3 TRILLION Yuan!
That's how much money State-run China Securities Finance has pledged to support the stock market. It's 7% of the market's entire value, which is now about $7Tn, still down from $10Tn at the top. That would be like the US putting $4Tn into our own indexes? How can you be short? It's not rational to be short when this kind of effort is being put in to propping up equities by the Government.
It's nothing to complain about really. On Wednesday, as a FREE trade idea, right in the morning post, we talked about playing the Greek ETF (GREK) with 50 of the Aug $9/11 bull call spreads at 0.85, which ended up costing 0.90 per contract or $4,500 for the set, once the markets opened. Already GREK is up to $10.80 and the $9 calls are $2.10 and the short $11 calls are 0.90 for net $1.20, up 33% in 3 days.
You SHOULD NOT be able to make money like that. This is how the Central Banksters print money for the Top 1%, because we're able to make trades that are bets on bailouts and get $5,500 back on a $4,500 bet (122%) in a month. If you missed that trade – don't worry, aside from the fact that the now $6,000 bet will still return $10,000 in 30 days, you can do the same thing with FXI, which fell from $52 to $40 and should be $43 this morning but will be $46 or better after China is done pumping in more money.
When we buy 50 option contract of the China ETF (FXI) Aug $42s for $2 ($10,000 – I am guessing the opening price based on a pre-market 0.50 pop) and sell the Aug $44s for $1.25 ($6,250) we are netting into the $42/44 bull call spread at 0.75, which gives us control of 5,000 FXI contracts for just net $3,750. We can get back up to $10,000 at $44 for a profit of $6,250 (166%) in just 35 days if all goes well in China so, like GREK on Wednesday – let's make that an official play for our Short-Term Portfolio.
At $43, our trade is already $5,000 in the money – so we're off to a good start, so let's thank China's Security Finance Corp for doubling our money at the expense of the people of China, who's Government is going into debt on their behalf to prop up the Global Top 1%. After all, isn't that what Mao marched for 80 years ago?
We also have long-term bearish trades on China using FXP and CHAU but, in the short-run, you have to think 3,000,000,000,000 Yuan is going to help at least a little – just like $800Bn worth of TARP did in 2008, when Congress held the markets up for a couple of weeks before falling another 38% into March of 2009. Needless to say, we'll be cashing out FXI a bit early if it does well.
"You can fake a market but you can't fake an economy" – Phil Davis
Bond issuance in China jumped to 2.1Tn Yuan in June, up 105% from last year and up 35% from May as the PBOC cut the reserve ratio and lowered the benchmark rates. China's banks have lent 1.3Tn Yuan ($209Bn) to the country's state-run margin lender (China Security Finance Corp!) to cover shortfalls this month while they turn around and pump money into the market in the hopes of getting some of those $1.5Tn worth of losses back before they have to report them.
A smart person may ask why China Security Finance needs to borrow $209Bn when they are giving away $483Bn but not a smart person in China – who knows they'd better keep their mouths shut! Unlike this poor lady in Tennessee, China does, in fact, have their own printing press, and can get away with this sort of behavior for a while.
We were having a contest to see whether China or Netflix (NFLX) was in a bigger bubble but Netflix crushed it yesterday by gaining $7.5Bn in market cap in a single day (15%), which is double the market cap of AOL but, unfortunately, only 1% of the value of AAPL, who are about to roll out their Netflix-killing streaming service next quarter.
Unfortunately (or fortunately, it remains to be seen), we're very short on NFLX at about $106 so we'll have to see how things go but $115 per share for a company that projects to make 0.22 this year and 0.33 next year means we're looking at a p/e ratio in the 350-550 range with suckers buying at $115 today paying up at 550 times earnings today.
We figure that, at $120 a share, some clever analyst will notice NFLX has gained 100% since April, a figure that puts even China to shame, despite their annual projected earnings having been revised DOWN from 0.26 for 2015 to 0.22 and from 0.52 in 2016 to 0.33. The latter is a 36% REDUCTION in earnings outlook for 2016 in the same 90-day period that NFLX DOUBLED in price.
And you wonder why we're shorting the Nasdaq?
Google (GOOG) had spectacular earnings and added a whole NFLX to their market cap overnight and we expect great things from AAPL, but not every company can earn that kind of money. Most of the great expectations traders have for tech stocks will remain, sadly, unfulfilled but, in the meantime:
Have a great weekend,
– Phil
