by phil - April 14th, 2012 5:27 am
Last month, we decided we were going to sell in May and go away in our special update (regular update was here).
We had turned bearish on the market by the 12th, perhaps a little early but it gave us plenty of time to make good exits and get our prices. Since our Income Portfolio was running 100% ahead of schedule and more like 250% counting the unrealized gains from our buy/writes as the market zoomed higher on us, we decided it would be good to go back to cash – especially as it would be fun to build a brand new Income Portfolio for 2012 that our newer Members will be able to benefit from following as well as it is, by far, our most popular virtual portfolio.
We're not cashing it all out as some positions still need to run their courses, but we won't be upset to be cashed out on some so we covered conservatively in anticipation of the pullback that just began last week. We had $97,716 in realized (albeit virtual) gains as of our March 10th update – not bad after 10 months with a $500K portfolio that was only looking to take out $4,000 a month!
This is the kind of set-up that my Mom and many of her friends need to do to supplement their not very generous Social Security checks but it's also using the same principle that applies to any long-term wealth-building strategy, utilizing our best long-term growth strategies combined with a concentration on generating an income collecting dividends and selling short-term options to create our own "dividend" stream on ordinary stocks. Please see previous posts in our Virtual Portfolio section for our main strategy discussions – this is just an update.
This month was unusual as we had quite a few action items, mostly per the Special Update, the following positions were closed:
- 10 GE Jan $17.50 puts sold for $2.10, closed at now $1.30 – up $800
- 20 RIMM 2014 $22 puts at net $3.52, closed at $10.10 – down $13,160
- 3,000 NLY .55 dividend paid on 3/28 – up $1,650
- 10 TITN March $22.50 puts sold for $4.50, expired worthless – up $4,500
- 1,500 NYB at net $8.70, out at $10 – up $1,950
- 10 TM Jan $62.50 calls bought for $6.50 ($6,500), out at $23.20 – up $16,700
- 1,000 CSCO .08
by phil - April 12th, 2012 8:34 am
First the good news:
India's industrial production grew at a slower-than-expected pace in February, weighed down by a contraction in consumer durables and consumer goods. Production of consumer durable goods shrank 6.7 percent in February from a year earlier. Consumer goods contracted 0.2 percent on year. Inflation is still running at 6.7% but at least it's down from 6.95% last month. Now the bad news, January's Industrial Production Report has been revised down from a blistering 6.8% to an almost contracting 1.14% (and when it's that low, 0.04% really matters!).
It turns out the massive 38% run in the EPI based on all these FANTASTIC numbers coming out of India may have been based on totally false information and it's funny how the selling begin along with the release of that spectacular 6.8% report – almost as if some Bankster was pumping out fake data in order to bring in the suckers so he could unload his shares before the real data came out.
Not that that would happen in our fine Kleptocracy, right? We had a similar run-up in our markets as analysts raised their earnings expectations for the S&P 500 from $90 to $100 to $110 and then raised the multiple they felt should be applied from 10 to 11 to 12 to 13 to 14 to 15 or even 16 – coming up with huge targets for the S&P – as well as our other indexes. This caused our markets to rocket higher as it was all sunshine and lollipops from our Corporate Media – all the way back to October.
Now that all the sheeple have been herded into the markets at those MASSIVE valuations, suddenly estimates are going the other way – $105, $102 and now Gary Shilling says $80 may be the right number.
Shilling notes the S&P's dependence on foreign earnings, a stronger Dollar, higher oil prices, consumer retrenchment and a hard landing in China (and India!) and he recommends going long Treasuries and short stocks and commodities (see Gary's 2012 Investment Themes).
Garry was right on the money in 2011, missing just 3 out of 19 investment themes he was tracking at the time so let's not dismiss him out of hand. With S&P earnings dipping back to 80, Shilling says the p/e multiple is likely to contract back to 10 and…
by phil - April 11th, 2012 8:01 am
Are you buying the dips?
We're not yet. Notice that we've now blown 4 of our 5 Must Hold lines (the Dow never did make theirs, which kept us bearish in the first place) and, technically, the S&P failed to hold 1,360 as well but close enough to avoid panic so far.
Falling from 1,420 to 1,360 is 60 points so we'll be looking for a weak bounce (20% retracement) to 1,372 and a strong bounce (40%) past 1,384 would get us back in a buying mood but let's not count those chickens before they're hatched.
France and Germany are bouncing 1.5% this morning as the Euro stages a recovery back to that critical $1.31 line and the UK is up 0.77% (7:40) with the Pound back at $1.59. We noted in Member Chat that this seems like SNB buying to support that 1.20 line on EUR/CHF as we;re certainly not getting a move back up in copper ($3.65), Natural gas ($2.04) or gasoline ($3.24) that we'd expect if we had any additional stimulus or some sort of positive economic data. Even gold is down this morning ($1,659) so I do not have a lot of faith in this early-morning market movement so far.
Clearly we're not going to get excited about anything until our indexes can at least take back those 50 dma's (red lines) and the Dollar holding it's line at 79.60 is also bad news for the bulls. To keep that 1.5% gain in perspective, it's 88 points – back to 6,695 and we're down from 7,150 so "only" 5 more 1.5% up days to go and Germany is back on top.
This is always the tricky part about retracements – it's not so much what you get on the bounce (not even 20% on the DAX), but is the bounce going to be sustainable to get you to 6,850, which is the 20 dma (3% higher than we are now) and then to 7,000, which is the falling 50 dma – 5% over the current mark?
Keep in mind that the longer it takes to retake the 50 dma, the more it curves down and then you are running into a declining 50 dma, which has a much better chance of rejecting you – especially as you are running out of gas after having to climb 5% just to get there.…
by phil - April 10th, 2012 8:29 am
Bernanke gave a whole speech last night titles "Fostering Financial Stability" at the Federal Reserve's Stone Mountain, Georgia conference and didn't say one thing about more quantitative easing – not even a hint. Without an endless supply of MORE FREE MONEY from the Fed – what is going to hold our markets up at these inflated levels?
Goldman Sachs immediately covered their assets, putting out a note indicating "A number of factors reinforce our desire to be more cautious about the data in the near term:"
- First, our US forecast has continued to embody a relatively flat 2%-ish type GDP growth trajectory, so the notion that acceleration is now coming to an end is consistent with that forecast view.
- Second, we have become more confident that the weather has played an important role in some earlier data strength. The payback here may have begun, but there is probably more ahead. There is also rising focus on the US "fiscal cliff" at the end of this year, as Alec Phillips has described.
- Third, in the current post-bust setting, even modest slowing in growth feels more dangerous than normal. Fiscal policy is consolidating and conventional monetary policy has been exhausted in many places. And with plenty of leverage in parts of the global economy, slowing growth quickly also raises questions about debt sustainability in places. As a result, financial risks can re-emerge more quickly than normal as growth slows.
And, as pointed out by Business Insider – Goldman Sachs can't possibly be wrong. Not because they are smart, nor because they are amoral, evil, greedy, manipulative bastards (allegedly) – but because they talk out both sides of their Corporate mouth so they can always point back at something to "prove" they called it. Kind of like Cramer's daily flip-flop scam only with more people.
Business inside points out that while Jim O'Neill is on CNBC standing behind Peter Oppenheimer and Abby Cohen's bullish calls for the retail suckers who watch TV for investing advice, the official firm stance of David Kostin (Chief Equity Strategist) and Stuart Kaiser, who put out the above note – is, in fact, BEARISH.
by phil - April 9th, 2012 8:23 am
What a ride we're getting (see Bespoke Charts). We discussed the fun that led up to this drop on Friday, so no need to rehash it here. Over the weekend, Philstockworld reviewed "This Month in Fascism" and I put up a post outlining "Capitalism's End Game" where we had some nice additional discussion in that post's Member Chat so read that an you're all up to speed.
That brings us to what is happening now. There was little news this weekend other than inflation accelerating in China, with their CPI hitting 3.6% in March vs 3.3% expected but that number is BS anyway as food alone is up 7.5%. For the Quarter, the CPI was up 3.8% overall and China's target for the year is 4% so this effectively takes stimulus action off the table for now. The ONLY thing keeping CPI lower is the now-steady price of housing, which is down at 2% but that's still 2% higher than prices the Government has already decided the people can no longer afford.
China is clearly slowing down but STILL having inflation. The WSJ points out that China's iron-ore demand is down and other emerging-market economies also appear to be losing steam with India's growth down to 6.1% and Brazil down to 3% with Russia having almost no growth at all. So much for the BRICs… "Year-to-date returns have been quite deceptive. All that really happened in 2012 is a typically powerful bear-market bounce off 2011 lows," said Michael Shaoul, chairman of Marketfield Asset Management.
We've been hanging onto long-term short EDZ positions in anticipation of a sell-off in the emerging markets and, despite $25.6Bn of net inflows in Q1 (the most since 2006), EEM has gone nowhere since the end of January, which is funny, since only $1.7Bn flowed into the US stock market in Q1 yet our indexes are up 10% – but that's a different article!
Anyway, so EDZ is still at $12.79 and if we figure we get a 10% pullback in the Emerging Markets then EDZ pops 30% to $16.62 and you can buy the May $14/16 bull call spread for .40 with a 400% upside at $16 and we used to like to cover those with CHL but CHL has flown up to $54 and no longer cheap so I'm thinking FCX is a nice,…
by phil - April 8th, 2012 3:50 pm
German Finance Minister, Schaeuble arrives at the Athens airport.
An immigration officer asks him: "Nationality?" Schaeuble says: "German." The immigration officer asks: "Occupation?" To which Schaeuble responds: "Nein, I am here for a few days only."
"Gallows humor" is popular during depressions. No one is looking for a belly laugh – just a little smirk to brighten up the never-ending string of despair people usually have to deal with. Films were a popular means of escape in the 1930s and we were very into IMAX when they were below $12.50 during the crash as we expected a similar move up in movies audiences as we moved through this century's Great Recession.
However, it only cost a dime to go to the movies in 1930 and, to put it in perspective, the price of gas was .20 at the time. Now it costs $15 to see an IMAX film and gas is $4 a gallon this weekend and we're beginning to see a bit of blow-back from consumers – who simply can't afford to spend $30 for two tickets when they just spent $60 to fill up the car.
Gasoline was also persistently high in the 30s (relative to inflation) but came down from a relative $3 per gallon in 1940 to $2 a gallon in the 70s as the US entered an age of prosperity and we built this nation around the idea of having an inexpensive and readily-available fuel source.
After the initial price shock of the 70s, which pushed us into another recession, things were improving all the way through about 2002, when gasoline prices soared to inflation-adjusted records. While the supply is still plentiful, the prices are no longer affordable and 86M barrels of oil a day at 42 gallons a barrel x 365 days a year at $3.50 per gallon comes out to $4.6Tn a year. Of course, not all oil converts to gasoline but you get the idea. Also, our friends in Europe are reading this and saying "$3.50 a gallon – in your dreams!" as they pay roughly $9 at the pumps.
Add in the effect the high price of oil has on food and other downstream products that rely on oil and you are looking at oil alone diverting 5% of our global GDP – in EXCESS of the realistic $70 per barrel price – away…
by phil - April 6th, 2012 8:45 am
NOW things are getting interesting!
Who wants a market that goes up and up and up – where's the sport? Even the Nasdaq finally blew it's 15-week winning streak and that helped us decide to stay pretty bearish going into yesterday's close. This morning we went over the news and the week's data to position ourselves for the Futures and my conclusion to Members in our special 4:03 am Alert was:
Next week we get the BBook, PPI and CPI but the focus will be on earnings and AA is not likely to get us off to a good start so I simply don't see anything in particular to be bullish about at the moment.
The point I had been making (with many charts and graphs) was that it didn't matter if we added even 250,000 jobs – it still isn't enough to begin to fill in the hole in any meaningful way and, even more important, the QUALITY of jobs we have been adding is TERRIBLE!
It doesn't matter if you give everyone a job if they are only minimum wage jobs. We need our consumers to have an income to spend and aside from inflation (real inflation, not the Fed's BS numbers) eating into their buying power, when someone loses a $50,000 job and replaces it with a $35,000 job – that's NOT an improving economy – not for the long run, anyway.
Of course the stock market will like it, at first – as lower wages paid for the same job = greater Corporate Profits but that only works as long as there are people outside your country who have money to buy your goods.
As we noted just yesterday with the Retail Reports, the high-end stores are doing very well as the top 10% is doing well but those serving the bottom 90% are struggling because, clearly, these people are running out of money. While the market has been content to "ignore and soar" during this gathering storm, now we begin to see the size of the wave that's coming in and it's starting to look scary indeed…
8:30 Update: An anemic 120,000 Jobs added in March! That's about 1/2 of what was expected by Economorons, who can't even get a handle on a major, critical number like Payrolls – how scary is that? So many of…
by phil - April 5th, 2012 8:01 am
That's right folks – Goldman Sach's Chief Forecaster, David Kostin latest monthly chartbook has a 3-month target for the S&P 500 at 1,275 (down 9%) and a 12-month target of 1,250.
I don't agree with the longer-term forecast as I think inflation will kick in by then and we'll be off to the races (in price, not value) but that 90-day target is right on the money. I know you may be saying to yourself: "Say, didn't Goldman just tell us last month to BUYBUYBUY?"
Of course they did. If you don't BUYBUYBUY, who were they going to SELLSELLSELL to. See those S&P calls at the bottom – Nove 30th: "SELL Internationa Sales Basket," January 9th: "SELL S&P 500" – that's what GS tells their insiders – if you somehow got a slightly different impression of what they were saying from the MSM or ex-GS alumni Jim Cramer or any of the 300 stooges on CNBC – you must have simply misunderstood.
Doesn't Cramer sound like one of those hosts on the Home Shopping Network when they get stuck trying to sell an item that isn't moving? Clearly the Banksters did not expect that their Pavlovian attempt to train retail investors to buy every dip would wear off so quickly and this is why we "Sold into the Excitement" last week, rather than waiting for the charts to tell us what the Fundamentals were whispering in February, when we made our plan to "Sell in March and Go Away". In fact, the title of my Friday post was the last in my series of warnings: "March Goes Out Like a Lamb (to the Slaugher)."
After adding additional bearish bets in yesterday's morning post and early Member Chat (and TLT is flying this morning), we did flip bullish at 2:15, going long on the Russell Futures (/TF) at 815 and the QQQ weekly $66 calls at $1.16 (for the Futures-challenged). The RUT gave us a lovely run back to 818.50 for a $350 per contract gain and the Qs ran up to $1.40 for a nice 20% gain in less than two hours and, of course, we flipped back to bearish at the close. My prediction for tomorrow (today) was:
I think we're good for at least another half-point down tomorrow.
by phil - April 4th, 2012 8:38 am
I hate to say I told you so but…
Oh, who are we kidding? I could not be happier saying I told you so and neither could our Members as our "Sell in March and Go Away" strategy seems to have hit the nail on the head – and it's only April 4th!
Back then (2/24), we were still bullish but the plan was to let the rally run its course and cash out ahead of earnings and our plays from that Wednesday (2/22) which I posted right in the morning post for all to see, have performed very well, of course.
We had April SQQQ and DXD hedges that failed, of course, but those were paid for by the short sale of AAPL 2014 $300 puts for $15, which are already $10.75, so up 28% already on those pays for a lot of protection.
Another offset we had looked at was the short sale of FDX April $80 puts at $1.10, which expired worthless (up 100%). We also looked at longer-term put sales on SKX, with the Oct $12 puts fetching $1.55 per contract, now $1.25 (up 19%), and the T 2014 $25 puts at $2.15, now $1.75 (up 18%).
Along the same vein, the XOM 2014 $65 puts at $5, now $4.05 (up 19%) were sold to pay for the SU 2014 $25/37 bull call spread for $6 for net $1 on the spread. The bull call spread is still $6 but that's net $1.95 now – up 95% on the combo. Our other bullish play on oil was the USO June $40/46 bull call spread at $2, selling he SCO Oct $26 puts for $3 for a net $1 credit. The USO spread has fallen to $1.40 but the short SCO puts dropped to $1.65 a net gain of .75 – up a quick 75% on a fairly neutral oil play, which was BRILLIANT as it covered many, many of our aggressive oil shorts over the month that went VERY well.
Our other trade ideas from the morning post (and the logic and strategies are detailed in the post):
- AA 2014 $10 puts sold for $2, still $2 – even
- X at $28.49, selling Jan $25 calls for $8.50 and 2014 $20 puts for $2.95 for net $17.04/18.52
by phil - April 3rd, 2012 8:42 am
When will I see you again?
When will our hearts beat together?
Are we in love or just friends?
Is this my beginning or is this the end? – The Three Degrees
Will the S&P see 1,420, will the Russell see 860 again?
We need to see 13,600 on the Dow to flip our bull switch and we're happy to play that index bullish with something like the DDM (now $71.03 with the Dow at 13,264) $68/70 bull call spread at $1.15, which pays $2 (up 74%) if the Dow simply doesn't fail 13,200.
The potential loss of $1.15 on the trade can be offset with the sale of the May $127 puts at $1.10, which is a bet the Dow holds 12,700 (down 4.25%) or you can pick a stock you would REALLY like to own if it gets cheaper like AAPL, and sell the May $460 puts (down 25%) for $1 or a stock I would love to buy cheap(er) like BTU May $28 puts (down 5%) for $1.25 or CHK July $21 puts (down 14%) for .90. Assuming you offset $1 of the $1.15, then you are in for net .15 on the $2 spread with the potential for a 1,333% return on cash if the Dow simply doesn't go down from here. If you are not willing to make that bet, then you are simply not bullish.
We still favor cash in this very uncertain market but we've been more enthusiastic about adding bearish trade ideas, on the whole. Our very bearish, very aggressive, short-term $25,000 Portfolio gained a virtual $20,000 in the past two weeks DESPITE the fact that we're re-testing the tippy top of the market.
That's because we are essentially doing the opposite of "buying the dips", which is "selling the rips" – taking advantage of the excitement of the bulls, who are whipped into an almost daily frenzy by these low-volume rallies.
I'm happy to be bullish, really I am, but SHOW ME THE EARINGS! We are now up 10% since January earnings and 25% since October's report so I am looking forward to some SPECTACULAR numbers to back up these new and vastly improved valuations for all these companies. Heck PCLN (on our Long Put List and now in our $25KP) is up $250 (55%) since January alone…