by phil - July 27th, 2015 7:51 am
I told you so barely covers it on this one!
China failed to provide the anticipated additional stimulus over the weekend or today and the Shanghai Composite quickly gave up half of the gains they made over the past two weeks of MASSIVE stimulus and rule changes that STILL have many stocks halted and this time no one was allowed to cover with short sales. This morning, in fact, barely one in 100 stocks that were trading in Shanghai were not in the red with MOST of the index closing limit down. THAT, my friends, is a catastrophe!
As I noted on Friday, China's PMI showed CONTRACTION for the second month in a row DESPITE the MASSIVE stimulus – the only thing that would have been strange about today would have been a rise in the Chinese indexes. This morning, rather than new stimulus, China reported (surprise!) that Industrial Profits had fallen 0.3%. That's WITH the Government tossing Trillions at the market and WITH the CLAIM of 7% GDP growth.
You'll hear a lot of nonsense in the MSM but what's really spooking investors in China today is that you can no longer reconcile the country's fake economic data with the fake (but not as fake) Corporate Profits. We discussed some of this nonsense, here, here, here and here – if you'd like to get up to speed.
China consumes 40% of the World's coal, copper and steel and essentially acts as America's factory floor, making goods inexpensively, often in conditions that would not be tolerated in US factories. To some extent, those lax regulations are now restricting China's growth as the air is unbreathable and the water is undrinkable to the point where it's affecting the fertility rate of their population.
As noted by Morgan Stanley earlier this month, "Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession." China accounted for 38 percent of the global growth last year, up from 23 percent in 2010, according to Morgan Stanley. It’s the world’s largest importer of copper, aluminum and cotton, and the biggest…
by phil - July 25th, 2015 7:23 am
How would you like to make $7,175 in 4 days?
That's the kind of money that gets even rich people's attention and it also happens to be how much money you would have made trading just ONE CONTRACT on each of our 3 Futures hedges from Tuesday Morning's post. This wasn't some "secret" play, either – this was a public call to short the Futures (along with my explanation as to why you should) that was published at www.philstockworld.com, www.seekingalpha.com and was tweeted out and put up on our Facebook Page - all before the markets opened on Tuesday.
Most traders are TERRIFIED of the Futures market but it's really not much different than the options market with the great exception being that it's open almost 24 hours a day. That's what we LOVE about trading the futures – if we hear news that's going to move the market when it opens, we don't have to wait to make a trade that can profit from it. In the case of these Futures shorts, we initiated those trades in our Live Chat Room at 5:50 am, where I said to our Members:
Dow having a particularly rough time with IBM dragging it down. 18,000 on /YM is still our shorting line there and 2,120 on /ES and 4,675 on /NQ and 1,270 on /TF is long gone (1,258) but below 1,260 is a good signal that shorts still work. IBM is in transition mode and I still like them and they are missing from the LTP so I'll be looking for a play once the dust settles.
We KNEW, for a FACT, that IBM had disappointing earnings (which we considered a buying opportunity) that would drag the Dow lower (because IBM is a key, price-weighted component) and Futures trading allowed us to take advantage by shorting the Dow Futures (/YM) at 18,000 before the market opened. As it turned out, the 18,000 line did hold up into the open (see our premise on manipulated openings from the same day's post) and everyone got a chance to join us in our Futures…
by phil - July 24th, 2015 8:32 am
I know, it's boring!
Who wants to keep talking about stuff like China's PMI just posted CONTRACTION for the 2nd month in a row DESPITE the MASSIVE stimulus? What we liked hearing were the ESTIMATES by ECONOMORONS, who said it would improve to 49.7. As it turned out, up 0.3 turned out to be down 1.2 so our leading economorons missed this one by 500% but hey – we rallied into it!
Don't worry, we're still one more dip away from breaking into the 2008/9 low range – at the moment, we're still holding on to the lows since 2011 but, unfortunately, China may have been too distracted propping up the markets to prop up the actual manufacturing sector. That's one of the reasons commodities are collapsing – nothing is being manufactured on the World's factory floor.
“The industrial sector has seen no sign of stabilization yet,” said Xu Gao, chief economist at Everbright Securities Co. in Beijing, adding that most of the growth stabilization last quarter came from the services sector. “The government should further step up the policy supports, including further boosting infrastructure investment and expediting the debt swap program.”
ROFL! This is how our Global economy "works" people. It's not up to the Capitalists to make things people actually want to buy – it's the Government's problem to make them profitable, no matter how much time and money is being wasted!
Ray Dialo, of Bridgewater (the World's biggest hedge fund) has taken my advice and is now warning people out of China (a bit late but he finally came around).
“Our views about China have changed,” Bridgewater’s billionaire founder, Raymond Dalio,wrote with colleagues in a note sent to clients earlier this week. “There are now no safe places to invest.”
Of course Ray, with "only" $169Bn under management, isn't really the World's largest hedge fund anymore. That honor now goes to Apple's (AAPL) super-secret Braeburn Capital, whose sole purpose is to manage their own $203Bn cash hoard.
by phil - July 23rd, 2015 8:31 am
"Welcome back my friends to the show that never ends
We're so glad you could attend, come inside, come inside
"Rest assured you'll get your money's worth
Greatest show in Heaven, Hell or Earth" – ELP
As I said to our Members this morning, I was up at 3am and I did our usual pre-market skim of the news but I was so disgusted by the blatant manipulation going on at the Shanghai and in our own futures I decided to go back to sleep because it was simply too depressing to discuss.
I want to start this article by apologizing to the Bottom 90% because we're about to steal your money again. The way we (the Top 10%) do it is that we already own a lot of stocks because, well, because we have assets and you don't – because you are poor or, as Donald Trump calls it, "lazy".
You have been too lazy to get a slice of "the pie" so, as you can see, we in the top 10% now have 78% of that pie (well mostly the top 1% because we have 38% but we like to pretend the next 9% are our friends to get them to do our bidding – even while the next 9%'s share of the pie shrinks as well). If you had wanted some pie, surely you would have gone to an Ivy League School and started your own business and gone public by now – so we assume you don't like pie and we'll have some more thanks!
Before the last crash, our slice of the pie in the top 10% was around 70% and you bottom 90% people had almost 1/3 of the wealth in your 401Ks and IRS and some of you even had businesses and equity in your homes (which we lend you money to buy). We wanted more pie so we created the illusion that the pie was growing (on paper – in reality, there was no more pie) and that made the bottom 90% feel richer. Then the top 10% sold some of their pie (mostly the stale bits) to the bottom…
by phil - July 22nd, 2015 8:33 am
Apple (AAPL) lost $60Bn last night.
That's two Tesla's, two Yahoos, 3 Twitters, 8 GoPros, and 2/3 of a Boeing, who, on the other hand, had great earnings. Not that AAPL didn't have great earnings – the company made $10.6Bn, which is roughly 5% of the earnings of the S&P 500, which means AAPL is out-earning the average S&P company by 50 times yet it's only outpacing the S&P this year by 16% – or it was yesterday, today it's only about 6% over the other 499 stocks in the index, which include 100 energy companies selling $50 oil and 50 mining companies selling $1,000 gold.
So, if AAPL is overvalued, what does that say about the rest of the S&P, which has gained 40% since Jan 2013, a lot of it on the back of AAPL's incredible income? And that's nothing compared to the Nasdaq, where AAPL makes up 15% of the indexes value. Since AAPL has gone up from $50 to $130 in 2.5 years, that's + 160% and 15% of that is 24% of the 60% the Nasdaq has popped is directly related to one company – Apple.
As you can see from this BAC chart, we are conservatively 8% over the norm for S&P valuations and, when you look at the Shiller p/e ratio, which takes a 10-year view of "normal," you can see that we are 61% ahead of where we should be. I'm not as extreme as Shiller but I think a nice, 10% correction (back to 1,900) would be very healthy for this market.
Fortunately, in yesterday's Live Trading Webinar, I stressed the need for our SQQQ hedge, where we have 75 of the Ultra-Short Nasdaq (SQQQ) Jan $20 calls in our Short-Term Portfolio. As of yesterday's close, they were priced at $2.80 and today they should make a nice hedge against AAPL's earnings disappointment and we'll likely reduce back to 50 covered calls once the Nasdaq does find a floor.
I already tweeted out my thoughts on AAPL this morning (we're long at $120) and we had plenty of discussion in…
by phil - July 21st, 2015 8:27 am
Here we go again.
The S&P is testing that magical 2,130 line and let's pretend the last one didn't happen at the end of June, even though it was the same time of month at the same spot under the same conditions because THAT time we dropped 80 points (3.75%) over the next 30 days but THIS TIME is going to be different, right?
Everything, is of course, AWESOME! China – what? Greece – where? Australia – who? Japan – are they still on this planet, I thought they left? There is nothing to worry about when you don't worry about anything – just ask everyone whose ever been slaughtered anywhere, any time in history…
You see kids, Greece, China, Japan, Australia, the rest of the World… they don't matter because they are far away unless, of course, we plan to sell them stuff – then they are wonderful places where all our hopes and dreams will come true but, when their economies slow down, it doesn't affect us because – hey, look at that!
This morning, you can buy 6 barrels of oil for a BitCoin. What is a BitCoin, you may ask? Well, a BitCoin is a virtual currency that didn't exist in 2008 and on May 22nd, 2010, 10,000 of them were traded for a pizza and now that pizza maker can trade his 10,000 BitCoins for $3M in cold, hard, cash at a BitCoin ATM.
BitCoins are only one of hundreds of CryptoCurrencies that have popped up in the last few years and PSW now has a digital currency section to keep up and we've been buying GreenCoins, which we think may be the next big thing, but not ready for prime-time just yet. Over $4Bn has been put into BitCoins already and that's enough to buy 80M barrels of oil – imagine how much money is being diverted just to this new segment!
Perhaps that is why gold is losing it's luster. Bitcoins surged to match an ounce of gold last year but, since then, BitCoins have lost ground faster and now buy just about 10 grams (1/3 ounce). BitCoin's…
by phil - July 20th, 2015 8:24 am
That's how in-debt Chinese companies are. China's GDP is officially $9Tn – if you believe the current numbers they are reporting, which many people do not. Even so, that makes Corporate Debt alone 177% of GDP but, much, MUCH more importantly than that, it's 23 TIMES more than the $676Bn in Corporate Profits earned last year, which means a rise in interest rates to 5% would wipe out ALL of the profits of Chinese companies.
Rather than addressing the situation, China's banks made $206Bn in new loans in June, on pace to add more than 10% to Corporate Debt in 2015 but, more importantly, $2.4Tn in new debt in 2015 would be 26% of China's entire (reported) GDP in Corporate borrowings. Would you be concerned if US Corporations were reporting $4.7Tn in new debt this year? How concerned would you be when you realized that a full 1.5% of that GDP was made up of interest and fees the banks were charging for making these loans?
Chinese manufacturers' debts are increasingly dwarfing their profits. A Thomson Reuters study found that in 2010, materials companies' debts were 2.8 times their core profit and, at the end of 2014, they had ballooned to 5.3 times CORE (gross) profits. For energy companies, indebtedness has risen from 1.1x to 4.4x core profits. For industrials, from 2.5x to 4.2x.
Even worse (yes, it can be worse) for many companies in China, they are making profits NOT on their business but in the markets! Jinxi Axel Co, for example, has 10.5x their profits in debt and has their money in bank instruments that pay them enough interest to service their debt – they are not using it to invest in their business at all! "The risk for these (capital) programmes is so high and the rate of return so low that we have to make the best decision for our investors (by) purchasing bank products." said Gao Hong of the company's Investor Relations department.
by phil - July 17th, 2015 8:40 am
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.
by phil - July 16th, 2015 8:17 am
Isn't it amazing?
Greece is fixed because the country has capitulated to the bankers and will now be broken up and sold off for scrap. This is, of course, great news for those of you who were lucky enough to read yesterday's morning post, in which we suggested the Greek ETF (GREK) Aug $9/11 bull call spread, which filled at 0.90 ($1.70/0.80) and is already on track for the full $1.10 gain (122%) now that the Greek vote came in as we expected.
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China was so happy about the Greek news that both the Shanghai and the Hang Seng stopped falling for a day and actually bounced 0.5%, which makes the mighty Shanghai look like this chart. See – all fixed – no need to worry so the people sending me hundreds of EMails telling me to stop "bashing" China can now rest easy.
Anyway, now it's Bloomberg's turn to bash China, picking up on my post from yesterday with "Markets Aren't Buying China's Rosy GDP Claims" and "Could China be the Next Japan?" We're not bashing China, we're merely calling out the BS as it flies by after being the only ones calling the top back in May and yes, we were a bit early but we call a VALUE top to markets and that doesn't mean they can't become over-valued – it's simply the point at which we switch from being buyers to sellers.
We're sellers of Netflix (NFLX) at net $104.43 but so far, so wrong on that one as their earnings last night came in at 0.06 per $100 share, not the 0.04 anticipated and, even though you could argue that there were all sorts of bookkeeping tricks used to pull off that number despite massive outflows of cash and a miss on revenues – the stock shot up $10, which is 500x the 0.02 beat, which is in-line for…
by phil - July 15th, 2015 8:30 am
We're back to Fed watching today as Janet Yellen goes to Congress for here semi-annual testimony. Fed watchers are looking for any sort of hint that Yellen will hold off on raising rates until 2016.
In truth, there has been no such indication nor have there been any economic data points that would lead us to believe the Fed has changed their mind from their stated intention to raise rates in October.
Internationally, the data is questionable, at best. And speaking of questionable data – China reported an unbelieveable 7% rise in GDP and that is unbelievable in the sense that no on actually believes it, least of all Chinese traders, who took the Shanghai composite down 3% despite the "great" news.
Economists have frequently questioned the methodology underpinning Chinese statistics, given discrepancies between regional and national growth figures, data collection shortfalls and, at times, a lack of transparency. Several economists have constructed alternate measures of growth based on freight rates, electricity output and other data. Citibank said recently that it believes China’s actual growth rate could be closer to 5%.
“Over the second quarter, pretty much everything other than the financial sector slowed,” said Brian Jackson, an economist with data provider IHS Inc., on Tuesday, before the GDP release.
Global demand remains weak, and broad areas of the world’s second-largest economy had largely failed to respond to four interest-rate cuts and several adjustments in reserves that banks are required to hold since late last year. “Across the board, things are weak,” Mr. Jackson said. Infrastructure spending, a staple driver of Chinese growth, has failed to gain much traction as local governments battle debt and other constraints on their outlays.
If China can't get their market back on track this month, there's almost no chance they can maintain even faking this pace of GDP for Q3. Meanwhile, another Chinese trading partner bites the dust as Japan drops their own GDP expectations to 1.7% from 2% as inflation remains persistently low, coming in at just 0.7% despite MASSIVE stimulus from the BOJ.