World Bank Wednesday – Another Trillion Isn’t Enough?
by Phil - January 18th, 2012 7:56 am
The World Bank cut it's Global Growth Outlook – Again.
The Washington-based institution said the world economy this year will grow 2.5 percent, down from a June estimate of 3.6 percent (DOWN 25%). The World Bank sees the euro area contracting 0.3 percent in 2012 (RECESSION), compared with a previous estimate of 1.8 percent growth (DOWN 120%). The U.S. outlook was cut to an expansion of 2.2 percent from 2.9 percent (DOWN 24%). “Even achieving these much weaker outturns is very uncertain,” the World Bank said in its Global Economic Prospects report saying that a recession in the euro region threatens to exacerbate a slowdown in emerging markets such as India and Mexico.
Hello, McFly – Are you starting to put together the dots or shall we spend another day debating the merits of going long on oil and retail?
“The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome.” The World Bank urged developing economies to “prepare for the worst” as it sees a continued risk for the European turmoil to turn into a global financial crisis reminiscent of 2008.
Euro-area industrial production declined for a third straight month in November, a report last week showed, adding to signs the economy failed to expand in the fourth quarter as leaders struggled to quell the region’s fiscal crisis. The revision is the largest since January 2009, when the World Bank cut its global estimate for that year by 2.1 percentage points.
“Despite the significant measures that have been taken, the possibility of a further escalation of the crisis in Europe cannot be ruled out,” the World Bank said. “Some of the big developing countries that have been the motor of growth in the post 2008-2009 period now have slowed,” Andrew Burns, who heads the World Bank’s global macroeconomics team, told reporters on a conference call.
That prompted the IMF to IMMEDIATELY seek to boost its lending resources by another $1,000,000,000,000 this morning, in order to have the firepower to cope with any worsening of the EU debt crisis. The organization is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors, although whether they'll heed the call is another matter entirely. This, I pointed out to Members (as we shorted the Futures this morning) is…
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DiggTesty Tuesday – How Many Times Will You Fall for the Same Thing?
by Phil - January 17th, 2012 7:54 am
Isn't this exciting!
The pre-markets are up 1% after a long weekend. That hasn't happened since – two weeks ago! Of course last Tuesday, we were jammed up as well and the Tuesday after Christmas, we were jammed up as well but THIS TIME – we're REALLY feeling it, right?
The funniest thing is the way they have dozens of idiots saying all sorts of ridiculous things on CNBC and not one of them mentions even the vaguest hint of deja vu in what has been the most consistent pattern of late 2011, early 2012.
On this Dollar chart from Scott Pluschau, you can see the dives that are occasionally taken to goose the markets and we have another one this morning with the Dollar down 1%, making the 1% pop in the futures slightly less impressive when taken in context.
This time may be different because, according to Friday's Legacy Commitments of Traders Report released by the CTFC, Commercial Traders are now net short on the Dollar to the tune of 59,023 to just 6,061 longs – about a 10:1 ratio that is EXTREME to say the least. Non-Reportable, Non-Commercial Traders (ie. Speculators), on the other hand, are almost 10:1 the other way with 9,765 long contracts and just 1,390 shorts. Reportable Non-Commercial Traders (Hedge Funds) fill out the rest of the longs with 52,644 long contracts against just 8,057 shorts.
That's an odd sort of positions for the speculating class to be taking (super-long on the Dollar) considering the possibility of a highly dilutive quantitative event (QE3) in the very near future. This is why we can't be gung-ho bearish – tempting though it may be and this is why every little rumor of Europe being "fixed" sends the Dollar flying down – there are no buyers – only nervous long Dollar holders.
As you…
Happy Martin Luther King Day!
by Phil - January 16th, 2012 6:56 am
It's Martin Luther King day so the markets are closed.
It's a good day to read his "I Have a Dream" speech – really is amazing when you think of the great social change in this nation that was set in motion by one man with a vision. Here's a great video of the actual event.
It is a testament to the power and effectiveness of Dr. King's movement that, even to those of us who were alive at the time, it seems like it must have been another world where a man had to speak out against such injustice as if it wasn't obvious to the majority of people that segragation, whether by law or by practice, was an outrage.
Sadly, many of the lessons he taught us have already been forgotten, some great quotes:
- Nonviolence is a powerful and just weapon. which cuts without wounding and ennobles the man who wields it. It is a sword that heals.
- Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.
- It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.
- The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood.
- Human progress is neither automatic nor inevitable… Every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and passionate concern of dedicated individuals.
- Never forget that everything Hitler did in Germany was legal.
- We will remember not the words of our enemies, but the silence of our friends.
- The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows.
- A nation or civilization that continues to produce soft-minded men purchases its own spiritual death on the installment plan.
- A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.
- One of the greatest casualties of the war in Vietnam is the Great Society… shot down on the battlefield of Vietnam.
- Our scientific power has outrun our spiritual power. We have guided missiles and misguided men.
- Rarely do we find
…
Friday the 13th’s Follow-Through Failure Forecast
by Phil - January 13th, 2012 8:05 am
Happy Friday the 13th!
Will the market's luck change today or will we break through the mirror at 1,297 on the S&P which could spell 7 years of bad luck for the bears (or maybe 7 weeks).
Surly Trader has a chart (see Phil's Favorites) that says only 9% of the S&Ps sales come from Europe, which means we really shouldn't care so much what they do but he also has a frightening chart of the Baltic Dry Index, which has fallen off a cliff since mid December and that matches up with this terrifying collapse in Rail Traffic that started earlier and also isn't finished.
The last time intermodal traffic dipped to this level, we were in denial that we were in a Recession and indeed the Dow continued to march from 11,500 in January of 2008 all the way to just above 13,000 in May before it began the long march to 6,600.
Of course, a pessimist may say that by the time traffic had dropped this badly, it was December and the Dow ars already at 8,000 or an even bigger pessimist may point out that, since these are year over year comparisons, that we've never even recovered the original 20% drop and now we're down again and worst than we were at the time.
But I don't like to be a pessimist so I'll just quote David Fry, who titled yesterday's post: "Bulls Blind to Bad Data Once Again," noting:
In the eurozone today ECB president Draghi decided the best defense is a good offense and cleverly spun a yarn that his policies are working. Draghi further states that “interest rates will remain low for an extended period”…where have we heard this before? This statement caused the euro to rally about 1% on the day perhaps squeezing some shorts.
…
Thrilling Thursday – Clackety Clack, Don’t Look Back
by Phil - January 12th, 2012 8:13 am
Take out the papers and the trash
Or you don't get no spendin' cash
The stock market's gonna soar
As easing puts the Dollar through the floor
Yakety yak (don't talk back)
Appropriately, Yakety Yack was sung by The Coasters and, as I said to Members on Tuesday: "All this nonsense is probably (just as I said last week) da Boyz taking the roller coaster up to the top before the big wheeee!"
I am trying to get bullish, truly I am but, as Samuel Jackson reminds us: "The path of the trader is beset on all sides by the inequities of the selfish and the tyranny of evil Banksters."
In the name of charity and good will (and profits), I will attempt to shepherd our trades through the valley of earnings darkness but it has been HARD this week as the market is acting as if it doesn't have a care in the World and I am trying SO HARD to go along with it but we are indeed beset by all sides by problems that are NOT going away and I still think that we are in a technical sucker's rally.
Unfortunately, I won't really be able to sing a different tune until I see earnings data that convinces me that we have a reason to move that Must Hold line up to the 10% line – a move we were tempted to make in October, when my skepticism into that rally saved us all from a nasty sell-off – as almost all of October's gains were given back in November.
As you can see from the Big Chart, like an ORGANIZED ballet – all of our indexes are testing breakout levels this morning and, since the Dow is 10% ahead of the Russell and the NYSE – we certainly won't be missing much by waiting for the S&P to confirm 1,297, the Nasdaq to confirm 2,733 and the Russell to confirm 774 before we jump on the technical bandwagon. Even…
Income Portfolio 2012 – Rolling Back to the Future
by Phil - January 12th, 2012 4:46 am
Behold the value of doing nothing!
Although we were worried last month, my comment to Members was "Don't Panic" as we had faith in our positions (not blind faith – we did go over each one!) and, as always, time was on our side as this portfolio is all about SELLING premium and collecting dividends.
Now, after literally doing nothing for 4 moths, it is finally time to make some adjustments as our January positions come due and require action. So time to end the 4-month vacation and start earning our money…
We initiated our virtual income Portfolio way back on April 9th, after dealing with my Father's death and speaking to many of my Mom's friends in Florida got me to thinking there must be a way to structure a portfolio that will hold up through thick and thin and throw off a nice monthly income – using a combination of dividends and option sales. Our goal was to put $500,000 to work and generate at least $4,000 a month in income without reducing the principal.
As you can see from the chart on the right, this is not exactly a radical strategy but, strangely, it's also not one that retirees seem to be aware of. Clearly, since 1990, the difference between dividend paying stocks and non-dividend paying stocks has made quite a difference. These days, with most stocks moving in very high correlation – that is truer than ever because – if they are all going to go the same way, then any dividends you collect are a bonus, right?
Of course, we try to outperform the S&P a bit as well and again, it's a no-brainer to use put option sales to improve your entries because, clearly, if you only enter a stock with a 15-20% discount, then again you are likely to outperform the rest of the index. The final trick up our sleeve is, of course, Fundamentals – we try to pick good stocks that will do better than the rest of the S&P.
And we HEDGE! We hedge because, EVEN THOUGH we picked a good stock and we will collect our dividends and even though we gave ourselves a discounted entry – WE STILL MIGHT BE WRONG! We might be wrong or the market may collapse (as it did on us just 3 years ago) in such a way that…
Wednesday Wheeeee – We Love it When a Plan Comes Together!
by Phil - January 11th, 2012 8:21 am
Once again, we're done with our day before you get up.
In my 5am note to Members, I said: "I see nothing in the news to justify this pre-market "recovery" and I hate to sound like a broken record but I like shorting oil (/CL) if we get below that $102 line with tight stops and the Dow (/YM) is right at 12,400, which is a great spot to short. RUT (/TF) is at 762 and below 760 (same as yesterday) will confirm a downturn but 12,400 is a great line so why wait?" By 6:26, I was able to follow it up with:
And wheeeeeeeeeeeeeeeeeeeeeeeee! There go the Futures!
It's 7:07 and we're still going down, with oil at $101.24 (up $760 per contract) and the Dow at 12,340 (up $300 per contract) and, as Dennis said: "Good enough for steak and eggs for me!" Roro got up late but still caught the Dow at 6:16 and that was right on the nose for the oil drop as well as we hit it right on the nose this morning and now we're done and waiting for the next good set-up.
Of course we scale in and scale out of positions as there's no need to get greedy in the Futures, where a single remaining contract catching a $1 move down in oil (now $101.25 again) pays $1,000. This week, we have even stationed our own Craigzooka in New Zealand, where it's tomorrow – which makes it much easier to bet on today's action as he can tell us what happened already! Not that today was all that hard to predict, right? My comment to Members LAST Wednesday was:
It’s been a pretty reliable bet that they tank the markets into the longer-term note auctions because it scares people into T-Bills and keeps the rates low. From this line-up, it seems to me they intend to jack us up on Friday and then zap us on Tuesday as Esther George releases something hawkish ahead of the 3-year and it’s no coincidence that Plosser, by far the biggest Hawk, is given the floor at 12:30 on Wednesday – just 30 minutes before the critical 10-year auction. Coincidence? Surely you cannot be that naive!
So that's how we've been playing the past 7 days and it culminated in pressing our…
Tempting Tuesday – Again
by Phil - January 10th, 2012 8:21 am
Well here we go again.
Once again it's Tuesday and once again it's a primary and once again we are meant to believe everything is right in America as the Futures take the markets back to levels not seen since last August. As we discussed last week and as noted by David Fry this morning:
Throughout the week Fed governors will be making speeches: Dennis Lockhart (2 speeches), Charles Evans (2 speeches), Esther George, John Williams, Charles Plosser and Jeffrey Lacker. This is part of their transparency mission and/or a campaign to pump-up investor confidence. You choose.
Yesterday we made our breakfast money shorting the Dow off the 12,350 line and today we already had a double dip at the Dow off the 12,450 line but, on the whole, it would have been easier to drink the Kool-Aid and go long.
Unfortunately, I'm a Fundamental Investor and not a TA guy so, impressive as this run may seem, it doesn't match up with the data and, so far, it's neither matching up with Q4 earnings or Q1 outlooks. We HOPE the Fed will go for QE3 (Friday's Fed speak indicated that and more today) and we HOPE Europe is fixed and we HOPE China doesn't implode – is this a sound investing premise? Let's see how things have been going in the last Quarter:
Up 15% in all of our indexes and led by the Transports, which are up 21% – even with oil up 25% over the same period which once again proves our theory that trucks and airplanes must poop oil when they run – which explains the non-inverse correlation between Transports and Fuel Costs that those of us who took Econ 101 may be familiar with.
The most interesting thing about the above chart set is the uniformity of the moves up in the majors but I think it's the NYSE and the Russell which PROVE beyond a shadow of a doubt, that this market is traded by robots. Look at those two charts – they are practically tick by tick matching – even to the point where the Russell is almost exactly 1/10th of the NYSE. Sure, you could assume some similarities in two broad indexes but this is 6 full months of daily moves that are in lockstep. That's just not natural on the order of…
Monday Market Movement – Strap in for a Wild Week!
by Phil - January 9th, 2012 7:33 am
This chart from the NYTimes pretty much says it all:
The average annual inflation-adjusted return for the S&P 500 has been in decline since the late 90s, the decline only paused in the 00s and that fooled us into thinking it was a recovery but we only stopped getting worse for a while. Meanwhile, real personal income has been in decline since Nixon lifted the gold standard in the early 70s and that, like our real GDP adjusted for inflation, should certainly not be the "envy of the World" – even if we assume it still is.
$20Tn was pumped into our $60Tn Global Economy since the 2008 crisis and that is not including "stealth" stimulus like the estimated $8Tn handed out by our own Fed to their Bankster buddies as well as tens of Trillions handed our around the World by other Central Banks.
Like the late 70s, my expectation is that we will see a bottoming of real stock returns over the next few years as the inflation train pulls into the station. The markets will do great on the surface but, underneath, they are not going to be able to keep up with the massive inflation that is likely to begin as the flood of money being used to "fix" the global banking system begins leaking out into the Global Economy.
Speaking of fixing the global economy – Merkozy are holding a press conference this morning to craft a "master plan" for rescuing the euro over the next three months. The two leaders gather in Berlin to flesh out a new rulebook for fiscal discipline negotiated at a Dec. 9 summit that seeks to create a “fiscal compact” for the 17-member euro area.
The German and French leaders have sponsored a plan to install new guidelines by March. A crisis that began in Greece more than two years ago has moved to the euro area’s core, and leaders are struggling to persuade investors they can contain the risk and assure the euro’s survival. “They urgently need to formulate and clearly communicate a vision for a sound and stable euro area that deserves the name fiscal compact,” said Thomas Harjes, senior European economist at Barclays Capital.
Meanwhile, the Euro fell to an 11-year low against the Yen and a 16-month low against the Dollar this morning ahead…
Friday Already? Surviving the First Week of 2012
by Phil - January 6th, 2012 8:29 am
Yay, we made it!
Last Friday the Dow closed at 12,200 and Monday we started the new year at 12,450 and yesterday we closed at 12,415 so all the people who caught that move in the futures between 6am Tuesday morning and 10:05 Tuesday morning had a great week and the rest of you can go suck eggs.
What an appropriate way to start 2012 – screwing the Retail Investors over as the Big Boys jack up the futures and then spend the rest of the week unloading their stocks on the suckers who run in to chase the gains they never had a prayer of catching.
You had about 5 minutes to catch BAC (our one trade for 2012) at $5.75 yesterday but it was below $5.90 for 15 minutes and that’s why I can’t put picks on the main page anymore – too many people jump in. Some people are confused as to why we keep making bullish plays when I think the rally is BS and the reason is that we don’t fight the Fed.
Yesterday, we were down and then suddenly there was a rumor (unsubstantiated) about Obama announcing a $1Tn mortgage refinancing program and it wasn’t long before it was $3.6Tn and, while it is something I myself have proposed to the Administration, it was hard to see how anything that actually helped the average American Citizen would ever be passed by the House. Nonetheless, the market did a 2% flip-flop and finished the day slightly higher – painting a much prettier technical picture than it would have if we has remained at our gap-down open.
Fortunately, we followed through with our plan to take the money and run on the morning dip as we didn’t know what BS was going to move the markets higher but we were pretty sure that there WOULD be some BS to move the markets higher. My morning Alert to Members left our $25,000 Portfolio 100% bullish at 10:11 and I don’t want to sprain my arm patting myself on the back but just look at David Fry’s chart – that says it all, doesn’t it?
We went officially bullish on BKS, as planned, at 10:19, selling the Feb $10 puts for $1.20 – another bullish play for the $25KP (5 contracts) – and they recovered so quickly…
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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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