Happy Thursday to all. The market is looking interesting today. We have some solid drop in the unemployment claims that was below expectations. Yet, the market is not reacting heavily to it. That may be because of the rise yesterday, and also, we have pending home sales at 10 AM that may actually drop year-over-year. Additionally, retail sales came out looking pretty well in the month of August. Today, it may be a show me what you got sort of day with the market not moving in either direction too strongly. Yesterday, we did not enter any new positions and got out of an Overnight Trade in Donaldson Company (DCI) for no gain at 2.20. The big story, yesterday, was our August results were in for our portfolios. We had a 5% gain in the Buy Portfolio and a 10% gain in the Short Sale Portfolio. Both portfolios continue to improve with a 62% improvement for the year on the Buy and 21% improvement on the Short. You can read the full story and check out the statistics here.

Let’s get into some plays…

Buy of the Day: Limited Brands Inc. (LTD)

Analysis: IN PROGRESS

Entry: We are looking to enter the stock at 24.30 - 24.50.

Exit: We are looking to exit LTD for a 2-3% gain.

Stop Loss: 3% on bottom.

Short Sale of the Day: KB Homes Inc. (KBH)

Analysis: IN PROGRESS

Entry: We are looking to enter at 11.40 - 11.50.

Exit: We are looking to cover for a 2-3% gain.

Stop Buy: 3% on top.

Good Investing,

David Ristau

Wheee, that was fun!

We’re already back in our range after all that hand-wringing last week.  I like to do these perspective charts once in a while even though I’m not much of a chart guy.  It’s funny how people lose their minds over what was clearly a minor dip so far - never even coming close to threatening our 5% rule, which is the only way we’re likely to give up hope. 

Our next big challenge is getting over the 1,088 Fibonacci line but after that we should have a clear shot to retaking 1,100.  Nobody expects good jobs numbers today but more than 460,000 lay-offs in this morning’s report will probably keep us on hold through tomorrow’s NFP report at least.  Notice how yesterday’s fat-body candle was as big as any of our recent big drops - that means the bears are as freaked out about yesterday’s action as the bulls were about the flash-crash and there’s a lot of bears out there - crossing that 1,100 line this week could lead to a pretty good short-squeeze into the weekend. 

IN PROGRESS

Today’s tickers: NFLX, ULTA, BKC, RIG, COH, RDC & BID

NFLX - Netflix, Inc. – Call options on Netflix are in high demand today after Apple, Inc. CEO, Steve Jobs, said the new Apple TV product will allow consumers to stream movies from Netflix for the first time. NFLX shares jumped 8.5% on the news to an intraday high of $136.25 in late afternoon trading. Near-term bullish trading strategies dominated options action on Netflix today as a number of investors picked up calls and sold puts on the stock. Traders purchased approximately 1,400 now in-the-money calls at the September $135 strike for premium of $4.45 apiece. Another 1,500 calls were coveted at the higher September $140 strike at an average premium of $2.55 each. Shares in NFLX must increase another 4.6% in order for traders long the September $140 strike calls to start to accrue profits above the average breakeven price of $142.55 by expiration day. Optimists also scooped up 1,500 calls at the September $145 strike for premium of $1.57 each, and bought approximately 1,300 calls at the September $150 strike. Some put players drew a line of resistance in the sand at $130.00 and sold roughly 2,000 puts at the September $130 strike for an average premium of $4.98 apiece. Put sellers keep the full premium received as long as Netflix shares exceed $130.00 through expiration day. Otherwise, it seems these individuals are happy to have shares of the underlying stock put to them at an effective price of $125.02 each in the event the puts land in-the-money at expiration.

ULTA - Ulta Salon Cosmetics & Fragrance, Inc. – Shares of the operator of full-service salons and retail stores that sell cosmetics, fragrance, haircare and skincare products in off-mall locations earlier declined as much as 8.9% to touch down at an intraday low of $20.67. Ulta’s shares dropped sharply after analysts at Jeffries & Co. lowered their price target on the beauty products provider to $25.00 from $27.00. The stock was able to crawl its way higher throughout the session, however, and is currently down just 2.25% on the day to arrive at $22.19 as of 3:20 pm ET. Options investors populating ULTA picked up put options following the target share price revision, and ahead of the firm’s second-quarter earnings report slated for release after the closing bell tomorrow evening. Traders expecting ULTA’s shares to slip once again purchased approximately 1,800…

August was yet another terrific month for the Oxen Report. Our Buy/Overnight/Week Trade Portfolio for 2010 is up 65% so far this year with 113 trades. We have gotten 85 of these 113 actionable trades correct, giving the portfolio a 75% success rate thus far for the year. The Short Sale Portfolio is up over 21% thus far this year on 53 trades, and it has over a 79% success rate as well with 42 correct trades. Finally, we have a new portfolio that just started in May for Long Term Investments. The portfolio is not one that needs to be updated on a daily basis, but we will continue to watch for developments that would change my thoughts on our fair value estimates for them. Our 2009 portfolios ended with Buy Picks up 108% in 9 months. The Short Sale Portfolio ended up 10% in 6 months.

President Obama formally declared an end to the 7-year Iraq war last night.

This came as quite a surprise to the 50,000 soldiers who are still there but, so far, it sure beats the end of the Vietnam war where we had to get the hell out of Saigon as the city fell beneath us.  To be fair, the Vietnam War had been going on for 116 years (the French began an unwelcome occupation in the 1800s) - we just came in for the last quarter…

"Just" 35 years after the official end of that war, Vietnam, which is the 18th most populous nation on Earth at 90M people, is reunified and a vital part of Asia and a strong emerging market.  Perhaps it is hard to imagine that ever happening to Iraq but I remember the utter chaos that marked the end of Vietnam and it seems to me that Iraq is actually in better shape.  The war was, of course, a total disaster for us, costing well over a Trillion Dollars and thousands of American lives.

The U.S. "sent our young men and women to make enormous sacrifices in Iraq, and spent vast resources abroad at a time of tight budgets at home," Obama said. "We have met our responsibility. Now, it is time to turn the page.  Today, our most urgent task is to restore our economy, and put the millions of Americans who have lost their jobs back to work.  This will be difficult. But in the days to come, it must be our central mission as a people, and my central responsibility as President." 

Michael Steel, speaking for House Minority Leader John A. Boehner (R, Ohio), said the President’s pivot to domestic policy showed no clear plan to revive the economy beyond a call to "unleash innovation" and "strengthen our middle class."  But Mr. Obama said the end of combat operations was a time to thank U.S. service members, not relive political disagreements, and to acknowledge the sacrifices made in a war that cost more than 4,427 American lives and tens of thousands of Iraqi lives. Another 34,265 U.S. troops were wounded.  Obama also commented: "No one could doubt President Bush’s support for our troops, or his love of country and commitment to our security." 

The global markets got a nice pop overnight on the news but we’ll have to wait and see if it sticks.  All those soldiers coming home (the ones that don’t go to Afghanastan) still need jobs and we have the ADP report this…

Today’s tickers: RIMM, HRB, CAT, DF, XLE, SKS, OCR & NEM

RIMM - Research in Motion, Ltd. – Shares in BlackBerry maker, Research in Motion Ltd., took a severe beating today after a Sanford C. Bernstein Ltd. survey revealed more firms are choosing rival devices such as the iPhone, a sign the firm is relinquishing its share of the corporate market to its competitors. RIMM’s shares dropped 6.30% to an intraday- and new 52-week low of $42.72 in the final hour of trading. The price of the underlying stock, which reached a 13-month high of $88.08 on September 23, 2009, has since collapsed 51.5% lower to reach today’s value of $42.72. But, one options trader populating the longer-dated January 2011 contract today positioning for RIMM’s shares to nearly halve again by expiration. The investor initiated a bearish put butterfly spread, buying 1,100 puts at the January 2011 $27.5 strike for premium of $0.80 apiece, selling 2,200 puts at the January 2011 $22.5 strike for premium of $0.37 per contract, and buying 1,100 puts at the January 2011 $17.5 strike for premium of $0.18 each. The net cost of the spread amounts to $0.24 per contract. The investor stands prepared to accumulate profits if shares of the mobile device maker plummet 36.2% from the current price to breach the effective breakeven point at $27.26 by expiration day. Maximum potential profits of $4.76 per contract are safe inside the trader’s piggybank if the Canadian company’s shares collapse 47.3% lower to settle at $22.50 at expiration. The majority of options traders populated the near-term September contract where the September $40/$42.5/$45 strike puts were the most active.

HRB - H&R Block, Inc. – Bearish investors bombarded the provider of tax, banking, business and consulting services in afternoon trading after Standard & Poor’s Ratings Services lowered its rating outlook on the company to stable from positive. The downgrade weighed heavily on HRB’s shares, which fell as much as 6.20% to an intraday- and new 52-week low of $12.54. Shares are currently down 4.95% at $12.71 with one hour remaining before the closing bell. Given the new 52-week low of $12.54, HRB’s shares are down 21.5% since trading at $15.97 on August 2, 2010. The stock has lost a total of 46.15% of its value since January 21, 2010, when shares reached the current 52-week high of $23.29. Investors wary of continued bearish movement in the price of the…

Hello all. Ah the fairness of the market. Record record profits, beat revenue and EPS estimates, guide in-line moving forward, and drop 3%. Or, you can be our upcoming pick and further your losses, guide below, beat EPS estimates, and have no turn to profit in sight…and jump 4%. Makes sense right. This is one of the main reasons why I feel that buying is not for me right now. I am holding our Buy to Overnight to start the morning at least for a little bit. I want to see what it can do. 

Otherwise, we are avoiding all buys. This market is just atrocious…

Short Sale of the Day: Energy Conversion Devices (ENER)

Analysis: We are avoiding the buys today, and we are looking at a short that can complement what appears yet another sliding downwards day. Today, we have Energy Conversion Devices (ENER). The company is energy convertor company that supplies materials, tools, and consulting for renewable energy companies mostly in the solar industry. The company, this morning, reported an earnings beat with a loss of 0.48 per share. The company was expected to be at -0.60. One year ago, however, the company was at -0.37. Further, the company guided below what was expected mobing forward. Yet, the stock is up nearly 4% in pre-market trading. Why?

I am not sure, and that is why it is a great short sale candidate. The stock has lost a lot of value moving into earnings, and it did not have a ton more downside prior to this morning. The 4% movement puts it into a short term overvaluation, and I do not think its earnings are strong enough to support such valuation. 

The stock is definitely going to have trouble maintaining its gains because of its guidance and the fact that it is a trader’s stock. It is below $5, so a lot of institutions stay away from the stock. Therefore, I expect a lot of profit taking to be done since short term traders are involved. 

Technically, the stock was in the pits, but a gain of 3-4% will really change the short term picture of this stock. It will become a bit oversold, fair valued, and move near its 50-day moving average. All that will give it a temporary ceiling, and it will either break through or fall. I am thinking after early gains, it will fall.

Entry: We are looking to enter at…

That is the Bene Gesserit incantation for bravery from Frank Herbert’s "Dune," one of my favorite books.  When the markets turn nasty on us it is time to get analytical, not emotional and we need to let our fear pass over us as we step back and evaluate the situation with fresh eyes, and a calm mind. 

Above is a chart of our major indexes and their year-to-date performance.  As we tested our -5% lines last week, we added a fresh round of Disaster Hedges, a series of trade ideas that can make 500% or more if the market falls further and in an afternoon Alert to Members yesterday, we added another SDS hedge with a 400% upside.  Having some high-reward hedges in your portfolio allows you to set aside just 2% to protect your entire portfolio against a 10% drop in the markets.  10% is A LOT for the markets to fall and, of course, now that they have brakes on the market, we can always add more hedges along the way down.  Should the market fall "just" 5%, we STILL make 10% on our hedges and that nets our portfolio (in this example) UP 5% on a 5% drop in the market.  If our bullish plays were also hedged with covers - then so much the better! 

Most importantly, having a balanced portfolio with hedges allows you to play the market WITHOUT FEAR.  Warren Buffett famously advises investors to "Be greedy when others are fearful" and our own PSW Rule #1 is "Always sell into the initial excitement," which doesn’t mean always buy but we look for opportunities to sell fear (naked puts) on a dip, the same way we sell our own positions into spikes up that we consider overdone. 

In last week’s "Disaster" article, I wondered if we were in the panic/capitulation part of the above chart and, if we are, then THIS should be the blow-off bottom.  It is possible that I’ve been wrong and that I am in DENIAL and we have a long, long way further to fall, which is why we love our disaster hedges - it lets us take a bullish chance at these inflection points, knowing that we are well-protected to the downside.  Yesterday we took a couple of bullish stabs on the premise…

Today’s tickers: DGIT, LTD, EWJ, ETN, AKS, ACLI & AMR

DGIT - DG FastChannel, Inc. – The provider of digital technology services that facilitate electronic delivery of advertisements, syndicated programs and video news releases to various media outlets suffered a 38.5% decline in the value of its shares to an intraday- and new 52-week low of $15.10 today. DGIT’s shares hemorrhaged after the firm revealed that third-quarter revenue will not exceed $53 million, which is substantially less than the average analyst forecast of $61.5 million in sales for the quarter. Investors expecting DG FastChannel’s shares to remain bruised and battered through September expiration sold 1,300 calls at the September $17.5 strike to pocket an average premium of $0.96 apiece. Call sellers keep the premium received on the transaction as long as DGIT’s shares fail to rally above $17.50 by expiration next month. The company is scheduled to report third-quarter earnings ahead of the opening bell of November 4, 2010. In contrast to the near-term bearish trading on the stock today was a covered call enacted in the March 2011 contract by an investor who appears to be positioning for a lengthy recovery period. It looks like the investor sold 2,000 calls at the March 2011 $17.5 strike for premium of $3.30 per contract and purchased 200,000 shares of the underlying stock at $16.60 apiece. The sale of the call options effective reduces the price paid per share to $13.30 each. Thus, the investor is prepared to walk away with maximum gains of 31.6% on the underlying position as long as the calls land in-the-money and the shares are called from him at $17.50 at that time.

LTD - Limited Brands, Inc. – Investors picked up put options on the specialty retailer of women’s apparel, beauty and personal care products, and accessories right out of the gate this morning with the price of the underlying stock slipping as much as 3.00% to an intraday low of $24.20. Limited Brands’ put options are in demand ahead of the firm’s August sales report on Thursday morning, and after July reports showed that personal income rose less than anticipated. Bears expecting LTD’s shares to continue to decline ahead of September expiration purchased approximately 1,900 in-the-money puts at the September $25 strike for an average premium of $1.11 apiece. Put buyers are poised to profit – or realize downside protection should they hold long positions in the underlying stock…

Happy Monday to all. I hope you all are ready for a busy economic data week, which could mean a lot of down days, but I am hoping for some surprise data. This morning we got some news that personal spending rose 0.4%, which was better than the 0.3% expected. That data helped pare earlier future losses, but the market still appears to be opening lower. I would venture to guess we will probably see a rather neutral day today with losses and gains overall being minimal. On Friday, we finished up the week with a Longterm Position in ManPower Inc. (MAN). The company looks poised to grow as the employment market continues to grow. 

Let’s get into today’s positions…

Buy Pick of the Day:  Donaldson Company Inc. (DCI)

Analysis: Monday does not appear to be a high flying day in either direction particularly. The stock market got some news on personal income and spending that was mostly as expected, and the market’s futures all point for a slight downwards open. If anything, I would expect an open in the red with a small pop and a back and forth neutral day. For the most part, things will only move on company specific information. One such company that has a lot of reason to move to the upside is Donaldson Company (DCI). The filtration system company is expected to report earnings in after hours that are significantly better than one year ago.

DCI is looking to report an EPS of 0.64 vs. one year ago’s 0.30. This is an over 100% improvement on profits from one year ago, and it should be reflected on some stock movement. The company got about a 3% boost on Friday, but that came after a month long drop of just under 15%. Therefore, the stock drop and bearish market of late has pushed the stock value down significantly, and it should recover nicely prior to earnings and after if earnings are as good as expected.

Investors should feel somewhat confident about DCI from its industry - pollution and treatment controls. In the sector, since the beginning of August, four out of five reporting companies have reported surprise earnings of more than 25%. The company’s biggest competitor, Cummins, reported a surprise profit of more than 35%. 

Technically, the stock is slightly undervalued on RSI below 50. The stock is below its 50 day moving average. It has around 10% movement to its…

It’s another busy Monday for M&A activity. 

SNY announced a $18.5Bn CASH offer for GENZ ($69/share), INTC buy’s INNNY’s wireless unit for $1.4Bn in CASH and DELL and HPQ are still in a bidding war over PAR.  The biggest winner in this weekend’s acquisition game is - ME!  I live in northern NJ and, with the merger of CAL and UAUA going through, Continental is forced to diffuse some of their concentration at Newark airport and that ends up giving LUV 18 slots, bringing some much-needed additional competition to Newark, which has been pretty much dominated by Continental for years. LUV is a great buy at $11.13 and a fun way to play is the Jan $10/11 bull call spread at .60, selling the Jan $10 calls for .55, which is net .05 on the $1 spread with a 1,900% upside and your worst-case scenario is you own LUV at net $10.05 - what’s not to LUV?

Speaking of diffused concentration, the Glenn Beck rally was a bit of a disappointment with just 87,000 people showing up (Fox had a permit for 300,000 and keeps using that number as if that’s how many came while Beck himself has been claiming between 300,000 and 650,000 were there and Michele Backmann (R-Minn) claims it was the biggest rally ever held in Washington, with no fewer than 1M people in attendance).  This has now backfired on Beck, Palin and the Tea Party as a "show of strength" becomes a show of apathy (to the people who can count, anyway) - it probably would have been smarter to hold the rally next weekend but Fox wanted to time the rally for the start of Jon Stewart’s vacation, although it didn’t stop him from commenting in abstentia (where I hear Jon has a lovely bungalow).  For a more "fair and balanced" view of the rally, see the very nice coverage from Reason TV. 

During an interview on "Fox News Sunday," which was filmed after Saturday’s rally, Beck claimed that Obama "is a guy who understands the world through liberation theology, which is oppressor-and-victim - People aren’t recognizing his version of Christianity," Beck added.  Beck’s attacks represent a continuing attempt to characterize Obama as a radical, an approach that has prompted anxiety among some Republicans, who worry that Beck’s rhetoric could backfire. The White House has all but ignored his accusations, but some Democrats have pointed to the Fox News host to portray Republicans as extreme and out of…

Now what?

Joseph Stiglitz said last week that "there are many ways in which you can see us almost surely being in a Japan-style malaise, it’s just really hard to see what will bring us out."  Thomas Hoenig was comparatively an optimist at the Fed conference this weekend, saying: "we’ll slog our way through this" but the best quote from the conference came from Alan Bollard of the Reserve Bank of New Zealand, who was among several foreign central bankers who said they were struck by the unusual degree of pessimism they had witnessed in the U.S.  "I can’t wait to get back to my side of the world," he said.

I’ve been blaming the MSM for keeping the public in a constant state of fear and we have clearly divided both the leadership and the punditry into two distinct camps.  “The recession is the cure for the disease that affects the economy, but the politicians don’t have the stomach for it,” says Peter Schiff, president of Euro Pacific Capital.  “They’re going to keep stimulating the economy until they kill it with an overdose. The hyper-inflation that results is going to be far worse than the cure.”    

Most economists who are close to the policy making arena for both parties take the position that austerity is the wrong medicine for what ails the American economy, and they dismiss warnings about inflation as akin to focusing on the side effects of chemotherapy in the face of cancer. First, they argue, take the medicine and stave off the lethal threat; then deal with the collateral problems.  Regardless, inflation fears persist, constraining what limited prescriptions might otherwise be thrown at a weakening economy.

Even after the November election, few expect a different dynamic. “We’re already in a gridlock situation, and nothing substantive is going to change,” says Bruce Bartlett, who was a Treasury economist in the first Bush administration. “Clearly, a weak economy in 2012 will be very good for whoever the Republican presidential candidate is. It’s hard to see how the Republicans lose by blocking stimulus.”

The Fed operates (in THEORY) independent of politics and, in Bernanke’s speech on Friday, the Fed Chairman said: "The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation,” he said. “We do.  The issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or…

In uncertain markets, dividends can give you a critical investing edge.

As you can see from the chart on the left, just mindlessly investing in dividend-paying stocks can give you more than a 2:1 annual advantage in your investments. 

Of course, here at PSW, we teach the art of selling options premiums - something that turns virtually any stock into a "dividend" payer.  For example, MSFT is only a small, 2% dividend-payer but a fairly solid cash-machine of a stock that we don’t feel is likely to go bankrupt overnight so it makes for a nice safe staple in a long-term portfolio.  But MSFT is also a very poorly-run company that hasn’t grown in 20 years but we can make it a much more interesting stock by simply selling covered calls.

For example, we buy MSFT for $24.23 and we sell the Sept $24 calls for .77.  This lowers our effective basis to $23.46 and selling the call puts us in no special danger - we are simply agreeing to sell MSFT for $24 on expiration day in September (the 17th).  Should the stock be called away from us, we make a .54 profit or 2.3% of our net $23.46 cash investment in less than 30 days.  That works out to a 26% annualized ROI and, even if we get called away, we can simply buy the stock again and again and sell calls every month.  Of course, you can optimize all this with timing and we favor stocks that are on sale - this is just a very simple example of how our most basic options strategy can drastically boost your annual returns on any stock in your portfolio.

Let’s say you don’t want to mess around with MSFT every month.  You can simply sell the 2012 $22.50s for $4.40, that drops your net entry from $24.23 to $19.83 and getting called away at $22.50 would be a profit of 13.5% over 17 months PLUS you would be getting your .52 annual dividend so let’s call it .75 more for a total profit (if MSFT holds $22.50) of $3.42 or 17.25% - 1% a month certainly beats what the banks are offering these days!  Not as sexy as the 26% ROI you make by working the trade every month but you do get a built-in cushion that drops your break-even price to $19.83, which is a full 18% below the current price.  So MSFT would have to fall…

Today’s tickers: IYR, NSM, IGT, GFRE, LNC, BHI, ONNN & HPQ

IYR - iShares Dow Jones U.S. Real Estate Index ETF – A three-legged bearish options combination play on the IYR, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Dow Jones U.S. Real Estate Index – an index created to measure the performance of the real estate sector of the U.S. equity market, indicates one big player is bracing for a pullback in shares of the ETF through the end of 2010. Shares of the fund went the way of the market this afternoon and rallied 1.05% to $50.71 with less than one hour remaining in the trading week. The investor sold roughly 10,000 calls at the December $55 strike at an average premium of $1.35 each, purchased about 10,000 puts at the December $50 strike for an average premium of $3.65 apiece, and shed 10,000 puts at the lower December $43 strike at an average premium of $1.43 a-pop. The net cost of the pessimistic play is reduced to $0.87 per contract. The transaction could be a hedge to protect the value of a large position in IYR shares. But, if the spread represents an outright bearish bet on the ETF, the investor is poised to profit should shares dip below the average breakeven price of $49.13 by December expiration. Maximum available profits in this scenario amount to $6.13 per contract if the fund’s shares plummet 15.2% from the current price to trade below $43.00 by expiration day.

NSM - National Semiconductor Corp. – Shares in semiconductor manufacturer, National Semiconductor Corp., earlier slipped 2.05% to touch a new 52-week low of $12.41, but the stock came roaring back to life in afternoon trading, rallying as much as 3.2% to an intraday high of $13.08. The significant shifts in the price of the underlying shares inspired investors to purchase both call and put options on the stock today. Options traders may also be gravitating toward NSM options ahead of the firm’s first-quarter earnings report scheduled for September 9, 2010. Investors heartened by the turn-around in shares purchased approximately 5,800 calls at the November $13 strike for an average premium of $0.85 apiece. Call buyers make money if National Semiconductor’s shares rally another 5.9% over today’s high of $13.08 to trade above the average breakeven price of $13.85 by expiration day in November. Meanwhile,…

Our Long Term portfolio is starting to really come together and look very solid. We have a nice mixture of speculations in the solar industry, autos, blue chips, and even a movement into the fast food industry. The key to long term is that we want to find industries and companies that the potential to grow over the next year, two years, three years. One such industry that is going to be in heavy demand from a standpoint of a post-recession need is employment services. Today, we take a look at a company that will grow with the return of jobs, similar to a Paychex (PAYX), which we already have in our portfolio. This company though gives us an even more direct affiliation with a growing employment field.

Long Term Position: ManPower Inc. (MAN)

Profile: IN PROGRESS

Thesis: IN PROGRESS

Valuation: FV estimate at $75.

Entry: We want to get involved today at 44.30 and below.

Exit: Long term.

OK, time to get it over with.

One thing that has been clear this week is that everyone has an opinion, and they are all wrong.  Tim Eagan points out in "Building a Nation of Know Nothings" that you can look in a newspaper these days and he sports scores and temperature are not subject to debate, but pretty much everything else is.  What happened to facts?  What happened to truth?  Tim uses the example that 27% of the people polled (generally Republicans) actually believer Obama wa not born in Hawaii, even though my 8 year-old daughter can Google his birth cirtificate.

That does not stop Fox news, who donated $1M to Republican candidates this year from having guest after guest come on their station and continue to spew this nonsense without once being corrected by the "moderators" who, more often than not, simply dogpile on whatever BS agenda is being pushed that day. 

How does this affect our investments?  Well, when the nation’s #1 news network is a total joke, then why should the financial news networks act any differently - clearly they are just "giving the people what they want" - as if that excuses everything in Circus Maximus America.

Speaking of clowns, woe unto us when Jim Cramer is the voice of reason but last night he said:

 The problem with these data-inspired sell-offs, though, is that we don’t actually have enough data to justify them. The Chicago and Maryland Feds say positive things one day, the Philadelphia and New York Feds say something negative the next.  Put simply, there is not enough information out there to warrant the big swings or big moves like we’ve had this week. Yet we are trading on every little data point, be it macro or micro.

Bearish sentiment has now hit 70%, historically a buy signal so it will be good to finally get this expected downward revision to the GDP over with so we can move on.  Yesterday I asked if the media  tail was wagging our dog of an economy or is the MSM just giving investors what they want - a very bearish outlook!  My comment in member chat was:

Calling the recovery a failure because it’s slow is really what the problem is with the attitude of the MSM - it’s short-sighted at best.  There are way too many people who have their money invested in the bear case and they will say anything to create an environment that is likely to make…

Thus far in the alternative fuel segments we have covered whiskey, water, fuel cells, and now ethanol. Ethanol…oh ethanol. It was supposed to be the key to all of our gasoline problems, but it has done very little to solve any problems whatsoever. The fuel produced by our abundant excess of our little yellow friend, corn, has been a disaster and failure. But why did ethanol fail and why was it ever thought to be an alternative to our fuel problems.

At its basis, ethanol is biofuel. It is created by the fermentation of corn, combined with gasoline, and used in a standard combustion engine. The product cannot, on its own, move a car, but it is able to be blended with gasoline to produce an efficient alternative to straight gasoline. Back at the end of the Bush campaign, when the talks of global warming and "green" energy became sexy and centerfold, ethanol appeared to be an answer with mixed reports.

At its current levels, the E85 (85% ethanol, 15% gasoline) has had mixed reviews. Overall, the consensus was that E85 produced no better results for ozone pollution or energy saved other than a reduction of oil used for car gasoline. The issue, however, was with the production of ethanol, which actually was proved to use more oil to produce energy to make ethanol than was saved at reduction at the pump. If alternative energy could be used to power the production of ethanol then E85 much like PEVs will have a very significant impact on our need for oil. 

Dr. Dan Kammen, at UC Berkeley is in the camp that ethanol has positives. According to a Science Daily article covering an extensive UC Berkeley study, "Once these changes (adjustment for problems with other experiments) were made in the six studies, each yielded the same conclusion about energy: Producing ethanol from corn uses much less petroleum than producing gasoline. However, the UC Berkeley researchers point out that there is still great uncertainty about greenhouse gas emissions and that other environmental effects like soil erosion are not yet quantified. ’It is better to use various inputs to grow corn and make ethanol and use that in your cars than it is to use the gasoline and fossil fuels directly,’ said Kammen, who is co-director of the Berkeley Institute of the Environment and UC Berkeley’s Class of 1935 Distinguished Chair of Energy."

(the left is inputs into producing…

After such a great deal of time, we are finally looking at what should be a good day in the market. I will get to my intro in a bit…

We have two buy picks for you today:

Buy Pick of the Day #1: China Automotive Systems Inc. (CAAS)

Analysis: One of our long term positions that has been very troubling is China Automotive. Over the past three weeks, the stock has dropped 33% in value. The company had some strong earnings three weeks ago, but the company disappointed on forecast. Ever since then, the market started to fall and the stock got into a technical rut that has sent this one flying downwards. The stock is now hitting its lower bollinger band and is severely undervalued to the point that it is almost ridiculous.

Today, the company is poised to benefit from a market that is expected to open higher and should move higher on some great news from unemployment claims, which some of the best news the market has heard in quite some time. Claims were a 473,000 versus the expected 485,000. Additionally, the company was rated by Fortune Magazine as the 23rd "Fastest-Growing Company in the World." This honor is definitely a small catalyst, but when combined with a strong market and heavily undervalued stock, it could ignite.

How undervalued is CAAS? The stock at 21 had a price to earnings of about 20. At 14, the stock’s price to earnings is about 13.5. The company’s RSI has dropped below 50 all the way to just above 30. I rarely see stocks below 35, so this is a very low relative strength reading. Fast stochastics have been sitting at oversold for three straight weeks, and the stock’s bands have been breaking apart and widening. They should contract and narrow now.

Today should be a redemption day for CAAS. If the stock can get some buyer interest and start to make a move, it will have a wildly fantastic ride back up to the top as it did down. China and Asia had a decent day overseas, unemployment claims are sparking the market, and this is a technical anomaly. We want to take advantage.

Entry: We are looking to enter CAAS at 14.15 - 14.30.

Exit: We are looking to exit for a 2-4% gain.

Stop Loss: 3% on bottom.

Buy Pick of the Day #2: J. Crew Group Inc. (JCG)

Analysis: IN PROGRESS

Entry: We are looking to enter…

Once again, CNBC pulls out the big guns!

No sooner does the market begin to show signs of life than our favorite financial networks goes to the bench and pulls out interviews with both Dr. Doom, Nouriel Roubini (7:30) and Mr. Gloom, Mohammed El-Erian (8:30) to tell us how awful everything really is - no matter what we may dare to think.

I’m not generally for censorship but, in CNBC’s case, I think it’s tme we make an exception.  At least make them stop pretending to be a news station and make them come out of every break disclosing the fact that their parent company, GE, not only benefits from a poor economy that forces the Government to maintan low interest rates and offer them bailouts, but that they (GE) are also the nation’s largest abuser user of "uncertain tax positons," with $8.7Bn of questionable deductions. 

Raise taxes?!?  Are you joking?  CNBC’s parent company refuses to pay taxes at the Bush cut rates - there is no way they are going to put up with paying their full share.  Just 500 US companies did not pay $200Bn worth of taxes last year in deductions that even their own auditors were forced to list as "questionable accounting strategies."  That’s 50% more than the entire $138Bn paid by all US corporations last year, which happens to be just 1/14th as much money as their employees had to pay to support the economy, even though the corporations and the top 10% made $9Tn in profits and income last year while the bottom 90% made just $4Tn.

The current corporate rate of 35 percent is higher than that in many other developed countries. But Congress has larded the code with so many deductions and loopholes — including a dollar-for-dollar credit for taxes paid to foreign governments and generous deductions for depreciation and debt financing — that the effective rate paid by most companies is below 22 percent, lower than in most developed countries. 

Outrageous or business as usual in America - we report, you decide…  Meanwhile, CNBC is going for the gusto this morning wth a string of bears leading up to the unemployment report at 8:30 but, like last week’s number, expectations are getting so dire it’s going to be hard to shock people.  Of course, that won’t stop our GE’s public relations and lobbying arm from trying. 

IN PROGRESS

More on this topic (What's this?)

General Electric (GE) raises dividend; 15 other companies follow suit (Dividend…

Today’s tickers: DSW, LNCR, VGZ, S, APOL, CAL & JCG

DSW - DSW, Inc. – Options traders are picking up put options on the footwear retailer ahead of the firm’s second-quarter earnings report, scheduled for release ahead of the opening bell on August 31, 2010. DSW’s shares fell 2.5% to $24.09 in late afternoon trading. Pessimistic players purchased approximately 3,400 put options at the October $22.5 strike for an average premium of $1.53 a-pop. Put buyers are poised to profit should DSW’s shares plummet 12.95% from the current price of $24.09 to breach the average breakeven point to the downside at $20.97 by expiration day in October. Options implied volatility on the stock is up 5.2% as of 3:30 pm ET.

LNCR - Lincare Holdings Inc. – The provider of oxygen and other respiratory therapy services popped up on our ‘hot by options volume’ market scanner today after bullish call buying was detected in the January 2011 contract. Lincare’s shares are up 0.50% to stand at $23.51 with just under 30 minutes remaining in the trading session. Investors positioning for substantial share price appreciation by expiration next year purchased roughly 1,100 calls at the January 2011 $27.5 strike for an average premium of $0.86 each. Call buyers at this strike make money if Lincare’s shares jump 20.6% to exceed the average breakeven price of $28.36 by expiration day. Bullishness spread to the higher January 2011 $30 strike where optimistic individuals scooped up more than 2,900 call options at an average premium of $0.45 apiece. Investors long the higher-strike contracts are prepared to accrue profits should LNCR’s shares surge 29.5% to trade above the effective breakeven price of $30.45 by expiration day next year. Lincare’s shares last traded above $30.45 back on July 1, 2010.

VGZ - Vista Gold Corp. – Bullish investors are mining for call options on the gold exploration and development company today, which suggests some traders expect Vista’s shares to head higher by the end of 2010. The Colorado-based company’s shares jumped 20.4% to touch an intraday high of $2.30. Investors in Vista Gold Corp. shares have had a fruitful month thus far. The stock is currently trading at a 76.9% premium over its July 28 low of $1.30 a share. Options strategists hoping to see the good times continue through to December expiration scooped up approximately 2,000 calls at the December $2.5 strike by shelling out an average premium of $0.32 per…

Be prepared isn’t just for boy scouts. 

As I mentioned in yesterday’s post,  we are in technical hell and the lack of recovery yesterday has left us on less than firm ground.  As we still have clearly defined watch levels that aren’t too far away, now is a good time to look for some downside hedges that can help us enjoy the ride down while it lasts.   

I was going to be pleased but then we had a very sharp, last minute sell-off on heavy volume that pretty much ruined the day.  I have been bullish and we have been buying at what we thought was a bottom, and we are up to 35% invested in long-term, hedged positions but what if the 20% built-in protection (see "How to Buy a Stock for a 15-20% Discount") isn’t going to be enough?

You know I am a big fan of taking cash off the table in either direction, and we were not greedy and took off our short-term bearish directional bets on yesterday’s morning spike down.  We had a couple of new hedges already in this week’s Member Chat but let’s look at some other trade ideas that can bullet-proof our portfolios, all the way back to the March, 2009 lows.  Our usual  Mattress Strategy is not going to be enough to save us if we have another "flash crash" - especially one that sticks!   Adding a layer of protection here doubles our returns if this is the first leg of a major sell-off, or it gives us a smaller hedge that we can roll up later while we take our earlier hedges off the table.  As I have to say WAY too often to members - It’s not a profit until you cash it in! 

Hedging for disaster is a concept I advocated during another "recovery," in October of 2008, where we made our cover plays to carry us through a worrisome holiday season and into Q1 earnings - "just in case."  That "just in case" saved a lot of portfolios!  The idea of disaster hedges high return ETFs that will give you 3-5x returns in a major downturn.  That way, 5% allocated of your portfolio to protection can turn into 15-25% on a dip, giving you some much-needed cash right when there is a good buying opportunity.  At the time, I advocated SKF Jan $100s at $19.  SKF hit $300 around Thanksgiving and those calls made a profit of over $280 (1,400%), so putting even just 5% of your portfolio into that financial hedge would give you back 75%…

As I’m away today, I decided my time this morning would be well spent laying out some disaster hedges but I’ll update this post at some point so please use this for comments and such. 

IN PROGRESS

Last week, we began an investigation into alternative fuels and their opportunities for cars and for investments. We covered the fuel cell and the biofuel made of whiskey. Today, we are delving into the world of water and sun. Can water actually power our favorite vehicles or the sun? We will attempt to uncover those answers. 

To start the day, we take a look at water. Yes, the clear liquid that comes out of your sink, grows your grass, and makes up a significant amount of the human body could be an alternative fuel to gasoline. I originally got interested in water when I saw a Japanese car that was "supposedly" ran on water on YouTube! Yet, despite what seems to be out of mind outlandish, water actually holds some ground. One can actually run his/her car on water. It starts by using an electrolysis cell or water burner. 

According to Popular Mechanics, "The key is to take electricity from the car’s electrical system to electrolyze water into a gaseous mixture of hydrogen and oxygen, often referred to as Brown’s Gas or HHO or oxyhydrogen. Typically, the mixture is in a ratio of 2:1 hydrogen atoms to oxygen atoms. This is then immediately piped into the intake manifold to replace some…expensive gasoline."

Water has energy that can create power and can move a car. The issue with water is that it takes a 1:1 amount of energy to separate hydrogen and oxygen atoms inside of a electrolysis cell then put them back together. So, with heat losses, one is actually losing energy as they pump water into the car. So, water alone cannot fuel a car. There is some talk, however, that water when mixed with gasoline can cause gasoline to burn more efficiently by slight levels because it helps change combustion characteristics.

The only company that is truly behind water as a source is Genepax in Japan, but the company does not appear to be much of an answer to anything. The company has not been able to sustain any solid business and is privately traded. While there does appear to be some ground for energy for water, the technology is still in such a way that the energy used to break down water to get its energy is 1:1…the typical problem with the technology with all of our alternative fuels - it takes too much energy to break down alternative fuels. 

So, how about solar-powered cars?…

So, the market is awful…just downright awful. Here is how awful it is. Imagine a company has the following economic data points on their earnings report: beat EPS estimates by 0.03, profits doubled from one year ago, beat revenue estimates and saw revenue increase 170%, beat shipping expectations for the past quarter, and upped shipping guidance for the full year by more than double 2009’s rate. Not too bad… This was the report from our Overnight Trade in Trina Solar (TSL). We got involved at 22.69. The stock opened down more than a dollar, but we are hanging onto it as it trickles back upwards. I am not going to be greedy and take whatever small gain I can get, if any.

Additionally, yesterday, we started off our week with a Weekly Play in International Rectifier Inc. (IRF). Unfortunately, the stock is moving with the market in a downwards fashion. We got involved at 19, and the stock is down about 1.5% at 18.72. We will keep a close eye on this one, but there is no reason to panic yet.

Let’s look at a Buy Pick for the day that could move into an OT if it can’t pick up 2-3% throughout the day.

Buy Pick of the Day: Brown Shoe Co. (BWS)

Analysis: The market is down yet again…what a surprise. Today, the culprit is existing home sales. The above chart has the data in red for existing home sales through June. We see a dip start this summer. Well, that dip just moved from around 5.3 million sales to a seasonally adjusted rate of 3.83 million, dropping that red line significantly. That news is taking the entire market down with it. Yet, the downward movement, in my opinion, has creating a buying opportunity for some stocks…especially ones that could get a push throughout the rest of the day, moving into earnings.

One of these companies is Brown Shoe Co. (BWS). This morning, BWS moved down even further, despite its 15%+ movement downwards since the beginning of August. The stock moved below its lower band and jumped up about 2%. Unfortunately, that occurred right as I was researching, but I think BWS still has legs. Its lower band is at 12.40. So, it is only about 1% off its lower band, and it has reason to move.

The company is expected to report earnings per share this afternoon of 0.09, which is great because…

We finally blew our levels!

Sadly, it’s time to flip bearish until we can retake our watch levels at Dow 10,200, S&P 1,070, Nas 2,200, NYSE 6,800, and Russell 635.  If we can’t retake at least 2 of them today, we may be seeing 2.5% drops back to Dow 9,945, S&P 1,043, Nas 2,145, NYSE 6,630 and Russell 619.  Since the Russell already blew 619 we have to consider the possiblitlity of even a test of our 5% lines at Dow 9,690, S&P 1,016, Nas 2,090, NYSE 6,460, and Russell 603.

Fundamentals are great but once panic sets in the market is all about technicals and we just need to strap in and go along for the ride.  We have been playing for a bounce off our 10,200, 1,070 lines but, now that we lost it - it’s time to flip bearish - I was wrong and that’s that, time to move on and make some downside money.  Of course it will take more than a single day to give us a trend but the same way we don’t get very bearish until we loser 3 of 5 of our center levels, we don’t get bullish again until we break back over.  Yesterday I sent out an Alert to Members as we broke down, saying:  "We could very easily drop 250 from here on the Dow (2.5%)."

We added a fresh DXD hedge but we already had a proper hedge from Friday when the morning trade idea was:

A better way to hedge at the moment is the DXD Sept $27s for $1.70.  They have a delta of .62 but can be transferred into a vertical if the Dow goes up by selling the $25 puts (now .20) for .50 and covering with the $29s (now $1) for at least .70, leaving you in a $2 spread for .50.   That would be the ESCAPE, at the moment I like the plain DXD $27s at $1.70 until we get a real move back up.

That was an addition to the Morning Alert Trade, which was the DIA Sept $99 puts at $1.50.  Neither the DXD or the DIA plays have been paying off so far but they did provide cover for our speculative bullish plays as we tried to play the line.  Of course we take our major disaster hedges when the market is high (it’s cheaper then) 

IN PROGRESS

More on this topic (What's this?)

ESU10 – September E-Mini S&P (Last:1061.50) (,…

Today’s tickers: GS, BA, RHT, DTG, DELL, ISLN & WHR

GS - Goldman Sachs Group, Inc. – A three-legged bullish options combination play initiated on Goldman Sachs this afternoon indicates one strategist is positioning for a sharp rebound in the price of the underlying stock by October expiration. GS shares, unable to hold onto gains realized earlier in the session, are currently down 0.65% to arrive at $147.27 just after 3:30 pm ET. It looks like the options optimist sold puts in order to partially finance the purchase of a debit call spread. The investor shed approximately 2,000 puts at the October $135 strike for an average premium of $2.74 each, purchased roughly the same number of calls at the October $150 strike for an average premium of $5.46 apiece, and sold about 2,000 calls at the higher October $160 strike at a premium of $1.89 a-pop. The average net cost of the transaction is reduced to just $0.83 per contract. Thus, the options player responsible for the trade is positioned to make money as long as Goldman’s shares rally 2.4% over the current price of $147.27 to surpass the average breakeven price of $150.83 by October expiration day. The trader may accumulate profits of up to $9.17 per contract if GS shares surge 8.6% to trade above $160.00 at expiration in a couple of months. Goldman Sachs’ shares last traded above $160.00 back on April 29, 2010.

BA - Boeing Co. – The second-largest U.S. satellite maker attracted the attention of one bullish options player this afternoon perhaps on news the firm expects to receive a minimum of $2 billion of orders for military communications satellites from a Defense Department contract announced in the previous week. Boeing’s shares slipped 1.95% to $63.34 in late afternoon trading, but the price erosion did not deter one trader from initiating a bullish risk reversal on the stock. It looks like the investor sold 7,000 puts at the October $60 strike for an average premium of $1.83 each in order to buy the same number of calls at the higher October $70 strike for premium of $0.95 apiece. The risk reversal was tied to the purchase of some 371,000 shares of the underlying at a price of $63.94 each. The responsible party received a net credit of $0.88 per contract on the reversal play. The investor is long the stock, short put options and long calls,…

Last week was quite atrocious for the markets, but we managed to come out of it pretty unscathed. This week, we will be looking to continue our successes, starting with today’s Play of the Week and Overnight Trade. We finished off the week on Friday with a Long Term Play in Ford Inc. (F). I like the company’s long term outlook amidst an undervaluation and upcoming GM IPO. I think it has a potential 100% growth opportunity. 

The market has been pretty rattled, but there are a lot of basement bargains out there, and the market cannot continue on down like this with the same repetition. I think we will have a seesaw week with some stocks being able to break out while others remain pretty much neutral.

Let’s take a look at a stock that I think has a lot of potential to move throughout the end of the day and break out with earnings tomorrow morning…

Overnight Trade: Trina Solar Inc. (TSL)

Analysis: Trina is one of our Long Term Portfolio Plays that has been the top performer. We got involved at the end of May at 17.25 and have been holding ever since. We have a FV estimate for the company at $30. Trina is one of solar’s top performers and most established company that has begun a solid diversification out of Europe, where in 2008 it did 95% of its business, to the USA, China, and other Asian nations. Tomorrow morning, Trina is set to release its Q2 earnings that are expected to be at 0.49 EPS. This will be a solid improvement from one year ago’s EPS of 0.36.

The company is attractive as an OT for a number of reasons. First off, Trina is in an industry that is performing very well in this earnings season. Nearly every solar company is blowing earnings out of the water. Since they started reporting in August, 10/13 or 78% have reported surprise earnings. One miss from JA Solar (JASO) was due to a large accounting decrease. Most of the major swingers like First Solar (FSLR), Yingli Green (YGE), and SunPower (SPWRA) have all made major movements upwards after reporting their earnings.Trina is in a position where it has most likely been undervalued due to too heavy markdowns on currency exchanges.

Trina, itself, had a very solid May through July and is solar’s company with the highest gross margins due to its ability to produce…

Bond funds are attracting cash like stocks during the dot-com boom.

That’s the headline this morning on Bloomberg, who says: "The amount of money flowing into bond funds is poised to exceed the cash that went into stock funds during the Internet bubble, stoking concern fixed-income markets are headed for a fall.  Investors poured $480.2 billion into mutual funds that focus on debt in the two years ending June, compared with the $496.9 billion received by equity funds from 1999 to 2000, according to data compiled by Bloomberg and the Washington-based Investment Company Institute."  $480Bn in a month?!?  Whuck!?!

First of all, who the hell has $480Bn to do anything with?  That’s where I stop reading and start pondering.  Of course, not all this cash is from America but holy cow - that is A LOT of money in these troubled times.  Imagine if some of that money starts going into equities.  Well, don’t imagine that if you are bearish because you won’t be able to sleep at night!  The cash inflows have pushed investment-grade US Corporate Debt down to a record 3.79% while Treasury Yields fell to an all-time low of 0.5%.

The money flowing into bonds is “probably not repeatable on a consistent basis,” said Joel Levington, managing director of corporate credit in New York at Brookfield Investment Management Inc., which oversees $24 billion. “Eventually it won’t be sustainable. Whether that means five years from now or five weeks is a little difficult to tell,” he said.  Let’s be very clear about that last part - in order for any bubble to sustain itself it must continue to be fueled.  $480Bn a month is A LOT of money being put into instruments that provide little return.  I just did some charts and data on historical inflation in this weekend’s "Defending Your Portfolio With Dividends" post for Members as we already see the writing on the walls with the Bond market and need to move into things that will actually make money (and protect our basis - which bonds do not at these levels). 

Investors took $9.1 billion OUT of equity funds in the week to Aug. 19, the most since July, according to Oleg Melentyev, a credit strategist at Bank of America Merrill Lynch Global Research in New York. Stock funds have had $215.4 billion of outflows the two years ended June, ICI data show.  Citigoup’s Tobias Levkovich says The “extremities of the money flows” into fixed income from equities is troubling.  "In 2000 or late 1999, we saw…

In uncertain markets, dividends can give you a critical investing edge.

As you can see from the chart on the left, just mindlessly investing in dividend-paying stocks can give you more than a 2:1 annual advantage in your investments. 

Of course, here at PSW, we teach the art of selling options premiums - something that turns virtually any stock into a "dividend" payer.  For example, MSFT is only a small, 2% dividend-payer but a fairly solid cash-machine of a stock that we don’t feel is likely to go bankrupt overnight so it makes for a nice safe staple in a long-term portfolio.  But MSFT is also a very poorly-run company that hasn’t grown in 20 years but we can make it a much more interesting stock by simply selling covered calls.

For example, we buy MSFT for $24.23 and we sell the Sept $24 calls for .77.  This lowers our effective basis to $23.46 and selling the call puts us in no special danger - we are simply agreeing to sell MSFT for $24 on expiration day in September (the 17th).  Should the stock be called away from us, we make a .54 profit or 2.3% of our net $23.46 cash investment in less than 30 days.  That works out to a 26% annualized ROI and, even if we get called away, we can simply buy the stock again and again and sell calls every month.  Of course, you can optimize all this with timing and we favor stocks that are on sale - this is just a very simple example of how our most basic options strategy can drastically boost your annual returns on any stock in your portfolio.

Let’s say you don’t want to mess around with MSFT every month.  You can simply sell the 2012 $22.50s for $4.40, that drops your net entry from $24.23 to $19.83 and getting called away at $22.50 would be a profit of 13.5% over 17 months PLUS you would be getting your .52 annual dividend so let’s call it .75 more for a total profit (if MSFT holds $22.50) of $3.42 or 17.25% - 1% a month certainly beats what the banks are offering these days!  Not as sexy as the 26% ROI you make by working the trade every month but you do get a built-in cushion that drops your break-even price to $19.83, which is a full 18% below the current price.  So MSFT would have to fall…

Professor William Domhoff has updated his excellent study of wealth distribution in America and the results are just as sickening than they were in 2005!

We looked at the uneven distribution of incomes when I wrote "The Crisis of Middle-Class America" earlier this month and I’ll re-post the main chart here as it’s important for the readers to get a fix on where they really are on the economic food chain.  When I talk about the need for more taxes, I’m generally (like our President) referring to the top 1%, the 1.4M people in this country who earn more than $393,000 a year - where 10% more tax ($40,000) may force them to skip a vacation vs. the alternative of taxing the bottom 90%, who earn $30,000 a year, which would force them to skip heat, food, clothing, etc.  

The chart above EXCLUDES capital gains, which are over 70% of the top 0.01%’s incomes so it grossly understates the situation but it does give you a clearer idea of what was going on in the lower brackets leading up to the crisis.  Go ahead, do the math - adding up the total wages of the bottom 90% against the total wages of the top 10% give you a real idea of what a "fair and just" system we’re participating in:

14,836 people earn $17,271,381 in average annual income ($256Bn), 133,525 earn $2,569,388 ($343Bn), 593,444 earn $760,680 ($451Bn), 741,805 earn $393,583 ($292Bn), 5,934,440 earn $188,513 ($1,119Bn) and 7,418,050 earn $117,688 ($873Bn) while the the wages of the bottom 90% are 133,524,900 people earning and average of just $30,173 ($4,029Bn).

So interesting fact number one is that the 13M people in the top 10% earn (not including capital gains, which make up the bulk of their true income) salaries of $3.3Tn while the other 133M schlubs earn $4Tn.    

We are NOT going to be able to "fix" this country until we recognize that this is fundamentally unfair.  Even for those of us in the top 10%, we need to recognize that those other 133M people are our customers, in the very least.  If they have more money to spend, then we will, in theory, be able to make more money serving them.  What’s really gone wrong in this equation is that the top 0.01%, including our multi-national corportate citizens, who control 34.6% of our nation’s wealth (very good chart series here) have already effectively pulled up anchor and are sailing away to warmer waters. 

In Robert Frank’s excellent book "Richistan," he points out that "The wealthy weren’t just getting wealthier — they were forming their…