Toppy Tuesday - Happy Anniversary Bull Market!
by Phil - March 9th, 2010 8:26 am
It’s hard to believe that just one year ago today investors thought the world was ending!
Well, not all investors - we were BUYBUYBUYing at the time, as I recapped back in September whan we did our "Market Crash - Year One Review." Click on Cramer’s picture for the Daily Show’s March 4th, 2009 review of the magical moments that led us down to the bottom and here’s another great video from the evening broadcast on March 9th and, of course, there is my own legendary appearance on LiveStock from March 6th, but that’s summarized in the crash link, so save yourself 3 hours, although the first 10 minutes are worth it for people who want to learn about our buy/write strategy as I explained the logic of it as I recommended FAS at $2.41 using those hedges.
And what a wild year it has been as we’ve made an epic recovery. The only question is - have we come too far too fast? Should we be up 75% from our March 9th lows? We are still down 25% from our highs but let’s keep in mind that we made those highs thinking AIG was MAKING money, that FNM and FRE were great stocks for your retirement portfolio, that Kirk Kirkorean was going to rescue GM, that BZH wasn’t some kind of scam, that BSC, LEH et al were "the smartest guys in the room." I urge you to click on Cramer and listen to the idiocy of the analysts who would tell you everything is all right even as it was all falling apart around them - why does everyone suddenly trust them again?
How could we not love this market? Markets do this sort of thing all the time don’t they? It’s all part of the "efficient pricing model" that always lets you know what a stock is truly worth like when GE was "worth" $30 in 2008 and "worth" $6 in 2009 and is now "worth" $16. This is not some biotech folks - this is GE, they’ve been around for 100 years and they have $170Bn in global sales. Did they really drop 80% in value in 2009? No. That’s why it was easy to pick a bottom - the valuations got ridiculous and, as fundamentalists, we siezed on the opportunity to BUYBUYBUY despite the negative sentiment.
Now, we are in a very different situation. Now we have the MSM telling us to BUYBUYBUY…
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Monday Market Movement
by Phil - March 8th, 2010 8:27 am
Asia exploded out of the gate today!
The Hang Seng is up 2% at 21,196, gaining 408 points on the day along with a 2% gain on the Nikkei (216 points), taking them over the 10,500 mark to 10,585 as they play catch-up to the Dow, which topped out at 10,566 last week. The BSE keeps going higher, adding 0.6% for the day, back over 17,000 at 17,108 and the Shanghia added 0.7%, finishing the day at 3,053.
The Hang Seng’s incredible morning gap up and 100-point follow-through, though impressive, is only a "good start" to getting that index back on the road to recovery as they had topped out at 23,000 in November and flirted with 22,500 in early January so we’ll need some sustained conviction before we get all bullish on China but, for today, we can just say "WOW" - it’s amazing how much a market can move when it’s closed!
![[iceland]](http://si.wsj.net/public/resources/images/OB-HT711_icelan_F_20100306222632.jpg)
We’re closed as well but our pre-markets are looking strong although Europe is kind of flat-lining. They are all upset because the 300,000 people who live in Iceland took a vote and decided they didn’t have $5.3Bn to bail out failed Icebank, which kind of leaves the EU investors, who deposited money into an internet savings account that promised 8% returns, in a bit of a lurch becuase (surprisingly, I’m sure) it turns out the bank took a lot of risks to get those returns and (even more surprisingly) THEY BLEW IT! Even more surprisingly to European investors, 93% of the voters said: "No thank you, we will not agree to pay $17,666 per person (about $58,000 per family) to make foreign investors whole."
What I find most funny about this is that the UK and the Netherlands had the nerve to ask Icelanders to repay this money. $5.3Bn is 1/2 of Iceland’s GDP - that would be like countries who lost money in the Lehman collapse asking US taxpayers to kick in $6.5Tn to make them whole. What do you think our vote would be? Sure we are numb to our own debt level but are we that numb? Possibly so as we seem to be happily buying oil at $80 a barrel again - sending $321Bn American dollars out of the country in exchange for a product we burn up and need again the next day. I wrote about this disaster over the weekend so no need to re-hash it…
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Fear and Loathing on the Campaign Trail 2010
by Phil - March 8th, 2010 7:54 am
I’m in a cynical mood this morning.
I just watched a presentation by Republican National Committee Finance Director, Rob Bickart, which includes the question for RNC fundraisers: "What can you sell when you do not have the White House, the House or the Senate?" and the answer is "Save the country from trending toward Socialism." This is kind of like Pepsi launcing a new advertising campaign called "Coke is rat poison!" Is this really what our country has come to?
So happy Monday to you! I guess, on the whole, this is going to be good for the markets because the Republicans are on a roll and they are going to take back the Government and this brief experiment with Democracy will come to an end. Oh and by Democracy, I mean the Democrats being in charge - I wouldn’t want anyone to think I was saying the Republicans don’t believe in Democracy. Of course they do, it says right…
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Wrong Way Weekly Wrap-Up
by Phil - March 6th, 2010 8:34 am
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This whole week did not feel right to me.
We were too bearish as I had expected a bogus commodity rally in last weekend’s wrap-up but I didn’t expect it to persist for a week, even as the dollar held it’s ground above 80, a 10% pullback off the top, when oil was $40, copper was $1.50 and gold was $850. Now oil is $80 (up 100%), copper is $3.35 (up 123%) and gold is $1,135 (up 33%). Let’s say gold is a true indicator of dollar weakness - that means that only 33% of oil and copper’s move up can be attributed to the 10% drop in the dollar (not that even that makes sense but we’ll give it to them). Can the rest be attributed to demand?
Certainly not with copper. Global copper consumption was down 1.9% in 2009 and Q1 2010 is lower than any quarter since Q1 2009 and even Barclays’ very aggressive targets for China growth only bring global demand up 2.5% this year - whch would just about bring us back to 2007 levels of consumption. That, of course, also assumes a rebound in housing construction - something we are not seeing at the moment. Also, China spent $700Bn last year stimulating their economy and one of the ways they did this was to stockpile copper. As you can see from the chart - that too appears to be winding down and even Goldman Sachs has abandoned the bullish side of copper at this point.
Oil is just as silly. According to the EIA, global oil consumption is not expected to return to 2007 levels until late 2011 - and that is with some very rosey estimates of a global econonomic recovery - exactly the type of thing that can be derailed by high oil prices! Mighty China’s consumption is projected to go from 8.66Mbd this year to 9.13Mbd in 2011, a 500,000 barrel increase. Last week, the US had a build in inventories of 4Mb - we just send those over to China and everyone is happy! I’ve already had my say on oil demand this this weekend, so let’s just move on…
Let’s just say I’m a little skeptical about any market moves that are lead by commodity pushers at this very early stage in a recovery. Prices are not going up based on demand but on expectations of demand in the future and that’s a very dangerous game to play…
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America’s Commodity Crisis - 2010 Edition
by Phil - March 5th, 2010 7:07 pm
Ouch!
We did not expect to break higher this week. After a stellar week last week where we had 49 winners in 56 trades, I’m dreading this week’s review as I really feel like my picks were too bearish overall. Of course, the bulk of our trading is in bullish long-term positions that are doing very well but that doesn’t mean I don’t like to win the short game as well. As I said at the close of last week’s review: "I’ll be in a foul mood if we have a commodity rally that moves the Dow up on Monday but it will be my own fault - as I often say to members - CASH is so much more flexible!" And you know what - we did have a commodity rally and I AM in a foul mood!
Commodities are a TAX. They are the worst kind of tax because they flatly (not progressively) charge every man woman and child in this country more money for the same food, fuel, shelter and clothing that they had to have last week in order to live. It doesn’t matter if those people are trying to save or trying to tighten their belts or trying to get out of debt - high commodity prices are a shake-down that rips money out of the pockets of the middle class and funnels it to the very, very small class of commodity producers, commodity speculators and the people who finance them and collect the fees.
Over 99% of the people in this country do not own mines or oil wells (and I’m not counting small farmers because they are literally raped by speculators and bankers, often leaving them worse-off than the consumers) or huge plantations and they do not buy futures contracts on margin with cash they borrow at prime plus 0.5% nor do they own tankers filled with 2M barrels of crude that they arbitrage along the crack spread, looking for an opportune moment to deliver their goods (hopefully during a crisis) at a maximum profit.
So 99% of the people in this country don’t even own a commodity ETF - they have no way to profit from high commodity prices and they need to eat, and they need to buy clothing and have shelter and they need fuel to heat or cool their homes and go from place to place. There is a word for people like that, at…
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Jobless Friday - US, Japan and Europe Add More Stimulus
by Phil - March 5th, 2010 7:43 am
Wheee - more free money!
The money train left the station just ahead of the US market close yesterday when the House passed a $15Bn Jobs Bill although it remains to be seen if Jim Bunning will pass it. China doesn’t need Bunning’s permission to hand out free money and they will be "allocating 63.2 Billion Yuan" to fight high housing prices by SUBSIDIZING low-cost housing. Come to think of it - I object to that! Someone in China needs a lesson in some basic economics…
The big boost this morning came from Japan, where bonds hit the highest level of the year after the Nikkei newspaper said the central bank at its March 16 meeting may discuss additional monetary easing steps. It doesn’t matter whether this report is true or not as it already did it’s job and shot the Nikkei up 223 points for the day, erasing two week’s worth of losses in a single session. It’s hard for the BOJ to get easier than our own Fed but Chicago Fed President Charles Evans said yesterday he needs evidence of “highly sustainable” growth before supporting tighter monetary policy, while James Bullard of the St. Louis Fed said the central bank should remain “accommodative” - these are, of course, the Fed’s code words for MORE FREE MONEY!
Of course, our Futures are up 1% from yesterday’s low and the commodity markets LOVE IT and oil is back at $80.65 with copper back at $3.40 despite "weak" demand in China, where stockpiles of copper are now at 7-year highs and even Goldman Sachs has withdrawn their buy recommendation on coppper because of concern that economic recovery in developed markets isn’t on “solid footing.” “About 60 percent of China’s copper is used in the power industry, and our sales to wire-and-cable users reflected that demand is rather weak,” Chairman Wei Jianghong said, while attending the National People’s Congress.
“The demand is not very strong in the first place,” Jiangxi Copper Chairman Li said in Beijing while at the congress. “But a lot of people have long positions in the market, so I think in the first half of this year, copper prices will be good.” Copper stockpiles in China jumped to 149,478 tons for the week ended Feb. 26, 28 percent more than the week ended Feb. 12, according to the Shanghai Futures Exchange. Demand from China for global supplies may weaken because prices on the Shanghai Futures Exchange are now close to those in London, discouraging arbitrage trading, Goldman Sachs analysts…
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Thrilling Thursday - Consumers Still Unemployed, but Shopping!
by Phil - March 4th, 2010 8:23 am
The MSM is so happy about the February Monster Employment Index!
They’ll tell you it’s up 10 points from January without mentioning that January was the worst month of the past 12 and, in reality, we are up just 2 points from last February when the shockingly poor data we were seeing sent the S&P all the way to 666 the next month. Today though, it is considered a reason to rally as people watching the MSM will believe anything the talking heads tell them because they don’t get shown the actual results and they trust their talking heads to have checked the facts carefully, rather than make them up, which is pretty much what they do.
We discussed the shenanigans of the ADP report in yesterday’s post and I did warn you that it was a fake rally based on happy headlines papering over poor data. As we expected, the market giddiness persisted until about 11:30 and then reality began to bite back. This was FANTASTIC for us as we were playing bearish into the rally but it’s very scary to hold bearish positions overnight but there’s no reason to hold options overnight when you pick up plays like our 9:54 Alert play on the DIA $103 puts, which averaged in at .77, hit $1 (up 30%) at 2:45 and finished the day at .94 (up 22%). You HAVE to learn to be satisfied with making 20% on day trades and cashing back out. Cash is flexible - overnight positions are not… In fact, since we did cash out yesterday, I was able to send out an overnight Alert to Members with a short on the oil Futures as they ran up to 80.50 which was good for a quick victory and then another this morning at $81, which is already up .30 with a .06 trailing stop (futures pay $10 per penny per contract so lots of fun for morning, pre-market trading!).
We went longer on our oil and gold shorts (in yesterday’s post it was GLL Apr $9 calls at .65) because we don’t expect them to resolve quickly but the chart on the left illustrates why we also firmly believe that this commodity rally is BS. This is a chart of the Employment to Population Ratio for Men 25-54 Years Old since WWII. Kind of puts a 2% year over year rise in the Monster Employment Index into perspective doesn’t it? 20% of the men in the United States of America between the ages…
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Which Way Wednesday - The Beige Book Boogie
by Phil - March 3rd, 2010 8:15 am
The last Beige Book report was on January 13th.
At the time the futures were flying and we were bullish but Dow was looking toppy and I thought we were going too far, too fast and called for caution - despite our "Meatball Market" at the time. Just like yesterday, I was not happy with the fundamentals to the point where I felt it necessary to keep pointing them out while the parade of analysts at CNBC et al told everyone to BUYBUYBUY at the 10,750 top. I don’t like to be Chicken Little but sometimes the sky is actually falling! The January book had very little "good" news to report (see my analysis for Members that day) and we took our money and ran on the long side. Although it wasn’t until the next Tuesday that we actually went down - it was a doozy and we fell over 500 points in 3 days, all the way to 10,165 (our 5% rule) and we continued weakly through 2/8, when we bottomed out at 9,900.
Whoever said this charting stuff was complicated? Just follow the 5% rule, draw some lines and PRESTO - we know what’s going to happen! Well, at least we hope we know what’s going to happen because I’ve spent a good portion of my week so far telling Members NOT to trust the rally we’ve been having and to expect a downturn with today’s Beige book a possible catalyst for a correction. From experience, we know there is not generally an immediate reaction to what is essentially a collection of anecdotal evidence about the state of the economy but it does give us an overview of the nation and I haven’t seen much news in the 6 weeks since the last report to make me think this one will be showing any great improvements.
It’s a tough call at the moment because there is clearly a determined effort to get the markets to move up but we are loaded up with bullish plays from our visit to 9,900 so it pays to be a bit more bearish with our short-term plays as we test the top of our MAYBE range. We have had some good news this morning with MBA Mortgage Applications up 14.6% as rates fell back under the magic 5% mark and, of course, that’s a rebound off of last week’s TERRIBLE showing, probably weather related.
69% of the activity was refinancing, which is nice but it doesn’t move homes or employ any construction…
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Tuesday - Bill Gross Gives Us 90 Seconds
by Phil - March 2nd, 2010 8:28 am
Our favorite bond pimp is in some mood this month!
Maybe it’s because, despite PimpCo’s best efforts, they failed to tank the markets last week but Gross starts his March newsletter off with this harsh chart but his words are even harsher - saying of cocktail parties:
I suppose the parties wouldn’t be so bad if there was something original to be said, or if “you” had a genuine interest in “me” as opposed to “you,” but let’s face it folks, no one does. The only reason any of us really cares about cocktail conversations is to quickly redirect someone else’s stories into autobiographies that we assume to be instant bestsellers if only in print. If not, if the doe-eyed listener seems simply fascinated by what you’re saying, you can bet there’s a requested personal favor coming when you finally shut up. “Say Bill, I was wondering if you knew somebody at…that could…” Yeah right! But, as my chart shows, 90 seconds into a typical conversation, no one gives a damn about you and your problems – maybe those shoes and that dreadful eye shadow you’re wearing, but not anything audible coming out of your mouth.
Yow Bill! Tell us how you really feel… After telling us how appalling he finds it to endure 90 seconds of our time at a party, Bill then asks for his own 90 seconds to teach us about economics. I’m not going to edit as it is about 90 seconds worth but after that opening - don’t you find it kind of hard to read what he has to say without looking for a place to throw a virtual punch?
To begin with, let’s get reacquainted with the fundamental economic problem of our age – lack of global aggregate demand – and how we got to where we are today:
(1) Twenty years of accelerated globalization incrementally undermined the real incomes of most developed countries’ workers/citizens, forcing governments to promote leverage and asset price appreciation in order to fill in what is known as an “aggregate demand” gap – making sure that consumers keep buying things. When the private sector assumed too much debt and asset prices bubbled (think subprimes and houses, or dotcoms/NASDAQ 5000), American-style capitalism with its leverage, deregulation, and religious belief in lower and lower taxes reached a dead end. There was a willingness to keep on consuming, there just wasn’t the wallet. Vigilantes – bond market or otherwise – took away…
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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