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Thursday Thump – Brother Can You Spare 20 Trillion Dimes?

I hope it's going to be a Thursday thump

At least when you hear the "thump" you know you've hit something!  The market encountered virtually no resistance on the way down back to our mid-points and we could not be more thrilled as we went bearish at the top and we've been lining up our buys all week, expecting to hold 8,650 here but frankly happy to see us go back to 8,200 since we are a little bearish and looking for bargains

We're selling our short plays like SKF and FXP (a cover if you are in yesterday's spread leg) into the initial excitement this morning as we've had great runs and we're either going to be shifting long if we hold Dow 8,650, S&P 888, Nas 1,550, NYSE 5,750 and Russell 490 (the latter 2 being well above the 50 dmas as I look for leadership there).  I called a drop back to our midpoints in yesterday's member chat, 7 minutes after the market opened and it does not look like we will be disappointed this morning with some poor retail results, even from WMT, who shocked people with a profit warning.  We already grabbed ISRG on the dip and I urge members to check out the plays laid out in last night's comments as this is a great opportunity to get in cheap!

This is going to be fun because the crappy American economy will send investors scurrying back to our crappy American currency so we can expect the dollar to pop and that will put more pressure on oil with already (ROFL) dropped 12.5% yesterday – something I mentioned may happen in the morning post.  We'll see how oil handles $40 but, as I keep saying, we're going to have a very hard time sustaining any sort of rally until we get real capitulation in the energy sector (off 5% yesterday) and investors stop putting money back into it and rotate into other things. 

We saw the same thing happen with the builders as it took an agonizing amount of time for the sheeple to stop trying to call a bottom and move on but those same sheeple are now into energy stocks and looking for the next bubble to blow their money on.  Sadly, we have had no clear leadership for them to jump on top of and we have a parade of pundits on CNBC telling people how the smart money is parking oil in tankers and other ridiculous things to keep people invested while the big money dumps out (see "The Roach Motel Theory for Oil").

I read an article yesterday where FRO alone has 70M barrels worth of tankers rented out for storage so who knows how much oil is parked out there in addition to the 4Bn barrels of global storage (SPRs plus commercial) that we're already counting.  Yesterday's 11.8M barrel BUILD in inventories and we sent 9.7M barrels of product OUT of the country last week.  Imports surged by 1.6Mb per day as at least some of those tankers full of oil took the money and ran as oil ran up from $35 to $50 in the past two weeks.  That inventory report only covered through 1/2 so who knows how many more barrels were dumped this week – we'll find out next Wednesday but another massive build in product will be catastrophic for those poor tanker speculators…

I said yesterday, at only half a joke, that we needed to keep up our 30% monthly gain from December's picks into the rest of 2009 to keep up with inflation but, looking at the Deficit figures for 2009, maybe that's right in line!  Between the stimulus, the tax cuts, the war and existing unfunded TARP money – we are crossing the $2Tn mark for 2009 projected debt and that DOES NOT take into account the fact that tax revenues may be down considerably.  That means the US needs to auction off $150Bn a month in notes and MUST find buyers.  The auctions work by adding interest to the notes until the sale is filled and $150Bn a month is 3 TIMES more than we normally auction off in a mere $600Bn average Bush deficit.  THIS COULD BE A PROBLEM PEOPLE!  Have I mentioned I like gold lately?

Still, stocks are commodities too – there are only a limited amount of shares of ownerships in these little money making machines (well, the few that do make money) to go around and that means inflation will inflate stocks too, as well as the meager earnings they do manage to scratch out.  We have our list of 38 key positions we like and we have our daily gambles but let's not be idiots and think that tucking our money away in 10-year notes at 2% is "safe."  A few years of 9% inflation can chop those notes in half on you and by the time you cash you $100,000 note you may be lucky to be able to get a Prius with it.  Money MUST be put to work in this market.  Germany and Japan are already having trouble raising cash so it is not just us with our hands out for whatever change the global market can spare. 

Asia is a mess with the Shanghai falling 2.3% and they were the stars of the day.  The Hang Seng dropped 3.8% and the Nikkei gave up 3.9% (Bombay, who fell 7.25% yesterday, wisely took a holiday today).  European markets are off another 1.5% this morning but the global Dow is still hanging tough at 1,555 and we can maintain hope as long as they can maintain 1,500 so we'll be watching that closely in our next Big Chart Review.  As expected, the BOE cut rates to 1.5%, the lowest level since the bank was founded in 1694 so when we say these are once in a lifetime rates – we are NOT kidding!  The ECB meets next week and has rates on the continent at 2.5%, already down from October's 4.25% but the markets still want MORE (or less as the case may be).

So the world banks will be lending money at 0% and borrowing money at 2%, then 3%, 4%, 6%, 8%, 10%, 14%, 18%… at which point I think we'll flip our position but, for now, we are firmly bullish on interest rates over the long term.  We'll hear from Obama at 11 and we're hoping his speech on the economy firms up a floor at our mid-point so we can at least move back to a 5% test of the upside.

Jobless claims for last week were way better than expected at 467,000 (540K expected) so that's good news and we get a report on Consumer Credit at 2pm, which almost certainly grew in November by about $2Bn vs a $3.5Bn decline in October as holiday shopping trumped recession.  Earnings are off to a rotten start with big misses by GAP, HELE and TXI this morning but BBBY, BLUD and RT were good last night so we have to give it some time before we draw conclusions.  Volume is still very low, hopefully today we'll have some decent action and, of course, next week earnings season starts in earnest so it's going to be a wild ride.

As long as every man, woman and child on earth can scrape together 3,333 dimes for the US collection plate – everything will be fine!

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Steve, yeah, APOL chart looks toppy.  There could be a short squeeze tomorrow.  Then I can sell the CALL leg of the short strangle at strike $95, a nice 40-50% profit in the range of $65 to 95 for Feb.  I might just take the profit and run with the naked PUT sold.  We’ll see.

Peter
APOL poped up 7 in AH with strong earnings and growth.  A market for more education with everyone loosing their jobs and with fed money to pay.  You may have to rethink after it opens.

Phil,
I need some advice on rolling a vertical BAC position. I have 7-Jan 17.5 puts ($4.74 basis) against 7-Jan 12.5 puts ($1.13 basis). I am willing to put more (Margin) money into this position to roll down and out in time to try and salvage this loss.
Thanks

 Listened to a Carpenter’s Union guy lament how over $100M of their pension fund appears to have be lost with Madoff.  Some likely outcomes:
1. It wasn’t limited just to him, some of the Hedgies were in on it.
2. It’s bigger then what’s being reported.
3. It’s been going on for a long time, almost from the beginning.
I hope I’m wrong, but there’s some strange stuff going on.  Hard to separate from the ‘real’ market.

I have a question for anyone.  I have a hard time investing in APOL or these online companies because i’ve met some of the people who attend/attended these "institutions".  Do these guys get hired?  Are they competitive in the job market?  what is the advantage of "the university of phoenix" vs. your local community college.    I need to resolve these questions before i can consider investing in these companies.

Good Morning All

Asia Markets :    Friday, January 09, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                     8836.80    -39.62    -0.45%
Hang Seng*                         14377.44    -38.47    -0.27%
China: DJ Shanghai*             210.30        3.80      1.84%
Seoul Composite*                1180.96    -24.74    -2.05%
Bombay Sensex*                   9406.47  -180.41   -1.88%
Baltic Dry Index             821.00    32.00    3.75%

*at Close

Asian Markets Waver Ahead of Jobs Data

Asian markets were mixed Friday, with South Korea’s Kospi shedding 2 percent after the central bank cut rates. Investors across the region are bracing for the December U.S. payrolls data, expected to show sharp job losses and deal another blow to hopes for a speedy recovery this year. The U.S. probably shed more than half a million jobs last month, bringing job losses in 2008 to a post-war record, boding ill for Asia’s struggling exporters who have been starved of demand from developed nations.

Japan’s Nikkei closed about half a percent down, as exporters lost steam after a recent rally and on rekindled worry about the global economy, though trade was cautious throughout the day ahead of key U.S. jobs data.

Seoul shares ended 2 percent lower after the Bank of Korea cut base rates by 50 basis points, a move already factored in by the markets, with technology issues leading falls on profit worries as earnings season approaches

Australian stocks finished 1.1 percent higher as BHP Billiton and gold miners such as Lihir Gold gained, while trade elsewhere was mixed ahead of U.S. jobs data to be released later on.

Hong Kong shares fell 0.3 percent due to lingering worries about the global economy ahead of key U.S. jobs data. Energy stocks clawed back some of Thursday’s steep losses after oil prices rebounded slightly in Asian trade.

Chinese stocks edged up, with shares in power generators leading on speculation that the sector might be the next to receive financial assistance from the government. Airline shares were weak because of a poor traffic outlook as the economy slows, despite news that the government would also give carriers three-year exemptions from tax on fuel surcharges, which the official Shanghai Securities News said would save them some 2.5 billion yuan.

Singapore’s Straits Times Index 1.2 percent amidst merger and acquisition buzz.

Bombay Stock Exchange’s Sensex closed at 9390.13, down 195.75 points or 2.05 per cent. It touched a low of 9,250.82 and high of 9630.40 in day’s trade. Indian equities put a brave face on Friday and recovered from lows as traders covered shorts in realty stocks.. However, losses in metals and real estate stocks saw benchmarks end lower.

Euro Stocks Fall Ahead US Jobs Data

European shares traded slightly lower early on Friday, weighed down by steep falls for some banks, with many investors on hold before the release of a key U.S. jobs data.

The United States, the world’s largest economy is expected to have shed 550,000 jobs in December, making it the worst single month of job losses in 34 years , when it announces its non-farm payrolls at 8:30 am New York time (1:30 pm London time). The unemployment rate is expected to rise to a 15-year high of 7.0 percent. The FTSEurofirst 300 index of top European shares was down 0.2 percent at 869.28 points. It fell 0.8 percent on Thursday.

Natixis dropped 8.4 percent on a newspaper report that said France’s fourth-biggest listed bank could post losses of between 1.5 billion and 2 billion euros for 2008, and that a further recapitalization cannot be ruled out. A Natixis spokesman said the bank had no plans for a recapitalization but was interested in funds from a new state facility.

Commerzbank was down 8.2 percent, hit by analyst downgrades triggered by news on Thursday that the German government will take a 25 percent stake in the bank. German insurer Allianz, which is selling its Dresdner Bank unit to Commerzbank, rose 5.3 percent as the last doubts about that deal faded. "Allianz’s contribution to the recapitalization of Commerzbank … is done on rather favorable terms," Equinet said in a note. LBBW raised its price target for Allianz to 80 euros from 72 euros.

Shares in Deutsche Postbank were down 2.5 percent after the the German bank said it expects a significant negative 2008 result after it eliminated its stocks portfolio at the end of 2008, triggering large hidden losses. Deutsche Bank, Germany’s largest bank, which is taking an initial stake of just under 30 percent in Postbank, fell 5 percent.

Fresh industrial production data for November painted a bleak picture. In Spain, output fell by a record and worse than expected 15.1 percent year-on-year.Sweden also saw a record drop, 11.9 percent year-on-year, and in France the slide was a much sharper than expected 2.4 percent month-on-month.

On the upside, shares in Renault rose 3.8 percent after the French carmaker said sales fell 4.2 percent in 2008.

The DJ Stoxx autos index was the leading sectoral gainer, up 0.9 percent.

Oil Eases Below $42 ahead of US Jobs Data

Oil prices hovered below $42 a barrel on Friday, despite signs Saudi Arabia will cut supplies further next month. Previous gains in the price of oil were capped ahead of data expected to show a big jump in U.S. unemployment.

Non-farm payrolls figures, due at 1:30 pm London time, are likely to show more than half a million Americans lost their jobs in December, a Reuters poll showed, the highest monthly job losses in 34 years.

U.S. light, sweet crude [ 41.01    -0.69  (-1.65%)] for February delivery was down, after climbing $1.00 to $42.70.
London Brent crude [ 47.3    -0.25  (-0.53%)] was flat.

Crude fell 2.2 percent to settle at $41.70 on Thursday, after a 12 percent slump on Wednesday, the biggest daily percentage drop in more than seven years.

Top crude exporter Saudi Arabia is the latest member of the Organization of the Petroleum Exporting Countries to show it is cutting output in line with a deal agreed in December. It will deepen its supply cuts in February from January to at least three Asian crude buyers, industry sources said on Friday. Earlier this week, Kuwait and Iran also told customers of bigger supply curbs this month, after the cartel agreed its biggest ever production cut in December in a bid to bolster prices.

One prop of the recent rally that had lifted oil prices since the start of the year looked likely to be removed, after Russia reached an agreement to deploy European Union monitors to ensure the smooth flow of gas via Ukraine.

Dollar Recovers Tentatively Ahead of Jobs Data

The dollar earned a slight reprieve on Friday as investors reversed some of this week’s dollar selling ahead of key U.S. payrolls data later in the day, while the euro was hurt by yet more dismal economic data. Although the December U.S. job report is expected to show another massive reduction in jobs and a higher unemployment rate, much of the bleak news may already have been factored in following a bleak private-sector jobs report on Wednesday.

The euro was briefly buoyed on news that Russia reached agreement to end a gas dispute with Ukraine.

The euro [ 1.3671    -0.0029  (-0.21%)    ] was down on the day against the dollar, near a session low of $1.3633.

The U.S. unit [ 90.94    -0.25  (-0.27%)   ] was up against the yen, off session highs but still above a trough of 90.83 yen on Thursday.

Data on Friday showed French industrial output fell 2.4 percent in November, much worse than expectations for a 0.8 percent fall. That came on the heels of data on Thursday showing euro zone economic sentiment set record lows in December amid rising unemployment, and inflation expectations tumbled. The ECB holds a policy-setting meeting next week.

"The ECB will need to cut by more than is currently priced in with downside implications for the euro that may be amplified by the ECB’s seeming intransigence on policy easing," analysts at Barclays Capital said in a note.

Other data to be released later in the day include euro zone retail sales for November and German industrial production.

Gold edges down ahead of jobs data, dollar weighs

Gold prices edged down in Europe on Friday, pressured by a slight firming in the dollar versus the euro and with trading cautious ahead of key U.S. non-farm payrolls data due later in the session.

Gold slipped to $853.75/855.75 an ounce at 1027 GMT from $856.10 late in New York on Thursday. It has remained in a narrow range for much of the day ahead of the U.S. data release at 1330 GMT.

Oil prices, which also tend to influence gold, steadied above $40 a barrel in anticipation of the jobs data.

In the longer run, concern over the prospects for the global economy continue to support gold as a haven from risk.

However, jewellery buying is relatively lacklustre and strong demand for investment coins and bars is said by traders to have slackened since its autumn peak. In India, the world’s leading market for gold jewellery, buying remains muted with prices at relatively high levels.
"There is hardly any demand at these prices," said Mayank Khemka, managing director of bullion importer Khemka International in Delhi.

Platinum was quoted at $991/996 an ounce, little changed from $991.50 late in New York on Thursday, while palladium was at $193.50/198.50 an ounce from $194.50.

Silver was at $11.14/11.20 an ounce against $11.08.
 

 jomama: regarding for-profit colleges, I’ve worked in the business (VP Marketing and Admissions) and am a consultant now.  Primary benefit for the better ones is being more student focused with flex schedules (that allow the student to work while getting their degree), asynchronous learning and commitment to helping the student complete.  Yes they are aggressive, and there can be a fine line there regarding recruitment practices.  If they are eligible for Title-IV money (federal student loans), and APOL is, the government certainly monitors completion and placement rates.  Most for-profit colleges exceed the completion and placement rates of public colleges.  I like to think of them as ‘tax paying’ colleges since the public schools make tons of money also – but instead of distributing it to stockholders/investors, they put it in trust funds and carry bloated staffs.  APOL is best of breed,  ESI and CPLA are worth a look.  LOPE was an IPO this year.  I like the business model of APEI (specialize in military students who have education benefit money available, limited APEI’s exposure to the loan industry).  I doubt the Obama administration will cut back on education loan funding – they might increase regulation for the ‘tax paying’ colleges though.  

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