Thursday Foolishness – More of the Same with One Trade
by Phil - January 5th, 2012 8:13 am
Our day is done, how’s yours?
That’s right, we already did our 3am trade where we caught the dead top of oil (and the dead bottom of the Dollar), where my 2:59 am comment to Members in Chat was:
Dollar at session low of 80.40 at 3am and oil back at yesterday’s high at $103.70 so oil (/CL) makes a nice short below $103.75 here but DANGEROUS pre-market trading as Iran could spout off at any moment and the trading is VERY THIN.
So that brings us back to the good old Dow (/YM) futures at 12,350 and they are just over that line at 12,351 but that’s the short of the moment as long as the Dollar is over 80.40 .
For the next hour, I did a blow by blow on the oil trade in Member Chat on the way down to $102.70 – a nice $1,000 per contract worm gotten by the early birds, where we took the money and ran ahead of likely morning manipulation back up to $103.50, where we can short it again on inventories (11am). The Dow slipped to 12,300 and paid a solid $250 per contract as well, paying for over 100 Egg Mcmuffins this morning by itself. If you want to see how we make decisions along the way down – it’s well worth going over this morning’s comments – there was also some good discussion of other topics this morning, including my pick for the best wide-screen TV.
We’re still just messing around with hit and run plays, waiting to see how the week pans out and next week we’ll be waiting to see how earnings pan out as well as what we expect will be a pretty major market pullback leading into the 10-year auctions next Wednesday at 1pm. Clearly the Fed freaked out and jumped in yesterday when TLT hit $118 so we are fairly comfortable with our prediction of a…
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DiggWild Wednesday – Nothing Could be Drier Than a Jolly Caucus Race
by Phil - January 4th, 2012 8:32 am
Forward, backward, inward, outward
Come and join the chase
Nothing could be drier
Than a jolly caucus raceBackward, forward, outward, inward
Bottom to the top
Never a beginning,
There can never be a stopTo skipping, hopping, tripping fancy free and gay
Started it tomorrow
But will finish yesterday‘Round and ’round and ’round we go
Until forevermore
For once we were behind
But now we find we are be-Foreward, backward, inward, outward…
Wheeee – this is FUN!
Down we go again, giving up 50 points pre-market of yesterday’s gains already – once again punishing anyone who was foolish enough to buy yesterday’s rally. Like the Wall Street Pelican in the cartoon says: "You HAVE to run with the others if you want to get dry." Of course it’s impossible for the participants (the bottom 90%) to get dry as they are not on the rock with a warm fire and simply keep getting soaked – over and over again. But the Wall Street Pelican keeps playing his tune, giving himself a ready supply of dancing fish to snap up whenever he gets hungry.
Of course, for those who miss the subtlety of the caucus race, Disney also puts in the story of the Walrus and the carpenter. "The time has come" the Walrus said, "to speak of many things. Of ships and shoes and ceiling wax and cabbages and…
Tempting Tuesday – Starting the New Year off with a Bang
by Phil - January 3rd, 2012 7:55 am
Wheee, what fun!
The futures are up 200 points on the Dow (/YM) on a massive gap up after being closed since Friday at 6. The Dollar was smacked down all the way to 79.97 at 6:30 and oil rocketed to the magic $101.50 mark and just because it’s a new year doesn’t mean we got stupider so my comment to Members in this morning’s Chat was:
Futures finally opened with massive gap up of 200 on Dow (1.6%). Dollar dove to 80.045 – total joke and my knee-jerk reaction is to short the Dow (/YM) futures below the 12,350 line (12,352 now) and the RUT (/TF) if they cross back below 750 (now 754). Iran oil may have some legs so we may have to wait for inventories (Thursday) to short but we’ll see.
Yep, new year – same BS is the story of 2012. I made my market prediction yesterday and already today it’s panning out as we have the opportunity to sell to the suckers who think that China’s official PMI coming in over 50 for the first time in 3 months trumps the independent HSBC PMI of 48.7. We have discussed the very flaky nature of PMI data in the past so I won’t get into it here but the key takeaway from that report is "The “festival effects” of western and Chinese New Year celebrations helped to boost the PMI reading."
So these are the BOOSTED numbers?!? Oh dear. “Europe’s debt woes, the austerity measures the European countries are taking and the sluggish U.S. recovery mean demand for Asian goods this year is likely to be weak, posing a downside risk,” said Yao Wei, a Hong Kong-based economist for Societe Generale SA. Thank goodness investors don’t read the actual reports or check the analysis or we wouldn’t be able to make money betting against the reactions to headline numbers.
In the Chinese PMI data, an index of export orders was at 48.6 from 45.6 in November, still below 50, the dividing line between contraction and expansion. The rebound in the PMI “does not signal that the economy has turned around,” said Zhang Zhiwei, a Hong Kong-based economist at Nomura Holdings Inc. who previously worked for the International Monetary Fund. “Growth momentum will continue to wane this quarter, as the European crisis will…
2012 Tea Leaves Come in Black, Red and Green
by Phil - January 2nd, 2012 8:33 am
I love tea!
Sadly, I don’t get any tea leaves as I have excellent filters so I don’t spend a lot of time staring into the bottom of a cup for answers. Instead, I prefer to filter the mind-numbing amount of information available to us these days and try to separate the wheat from the chaff – which is another thing people simply don’t have to do anymore. Without tea leaves or entrails or bones to cast – how else will modern man forecast the futures? Help us Magic 8 Ball!
Anyway, so we’re wondering whether the markets will finish 2012 in the red or in the green or somewhere in between and those just happen to be the colors of tea leaves, which are as reliable as anything when predicting future events. My favorite iced tea maker is the very simple Takeya 11100 (for $17, they don’t name them!) but for hot tea I love my cast-iron Japanese tea pot with the high-tech filter (hidden inside) and the cool golden dragons etched into the metal.
Now, I can predict, with a great deal of certainty, that next January, I will still be using my cast-iron tea pot. For one thing, the design is thousands of years old and hasn’t been improved upon. Also, it was freakin’ expensive, so I’d need a damned good reason to change it. We’ve been through a lot together so I have an emotional attachment to it and my oldest daughter loves dragons and drinks tea with me out of the matching iron cups – all things that are not likely to be replaced over the next 12 months.
My Takeya, on the other hand, is relatively new and replaced my more expensive Mr. Coffee Iced Tea machine that I had been using for over a decade. Not the same one but, when the last one crapped out I didn’t like the design of the new one so I began experimenting with alternatives and ended up loving the Takeya, which is cheaper, easier to clean and makes much better iced tea. Could I have predicted last year that Takeya would be the winner? Not at all – I’d never heard of them. That means, although I LOVE it, I don’t feel as sure that it will remain my favorite next year. In fact, like a quantum event, the act of my…
Final Friday – Entering the Mayan’s Final Year
by Phil - December 30th, 2011 8:48 am
It’s fun reading everyone else’s predictions.
You would think, coming into what the Mayan’s may have predicted to be the final year for this planet, that people would want to make sure they get things right but no – most people just predict for next year a variation of what they thought would happen this year – no matter how wrong they were in 2011.
Last January, the Dow was under 12,000 and we had Russell leadership as they tested the 800 line, now the Dow is the leader at 12,287 and the Russell is struggling at 745 but both in such a tight range that we could have pretty much skipped the whole year and we wouldn’t have missed anything.
Although constantly asked, I do not like to make arbitrary predictions just because the year is winding down on the calendar. The dirty little secret to my accurate prognostications is I WAIT until I actually see something that’s very likely to happen before I mention it. This annoys many people who interview me, who are used to getting a prediction on pretty much anything they ask a guest, no matter how clueless that person is.
That being said, last year, on December 19th, I wrote "It’s Never too Early to Predict the Future" and among other brilliant observations I noted: "I’d be gung-ho bullish now if I wasn’t worried the Euro will collapse as that is the fly in the ointment." Here we are a year later and we survived that, as well as a nuclear catastrophe in Japan and revolutions in the Middle East and none of that caused the World to end, nor did it push oil over $100 for more than a short while, nor did it ever get gold to that magic $2,000 level.
So what’s it going to take? What would it finally take to topple the now $60Tn global economy where EVERY Nation on Earth has proved that they are ready, willing and able to create Trillions of new Dollars/Euros/Francs/Yen/Yuan and drop them into the mix – until they find the recipe to make the Global Economy start to rise again. Will too many cooks spoil the broth or is it just that a watched pot never boils and we are all a bit too impatient as we have to wait for the economic yeast to rise?…
Thursday Thoughts – Where Do We Go From Here?
by Phil - December 29th, 2011 8:28 am
Well, we had our little sell-off, now what?
As I noted yesterday, my concerns run a little deeper than a little profit-taking off a week-long BS, low-volume rally. On the whole, it’s just a little pullback that makes for healthy consolidation if we can get back on track but, as I noted yesterday – the tracks ahead do not look all that safe either. As David Fry notes:
The market is also rumor prone with volume still light. Most rumors Wednesday revolved around the eurozone where euro flight to offshore havens was much discussed. Further more investors are beginning to recognize the previous eurozone fix wasn’t much of a fix at all. Rather it just bought some time. The focus remains on Italy where Italian debt needs to be sold, not just this week, but repeatedly. Investors are worried about collateral being put up for loans. Pay attention to this is the watchword.
We were thrilled to take the bearish money and run on yesterday’s little dip. We’re still speculatively short into the long weekend but essentially cashed out of short-term positions into the Holiday with our virtual White Christmas Portfolio now officially close, miles ahead of our original goal.
Cash is an excellent position to be in as we wait for clarity, both from EU bond auctions (Italy was so-so this morning but Hungary’s was so bad they cancelled it!) as well as US Corporate Earnings, which are far from a sure thing next month. In fact, this morning we noted in Member Chat that credit-ratings firms are growing less optimistic about U.S. corporate borrowers, downgrading more companies as they forecast defaults will rise.
A two-year rise in U.S. companies’ creditworthiness may be drawing to a close as Europe’s sovereign-debt crisis roils capital markets around the world, reducing the ability of riskier borrowers to raise money from investors to finance their operations. Moody’s cut more grades than it raised in the second half of the year as yields on speculative-grade debt reached a two-year high in October.
Like many misguided Nations, our Corporate Masters have met the Great Recession by pursuing austerity measures that have done a great job of improving their current bottom line but have actually made things worse by worsening the conditions for the American Workforce - leaving the companies without any long-term growth prospects in a stagnant economy.
On the complete opposite end of the…
Will We Hold It Wednesday – Nasdaq 2,603 Edition
by Phil - December 28th, 2011 6:53 am
Watch the Nasdaq.
That’s the index we need to catch up to the Dow now that the S&P is halfway to goal at 1,297 (from our Must Hold line at 1,235). The Dow is in La La Land, led by MCD (up 31%), IBM (up 26%), PFE (up 24%), HD (up 20%) and KFT (up 20%) while this year’s Dogs of the Dow are BAC (down 59%), AA (down 43%), HPQ (down 39%) and JPM (down 22%).
While the losers may seem to outweigh the winners, that’s not how it works as the Dow is price-weighted so BAC dropping from $14 to $5.50 "only" costs the Dow about 68 points (roughly 8 points for each Dollar), IBMs rise from $145 to $185 added a whopping 320 points.
So a 26% rise in one component and a 59% drop in another nets out to a gain of 252 points! At the beginning of the year, they had roughly the same market cap ($150Bn) but IBM has gained $70Bn and BAC has lost $100Bn which, of course, translates into a net gain of 2% on the entire Dow – BECAUSE IT IS THE STUPIDEST INDEX ON EARTH!
Our Members, of course, know this. I wrote "DJIA: The Most Useless, Overused Tool on the Planet" back in 2006, when GM was still part of the Dow so no need to rehash it all here other than to mention the fact that a 30-component index has made 5 substitutions in the 5 years since I wrote that article only serve to highlight how ridiculous it is to use the Dow to draw long-term conclusions. The Dow is manipulated because it’s easy to and Uncle Rupert sits with the other Masters of the Universe to decide how to use this headline tool to make things look as good as possible in the US markets.
That’s why CSCO and TRV replaced C and GM in June of 2009. C was at $28.80 and is down a bit, GM went BK from $45 (which would have been a 360-point loss in the Dow) while CSCO was disappointing but essentially flat and TRV is up $20, adding another 160 points so a 520-point swing (5%) on those substitutions alone. In September of 2008, AIG ($135 at the time) was swapped for KFT ($32). KFT is just $37.70 but AIG was…
Twisted Tuesday – Treasuries are not an Option
by Phil - December 27th, 2011 8:30 am
Remember Operation Twist?
Last week, Freddie Mac reported record lows on rates, with the 30-year notes at 3.91%. This has not, of course, encouraged many people to go out and buy homes but it has DISCOURAGED people from putting their money into bonds and ENCOURAGED them to put their money into stocks. There is, however, a problem with this. When people put money into Treasuries, it is "locked up" for a period of time but stocks are more liquid so, as soon as rates begin going up (and they will when the panic in Europe subsides despite the Fed’s efforts), then money can come out of stocks as quickly as it went in and move into 5% paper.
See, I said 5% paper and you were thinking "Yeah, I’d like some of that." So are Trillions of Dollars worth of other investors and that means, I am sorry to tell you, that this little Federally-funded rally is full of holes you can drive a truck through.
The Fed’s stimulus plan is the central bank’s third definitive attempt to aid the U.S.’s patchy economy since 2008. As expectations grew that the Fed would act in the weeks leading up to the bank’s actual announcement, which came Sept. 21, 10-year yields dropped nearly 0.30 percentage point. Since the Fed’s official statement, yields have already risen modestly, to 2.026% on Friday, from 1.95% on Sept. 20.
The program’s final debt purchase of the year was Thursday, when the Fed bought $4.6 billion in long-dated securities. The final sale Wednesday targets $8 billion to $8.75 billion worth of notes due in 2014. It will be a holiday-shortened week: The bond market was shut Monday and will close early, at 2 p.m., on Friday.
The problem is some corners of the market think the Fed’s tools are losing their punch. The financial system is already flush with money from the bank’s previous easing programs, and analysts argue that the Fed’s extra money is increasingly less useful. Borrowing costs, for instance, are at all-time lows and yet many investors aren’t taking advantage. If Operation Twist isn’t enough to get us through 2012 – what’s going to be left in the Fed’s tool belt once the Global panic into Dollars begins to subside?
You can see, on the above chart, where the Fed announced Operation Twist in September as…
PSW 2011 Holiday Shopping Survey
by Phil - December 26th, 2011 10:14 am
Only 7 shopping days left!
Next week is "Super Saturday" (they seem to just make this stuff up every year) but I was not overly impressed by the crowd at the Wayne Town Center Mall yesterday. We were not even shopping, just picking up some cards and having lunch (the food court was packed). There were plenty of people, too be sure but, like us, they didn’t seem to be carrying very much actual stuff. The clear exception, in my brief trip into the mall, was the Apple Store – where they couldn’t have packed more people in if they were just giving it all away – boxes were flying out of that place!
As to the other stores, Tina no longer leaves the house to buy things for Christmas – AMZN ships everything for free (annual $79 Plus Membership, which includes movie rentals now) and has gift-wrapping and card-writing and often the best prices so it really doesn’t make sense not to use them.
Personally, I can’t buy like that – I need to see things and I kind of like poking around stores and talking to people but, then again, I also pay the people in the mall to wrap my gifts as I’m sure as hell not going to spend a day doing that (and, despite having spent my 16th Christmas working at the Macy’s gift wrapping counter – I pretty much suck at it). Fortunately, I’m grounded enough to know this is not how normal people behave – even in upscale North Jersey.
Grounding ourselves is why these surveys are so valuable. We have a lot of smart Members from all walks of life with combined centuries of experience – who better to ask about shopping conditions all over the country, and the World?
The official estimate from the National Retail Federation is that there will be $469.1Bn (pretty exact for an estimate) spent this holiday season, which is an increase of 3.8% over last year, which was a 5.2% increase over 2009 ($437Bn), which really sucked! Still, it did not suck so much that $469Bn is not an new record for Q4 shopping.
“After strong sales reports in October and November, along with a successful Black Friday weekend, retailers are cautiously optimistic that this season will turn out better than initially expected, bringing added stability to our recovering economy at
…
Monday Markets Anonymous
by Phil - December 26th, 2011 8:27 am
My name is Phil and I’m a stockaholic.
That’s right, if you are reading this, you probably are too – so we have that in common right off the bat! I hope everyone had a very Merry Christmas although I was shocked and disappointed that there were no Football games on Sunday, as that was my plan for the day. More time reading the Sports section and less time reading the Financial section and I probably would have been aware they moved all the games to Saturday. Next week is just as bad because they’re playing the pro games on Sunday, which is New Year’s day, and they are playing the college bowl games on Saturday and Monday.
At least I know what I’ll be doing next Monday! Anyway, this isn’t Phil’s Sports World and you are probably here because you need a fix on the stock news, not the Sports news but there’s nothing going on in the markets. Japan was closed Friday and moved up 1% today while the Shanghai dropped 0.7% and is now down 22% for the year – which will make it a little hard to save at this point. In fact, the Shanghai is down 6% this month as I imagine, at this point, they may as well take it way down so they can have a better recovery next year (if at all).
Hong Kong and India were closed today while South Korea and Taiwan were both down about half a point – all on very think trading, of course.
There isn’t even much news – most people seem to have taken my advice and gone to cash and are taking the end of the year off.
So, we’ll use this post for general comments but my goal for the day is to update my commentary in the PSW 2011 Holiday Shopping Survey and to update last year’s Secret Santa’s Inflation Hedges (I’m still deciding whether or not the market conditions warrant new inflation trades at the moment) and, of course, get a little more serious in our Build A Berkshire Workshop, which I’ll move to the top of the page a bit later.
I’ll be updating this post in comments, kind of like weekend reading and for general discussion.
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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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