by Phil Davis - May 6th, 2014 8:14 am
Whenever the manipulators need to boost the markets, they just crash the Dollar.
And what a dive we've had! As you can see from Dave Fry's Chart, the Dollar is down 7% since last summer and down 2.5% this year and that keeps stocks and commodities 2.5% higher – because we buy them with Dollars.
Keep in mind, at the same time you are buying IBM shares for $200, someone is buying the same shares for 20,400 Yen and another guy is buying them for 340 British Pounds and yet another guy is buying them for 280 Euros.
It's obvious that, if the value of the Pound or the Yen or the Euro changes, the price of IBM in those currencies will change to reflect the currrency valuation but Americans tend not to realize the same thing happens when the Dollar gets stronger or weaker too. Once you do realize this – you have a huge advantage in trading the Futures (and we have a Live Futures Workshop this afternoon at 1pm).
The Fed's easy-money policies keep the Dollar weak (because we're printing another Trillion of them each year and, in this economy, no one is using them – ie. no demand) and that has goosed the market by 7% since last summer, when the S&P was about 1,650 – about 10% lower than it is now.
That means that 75% of the gains in the S&P since last summer have been the result of a weak currency and have noting to do with a "strong" economy. Now THAT makes sense, doesn't it?
"THEY" had to tank the Dollar to get us over the 1,600 level, which was a very key technical off our consolidated bottom at 800 during the crash. It's no coincidence that we were hitting resistance there in May and pulling back to 1,560 and looking weak in July when, suddenly, the Fed went into a new round of crazy, which led to 6 months of fairly steady value erosion for every single Dollar you have worked for and saved your entire life.
by ilene - December 28th, 2011 11:44 pm
The ECB is borrowing U.S. Dollars from the Fed to bailout European banks. And that is in addition to the Long Term Refinancing Operation (LTRO).
However, the "borrowing" is not called "borrowing." It’s called a "temporary U.S. dollar liquidity swap arrangement." Yet it is really borrowing because it’s going massively in one direction for the purpose of giving the ECB Dollars to lend to European banks, so the ECB can avoid lending more Euros. The ECB doesn’t want to tarnish its "inflation fighting" reputation and further devalue the Euro. Instead, the Fed is taking billions of Euros as collateral for the Dollar swap.
As Gerald P. O’Driscoll Jr., former vice president and economic advisor at the Federal Reserve Bank of Dallas, and senior fellow at the Cato Institute, wrote in the WSJ (The Federal Reserve’s Covert Bailout of Europe):
"The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities."
U.S. Banks and financial institutions do not want to lend European Banks more Dollars, and it would look bad for the Fed to do this unpopular lending directly, so the Fed has found an indirect route.
"The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan."
In exchange for Euros as collateral, the ECB gets non-technically loaned Dollars which it then lends to European banks. The additional Dollars flowing to the EU banks enable the ECB not to release more Euros to the EU banks and into circulation. According to O’Driscoll, this "Byzantine financial arrangement" was designed perfectly to confuse people.
"The Fed’s support is in addition to
by Phil Davis - August 18th, 2011 8:02 am
Now THIS is an exciting ride. We had a great sell-off in the Futures this morning – the same Futures that I mentioned, in yesterday’s Morning Post, that we had shorted at S&P 1,200 and Russell 710 in a post I had titled "1,200 or Bust!" Of course we also called for our usual monthly oil short with the (/CL) Futures hitting $99 on yesterday’s inventory and now down to $86 (up $3,000 per contract).
Of course, for the Futures Impaired – we still have our straight USO Sept $32 puts at .90, which we whittled down to a .75 in yesterday’s Member Chat as well as the very lovely idea of the SQQQ Sept $25/28 bull call spread at $1 (spread with short RIMM Sept $22.50 puts to make it FREE) that I mentioned right in the 2nd paragraph of Tuesday’s post. Those were just the ideas we gave away for free! In Member Chat, yesterday’s morning Alert to Members was this:
As I said earlier, we like the Futures short at RUT (/TF) 710 and S&P (/ES) 1,200 but the big play today will be shorting oil (/CL) below the $88.50 line or, hopefully, below the $90 mark if they get that high. Expect the Dollar to re-test 73.50 and, if they hold it, then it’s a great time to hit the shorts but, with oil, we’re waiting on that inventory report at 10:30.
As an overall short on oil, the Sept $32 puts are down to .65 and .60 is a good spot to DD in the $25KP (10 more). AFTER that, with an average of .75 per contract, we want to consider rolling up to the Sept $33 puts, now .90 for .30 or less.
Another fun way to play an oil sell-off is the SCO Aug $53/54 bull call spread
by Phil Davis - August 5th, 2011 8:30 am
As the great John "Hannibal" Smith used to say: "I love it when a plan comes together."
Of course Smith’s plans usually involved a great deal of mayhem culminating in things blowing up – very apropos considering the massive market blow up this week. The plan in Monday Morning’s Alert to Members, which was titled "Cashing in Longs and Back to Cashy and Shortish" was pretty straight-forward:
If you want to play this rally for more upside, you can still short the VIX (we did the Aug $19 puts on Friday for $1, now 1.20) or play gold down with the GLL Aug $22s, that are still .35 or the GLD Aug $155 puts at .72 BUT I’m not really believing things are fixed so these are SPECULATIVE plays to follow the rally – WHICH I DON’T BELIEVE IN. Clear?
What I do believe in is shorting the Dow with DIA Aug $119 puts at $1.20 or the SQQQ Aug $21/23 bull call spread at .85, selling the Sept $19 puts for .55 for net .30 on the $2 spread.
USO Weekly $38 puts are .44, 20 of those in the $25KP for $880! (longs are, of course off).
Let’s be straight about that, all the short-term long, including the ones in the Income Virtual Portfolio – are DONE. This was the pop we hoped for and now it’s done and back to cash!
The VIX puts are, of course dead with the VIX now at 31.66 but the Aug $22 GLL calls are still .15 (down 57%) and the GLD Aug $155 puts are now .95 (up 32%) thanks to that same rise in the VIX. Not bad for trades I did not believe…
by Phil Davis - May 27th, 2011 8:19 am
It is ALL about the Dollar.
This week, the Dollar was smacked down from 76.37 on Monday to 75.04 early this morning for a 1.7% drop on the week, costing US citizens $1.7Tn of their lifetime savings in order for Goldman Sachs to close out their month on a high note as commodities, once again, skyrocketed – pushing the key wholesale price of gasoline back over $3 so gas stations could mark it up to $4 at the pump and charge US consumers $1.15 more per gallon than last year (up 41%) for an estimated $3.75Bn of additional charges levied against 150M US drivers in the next 3 days.
Hey, that’s only $25 per driver, right? That’s totally right! If you are going to steal $2.5Bn, that’s exactly the way to do it – in small amounts over and over again. If you steal $2.5Bn from one person or from several people, like Madoff, you go to jail but if you steal $25 from every family in America – you go on the cover of Forbes and get to advise the President on Economic policy!
Also, Madoff’s big mistake was robbing rich people. That’s a big no-no in America but robbing poor people is called Capitalism and, if you complain about it, you are some sort of Communist and will be thrown off the island so shut up and give us your $25! Ah, ain’t that America?
As I mentioned yesterday, we won many thousands of tanks of gas betting against $101 oil in the fake rally and this morning we picked up another .40 win in the futures as I sent out an early morning Alert to Members to short oil at $100.90 and we got a nice ride back to $100.50. 40 cents may not sound like much but the QM futures contracts pay $12.50 per penny per contact so that little move nets $812.50 per contract – that’s enough to tank up the Range Rover AND take care of the monthly lease payment!
This is why the investor class doesn’t give a damn about a $25 rise in the price of gas – we may pay $25 just like the little people but we OWN the oil companies and the refiners and the gas stations and even the commodities and we pay $25 but collect $8,000 on just 10 contracts in…
by Phil Davis - May 5th, 2011 8:18 am
How low can we go?
I made a bottom call on the Dollar at 73 (and a top call on the markets) last week, not because the Dollar is strong but because the alternatives aren’t so hot either. While we have dipped a bit below that line, we are in serious danger of recovering now and I say danger because – as I have pointed out in Tuesday’s post and discussed yesterday as well and as we have long been discussing in Stock World Weekly, the recent equity and commodity gains are nothing more than an illusion based on the fact that their value has been calculated in an ever-weakening dollar.
This is not a small correlation – this is almost an exact correlation between the Dollar (using the UUP ultra-ETF), the S&P (red), oil (green) and gold (gold – that one worked out). I couldn’t put silver (SLV) on the chart because silver is up a ridiculous 120% in the same period and distorts the rest (was 170% last week) but you can view that set here. Note how we’re pulling back this week just because the Dollar STOPPED going lower – what will happen if it actually goes higher?
As I pointed out on Monday, silver was beyond ridiculous when you look at it in terms of the value of your home. The "value" of your home has dropped 78% when priced in silver in just 3 years. Are we to extrapolate that in 3 more years you will have to accept an pound of silver for your home? Surely you have more silver IN YOUR HOME than that!
Homes are something people NEED, food is another thing people NEED, fuel is something people WANT, while metals are things people DESIRE. Thus, as we move from NEED to DESIRE, prices are able to get less and less realistic. This is, in part because we do not have enough metals or even fuel to fulfill everyone’s desires but food is grown and houses are built as the need arises. Yes there are occasional gluts and shortages but, Malthus aside (and, over 100 years later, can we finally put that aside?), we make enough stuff to fulfill people’s needs – most shortages are a distribution problem – including starvation in Africa, a problem that was addressed accurately by the late Sam Kinnison:
Non-Manufacturing ISM Plunges Below Prediction of All 73 Economists, New Orders Collapse, Prices Firm; Did Rosenberg Capitulate at the Top?
by ilene - May 4th, 2011 2:14 pm
Courtesy of Mish
The April 2011 Non-Manufacturing ISM plunged 4.5 points to 52.8 from 57.3 The drop was below expected range of all 73 economists in a Bloomberg ISM Survey.
The range of economists’ forecasts in the Bloomberg survey was 54.5 to 59 with the median forecast up a tick to 57.4.
Tellingly, new orders collapsed by 11.4 points from 64.1 to 52.7. Employment, one of the weaker measures and up only 8 consecutive months fell to 51.9. One more reasonably bad month and services employment will contract.
Please consider the April 2011 Non-Manufacturing ISM Report On Business®
Economic activity in the non-manufacturing sector grew in April for the 17th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.
click on chart for sharper image
The 12 industries reporting growth of new orders in April — listed in order — are: Management of Companies & Support Services; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Mining; Real Estate, Rental & Leasing; Wholesale Trade; Information; Health Care & Social Assistance; Public Administration; Construction; Other Services; and Educational Services. The four industries reporting contraction of new orders in April are: Finance & Insurance; Retail Trade; Professional, Scientific & Technical Services; and Utilities.
Twelve industries reported increased employment, five industries reported decreased employment, and one industry reported unchanged employment compared to March.
The industries reporting an increase in employment in April — listed in order — are: Arts, Entertainment & Recreation; Mining; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Other Services; Information; Construction; Accommodation & Food Services; Finance & Insurance; Public Administration; Wholesale Trade; and Transportation & Warehousing. The industries reporting a reduction in employment in April are: Real Estate, Rental & Leasing; Educational Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; and Utilities.
For the second consecutive month, all 18 non-manufacturing industries reported an increase in prices paid, in the following order: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Arts, Entertainment & Recreation; Construction; Wholesale Trade; Accommodation & Food Services; Finance & Insurance; Transportation & Warehousing; Real Estate, Rental & Leasing; Management of Companies & Support Services; Educational Services; Professional, Scientific & Technical Services; Retail Trade; Public Administration; Information; Health Care & Social Assistance; and Other Services.
ISM Prices Firm, What About Profits?
by Phil Davis - April 25th, 2011 8:20 am
It’s amazing what the MSM ignores these days.
The PBOC raised the Yuan exchange by 0.0005 and that microscopic move set off a panic that dropped the Yuan it’s daily 0.5% limit against the Dollar – marking a huge and violent reversal to the recent trend and signaling that China’s usual tight control of their economy may be starting to unravel. Chinese banks scrambled to buy Dollars to meet a Central Bank rule that bars them from having Dollar short positions overnight but it’s doubtful that all were able to comply in that violent action.
The Shanghai Composite fell 1.5% this morning (Hong Kong was closed) but it does not show up in the charts on the WSJ’s main page nor is it mentioned on CNBC – perhaps because it conflicts with the weak-Dollar narrative they are using to drive the speculative commodity frenzy. Ignoring problems in China was a big theme of the summer of 2008 – as we rallied into the second biggest stock market collapse in history from Dow 11,000 in mid-July to 11,782 on Aug 11th and we were still testing 11,600 through Sept 1st but then things started going wrong as we broke below 11,000, then 10,000, then 9,000, then 8,000 – finally stopping at 7,500 (down 33%) on Nov 20th.
Special Report: How to Make Millions in Metal and Oil:
As I keep telling Members, we don’t have to be worried about missing a sell-off, it will be long and relentless when and if it comes as will the rise we get as inflation begins to kick in. Gold is now over $1,500 for a week and, before you waste money on gold – let’s look at an alternative: GLD is the ETF that tracks gold and, if you think Gold is going to $1,600 – rather than plunk $1,500 down on an ounce of gold to make 6.6% on a move up, you can buy the GLD $140/160 bull call spread for $790 (1 contract spread at $7.90). As GLD is currently at $146.74, that spread is currently $674 in the money and carried a $116 premium BUT – for about 1/2 the cost of an ounce of gold, if GLD gets to $160 (approximately $1,600 an ounce) then that spread is worth $2,000 – a $1,210 gain on that same $100 move up in gold!
by ilene - March 21st, 2011 3:21 pm
Courtesy of Gonzalo Lira
Once Quantitative Easing-2 ends this coming June, the Treasury bond purchases will be extended indefinitely—call it QE-3. The amount of each month’s purchase of Treasury bonds by the Federal Reserve will be at least $75 billion—but don’t be surprised if it’s as high as $100 billion to $125 billion. Per month.
In the long term? If the clowns running the circus remain in place, my guess is the dollar will soon enough hit The Big Bagel.
Read the whole article here >
by ilene - March 1st, 2011 5:52 pm
Courtesy of Mish
A number of sites are commenting on a Bloomberg video in which El-Erian, PIMCO Co-CEO says "Dollar could lose its reserve currency status".
Bloomberg: "Mohammad what does a weak dollar signal to you, a dollar that can’t jump up here on a day like we’ve seen today?"
El-Erian: "It is a warning shot to America that we cannot simply assume flight to quality, flight to safety. That people are starting to worry about the fiscal situation in the U.S. They are starting to worry about the level of debt. They are starting to worry about what they hear about states and municipalities. So, I would take this as a warning shot that we cannot assume that we will maintain the standing of the reserve currency as we have in the past."
Reserve Currency Definition
Before we can debate whether or not the US will lose reserve currency standing, we must first define what it means.
Investopedia defines Reserve Currency as follows.
"A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate."
I accept that definition. Unfortunately Investopedia rambles on with nonsense about the implications: "A large percentage of commodities, such as gold and oil, are usually priced in the reserve currency,causing other countries to hold this currency to pay for these goods."
That sentence is a widely believed fallacy. The reality is no country is obligated to hold dollars to buy goods denominated in dollars.
Currencies are Fungible
Currencies other that illiquid currencies with low or no trading volume (think of Yap Island stones or the Cuban Peso) are fungible. It is a trivial process to switch from one currency to another.
You can buy gold or silver in any country, and I assure you those transactions do not all take place in dollars. Thus, just because a commodity is widely priced in dollars does not mean it only trades in dollars.
That holds true for oil as well.
I keep pointing this out, unfortunately to no avail, that oil trades in Euros right now. There is no selling of Euros to buy dollars on the front causing the oil producers to trade dollars for euros on the back end. The oil states simply sell oil for a price in Euros and then hold Euros in their…