBILLS Europe is facing its own challenges. The European Debt Crisis of
FOMC Minutes hint at QE3 the Twenty-first Century, “The Black Debt,” continued spreading
across Europe like the plague. (Originating in China, the Black Death
WHICH WAY swept through Europe from 1348 to 1350, killing 30% to 60% of the
WEDNESDAY - population.) Our modern era’s fiscal contagion may be less lethal, but
WHEREFORE ART THOU
it still threatens to tear apart the economic fabric of the Eurozone by
QE3?
unraveling a complex arrangement of debt owed between member
Dollar drops as Bernanke
warms up to more easing nations and eroding confidence in the continued viability of the Euro
as a currency. The magnitude of the collateral damage to other
JOBLESS THURSDAY - countries is not known, but given the black box nature of the
BERNANKE GETS 2ND derivatives market, it is likely substantial. (See e.g. Derivatives Cloud
CHANCE TO GIVE US the Possible Fallout From a Greek Default)
HOPE
Mood changes as Fed tries to Uncertainty surrounding Greece’s second aid package and the role
say it didn’t really mean more of private creditors in future funding, prompted Fitch ratings service
easing to cut Greece’s credit rating down three notches, to CCC. Fitch
contends that default is “a real possibility.” Greek 10-year yields
FINANCIAL FRIDAY - EU
increased to 17.10%. As fear of contagion spread, Ireland’s 10-year
STRESS TESTS AND US
yields rose to record highs of 14.13%, and Italian and Spanish 10-year
DEBT MESS
U.S. Debt ceiling talks yields climbed to 5.63% and 5.86% respectively. (Italian, Spanish
continue without resolution as Government Bonds Fall After Italy Auction, Austerity Vote.)
deadline looms
On Thursday, hoping to prevent the third largest economy in the
THE WEEK AHEAD Eurozone from succumbing to the debt pandemic, the Italian Senate
approved a $68Bn package of tax hikes and spending reductions.
Finance Minister Giulio Tremonti compared Europe’s problems to the
Titanic, warning “not even first class passengers will be saved.” (Italy

P h i l ’ s S t o c k W o r l d

w w w . p h i l s t o c k w o r l d . c o m

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We e k o f J u l y 1 7 , 2 0 1 1
slashing budget to fend off
debt crisis) Compared to
Greece’s €329Bn debt
(143% of its GDP), the
s h e e r s i z e o f I t a l y ’s
€1.84Tn debt (119% of it’s
GDP) is ominous. (See
chart to right.)

The U.S. has not been
spared the Black Debt. The
August 2 deadline for
raising the debt ceiling,
before unfunded
obligations come due, is
looming. Republicans and
Democrats are battling
over tax hikes and
spending cuts. While
Democrats are demanding
a “balanced approach” of
both spending cuts and tax
increases, Republicans are
U.S. bond rating “on review for possible
refusing to consider tax hikes. Tensions have been
downgrade.” Standard & Poor’s warned of a 50%
escalating. Senate Majority Leader Harry Reid (D)
chance that it would also downgrade U.S. debt.
declared House Majority Leader Eric Cantor (R)
On Friday, S&P declared it might downgrade a
was “childish” and “shouldn’t even be at the
large part of the U.S. financial sector, including
table.” Senator Chuck Schumer (D) complained “if
the Depository Trust Company, multiple Federal
Eric Cantor decides everything, I fear we’ll be in
Home Loan Banks, Farm Credit System Banks, and
default.” Republicans countered with accusations
Fannie Mae and Freddie Mac. Peter Niculescu, a
that President Obama is “demagoguing” the debt
partner at Capital Markets Risk Advisors, surmised,
talks. (Debt ceiling talks grow more tense) Salon
“S&P is firing a warning shot, saying the entire
reported that House Majority Leader Eric Cantor
financial clearing system is in question.” (S&P
has a glaring conflict of interest. “He's the GOP's
threatens downgrade of U.S. financial companies)
chief debt ceiling negotiator. He's also invested in
a fund that will skyrocket if there's a default.”
As legislators wrangled over plans for the
budget deficit, Ben Bernanke testified at the
Economist Michael Hudson argues that there is
semiannual Monetary Policy Report to Congress.
no real need to raise the debt ceiling. Rather than
During Wednesday’s appearance before the House
slashing social security, medicare and other social
of Representatives Financial Services Committee,
support programs, we could cut military spending,
Bernanke declared, “The possibility remains that
end Wall Street bailouts, claw back outrageous
the recent economic weakness may prove more
profits and bonuses, and raise taxes on the top
persistent than expected and that deflationary
0.1% ultra-wealthy elites. (Deficit Deal Deception)
risks might reemerge, implying a need for
additional policy support.” He claimed the Fed
Moody’s and Standard & Poor’s issued warnings
“remains prepared to respond should economic
on U.S. debt as a result of the impasse over the
developments indicate that an adjustment of
debt ceiling. On Wednesday, Moody’s placed the



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monetary policy would be
appropriate.” (Bernanke’s Prepared Testimony for From SWW, March 20, 2011
Congress)

“
FLASHBACK
Hints about another round of QE sent a jolt of “I was interviewed by BNN Tuesday
hopium into the veins of the stock market, while and they were "shocked" that we
the Dollar quickly fell in reaction to the threat of were buying on Tuesday – especially that we
more money printing. Unfortunately for stocks, were buying HIT ($47 entry), GE ($19.20 entry)
the rally was short-lived. Bernanke delivered an and SHAW ($31.50 entry on Monday)... So many
antidotium on Thursday, quickly distancing himself ways to win on this trade – why not?” - Phil,
from his statement on Wednesday. He reiterated (SWW, March 20, 2011, p. 7)
his previous position that further easing is off the
table, for now, barring a major downturn in the As of July 17, HIT is $61.98 (up 32%), GE is
economy. (Bernanke Tries To Walk Back Market’s $18.41 (down 4%), and SHAW is $26 (down
Expectation For QE3 On Day 2 Of Testimony, Stocks 17.5%). SHAW was up well over 20% ($39.91) in
Give Up Gains). May. Once a stock moves up over 20%, we set
very tight stops, trying not to give up more than
Thus, the stock market, now a mutant 20% of our profits. In SHAW's case, the move in
offspring of the Federal Reserve and federal April to $39.43 was up $7.93 from the original
government, got whipped around by Dr. entry. We’d set a stop at 20% of that gain, or
Bernankenstein this week. But mission $1.59 lower. So a pullback to $37.84 would
accomplished. As Lee Adler writes, “The Fed and trigger a stop, resulting in a 20% gain! This is an
Treasury have, with the help of the Europanic, example of why, quite often, it makes sense to
succeeded at Job One, keeping yields down during take a 20% gain off the table or at least have a
big long term auction weeks, mostly at the mental stop loss.
expense of the stock market.”
We have reviewed several trade ideas from
earlier issues of Stock World Weekly in the box
above and on the next page.

I n D e c e m b e r, w e h a d
anticipated that stocks and
commodities would do well
as a result of QE2. On
December 12, 2010, we
presented two trade ideas
based on going long DBC (DB
Commodity Index ETF) and
FAS (Direxion Financial Bull
3X Shares). Details of the
original trade ideas and how
they worked out are in the
inset box on the next page.
We also have details on
Pharmboy’s trade idea on
MNTA from SWW March 13,
2011, below.



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From SWW, December 12, 2010
In Stock World Weekly, March 13, 2011 (p.
11), we presented a trade idea from our

“
FLASHBACK
resident biotech trader Pharmboy. Pharmoby
described a bull call spread on Momenta “Last Friday (December 3), we had
Pharma (MNTA), combined with the sale of a
two high-reward trade ideas featured
put: “The Jan 2012 $10/15 bull call spread is
in the main post. The first one was the FAS April
approximately $2.40 (buying the $10 call and
selling the $15 call) and 100% in the money. $20/25 bull call spread at $2.70 (now $3.20),
Also selling the $12.5 put for $2.10 or better selling the April $21 puts for $2.55 (now $1.75)
makes a total cost of $0.30 for the position.” and that net $0.15 spread is already net $1.45 -
MNTA was trading at $14.17 at the time. a pretty good gain (833%) for a week. Our other
upside hedge was DBC and again I liked April for
Results? MNTA is now at $19.51. Our net
a simple play to just buy the $27 calls for $1
cost was $0.30 (price of the bull call
spread minus proceeds from selling the (now $1.10) as well as the more complex spread
put). As of the close of markets on Friday of the short 2012 $22 puts at $1.10 (now $1) to
those positions were worth $2.50, a gain offset the cost of the 2012 $26/30 bull call
of 830%. (The put can be bought back for spread at $1.40 (now $1.50). That one is still
$1.20. The call sold can be bought back for
playable if you need an inflation hedge and the
$6.70, and the call bought can be sold for
LACK of commodity performance during this
$10.40.)
week-long stock mania is what still gives me
pause. Keep in mind that I do think this is all BS,
but now we have support lines to play off and,
as you know, losing 3 of 5 is a signal to flip
bearish again for sure!” - Phil

Phil followed up on that trade idea this
week: “The FAS trade was, of course, a home
run with FAS finishing at $29.28 on April 15,
which gave us $4 on the $20/25 bull call spread.
The short puts expired worthless for a 2,566%
gain off the net $0.15 investment. DBC hit
$31.17 on April 15 so the $27 calls finished at
$4.17, up 317% but it's the 2012 $26/30 bull call
spread, now $3 and the short 2012 $22 puts,
now $0.20, can be taken off the table for net
$2.80 for a net of $6.97 back in our pockets off
the original net $0.70 investment (up 895%). As
inflation (so far) this year has been much less
than 895%, let alone 2,566%, we would have to
call both of those trades successful inflation
hedges and congratulations to Stock World
Weekly readers who played along!”



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Mandarin Monday Meltdown - Again!
Stocks were down sharply on Monday. The

“
Nasdaq lost 2%, the S&P lost 1.8% and traders lost “Now, as in the summer of 2010,
confidence as the Black Debt Plague of Europe we are beginning to drift back to
dominated the financial news again. The European the lower end of our channel
markets dropped, and the U.S. Dollar soared to a (our -2.5% lines) with the occasional run-
high of 76.5 during the day.
ups on pretty much any rumor that QE3 is
just around the corner. Unless we break
According to the Wall Street Journal, “the cost
of insuring peripheral sovereign debt surged to BELOW our -5.0% marks, I doubt we’re
record highs” suggesting that markets are going to get a QE3 intervention any
expecting some form of default on Greece's earlier than we did last year, which was
sovereign debt. “Italian and Spanish bond yield at the September Fed meeting in Jackson
spreads over safe-haven German bunds Monday Hole. (See chart on Friday’s page.)
soared to their widest levels since the inception
of the common currency, approaching a threshold
viewed as unsustainable by the markets as
“The problem is that, this time, we
concerns grew that a potential Greek default have already run-up in anticipation of QE3
could engulf larger economies.” (Italian, Spanish – over and over again! Also, as mentioned
Yields at Record Highs) Michael Darda, an in our weekend reading, we are at a point
economist with MKM Partners in Stamford, of diminishing returns on QE programs. So
Connecticut noted, “Spain and Italy are nearly
the Fed is going to have to come up with
five times the size of Greece, Portugal and
Ireland and carry nearly four times the volume of
something bigger and better than just a
debt. Thus, they are a much larger threat to the plan to buy another Trillion in TBills to
integrity of the Eurozone itself.” (European accommodate our brand-new $17Tn debt
markets plunge as debt crisis worsens) ceiling. - Phil

European stocks had a terrible week as fears
take the same risk for the market as we did
of fiscal contagion spreading to Italy and Spain
before 2008 because now we have a public debt
intensified. According to Jean Borjeix, partner at
problem. We are not in the same environment, so
Paris-based Platinium Gestion, “Markets are too
it is not possible to price today at the same
expensive considering the risk. It is impossible to
level.” (European Stocks Post Biggest Weekly
Retreat Since March)

One bright spot was that Monday’s Treasury
auctions went off well, as yields on 10-year notes
dropped to 2.92%. Lee Adler warned last week (p.
10), “It will be an especially tense standoff this
week, because on Friday, the market must settle
$66 billion in net new notes and bonds. That in
itself could be enough to light the fuse” sending
yields upwards. Instead, the markets experience a
mini-panic that helped corral investors into the
“safety” of Treasuries.



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Treasury Tuesday - What A Coincidence - Capital
Forced into TBills
The markets declined on Tuesday and the five

“
major indexes we track lost further ground. “Despite Asia’s poor performance
Moody’s downgraded Irish debt to Ba1 from Baa3, and Europe’s terrible open, the run
dropping it out of the range of “lower medium up in the Dollar to 77 early this
grade” debt and into the unfortunate realm of morning looked like our typical 3am trade. I
“non-investment grade speculative.” Moody’s
sent out an Alert to Members at 3:40
outlook on the ratings remained negative.
am suggesting we go long on the Dow Futures
Release of the FOMC minutes revealed that (/YM) over the 12,400 line (contracts pay $5
some members of the Fed are willing to consider per point) and on the Nasdaq Futures (/NQ)
additional QE if economic growth remains too slow over the 2,350 line (contract pays $20 per
to make progress in reducing unemployment. Phil point) as the Dollar (/DX) fell below 77... The
surmised, “[This] is nice bullish bone for the dogs
early bird may get the worm but we’re busy
- if it can’t move stocks higher, it’s not a good
sign.” As it was, the minutes gave the markets a
making enough money for a gourmet
mild albeit short-lived mid-afternoon boost. Mark breakfast!” - Phil
Gongloff noted, “The market could also focus on
the hawkish group described in this section of the “Of course a little inflation isn’t stopping the
minutes: ‘On the other hand, a few members unstoppable US consumer as ICSC Retail Store Sales
viewed the increase in inflation risks as suggesting are up 0.4% for the week and up 5.5% year over
that economic conditions might well evolve in a year. The strength in sales is attributed to demand
way that would warrant’ the FOMC ‘taking steps for seasonal goods tied to hot weather and back-
to begin removing policy accommodation sooner to-school sales but it seems a bit early for back-to-
than currently anticipated.’ But the stock market school (I’m a parent) so I’d have to say the truth is
is populated by optimists, unlike the bond market, that they haven’t got a clue why sales are picking
which is totally unmoved by this news, which is up despite weakening Consumer Confidence.”
not news at all.” (Fed Minutes Show Predictable
Divide on QE3, Stocks Assume This Means More Tuesday’s Redbook report revealed strong
QE3) same-store sales, growing 5.4% Y/Y, and Thursday’s
Commerce Department Retail Sales report showed
China’s economy expanded at an annual rate of sales up by 7.9% Y/Y, excluding motor vehicles.
9.5% in the April-to-June quarter, slightly lower However, the good news in the retail sector was
than the 9.7% first quarter reading, but ahead of tempered by Tuesday’s NFIB Small Business
the 9.4% anticipated by economists. Analysts Economic Trends report, which dropped one-tenth
welcomed the data as countering expectations for of a point (0.1) in June, settling at 90.8 - solidly in
a hard landing. According to Global Insight, “We recession territory. While June may have marked
expect gross domestic product growth deceleration the second anniversary of the recovery, small
to continue in the second half, though the business owners are not optimistic. “Poor sales”
slowdown is unlikely to be severe.” (China continue to be the #1 problem for small
economic growth slows to 9.5%) businesses. The percentage of small business
owners expecting higher real sales fell by 3 points
The ICSC-Goldman Store Sales report was to a net 0% (seasonally adjusted), which is 13
better than expected showing same-store sales points below January’s reading. (Small Business
growth up 5.5% year-over-year (Y/Y). Phil wrote, Optimism Stagnates)


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Which Way Wednesday - Wherefore Art Thou
QE3?
The stock market was up on Wednesday,

“
bouncing back after Monday’s sharp declines, “Keep in mind, this rally has 100
and the Dollar dropped sharply. Expectations Dow points to go just to get the
of additional quantitative easing were Dow back to Friday’s close
reinforced by Bernanke’s testimony before the
(12,660) so don’t be impressed with less.
House Financial Services Committee. Bernanke
comments were widely interpreted to mean (The S&P was 1,344, Nas 2,860, NYSE 8,411
that he is increasingly receptive to the idea of and RUT 852).
a third round of easing, QE3, notwithstanding
his apparent resistance to the idea just last At the moment, we’re not even getting
month. The power one man, Bernanke, has to a 50% bounce off this morning’s bottom and
move the markets is staggering. (Bernanke Friday’s close was way below Thursday’s.
Says Fed ‘Prepared to Respond’ If Stimulus
It’s very easy to give us a "rally" by tanking
Needed)
the Dollar and floating rumors of MORE
FREE MONEY but, for now – it does nothing
to change the greater reality.” - Phil

Eurozone government bond yields...reflects a
crisis of market confidence in the European
policy response...rather than deteriorating
sovereign credit fundamentals.” (Fitch gives
thumbs up to Italy’s austerity plan)

This positive news on European debt was
countered by an announcement by Moody’s
placing the Aaa bond rating of the U.S.
The inverse correlation between the Dollar government on review for a possible
and the Dow reasserted itself this week, but downgrade “given the rising possibility that
not strongly. Other factors influence the the statutory debt limit will not be raised on
moves of both, and the relationship is not a timely basis, leading to a default on US
cause and effect (see the INDU versus UUP Treasury debt obligations... Moody’s considers
chart above). The Dollar popped sharply on the probability of a default on interest
Monday, going as high as 77.2 on Tuesday, payments to be low but no longer to be de
before dropping all the way down to 75.4 minimis.”
Wednesday, when the stock market staged a
bounce back rally.

“
The Euro popped after Fitch Ratings gave “That was a VERY nice rally –
its approval of Italy’s €40Bn deficit-reduction and a good opportunity to get
plan, which it found consistent with more cash! (Notice a theme to
s t a b i l i z i n g I t a l y ’s c r e d i t p r o f i l e . F i t c h my comments?)” - Phil
explained, “The sharp rise in Italian and other



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Jobless Thursday - Bernanke Gets 2nd Chance to
Give Us Hope
The markets reverted to a downward trend on

“
Thursday. Hopes of another round of quantitative “We got nothing useful from Bernanke
easing were dashed when Bernanke backed away yesterday. But that’s not stopping the
from his earlier statements which were widely futures from running the Dow up 100
interpreted as signals that more easing would be
points off of Wednesday’s bottom. We’re back
on the way soon. (Bernanke Pumps Brakes On QE3
Talk In Second Day On Capitol Hill) to that kind of BS market where you go long at
the close (or after the close), and then short
The U.S. Department of Labor reported that after the morning pop, because the data
Initial jobless claims dropped by 22,000 to a (reality) is TERRIBLE, but the manipulation is
seasonally adjusted 405,000 in the week ended so rampant that it’s reliable.
July 9. This is the lowest number since mid-April,
and below expectations of 420,000. Continuing
“Fortunately, we have our 5% rule as a
Claims were up 15,000 to 3.73M.
guide, and we haven’t had to change these
Moody’s and Standard & Poor’s both issued charts in months (see Friday’s page). The
warnings that the U.S. may have its credit rating market is obeying our ranges perfectly. These
slashed if the current budget impasse is not are the same lines we’ve been using since last
quickly resolved. Moody’s put the U.S. on review November as the market is right where we
for the first time since 1996 citing concerns that
predicted it would be for Q2 earnings.” - Phil
the debt ceiling won’t be raised in time to prevent
a missed interest or principal payment on
The U.S. Bureau of Labor Statistics released
outstanding bonds and notes. (Moody’s Downgrade
the Producer Price Index report for June, which
Warning Adds Pressure on U.S. Debt Deal)
showed core PPI inflation rising from 0.2% in May
to 0.3% in June. Energy prices declined 2.8% after
“As Abraham Lincoln once observed, you climbing 1.5% in May. Phil noted, “A 3% drop in
Crude Goods and a 2.4% drop in Food Prices
can fool some of the people all of the time
masked some VERY NASTY inflation everywhere
and all of the people some of the time and, else – it’s that Core PPI that the Fed uses to
as PT Barnum pointed out – we just need the pretend inflation is in check and now that’s
fools with money. That’s what the oil market growing at a 3.6% annual pace and energy and
is all about because fools and their money food are already up 20% in the "non-core.”
are soon parted and the lack of regulation, EconMatters similarly concluded, “this latest set
of BLS inflation numbers seems to indicate the
dark pool trading and blatant manipulation
actual catch-up and pass-through of higher input
make this the World’s longest running (and costs from the producer to the consumer side is
most costly to society) con game in already taking shape. The recent
history. Still, if Da Boyz at the NYMEX want economic, employment indicators and consumer
to pretend they want 185M barrels of oil at sentiment basically have given QE2 an 'F' on the
$98.50 or higher for delivery next Thursday – report card...QE3 should never even have been
brought up in any kind of monetary policy
we will be thrilled to sell it to them!” - Phil
discussion. (U.S. Economy: R.I.P. Deflation)



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Financial Friday - EU Stress Tests and US Debt
Mess
The stock market moved higher on Friday.
Citigroup reported second-quarter profits rising

“
“We had 185,000 NYMEX contracts
24% to $1.09 a share, beating expectations. J.P.
Morgan also released an upbeat earning report
to work with so plenty for
with second-quarter profits up by 13%. It beat everyone and, as per our June 1
estimates and revenues reached an all-time high. plan to break the NYMEX speculators by
using their own crooked game against
The Empire State Manufacturing Survey them. This is a PSW trade idea we share
General Business Conditions Index for July came
with everybody. And why not? The
out Friday morning and was not encouraging. The
headline number was -3.76. Numbers below zero
speculators gang up to screw the American
indicate month-to-month contraction in business people. It’s only fair that the American
conditions. While better than June’s awful reading people return the favor by calling their
of -7.8, July’s number indicates that conditions for bluff!
manufacturers remain challenging. There was
some good news buried in the report - shipments “We called their bluff right on schedule
were in positive territory at +2.2 versus June’s
at the 10:30 am Natural Gas inventory
reading of -8.0. Employment was also in positive
territory at +1.1, but far below June’s reading of announcement, and it was a slam dunk for
10.2. our futures players as well as our option
traders, who picked up 250% ($500 turns
The University of Michigan Consumer into $1,750) in just 4 hours! That’s a full
Sentiment Index showed consumer spirits day’s work, don’t you think?
continuing to erode. The Index fell to 63.8, a
greater than two-year low and a steep drop from
“Even a stock trader could have done
the 71.5 level reported in June. Expectations
declined to 55.8, a level indicating widespread well as USO plunged from $38.70 to $37.20
pessimism over the economic outlook. The gloomy (4%) right on our schedule. But we were
outlook of consumers was reinforced late Friday after bigger fish as those 185,000 NYMEX
evening when Goldman Sachs released a report contracts took a $647,000,000 hit so plenty
downgrading its expectations for the U.S. of profits to share for all of our readers.
Economy. It cut its estimates for real GDP growth
A n d T H AT i s h o w y o u p u n i s h t h e
in Q2 and Q3 to 1.5% and 2.5% respectively, down
from 2% and 3.25% previously. Goldman also said it
speculators – with the only thing they care
expects the unemployment rate to come down about in this world – Money! We can stop
“only modestly” to 8.75% at the end of 2012. the con game by playing the con game so
(Panic at the White House? Gloomy Goldman Sachs congratulations and thanks to all the wild
sees high unemployment, possible recession) and crazy people who participated in this
experiment in social engineering,
Phil was busy with oil-based trade ideas this
week. He posted several ideas on our Seeking
something I like to call profit with a
Alpha, Facebook and Twitter pages. (Two based purpose!” - Phil
on /CL Oil Futures and USO did very well and
can been seen in the chart on the next page.)



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Friday’s Levels
7/15/11 Dow S&P NAS NYSE Russell

FRIDAY 12480 1316 2790 8227 829

5% UP 12810 1365 2877 8694 856
2.5% UP 12505 1333 2809 8487 835
MUST HOLD 12200 1300 2740 8280 815
2.5% DOWN 11895 1268 2672 8073 795
5.0% DOWN 11590 1235 2603 7866 774



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The Week Ahead
As the clock ticks down to the impending

“
August 2 deadline for lifting the debt ceiling, “We’re getting bigger moves up
negotiations between the White House and after hours than we had during
Capitol Hill are growing increasingly tense. the day! That’s good because that
Lawmakers and the President attempt to arrive
puts on a show for Asia and gets them to
at a compromise that will inevitably satisfy no
o n e . Pr e s i d e n t O b a m a , p u s h i n g f o r a buy, and then the EU comes in and buys,
combination of spending cuts and tax and then we open higher on Monday, and
increases, reached out to the American public then the Boyz can sell all the crap they
during his weekly radio and Internet address, bought today at higher prices before they
declaring, “We have to ask everyone to play pull the rug out. THAT’s my prediction for
their part because we are all part of the same
country. We are all in this together.” (Congress
next week!” - Phil
seeks debt solution, Obama goes to public)
months, Republicans have used their new
Obama has embraced some measures that majority in the House of Representatives to
block any move to lift the artificial cap on the
members of his own party deeply oppose,
including proposed reforms to Medicare, while amount the US government can borrow. If by
the Republican opposition has taken a hard line this Friday they still refuse – insisting on up to
against any tax increases. Portraying the crisis $4 trillion of spending cuts, excluding defense,
as being a result of Washington’s political and no tax increases as the price of their
support – then the US will be unable to service
culture, Republican Senator Orrin Hatch
o p i n e d , “ Wa s h i n g t o n h a s c o n s i s t e n t l y its public debts. The biggest economy on Earth
demonstrated that it cannot control its urge to will default...
spend.” (Debt limit crisis: what’s happening
today) Will Hutton at the Guardian writes, “For “But the Democrats cannot agree to the
Republicans' absolutist
demands, in part
because the arithmetic
of deficit reduction does
not work without tax
increases and cuts in
defense spending, in
part because they
passionately believe that
with taxes the lowest for
50 years, the US's rich
should share in the pain
and in part because in
any human exchange
there is an element of
horse-trading.” (What
hope is there for us if
America is driven to the
brink of meltdown?)



11


We e k o f J u l y 1 7 , 2 0 1 1

Financial economist
and historian Dr. Michael
Hudson was recently
interviewed by Bonnie
Faulkner on Guns N Butter.
When Ms. Faulkner asked
his opinion of where the
U.S. economy is headed,
Mr. Hudson replied,

“The economy’s going
under because Wall Street
and investors realize that
it’s a done deal. That Mr.
Obama is going to succeed
in pushing the economy
much further into a
depression. We need the
depression in order to cut living standards and depression. We’ll buy back all these stocks
labor by 30 percent. We need a depression in after they go but meanwhile, the game’s over.
order just to lower the wages of America and Let’s grab what we can and just bail out. And
to have an excuse – of course, a depression is that’s what’s happening now.”
going to make the budget deficit even larger
and the solution to the depression has already Ms. Faulkner: “What is your assessment
been written up, just like the invasion of Iraq over the current debate in Washington
was all written up before 9/11, the solution is concerning the raising of the debt ceiling?
going to be that the government is going to This debate seems to be taking place
sell off its land, whatever is in the public between the Obama administration and the
domain. Republicans without much input from
Democrats.”
“The American government is going to look
just like Greece and just like Ireland. They’re “It’s a good cop-bad cop deal, a charade
going to be told, ‘The states can’t pay, there’s that they’re both playing. The Republicans are
no federal revenue to share with Minnesota or playing the role of the bad cop, saying, ‘You
Wisconsin or the city of Chicago. They’re going have to not raise taxes on anybody, no
to have to sell off their roads, sell off their progressive income tax at all, no closing of the
streets, sell off their infrastructure, sell off tax loopholes, not even a prosecution for
their public utilities, sell off their business. income tax fraud. And by the way, we can get a
The government will sell whatever it has, the lot of money if we just give a tax holiday to all
Postal Service, to essentially buyers who will of the companies and the individuals that have
now borrow the money from the banks making been keeping their money offshore. Let’s just
a huge new market for banks and investment free wealthy people from taxes altogether and
bankers, in privatizing and cutting up what that will help recovery.’ So they’re being sort
used to be the public domain and turning it of the bad cop so Obama can pretend to be the
over to the wealthiest 10 percent of the good cop and say, ‘Hey, boys, let me at least
economy. So people realize yes, the class war’s do something. You know, I’m willing to cut
b a c k i n b u s i n e s s . We ’ r e g o i n g i n t o a back Social Security, I’m willing to take over



12


We e k o f J u l y 1 7 , 2 0 1 1

really what was a George Bush program, but Ms. Faulkner: So this is a way of getting
you have to let me get a little bit of revenue away with all of this?
somewhere.’ And at the very end the
Republicans will say, ‘Oh, okay, you can throw “Yes.” (Wall Street’s Euthanasia of Industry)
us into the briar patch.’, and they’ll give
something and they’ll essentially get their In spite of all the tension, drama and
program and Obama will have sold out his political posturing on Capitol Hill, we currently
constituency.” believe that some kind of a deal will be worked
out prior to August 2, and that it is highly
Ms. Faulkner: Would a U.S. default send unlikely that the U.S. will actually default on
interests rate soaring and if so, what would its debt obligations. We remain moderately
be the economic effect? bullish on stocks for the long term, but bearish
in the near term. Consequently, we are more
“An interest rate wouldn’t matter if you likely to look for bearish trade ideas than
default. I mean, if you tell me I can write you bullish trade ideas early next week.
an IOU but you’re not going to collect, I’ll give
you 20 percent. What does it matter if you One bearish trade idea comes from Phil,
default? No, it wouldn’t send interest rates and is based upon expectations that the Nasdaq
soaring at all. It wouldn’t have any effect at is likely to go down next week.
all. This is all a just pretend argument to
create the crisis to give Mr. Obama the

“
opportunity to do what politicians do – to sell “I’m still liking SQQQ, Aug
out his constituency to his campaign $22/23 bull call spread is $0.55
contributors on Wall Street. He’s going to go now and you can sell the $21
down as a Herbert Hoover, or rather a Warren puts for $0.50 for net $0.05 on the $1
Harding probably. He’s going to go down as the spread.” - Phil
man who brought on the depression that the
Republicans never could have gotten away In case your portfolio is needing a bullish
with. Only a Democrat posing as a left-winger play to offset your bearish positions, we like a
could support the anti-labor, anti-wage, pro- bullish trade idea from Pharmboy.
Wall Street policies that his advisors have been
pressing. And there again, that came out in the

“
“Ariad (ARIA) has an mTOR in the
New York Times interview with Sheila Bair.”
clinic with Merck (MRK). The
compound has stellar data, and
Ms. Faulkner: I see. So this is a charade
the NDA should be filied soon with the
put on for public consumption, the business
FDA. ARIA was recently upgraded with a
of a possible debt default.
price target by Jefferies of $16. We have
been in ARIA since it was in the mid-$3s at
“It is to create the illusion of a crisis. No
PSW, and I still like it.
politician or Wall Street really likes a crisis
but what they do like is the illusion of a crisis
For an options strategy, I like the
to create a pretense for introducing a solution
January 2012 $10/15 BCS coupled with the
to the crisis that actually makes fortunes for
sale of the $10 puts for a net debit of $1.”
them all. And the way in which Obama resolves
- Pharmboy
the non-crisis of the budget limit is going to
make fortunes for Wall Street – and impoverish
the population for the next decade.” As always, be careful out there!



13


We e k o f J u l y 1 7 , 2 0 1 1

Next Week’s Economic Calendar

Monday 18 Tuesday 19 Wednesday 20 Thursday 21 Friday 22
9:00 AM: Treasury 7:45 AM: ICSC-Goldman 7:00 AM: MBA Purchase 8:30 AM: Jobless
International Capital Store Sales Applications Claims

10:00 AM: Housing 8:30 AM: Housing 10:00 AM: Existing 9:45 AM: Bloomberg
Market Index Starts Home Sales Consumer Comfort
Index
11:00 AM: 4-Week Bill 8:55 AM: Redbook 10:30 AM: EIA 10:00 AM: Philadelphia
Announcement Petroleum Status Fed Survey
Report
11:30 AM: 3-Month and 11:30 AM: 4-Week Bill 10:00 AM: FHFA House
6-Month Bill Auctions Auction Price Index & Leading
Indicators
10:30 AM: EIA Natural
Gas Report

11:00 AM: 3-Mnth, 6-
Mnth, 52-Wk Bill
Announcements
11:00 AM: 2-Yr, 5-Yr
and 7-Yr Note
Announcements
1:00 PM: 10-Yr TIPS
Auction

4:30 PM: Fed Balance
POMO DAY POMO DAY
Sheet and Money
($2.5 - $3.0Bn) ($0.5 - $1.0Bn)
Supply

Note: The material presented in this commentary is provided for informational purposes only and is based upon
information that is considered to be reliable. However, neither Philstockworld, LLC (PSW) nor its affiliates warrant its
completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are
responsible for any errors or omissions or for results obtained from the use of this information. Past performance,
including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future
results. Neither Phil, Optrader, Oxen Group or anyone related to PSW is a registered financial adviser and they may
hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on
anything that is written here, the risk of loss in trading is great.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial
instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any
opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the
moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the
tax consequences of making any particular investment decision. This material does not take into account your particular
investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular
securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your
particular circumstances and, as necessary, seek professional advice.



14

Phil's Stock World Newsletter - Week of July 17, 2011

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Phil's Stock World Newsletter - Week of July 17, 2011