by phil - December 9th, 2014 7:54 am
Well that didn't take long, did it?
Our Nikkei and EWJ short positions continue to rake in the cash as that index drops another 122 points overnight but, more to the point, we nailed the switch to the fresh horse of China for our readers, as FXI topped out right at our $42 target, almost to the penny, before dropping back into the close and this morning the Shanghai Composite dropped 5.43% from above the 3,000 line – all the way back to 2,856.
Now, I can only tell you what's going to happen and how to make money betting it – the rest is up to you. For our Members (and you can get this kind of money-making information every day by joining us HERE), our trade idea for shorting FXI with options was the Jan $40 puts at 0.88, and we picked up 20 of them in our Short-Term Portfolio for $1,760 – and those should do very nicely for us this morning.
Our whole Short-Term Portfolio performed well yesterday, gaining $5,000 (5%) as the market dropped, which is what it's designed to do as a counter-balance to our bullish Long-Term Portfolio, both of which we reviewed extensively over the weekend (sorry, Members only).
There are just 13 position in our STP and they are, of course, generally bearish. Very bearish, actually as they gained 5% on a day the S&P only dropped 0.71% – today should be interesing indeed (and we have a Live Trading Webinar for our Members at 1pm).
We titled yesterday morning's post "Monday Melt-Down" and I sent out an Alert to our Members and for FREE to our FaceBook Followers regarding the dreaded "Hindenburg Omen" as well as actual news I found disturbing over the weekend. As I mentioned, we already had a substantial short position in our Short-Term Portfolio and, frankly, we thought the drop would begin last week. In our $25,000 Portfolio Review, we elected to pick up the DXD (ultra-short Dow ETF) Jan $22 calls at 0.70, and those should be doing well this morning as the Dow Futures are pointing to another 100-point drop today.
by phil - December 8th, 2014 8:00 am
Now things will get interesting.
As you know, we've been making a very public call to short the Nikkei through EWJ (short at $12, using Jan $12 puts at 0.55 as well as /NKD Futures short at 18,100) and today you've officially missed your chance as the Nikkei plunged back to 17,900, down 200 points from the open on a downward-revised 2nd quarter GDP report that clearly puts the World's 3rd-largest economy in a rapidly deepening recession.
Since Japan is an EXPORT economy, that means that other people are not buying their stuff – despite the fact that the Yen is down 36% in the past 24 months and down 15% since just the end of August. That makes Japanese goods cheaper abroad and increases the amount of Yen taken in by the exporters when they sell goods in foreign currency and it's STILL not enough to pick up the sagging GDP of Japan.
That should scare people yet, strangely, it doesn't. In fact, investors have never been LESS scared – as measured by runaway Bull/Bear Ratios and a ridiculously low Volatility Index (VIX) that is somehow indicating that a Dow that has climbed 1,500 points in 60 days is NOT volatile.
I suppose, if you take the very narrow definition of volatile to be "liable to change rapidly and unpredictably, especially for the worse" then no, the market is not very volatile as it only goes up. HOWEVER, the primary definition of volatile is the one I'm worried about (probaly because my step-father was a chemist) and that one says "easily evaporated at normal temperatures." THAT is my concern about this "rally" – it could easily all vanish in a puff of smoke.
Outside of the US, the rest of the World sucks and the Global markets (see chart above) are reflecting that with a fairly flat performance for the year. Hell, the S&P would be in the same boat had not we magically been saved in October and we're still not quite sure what exactly happpend to turn our particular local markets so gung-ho bullish – outside of the generally conspiratorial theme of…
by phil - December 6th, 2014 7:29 am
Just a quick post to summarize our four Member Portfolios.
As noted on Wendesday, we are well-balanced and very, very Cashy in our portfolios as we head into the end of the year. We've made great profits and we're not sure which way the market will end up so, essentially, we're taking a defensive stance to lock in our virtual gains and, as you can see from Dave Fry's Russell Chart – we're certainly not missing anything as the broad-based indexes (NYSE as well) have been flatlining since October.
As noted on Thursday, our main portfolios, the Long-Term Portfolio, which is hedged with the Short-Term Portfolio began the year with a combined $600,000 ($500/100) and have been holding the $760,000-$785,000 range since November, when we parked our positions in neutral (balanced between bullish and bearish) into the holidays. The two portfolios are up $179,000 for the year (29.8%) so of course we want to protect those gains!
Short-Term Portfolio Review (STP): Back to $165,000 (up 65%) after a scare on Tuesday as the SQQQs got priced really low, for no particular reason. We'll have to consider if we are too bearish here, or perhaps simply not bullish enough in the LTP. Remember, this portfolio isn't SUPPOSED to make money – it's here to protect the LTP – this is just a happy accident…
- DXD – Why do we have so many of those? We'll leave them this weekend but no point in rolling them since we have TZA for Jan protection.
- TZA – Speak of the devil. Well, since we're killing the DXDs next week, TZA becomes our primary short-term hedge and I'm good with that with the RUT back at 1,180 and TZA is at $13 so the $13 calls at $1 start making money on an over 5% drop between now and Jan – that's what a hedge is supposed to do. Yes, I know we bought them for $2 (and we lost $10K on the DXDs too) but that's just the cost of our insurance. We need to forget about that and focus on the $5K we have in
by phil - December 5th, 2014 8:23 am
Let's celebrate mediocrity!
It's Non-Farm Payroll day and we're expecting to see the obligatory 250,000 jobs added to the labor force, which seems nice – until you realize that's only 3M per year in a population that grew 3M last year and we are STILL missing, 6 years after the collapse, 5% of the Jobs (7.5M) that we used to have.
What's changed to bring unemployment down from 10% to 5%, despite the flatlining total employment, is the stunning decline in people who are bothering to work in the first place. A matching 7.5M people have simply dropped out of the labor force since 2008 – giving us the illusion of low unemployment without having to actually hire more people.
That's why wages have been able to flatline for 6 years as well, despite 6 years of inflation that has eroded the buying power of those few people who do still work in this country.
Less jobs, less workers and the people who are working are making less (adjusted for inflation) than they have made since the 1930s – how exactly are we supposed to be turning this economy around?
Well, from the Top 1% point of view, we can buy our labor (not to be confused with slavery – where we had to feed, clothe and shelter and train our workers) cheaper than ever. This has led to skyrocketing Corporate Profits – especially if you keep in mind that the profits reflected on this chart are only what they report (not counting what they hide overseas or depreciation or other accounting tricks) net of the losses of other corporations and they are still up 150% in the past 5 years while Labor has taken a 10% hit.
Imagine extrapolating this chart and what it means to your children and grandchildren if you do nothing to change things now. If you are in the Top 1%, of course, not only do you NOT want this chart to change but some of you will do whatever it takes to make sure this trend continues. If, on the other hand, you are one of those lazy…
by phil - December 4th, 2014 8:11 am
Shanghai popped 4.3% today.
That would be like the Dow gaining 800 points in a day. Ho-hum – it's just the kind of thing we've come to expect in what Daniel Stetler refers to as "Ponzi World," saying:
We all are in a Ponzi world right now. Hoping to be bailed out by the next person. The problem is that demographics alone have to tell us, that there are fewer people entering the scheme then leaving. More people get out than in. Which means, by definition, that the scheme is at an end. The Minsky moment is the crash. Like all crashs it is easier to explain it afterwards than to time it before. But I think it is obvious that the endgame is near.
Of course, if this is the "end game," I'm sure China bulls will saying "Thank you sir, may I have another" after this morning's action. We're looking forward to an opportunity to short FXI (now $42) but we're not going to jump in front of the runaway train that is China at the moment. We are, on the other hand, still shorting Japan (see yesterday's post) as we're betting on "peak Abe" into the upcoming elections.
Of course, "peak Draghi" is the big concern of the morning as the ECB did NOT change their policy this morning – and that's coming after Mario promised us that "the ECB must take action without delay" only two weeks ago.
Not taking action on the last meeting of the year seems like a delay to me – but let's hear Draghi's song and dance at 8:30 this morning (we're already shorting the Futures – see my Early Morning Alert to Members on Twitter).
8:30 Update: Let the BS storm commence! As we expected, the markets are tanking on disappointment from the ECB indecision and Draghi's comments are not helping matters. We've got a 5-point ($500 per contract) drop on /TF (Russell Futures) already and 8 points ($400 per contract) on our other selection – the /ES (S&P…
by phil - December 3rd, 2014 8:20 am
Higher and higher we go!
The rest of the World seems a bit tired but the S&P, Dow and Nasdaq are like the energizer bunnies of the Global Indexes as they keep going and going and going…
Earnings don't matter, Fed policy doesn't matter, news doesn't matter – IT just doesn't matter! – and that's something I haven't had to say since the bad old days before the last crash. Still, here we are again, just 6 years after a catastrophic market collapse – ignoring wave after wave of negatives as if they JUST DON'T MATTER.
Well, it's true in a way, nothing really matters – until it does. For example, did you know, on Friday, that our nation's debt passed the $18Tn mark? Even I was surprised by that one as our debt just topped $17Tn last November so adding another Trillion in a year seems kind of quick, don't you think? Don't worry though – there's 150M workers so all we have to do is each come up with $113,333 each and we're all sqare.
If we DON'T all come up with a quick $113,333, then we may have a problem as the interest on $18,000,000,000,000.00 at even just 2% is $360Bn per year, which by itself is $2,400 for each working American. The reason the top 1% tell us not to worry about the debt is because $2,400 isn't very much to people who earn $2M+ per year but, for those of you earning the average $48,000 a year – it's 5% of your salary.
Notice the projection for the next 6 years takes us to $23Tn and let's say interest rates head up to 4% – then, suddenly, the annual interest is about $1Tn per year and that's now $7,500 per working American – just to pay the interest! We could default, but there goes your Social Security as we've already robbed that lock box of close to $3Tn to fund our (so far) $18Tn debt.
by phil - December 2nd, 2014 8:29 am
Lots of interesting chart levels today:
As you can see from our Big Chart, the damage has been done over the past week as the Russell has once again failed at the Must Hold line, as has the NYSE and now we're watching 17,600 very closely on both the Dow and the Nikkei (which we're shorting this morning at 17,800 on /NKD Futures) and the Nasdaq has been rejected at the 20% line (ridiculous anyway) and the S&P will test its 10% line at 2,035.
While I'm not a big proponent of TA, we still pay attention to it as the majority of traders are using it and that makes it a self-fulfilling prophesy as so many people trade off the same lines that the lines appear to have some meaning.
In truth, those lines are no more a barrier to stock movement than the lines on the highway are to stop you from changing lanes. You might generally stay within the lines but, every once in a while, you simply cross them.
The fact that you USUALLY don't doesn't lead you to conclude that they are a wall, does it? Why then, when looking at a chart, would you conclude that arbitrary lines are a floor or a ceiling to movement? Surely the stock doesn't know where those lines are.
AAPL sure didn't know where it's line was yesterday as that stock had a mini "flash-crash" and plunged to $111.50 (6.3%) in the first 21 minutes of trading yesterday and then spent the rest of the day recovering half of its losses.
There were stories about weak IPad sales but nothing particular worthy of a panic sell-off and, in fact, BCS upped their target on AAPL to $140 before the market opened - certainly nothing worthy of AAPL losing $40Bn in market cap in less than 30 minutes!
AAPL's drop took the Nasdaq with it, of course, as well as other high-flyers like BABA – as traders simply start dumping first and then try to find out why they are doing it. Fortunately, at PSW, aside from being…
by phil - December 1st, 2014 7:57 am
Putin played the Game of Thrones this year in Ukraine and, like many in the TV show, he's lost it all in his grab for power. As you can see from the RSX chart on the right, the Russian market (which Vlad had about $50Bn tied up in) is down 10% in two days and heading off another cliff today in what we, at PSW, refer to as a Homer Simpson Sell-Off.
Russia is, of course, an oil-based economy and Mr. Putin's holdings are very much tied up in the oil and gas sector with a 4.5% stake in Gazprom, 37% of Sturgutneftegas and 75% of oil trading firm, Gunvor, which is facing massive losses as oil has collapsed from the FAKE top at $107 we called for you on June 20th all the way down to $63.72 this morning. Following our suggestion to short them there (in our Live Member Chat Room that morning) would have put you up $43,000 per contract at this point – not bad for 6 month's "work"!
Of course, we have been in and out of oil shorts over and over and over again in the interim but always with a bearish bias until we hit our $80 prediction and, since then, we've gotten more cautious and even made some LONG-term bullish bets but the bottom seems to be lower than even I predicted back in June ($70) though it may just be an over-reaction to the OPEC meeting – we'll have to see.
Meanwhile, there's no good news on the demand front as China's PMI kicked off the Global slump this morning with a 50.3 reading, down from 50.8 in October and the lowest since March while the private HSBC reading put them at 50 – not expanding at all. That was followed by Moody's downgrading Japan's (we're short) Credit Rating and that is a REALLY BIG DEAL for a country that is 260% of their GDP in debt.
When you are 260% of your GDP in debt, a 1% rise in your borrowing costs means you need 2.6% MORE of your GDP just to
by phil - November 28th, 2014 8:14 am
Oil is failing $70!
$66 is a 40% (strong) retracement from the $110 top we saw just over a year ago but this time may be different as OPEC ended their meeting with no agreement to reign in the massive over-supply of crude that's spilling out onto the markets, even in the face of continuing declines in consumption.
This is good news for consumers on two fronts - especially in the US, which has been miles behind the rest of the World in fuel economy. What we're seeing in play now is the lasting effect of the Obama Administration's Aug 2012 mandate that has required automakers to double the average fuel economy of new cars and trucks by 2025 to 54.5 miles per gallon and, already, by 2016, we are on track to hit 35.5 mpg on the average.
As the biggest guzzlers of gasoline in the World, the US was consuming 10.5Mb of gasoline per day when Obama took office in 2009 and already we are down 14% to 9Mb/d, which is a 14% decrease in oil consumption. 1.5Mb/d is 1.7% of the entire World's 88Mb/d oil habit but that number too is shrinking as it doesn't pay for auto manufacturers to make high-mileage cars just for the US, so the entire global fleet has been using less and less for 4 years now.
Getting to our goal of 54.5 mpg over the next 10 years will cut another 53% off our current consumption. If that feat is replicated Globally, we're taking about knocking back another 15Mb/d – at least!
And it's a double-win for consumers as their cars not only consume 14% less gas but that gas itself is now less expensive. During the Bush era, for example, gas was $4.00 per gallon and cars were getting 22mpg so the average citizen driving 15,000 miles a year was using 682 gallons of gas for $2,728 in fuel costs. Now, even at the early stages of the Obama Fuel Act, at 33 mpg it's only 454 gallons of gas and, at $2.85 per gallon, it costs just $1,294 to drive for the year – a $1,434 annual savings PER CAR!
by phil - November 26th, 2014 6:14 am
Let's not worry.
We're in the midst of a fantastic bull run so why ruin it with rational thinking? Barry Ritholtz used to be a rational guy but now he shills for Bloomberg (#8 on the Forbes 400 with $35Bn) and posts things like "Current Dow rally below average in both duration and magnitude" in order to encourage the beautiful sheeple to keep BUYBUYBUYing what his boss is SELLSELLSELLing.
I've warned before about how the smart money is leaving in droves while the dumb money piles in. Back on Sept 8th (S&P 2,010), for example, I wrote "Clear Proof of Massive Market Manipulation", saying:
It's pretty similar to what happened every day last week, with a high-volume (relatively) sell-off followed by a recovery on almost no volume into the close, giving us the impression that the markets are flat.
It is unbelievable, as in – something that should not be believed by intelligent people. When you see a magician on stage sawing a woman in half or levitating – you might be amazed at what a good trick it is but you don't start believing in magic, do you? What if that magician asks you to bet your retirement on the fact that he is really levitating people or that his assistant can medically be cut into pieces and reassembled?
You wouldn't risk your money on such obvious fakery, would you? You wouldn't give your hard-earned money to a person whose job it was to deceive you, would you? THEN WHY ARE YOU PUTTING YOUR MONEY INTO THIS FARCE OF A MARKET?