Flip Flop Friday – 2% Up or Bust!
by Phil - August 5th, 2011 8:30 am
As the great John "Hannibal" Smith used to say: "I love it when a plan comes together."
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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…
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DiggCurrency War
by ilene - September 18th, 2010 10:19 pm
Currency War
Courtesy of Michael Snyder at Economic Collapse
Are you ready for a currency war? Well, buckle up, because things are about to get interesting. This week Japan fired what is perhaps the opening salvo in a new round of currency wars by publicly intervening in the foreign exchange market for the first time since 2004. Japan’s bold 12 billion dollar move to push down the value of the yen made headlines all over the world. Japan’s economy is highly dependent on exports and the Japanese government was becoming increasingly alarmed by the recent surge in the value of the yen. A stronger yen makes Japanese exports more expensive for other nations and thus would harm Japanese industry. But Japan is not the only nation that is ready to go to battle over currency rates. The governments of the U.S. and China continue to exchange increasingly heated rhetoric regarding currency policy. In Europe, there is growing sentiment that the euro needs to be devalued in order to help European exports become more competitive. In addition, exporters all over the world are already loudly complaining about the possibility that the Federal Reserve is about to unleash another round of quantitative easing.
Virtually all major exporting nations want the value of the U.S. dollar to remain high so that they can keep flooding us with lots of cheap goods. The sad reality is that our current system of globalized trade rewards exporting nations that have weak currencies, and many nations have now shown that they are willing to take the gloves off to make certain that their national currencies do not appreciate in value by too much.
Some nations have been involved in open currency manipulation for some time now. For example, Singapore is well known for intervening in the foreign exchange market in order to benefit exporters. Also, the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc earlier this year.…
Media: Expanded Thoughts on Potential Currency Trading Bubble
by ilene - September 10th, 2010 6:27 pm
Media: Expanded Thoughts on Potential Currency Trading Bubble
Courtesy of Joshua M Brown, The Reformed Broker
I gave an interview to My Private Banker the other day. They wanted to take my discussion of the potential bubble in currency trading a step further.
Enjoy:
Investing in currencies is all the rage in wealth management. Currency ETFs, ETNs and currency structructured products are springing up like mushrooms. Inspired by the Euro crisis many private investors in the EU have started investing in currency products. Wealth managers and bankers play also a big role as more and more products are pushed on to their clients. But does currency investing make any sense? We talked about this topic to Josh Brown, who is one of the best known global finance bloggers providing daily comments on The Reformed Broker. Josh Brown has been recently a vocal critic of the boom in currency investing.
MyPrivateBanking: Why do you see a bubble in currency trading – comparable to bubbles in stocks or house prices?
Josh Brown: With currencies, we are still at the stage where we’re talking "prospective bubble", but all the ingredients are there. This isn’t going to be a Price Bubble, it will be an Activity Bubble should the mania take over.
MyPrivateBanking: What differentiates this bubble from “normal” investment bubbles?
Josh Brown: Normal investment bubbles require a certain backdrop of speculative fervor along with some exogenous encouragement to fan the flames (think innovative mortgages or freely available margin leverage). This one is more akin to the Texas Hold ‘Em craze of the mid-2000′s where all of a sudden all your friends and neighbors were poker sharks out of nowhere.
MyPrivateBanking: Why do wealth managers increasingly recommend currency products to their clients?
Josh Brown: I think wealth managers are introducing ETFs that are currency-related because of what’s known as "reverse inquiry". The financial media has done a really terrific job of painting the currency markets as unstable and exciting, this has led to product introductions and marketing which has in turn led to inquiries from the public to their advisors – "How can we get in on this". The reality is that it’s foolish to "invest" in a currency from an asset management standpoint, unless we’re talking about swinging for the fences with the Iraqi Dinar or something. Currency is not an investment, it…
Which Way Wednesday – Beige Book Boost or Bust?
by Phil - July 28th, 2010 8:29 am
Our last Beige Book was June 9th and we liked that one. My comment to Members at that time was:
Wow, this is good stuff! Ben was not BS’ing - It’s a slow, tedious recovery but a recovery nonetheless! On the whole, a pretty good report! Not enough to support $75 oil but a nice, not too inflationary recovery is in the works. It’s no quick fix though, as it will take 2 good Qs before corporations will be willing to add staff so I bet not much until next spring unless the government steps in (and they’d better).
At the time, the S&P was at 1,055 and we flew up to 1,120 on June 21st before the next market flip-flop, which we have just flip-flopped back from and yesterday we tested 1,120 again and here we are, back at the Beige Book. So now, the market is about where it should have been based on the last BBook (and no government help so far). I thought yesterday was too early to pop through ahead of the data and it turns out it was. If anything, I’m a lot more worried that a deteriorating report tanks the markets this afternoon (2pm release).
We’ll get a clue this morning as we see Durable Goods at 8:30 and those are expected to be up 1% from down 0.6% in May. Oil Inventories are reported at 10:30 and don’t expect demand to be picking up and no one has even mentioned what a disaster this is during summer driving season (speculators are circling their tankers one more time as they pray for hurricanes to make their long bets pay off). If we do survive the BBook this afternoon, we have a 10% upgrade to Q2 GDP to look forward to tomorrow morning (to 3% from 2.7%) along with Chicago PMI at 9:45.
We know that Leading Economic Indicators turned down 0.2% since the last BBook, the Philly Fed has dropped from 21 in May to 8 in June to 5.1 in July, Construction Spending fell 0.2% with Commercial far worse than Residential, ISM fell almost 6% with a 10% drop in orders leading the downturn and a very deflationary prices paid, Factory Orders in general were off 1.4% (which does not bode well for today’s Durable Goods), Auto Sales slumped 5%, Non-Farm Payrolls contined to decline, Consumer Credit continued…
Toppy Tuesday – LA “Out of Money” on June 30th?
by Phil - April 6th, 2010 7:49 am
Is Los Angeles unique or just the first?
City Controller Wendy Greuel declared an "urgent financial crisis" and said the only way to continue paying bills in the short term was to begin to drain the city’s already limited emergency reserve. Greuel said the city would need to pull money from its $191 million in reserve funds immediately to pay its bills next month. She expects the city to be out of money, and probably in the red, by June 30. Some officials fear that using that money would not only leave the city without reserves in case of emergencies, it would also probably trigger another downgrade in its Wall Street credit ratings.
Cities all over the nation are scrambling to pay their bills and that’s nothing compared to the disasters state budgets face. A study released Monday by Stanford University estimates that California’s three largest state-operated, public-employee pension funds—the California Public Employees’ Retirement System, California State Teachers’ Retirement System and University of California Retirement System—currently face a total shortfall of more than $500 billion. Gov. Schwarzenegger warned Monday that pension-fund shortfalls could lead California, which faces a $20 billion budget gap in the coming fiscal year, to divert more funds from other state programs to cover pension costs.
Fortunately, for the dollar, we are by no means the most screwed-up economy on the planet. The Euro is dropping to new lows this morning amid speculation that a plan for Greece to obtain European Union and International Monetary Fund help in cutting its budget deficit may falter (again). The report that Greece “isn’t keen on the IMF being involved in any bailout would seem to throw the whole plan into question,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “As an investor, do you really want to hang around and see what’s happening next? The Greece story is definitely a negative for the Euro.”
The Dollar is not doing so well against the Aussie Dollar, which rose to 92.14 this morning as the ACB raised their main interest rates to 4.25%, it’s fifth rate increase in six meetings. Even more shocking to most Americans is the Canadian "Loonie," which is now trading at $1.0008 to the dollar – almost on par to the dollar and down from 1.26 Loonies to the Dollar last March! So let’s not get too full of ourselves, America…
Faber: The Euro Has More To Fall, S&P Could Fall 20%
by ilene - March 1st, 2010 9:53 pm
Faber: The Euro Has More To Fall, S&P Could Fall 20%
Courtesy of Joe Weisenthal at Clusterstock
Marc Faber appeared on Bloomberg today to talk stocks and currencies. Not surprisingly, he’s negative on US equities, and though he thinks the euro could rebound in the short-term (because it’s so oversold) he says there’s nothing good about the currency and that it could fall a lot further.
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Which Way Wednesday – Fed Edition
by Phil - December 16th, 2009 8:07 am
What a great morning!
Well, if you are a futures bull anyway. We keep telling you that’s where the action is. Last Thursday we gapped up 100, Friday another 50 and Monday another 50. Wow, what a market right? And where did we close a week ago Wednesday? 10,337. And where did we close yesterday after 200 points of futures gains? 10,452. So we LOST 80 points during real trading hours and gained 200 when no one was looking – yet no one is being arrested – go figure…
I already made my skeptical note to Members this morning as the pre-market action tacked on another 50-point gain that pretty much started at 3am on the dot as the Hang Seng threatened to fail 21,500, which would have been a serious breakdown on a triple test over 5 days. It still looks to me like the Hang Seng will be looking at a 10% correction in the very near future but the pump crowd aims to put off that day of reckoning for as long as possible.
The Nikkei, on the other hand, had their own gap up, back over our 10,200 target (we went long on EWJ again yesterday) but failed to hold it and closed at 10,177, up 1%. Once the Nikkei closed, the dollar was allowed to drop back to 89.5 Yen and the Euro was jammed up from $1.451 to $1.458 but that was nothing compared to the Pound, which went from $1.623 at 3:45 to $1.636 at 6:45 – a spectacular move that allowed copper to get back to $3.17 (up 1% from yesterday’s close) along with 1% gains in Silver ($17.50), Gold ($1,135) and Oil ($71.50) all of which made great futures shorts at those prices.
The dollar is being jammed down on whispers in Europe that the Fed will announce today that the US Economy is much improved BUT they have no intention of raising rates in the foreseeable future. This enables the burgeoning dollar carry-trade to continue and, as John Carney points out at Clusterstock, it allows the Fed to keep buying Mortgage Backed Securities from the Banks as fast as they can turn them over.
The Fed can do this with confidence because the MBS’s are, in turn, guaranteed by FRE and FNM who are, in turn, backed by the US Government – leaving US, the taxpayers, on the hook for Trillions of…
The Future of Global Finance
by Phil - September 20th, 2009 7:59 am
Excerpts of the original NY Times article by LIAQUAT AHAMEDIt has long been recognized that the global financial structure — built as it is around the dollar as the world’s reserve currency — has a fundamental design flaw that makes it inherently unstable. The problem was first identified back in the early 1960s by the Belgian-American economist Robert Triffin, in “Gold and the Dollar Crisis.” Writing about Europe’s accumulation of dollars, he argued that the system carried the seeds of its own destruction. Foreigners could acquire dollars only if the United States ran current account deficits — that is, spent more than it earned. But lending money to someone who lives beyond his means has obvious dangers, and the same is true of countries.
Thus, the American deficits necessary to supply dollars to the world for international transactions simultaneously undermined confidence in the currency. It was only a matter of time, Triffin predicted, before the system would be hit by a crisis — which it duly was in the early 1970s.
In the wake of the 1997 financial crisis there, countries in East Asia set out to build up war chests of dollars as insurance against domestic banking runs or downturns in the global economy. At about the same time, China embarked on a program of export-led growth, engineered by keeping its currency artificially low.
Interpretations of what happened next differ. Some argue that to absorb these goods from abroad while avoiding unemployment at home, the United States very consciously stimulated consumer demand. The country, in effect, was forced to live beyond its means. Others believe that the Fed misread the fall in prices as a symptom of inadequate demand rather than for what it was — an astounding, once-in-a-generation expansion in the supply of low-cost goods — and kept interest rates low for an unusually long time, which provoked the real estate bubble.
In either case, the result was an enormous accumulation of dollars in the hands of Asian central banks. Those dollars, when invested in the American bond market, drove long-term interest rates even further down and made credit in the United States even more artificially…
Testy Tuesday Morning – $1.70 for a Pound? I Don’t Think So…
by Phil - August 4th, 2009 8:12 am
Has the dollar fallen too far?
The British Pound is now fetching $1.70, a huge break-out and well above the June highs, now valued higher to the dollar than any time since last October. Britain has aggressively cut rates and expanded their money supply and Britain had banks falling like dominoes before being taken over by the government. The UK’s budget deficit as a percent of GDP is forecast to be 11.6% this year, the second worst on the planet, exceeded only by the US’s projection of 13.5% but the UK is forecast to catch up in 2010 with 13.3% of their GDP taken up by debt. Why then, you may wonder, is the British Pound up 25% against the dollar this year and almost 10% this past month?
The answer to that is the same as the answer to many irrational market moves – SPECULATION. The dollar in general has been pushed back down to 1-year lows by currency speculators and the Pound is benefiting from their No-Euro policy that makes the UK a relatively safe-looking investment for currency traders who are worried that Eastern Europe will eventually prove to be a weight that drags the rest of the EU down. With a population and economy about the size of California and the independence of a sovereign nation, any small sign of improvement (like the recent uptick in manufacturing data in the UK) can quickly pull money back to the Pound who, just 30 years ago, were the second strongest currency in the world and, for 500 years before that, was the undisputed global leader. The UK, as it was 500 years ago, is still ruled by its powerful banking sector and again the fishbowl-like nature of the island nation tends to magnify small improvements we’ve seen in the UK banks, which causes Japanese housewives (who are very into FOREX trading) to push more money into British currency.
Today it may become apparent that the Japanese housewives have become a little irrational in their Pound exuberance as nationalized British Bank, Northern Rock, showed a 31% increase in first-half losses to $1.25Bn as bad loan provisions jumped to over $1Bn from under $300M last year. Even worse for the bank – deposits fell 17% despite the bank’s 100% government guarantee while mortgage delinquencies rose 10%. This is a pretty clear indication that Britain is not quite out…
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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