by phil - January 20th, 2017 8:38 am
Did the Romans know it was over?
In 476 AD, the Germanic leader Odoacer, deposed Emperor Romulus Augustulus and that was the true and official end of the Roman Empire but Rome was first sacked in 410 by Visigoth King Alaric and had limped into it's final decades. But you have to go further back than that as the Goths killed Emporer Valens in 378 but he was only the "eastern Emperor" of Rome as the country had already split along party lines due to political in-fighting which caused Emporer Diocletian to divide the Empire into 2 halves. Those two halves could never agree on Government priorities and the Empire essentially dissolved into chaos.
Unlike today, January 20th, 2017, there was no particular day to point to and say: "Yes, that's when the Romans elected a guy who said he will change everything and he did – and then the Empire was destroyed." We will have the luxury of knowing exactly when we made the decision that pushed America over the edge – or maybe on to greatness (again) – who's to say?
On the bright side, as noted by Samantha Bee, Trump doesn't actually do what he says. Or, then again, maybe he does because, as he said in Michigan: "When you cast that ballot, just picture a Wall Street boardroom filled with the special interests who are bleeding your country and your city and everyplace else…" He is certainly delivering that already, with what the Washington Post calls "the worst Cabinet in American History" – a complete and utter sell-out to Wall Street and Special Interests.
by phil - January 19th, 2017 8:20 am
Has the Dollar bottomed?
After a 2.5% pullback to start 2017 the Dollar has popped 1% in the past two days after Janet Yellen made a 3pm speech saying U.S. economy is “close” to the Central Bank’s objectives of full employment and stable prices and she’s confident it will continue to improve.
“It is fair to say the economy is near maximum employment and inflation is moving toward our goal,” Yellen told the Commonwealth Club in San Francisco Wednesday. While “it makes sense to gradually reduce the level of monetary policy support,” the timing of the next interest-rate increase “will depend on how the economy actually evolves over coming months,” she said.
So the better the economy does, the faster the Fed will raise rates (duh!) and Yellen indicated a target for a 3% Fed funds rate by 2019, which would be 9 raises from here – a faster pace of increases than most economorons were expecting. Inflation is, of course, exactly what we're expecting in 2017 and 2018 and I discussed that strategy on Money Talk last night.
The last time unemployment was this low was back in 2006 and 2007 and that marked the end, not the beginning of the market rally. Full employment leads to higher wages and higher wages lead to inflation and that is so obvious I feel silly for saying it but, apparently, it's a surprise to "leading economists" who are consistently shocked by things they should have learned in Econ 101.
That's why I'm growing a beard – I've decided to become a leading economist so I need to start looking the part! As you can see from this chart, 4.9% unemployment is low but we've been down to 4% so we can go lower and our new President promises to create those jobs (1.6M jobs = 1%), which is no different than promising to create inflation and so, we have our "Secret Santa’s Inflation Hedges for 2017," including the Trade of the Year we discussed on TV last night.
by phil - January 18th, 2017 8:50 am
That's the sound we make at PSW when we get a nice sell-off and it doesn't get much nicer than making $1,500 PER CONTRACT off our call to short Oil Futures (/CL) at $53.20 in yesterday morning's post as we rode down a $1.50 drop back to $51.70.
That wasn't our only winner either – Gasoline contracts (/RB) were shorted at $1.65 and they fell quickly to $1.60 so we took that money ($2,100 per contract) and ran though they picked up yet another $840 in the overnights as gasoline continued to fall – all the way to $1.58 this morning where we flipped long (as well as long on oil at $52.50 on the new, /CLH7 March contracts) – looking for a small bounce but with little conviction – as we still think oil can go lower.
As we have told you, we can make great calls like this because the energy markets are just a scam and we have a pretty good idea of how that scam works.
Now, there are some people (who shall remain nameless) who think that NYMEX traders trading 4 BILLION barrels worth of contracts (4M) back and forth during a month in order to ultimately accept delivery of less than 20M barrels (0.5%) is somehow legitimate speculation but the friction costs alone of trading 200 barrels for each barrel delivered ads $20 to each barrel purchased in the US – even if it were legitimate, the practice should be stopped!
Yesterday, I printed a chart of the NYMEX open contracts and I said that the 197,589 open orders (at 1,000 barrels per contract) for February were FAKE!!! and that they would be cancelled and put into other months to FAKE!!! demand in future months so the cycle can repeat. Our short bet was based on the pressure they had to sell or roll the Feb barrels over the next few days. Already today we can see the difference:
by phil - January 17th, 2017 7:57 am
Are we there yet?
The average volume trading on SPY, the S&P ETF is 100M shares per day yet this month, the average has been 70M so about 30% less trading than "usual", which was very slow to begin with (down 25% from last year). A lot of times, if you are day-trading and you feel like you're the only one in a position – you are probably right!
As you can see from the above chart, when you see these kind of toppy, sloppy patterns – it's best just not to trade and wise traders go to CASH!!! (have I mentioned how much I like CASH!!! lately?) and wait PATIENTLY for conditions to improve. If that chart looks familiar to you – just check out what the S&P 500 Futures (/ES) have been doing for the past few weeks:
That is what they call a "textbook" example of a market that is not good to trade. That's why we stopped making calls in our morning posts after a fantastic first week of the year: A) We didn't want to ruin our perfect record and B) There were no longer any very obvious trades to call. We did, however, call oil short at $54 on the 6th and it's been up and down but now $53.20, which is still up $800 per contract from where we called it and now we're calling that one short again (/CL) as well as Gasoline (/RB) at the $1.65 line.
Why are we short oil and gasoline? Well oil, in particular, is nothing more than a gigantic fraud of a market that is based on the artificial manipulation of what has always been, historically, a plentiful supply. As we all know, OPEC spent most of last year promising to cut production and, FINALLY, this January they actually did cut production, by 1.5% of Global supply and this morning they spiked oil from $52.20 to $53.20 by releasing a statement from the Secretary General predicting oil prices would stabilize in 2017 and hit $70 by the year's end.
by phil - January 13th, 2017 8:24 am
What a ride!
On the whole, we've gone nowhere since Christmas. The S&P Futures (/TF) were at 2,260 on 12/26 and they finished the day yesterday at 2,266 with dips and pops along the way but, ultimately, nothing happened. Great news has already been priced in and the markets are now looking for justification to these all-time highs. S&P earnings are expected to be up 15% in 2017 but most of that is because Trump is expected to cut taxes – not because things are getting so much better in Corporate America.
The Fed has been fairly consistent in letting people know they expect to hike rates 3 times in 2017 and 3 rate hikes are certainly not baked into this market. We'll be getting earnings this morning from 6 Big Banks and the Financial sector is up 17% since Election Day – can they justify that kind of price action? JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), PNC Financial (PNC), First Horizon (FHN) and First Republic (FRC) are scheduled to report, as well as BlackRock (BLK) and, so far, BLK, BAC and FHN missed on Revenues with FHN also missing on earnings with PNC beating and we're waiting for FRC and JPM.
In anticipation of disappointment in the Financials, we put up a nice hedging play using the Ultra-Short ETF (SKF) offset by a bank we thought would recover (WFC) in Monday's post. We'll see how that plays out later today. Our target is $33 to make $6,150 but, so far, no shockers. Of course, I'm not sure you need a shocker to knock financials back from a 17% run, which knocked SKF back 25% over the same period.
Ah, there's JPM and they earnings are up 2% from last year but how does that justify the 2016 50% bull run from $57 to $86? It's the same with BLK, who made $4.75 last year in Q4, when shares were $300 but now shares are $378 (26% more) with earnings hitting $5.14 (8.2% more). That's pretty much the story for the 2016/2017 market – paying 3x for incremental earnings!
by phil - January 12th, 2017 8:34 am
Down and down the Dollar goes.
While Americans may have been thrilled with whatever it was that Trump and his lawyer said in yesterday's press conference (pundits are still trying to figure it out), the rest of the World lost faith in the Dollar and sent it to it's worst 24-hour drop since 2001 from just under $103 to $100.75 (and still falling) is more than a 2% drop in the value of the Dollar and the US indexes, which are priced in Dollars, gained half a point and everyone thinks it's a rally – idiots!
Oil, also priced in Dollars, jumped up from $51 to $53 (and still climbing) and that's up 4% and boy did we call that one wrong yesterday for our first Futures loss of the year. Gold was up 2%, etc. etc. – in other words, the Dollar went down and all the things priced in Dollars went up but, notably, not so much the equity markets. In fact, if you look at the S&P and divided it by the price of oil over the past few months, you get a very disturbing trend:
In fact, since the election, we've lost 17.3% of our buying power and, for the year, 1/3 of our buying power has disappeared while the stocks have "rallied" to record highs. This is what happens in inflationary times – your portfolio may go up in value but, when you try to convert it to Dollars and then try to buy something useful with those Dollars – you find that you've fallen very short.
Why the sharp loss of faith in our currency yesterday? Well, after waiting for two months for Trump to give his first press conference, he said nothing of substance. No infrastructure program, no jobs program, no agenda at all other than repealing Obamacare and that comes with no particular plan to replace it – which could be a disaster for 20M people who will lose their health care.
Then there are the economic issues in the US that the market has been ignoring: Wells Fargo (WFC)'s take on the ICR Retail Conference sums it up nicely as they call the entire Retail…
by phil - January 11th, 2017 8:28 am
We're short oil at $51 (/CL).
The API report last night showed a 1.5Mb build in Oil, a 1.7Mb build in Gasoline and a 5.5Mb build in Distillates and, if that's matched on the EIA report at 10:30 this morning – you can say goodbye to $50, which would be a $1,000 per contract gain in the Futures.
It's all starting to fall apart and that includes Trump's plan to be President. I'm not going to get into it but it's best to read the UK's Guardian's article for an outsider's perspective on this mess (and this follow up timeline) and, if you dare, to read the actual intelligence briefing on Trump's ties to the Kremlin, with it's horrifying details. As noted by Trump spokeswoman Kellyanne Conway last night, these are "unverified" claims and that's true because, if they were verified, a lot of people would be going to jail for espionage!
Now we know why Hillary said she is going to the inauguration next week – she still might end up being the one who's sworn in! While it's doubtful that still-President Obama will declare martial law and delay the transition until a full investigation is completed – it's not impossible at this point and markets really don't like political uncertainty – especially in a leading World power.
That's all I'll say about it for fear of being censored for political commentary and then you would miss out on our oil call and other hedging ideas as well as a repeat of our main idea to make sure you have plenty of CASH!!! to ride out what could be a major black swan crisis.
We're back to shorting the Russell Futures (/TF) below the 1,370 line (tight stops above) and we expect a rising Dollar (already 102.50) to put downward pressure on the indexes as well as commodities but it's going to be wild and we probably won't be playing those. If you want an option play to hedge with the Russell, I suggest the following using the Ultra-Short ETF (TZA):
- Buy 20 TZA March $18 calls for $2.25 ($4,500)
- Sell 20 TZA March $22
by phil - January 10th, 2017 8:30 am
“In a word, I was too cowardly to do what I knew to be right, as I had been too cowardly to avoid doing what I knew to be wrong.” – Dickens, Great Expectations
That sums up the mood of the market very nicely. In this very interesting chart (thanks Scott Miller), you can see how the earnings expectations for the S&P 500 are generally fantastic at the start of each year, only to lead to crushing disappointment by the end of the year. 2017 earnings expectations are already down 15% from where they started and 2016 actual earnings are coming in 20% below early estimates.
In fact (I know, what are facts?), ACTUAL earnings for 2016 are only 8% higher than 2013s earnings were yet the S&P itself has risen from 1,500 in Jan 2013 (when expectations were higher than the actual 2016 earnings) to 2,268 at yesterday's close. That's up 51.2% on 8% more earnings – boy are we suckers! And keep in mind these are OPERATING EARNINGS – not including interest payments and taxes or, as investors like to call them – real profits!
Any way you slice it, we're paying at least 20% too much for equities based on their actual performance. 20% off 2,268 is 1,814 and our fair value estimate for the S&P on our Big Chart is 1,850 and if earnings do rise 8%, as expected, then we'll be happy to raise our bar 10% to 2,035 so let's say that's the fair forward value of the S&P.
As you can see from this Haver Analytics chart, since 2013, S&P companies have taken on a tremendous amount of debt, much of it used for stock buybacks, which reduces the number of shares the earnings are divided by to make earnings look like they are improving – even when they are actually not. In fact, the real earnings of the S&P 500 are DOWN 9.01% from 2013.
by phil - January 9th, 2017 8:01 am
This is getting tedious, isn't it?
Now the MSM cheerleaders have taken to saying "if only this" and "if only that" to lament how close the Dow came to making that magical 20,000 mark – as if it means anything other than the markets are officially, ridiculously overbought.
Once again on Friday, down volume exceeded up volume by a wide margin on the NYSE and the number of shares that declined outpaced the number of shares that advanced – which was pretty much the story for the weak as the Nasdaq and the S&P both made all-time highs against a backdrop of this very weak action.
There's not likely to be much help today as 3 potential future Fed Chairmen speaking at this weekends American Economic Association meeting suggested that monetary policy would be tighter if they were in charge. Yellen, who still has a year left in her term, whill speak at 7pm on Thursday in a week with 6 other Fed speeches while the US looks to auction off another $100Bn worth of TBills in a fairly unfriendly environment.
More importantly, it's earnings season and earnings trump data – especially when expectations are for 15% earnings growth in 2017 to justify the insane valuations that are already being given to stocks.
Banking is the sector that is expected to carry most of the weight in earnings growth, followed by Energy and expectations for both seem overblown to me but we'll get a good clue as to the state of the Banking sector as Bank of America (BAC), JP Morgan (JPM), Wells Farg (WFC), PNC (PNC), First Republic (FRC), First Horizon (FHN) and Black Rock (BLK) all report on Friday morning (the morning after Yellen speaks with Harker speaking before the bell Thursday and Friday).
Sounds a bit like the Fed is anxious to put some spin on those earnings, doesn't it?
by phil - January 6th, 2017 8:13 am
Now we're 7 for 7 in 2017 Futures picks!
As I noted in yesterday morning's post, we were still waiting for Wednesday's Live Trading Webinar (replay here) pick, shorting the Russell (/TF) Futures at 1,385, to bear some fruit and we were well-rewarded with a $1,000 per contract drop that began about 10:30, leading us to a $9,290 winner on our 10 contract position, capping off a perfect week for our Futures Trade Ideas.
While it would be smart to quit while we're so far ahead, no one ever said we were smart and this morning we're back to shorting Oil (/CL) below the $54 line as It's up on a weak Dollar as well as general silliness after the Saudis announced that yes, they really have cut production, just like they said they would when oil was $40. We've already gotten a 40% bump out of this news – how many times can they say the same thing and get another bullish reaction?
OPEC won't actually publish production levels until mid-February and, even when they do, you can't trust them. OPEC data is not based on physical counts but on surveys and computer modeling based on numbers submitted by member states – who have been known to cheat and fudge their numbers for decades.
Speaking of decades, we're just one decade away from the US becoming a net exporter of energy in 2026, according to yesterday's EIA Report. In all but two of the seven cases modeled in the report, the EIA predicts that the US will become an energy exporter within the next decade, as natural gas production and exports rise and petroleum imports decrease.
One could argue that the US is practically a net exporter already as we exported 23.26M barrels of Petroleum Products last week and we STILL had a net build in inventories of another 6.1M barrels. So already, 29.36M (58%) of the 50.45M barrels we import from overseas in a week were not needed for US consumption – yet oil prices are $22 (68%) higher than they were last year – there is no logical reason for this! …