by Phil Davis - October 17th, 2012 7:31 am
Let's not make this more complicated than it needs to be.
A weak Dollar lifts the markets and, this morning, the Dollar fell from 79.50 at yesterday's close to 79 at 6:45 and that's why, despite earnings disappointments from both INTC and IBM, the Futures are up slightly 3 hours before the open. As you can see from the chart on the right, to say there's a strong inverse correlation between the Dollar and the S&P is quite the understatement. Over the longer run – the effect tends to wash out but, over the short run, it's an almost perfect match.
Of course, this also has a very direct effect on commodity pricing and part of the reason for the Dollar's big sell-off last night was the much-better-than-last-time performance of Barack Obama in the second Presidential Debate as the future of the Fed and all that free money hangs in the balance.
After the first debate, two weeks ago, Romney clearly won and has made it known that he will kick both Big Bird and Big Ben to the curb as soon as he gets in office – that sent the Dollar up from 79.10 to 80.21 (up 1.4%) last week and dropped the S&P from 1,460 to 1,430 (2%). After last night, Romney looks to be back off the table and that leaves the Dollar to resume it's downward slope – giving another lift to the markets.
At the same time, Moody's left Spain's credit rating above junk this morning and that's lifting the Euro to $1.31 and the Pound is moving in lock-step at $1.61 BUT the Yen dropped 0.5% to 78.63 and it's not likely the BOJ will let the Dollar slip below 79 as that makes Toyotas and Sonys more expensive just ahead of the holidays. Also, the Nikkei finally got back to 8,850 last night and you know they hate to lose that line.
So get set for some heavy-duty Global Market Manipulation by our Central Banksters as everyone but Europe tries to race for the bottom. Europe, interestingly enough, doesn't mind a strong currency as they are fuel and goods importers and most of the goods they export are "luxury" class and less susceptible to currency fluctuations. With strong intra-zone trading the backbone of the EU economy, it doesn't matter where the Euro is trading from that perspective either and, of…
by Phil Davis - October 11th, 2012 8:19 am
"We don't see the focus on poverty as about charity, but rather about investment in future growth."
World Bank President Jim Yong Kim outlined his vision of what the multilateral lender should do, focusing sharply on cases of significant poverty. Dr. Kim said economic-growth expectations were being scaled back everywhere but that he was determined to prevent the substantial gains made by emerging economies over the past decade from being wiped out. "Every country has to look at its public spending and see what works," he said.
The World Bank had their annual meeting in conjunction with the IMF in Tokyo this week and Dr. Young's message is no longer the opposite of Christine LaGaurd's, who has essentially come around to thinking that austerity is no longer the answer – pushing for debt write-downs for Greece, Portugal and Spain as well as backing Greece's request for two more years to meet its fiscal targets. “We will spare no time, no effort to actually do as much as we can in order to help Greece,” Lagarde said. The fund’s purpose is “to make sure that Greece is back on its feet, that it can one day return to markets, that it doesn’t have the need for constant support.”
Meanwhile, Spain was downgraded to one notch over junk (BBB-) with a negative credit watch by S&P last night but it was more of a "buy on the news" event this morning as it's certainly not a shocker that Spain's paper is worthless without the ESM backing. Yields on 10-year Spanish bonds shot up 9bps to 5.89% but stopping short of 6% was considered a positive. Spain is the poster child for the idiocy of using austerity to combat debt (ie. the Romney plan) as squeezing the economy by cutting Government spending has actually worsened the country's fiscal position, which has led to calls for greater austerity but these calls come from bankers and bondholders – who just want to get paid, no matter the long-term damage done to the borrowers.
“There is no chance that Spain will hit its targets,” said Megan Greene, director of European economics at Roubini Global Economics LLC, “The deficit targets are economic suicide.’ “Even as you cut, the gap between spending and revenue collection keeps getting larger,” said Jonathan Tepper, a partner at research firm Variant Perception. “We’re…
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 - June 13th, 2012 8:35 am
$125Bn for Spain AND they are going to be given 5 years before having to pay back their loans and rumor has it that it will be a 10-year payment period at 3%. Sure, why not? At least that way we can pretend they are going to pay everyone back, rather than watch them default just a few months after we lend them the money, like Greece.
As we expected, Italy is the next crisis on deck as their 10-year bond yeilds climb over 6% as Italy's $2.4Tn debt (120% of GDP) running at 6% interest ($144Bn a year = 7.5% of GDP) is going to require a lot more than $100Bn to stop the bleeding. At the same time, Mr. Monti's tax-heavy austerity measures have choked economic growth, causing Italy's economy to contract 0.8% in the first four months of the year.
Mr. Monti lashed back at an Austrian minister on Tuesday for questioning whether Italy might need financial assistance to ride out the crisis. "I find it completely inappropriate that representatives of other governments in the European Union are talking about the situations of other countries," Mr. Monti said during a news conference, adding that his government was "continuing to work to guarantee the financial stability of the euro zone."
Clearly the honeymoon is over for Monti with a poll last week finding that only half of Italians supported political parties that form Mr. Monti's parliamentary majority, down from 63% two months ago. Confidence in Mr. Monti among those surveyed fell to 34%, compared with 71% when Mr. Monti took office. The steady erosion of public support for Mr. Monti's government is also prompting some politicians to question whether Mr. Monti can still push through the tough changes demanded by EU leaders.
You can see from the chart on the left what a tremendous drag the global markets (down 12.5% in a year) are becoming on the S&P (down 2.5%). If nothing is going to happen to snap the Global markets up – well, you do the math…
That math is keeping us Cashy and Cautious in this horribly choppy market and it's a good thing as we've been flip-flopping like fish out of water trying to stay on top of these crazy daily moves. Fortunately, the market is doing exactly what we expect it to do but, since what…
by Phil Davis - May 11th, 2012 7:55 am
1,488 more years!
That's right, who cares about JPM and their little $2Bn mistake when a new Mayan calendar has been discovered that goes all the way to the year 3,500? That kind of puts JPM's loss in perspective as it's only $1.34M per additional year to get back – hardly seems worth mentioning, does it?
I'm certainly not going to talk about it because it's as silly as planning the end of the World around a calendar that was carved into a rock (and now we know they simply ran out of rock or 2012 would not have been the end). JPM MAKES $18Bn a year – much of it from trading. That trading is not without risk – so of course they will have the occasional loss. There is nothing about JPMs loss that indicates an industry-wide problem – other than highlighting the generally insane levels of risk that our TBTF Banksters take on a daily basis.
What we SHOULD be concerned about is systemic problems in TBTF Nations such as China, where April Industrial Production rose at the slowest pace since 2009, Retail Sales are also slowing and, worst of all, Fiscal Revenue grew at just 6.9%, down sharply from 18.7% in March. India's Industrial Production fell 3.5% in March vs a 1.7% gain expected by "experts" like the idiots at JPM who bet on Global Markets making new highs in May and lost their assets. Meanwhile, the EC says the EU is in a "mild recession," with the Eurozone GDP forecast to contract 0.3% this year and, hopefully, expand 1% next year while running a 3.2% deficit in 2012.
Contracting 0.3% while spending 3.2% more than you have is not a "mild recession" folks – it's a catastrophe that is being paved over by tons of QE and other stimulus. Not like America, where our $1.4Tn deficit is close to 10% of our GDP and that's how we can expand by 2% – see Europe, you just don't know how to spend your way to prosperity!
Bernanke spoke to a group of senators yesterday about the potential harm to the economy from the expiration of several pro-growth policies, according to senators who attended the meeting. Bernanke discussed the scheduled end of programs including the Bush tax cuts, the payroll tax holiday and extended unemployment…
by Phil Davis - April 23rd, 2012 8:08 am
Now THIS looks a little more realistic, doesn't it?
Last Monday we pointed out that the run-up, that was coming DESPITE a myriad of Fundamental negatives we were tracking, was essentially a load of crap aimed at bringing in more suckers before they pull the rug out from under the market. To keep ourselves from getting sucked in by the hype, we drew some very simple lines across our mult-chart which were 50% retacements of the month's dip. Not making those lines during last week's actions kept us from making poor decisions as the market hype continued all week. My warning was:
"How many times will the bulls be sucked in by the same empty promises? How many times will they reach into their pockets and BUYBUYBUY the snake oil valuations sold by the Reverend James Cramer?"
Tuesday I got a lot of sheeple angry by calling them sheeple for falling for Cramer and the rest of the Mainstream Media hype and we discussed a few of our hedges that were working already, like TZA, TLT and SQQQ as well as two that were still playable: CAT May $95 puts at $1.10 – up just 15% from our initial entry and DXD May $12 calls at $1.35, up just 12% from when our Members got the Trade Idea. Despite the market moving up, I reiterated my sell-off targets of Russell 775 and S&P 1,325.
Wednesday we tried to find reasons to be bullish, presenting both sides but judgment was once again for the bears after weighing the evidence as I pointed out that the lack of economic improvement for the bottom 90% could not be ignored – something Nick Sarkozy just discovered this weekend. In the morning post, I mentioned going back to the well and shorting oil again as it dared to reach for $104.50 again – another lovely pay-off last week and we caught it again this morning at $103.50 (/CL Futures) for a quick $500 per contract – so far.
Thursday we were having great fun and we had a bullish spread on CHK at $17.20 that may still be playable this week as the market dips again. We discussed our goal of re-shorting PCLN (back in the July $560 puts at $8.50) and we added a nice CMG spread in the morning post, selling the May $475 calls for…
by Phil Davis - March 28th, 2011 8:08 am
Oh, where to begin this morning?
We already covered "Big Trouble in Little Tokyo" in our Weekend Reading post so we’ll just say things are still sucking in Japan. The Nikkei lost 0.6% in this morning’s trading but it was Angela Merkel who lost control of Germany this weekend as nuclear concerns gave a huge victory in a state election to the Green (environmental) party who, along with the Social Democrats (what it sounds like) now control 47.1% of Germany’s coalition-based Government vs just 44.3% held by Merkel’s Christian Democrats and her allies in the Free Democrat party.
As a stand-alone, Germany’s GDP is about $3.5Tn, the World’s 4th largest economy, behind Japan’s $5.4Tn (maybe less at the moment) and China’s $5.8Tn and, of course, our $15Tn juggernaut of an economy. Together with the EU, however, Germany is part of a $16Tn economic union where it is followed by France ($2.5Tn and Sarkozy also took an electoral hit this weekend!), Italy ($2Tn), Spain ($1.4Tn) and then you drop down to The Netherlands at $770Bn. We know what kind of shape Italy and Spain are in so keep in mind that it’s Germany and France who run the EU – no matter who is "in charge."
Moody’s put another nail in Spain’s coffin this morning, downgrading 30 Spanish banks by one or more notches. Interestingly, they left STD and BBVA alone and I’m liking STD with their 9% dividend as money is likely to be drawn away from the smaller banks and moved to the relative safety of STD. STD is trading at $11.94 and they can be covered with Sept $11 calls at $1.60 for a net $10.34 entry or paired with the sale of the Sept $11 puts at $1.05 to drop the basis to $9.29. That gives you a net on the buy/write at $9.29/10.14, which is a 15% discount if put to you at $10.14 or called away with an 18% profit if called away at $11 in 9 months – PLUS the 9% annualized dividend!
Not surprisingly, Germany and the rest of the EU rushed through the final approval of their now $987Bn bailout fund as that was the number one issue that was crushing Merkel’s party and it’s not entirely sure Germany will have the will, going forward, to commit any more capital. The agreement requires 80Bn euros…
by Phil Davis - March 14th, 2010 5:20 am
I’m having writer’s block this weekend.
Usually when I can’t think of what to write it helps me to go over our virtual portfolios so I started this morning reviewing the Buy List but I didn’t get far because it was silly. Of 43 plays on the buy list, 39 are doing well – too well in fact to the point where it’s hard for me, in good conscience, not to say let’s kill the whole thing and get back to cash as we’re up about 20% in 2 months and that’s just ridiculous – most people would call that a good year and go on vacation.
The Buy List was 100% bullish and we did catch a good bottom on our early February entries. I was gung ho bullish then because I felt comfortable that the 10,000 line on the Dow would prevail and that we were good for a run back to the top (10,700), following, more or less, the pattern we had in 2004 (see original post for charts). Well that’s pretty much what’s happened since then but that’s not making me happy because I see no reason we won’t complete that pattern and begin falling off a cliff shortly.
As you all know, I’m not a big fan of TA, or patterns for that matter but the reason I started looking for patterns was to try to get a handle on how long market could really keep going up before falling victim to exhaustion. To me it seemed we weren’t at that point on Feb 6th but now that we’ve put in that big push back up – if we can’t punch up to new highs on all our indexes then I do think it’s time for the markets to take a break.
Clearly I’ve been too bearish for the past couple of weeks and we are now 224 points over 10,400 on the Dow which is where I turned bearish as the January data made me lose faith in our ability to get back to 10,700. I should have stuck to the TA because we’re a lot closer to 10,700 than we are to 10,400. With the Russell and Nasdaq exploding to their own new highs. You can see though, from the above chart, why I do want to wait to see the NYSE, Dow and S&P confirm this move up – it’s not far now!…