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Thursday, March 28, 2024

What Will Happen Wednesday???

GDP day!

Is the economy in a hard landing, a soft landing or is it in my patent pending Bumpy Landing ™?

A bumpy landing means that we have flown too close to the sun on inflated housing and speculative commodity prices (see http://philstocks.blogspot.com/2006/08/oils-slick-moves-in-washington.html ) which are now losing their lift and we need our other engines to kick in before we lose too much altitude.

The other engines are strong: We deliver the world’s goods with our transports, dominate the Internet, have 95 of the world’s top 100 brand names, supply most of the planet’s junk food (sorry), and even Arabian MTC carries a version of The Simpsons (Al Shamsoon’s, where “Omar” avoids beer and hot dogs (banned) and eats cookies instead of donuts but he still yells at Badr and tries to strangle him (what no stoning?)).
http://abcnews.go.com/WNT/story?id=1227362&page=1

It is the flexibility of our culture (otherwise known as lack of artistic integrity) that allows us to export it around the world. We export $1.5T in goods and services around the world. The much publicized trade deficit of $700Bn is currently close to 50% oil and no one should be surprised that the richest country in the world (by a factor of 4) spends an extra 4% of their GDP on imports!

When you are the richest person in a bar (say with your college friends) do you worry about the drink deficit if you buy an extra round or two? Can you reasonably expect that you should benefit from a drink surplus as poorer friends struggle to keep you in Martinis? Of course not, the error should always be slightly against you or it is patently unfair.

Our trade imbalance with China of $200Bn a year is primarily made up of American goods that are produced in China for American companies who maintain high paying sales, management and distribution infrastructure here while “outsourcing” (boo!) low paying factory work (and the pollution that goes along with it).

Rather than paying 50,000,000 American workers (as if you could find them) minimum wage to sew dresses for Barbie, we pay Chinese workers half of that amount and our friends at Mattel can sell your kid a doll with 2 outfits, a brush, a purse and 3 pairs of shoes all for $9.99 delivered to your local store all the way from Taishan. I don’t care how many machines you have to help you, let me see you assemble one Barbie in America sell it in Taishan for less than $19.95 and I will embrace tarrifs!

We don’t just export the $17,000 job, we export the crowded housing, the social security obligation and health care, the social and government services, the pollution and the environmental drain that 50,000,000 low wage workers and their families require from the places they live.

So I’m not worried about the trade deficit nor am I worried about the GDP which takes none of the above benefits of outsourcing into consideration. As long as American workers are still getting jobs, we can be reasonably certain they are better jobs than the ones misguided Congressmen are trying to get back from overseas and, as we approach (or may be past) full employment, we may finally shake loose the corporate pursestrings and get some of that “trickle down” money into our paychecks – just in time to get another Barbie for Christmas!

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Japan was flat today as commodities sold off and incomes rose 6% (we are next!) but the Hang Seng shot up a point (net importer of commodities) on signs the Fed may really be done. Europe is in a very good mood this morning ahead of our GDP numbers.

We are watching the same overhead numbers as yesterday with the same rule to let the S&P 1,300 be your primary guide while watching the NYSE between 8,300 and 8,400 for direction. The SOX are right between 440 and 450, also a good indicator and TRANQ is sitting just under a psychological barrier of 2,400 that will be a HUGE disappointment if it isn’t broken with some authority.

With just one day to go ahead of the UN’s response to Iran (this is not true by the way, the UN has no obligation to say anything at all and no timeframe – the deadline was for Iran’s response to the UN) oil and gold have found a thin excuse to go up but oil inventories come at 10:30 so let’s stick to the Valero Rule and not think we are smarter than our indicators.

Oil is hovering just over $70 but $71 is no upside barrier of note. If we stay below $70 for the day, that will be news but another build in crude can throw us all the way down to $68 very quickly. As I mentioned in the morning oil rant, there’s another $20 that can come out very in short order once oil trends below $68.

Gold is struggling to get back over $620 and declining oil may get traders to give up the ghost and see who’s buying at $600 but a failure at that level could be catastrophic for gold bugs.

Watching and waiting is the way to go today. I have my fingers on the buy and the sell triggers and I’m not afraid to use them! GDP came in at 2.9% which I think is perfect but we have to see what the market thinks…

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Following the Valero Rule to the letter I am hoping for some of our oil plays to move up prior to inventories. Anything sort of build in crude should trigger some selling (often have to wait 30 minutes for head fake to wear off) across the board as long as there are not significant (over 1M) drawdowns in gasoline or refined products.

Today we are on Hurricane John watch so don’t go too crazy with oil puts! XOM breaking $70 is a strong signal to stay out of oil shorts (obviously I wouldn’t consider a long play on oil at this price).

COST had one of my favorite types of earnings reports, sounds horrible but the bad news is over. As I said last year, Costco’s problem is that they sell too much gas to club members. Whenever oil prices rise, they can’t raise prices fast enough and actually end up losing money on every gallon they sell. This led to a 5% miss on earnings even though sales were higher. Since the quarter ended in July, the opposite will happen next quarter if oil prices fall. I like the $50s at, hopefully .25 or, better, the Oct $50s for under $1 but don’t buy if it keeps heading down!

I am going right back into the XOM $67.50 puts at .40 or lower in the morning but I will dump my $70 puts if we cross $69.60 to make sure I preserve my profits.

If I didn’t already have CHK I would buy it here with the Oct $30 puts at .70, $15 above last Oct 15th with natural gas actually trading lower than this time last year.

In the same vein, ECA is $35 (75%) over last October’s price and you can play the Oct $50 puts for $1.10.

BJS is going to try to retake $35 but, if it can’t, then the Oct $32.50 puts for .95 may make a good play.

MDR is a very good company but is it really 500% better than last year? The Oct $45 puts are pricey at $1.55 but it’s a long, long way home! In May they went from $49 to $41 in just 10 days…

TDW has a good stop at $50 so I like the $50 puts for $2.

For goodness sakes on all these oil plays! We are hoping they open higher so we can get in cheaper but only if we get a build in inventories. No matter what the hurricane season carries tremendous risks for short positions so be very careful!

ADZA got an nice FDA letter on Gestiva so I like it at $15.91.

I don’t usually play small cap oil but DNE is ahead of schedule on well production at $1.49 and makes a nice hedge against oil puts.

It’s late and I have to go this morning but I am looking at GS, LEH and MER puts if the market starts to break down.

Have fun today!

– Phil

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