Wheeee!
Come on people – this is supposed to be the fun part of the ride, let's enjoy it! We felt yesterday's closing spike was BS and held onto our shorts, although they were, at that point, giving us a super-wedgie (see yesterday's Philstockworld Wrap-Up Show) as the Dollar was jammed to new lows (77.58). I mentioned in Tuesday morning's post that we had shorted USO and XLE as well as going long on TZA to short the Russell and long on EDZ to short the markets – as you can see from the charts, EDZ is up a solid 7.5% already with our short plays looking good and TZA feeling good – just in case.
Yesterday I mentioned our distrust of valuations on NFLX, OPEN and PCLN and, as Moneypenny points out in the Wrap-Up show – we had a short play on each of them so we would love a nice little sell-off despite our new, longer-term bullish entries in this Weekend's "5 Trades that Make 500% in a Rising Market." In fact, this entry gives us an excellent opportunity to fill out those bullish positions!
That's what "buying the F'ing dips" is all about, right? Don't get me wrong – we would LOVE a big sell-off but we're sure not going to count on it anymore after 5 consecutive months of gains beginning with the announcement of QE2 in early September and then the actual fact of QE2 and the relentless POMO operations since the beginning of December. It was quite clear from The Bernank's fairly combative stance in yesterday's House hearings, that the Fed has no intention of backing down – an attitude Ron Paul described as "cocky" at his own hearings, which were held simultaneously without Bernanke.
I commented to Members that having Ron Paul hold his hearings while Bernanke was given all the camera time in a Ron Paul free room was very much like telling your crazy uncle that he was getting a "special" dinner in the basement so he wouldn't bother your other Thanksgiving guests upstairs. At Ron Paul's hearings, Ohio University economics professor Richard Vedder accused lawmakers of corruption for supporting mortgage finance giants Fannie Mae and Freddie Mac and said the banking industry would be better able to manage financial crises on its own, as J.P. Morgan did in 1907.
"At least J.P. Morgan had some skin in the game. When the banks failed, he failed," Vedder said. "What does Bernanke have in the game? He gets his salary anyway, then he goes off to work for Goldman Sachs."
Even Bernanke is telling Congress, over and over and over, that the Federal Deficit is unsustainable AND that the economy is not strong enough to remove stimulus. This led the Republican members of Congress to conclude that the solution is spending cuts on vital services, repealing health care reform and additional tax cuts. Face it, we are doomed…
Barry Ritholtz has a nice PowerPoint he presented at a UBS conference titled "Investing in a Post Crash Economy" that does a nice job of laying out how we got here, and where we are:
Of course, the use of the term "Post-Crash" may be a bit premature but, as long as the Fed is able to add fuel to the money fire – we'll never know for sure and certainly our "leaders" aren't willing to find out because a dose of reality may force some hard choices and hard choices are very unpopular in an election year and every year is an election year for half the House, which is why they are such a yammering mob of spineless, trend-following fools. JMHO, of course.
It has been noted in Stock World Weekly for many months (they have a chart every week) that, when the Dollar drops, the market pops and today will be a day for the dreaded "vice versa" to assert itself as turmoil in the EU leads to uncertainty over there and gains in the Dollar. We shorted oil futures in Member Chat yesterday, at the $87.50 line and silver at $30 in anticipation of a dollar bounce off yesterday's low of 77.58 as well as our tracking of the NYMEX barrel count, where speculators and manipulators there still need to dump over 260M barrels that they ordered for March delivery (out of 293M still open) to Cushing, Oklahoma – a facility with a maximum capacity of 40M barrels that is pretty much full already.
This is just the normal monthly oil scam that has been the norm since energy was deregulated back in 2001, when oil was still in the $20s. What's different this time is that the cost of rolling those fake orders to April ($90.10) is not the usual $1 that is spent on a front-month roll but, as of yesterday's close, $3.40! The cost of rolling to May ($93.19) is now $6.48 and June ($95.13) will cost $8.42, or 10% of the price of a barrel, to buy another few months in hopes that some crisis causes billions of people to suffer so some speculator can make a few bucks.
It's not for lack of trying. Rent-A-Rebel has been working overtime the past week with Pirate attacks in Somalia, Pipeline attacks in Nigeria and worker strikes at the Suez (after the "pro-Mubarak" supporters were unsuccessful in escalating that very profitable crisis). This is where the old "Roach Motel Theory" of commodity investing comes into play as speculators went into the March contracts in huge numbers, prodded by Goldman Sachs and JP Morgan's predictions of $100 oil as well as the riots in Egypt, based on the very tenuous assumption that this would spill over and disrupt the canal traffic which, it turns out, would only affect 1.5Mb per day of shipments – hardly a threat to the US, which is sitting on a record 380Mb commercial inventory overflow in addition, of course to our filled to the gills 727 Million barrel Strategic Petroleum Reserve which means we can last a good 2 years or so being shorted 1.5Mb/day before it would even begin to effect our daily commute.
Globally, there are now 4.1 BILLION barrels of oil held in strategic reserves (this does not include commercial inventories, which represent another 2Bn barrels). That has accounted for almost one day per month of global demand in the last 5 years as nation after nation (beginning with ours!) decided to compete with their own consumers to buy oil. Now that even China and Russia have topped off their reserves – the question is – what are they going to do with it? China raised their interest rates in an effort to curb rising commodity prices and the Hang Seng dropped 2% this morning. If they want to control the price of oil, who's to say they don't begin dipping into their SPR, especially if they feel the need is temporary?
In fact, the IEA released a report this morning that indicates China’s oil demand growth may slow “noticeably” this year as the economy expands at a reduced pace and the country improves energy efficiency. Government measures to curb auto sales in the country, the world’s largest car market, will further slow oil demand growth, according to the IEA. Beijing had 306,865 applications for February’s lottery of 20,000 new license plates for private cars, the official Xinhua News agency said yesterday.
China "only" consumes 8.5M barrels a day of oil. The US consumes 18Mbd. What if the US got as serious as China about cutting back on oil? I was watching the SuperBowl this weekend and I didn't see a lot of truck ads but I did see ads for electric cars and hybrids that got over 40 miles per gallon. The current US fleet gets an average of 20 miles per gallon. What a big change in our consumption it would be if we moved to 40 mpg over the next 5 years. If the rest of the World joined us, we would have a new phrase to replace "Peak Oil" – let's call it "Peak Demand" – maybe we're already passing it.
