Wednesday Worries – Yentervention, Euro Style
by Phil - February 8th, 2012 5:16 am
78.50 on the Dollar!
The Yen finally got back to 77 and EUR/CHF back to 1.21 so my theory that the BOJ has given up on the Dollar and moved to boosting the Euro is playing out nicely.
This does not make me more bullish (expecting falling Dollar to boost the markets) because, in the grand scheme of things, this is kind of like now there are two kids building a sand wall on the beach instead of one – sure it will last longer than the wall just one kid was building but, eventually, the tide will get it anyway or, as Jimi Hendrix said more poetically: "Castles made of sand, fall in the sea, eventually."
Once you start messing around with Forex markets, you are messing with major macro forces that are hard to control. Japanese banks have $7.5Tn of Japanese bonds at 1% – what happens to the value of those bonds if the BOJ does push the Yen down 10%? Who takes that $750Bn hit? What if rates go up to 2% – what's the value of the bonds then? Who will bail out the Japanese Banks when they have a multi-Trillion Dollar (several hundred Trillion Yen) hole in their balance sheets? Do Japanese spreadsheets even have room for Quadrillions? They are going to need it!
Then there's this Bloomberg article on the Central Banks, who have doubled their balance sheets since 2006 to $13.2Tn but, magically, have caused no inflation (according to Ben Bernanke – not according to people who actually buy food and stuff). China is now sitting on $4.5Tn of other people's TBills (mostly ours) and that's up $1.5Tn in a year. The ECB is right behind them with $3.6Tn and another $1Tn supposedly coming in the next EFSF round and the Fed has $2.9Tn plus whatever nonsense they are running off book.
So, how is it that WE are the bad currency here? If the Dollar is a problem, then China, who's GDP is only about $8Tn (optimistically, possibly $5.5Tn depending on who's measuring) is almost as insane as Japanese bankers and maybe more so as they are betting on our country's ability to pay and maintain the value of the Dollar (already a fail, right?). I suppose no one can ever recognize losses and just carry more and more junk…
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DiggTumblin’ Tuesday – Keep on Rolling
by Phil - February 7th, 2012 8:19 am
Got to roll debt baby, call it the tumblin' default.
That's the theme for the week as Greece gets yet another final deadline extension to come up with more and more concessions so they can borrow even more money that they will never be able to pay back. "Honey, got no money" is the line that should be obvious to EU Stones fans as the IMF's chief economist insisted that Greece must cut wages to boost competitiveness and pull the country out of its economic quagmire. "Either you basically increase productivity growth a lot and quickly, and you keep wage growth moderate, or you decrease wages," said Olivier Blanchard.
"It is a pretence that the measures are taken to forestall bankruptcy," Communist party leader Aleka Papariga told the gathering crowds at today's National Strike. "On the contrary, they will lead the people to misery to benefit the plutocracy and capital," she said.
Sadly, only the Communists are telling the people the truth in Greece – the people are being sold into decades of wage slavery as a population that has already voluntarily accepted 25% wage cuts is now being forced to accept additional 30% wage cuts while the ECB and IMF shove another $192Bn worth of debt down their throats that is ONLY to be used to pay off bondholders who took advantage of them in their time of weakness to force them to roll over their debt at record high rates.
Sacrifices MUST be made, says the former VP of the ECB – who is now the Prime Minister of Greece (unelected as Papandreou was forced out) – but he's not talking to the creditors, but the Greek people, who will still, even if they work for 1/2 wages for the rest of the decade, be 120% of their GDP in debt by 2020 (down from 160% today). So the Greek people are being asked to sacrifice their own retirement and their children's future rather than telling the Banksters to take a hike.
And people wonder why we can't get…
Monday Market Madness – What’s This Greece Thing?
by Phil - February 6th, 2012 6:20 am
NOW Greece is going to matter?
Just when we were planning to get bullish, the Futures are off half a point as concerns about Greece, of all things, come back to the forefront as pretty much the entire country is poised to strike this evening on the expected news that even stricter austerity measures will be jammed down the throats of a Nation that is already suffering from 20% unemployment.
Greece's debt is "only" 159.1% of their GDP – that's just lunch money to Japan and you don't see anyone worrying about them, do you? Portugal's debt to GDP ratio has gone from 106.5% to 110.1% last quarter but the year before it was at 91.2% so let's look on the bright side and say their debt acceleration is slowing. Ireland also "only" rose to 104.9% (not 105%!) from 102.3% and that's much slower than the run from the previous year's 88.4%, which is about where the UK is now (85.2%) and that's below the EU average of 87.4% so bravo Britain and all that!
As I said to Members in this morning's Chat, I am resolved to only look on bright side of the news until we fail to hold our technical breakouts at Dow 12,749, S&P 1,333, Nasdaq 2,863, NYSE 7,866 or Russell 815 – as long as those hold up, we are beyond the reach of news gravity and should all do our best to ignore all that silliness going on on Earth and just concentrate on which stocks don't have p/e's of 100 yet so we can keep buying along with the crowd.
Looking at our Big Chart, we certainly have an impressive-looking breakout and far be it for me to point out it came at the expense of a weak Dollar so, unless you were 100% in stocks and gained along with the S&P faster than the Dollar fell, you probably had a net loss of wealth during this "rally" as the declining Dollar decimated the value of everything else you worked to build over your entire life but, hey – look at that S&P go!
Jobs are also on the march, unless you listen to Rush Limbaugh and the rest of the Conservative Media's spin on the subject. The last thing the Right want's to see is Americans going back to work – especially during…
Income Portfolio Feb Update – The Joy of Nothing
by Phil - February 4th, 2012 8:15 am
Nothing!
Not one move since expiration day and that's the way uh-huh, uh-huh we like it in our virtual retirement portfolio because, when we actually retire – who the hell wants to have to work – even when that job is simply pushing a couple of buttons on a computer screen once in a while? Our long-term outlook has been bullish since we began this portfolio last April and we did nothing when the S&P fell 300 points and we did nothing now that it's back up 300 points – to about where it was when we started.
Our goal here is to simply generate a monthly income of $4,000 using $500,000 invested without depleting the principal – the kind of thing that my Mom and many of her friends need to do to supplement their not very generous Social Security checks. Please see previous posts in our Virtual Portfolio section for our main strategy discussions – this is just an update.
Our last update was on January 12th and we finally had some work to do after taking 4 consecutive months off as we just laid back and collected our Q4 dividends but January had a lot of our short sold January positions coming due or paying off. We knew this was going to be our time for action as there really is no such thing as a free lunch – even the investing class has to roll out of bed and sit at a desk a couple of times a year!
Prior to making our moves, we had $80,617 of realized gains (positions we had cashed in) against $39,965 for a $40,652 net gain in our 8th month so averaging a bit better than $5,000 a month and well a head of schedule but this is the month we EXPECTED to do well in so we'll see how we made out. The following positions were closed:
- 1,000 shares of RRD paid a .26 dividend on 1/25 – up $260
- 1,500 shares of NYB paid a .25 dividend on 2/3 – up $375
- 4,000 shares of AA paid a .03 dividend on 2/1 – up $120
- 2,000 shares of F paid a .05 dividend on 1/27 – up $100
- 10 KFT Jan $30 puts sold for $1.60, expired worthless – up $1,600
- 10 EXC Jan $37.50 puts sold for $2.20, expired worthless
…
Friday Follies – No Jobs but Hey, Look at Facebook!
by Phil - February 3rd, 2012 8:19 am
Distractions.
That's all we have lately. Greece's silly $171Bn loan is meant to distract us from Europe's $17Tn debt hole and the US continues to borrow $171Bn PER MONTH to cover it's deficit and we don't even talk about Japan as the debt climbs over 220% of their rapidly declining GDP and who knows what's going on in China but, generally, when you have double-digit declines in home prices on a monthly basis – there's going to be a problem down the road.
This may be my last bearish post before drinking the technical Kool-Aid this weekend and we've already selected 5 trades for our Members that will make 200-500% if the market keeps moving forward and there are still plenty of stocks we can make a lovely Buy List out of if this rally has legs – especially the way we like to bet, since our hedges allow us to make very nice returns, as long as we simply hold our current levels.
There's the rub though – are the current levels sustainable? The nice thing about consolidations like the one we've been having this year is that they firm up a floor and give us a very obvious exit point on the way down so we can move some of that sideline cash into play – as long as we hold 12,500 on the Dow and 1,300 on the S&P and 2,800 on the Nasdaq – pretty simple strategy, right?
Notice the 2nd row has our major indices priced in Euros and our third priced in Yen. My main issue has been that we've been much weaker than it seemed as the Dollar's relentless decline masked a downturn in the inflation-adjusted price of our stocks (and the weak Dollar also serves to inflate revenues reported by multinational companies) but, at the moment, we're at our breakout levels by any measure so we may as well go with the flow until we see a proper reversal.
First we need to get past our NFP report at 8:30 of course. I'm expecting a miss but will the market even care or will that just mean Uncle Ben has an excuse to pump up the QE according to their new "formula"?
Keep in mind that what Bernanke said last week regarding the Fed's system for determining policy boils down to – As long…
Still Thinking On Thursday – Can’t Get Bullish
by Phil - February 2nd, 2012 8:15 am
I am trying!
I watched Fox news for hours last night and I did learn that Warren Buffett is an evil, criminal mastermind who must be stopped and that Obama is soft on the Taliban so following through on his pledge to end the war is nothing more than an insidious plot to garner votes by…. uh…. doing what he was elected to do – THE FIEND!!!
Damn, see – it's not working. I'm hardly any dumber (but I am much less tolerant of poor people and minorities) and I still can't get behind this market rally. Oh wait, before we get off the Fox topic, I want to point out another "big" news story they featured. It seems that we're finally cracking down on welfare recipients who spend their money at strip clubs. The House passed a bill yesterday as bill sponsor Charlie Boustany (R-LA) pointed out that, with all these welfare people spending the Government's money at the strip clubs, he had to wait over a half hour to get a VIP table so he could spend the Government's money at the strip club. Outraged Congressmen passed the bill 395 to 26 (women) as this was an issue that really hit home for them!
If we finally hold our chart levels, my mission this weekend is to kill as many brain cells as possible so I can stop understanding the news and just buy the f'ing dips, which will be our game plan until the levels are blown again and it's safe to switch our brains back on. On the right, we have a Rorschach Test for the day to see if you can be oblivious enough to go bullish at the top of our range.
If this chart doesn't bother you – you may be ready to rally! You are also ready to brush off the OWS movement as "squatters" – something else I learned on Fox last night. That's right, they are not protesting – thousands of people are actually gathering in parks to get "free rent" as they can't possibly have a legitimate complaint against the rampant abuses of Capitalism that are tearing this country apart.
Well maybe not this country but Japan is sure about to break as Finance Minister Azumi calls out the Fed's "pledge" to keep rates microscopic…
Wall of Worry Wednesday – View From the Top
by Phil - February 1st, 2012 8:16 am
Here's your "rally."
You'd better be making money in the markets because your cash, your home, your savings, your income – everything else you have has been slashed 5% in the past 18 days in order to make you feel better about the markets. Americans have roughly $100Tn in Dollar-denominated assets and it cost us $5Tn in less than 3 weeks to prop up the markets. Was it worth it? Will the next 5% be worth it too?
Welcome to the World of weak-Dollar policies. The Fed confirmed it's rumored $1Tn extension of QE on the 24th, by extending ZIRP through 2014 (and we did the math on the price of that policy last Thursday), $1Tn is nearly a 10% expansion of our Money Supply so of course the Dollar begins selling off but one would think the equally easy ECB would balance it out a bit but, so far, not at all as the Euro was already unnaturally weak against the Dollar out of fear of a currency collapse. As that comes off the table, even the Trillions of Euros being shoveled into bailouts seem RESPONSIBLE when compared to our own Fed's constant money drops. At least the EU demands to see some sort of balance sheet improvements before they hand out funds…
So far, the chart remains the same and we have the same gap up from $131.20 on the SPY to our $132 ceiling (see yesterday's notes) that we have had day after day after day as the pre-market programs do their very best to give us the illusion of strength – even while our currency is collapsing and that $132 we can get for one of our SPY shares buys 5% less stuff than it did 3 weeks ago.
But the chart LOOKS good and we got our official "golden cross" yesterday but, funny thing – it did not set off a buying frenzy – did it? One might pause to wonder why buyers are ignoring the most significant technical buy signal the markets can give if one were inclined to think but that is an activity that is actively discouraged in America these days and believe me – they'll know if you try it!
That's right, we are now arresting people for tweeting as homeland security yanked Leigh Van Bryan off a plane, detained him and sent him home…
Tuesday Tokyo Take-Down Trepidation
by Phil - January 31st, 2012 7:48 am
I think I've seen this movie before.
Or, more accurately, I've seen myself on TV before predicting intervention by the Bank of Japan as the Dollar fell to these lows (131 to the Dollar) against the Yen, to the point where it began to impact the earnings of Japanese export corporations and forced Japan's Central Bank to take action to boost the Dollar and weaken the Yen, which has the unfortunate side effect of tanking the markets.
They did this on August 4th (link above) when I predicted the 20% correction on the button (down to 1,100) and again on October 29th, when we cashed out our White Christmas Portfolio after catching the run from 1,100 all the way back to 1,292 (17.5%) and once again nailed the Yentervention, that came just 2 days later and sent the markets plunging back to 1,158 into the Holiday.
Since Thanksgiving, we have gone all the way back to 1,333 – and that's 15% up from pre-Thanksgiving and 24% up from the October low at 1,074 and almost exactly 100% up from the S&P low of March, 2009 at 666.79. 666, as we know, is the mark of the Blankfein, so we take our numerology seriously at PSW – hallowed be Lloyd's name!
Anyway, so we're up 24%, which is a bit much without a significant correction and let's say 1,100 is the proper base and 20% up from there is 1,320 and you can see from Dave Fry's SPY chart that we're into a serious zone of resistance here with a very toppy-looking MACD and RSI accompanying this quadruple-top.
Yesterday we discussed some of the Global Macro forces at play but this morning we only have to look at Toshiba and Honda's quarterly reports, with both companies down around 70% in profits and issuing poor guidance based, in large part, on the too-strong Yen – to get a pretty good idea of the pressure the BOJ is currently under to take some sort of action right away.
JFE Holdings, Japan's second-largest steelmaker posted their first loss EVER – also on Yen strength and their outlook for next year is break-even. Demand for steel is slowing in Asia and Japanese Steel is far more expensive than competing, weaker currency-based manufacturers.
Last week, Japan had it's…
Monday Market Momentum (or lack thereof)
by Phil - January 30th, 2012 8:13 am
Does this look good to you?
Here's that GDP analysts found so exciting on Friday and this very chart is from the WSJ article that spins it: "US Economy Picks Up Steam." I would especially like to draw your attention to the big graph on the right, which shows Household Spending, which is 70% of our economy, only now just getting back to our 2007 highs while Government Spending (20% of our GDP) begins to tail off and Real Estate and Business Spending are in an anemic at best recovery. And this is AMERICA – We're supposed to be LEADING the Global recovery.
By the way, huge Greek nonsense in Europe this morning – big market mover, blah, blah, blah – if you want to delve into that, we already wrote about it in great detail in Stock World Weekly, in our Week Ahead section (pages 10-14), so no need to go over it again. In fact, a lot of what is being considered "breaking news" today by CNBC and Bloomberg was already fully covered by us over the weekend.
Instead I think it's a good time to reflect on the good old US markets and whether or not they are worth buying back at our lofty pre-crash levels. Wall Street Rant does a nice job of summarizing the McKinsey Report on the Global Equity Gap - something our US-based traders have a difficult time absorbing since we are, by far, the most market-centric nation and, much like the Spanish Inquisitors who locked up Galileo, they don't like to hear that the Universe doesn't revolve around them…
US investors, in fact, do own 41.7% of all the World's equities and Western Europeans own 28.9% – that's 70.6%, leaving just 29.4% for the other 85% of the World's population to care about. Now, you may think that's somehow proportional to our share of the assets but it's not – in fact, the US is unique in that we actually own far more equities than we have assets – by 42%! So, even in stock interest – the US is running a tremendous net deficit with the rest of the World.
Japan's asset to equity ratio resembles their usual balance of trade, they buy a lot less than they sell. China holds 10% of the World's assets (1/3 of what we have) but…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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