by phil - May 11th, 2015 7:39 am
China has cut rates yet again.
The 3rd rate cut in 6 months (back to 2009 crisis lows) may seem like a desperate, last-ditch attempt to salvage a faltering economy to some – but not to our MSM talking heads – who see it as a bold policy initiative, well-timed to… I don't know, whatever BS they are spinning this morning to make MORE FREE MONEY sound like a legitimate strategy.
The last two rate cuts did nothing to stop the slide in GDP (it actually increased) but THIS rate cut will be different – I guess. According to the WSJ, the move comes as senior Chinese officials are growing more fearful that the mountain of debt from the rapid expansion of credit over the past few years is weighing on efforts to pick up the world’s second-largest economy.
In one of the starkest official warnings about China’s growing debt woes, the PBOC said in its monetary-policy report Friday that the “rising debt size is forcing China to use a lot of resources in repaying and rolling over debt” while limiting the room for further fiscal expansion. Meanwhile, easing measures taken by the central bank—including two interest-rate reductions since November—have largely failed to spur new-loan demand.
The chart on the left is measured in TRILLIONS of Dollars of debts that have more than doubled in the last 7 years after tripling in the 7 years before that. Local Government Debt has been growing at a rate of 98% PER YEAR since 2007 – that's new and dangerous – especially when you consider a city like Detroit, for example, is actually "only" $18Bn in debt. The entire state of Illinois is "only" $127Bn in debt. That means China's problems are like having 50 Detroits or 10 states like Illinois in an economy half our size!
As you can see from this useful IMF chart, China's issues are a rapidly slowing GDP that can't support the debts taken on by housing, construction, rail and shipbuilders and manufacturers that were based on the assumption of continuing 7%+ growth. While decreasing the lending rates helps a little, it doesn't fix the underlying business and, in fact, it…
by phil - May 8th, 2015 8:26 am
What a ride again on the stock market roller coaster. Our short position in oil continued to crank up the cash as crude fell to $58.50, up $3,500 per contract from our call to short on Wednesday morning, where we were EMPHATIC about the shorting opportunity (and you can have these reports delivered to you, pre-market, every day by simply clicking here). It's OK if you missed that chance to make $3,500 because the /ES (S&P Futures) longs I called for in yesterday's morning post finished the day at 2,085 for a $1,250 per contract gain and the /TF (Russell Futures) longs we called at 1,210 finished the day at 1,225 for a $1,500 per contract gain.
We're not playing the Futures into the Non-Farm Payroll Report at 8:30 but we have leaned back to short in our Short-Term Portfolio, which took a $3,900 (3%) hit on yesterday's bounce because we left our aggressive shorts in place as the market rose (offset by our Futures longs, which don't track as portfolio profits as not everyone plays the Futures). For the advanced traders, the system worked perfectly, with the Futures gains offsetting the losses on the bearish hedges.
As you can see from Dave Fry's SPY chart, yesterday was another low-volume, BS rally that stopped right after the EU closed (11:30), so most likely panic money coming in from overseas, where the Union may collapse over the weekend if Greece isn't extended again.
Greek Finance Minister Yanis Varoufakis said his government is prepared to go “down to the wire” in talks with its creditors as policy makers signal they’re losing patience with the country after months of brinkmanship. Varoufakis, who denies he’s been sidelined by Greek Prime Minister Alexis Tsipras in the negotiations, said he expects an agreement in the next two weeks, though one is unlikely to be announced when euro-area finance chiefs meet on Monday.
by phil - May 7th, 2015 7:09 am
We love a good market sell-off – especially when WE TOLD YOU SO and we placed our bets accordingly. I hope that you were able to do the same as our CASH!!! looks pretty good right now while our Short-Term Portfolio, which was up 123.9% at Friday's close (see our weekend Portfolio Review), closed yesterday at 129.5% – up $5,583 in 3 days!
The cool thing is, as you can see, that we are almost entirely in CASH!!! and using very little of our margin, which keeps us flexible in these crazy markets. If the market heads lower (and it's already off this morning in the Futures), our profits will accelerate as we added 50 SDS June $20 calls at $1.05. As I had said to you in Friday's morning post, we were looking to short the S&P or the Dow on the BS morning pop – and we did.
Ultra ETF hedges are a great way to take advantage of a short-term drop in the markets, they give you excellent bang for the buck because SDS, for example, is a 2x ETF that tracks the S&P, so a 5% drop in the S&P is a 10% pop in SDS.
As I noted above, on Friday, with the S&P at 2,105 we pulled the trigger on 50 of the SDS June $20s for $1.05, costing us $5,250. Since we are mainly in cash in our Member Portfolios, this was more of a bet than a hedge (and we already have long-term hedges that are less aggressive). So far, the bet has paid off and the June $20 calls finished yesterday at $1.30 – up a quick $1,250 (23.8%) so far.
Of course, now comes the fun part though as we're mostly in the money with the S&P at 2,080 (down 1.2% from our entry) and that means our Delta on the option is increasing (now 0.93) so we gain almost a full $1 (95%) for each 2.5% lower the S&P falls (if it does).
by phil - May 6th, 2015 8:24 am
And up we go again!
Fortunately, as PSW, we are able to calmly view the action with bemused detachment because we are in CASH!!! and don't give a damn what the market does from day to day.
Meanwhile, there are plenty of opportunities to make money off the up and down action, like the call I made yesterday, right in the morning post, to short the S&P Futures at 2,105, which paid $1,150 per contract at 2,082 by 3:30 – not bad for a day's work.
For the non-Futures players, we also mentioned the FXI June $50 puts, which opened at $1.45 and finished the day at $1.82 – up 25% for the day!
Oil only fell from $60.45 to $60.20 at first ($250 per contract) but, in our Live Trading Webinar, we caught a great move down from $61 all the way back to $60.45 for a $550 per contract improvement and this morning, we jumped in short again on /CL (Oil Futures) at $62 and already caught our first $500 gain, down to $61.50 – looking for a reload as we head into the inventory report at 10:30. Hopefully, we'll get another nice intra-day spike to short into (we can also go long at $61.50 while we wait).
This kind of flexibility comes from being in a CASH!!! position. We still have plenty of opportunities to add positions (a Top Trade Alert was issued just this morning on Coffee) and, even as I'm writing this (8:15 am, EST), the Dollar is once again being pushed down in order to engineer the LOOK of a rally in the indexes and commodities – once again looking to steer the sheeple back into the market so Cramer's buddies can dump their shares on them.
Today, we're not going to be the least bit impressed by anything less than the strong bounces predicted by our 5% Rule™, which are:
- Dow 17,950 (weak) and 18,000 (strong)
- S&P 2,096 (weak) and 2,102 (strong)
- Nasdaq 4,975 (weak) and 5,000 (strong)
- NYSE 11,080 (weak) and 11,110 (strong)
- Russell 1,220
by phil - May 5th, 2015 8:33 am
Here we go again!
Another big push pre-markets attempting to engineer a new high. As with most up days, yesterday's low-volume fiasco had us punching 2,120 at the open, followed by a whole day of institutions selling to all the people Cramer and Co. could manage to chase into the market, following their promise of pots of gold at the end of the rainbow.
Cramer looks a bit like a Leprechaun, who are famous for tricking people with false promises of easy money as well. We don't promise easy money here at Phistockworld, we teach people "How to Get Rich Slowly," using sound investment strategies and we DISCOURAGE the kind of hot money chasing that is the hallmark of CNBC and the rest of the MSM's advice. We are currently VERY CONCERNED with the level of froth we're seeing in the markets and we've moved our Member Portfolios mainly to CASH!!! for the duration of earnings season (the rest of May).
Maybe we're missing a rally but, if so, there are still plenty of things that we can buy with our cash for very low prices. Aside from stocks that tanked on earnings like CMG, TWTR, GOOG, WYNN, etc… There are still so many bargains in the commodity sector and, if this is a real rally and the economy is really heating up – don't you think at some point we might need some raw materials?
As you can see from the chart on the right, lumber has gotten 22% cheaper this quarter but Lumber Liquidators, who buy lots of lumber, has gone down 60% since February. Sure, they have a scandal and all that but still – don't you think getting lumber for 22% less this Q might be a long-term benefit to them? We already have a position on LL in our Long-Term Portfolio and it's about flat so far and still a good entry as a new trade. We'll go over it today in our FREE Live Trading Webinar at 1pm, EST.
by phil - May 4th, 2015 7:19 am
Chinese manufacturing keeps contracting.
A 48.9 level for April is the worst in a year and the 4th consecutive month of declines as demand faltered and deflationary pressures persisted. That is TERRIBLE news – unless, of course, you are an investor in the top 1% - in which case this means China is likely to throw more money at the problem, which will allow you and the companies you invest in to grab their share and keep acting like everything is fine for another quarter.
The latest indication of deepening factory woes raises the risk that second-quarter economic growth may dip below 7 percent for the first time since the depths of the global crisis, adding to official fears of job losses and local-level debt defaults. "China's manufacturing sector had a weak start to Q2, with total new business declining at the quickest rate in a year while production stagnated," said Annabel Fiddes, an economist at Markit. "The PMI data indicate that more stimulus measures may be required to ensure the economy doesn't slow from the 7 percent annual growth rate seen in Q1."
The overall new orders sub-index dipped to 48.7 in April, the sharpest contraction in a year. That suggested a marked deterioration in domestic demand, as new export orders showed tentative signs of improvement. Both input and output prices declined for a ninth month, while manufacturers shed jobs for an 18th month, auguring poorly for an economy that grew at its weakest rate for six years in the first quarter. An official survey released on Friday showed China's factories struggled to grow in April as domestic and export demand remained weak.
And it's not just China. South Korea's PMI came in at 48.8, also contracting and the New Zealand commodity price index fell 7.4% vs up 4.6% expected by leading Economorons. French Manufacturing was 48 but Germany was 52.1 and Europe overall was 52.1, so a better story over there.
We'll get our own Factory Orders data at 10 this morning and I don't think it's going to be good because they scheduled Chicago Fed Dove Evans to speak at noon, followed by San Francisco's Dove Williams…
by phil - May 2nd, 2015 7:43 am
What a spectacular month we had!
We're starting May off at new highs in both of our paired portfolios. The Short-Term Portfolio finished up 123.9% at $223,925, up $2,535 (1.1%) since our last review 12 days ago. That is FANTASTIC because that's our bearish portfolio which, fortunately, we had adjusted to be not too bearish as the S&P bounced hard off that floor and is now back at the top of the channel.
Because we cashed out our aggressive naked index shorts and retreated to longer-term spreads where we are BEING THE HOUSE – Not the Gambler (our core strategy), the market chop ended up being good for our wrong-way index shorts since it was worse on the calls we sold than the calls we bought. See what a simple strategy this is?
Meanwhile, we went on a shopping spree in the well-protected Long-Term Portfolio, adding 3 new short puts, one new dividend-payer and one new spread for 5 new positions in 3 weeks and the LTP finished the day yesterday up 51.3% at $756,472 and that's up $8,898 (1.2%) in the same 12 days. Making money on both our bullish and bearish portfolio at the same time is quite a feat and our combined total of $980,397 is now up 63.4% from our $600,000 start in late Novemeber of 2013 (17 months).
Also, keep in mind that we went back to mainly CASH!!! so the 1.1% gain is more impressive as we only have 20% of our virtual cash committed (not even 10% of our margin). The LTP, in fact, has $765,815 in cash and -$9,343 in net positions. Most of the gains we've had since cashing out were simply watching our "losing" positions turn back into winners as the Materials Sector cycled back around.
While the chart above serves as a guidline in "normal" markets, this market is far from normal – so take it with a grain of salt but I do want to illustrate that stock sectors do tend to have cycles and our very simple philosophy when we cashed our most of our Long-Term Portfolio on March 24th was that our underperforming Energy and Material stocks were going to come around if we gave them time and…
by phil - May 1st, 2015 8:45 am
Look out below!
The Atlanta Fed, who were the only people to accurately predict Q1 GDP, have just put out a report showing Q2 GDP will be no improvement, coming in at 0.9%, which is 2.5% (73%) below the average consensus at 3.4%. That's a pretty big gap to fill by analysts, who usually re-issue their GDP forecasts after getting a look at Q1 earnings.
As you know, our Members didn't need to wait as we went to CASH!!! last month (see our Top Trade Review) in anticipation of the correction we got a little taste of yesterday. Thanks to that little correction, our bearish Short-Term Portfolio shot up to a 121.3% gain while our bullish Long-Term Portfolio also went up to a 50.7% gain – as we kept our materials stocks, which were the only stocks that were positive yesterday as oil tested $60 (and yes, we were long on that too, but now short /CL at $59.50).
All in all, we're at a new high in our paired portfolios and, if anything, I want to get more bearish as we could have done better on a big dip than we did yesterday. We'll review the portfolios today in our Live Member Chat Room and see if we can find a more aggressive hedge to carry us into next week.
Greece might be fixed over the weekend or China may announce more stimulus and, of course, some huge company could buy some other huge company to make an even huger company – those are the only reasons we are not MUCH more bearish on the markets because we sure don't see any upside earnings surprises or any gangbuster sales in ANY sector that's reported so far.
As I noted in Member Chat, there was a $121.9Bn increase in private inventories in Wednesday's GDP Report and that ADDED 2.8% to our GDP numbers, which were 0.2%. So without this massive build-up of unsold merchandise – our economy would have contracted by 2.6% in Q1. Growth in GDP is considered a positive because there is an underlying assumption that inventories wouldn't be rising unless retailers were…
by phil - April 30th, 2015 8:31 am
After making a mighty break from the pack in March to run up with the Nasdaq for a month, the Russell has now fallen back and is, in fact, leading us lower – failing to hold the 50-day moving average yesterday by just a half a point. But it was a very significant half a point since this is the first time any index has failed to hold the line in a month.
This morning the Russell Futures (/TF) are at 1,235, which is up $2,000 per contract from where we called the short in Tuesday morning's post (you're welcome) as well as our Live Trading Webinar, where we demonstrated the shorts on the Russell and the S&P (/ES Futures), which are down from 2,107 to 2,092 for a 15-point gain at $50 per point, per contract (+$750) and you are welcome again!
1,230 is the 2.5% line on the Russell, according to our fabulous 5% Rule™, which we discussed in great detail in this morning's Live Member Chat Room regarding the S&P's past and future inflection points.
There's not going to be much support for /TF (Russell Futures) between 1,230 and 1,200 (another $3,000 per contract if you catch that move) and, since we've fallen all the way from 1,275 we're looking for a weak bounce to 1,239 (call it 1,240) and a stronger one to 1,250 and we're not going to be impressed by less than 1,250 at tomorrow's close.
Anything below that and we stay bearish into the weekend and, meanwhile, we'll be looking to see if our other indexes are going to confirm the Russell's slide. Nasdaq is now our lone high-flyer at 5,024 and you know 5,000 (25% over the Must Hold with AAPL providing 15% of it – up from $75 to $130 since last year) must hold up to impress us. The S&P, like the Nasdaq less AAPL, is up 14% at 2,110 but, as we noted, the /ES Futures, which predict the June 30th finish, are already down to 2,095 – also bouncing along the 50 dma at 2,090 – a very precarious position.
by phil - April 29th, 2015 8:14 am
I already did a full rundown on GDP.
We tweeted it out from our Live Member Chat Room this morning and you can read all about it here, so I'm not going to waste time going over it all again as there are lots of other important things to talk about.
First on my list is Lumber Liquidators (LL), which was one of the 3 Top Trades we featured on Monday at Seeking Alpha to show people how clever we are at picking stocks. We're not looking so clever this morning as LL had their earnings report and the stock is down 17%, to $27.65, on news of a $7.78M loss for Q1 (0.29/share) vs a $13.7M profit (0.49/share) in last year's Q1. $2.3M of that loss came from Home Test Kits the company sent to it's customers to verify that their floorboards weren't killing them and legal costs pretty much made up the rest.
Same-Store Sales, surprisingly, were only down 1.8% despite all the negative publicity but the company also announced that Federal Charges were pending under the Lacey Act, which is a 1907 law governing the import of plant products. There are also 100 class-action suits pending, so the legal issues aren't going away soon and will continue to hurt profits – even while the customers continue shopping. While it will be a long turnaround, we stand by our trade idea, which was:
Our trade idea for LL consists of selling 5 of the 2017 28 puts for $6.90 ($3,450), which obligates you to buy 500 shares of LL at $28 ($14,000 total potential risk on the trade if LL goes BK). We can then use the money collected to buy 10 of the 2017 $30/40 bull call spreads at $3.46 ($3,460) for net $10 on $10,000 worth of spreads.
With any luck, we'll have an opportunity today to position this trade more aggressively as LL drops back below $30 but I'll tell you right now that this is a ridiculous over-reaction to news that has already been out and is well-priced into the deeply discounted shares. Obviously, this is not an unfixable problem – they ALLEGEDLY sold wood…