Bank of America was denied permission by the Fed to raise its dividend, as I thought would happen, at a time that the company is struggling with two issues: A lack of real growth and a large book of bad loans on its balance sheet due to the acquisition of Countrywide.

The lack of growth is due to a flailing economy -- the double dip is coming -- and the lack of revenue and profit growth. Yes, it's a great company and it's my bank. BAC has tremendous customer service, but the lack of earnings power will be an issue for many quarters to come.

It's one reason the bank has underperformed the sector and continues to drift down. In the first quarter the bank missed expectations by a wide margin, earning (non-GAAP) 17 cents per share instead of the 27 cents The Street was looking for. Worse, and more fundamental to my argument, revenue was off almost 16% from a year ago.

The balance sheet is also a mess. The company has $56 billion in home loans on its balance sheet and some analysts at Sanford Bernstein put future write offs as high as $27 billion for the next 2-3 years -- and in my view that may be low. This will hit earnings, not core capital, but it will be a drag on BAC's ability to grow.

I like the Bank of America (BAC) Aug 11 Puts right here and now as a put position.

The stock continues to trade above $350, building a base for the next leg up. When will this happen? It could be when earnings come in on April 19; it could occur in the predictable runup to earnings; and it could happen when the market breaks out to the upside, if the market breaks out to the upside. ButiIt will happen!

In my humble opinion the stock is dirt cheap. This makes the calls, even our short-term position, a worthwhile play.

Apple is now selling at roughly one-half of its historical valuation, with this shift occurring for a variety of reasons:

The first is that Wall Street analysts typically use Blackberries and Dell computers -- no kidding.

The second is the huge market cap that's the second largest behind ExxonMobil (XOM) -- and of course ExxonMobil is a "serious" company, the equivalent of a man's man, because it brings stuff out of the ground, negotiates with governments, speaks with a Texas accent and so on. Apple only makes adult toys that no one actually needs, but just "wants."

The third reason is that "growth has to slow."

The fourth is willful blindness -- despite being a second-generation product with modest evolutionary changes to the first generation, iPad, the iPad 2 is sold out in Apple stores and at the website for the next 3-4 weeks.

ChangeWave and other surveys show the iPad putting a serious dent in laptop sales -- evidenced by weak results at the Hewlett-Packard (HPQ) consumer unit last quarter.

No matter say the naysayers. Sorry, guys and gals on Wall Street, you are decidedly wrong. The paradigm shift -- corny phrase but it works right here -- from the central computer to the desktop was not believed by The Street, either. Prime computer was the No.1-performing stock in 1982, the year the IBM PC hit the streets. What did ever happen to good old Prime? And Digital Equipment? And Honeywell? Burroughs? Univac? Control Data? Data General? I made my point.

Now we're seeing the shift from the desktop to the mobile. This isn't happening just because content is there or chips or touch screens. What counts in this case is the interface. Mobile means personal, even for people conducting business, and the key here is interface, ease of use, disciplined software and integrated applications -- and that means Apple.

The company's gross margins are two- to three-times that of traditional computer makers like Dell (DELL) -- that is two- to three-times as much margin to market. The company has a tiny market share in cell phones (less than 1% worldwide) meaning it has a great deal of room to run. If you bundle netbooks, low end laptops and tablets together, AAPL has less than 5% market share worldwide, and it has less than 2% market share worldwide in personal computers. But it knows how to execute -- Apple doubled in size during the Great Recession -- and will grow during the next recession that begins in Q4 of this year or Q1 of next year, at least in the real world.

We are currently playing the April 365 Calls. I still like them and the stock is up today as the markets struggle with Japan -- a terrific sign. Think about it.

I don't know about the "in our time" part, but having just come back from Europe, the lights going out is a good way to describe the European economies -- and that may ultimately include Germany, as well.

Simply put, business is weakening and this trend is accelerating as businesses anticipate coming austerity budgets by cutting back. They're beginning a cycle that will have a multi-year run before we see a shift back to meaningful growth.

Rome is a perfect example of this trend -- not to mention the perfect place to visit at this time of year. I spoke with business people, hotel and retail clerks, taxi drivers, waiters and so on, and the answer was the same: business is terrible, especially in businesses exposed to tourism.

That Germany is doing well means nothing since Germans spend so little outside of the basics when they travel, an age old and valid complaint. The lament was the same all over: "The Americans are gone, the English are gone and there are so few, even for this time of year." The local trattorias serving the locals were full at 9 p.m., the upscale ristorantes and places for tourists fairly empty.

What my son and I both found amusing, and akin to the U.S., was that even in tough times and in family owned restaurants -- from trattorias serving pasta to the kosher ristorantes serving fried artichokes in the Jewish Ghetto -- the men in the kitchen were not from Rome, or even from Italy, but mostly from East Asia, Latin America and the Philippines.

It is not just tourism in Europe, of course. The coming wave of government austerity has put a freeze on hiring and wiser consumers have stopped spending in anticipation of a downturn. Germany and the UK blamed recent, weak data on the unusual cold winter weather. France at least did no try to blame its anemic, 0.3% growth on snow.

Germany runs a gigantic trade surplus, roughly 5% of GDP, and a good deal of that comes from neighbors right now pulling back. In the coming months you can expect more and more bad economic data from across most of western Europe.

Is there a play here? Not yet. European markets are trading like U.S. markets, on a sea of liquidity. The long side is too risky given fundamentals, the downside too risky given technical factors, but that being said, our day will come.

Yesterday the Spanish government announced it was going to borrow money and use it to inject capital into the remaining 17 cajas (regional banks) and introduce further changes in the structure of these banks so their liabilities are more transparent. This move is having a positive impact on STD stock.

STD is a longer-term position (June) and given our losses on paper, I believe it is best to tough this out. This announcement does not change what is on STD's balance sheet or its current borrowing costs, which are higher than its competitors.

Nor does it mean Spain will not have to be bailed out by the ECB -- on the contrary, I think this increases the chances this will happen as Spain will need to borrow to bail out the cajas, and once their true liabilities are revealed the market will go very negative on everything Spanish.

Simply put, it's a waiting game.

I would not put new money to work, as the stock is moving the wrong way, but keep an eye on it. STD should turn in the coming weeks.

I am quoting an analyst in this article (http://www.ft.com/cms/s/0/7e406798-1e37-11e0-bab6-00144feab49a.html#axzz1ApHDP3FF) so please respect FT.com's ts&cs and copyright policy which allows you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article - http://www.ft.com/cms/s/0/7e406798-1e37-11e0-bab6-00144feab49a.html#ixzz1ApHcXpHc
Howard Wheeldon, BGC Partners:

"... despite the yield on the latest auction today being 6.71%... markets have already decided that Portugal requires help and that is an end of it... Even though the government managed to get the latest bond auction away does not mean that this problem is in any way solved."

I agree. Next stop, Spain.

Today's business sections and Wall Street Journal highlighted a meeting of EU financial types and their discussions to expand their bailout fund in anticipation of a problem in Spain. (http://online.wsj.com/article/SB10001424052748704803604576077541212487966.html?mod=WSJ_hp_LEFTWhatsNewsCollection).

Portugal, in my view, is next, then Spain and the Spanish banks led by STD will be hurt. It is up pre-open, as is the other big Spanish bank BBVA -- and I am relieved we picked a position in June. This is a temporary relief rally led by short covering, stick with STD.

This should not be a surprise. Consider the following:

• The U.S. needs 200,000 to 250,000 new jobs a month to break even with growth in the labor force -- or natural growth in the labor force. It needs half-a-million new jobs a month for seven years to re-hire all the people laid off and wanting work, or wanting to work more; and perhaps half-a-million new jobs a month for a decade to absorb all the people who have exited the work force in the past three years.

• The pending home sales data announced yesterday that was "great, vigorous and a turnaround" still qualifies as one of the worst months on record. Pending home sales growing at 10% year-over-year would take more than a decade to get back to where they were, and absorb inventory at its current and projected levels. Keep the homebuilders short and I'll revise these positions in the next few weeks.

• Retailers had a "great" Black Friday. But this focused on the New Frugal -- a bit more money spent, with much more money spent on higher-quality items. Forget Marshall's, go to the Coach outlet store -- that kind of thing. Visa and Mastercard data show increased revenues but flat-to-down transactions. The New Frugal means fewer sales clerks, fewer rented storefronts, fewer shopping malls.

And, consider this: two thirds, yup, 65% of the 2010 growth in consumer spending through the end of October was spent on Apple products. If that is not evidence of the New Frugal nothing is. Don't put money to work in JWN or APPL -- or any long position -- until the dust clears from this jobs report, probably by midday Monday.

• Auto sales are "robust," was the mantra mid-week. Yes, compared to last year, and for investors, they are high enough to generate some free cash flow and profits. Are they high enough to generate meaningful employment? No -- and there's no play here.

• The U.S. government is not debating stimulus, it is debating the most politically feasible way to withdraw stimulus -- here and in virtually every European country other than Poland.

The governments of developed nations will withdraw at least $700 billion and perhaps as much as $1.2 trillion in spending, all on borrowed money, in the next 12-18 months, and will continue to shrink expenditures. Outside of Uncle Sam, the states are collectively running a $144 billion deficit they will close through cost reductions and some taxes, both reducing spending, costing at least half a million state and local jobs. I'm working on positions based on stimulus withdrawal -- sneak preview, look at ITRI, it has electric grid interconnection products and the stock has been crushed and could go lower.

• Our one steady area of employment growth, healthcare, is going to take a hit next year as more people drop insurance due to double-digit rate increases, Medicare and Medicaid payment increases are pared back, affecting private sector reimbursement and political pressure from red and blue politicians hits the sector. Take a look at those puts on the PPH.

• The trading play on a real double dip is aggressive moves by the Fed, more money being printed, and that means a rise in gold and silver, best represented by the ETFs GLD and SLV. Look at these calls. The UUP, the ETF for the dollar, took a hit, stay loose on this position until things settle down.

• Be ready to exit or short the major indices when the double dip catches up with corporate profits, no later than Q3 of next year.

First, the market was at a technical support level -- 1,178 -- and bounced off of it, as it has for several weeks. It is now near a technical ceiling at 1,220.

Second, Dec. 1 is the first day of a new year for many funds. On that day, they buy.

Third, there was massive profit taking and an equally massive short-covering rally as the European bond markets stabilized after the near frenzy of the past week.

Let's see what the market does with the next technical ceiling and make our decisions from there. That being said, silver is still moving and the dollar did not sell off as much as it could have yesterday. It's still good to consider positions on the SLV and the UUP.

Two realities, actually:

The European Community bailout of Ireland is in place and creates a permanent mechanism for resolving issues such as these in the future. This should have made traders happy, but it didn't.

On to China and its 51st state, North Korea. China is showing it is, at best, unreliable as a regional leader, and totally unprepared or unwilling to step up and take responsibility as a world leader. No surprise on either front and the big winner is the dollar.

The European bailout of Ireland has not stopped bond bears from hitting Spanish and Portuguese bonds. The Japanese -- still mad at the Chinese for cutting off shipments of rare earths used in industrial products over a clash at sea -- have refused to sign up for multi-party talks to calm the Koran crisis.

The world looks pretty damned messy right now. What to do?

The December UUP trade, the $24 calls, are up 60% since I recommended it again at a nickel, and it is still worthy of Fresh Money. Ditto for the GLD and the SLV. The FXE has hit $130, the FXE puts are for January and we have time but $41.30 is a major support price, watch these for awhile before getting in.

"It ain't over 'til 'its over." And it's not over! First Greece, now Ireland, and in weeks or months the bond bears will attack Portugal or Spain. A Portuguese rescue would take another chunk out of what's left of the $750 billion dollar fund put together last summer. Spain? Forget about it, no one has that kind of change lying around except the Germans, and they are not putting any more money into the Euro rescue fund.

"When you come to a fork in the road, take it." European central bankers are doing just that -- they're taking two roads: bailing out these governments to protect banks holding sovereign debt, and at the same time saying they want stricter banking standards. What they give, they take away. This is not a way to restore investor confidence in the banks.

"Mr. Berra, would you like your pizza cut into eight slices or six?" "Six, I could never eat eight." European central bankers are trying to convince bondholders the continent-wide problem of too much debt, too-large deficits and too-little discipline can be managed if they save a handful of countries. The problem, like the pizza, is much larger than that.

What to do? The euro is slowly coming down -- and could retreat to $1.30 again, puts on the FXE and calls on the UUP and the SLV (the ETFs for the dollar and silver) are moving in the right direction.

Does this rescue mean problems with the euro are over? No. The $750 billion bailout funds created in Europe this summer was used to help Greece, and a good deal more of it will be used to help Ireland. There will not be a great deal of money left to help Spain and Portugal when they need help -- or Greece, when things go awry again next year.

Simply put, European governments have borrowed too much, spent too much and it is all unraveling, with stop-gap rescues calming markets only temporarily.

Why am I so negative?

Forget day to day, think longer term. Put the dots together and Europe is a mess that is going to get messier:

• Bond markets are screaming "default, default." Yields on the euro-denominated Greek debt are at an all-time high compared to Germany; yields in Ireland are near that point and are rising fast for Portugal and Spain.

• Greece missed deficit reduction targets put in place just a few months ago and it "promises" it will surpass them next year -- sort of like saying "your check is in the mail." Portugal has fewer problems but still needs to roll over a lot of debt. And the higher the yields, the more it has to borrow as interest costs jack up Portugal's deficit. Spain's economic, deficit and debt problems dwarf those of the other three countries and it is a country too big too fail, but too big to bailout.

• There is no political will to increase the size of the bailout fund in the one country that counts -- Germany. Chancellor Merkel is asking for tough new rules, with penalties for rule breakers -- the countries exceeding EU targets for deficits and debt. Without Germany, nothing happens.

• In theory, the ECB could do some quantitative easing (print money) to reduce yields. They have already said they will not do so and need the political buy in of Germany, a country paranoid about inflation that really doesn't exist. Next summer, the presidency of the ECB is turned over to a German.

• The relative austerity being planned by European governments is going to lead to some unsettling civil unrest -- nothing major, but enough to spook some bond traders and lead to another recession.

What does this mean for us? I was early on the UUP calls and the FXE puts, but take a look at them at their current prices. This situation is also good for precious metals -- the calls on the SLV. More on Europe next week.

The stock will take a hit this morning but hang in there -- uncertainty about the company's finances and how it will fund growth is over; and the underwriter, Jeffries, is a much more influential shop than the other analysts covering CERS.

And the underlying company is in great shape.

What to do? With pundits and even some traders already looking to the next round of QR from the Fed, the trade is not to "fight the Fed" and bad economic data means more easing or at least no changes in plans to easing. So the market will trade sideways or up as it floats on a sea of greenbacks. Our short term trades must be mindful of a possible continuing upward movement in the S+P as traders are going to ignore the reality of the jobs data. If the market pushes above the 1220 level for a few days you will see more and more long recommendations. The play for us continues to be a Fed printing money and continuing upward movement in precious metals, namely gold.

Traders, of course, are following a new mantra on Wall Street. "If economic data is bad, go long, the market will go up because Bernanke will keep the printing presses on. If economic data is strong, go long, the market will go up because corporate profits will be great in 2011." Translation: trade for today, tomorrow will never come. So far, since March of 2009, this has worked for traders. The trade of the day is QE II.

The QE II trade that has worked so far is gold - calls on the GLD. Stick with it, it should open strong this morning. AAPL is also breaking out again, could see 320-322 before it slows down.

First, some myths need exploding:

• The Country Shifts Right: Says who? Exit polls show this was a rejection of incumbents, not Democrats per se, although in many districts Democrats served as a surrogate for President Obama. The Republicans won by the good graces of independents. Social issues dear to the right were not discussed, the election was all about the economy. Or lack thereof. Both Haley Barbour, former head of the GOP and governor of Alabama and John Boehner, the up and coming House Speaker, said this was not a mandate for the Republicans, it was a mandate for change. Exit polls shows that people who voted for Republicans, by a margin of eleven to one, hate the banks. Bottom line: the country is not more business friendly, it is more Washington unfriendly.

• There Will Be More Cooperation Between the Parties: That is an amusing thought given the political types on CNN last night were already speculating about 2012. The party that said no only controls on house of Congress, or to reference Haley Barbour again, "one sixth of government." The new House will pass legislation, the way the Dems have in the past two years, that has no chance of approval in the Senate or being signed by the president. We are facing a new level of gridlock. Bottom line: gridlock means no new initiatives to help the economy given the gap between the two parties, the Republicans being anchored by tea party sentiment against any new government spending.

• Gridlock Is Good: Some evil geniuses belief gridlock is good and look to the Clinton years as proof. The economy was doing well in those years of divided government and Clinton moved his administration out of the way of the economy. Everyone is calling for Uncle Sam to do something about the economy - and gridlock will prevent said uncle form doing anything meaningful. In the past fiscal hawks said fiscal cuts were good for they helped lower interest rates. Interest rates cannot get lower, forget that idea. We all worry about mounting debt and structural deficits, and if a miracle happens and the deficit is reduced in a meaningful way, the impact of reduced spending will push the country back into a serious recession. For the record I believe in the real world we never did put the recession behind us, just in data. Economists blue and red agree that a reduction in public spending of one percent of GDP will reduce growth one half of one percent, minimum. Any meaningful reduction in public spending - federal, state, local - will be at least three percent of GDP. You can do the math. This is not a personal endorsement of more deficit stimulus spending; it is a simple look at coming reality. Bottom line: fiscal contraction means the next leg of the Great Recession.
What can government do?

• Bush Tax Cuts: The world of punditry has been divided about the probability the Bush tax cuts will be extended by the lame duck session of Congress coming back to town next week. If the Republicans decide they are running for 2012, the answer is no. If the White House is looking at 2012, the answer is no. If the parties are willing to compromise, the cuts will be extended for those earning less than $250,000, this arbitrary level the salary of a married couple, a high school principal and a high school teacher with ten years or more seniority in Montgomery Country Maryland. I have written the tax cuts will not be extended - now I believe it is a toss up. Bottom line: if the tax cuts are extended, there will be a mini-rally and this will boost GDP about half a percent in 2011. Bottom line: Extending or letting the Bush tax cuts die is not a big deal.

• Housing: Current housing inventory equals eleven years of sales at their current pace. Two million homes are in the foreclosure process, another seven million mortgages are in default. I see a housing bottom - prices and sales - around the end of 2013, perhaps the middle of 2014. Given legal realities, there is nothing the feds can do to change this situation. Every recession since World War Two has ended when the Federal Reserve lowered interest rates and people bought homes. This cannot happen this time around given interest rates are pretty much as low as they are going to be. Bottom line: housing is the motor of employment, consumer wealth and a good deal of the economy and a united or divided government has no tools to fix the problem. Bottom line: An optimistic view says the current housing market will lead to stagnation in the economy, not more recession.

• Stimulus: With Rand Paul dripping saliva in the Republican caucus in January, and threatening (my guess) to run as a third party candidate in 2012, ruining any chance of the Republicans retaking the White House, there will be no sentiment for more stimulus in Congress. The best possible package one could expect would be stimulus camouflaged as targeted tax cuts, such as a payroll tax holiday. Bottom line: no real stimulus from Uncle Sam and continuing economic weakness or shrinkage, prompting more action from the Fed.

What does this mean for us?

• QE: The Fed with its metaphorical printing presses has been driving or at least supporting the market since March of 2009 and will continue to do so until that day when traders see no more QE or higher interest rates - or both. I believe QE is going to last through the next election for I see a recession coming, another debt crisis in Europe and stagnant bank earnings and more bank losses the next two years. QE theoretically helps mitigate the impact of all three possibilities. Of course, there is no proof more QE% will stimulate the economy although it will help in the case a bank crisis erupts and will also help the banks continue to earn easy profits and recapitalize themselves. Bottom line: QE will not spur growth and may provide some tailwinds for the market, let's see how the market responds to the FOMC meeting today.

• Short Term: This casino market will continue to float or rise with the Fed's printing of money and the market will continue to ignore deteriorating or stagnant economic and corporate fundamentals - until that day when it stops ignoring them. Bottom line: the short-term market bias is up. Depending on what the FOMC does this afternoon!

• Long Term: There is a day or reckoning company for, based on history, the market cannot outperform or ignore corporate earnings forever. And, in 2011, the impact of the next recession and cutbacks in deficit spending will hit corporate profits. Forget the noise about exporters, solar energy and the cash in Al Capone's safe - it is all about national income and aggregate demand based on that income, and it will continue to be flat or shrink in 2011. Corporations will see little or no revenue growth and there is only so much you can squeeze operations to boost margins, so profits will begin to miss in the second half of next year. Bottom line: The market is going to turn, some say, to profits as a driver of stock prices, and when that happens, the market will turn. Perhaps big time, perhaps a crash.

What should we do?

• Keep it simple - continue to play QE, which means rising prices for precious metals and commodities. Look at the gold calls on the GLD. Oil is also rising, look at the OIH calls, the ETF for the oil drillers.