by phil - June 20th, 2012 8:07 am
Dude, where's my bailout?
The tentative deal at the G20 summit to mobilize the EU's rescue machinery to douse the raging fire in Spain and Italy comes in the nick of time, but is fraught with fresh dangers. According to Ambrose Pritchard:
Monday's explosive rise in Spanish two-year bond yields was a warning that Spain's crisis would spiral out of control within days, taking Italy with it. Yet the deal explored over ceviche and mango at Los Cabos in Mexico remains murky. Any plan will backfire horribly unless conducted in the right way, and with overwhelming force.
From what we know, the eurozone's leaders aim to deploy the European Stability Mechanism (ESM) to cap borrowing costs for Spain and Italy by purchasing sovereign bonds on the open market. Unfortunately, the ESM fund does not yet exist. It has not been ratified by Germany and Italy. When it does come into being, it won't have much money. It has a theoretical limit of €500bn — a nice wish — but its paid up capital will start at just €22bn.
Britain's George Osborne cautioned against exuberance. "One thing we have learnt is: don't expect a single summit to solve the eurozone's problems, otherwise you are going to be disappointed. The eurozone is inching towards solutions."
David Owen from Jefferies Fixed Income said the Franco-German plan will fail unless EU leaders give the ESM a banking licence to borrow from the European Central Bank. "This is not going work unless they let the fund gear up and draw on the full firepower of the ECB," said. Such a move that has been blocked until now by Germany.
The ECB's chief Mario Draghi has in the past scoffed at the idea, saying it would be a back-door bailout of sovereign states and would violate the spirit — if not the letter — of the Lisbon Treaty. Mr Owen said the ECB is the "only institution with the credibility and balance sheet to reassure markets. It would be much simpler if the ECB carried out quantitative easing but that does not seem to be an option".
Lack of direct action by the G20 (in the G20 Communique, they essentially promise to do something, but no specifics) puts the ball back in Bernanke's court today (conference at 2:15, after Fed Statement) and then we have an EU meeting…
by phil - May 10th, 2012 8:28 am
Not much happening overnight.
Dollar at 80.30 as we wait on Bernanke at 9:30. The Euro is still dead at $1.296, Pound up to $1.615 as BOE holds rates steady (easing was expected). 79.65 Yen to the Dollar and 1.201 EUR/CHF shows those guys are still serious about supporting the Euro at all costs – and it must be costing them a fortune to do this.
I would say anyone who is holding large Euro positions and isn't taking advantage of the fact that the Swiss are backstopping it to get out is very foolish. The Euro is closer to dissolving now than it was last year. Greece will default on $500Bn in debt, Portugal will either default or need a huge bailout, as will Spain and just because Italy and France and Ireland are quiet at the moment, doesn't mean they are fixed either.
Clearly the only reason the Euro is holding $1.29 is because the Swiss are buying it – this is certainly not a reason to be holding the currency. If the Dollar were only staying over 80 because Canada was buying them to keep the Loonie from going to $1.20 – would that mean you should stay in or get out before the game falls apart?
If the Euro is artificially strong, then the Dollar is artificially weak and if the Dollar begins to rise (and the BOJ would love to see that) then we know there will be a dip in the price of dollar-denominated equities and commodities. So we need to continue to tread carefully because much of what we currently see is based on this artificial construct of a relatively weak Dollar and a relatively strong Euro – and that's distorting reality in many ways.
Also keep in mind that these little CB money-printing schemes can go on much longer than one would think logical so it's more of a big-picture sort of observation than an actionable item other than I sure wouldn't want to tie up too much money in Euros – just in case the SNB does run out of money one day.
by phil - March 19th, 2012 8:23 am
We are still trying to get more bullish.
Over the weekend we set a new, higher set of levels for our Big Chart on the assumption that our breakout levels hold up and our new Must Hold lines become Dow 13,600 (not there yet), S&P 1,360, Nasdaq 3,000, NYSE 8,000 and Russell 800, which means it's now up to the Dow and Nasdaq to continue to show leadership if we're going to be having a rally good enough to get us to add our next 10 bullish plays.
I already added 2 aggressive upside trade ideas on XLF and SPY in the weekend post and last week we already looked at WFR, X, BAC, GLW, BBY, CHK, AAPL, AA, and BA but we also added a new Long Put List (Members Only), which had 19 stocks that we thought were good downside horses to ride if, per chance, we fail to hold 3 of our 5 breakout levels.
It shouldn't be too much to ask – IF this is a real bull market. We've been extremely skeptical up to this point and, Fundamentally, I still have my doubts but Technically, we can't keep fighting the tape so were drawing a line in the sand for Mr. Market to cross and, if it does so, we're happy to play along. If it fails to do so, however, well – we've already made those bets!
Our aggressive take on the Dow is the result of analyzing the 5 components that were replaced since the crash with MO and HON thrown out for BAC and CVX in Feb of 2008, AIG replaced by KFT in Sept 2008 and C and GM replaced by CSCO and TRV in June 2009, causing a massive distortion in the index, meaning 16,000 is the old 15,000, possibly even lower:
The Nasdaq is similarly distorted by AAPL, who are up 500% since 2009 and when a stock that is 11.5% of an index is up 500%, that stock alone causes the index to go up 57.5%, which is why we now call it the AAPLdaq. The AAPLdaq itself is "only" up 100%, which means the ENTIRE rest of the index is lagging with a 42.5% contribution – those who tell you that tech is somehow loved again are fooling themselves…
by phil - March 6th, 2012 7:35 am
Romney, Newt or Santorum?
In the movie "Sophie's Choice," Meryl Streep was forced to make a terrible decision over which of her children would be sent to the gas chamber and which to the labor camps. Even after choosing, she was unable to live with the decision and she and her husband killed themselves, which manages to further screw the boy who was sent off to the labor camps, now an orphan too. That pretty much sums up this Primary season for the Republicans as they have to choose between 3 TERRIBLE candidates – any one of which is a pretty clear path towards National suicide.
A recent Gallup poll indicated 55% of Republican voters say they wish someone else was running but, that leaves 45% happy with their choices (I guess if they were Sophie, they would have just flipped a coin and been done with it) and perhaps today we'll get a better indication of who the front-runner is as 410 delegates go up for grabs today, which is much less than last election, when John McCain alone scored 511 delegates on Feb 5th, 2008. Interesting Republican trivia: On that day in 2008, Mitt Romney came in 2nd with 176, Mike Huckabee had 147 and Dr. Ron Paul scored 10. So Romney was only 1/3 as popular as McCain 4 years ago and I'm pretty sure McCain got his ass kicked in the General elections, didn't he?
Something has to change in this country as 93% of all income gains in 2010 (most recent figures) went to the top 1%. 93%. How does this work? In 2010, average real income per family grew by 2.3%, but the gains were very uneven. Top 1% incomes grew by 11.6% while bottom 99% incomes grew only by 0.2%. Looking ahead to last year, National Accounts statistics show that corporate profits and dividends distributed have grown strongly in 2011 while wage and salary accruals have only grown only modestly. Unemployment and non-employment have remained high in 2011.
While it is very, VERY good to be in the top 1%, being in the bottom 99% – not so much. What I try to get the top 1% to see though, is that getting 45% of the growth, like we did under Clinton, is pretty good – especially when it means that EVERYONE is participating in economic improvements and the overall growth is…
by phil - December 2nd, 2011 8:28 am
Oh what fun this is!
Now the ECB is lending the IMF about $200Bn, which the IMF can lever up to lend Eurozone countries another $500Bn and that's before the Fed and the BOJ and all the other partners in World Crime get together and pump even more money in. Nothing gives the old Futures a shot in the arm like MORE FREE MONEY and, interestingly enough, the ECB handing out cash Boosts the Euro, now over the $1.35 line.
This is, of course, FANTASTIC for our Monday trade ideas, which were:
FAS Dec $48/55 bull call spread at $3, selling the $40 puts for $2.40 for net .60 on the $7 spread. 5 in the WCP on that one. (Now net $4.95 – up 725%)
FXE Dec $132/135 bull call spread at $1.20, selling the $129 puts for $1.10 for net .10 on the $3 spread. (Now $1.45, up net 1,350%)
JPM Jan $25 puts can be sold for $1.20 (Now .65 – up 45%)
AA 2013 $7.50 puts can be sold for $1.28 (Now $1.05 – up 18%)
VLO June $17 puts can be sold for $2.05 (Now $1.40, up 32%)
- Gasoline (/RB) futures at $2.55 (Now $2.62 – up $2,940 per contract)
Now I know that these are the kind of results you get every week so, whatever you do – don't subscribe to our Newsletter! Why would you want these ideas EMailed to you every morning before the market opens? If they make you money, then you have to pay taxes and paying taxes is evil, right? Premium Membership is sold out but you wouldn't want to get trade ideas live during market hours anyway. Less than $2 per day, however, gets you our Annual PSW Report Membership and you are able to read our full posts every morning, as soon as they are published.
by phil - November 22nd, 2011 7:43 am
Long live the Debt! In case you are voting in the next election – here are 12 people to get rid of. Much as I may blame one party over another for this failure, they all deserve what's coming to them for A) Pretending they were going to accomplish something and B) For not now getting up and making very strong statements denouncing the corruption in politics that make it impossible for Congress to do the Nation's business anymore.
In case you happen to be a Fox News viewer, I will try to keep this VERY simple because, as it turns out, we now have definitive studies that prove Fox News MAKES YOU STUPID. Of course, it is possible that only stupid people watch Fox News but I know many people who think they are smart and watch Fox News so I have to blame Fox News here as do researchers at Farleigh Dickenson University who found "The results show us that there is something about watching Fox News that leads people to do worse on these questions than those who don’t watch any news at all." As I can tell you from raising my own children to be good citizens:
The biggest aid to answering correctly is The Daily Show with Jon Stewart, which leads to a 6-point decrease in identifying the protesters as Republicans, and a 12-point increase in the likelihood of giving the correct answer. "Jon Stewart has not spent a lot of time on some of these issues," said Cassino. "But the results show that when he does talk about something, his viewers pick up a lot more information than they would from other news sources."
Watching Fox News, by the way, led to an 18-point disadvantage (out of 53% of all respondents) in being able to answer questions like "Were Egyptians successful in overthrowing Hosni Mubarak" or "Has the Syrian uprising been successful" but that was a Fox viewer's area of expertise compared to having a clue of what is going on in American politics other than "Obama sucks." Tied with Daily show viewers for best informed were NPR supporters but, sadly, only…
by phil - September 9th, 2011 8:15 am
Obama did not satisfy the markets last night.
Although his $447Bn American Jobs Act is a step in the right direction, $307Bn (68%) of the money is coming in the form of tax cuts and Unemployment Insurance extensions, leaving just $140Bn to go towards the creation of actual jobs. Even if every single dollar of that money went directly towards paying a $40,000 salary – the entire amount would employ just 3.5M people, not even 1/4 of the amount of people who are out of work.
Is that the best America can do? Come up with a jobs program that MIGHT lower unemployment from 9% to 7% over the next year? Of course we won’t create 3.5M jobs for $140Bn because a lot of that money gets spent on parts and materials. It’s certainly not that the projects are unnecessary, it’s just that the scope of the program is too limited to have a substantial impact.
In fact, exactly one year ago, I wrote "Jobless Thursday – America’s Infrastructure Crisis" where I laid out the TRILLIONS of Dollars worth of repair work that MUST be done in this country sooner or later. Why don’t we do them SOONER, while 20M potential workers are sitting on the sidelines? We MUST spend at least $2Tn on infrastructure in the next 10 years so why not spend $400Bn this year and next rather than waiting until the last minute to do anything? The money is all borrowed over time either way but NOW is when people need to get back to work and, of course, if we get necessary projects done now instead of 10 years from now, then we, the People, get to enjoy 10 years of beneficial use out of them. This is not complicated stuff folks, just common sense…
Nonetheless, $447Bn is 3% of our GDP and figure about 2/3 gets spent in the first year so the program SHOULD keep us out of Recession in 2012 – yay for that at least. If Recession is off the table, then the markets are underpriced – now we have to consider whether or not the bill can get past the Republicans in Congress. By the way, if you have not read "Reflections of a GOP Operative" yet, please do – it’s an excellent insight into the current political climate.
We had flipped bearish yesterday, anticipating…
by phil - August 13th, 2011 7:57 am
Riders on the storm
Into this house we're born
Into this world we're thrown
Like a dog without a bone
An actor out alone
What a crazy couple of week's we've been having! Very fortunately, in last month's update of our virtual income portfolio, we had already cashed out $33,084 – more than enough to take us through our first 8 months (our planned $4,000 a month to live on). We did that using just $200,000 of our $1M in buying power ($500,000 portfolio), staying very conservative and waiting for a bigger dip than the one we had had in June.
Well, here we are! We are now 10% below June's bottom and we did do a little bottom fishing, adding positions in WFR, SONC, IMAX, VLO, OIH, TBT and HOLI – positions we'll be reviewing below. To a large extent, we followed the strategy I called "Don't Just Do Something, Stand There" during this sell-off although it was (and still is) a nail-biter as we tested my August 2nd prediction of the "worst-case" scenario of a 20% drop from the top.
We stuck to our guns this week and had a lot of fun playing the wild gyrations with our short-term betting but the Income Portfolio is an exercise in managing a "low-touch" portfolio – one that does not require us to make daily adjustments. I am aware that can be frustrating for people who stare at the markets every day but that is what our short-term trade ideas are for in Member Chat. That goes for people who are retired or semi-retired too. You don't HAVE to play every day – or any day for that matter but you do need to…
by phil - August 12th, 2011 8:20 am
In case you were on vacation, here’s what you missed:
The Dow is down 2.6% for the week, the S&P is down 2.3% and the Nasdaq is down 1.2%. Very likely, by the end of the day, these losses will be erased and we should have a nice, green close. For some reason (can’t imagine why) the VIX went up to 45, where we shorted the Hell out of it. One trade idea we had was on Wednesday Morning, where we sold the Aug $45 calls for $1.45 against the Sept $45 calls at $1.40. Even yesterday that one was looking good with the Augs down to .85 and the Sept $45s still $1.30 so the net .05 spread turned into net .45, a nice 800% gain in two days.
On Wednesday afternoon, Nicha had a great idea to short VXX as well, so we did the Sept $36/32 bear put spread at $2.50, selling the Aug $38 calls for $1.55 for net $1 on the $4 spread. Those Aug $38 calls have already dropped to $1 and the bear put spread is $2.60 so that’s net $1.60 – up 60% in two days on that one. This is why we ALWAYS sell into the initial excitement. On the whole, we have been TRYING to follow my philosophy, which I reminded everyone of of in last Friday’s Member Chat, of "Don’t Just Do Something, Stand There!" – which is still some of the best crisis management advice I can give people.
What does our Big Chart look like since last Friday?
Wow, those were four very silly days, weren’t they? As I noted above, we’re down about 2.5% for the week but the week isn’t over and we could still turn this puppy around and do you know what that would be? It would be a VERY bullish bottom candle on a weekly chart! In fact, if we can finish August back at that +5% line (a 10% gain into the month’s end), THAT would form a VERY bullish candle on a MONTHLY chart.
So Greece blah, blah and Italy, blah, blah and Merkel, Sarkozy, B-B-B-Bennie and the Fed, Inflation, Deflation, Unemployment, Debt and Taxes – whatever… Just wake us up when it’s over and we’ll consider pulling our cash off the sidelines. Meanwhile, as I lectured Members in…
by phil - July 20th, 2011 8:13 am
Here we go again!
We blew right though our expected bullish levels of Dow 12,500, S&P 1,317, Nasdaq 2,775 and Russell 825 but failed to make 8,300 on the NYSE so, as usual, our biggest and most difficult to manipulate index is holding us back – flashing a warning sign while the other indices scream for us to "party on." Fortunately, as I mentioned in yesterday’s morning post, we had already gone aggressively bullish with the SPY Aug $128/131 bull call spread at $1.83, selling the Sept $120 puts for $1.57 and that net .26 spread is already net $1.86 – up 615% since I posted the trade idea at 12:53 in Monday’s Member Chat.
It’s good to have a few aggressive trades like this to take advantage of market bounces. Before that we had taken the SSO Aug $51/53 bull call spread at $1.05, selling the Sept $44 puts for $1.07 for a net .02 credit at 10:46 in Member Chat (the SPY play was for late-comers who missed out on SSO). The Aug $51/53 spread finished the day yesterday at $1.35 but the real win comes from the short $44 puts, which fell to .70 so the .02 net credit is now a .65 net credit for .67 total profit, up 3,350% in less than 48 hours. See, options are fun!
The only other trade ideas from Monday were a long-term bullish play on RIMM (selling 2013 $22.50 puts for $4.20) a long futures play on the Russell Futures (/TF) off the 810 line (now 835) and I reiterated our bearish spread on CMG as I felt they would disappoint on earnings (they did). Yesterday we picked up a long-term longs on GLW, RYAAY and WFR, half covered our FAS longs (iffy so far), took a poke at shorting the DIA that worked for a quick 10%, shorted oil with a DUG spread (futures too scary) and picked up another short spread on CMG – selling 3 Aug $330 calls for $16 ($4,800) against 2 long Dec $360 calls at $18 ($3,600) for a net $1,200 credit – those should be nice winners this morning!
In the afternoon we flipped more bearish and picked up 10 SPY weekly $133 puts at $1.15 ($1,150 of our virtual dollars) for our $25,000 Virtual Portfolio and those are probably going to hurt this morning as the Dollar has been…