by Phil Davis - August 2nd, 2012 8:28 am
Put up or shut up time.
We had a very extensive discussion in this morning's Member Chat already, discussing the BOE, the ECB, China, Europe, AAPL vs. Samsung, China's draining of liquidity, etc. so forgive me if I'm not in the mood to cover that ground again.
What I do find worthy of more discussion is this nice breakdown of the Russell by Bespoke, which highlights how tough things are becoming for small business in America. Actually, these businesses aren't that small as they are public companies but compared to our top 1% Big Businesses – they are but dust in the wind.
It's no secret that this country is now run for the sole benefit of the top 1% and the bottom 99% are nothing more than Matrix-like human cows – to be penned in and drained by the top 1% as they force them to work off a lifetime of debt that begins with the student loan they need before being "qualified" to get their first job and culminates in medical bills that wipe out whatever meager savings they were able to accumulate during their non-stop working lives (other than that 2-week vacation, of course!) and, of course, the massive bill for burying you when you die!
When you are in the top 1%, $200,000 for college and $20,000 to have a baby and $200,000 deposits on $1M homes and $1,500 a month medical insurance are just bills that get paid, leaving plenty of money on the side to speculate in rising food and commodity prices so we are actually PLEASED when we go to the gas station and pay $4 a gallon and PLEASE when each bag of groceries costs $50 because – although we pay $60 a tank to fill up along with the rest of you – we ALSO invest in companies that charge 200M other American drivers $60 a tank and $200 for groceries and we GET part of the profits on that $52Bn a week that even the bottom of the bottom 99% must pay for food and groceries.
We own the electricity and the cable companies and the gas companies and your phone company and, of course, the banks you pay those loans to. The 1% doesn't struggle during hard times – we just raise our fees!
by Phil Davis - August 1st, 2012 8:17 am
Waiting to cut out the deadwood.
Waiting to clean up the city.
Waiting to weed out the weaklings.
Waiting for the final solution
To strengthen the strain.
Waiting to follow the worms. – Pink Floyd
Don't you just love the anticipation?
As expected, we got a bit of a bump from Geithner's turn on Bloomberg last night but it was utter nonsense with Timmy pleading for policy makers in Europe and at home in the US to DO SOMETHING!!! Timmy saying something needs to be done is a very, very far cry from something being done – a nuance that seems to be escaping the bulls as the thinly-traded US futures are up about 0.4% at 8am. Europeans are not quite so gullible and their markets are off about 1%, following up on yesterday's awful close.
Of course the MSM pep squad has all morning to quote Geithner out of context while we wait for the FOMC statement at 2:15 but Bernanke is not scheduled to speak after the statement is released and it would be extremely odd for them to make a major policy move via their statement with no press conference so I think it's all going to be on Draghi and the ECB tomorrow and they'd better be coming up with a Hell of a big bazooka if they want to make a dent in their problems.
You're welcome, by the way, if you went with yesterday's Futures picks from the main post. Oil fell all the way to $87.50 before turning back up (and we went long into the close so YAY!) for a nice $2,500 per contract gain on /CL. Gold dropped $15 to $1,615 and /YG for $33.20 per Dollar and that's $498 per contract there. We had similar gains shorting the Dow off the 13,000 line (/YM in Futures) but the cool thing about that Dow is it hit that line over and over and over…
by Phil Davis - July 31st, 2012 8:55 am
That's the number we came up with yesterday for the minimum bailout/stimulus required to hold Dow 13,000, S&P 1,380, Nasdaq 2,950, NYSE 7,900 and Russell 790. Buying a breakout over those levels will be even more expensive and, so far, we've gotten a grand total of ZERO actual commitments from the Central Banksters and other Government morons, most of whom are on vacation anyway.
As you can see from our Big Chart, this is within our rule of thumb that it costs $10Bn to buy an S&P point and that effect lasts for about 6 months. The S&P is up 105 points off the June lows and, so far, only China has committed stimulus Dollars (about $120Bn down with $400Bn still rumored), leaving a the gap to be filled by Europe, Japan and the US.
Of course China has, by far, the biggest hole to fill. In fact, Larry McDonald calls China's GDP "the new Libor," pointing out the pretty obvious fact that it makes no sense at all that Europe has negative growth while the US and Japan have minimal growth while China claims things are humming along at 8.5%.
Just this morning, Taiwan (China's neighbor) reported declining GDP, Korea reported their Industrial Production has gone negative and Singapore's Government Investment Corporation issued a report with a very gloomy outlook for the whole planet, stating:
"The developed economies will continue to be weighed down by an extended period of debt-deleveraging. In Europe, the debt crisis has spread beyond the periphery to the larger Spanish and Italian economies, In the United States, the fragile economic recovery could be aborted by automatic spending cuts and tax increases if political gridlock continues beyond the 2012 elections with no compromise on a long-term plan for reducing the public deficit. Growth in the emerging economies, particularly China, is also slowing."
Well, that sums it up quite nicely, doesn't it? Meanwhile, everyone is looking for the ESM to save us but Germany hasn't even approved the fund yet – that matter is tied up in their Constitutional Court (pictured left) until September 12th and you can bet those judges are on vacation and not sitting in Draghi's kitchen, plotting to spring an early approval on us on Thursday – as seems to be expected by the MSM.
by Phil Davis - July 30th, 2012 7:58 am
So, where's our stimulus?
Like good little Pavlovian dogs, we ran back into the markets last week when Mario Draghi rang the stimulus bill – increasing the $60Tn global markets by 5% – that's $3Tn of valuation added in 48 hours on the say-so of a former GS executive that has been put in charge of the European Central bank. What could possibly go wrong with this scenario?
If we can't trust the Investment Bankers who are taking over our Government, who can we trust? So we'll assume that everything WILL be fixed this week and that the ECB, Fed, PBOC, BOE, BOJ and all the little Central Banksters will be pumping enough money into the system to justify a $3,000,000,000,000 increase in Global Equity prices – even though that means, at an average p/e of 15, that all this expected stimulus somehow drops an additional $200Bn to the bottom line of Big Business to justify the bump in valuation.
How many Dollars, Yen, Euros and Yuan do we have to give to Corporations to turn into $200Bn? Well, if it's AMZN – the answer is $15Tn because it takes $50Bn in sales for AMZN to make $600M so figure 75x in sales to make 1x in earnings. Why use AMZN? Well because AMZN is almost 5% of the Nasdaq and it was their amazing run last week, on what rational people would consider poor earnings, that reversed the downtrend initiates by AAPL's (who are 15% of the Nasdaq) miss.
I guess it's obvious why we're short AMZN (see Dave Fry's chart) but let's look at AAPL now, who are quite a bit more efficient at dropping Dollars to the bottom line. Last year, AAPL took in $108Bn and made a profit of $26Bn – now THAT'S a good company! So let's pretend that all companies are as good as AAPL and nowhere near as bad as AMZN at converting sales to profits.
Now to get that additional $200Bn in Corporate Profits we only need about $800Bn in stimulus – assuming, of course, that money actually went to people who would spend it and not to Banksters who are still trying to back-fill multi-Trillion Dollar holes in their mark-to-fantasy balance sheets. $800Bn is a doable number so let's pretend it is enough to justify a 5% bump in the market and now we know…
by Phil Davis - July 27th, 2012 8:02 am
You made me promises promises
You knew you'd never keep
Why do I believe
All of your promises
You knew you'd never keep – Naked Eyes
Wow – what a party!
The former Vice-Chairman of Goldman Sachs (Draghi) says everything is fixed and the global markets go flying – what's not to trust? Would anyone form GS ever lie to us? Would GS be involved in manipulating the Global Markets – of course not!
Now that I've fulfilled my obligation to get my mother back unharmed – let's get real. Draghi said the violent spike in bond yields in recent days was hampering "the functioning of the monetary policy transmission channels" – the EXACT expression used to justify each of the ECB's previous market interventions.
Yields on Spanish two-year debt plunged 72 basis points to 5.47% in barely an hour, with comparable moves on Italian debt – easing the pressure before a string of debt auctions in Rome over coming days. The MIB index of stocks in Milan surged by 5.6%. Madrid's IBEX rose 6%, the biggest jump in two years, led by an explosive rise in bank shares. Mr Draghi's comments came as Spain claimed backing from France and Germany for activation of the eurozone's rescue fund (EFSF) to buy Spanish bonds, though this would require calling the Bundestag's finance committee back from holiday for a vote. Action by the EFSF would provide "political cover" for the ECB to join the fray in a two-pronged attack. "We're firing on all cylinders: that is what has ignited the markets," said Hans Redeker, currency chief at Morgan Stanley.
Joint statements from Madrid, Paris and Berlin said market turbulence "does not reflect the fundamentals of the Spanish economy, or the sustainability of its public debt". According to Ambrose Pritchard, "the wording seems scripted to clear the way for intervention." Of course, now it's time to put up or shut up as the Fed meets next week and the ECB has their pre-holiday meeting next week as well…
by Phil Davis - July 26th, 2012 8:25 am
ECB President Mario Draghi said they "stand ready to do whatever it takes to save the Euro."
That was enough to send the Dow Futures flying up 200 points at 6am (where we shorted them at 12,800 along with S&P at 1,350, RUT at 780 and Oil at $90) because no one cared that he also said "within our mandate" nor do the bulls seem to realize that this is already year 3 of the ECB doing "whatever it takes" to save the Euro and, apparently, it takes a HELL OF A LOT MORE than what they've already done.
We were silly, we should have flipped more bullish last night as Spain's 10-year yields hit 7.75% – new highs on Spain and Italy's 10-year have been pretty reliable BS triggers for more happy talk from the ECB, because "whatever it takes" is lying to investors and posturing and bluffing – WHATEVER IT TAKES to stop these rates from heading to double digits, which necessitated a $500Bn bailout for Greece and would mean TRILLIONS for Spain and EVEN MORE TRILLIONS for Italy.
If you don't think there's a limit to "whatever it takes" – see how fast the EU comes up with one Trillion – let alone five it would take for Spain and Italy (as if it would stop there). I have, sadly, seen hospitals do "whatever it takes" to keep terminal patients alive – they do a lot but, in the end, the patient still dies.
Of course, our motto at PSW is "We don't care IF the markets are manipulated as long as we can figure out HOW the markets are manipulated and place our bets accordingly" so, early this morning, I put a note up for our Members, indicating how ridiculous the move was and indicating the shorting targets on the Futures. Just yesterday, right in the morning post, I mentioned our shorting target for the Dow Futures (/YM) was 12,650 and we hit it 2 times after the open with 2 drops below 12,600 where we stopped out with $500 per contract gains. Those are just the free ideas folks!
Every quarter, during earnings month, we like to show off with a few free trade ideas to give non-Members a chance to have some fun. We've been nailing it this month but July is almost over and so are…
by Phil Davis - July 25th, 2012 7:55 am
Fortunately, we were well-prepared for this eventuality as I had said way back on July 10th, in Member Chat, that AAPL was "too big to succeed" (commentary also featured in Stock World Weekly on the 15th). I also said, at the time regarding AAPL: "Where was my buy point – $555? That's a long way down to support if they fail $600." We had called for taking the bullish AAPL money and running the previous Thursday (July 5th) in my morning Alert to Members, as they topped out that morning at about $610. We were a bit early with that call (AAPL hit $619.87 the next week) but, on the whole, our bearish flip on AAPL (and the broader market) has served us well.
In yesterday's Member Chat, we had one bearish earnings spread on AAPL as well as an aggressive play on SQQQ, the Nasdaq ultra-short, because we expected the Nasdaq to fail along with AAPL (and AMZN is next!) on their earnings. Our SQQQ trade grabbed the Sept $50/60 bull call spread, offset by short puts on some stocks we are accumulating for our Income Portfolio for a net free trade but our dreams of a big pay-off on the spread will be put on hold today as a sudden burst of stimulus talk has turned the indexes back up, with the Dow now 200 points off the bottom in the Futures (7:50) at 12,660.
I already sent out an Alert to our Members this morning, pointing out what manipulated BS this was as the WSJ's Jon Hilsenrath issued what amounted to nothing more than some well-timed speculation on imminent Fed action into yesterday's close that has been picked up by the MSM as a fact and popped the Dow a full 100 points into yesterday's close – erasing 1/2 of a disastrous day in minutes (see Dave Fry's SPY chart). At the moment (7:54), the Dow Futures (/YM) make an excellent short below the 12,650 line so excuse me while I hit "publish" on this partial post so our Members can see it.
Anyway, so where was I? Oh yes, market manipulation by Uncle Rupert and the WSJ is not unexpected with NWS reorganizing and looking for good valuations on the company split. I pointed out to Members seven other articles in which Hilsenrath has…
by Phil Davis - July 24th, 2012 8:49 am
Tut, tut, it does not look like rain.
You would think the worst drought in 80 years would merit more than the occasional mention in the Financial media – I've seen CNBC do one-hour specials on the marijuana crops so you'd think actual FOOD would maybe make it a little higher on the list of concerns for the MSM – especially when we are experiencing the worst drought of the past 80 years and the last one that was this bad led to a Global Depression (along with, of course, National Debt Crises and Financial Failures but mission accomplished there already).
You would think the drought has somehow fallen into a Somebody Else's Problem Field, where individuals/populations of individuals choose to decentralize themselves from an issue that may be in critical need of recognition. Such issues may be of large concern to the population as a whole but can easily be a choice of ignorance at an individualistic level. As Douglas Adams explains in The Hitchiker's Guide to the Galaxy:
An SEP is something we can't see, or don't see, or our brain doesn't let us see, because we think that it's somebody else's problem…. The brain just edits it out, it's like a blind spot. If you look at it directly you won't see it unless you know precisely what it is. Your only hope is to catch it by surprise out of the corner of your eye.The technology involved in making something properly invisible is so mind-bogglingly complex that 999,999,999 times out of a billion it's simpler just to take the thing away and do without it……. The "Somebody Else's Problem field" is much simpler, more effective, and "can be run for over a hundred years on a single torch battery.This is because it relies on people's natural predisposition not to see anything they don't want to, weren't expecting, or can't explain.
by Phil Davis - July 23rd, 2012 8:25 am
How great is this? We flipped bearish on Wednesday's poor Beige Book outlook (not to mention drought concerns and Hugh Hendry's warning that "Bad things are going to happen") and Thursday we noted it was looking a little too much like last July, where we fell off a cliff right after options expiration and my very appropriate comment at the end of Thursday morning's post was:
Clack, clack, clack – like a roller coaster going up in the dark, we don't know when we'll get that big "wheeee" but we do know it's coming!
Fortunately, we did not wait with our Long Put List going out in the Thursday Morning Alert to Members at 10:18, with all bearish trade ideas that included these gems:
- AMZN Oct $180 puts at $2.75, still $2.75 – even (all as of Friday's close)
- CMG Sept $350 puts at $5, now $35 – up 600%
- DIA Dec $117 puts at $2.50, now $2.80 – up 12%
- ISRG Jan $350 puts at $1.70, now $5 – up 194%
- MA Jan $290 puts at $2.85, now $3.40 – up 19%
- SPY Oct $120 puts at $1, now $1.15 – up 15%
- V Jan $100 puts at $2, now $2.30 – up 15%
- XRT Jan $53 puts at $2, now $2.20 – up 10%
So a couple of big winners already and, of course, we're done with those (see Stock World Weekly for more trade ideas) and the way we work our Long Put List is to take those winners off the table and utilize our "fresh horses" for the next leg down. Don't worry, we won't run out, there are 13 more picks on deck for our Members with AMZN (above) our top choice for this week (also featured with a slightly different trade in SWW).
Even our aggressive oil puts should be doing well in our small portfolios as well as our bullish VXX trade and, of course, our EDZ and TZA hedges as China dropped 600 points this morning and the Russell is testing our 775 target already. Things may be worse than we thought they were going to be as 775 may not hold on the RUT and that breakdown can lead us to test our -5% lines on the Russell (760), Nasdaq (2,850) and the…
by Phil Davis - July 20th, 2012 7:41 am
Wheee, that was fun!
Let it not be said you did not have an opportunity to fill out those short positions (or cash in the longs) – we've been warning you all week so, when they say "Who could have seen this coming?" – you can say "Phil did." QE where, I say as we are now supposed to wait for Jackson Hole, in August, for the Fed to act? Come on – how many times are we going to fall for this BS?
As noted here in David Fry's SPY chart – we're rallying on Tech, which is beating incredibly low expectations, and Energy, where the rising costs are back to hurting Global Consumers. Ag stocks are also on fire and now we have a rice shortage to add to the corn shortage as India has it's weakest monsoon season since 2009 – so now we can add mass starvation to our list of macro concerns.
This is how we built our rally in 2007 and that did not end very well. As I said yesterday – it's deja vu all over again as we had a pointless, stupid, misguided rally last July and then we fell off a cliff – and that was before we even had a fiscal cliff to fall off of!
As promised in yesterday's post, we initiated our Long Put List and it looks like we'll have our first triple already as our CMG Sept $350 puts were just $5 when we sent the Alert out to our Members at 10:18 yesterday morning and CMG disappointed on earnings last night and plunged below $350 in early trading. Our other favorites were AMZN, MA, DIA, SPY and V and AMZN gave us very cheap entries as they topped out at $228, while V & MA trended down for us all day so we'll see if SPY can hold that magical 1,375 line (the early July high) and if the Dow can hold 12,950 or if we're just double-topping here ahead of the big drop.
While the charts have made some very constructive technical progress this week, the low volumes make the moves extremely suspect. Note on the SPY chart that we had a run-up on declining volume in April (also earnings) as well – that did not lead to a pleasant May, did it? More to the point,…