by Phil Davis - August 25th, 2014 7:54 am
As usual on Friday, more volume = more selling.
Still, there's no reason to expect volume to come back and that means the markets can go back to drifting higher when the bars are lower and that can get us all the way to S&P 2,000, but over that line is going to be a tough trick.
Our weekend reading from our Member Chat Room produced the usual litany of woes with the usual suspects:
ISIS, Putin, China, Gaza, Ebola and Draghi causing the usual damage aided by newcomers like an earthquake in San Francisco, a volcano in Iceland, a nuclear scare in Belgium - but none are as scary as French President and Austerity Radical, Francois Holland, dissolving his Government because they disagreed with him.
In interviews with the French press and speeches at a Socialist gathering Sunday, Economy Minister Arnaud Montebourg and Education Minister Benoît Hamon said forcibly reducing budget deficits as the economy wilts is driving up unemployment, fueling political extremism and risks tipping the economy into recession. "The priority must be exiting crisis and the dogmatic reduction of deficits should come second," Mr. Montebourg said in an interview with Le Monde.
The criticism came at a difficult moment for the French president, who said earlier this week he will push ahead with a three-year plan to cut public spending to fund tax cuts for business even as the economy stagnates – so he fired them all! As in the US, Businesses continued cutting investment in the second quarter despite receiving the first payouts from labor-tax reductions.
"Promising to get the economy going again, on the path to growth and full employment, hasn't worked. Honesty obliges us to acknowledge this," Mr. Montebourg said in a speech to supporters. "The role of the economy minister and any statesman in his place is to confront the truth—even it is cruel—and propose alternative solutions," he added.
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 - September 20th, 2011 8:28 am
Yay! Another crisis averted.
Well until next quarter, at least, when we can begin the "crisis" cycle all over again. As it stands, after much hand wringing yesterday, Greece will get the $11Bn they need to fund their nation for another 3 months. Yes, as I noted yesterday, this is not a typo – Greece needed $11Bn and the global markets gave up $1Tn in value because we weren’t sure if they were going to get it on Monday morning.
To meet their budget goals in a declining economy, Greece is being pressure to cut 100,000 public jobs by 2015. With just 11M people in Greece, cutting 100,000 jobs is like asking the US Government to cut 3M jobs – isn’t that insane? And by insane, of course, I mean – isn’t that the Republican platform? Yes, nothing say "economic recovery" like firing 3M people in this topsy-turvry World.
We expected this, of course, and we got very bullish with our picks yesterday morning and were handsomely rewarded into the close and hope to be even more handsomely rewarded this morning as QE FEVER once again takes over the nation (see November’s "POMO Fever" article to review the scam).
Interestingly, my main suggestion for playing QE2 last year was: "We can bet on inflation with our gold plays with potentials for 923%, 309%, 3,900%, 567%, 276% and 46%." Gold was "only" $1,300 last November and I was still enthusiastic about it at the time. Yesterday we shorted it with the GLD Nov $180/174 bear put spread at $3.30, selling $193 calls for $3 for a net .30 trade that bets gold won’t hold $2,000 through Thanksgiving.
Also different this year is that we are betting against TLT (also in yesterday’s main post) and we got fabulous prices for our short play yesterday as TLT ran all the way up to our goal at $115. As we got a nice sell-off at the open, my morning Alert to Members had trade ideas to go long on Oil Futures (/CL) off the $85 line (now $87, up $2,000 per contract) and we sold some DIA Oct $111 puts for $3.10 in the Income Portfolio, which are already down to $2.70 (up 13%) – simply following our rule of ALWAYS selling into the initial excitement.
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 - July 22nd, 2011 8:22 am
Greece is getting another $229Bn at 3.5% with about 30 years to pay it from the EU (ie. Germany and France) and private bond-holders will share about 1/3 of the pain by "voluntarily" renegotiating their own notes. Sounds like a really great offer, right? BUT WAIT, THERE’S MORE! Another $630Bn of already promised emergency aid has now been places into a very slushy fund that will now allow the EU to throw money at any nation that so much as sneezes – WHETHER OR NOT THEY ASK FOR ASSISTANCE. This will allow them to play economic Whack-A-Mole, putting out all the little Euro-zone fires until that money runs out (about 6 months at the EU’s current burn rate).
All this fantastic news from Europe has sent the Dollar down to test the 74 line and that was down from 75.37 just ahead of yesterday’s open and that’s a 1.8% drop so we would expect our indexes to go up at least 1.8% – BUT – none of them did. In fact, the Nasdaq only gained 0.72% and the Russell was up 1.07% and the Dow was up 1.21% and the S&P was up 1.35%. The NYSE, which had been our perennial laggard, did the best yesterday – gaining a close, but still no cigar 1.57%.
Will we make it up today or is this an indication that things may not be quite so good as they seem? After the close yesterday, I did a news round-up for our Members and there is still plenty to worry about and we took a stab at some SPY Weekly (today) $135 puts at .79 for our aggressive $25K Virtual Portfolio on the off-chance they "fix" the US debt ceiling and accidentally make the Dollar strong again. At the moment, we are still playing our short lines in the futures, where we’ve been scalping nickels and dimes since my 3:23 am Alert to Members (if you are not a Member, you can sign up here), where I said:
I like shorting the Futures here: S&P (/ES) at 1,346, Nas (/NQ) 2,415, Dow (/YM) 12,720 and Rut (/TF) 842.6 – as long as 74.20 hold on the Dollar, we should get a bit of a sell off so these are levels to look for as the Dollar heads back over that line but we can scale
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 - February 1st, 2011 6:58 am
Fundamentals don’t matter so let’s look at the technicals.
As you can see from David Fry’s chart, there’s a good reason that XLF was my Trade of the Year in December 25th’s "Secret Santa’s Inflation Hedges." The full force of the US Government is backstopping this play, in which we took the Jan $12/13 bull call spread at .80 and sold the Jan $11 puts for .40 for net .40 on the $1 spread. I said, just 37 days ago, that this could be the easiest 150% you ever make.
Just 5 weeks later, the bull call spread is .90 and the short puts are .30 for a net .60 – up 50% in 5 weeks. That SHOULD help keep us ahead of inflation, right? Keep in mind this was a trade, among others, that I published for free to the General Public on both our subscription site as well as Seeking Alpha and then it was syndicated on Yahoo Finance, Google Finance, MarketWatch, AOL, etc. I’m told that about 250,000 people read my free public posts when I make them available, so it’s not like these trades were so secret.
Yet, however many people decided these were good trade ideas and followed them – it didn’t matter because our counter-party wants to lose! Yes, that’s right, we are riding on the coat-tails of the Banksters, who are taking our future tax dollars from the Federal Reserve and betting them on rising commodity prices and monetary inflation. In order for us to bet on that, we need some idiotic counter-party to take the other side of that bet – one that assumes falling commodity prices and no inflation.
Even in under-educated America, who would be foolish enough to take such a bet? Why it’s us, of course! Well, it’s the Federal Reserve Bank of the United States of America who are spending $100Bn a month buying Treasury Bills at the lowest rates every (assuming no inflation) while trying to justify their misuse of our money with BS statistics that we’ve stripped away in "How the US Government Manipulates Inflation Data" along with this helpful video:
The Fed is using YOUR money, through debt, taxation and devaluation, to buy notes that a rational investor wouldn’t touch with a 10-foot pole and the ONLY way you can prevent yourself from getting screwed…
by ilene - January 27th, 2011 3:10 am
By Surly Trader
Since the beginning of December, the S&P 500 has yet to meaningfully break down below its 10 day moving average. We just like to blissfully crank upwards in valuations. The Dow has hit its momentous 12,000 level and the S&P was inches away from 1,300. Now that we have touched our psychological targets, maybe it is time we reassess how enthusiastic we have gotten. Instead of looking at P/E ratios on 2011 earnings forecasts, I have seen more and more analysts consider 2012 and 2013 forecasts…
I guess our 10 day moving average is a fixed positive slope
When it comes to the lesser of investment evils, it certainly still looks like equities are more attractive than bonds. The issue that I have is that most investors have set aside the significant tail risks that are out there. Not to belabor the point, but there is still significant risk in the Eurozone. Equity markets have ignored it, as well as concerns with local municipalities and states. These risks are real and will take quite a long time to resolve. While the VIX sits around 16 and realized volatility hovers near six year lows, we need to understand that risk flares come quickly and unexpectedly and there are plenty of issues that could precipitate are run.
The default spreads on the PIGS do not appear resolved to me so why is the Euro rallying?
I do not like to be negative, but it does get tiring when the arguments switch so fiercely from bearish to bullish stances. It seems to be the psychology of not wanting to be miss out when the market is rallying or not wanting to be the last one in when the market is tanking. Feast or Famine, no in-between.
by Phil Davis - December 29th, 2010 7:56 am
I liked David Fry’s tweet (is that the right word – I feel so old when I don’t know this stuff!) yesterday which said: "SPY volume again pathetic at 55M shares. What’s there to write about today? Seems many investors still stuck on planes that aren’t moving." Dave was smart enough to take the day off – me, not so much. We did pick up another .20 with up the DIA Weekly $114 calls at 10:41 in Member Chat for $1.60and those were done at 1:05 for $1.80 as the market looked too risky to me. That was kind of silly as we do know that low volume is the bulls best friend but we’re trying to get back to cash each day on quick trades – especially on calls that expire on Friday!
As you can see from the Euro chart (click to enlarge), I’m not ready to give up on my bearish premise, which is essentially that Europe may be in worse shape than the US and the Dollar and – IF the EU runs into crisis – then the Dollar looks RELATIVELY better and, despite all of Timmy and The Bernank’s best efforts to destroy it – a strong dollar will pretty much undermine everybody’s bullish premise since the only real bullish premise people have is that our worthless currency will drive people into equities and commodities since Treasury and the Fed will artificially keep bond rates so low as to make them unpalatable alternatives.
Even Glenview’s Larry Robbins, who I thought would perhaps have an original thought in his Dow 20,000 premise, does not. The man entrusted with $4.8Bn of other people’s money predicts that p/e multiples will expand by, get this, 45% by the end of 2013 – rocketing the Dow to 20,000 despite just 5% annual earnings growth. Larry Robbins thinks those investing in 10-year treasuries aren’t doing so for the paltry return. They’re in it to front run the Fed and make a quick buck at the expense of the taxpayers. Once this trade is over, Robbins says, they have nowhere to go except the high quality equities in the stock market.