by phil - December 31st, 2012 8:29 am
I'm not worried, are you?
Congress sure doesn't seem worried as they aren't even coming back to work until 11 am this morning with only 13 hours left until 2012 ends and all those horrible, nasty things kick in. Of course, those horrible, nasty things, in summary, amount to paying more taxes and spending less money – isn't that what we need to do if we are ever going to get serious about paying down our debts?
Fear of the Fiscal Cliff gave us a horrible day on Friday, more so in the Futures, after the markets closed, than during trading hours, where the S&P technically closed at 1,402, down 1.1% for the day. After the bell, the fireworks really began, as clearly Congress was not able to make a deal and that sent the thinly-traded futures flying down another 1%, with the S&P hitting 1,382.25 at the low and, even now (7:30), they are still trading at 1,387.
Fortunately, as I mentioned in Friday Morning's post, we had our DIA March $124 puts for a hedge (now $2.65) and, ahead of the close, I reminded Members they were still a good trade at $2.35 for nice cover into the weekend. We also have our more aggressive TZA hedges, of course, and they will keep us warm on cold winter nights if we have a proper market collapse.
We also discussed going back to the well on our disaster hedges and, in that same comment, I listed 8 more nice put plays our Members could use for protection should we actually go over the cliff with all the bad reactions the pundits are expecting.
I hear on CNBC that the the Defense Industry will lay off 800,000 people on Jan 2nd which would, if true, save an immediate $40Bn a year if those are all $50,000 jobs. Seems to me, it would have been easier just to not build 400 F-35 jets at $107M each as LMT only employs 123,000 total people so, even if they shut down the company due to the loss of the F-35, it would cost 677,000 less jobs that way.
Or maybe CNBC's numbers are complete and utter BS but they feel completely free to spread their propaganda because they know the American people can't perform simple math and that their Conservative viewer base never engages in any critical…
by phil - December 28th, 2012 7:54 am
I'm tired of talking about the Fiscal Cliff.
At this point, it's a binary event that will or will not get fixed by Monday. Monday is the last day of the year and the markets are open so still plenty of time to get those last trades in. Yesterday's down and up action was hysterical but just what we predicted in the morning post, when I said:
Be very careful out there as the markets are in no mood for thinking – they are simply reacting (or over-reacting) to whatever the latest rumor is out of Washington. We should talk our levels seriously and hedge if we need to but cashy and cautious is the watch-word coming into the long weekend as this thing could go either way – sharply!
Our opening hedge in Member Chat was the DIA March $124 puts at $2.05, which topped out in the afternoon at $2.45 for a quick 19.5% gain but fell back to $2.23 at the close as the markets sharply recovered. I still like those hedges if they get cheap again. Also in the morning Member Chat, we discussed a more serious TZA hedge, as noted in yesterday's post.
While 2012 was a very exciting year in the markets, we're hoping 2013 won't be so much so we can focus more on long-term investing. As noted in this Financial Planning Flowchart from BusinessWeek, it's difficult to focus on what matters in the long-run when your head is always kept busy with day-to-day nonsense like worrying about Fiscal Cliffs and Retail Sales, etc.
It happens to me too – if it's important to talk about the Fiscal Cliff, then that's what we talk about but that means we don't have time to talk about other important things like "7 Steps to Consistently Making 30-40% Annual Returns" – which is one of the many useful articles in our Education Archives. When we had our PSW Conference in Las Vegas this November, most of what we talked about was long-range investing – not day-to-day trivia. When people have a chance to get away from the madness of daily market moves, they are much better able to focus on their future. That's why these conferences are so valuable.
by phil - December 27th, 2012 5:52 am
4 more days!
This is much more exciting than Christmas. So exciting that President Obama and Congress have cut short their winter vacations to give us hope – right before they snatch it away again. Will it be a bad plan or no plan? I can hardly wait to find out…
We have a bit of data today with the usual Jobless Claims, Bloomberg's Consumer (dis)Comfort Index, New Home Sales, Consumer (lack of) Confidence, Oil Inventories and even a look at the Fed's Balance Sheet and the Money Supply after the markets close. Tomorrow we get the Chicago PMI and Pending Home Sales but none of it matters compared to whatever rumor comes out of Washington over the next 48 hours.
Meanwhile, we're focused on our technical levels and, as you can see from the Big Chart, we are right on the 50 dma of the Dow (13,083) and the Nasdaq (2,991) and not too far on the S&P (1,413) with the NYSE (8,400) and the Russell (840) testing (and failing, so far), their 5% lines.
See my additional comments to Members in this morning's chat but, suffice to say, we need to watch these levels very carefully as well as the Dollar – which is right on the 79.50 line as the Euro attempts to get back over $1.33 and the Pound goes for $1.62 while the Yen remains extremely weak (and supportive of the Dollar) at 85.76 to the Dollar. As I said to Members:
Obama and Congress are back today. I don't expect an announcement this afternoon but, possibly, this evening or tomorrow if they are serious about not looking like they let the economy die. We also hit the mystical debt ceiling on Monday so much silliness over the next couple of days but, if there is a rumor of a solution – the markets could jump very sharply so be careful.
We also have an adjusted TZA spread that I suggested yesterday afternoon – just in case those levels don't hold up but we also found positive (but well-hedged) plays on SPWR, FTE and GDX yesterday and our HLF play from last week really kicked into gear as the stock has already jumped back from $25 to $27.50. That trade idea was from last Friday and made for a nice Christmas present as I said in Member Chat:…
by phil - December 26th, 2012 8:11 am
That's all the MSM is talking about but the markets are, so far, drifting along in the upper end of the year's range into this potential "fiscal disaster." Perhaps the catastrophe is already priced in or perhaps it simply won't be a big deal to go back to pre-2000 tax rates and to force some spending cuts.
If it's the former, a "solution" should rally the markets but, if the latter – fixing the Fiscal Cliff may actually weaken our markets as it puts the US on the continued path to endless debt through printing money.
Of course Japan has continued down the path of endless debt through printing money and their markets have been on fire this week. With the re-election of Helicopter Abe, who has vowed to weaken the yen by printing them by the Trillions, the Nikkei has jumped 2.5% this week – all the way back to 10,330 while the Yen falls to 85.36 to the Dollar – a 3-year low.
Our own easy-money policy coupled with the refusal of the Banks to pass it along to the consumer have created record-high spreads between what the MBS the Banks pay the 30-year fixed rate mortgage rate they charge consumers. Banks are now making spreads of 1.25-1.5% vs. less than 0.5% they managed to get by on in the early years of the 21st Century.
Despite making these usurious rates, they still offer the consumers less than nothing for deposits (as in, not enough to cover even "core" inflation) and they still can't attract investors, with the banking sector still down near half of where they were in 2007, when XLF was in the high $30s.
Another cliff we hit on 12/31 is the end of FDIC's special Transaction Account Guarantee, which provided insurance for accounts over $250,000 and will affect $1.5Tn worth of accounts on deposit at US banks. Banks, especially small ones, are scrambling to avoid losing this money and it will make for an interesting earnings season in Q1 as the banks step into the confessional and indicate how much faith their depositors really have in them.
On the other side of the coin, the Obama Administration is looking to double the size of the popular Mortgage Refinancing Program, which helps modify underwater mortgages, by making it possible for non Government-backed mortgage-lenders to…
by phil - December 24th, 2012 8:05 am
Why it’s almost Christmas Eve, Mr. Scrooge!
The Global markets are closed tomorrow and we’re bound to have a very slow day – if you are waiting for a Santa Clause rally on today’s trading, you are very likely to be disappointed. Today is a day for relaxation and reflection. Remember, the words of Jacob Marley, who said:
Business! Mankind was my business. The common welfare was my business; charity, mercy, forbearance, and benevolence were all my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!
Marley was a man who worked and worked until the day he died and regretted it every day after. If you don’t believe in an afterlife and you don’t believe in leaving behind the World a better place than you found it, at least find some time for yourself so people don’t call you "a squeezing, wrenching, grasping, scraping, clutching, covetous old sinner" after you’re gone.
I was inspired this morning by an old post on Barry’s site titled "Give and You Will Receive" listing 13 good ways we can all give every day.
’Tis the season of giving and goodwill to all man and all that and my children just completed their annual ritual of wrapping up all the toys they are done with to give to children who need them more than they do. …
by phil - December 22nd, 2012 7:02 am
Last year we were able to accurately predict what turned out to be disappointing retail sales from our observations – we have a lot of very sharp people with a wealth of experience to draw on and I urge you to read last year’s post and comments to get an idea of what we’re looking for.
Disclosure: We will probably buy something AAPL is selling this season!
by phil - December 21st, 2012 7:39 am
First the good news.
I just got my new Mayan calendar delivered and it's good through 7,024. Turns out when you buy 5,000 years, you get 12 years free and that explains the confusion with the old calendar. And now the bad news – despite my emphatic call for a revolution yesterday – the Republicans are still in charge of Congress and, once again, they have blown it completely in our hour of crisis and thrown the economy into turmoil.
Amazingly, stunningly, unbelievably, a supposed veteran politician like John Boehner can't even do something as simple as count the votes in his own base before he attempts to pull a power play and now that his own party has rejected his idiotic grandstanding "Plan B" – the markets have been thrown into turmoil, dropping as much as 2% last night and still down 1.25% in the Futures (7am). The only good news is Boehner may have just cost himself the speakership for 2013 but the bad news there is there are much stupider people vying to replace him.
Is Paul Ryan stupid enough to be the next Speaker of the House? He's certainly psychotic enough – he proved that during his campaign last year. He has demonstrated a willingness to lie, to make up data, to ignore facts, to stick to ridiculous positions no matter how untennable. He has proven that he cares nothing for the poor, the young, the elderly or the sick and that he is willing to throw them all under the bus to kowtow to his rich constituents – everything the Republicans look for in a leader. He's also been soundly rejected by the American people as a potential leader – who better to lead the GOP in their last 2 years in power?
With the chance of making a Fiscal Cliff deal in time to avoid the event slipping away (Congress celebrated their complete failure yesterday by taking a week off), we now have to contemplate how much damage will actually be done when it all hits the fan on January 1st.
As you can see from the chart below, the net of all the tax increases and spending cuts from the Fiscal Cliff can knock 3.5% off the GDP – pushing the US back into Recession but it's difficult to say how much it will impact overall…
by phil - December 20th, 2012 7:56 am
Here we go again!
We were moving along nicely when John Boehner decided to throw a temper-tantrum if he didn't get his way and his way is now know as "Plan B", which of course, sounds like the kind of thing a 10 year-old would come up with because that's the level we're now dealing with as the GOP is forced to show America their true colors as they throw the middle class and the poor under the bus to protect their wealthy benefactors – apparently at all costs.
Plan B has no spending cuts – that was all BS – the GOP doesn't really care about spending. They are, after all, the ones who spent us into this deficit in the first place. Plan B simply raises tax cuts to include people who make $1M – that's PER YEAR, not Millionaires who accumulate $1M over the course of their working lives but people who make $1,000,000 in 12 months – about $20,000 PER WEEK.
That's who the Republicans are holding the rest of the country hostage for. Look at the chart on the right and see who Boehner wants to pay for those tax cuts for people who make $20,000 PER WEEK – it comes from cutting $650 BILLION Dollars from Social Security & Medicare as well as cutting the $425Bn President Obama would like to use to stimulate our still-struggling economy, in order to help those many millions of people who don't earn $20,000 PER WEEK enjoy a few luxuries like heat and food.
Boehner would be a great cartoon villain if he wasn't so chillingly real. The entire GOP could teach the Star Wars Empire a thing or two about subjugating the masses but this time they have really gone too far. Today's idiotic vote for the GOPs "Plan B" is a colossal waste of time when we are, in fact, only minutes away from a deadline that has the potential to trash the entire US economy.
The markets didn't like Boehner's end run one bit yesterday and we went straight to Hell following his announcement in the afternoon (see Dave Fry's chart). That's right, the GOP doesn't give a crap about investors either – fortunately we were already wary yesterday morning because we've seen them trash the economy before (on the first rejected TARP vote) and we followed through with our…
by phil - December 19th, 2012 8:29 am
Big two days to start the week!
Look how exciting the chart looks now – if only we can hold those 5% breakout lines on the S&P (1,440), NYSE (8,400) and Russell (840), then we can expect a little catch-up action from the Dow and the Nasdaq but, in order for the Nasdaq to catch up, AAPL must move up and that's still a bit questionable with all the negative chatter and year-end tax selling. As I said to Members this morning:
Big Chart – Now we kind of do have that V-shaped recovery – especially on the RUT and NYSE. That's the funny thing about technicals – they can "so obviously" predict disaster right before they are proven completely wrong. Of course the same goes for predicting bull runs – so stay on your toes! Very encouraging to be over 5% on S&P, NYSE and RUT – all our broad indexes. Nas is held down by AAPL (for now) and Dow just lagging, as usual so a long play on the Dow could be fun as we look for them to re-test 13,600, at least. Very easy bear indicators if any of our 3 indexes blow their 5% lines now.
Of course we have a falling Dollar to thank for helping to goose the markets – as well as keeping commodities up despite a fundamentally bearish story. As you can see from Chris Kimble's chart, the Dollar is off almost 2.5% from it's high in mid-November, corresponding to a roughly 6% move up in the S&P during the same period.
Now the Dollar is testing a possible floor at 79 this morning and, if it can't break any lower than that, we may once again face rejection back at our 2012 highs. We REALLY don't want to form a double top going into the new year – that can make for a very ugly January – especially if earnings are even a little bit light – so we're certainly not out of the woods yet and we're going to play it cashy and cautious into the holidays unless the Dollar drops below 78.50 on whatever nonsense they come up with to "fix" the Fiscal Cliff.
We've already discussed our primary TZA hedge and now may be a good time to add a Mattress Play (see "The Stock Market Parachute") and we'll…
by phil - December 18th, 2012 7:53 am
What a difference a day makes!
As you can see from our Big Chart, the technical picture has quickly turned around and, once again, a Santa Rally is a possibility and our S&P 1,450 goal for 2012 is in reach. As I said to our Members earlier this morning:
How quickly things reverse. Still, don't mean a thing until we top those last week highs and break over 1,440 on the S&P (5% line) and 8,400 on the NYSE (already there) and 840 on the RUT (5% line). That puts the Nas 5% behind the others and the Dow 7.5% so if we get a bullish break on our 3 broad indexes – it would be good to play the Nas and the Dow to catch up but first – we need to break those 5% lines.
So, that's what we'll be watching this morning as well as our beloved AAPL (see David Fry Chart), which popped back to $520 yesterday, on the way to our $528 initial target (as noted in yesterday's Morning Alert). We had hoped to hit it yesterday but we settled for the $16 move we did get and we expect to see $528 this morning or our premise is blown and we'll pull our aggressive short-term bets.
We are, in theory, making progress on our Fiscal Cliff negotiations but Dave Fry notes there is a more important macro driving us forward at the moment:
Beyond all of this is what the Fed wants you to do—buy stocks. After all, they’re providing nearly $100 billion a month in QE activity. This money will find its way into markets and will force you to buy stocks even if you don’t want to. Why? Because the alternatives are negative yields in bonds and sideline cash.
The same holds true with other central banks in Europe and Asia as its raining fiat currencies.
Not to be outdone, Japan’s election provided a large