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…
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DiggMonday 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…
Thank GDP It’s Friday – Reality Cheque in Davos
by Phil - January 27th, 2012 8:22 am
It's World Economic Forum time!
This is one of my favorite conferences as the Global Elite head over for their annual gathering and schmooze-fest where they end up wandering around and trying to get seats with the cool people at lunch and trying to find out where the good parties are and getting told there's no tables at the restaurant they want to go to – just like normal people! Nassim N. Taleb described it to Tom Keene of Bloomberg Television, the event is “chasing successful people who want to be seen with other successful people. That’s the game.”
The minimum price for admission to the conference is $50,000 for a membership to the World Economic Forum plus a $20,000 ticket to the conference so $70,000 before trying to get a hotel room at a place you won't be embarrassed to mention to the other guests. Getting to Davos is also a nightmare at the best of times but worth it for the skiing, if not the schmoozing. In short, it's group of people who have at least $80,000 to blow on a weekend sitting around discussing the problems ordinary folks like themselves face in the ever-changing global economy.
The event is being be well-covered (best so far by Josh Brown) and we will get many, many sound-bytes and, like any conference, there is sure to be some enlightening information if you are lucky enough to catch the right lecture but I'd probably enjoy it a lot more if someone sent Ricky Gervais to ask a lot of awkward questions and point out what BS this exercise is than having to spend another week watching the CNBC girls throw their panties at passing Billionaires.
Meanwhile, in the real World, the UK's GDP CONTRACTED by 0.2% in Q4. In short, the country is sliding back into recession, with economists expecting another dip in the first quarter of this year. As one expert tells the Wall Street Journal:
"Our bet is that the U.K. is now back in
…
Free Money Thursday – Quoth Bernanke “Forever More”
by Phil - January 26th, 2012 8:25 am
But where's my Trillion Dollars?
Federal Reserve officials said they expect to keep short-term interest rates near zero for almost three more years and signaled they could restart a controversial bond-buying program in yet another campaign to rev up the disappointing economic recovery.
The Central Bank's pronouncements came after a two-day policy meeting from which officials emerged still frustrated at the slow pace of growth and a bit more confident that inflation is settling down after climbing last year. The combination of persistent slow growth and low inflation, Fed Chairman Ben Bernanke signaled in a news conference after the meeting, could give the Fed leeway to take more action to support the economy, though he didn't commit to it.
A bond-buying program—also meant to push down long-term interest rates—could be the next step. Mr. Bernanke said there would be a "very strong case" for even more action by the Fed "if the recovery continues to be modest and progress on unemployment very slow and inflation appears to be likely to be below target for a number of years out."
What amazes me is not one reporter at yesterday's news conference asked Dr. Bernanke what is COSTS to ARTIFICIALLY keep rates 3.75% below what his own board considers "normal" for another 3 – 4 years. Maybe that's because we don't know what it cost already, do we? We do know the Fed now has a $3Tn balance sheet. Since I don't recall a bake sale at which the Fed sold $3Tn worth of cookies, I have to imagine that money was borrowed from somewhere and don't things that are borrowed eventually need to be paid back?
I mean, I understand that, since Reagan, there has been a massive effort to destroy the American Education system and make the beautiful sheeple as dumb and compliant as possible (a less crazy article on the subject here) – but surely there must be some reporter who was accidentally exposed to some rudimentary economics who can come up with a better question than "when in 2014?"
Apparently, it is beyond the grasp of the MSM that, when the Government borrows money at 3% and lends money at 0.25% – SOMEONE has to pay that 2.75% difference. I don't know how to put this in the "new math" terms my kids are learning but, in old math, if I…
Which Way Wednesday – Will Ben Blow It?
by Phil - January 25th, 2012 8:30 am
We are at a serious inflection point!
As you can see from Springheel Jack's chart of the S&P, we've fallen out of that uptrending range and tested our support yesterday, saved only by a very weak Dollar in anticipation of massive dilution of said Dollar by our own Federal Reserve commencing sometime around 2:30 this afternoon (FOMC announcement at 12:30, Bernanke Speaks at 2:15 and "new open guidelines" somewhere around there) that has sent the Dollar down 2.5% in two weeks.
The Fed will do whatever the Fed will do but, since easing is already widely anticipated, we've generally bet against it into this meeting. Last night, the bears got quite a jolt at the end of a generally bearish day when AAPL announced blow-out earnings, with an 83% improvement in American sales and a 219% gain in Japan. Only the slow rollout of IPhones in China (remember the riots at the Apple store) stopped the company from having a $50Bn quarter.
This is good stuff, it's nice to know that it's still possible for US companies to USE (rather than complain about) the changing Global Infrastructure to create, manufacture and distribute profits to make oodles and oodles of money. So much money, in fact, that AAPL now has $97,500,000,000 in cash and investments on their books – which kind of puts their soon to be market-leading $450Bn market cap into perspective. If AAPL were a country, it would likely be passing Argentina ($435Bn GDP) to become the 28th largest country in the World and settling in right behind Norway ($479Bn) and Iran ($475Bn) – not bad for a country started by two hippies in a garage, right?
Still AAPL is only 1/33 of the entire US GDP so let's not get too excited and pay a little attention to what the other 96.7% of America is up to. That was neatly summarized for us by President Obama last night in his 4th State of the Union message.
I'm already a fan but I thought it was a great speech and I'm sure a lot of top 1%'ers were tossing and turning last night as the President asked for a 30% minimum tax on people earning over $1M per year. While that may not seem like a big deal to you – to someone earning $1Bn and paying a Romney-like 13% tax…
Tuesday – Topping Out or Just Pinning the Fed?
by Phil - January 24th, 2012 8:26 am
Tough call today.
The Dollar bounced off 79.75 this morning, nothing to crow about for Dollar bulls as the Euro remains just over the critical $1.30 mark and the Pound is solidly over $1.55 for the moment.
You could say it's a bearish sign that the Dow and the NYSE stopped dead at our breakout levels but that's to be expected on a first attempt at breaking out – even if they have already attempted the same move back in late October, when the Dow was 5% lower in it's test and the NYSE was testing the same line (7,866).
Our broadest market index is the one that's holding everyone back as what little volume there has been in this rally has been fairly narrowly focused on certain leaders. Now a pessimist might say that this is a reflection of the blatant manipulation of the indexes in which certain Banksters place buys on stocks that have disproportionate positive effects on the junior indexes in order to fool retail traders into believing there is a rally while the Banksters drive the VIX down to multi-year lows, dump all their stocks on the bagholders and prepare to cash in by crashing the markets on a major event like tomorrow's FOMC Rate Decision which is, in fact, very unlikely to have any language specific to the QE3 that has been promised by the MSM since Thanksgiving.
An optimist would say – well, you can read almost any MSM site for that. It's lonely at the top of the range when you are bearish, one by one the other bears capitulate and soon you are there all by yourself with your shorts – your lovely, lovely, cheap shorts! The Dow shot up yesterday to just over the 12,749 breakout line we have as the tippy top of the range on our Big Chart so of course I called for DIA puts in Member Chat. The DIA Feb $123 puts, which came in around .75 and finished the day not much higher at .78 after topping out at .95. Ranges usually hold – if you're not going to have conviction at the very top of a range to short – when will you? For one thing – you have a very good stop line to watch!
As noted by Dave Fry in his SPY chart, the bulls have engineered their golden cross…
Monday Market Musings – More Monetary Madness
by Phil - January 23rd, 2012 8:29 am
More Free Money – OR ELSE!
That's the rally cry from new IMF chief (appointed under mysterious circumstances) Lagarde gives in Berlin this morning as she warns the world faces descent into the 1930s without – among other things – greater resources being devoted to various bailout mechanisms – the EFSF, the ESM, and of course, the IMF.
As we turn the page on a turbulent year, a year in which so much of what could go wrong did go wrong, many look to the future with trepidation and foreboding. They worry about uncertain economic prospects, dwindling job opportunities, and rising inequality. About what kind of future awaits their children.
Indeed, in the economic outlook that the IMF will release tomorrow, we will lower growth forecasts for most parts of the world. Even these lower forecasts assume a constructive policy path that is by no means assured.
In too many places, uncertainty is holding back demand and the willingness to lend. A legacy of high public and private debt is hurting economic prospects. The global financial system remains fragile.
In an interconnected world like ours, these forces are feeding each other across borders. Capital flows to emerging markets have already dropped off, and growth is expected to slow even in the most vibrant parts of the world economy. Low-income countries are especially vulnerable.
This speech was, of course, delivered in German. I believe the translators at CNBC quoted Ms. Lagarde as saying "BUYBUYBUY!" I know, you were too busy focusing on the warning that the IFM will lower growth forecasts for most of the World. I believe CNBC translates that part of her speach as "record oil demand projected." It seems that if I want to get behind this market rally, I will have to give up both reading AND thinking for the New Year.
I understand the pain felt in those European countries that need to adjust, and the difficulty of sharing the burden in a way that is socially fair. But I also understand the feelings in countries that have been thrifty, asked to help those who could have managed their economies more prudently.
But what we must all understand is that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral. It
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2nd 10 Days of 2012 Review – Too Bear or Not Too Bear, that is the Question
by Phil - January 22nd, 2012 7:25 am
I'm just putting together a quick review.
We did one after the first 10 days of the year, when I was worried I was being too bearish but it turned out I wasn't too bearish at all in picks, but certainly in tone as I had (and still have) grave concerns about the sustainability of this "recovery" (as does David Fry, obviously). In that post, I emphasized the need for BALANCE – no matter how bullish or bearish you are and, from what I hear in chat – not everyone gets that message so we'll try it again and see if we can make a little progress with the education thing.
Keep in mind that, no matter how bullish or bearish we are, 70/30 is an extreme mix in a portfolio, 60/40 is preferable but the closer we get to the top of our range, the more we tend to bet the other way. When and if the range does break, we will, of course, be caught on the wrong side but even if you lose 20% of 70 (14) and make 20% of 30 (6) it should not be a devastating event.
We regularly put out trade ideas on both sides and it's important to get a sense of if you are too bullish or too bearish – at which point you can make an adjustment by adding to (or subtracting from) one side or anohter. These were the trade ideas since Wednesday's review:
Wednesday (in order of posting):
- Shorting oil Futures at $102, now $98.50
- SCO Feb $34/40 bull call spread at $2.10, selling $34 puts for $1.60 (net .50), now $2.80 – up 460%
- WFR 2013 $5 buy/write at $2.11/3.56, now $4.62 – on target
- WFR 2014 $3/5 bull call spread at .45, now .90 - up 100%
- WFR 2014 $3 puts sold for .80, now .63 – up 21%
- SCO Jan $36 puts sold for $1.20, expired worthless – up 100%
- SCO Jan $35/36 bull call spread at .45, expired at $1 – up 122%
That was a pretty good day for picks. Really it's just two picks – oil down and WFR up so no big deal – just different ways to make the same bet. We had a 10-year note auction that day and a pretty bullish Beige Book.
Thursday: We also reviewed our fairly bullish Income Portfolio that morning, I won't count those…
Free Money Friday – Fed Floats Trillion Dollar Balloon
by Phil - January 20th, 2012 8:07 am
One TRILLION Dollars – muhahahah!
That's the magic number being floated as reported by CNBC who say:
The Federal Reserve is likely to step in with $1 trillion worth of easing that could be announced as soon as this month, according to a growing consensus of economists who see the recent uptick in economic growth as unsustainable.
Now PLEASE – pay no attention at all to "who see the recent uptick in economic growth as unsustainable" and focus on ONE TRILLION DOLLARS ($1,000,000,000,000). That's $3Bn EVERY SINGLE DAY – that's $2M a minute that will (if correct) be poured into the economy (or, more accurately, into the pockets of Banksters) that can go directly towards what Hayek (not Salma) calls "malinvestments" – sowing the seeds for many, many years of hyperinflaton — but only after the Banks are done siezing all the assets they possibly can.
Our own friend, Andrew Wilkinson, who is now the Chief Economic Strategist at Miller Tabak, released a paper Thursday that makes the case for more easing, which he said could push stock prices higher to where the S&P rises another 11% to 1450.
"Investors are so focused on the Fed's new rate forecasts that some don't realize the announcement of more quantitative easing might come along with it – the two had to go hand in hand," Wilkinson says. "They need to make projections in light of having announced more QE, otherwise they'd have to change the forecasts later on." This will iron out the yield curve, anchoring down short-dated yields while also dragging 10-year yields to 1.5%, he says.
Even if Wilkinson is wrong about QE — as most analyst don't expect it to be announced until later this year — he says the market will still likely be surprised at just how far out the Fed intends to stay on hold. "This simple fact represents uncharted territory for the Federal Reserve," Wilkinson wrote. "Despite a recovery in growth and employment, the crippling damage inflicted by the subprime warhorse continues to play a worrisome role behind the scenes."
We discussed all this in Member Chat so I won't re-hash it here, especially as I'm down in Florida today and don't have time for a full post. Suffice to say that it's not a good thing to pre-announce big numbers like this…
Thrilling Thursday – Our “One Trade” Does Good!
by Phil - January 19th, 2012 8:12 am
One trade to rule them all!
That was our goal and our one precious trade for 2012 was BAC on January 5th, buying the stock at $5.75 and selling the 2013 $5 puts and calls for $2.55 for a net $3.20/4.10 entry (see "How to Buy a Stock for a 15-20% Discount" for more on this strategy). On Tuesday afternoon, I modified the entry live on TV at about 3:45, with BAC at $6.70 and you can see the immediate reaction the stock had on my pick into the close.
BAC was $6.49 on Tuesday afternoon at the start of my interview but the 2013 $5 puts and calls were $3.10 so the net was only $3.39/4.20 – not a huge change. BAC came through on earnings this morning and is up at $7.20 pre-market and we're well on our way to our 56% profit target, now with a 30% cushion.
It's no wonder that the TV crowd jumps on my picks as my last two appearances gave them a GNW spread on 10/24 for a 127% gain and an AXP spread from 10/5 for a 140% gain. BAC was, by comparison, a fairly conservative play and that's because, as you know if you've been reading this week – I'm not entirely convinced that this rally is sustainable – but I'm feeling much better about it now that we have BAC earnings out of the way!
This is a great time to thank my friendbuddypal Jim Cramer for chasing all his sheeple out of BAC this year with his SELLSELLSELL rating – without you and your half-assed opinions Jim, we'd have to work for a living! Why just yesterday, my trade idea for Members in the morning Alert was the FAS Feb $67/70 bull call spread at $2, selling the Feb $55 puts for $1.30 for net .70 on the $3 spread but last night – Jim didn't like my bullish Financials pick:
Financials were, in fact, one of my "Secret Santa's Inflation Hedges for 2011" that were published on Christmas Day, 2010 (and you can read that post for the logic behind each trade). All 4 of those trades are done tomorrow so let's see how they performed for the year:
- 30 XHB Jan $15/18 bull call spreads at $1.40 ($4,200), selling
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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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