Miracle Monday – Putin Wins with 99.7% of the Vote
by Phil - March 5th, 2012 8:14 am
99.7% – in Chechnya!
That's right, the very place where Putin brutally put down civil unrest and the same place where they still launch terrorist attacks on Russian targets apparently LOVES Putin. All of Russia "loves" Putin as the former KGB Boss turned Russian Boss sailed to another Presidential victory. Nationally, Putin scored about 63% of the vote with his worst showing in Moscow, where just 48.7% voted for him but, unlike the US, Russians choose between 5 parties so 48.7% is pretty good while 99.7% is INcredible (as in NOT credible)!
So it's "meet the new boss, same as the old boss" in Russia this morning and before you think "that can't happen here" – perhaps you should consider how our own propaganda networks covered this election. Here's a video of Fox (of course) showing video of a "violent rally against Putin" complete with fire bombs, riot police, etc.
Only it isn't Russia – it's Greece. Fox knows their viewers are so gullible, they don't even bother to edit out the Greek letters on the bank in the background because, as any Fox viewer knows – Russian, Greek – all the same nasty unAmerican languages.
CNN is no better, showing a soccer rally and narrating it as violent protests against Putin (end of same video). The fact that these deceptions aren't considered major news in THIS country let's you know how dangerously close we are to seeing one of our own candidates getting 99.7% of the vote one day as one group of thugs or another consolidates their hold on our Government and our Media.
So happy Monday to you! It was a pretty boring weekend so not much to report other than the Eurozone PMI fell 2% in February to 49.3 (contracting) while China's Feb Service PMI dropped 9%, into negative territory at 48.4 (contracting). China also lowered their GDP target by 6%, from 8% to 7.5% as Wen Jiabao says "the nation needs to shift to a more sustainable and efficient economic model."
Hmm, China's Premier says their growth is unsustainable – don't worry folks, move along – nothing to see here…. Unwilling to ignore the situation is Credit Suisse's Dong Tao, who says The commodity super-cycle underpinned by China has drawn to a close as Chinese commodity needs have peaked as the nation transitions to domestic…
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DiggFake News Friday – What A Fool Believes
by Phil - March 2nd, 2012 8:18 am
Oil shot up to $110.55 yesterday.
The news was that a pipeline in Saudi Arabia had been attacked and oil had been running up all day into this "news," which, funnily enough, turned out to be fake. We caught the news at 3:05 in Member Chat (thanks Kustomz) and we had been waiting for oil to stop going up so we could short it. The turn came at the $110.50 in the Futures (/CL) and we caught a nice run down to $109 and I reiterated, at 3:36, with oil still at $109.88 my love for the USO April $40 puts, which were $1.08 at the time and finished the day at $1.15.
As Malsg pointed out in Member Chat: "The pictures of the fire are taken in daylight … but Saudi sunset was several hours ago … the oil market only stared going nuts after the close." A very good observation that gave us the resolve to stay short on oil – which is working out fantastically this morning as well.
We also grabbed an aggressive short spread on BNO, as it seemed the whole day's run had been BS, with traders in the know stocking up ahead of the fake news so they could unload barrels into the retail suckers who bought into the spike. Don't worry though – no one who bought oil up from $105 on Thursday to $109 ahead of the news will be arrested or even questioned – we'll just keep pretending the total farce of oil trading is a legitimate pricing mechanism, even though it costs people around the world hundreds of Billions of Dollars each year in excess charges (see "Goldman's Global Oil Scam Passes the 50 Madoff Mark").
Now, this is the part where I would usually point out how the economy is weaker than we think etc. but I'm not going to do that this morning because the S&P still over 1,360 and, if a stronger Dollar isn't going to stop this rally – nothing will. Even yesterday, I joked to Members that I wasn't going to highlight negative news items in red anymore as there was no such thing as bad news in this market.
As you can see from David Fry's SPY chart, we''re back testing the bottom of that channel today and, if we don't break down here, then we can…
Threatening Thursday – Grantham Goes Marxist!
by Phil - March 1st, 2012 8:23 am
“Capitalism threatens our existence.”
That's the message today from legendary investor Jeremy Grantham, who's GMO Capital manages $97Bn and, like Buffett, writes an annual letter to his investors. Part one of the letter has some great general investing advice but part two gets very interesting as Grantham titles it "Your Grandchildren Have No Value (And Other Deficiencies of Capitalism)" exposing what he considers the "two or three main flaws" of Capitalism that are "potentially fatal and have gone largely unaddressed."
A sustainable economic system, for instance, can’t be based on ever-increasing debt, corporations can’t be allowed to run governments and loot treasuries, and “growth at any cost” is a recipe for planetary suicide.
Grantham points out that a company is now free to spend money to influence political outcomes and need tell no one, least of all its own shareholders, the technical owners. So, rich industries can exert so much political influence that they now have a dangerous degree of influence over Congress. And the issues they most influence are precisely the ones that matter most, the ones that are most important to society’s long-term wellbeing, indeed its very existence.
Thus, taking huge benefits from Nature and damaging it in return is completely free and all attempts at government control are fought with costly lobbying and advertising. And one of the first victims in this campaign has been the truth. If scientific evidence suggests costs and limits be imposed on industry to protect the long-term environment, then science will be opposed by clever disinformation. It’s now getting to be an old and obvious story, but because their propaganda is good and despite the solidness of the data, half of the people believe the problem is a government run wild, mad to control everything.
Here are some of Grantham’s finer points:
- Capitalism too heavily discounts the future value of cash flows as it seeks to raise debts: “Your grandchildren have no value.”
- "For example, let us say that a firm’s current actions are going to cost society at large a billion dollars’ worth of harm in 50 years. Further, let us agree that all of the costs will definitely be imposed on the company. The company would feel that pain today as equivalent to only a mere $1 million hit to earnings. Why should they care?"
- Companies foolishly reward executives for taking on debt: “Total remuneration … for
…
Wednesday – Will Another $712Bn Buy Us Another Day at 13,000?
by Phil - February 29th, 2012 8:12 am
$712,800,000,0000.
That's how much the ECB dished out to 800 lenders this morning – close to $1Bn per bank of cheap, 3-year loans in the hopes that they, in turn, will turn around and lend them out to people and businesses throughout the EU at less-than-cheap rates so the EU banks can make a nice profit and back-fill the gaping holes in their balance sheets that have been devastated by defaults and currently are being ignored by the mutually assured distraction that allows everyone's assets to be marked to fantasy.
As we saw yesterday, US foreclosures in Q4 were jumping at a rate of 100,000 per month – and that was before the settlement. There is a backlog of 4M homes in foreclosure in the US and Case-Shiller's Home Price Index have hit record lows on the 20-city Composite Index. So it's not just the $400Bn worth of losses on homes in foreclosure (4% of all homes) that have not been taken by the banks but the impuned damage of another $10Tn of asset devaluation on the other 96M homes that is being ignored by US banks.
Europe has more people and more homes and more unemployment than the US. While there is no convenient Case-Shiller report in the EU, we can reasonably expect that EU banks are at least as screwed as US banks and we're not even discussing their Trillions of questionably-valued bond holdings
So, when you watch the markets today and wonder how it's possible that a $712Bn injection of capital widely distributed throughout the European Banking System (exact details a guarded secret, of course) doesn't do anything to boost the markets – that's why.
I read the news today oh boy
Four thousand holes in Blackburn, Lancashire
And though the holes were rather small
They had to count them all
Now they know how many holes it takes to fill the Albert Hall.
Until we do an actual reconciliation of all the holes in all the banks around the World, we'll never have…
Tempting Tuesday – Dow 13,000 or Bust!
by Phil - February 28th, 2012 8:01 am
I want to be bullish.
Really I do. Being bullish is much more fun than being bearish. According to Bloomerg: In the midst of the Great Depression, people who bet on stock-market declines were considered unpleasant, unwanted, un-American, un-something. Yet as a New York Times writer noted in February 1932, "The bearish speculator is not often reviled in healthy markets; it is when prices are declining that opprobrium is heaped upon him."
That's not what's happening now. It has become so out of vogue to be bearish now that many fund managers I talk to are insulted that I should question their bullish positions. Being bullish has become the new religion whose Gods are Ben Bernanke, China, the BOJ and the ECB – beings of supreme power who can move the markets with a word and will never, ever let them go down again – all you have to do is BELIEVE!
There are still some heretics out there as put contracts against Europe are at their highest level since the July/August collapse. The iShares MSCI EAFE Index Fund (EFA) is matching its highest levels in the last six months, but a huge put spread dominated its option activity Friday. Options to protect against a 10% drop in the EFA cost 71% more than contracts betting on a 10% gain, according to data compiled by Bloomberg. Put volume jumped to a record on Feb. 24. The ETF has gained 16% since global equities bottomed last year on Oct. 4th.
The May $52/43 bear put spread is the hot trade on EFA (over 100,000 contracts at net $1.14) at the moment although EFA hasn't been at $43 since April 2009. It's an $11M bet that Europe is going down but maybe it's just a hedge on $100M worth of bullish positions – it's hard to tell with these things…
There's still plenty of bad news out there, most notably today that the S&P finally realized Greece has defaulted on it's debt by forcing bondholders to accept 53% less than they were owed (I know – SHOCKING!). What's actually shocking is the reaction this caused by the ECB, who have now "temporarily," but immediately "suspended the eligibility of marketable debt instruments issued or fully guaranteed by the Hellenic Republic for use as collateral in Eurosystem monetary policy operations."
So now…
Monday Market Movement – Not Up for a Change
by Phil - February 27th, 2012 8:02 am
This is frustrating isn't it?
The S&P fell to 1,355 in the Futures, breaking our rule to get bullish as they must hold 1,360 for 2 consecutive days so we're back to watching and waiting now as it's been two full weeks of teasing this line as the index creeps back into the bottom of David Fry's SPY channel.
We thought we were going to fail back at 1,300 but we caught a nice bounce off the bottom at the beginning of the month and flew up another 5.5% since then but now we're almost 10% over the 200 dma on less and less volume and that's one hell of an air pocket below us on the S&P so of course the lack of more free money from the G20 is going to hurt today – the question is – how much?
We discussed the G20 over the weekend, so no need to re-hash it here. Let's take a little time today to delve into the logic of S&P 1,360 and see if we can find some good reasons for it to stick. In his letter to shareholders this weekend, Warren Buffett very plainly says that his entire bullish premise is based on his believe that housing will make a comeback. Jim Bianco had an article on that this weekend noting Homebuilder Optimism has risen for 5 straight months, back to the highest level since May of 2007, at the early stages of the slowdown BUT – let's keep in mind that the sentiment level is 29 and anything below 50 is still NEGATIVE – so we have a long way to go!
We have been playing XRT short, expecting it to have been rejected at $56, like it was last summer prior to a 20% drop. Now XRT is at $58, up 31% from it's October lows and we have to wonder if the situation for Retail has REALLY gotten 31% better than high-volume investors were pricing it AFTER seeing last July's earnings reports or is this another major air bubble that's about to burst?
The January Retail Sales Report showed $361Bn in sales and that was up 5.6% from last year's $342Bn. This month we'll see an automatic 3.5% bump as February has an extra day (people fall for that one every 4 years) and we have strong…
Weekend Reading – Gee, 20 Hundred Billion More Stimulus?
by Phil - February 26th, 2012 7:16 am
MORE FREE MONEY!
According to CNBC, the G20 is now considering a $2Tn rescue fund for EU bailouts, double the $1Tn they put in during the crisis in 2008. Of course the markets plunged in 2009 as it occurred to people that, if the banks needed $2Tn to be rescued, then we were in what leading economists refer to as "deep shit."
The plan is to combine the EFSF and the ESM to create a 1 Trillion Euro fund ($1.34Tn) and to augment that with the other $700Bn coming through the IMF (on top of the $350Bn already pledged). While $2,000,000,000,000 is a staggering amount of money – enough money to more than double the net worth of the bottom 40% of the planet – but, is it enough?
It's enough to kick the can down the road but Greece alone is $500Bn in debt and Ireland alone owes well over $2Tn externally (mostly to England), Italy owes $2.6Tn externally and $400Bn just to France and Spain is also at $2.6Tn of debt owed to other nations but they spread the pain around pretty evenly by comparison. That's the damages in the PIIGS before we even get to France ($5.6Tn), Germany ($5.5Tn), the UK ($9.8Tn) and, of course, the United States, which owes over $1Tn to Japan and the UK and another $2.5Tn to China within their $15Tn external debt load. How's that $2Tn looking now?
So let's not confuse can kicking with "fixing" as there is NOTHING about this $2Tn that fixes anything but the ability to roll over that $40Tn for another year. Unfortunately, in another 12 months, some portion of the $120Tn of unfunded liabilities that no one likes to discuss will also drop to the bottom line. The US alone will add over $2Tn of additional debt in 2012 and about $5Tn is expected of the others – but that was before they all pledged this new $2Tn that they will be lending themselves to pay themselves for the old debt while the add on new debt.
Let's keep in mind that the source of this "news" about $2Tn in aid is CNBC and, as of 8pm on Sunday, it's still not confirmed by legitimate news sources. Of course, CNBC is nothing more than the propaganda station for the top 1% and their agenda, differentiated from Fox only by the fact…
TGIF – Sell in March and Go Away?
by Phil - February 24th, 2012 8:34 am
Thanks Mr. Market – it's been a great year.
We're up from 1,275 to 1,363 on the S&P and that's 7% and, for those playing the upside since October's 1,074 low – it's been a fantastic 27% run in 4 months so we have nothing to complain about in 2012, do we? Of course the US markets gained $10Tn in value in 120 days – that kind of stuff happens all the time and is nothing to be concerned about. I'm sure the net $20Bn that flowed into the markets during that time period had many, many babies to fill up the empty space – or at least that's how Rick Santorum explained it to me.
Fortunately, with over 80% of the trading in the market being conducted by HFT Bots that bring the average hold time for ALL positions (including your long-term retirement fund) down to an average of 22 seconds – we don't need any actual money – or even human participation to have a nice-looking market rally. While "Drill Baby, Drill" may be the rallying cry of the GOP, their Super Pac contributors in the Financial Sector prefer "Churn Baby, Churn" as Billions of shares are traded in the stock market every day that are held for less time than it takes you to read the word "held".
This post is a bookend, in a way, to my September 30th's "TGIF – Closing a 12% Down Quarter," which followed our bullish prediction the previous day's "Thrill-Ride Thursday – Finding Bottom" where my comment on why we were taking bullish positions in the middle of a catastrophic collapse was:
We only fear missing a rally as we may never get another chance at these lows. While it’s possible that we get that 25% decline, we don’t fear that either as we will simply scale an and take net entries that are 40% lower than we are now and, if the markets fall that far and never recover – we’ll be a lot more concerned about stocking the shelter up with ammo than we will be about whether or not our XLF trade is performing well!
At the time, we had been moving into our September's Dozen Portfolio on each dip since the August crash (S&P 1,100) and we did bottom out on…
Four-Dollar A Gallon Thursday – Gas Hits $4 Overnight
by Phil - February 23rd, 2012 8:10 am
Wholesale gas prices jumped 5% last night.
Goldman Sach's head of energy research, David Greely, has been banging the oil drums all month and has helped engineer a 10% rise in crude, costing Americans an extra $10Bn a month at the pumps and in their energy bills (not even including the rise in food and transportation costs) in order to make his masters another Billion on their trades but he's not done there. Now he is celebrating Brent Crude crossing it's 2008 highs of $124 a barrel by recommending long positions on September WTI contracts at $107.50:
Greely's main bullish premise for WTI is that one way or another, as Keystone was meant to do, they will find a way to reverse the flow of oil into Cushing, OK, where we measure our national inventories each week, and begin draining that facility dry at will. This will give the commodity manipulators total control over the price of oil by enabling them to add or subtract millions of barrels of oil each week and, if the Keystone project gets rammed past the White House – millions more can be drained from Cushing at the will of a single company.
It has long been the dream of the US Energy Cartel to force Americans to pay the same ridiculous prices as Europeans for oil, despite the fact that the US produces over 10Mb per day right here at home, more than twice as much as Europe.
Concerns of potential supply disruptions have increased as tensions between Iran and Western nations escalate, Greely said in a report today. Spare production capacity among the members of the Organization of Petroleum Exporting Countries has fallen to “dangerously low” levels at a time that the world’s demand is recovering, Greely said.
“We believe that stronger-than-expected demand against limited inventory and scarce excess production capacity leaves the market vulnerable to price spikes in the near-to-medium term,” Greely wrote. “Oil looks increasingly compelling from the long side both as an outright position and a hedge.”
If this is giving you flashbacks to 2008, when Goldman Sachs stampeded their sheep into $140 oil contracts on the promise that the same conditions would lead to $200 oil – you're half right. The reality is that it's even more asinine now to make these statements than it was then…
No Worries Wednesday – Top Ten Plays for the Bull Market
by Phil - February 22nd, 2012 6:27 am
We're still waiting for a clear signal.
The S&P is finally over our 1,359 level but, so far, has not stayed over that line for a full session and we need two sessions over the line to confirm it. However, I did promise not to be bearish if we're over 1,360 and I think I got it all out of my system in the last few posts, as well as last night and this morning's Member Chat, where I outlined my case for for the oil glut and the collapse of the EU, which will lead to the collapse of Asia and the US – but not today.
Today there is a ton of money sloshing around in the system and we are clearly in a massive technical rally, which may (or may not) end at any moment. We discussed our February trade ideas from our morning posts on Monday's morning so I won't rehash them here but I do want to take a look at ways to leverage some trades to take full advantage of this non-stop rally as we have VERY CLEAR stop lines (our 10% lines) where we'll have a clear signal to get out or cover if ANY of the major indexes fail.
As with our early February trade ideas, we can add one more bullish trade each day that we're over the line and cash out the older trades that go well in the money and, of course, accumulate some Disaster Hedges (20-30% of your unrealized profits into protective hedges is a good rule of thumb as well as the cheapest form of protection – STOPS!).
My favorite disaster hedges are playing for a correction in the Dow or the Nasdaq which, if you are a Dow Theorist, would seem very likely based on the chart on the left but, so far, nothing matters to the bulls – who have their story and they are sticking to it – regardless of those pesky facts. Sorry, that's a bit bearish (bad habit). Anyway, my favorite disaster hedges are:
SQQQ April $13/17 bull call spread for .70. This trade has a 471% upside potential by itself if SQQQ (currently $13.14) gains 30% by April expiration (58 days). That's a lot but SQQQ is a 3x ultra-short to the Nasdaq so a 10% drop in the Nas, back to 2,650…
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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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