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Thursday, February 22, 2024

Wednesday Morning Jihad

Here are a series of articles that you should be able to connect:

That's right, none of the other stuff was working so they had to pull out the big gun.  Osama Bin Laden (or the pretend Bin Laden, it's not yet verified) pokes his head out of his hole to try to get oil above $40 as his family loses hundreds of millions in revenues when production cuts and pirates fail to do the trick.  We're not complaining really – we went bullish on oil Monday as I laid out two very profitable entries in the morning post as I called the bottom for oil that morning – not based on any change in demand but based on the very predictable ratcheting of the terror level that is practiced by the energy crooks every time their wallets are threatened.  So happy Jihad everyone!

I had mentioned last week the Criminal Narrators Boosting Crude were working overtime trying to herd their sheep back into the energy sector and yesterday, in an amazing coincidence, they released their own big gun as T. Boone Pickens predicted oil prices would go back to $140.  T. Boone, of course, just did a $2Bn deal with CNBC parent GE for wind turbines – a deal that needs $80 oil to pay back the investors so to say T. Boone has a vested interest in seeing oil spike back up is the same sort of understatement as say:  "Al Queda needs oil money to fund terror" or "Somalia Pirates and Nigerian Rebels need oil money to buy outboard motor boats."

One can only hope that, no matter what the price, Obama keeps America focused on getting America off foreign oil so we are no longer at the mercy of the collection of American-hating thugs that call themselves OPEC.    Every $10 we spend for a barrel of oil is $73Bn annual dollars out of the pockets of working Americans and half that money finds it's way into the hands of a group of people who fund terrorist, who ARE terrorists and who meet to try to restrict the supply of a vital resource and artificially inflate the prices over and above the fair market value – THAT'S WHAT A CARTEL IS FOR!  Why does this country put up with it? What have we been doing since they first pulled this nonsense in 1973?  Now is the time to act – we have the money, we have the idle workers and factories – now is the time to make a moon-shot attempt to make America a global leader in alternate energy.  Keep in mind that $40 a barrel is $300Bn a year and oil was recently $110 a barrel higher than it is now so DO NOT balk at the costs – Whatever it takes, we MUST change America's future so it is no longer in the hands of criminals.

Needless to say, Bin Laden's lunchtime Jihad proclamation was enough to send European markets and US futures tumbling after a pretty good open.  This is why we stay hedged at the best of times – you never know what's coming around the corner, which is funny because it's really the same damn thing over and over again isn't it?  You can see the dramatic gap down in the DAX, FTSE and CAC this morning and our Dow futures flipped 100 points as well.  Not surprisingly, this very direct cause is being downplayed by GE/CNBC, who would rather have you believe oil prices are climbing because of some underlying fundamentals.

The financial terrorism continues as well as MS came out with a report stating HSBC may have to raise $30Bn and cut their dividend in half while DB warned that fourth quarter losses will exceed $6.4Bn (and that would be a lot more except the Euro is week so the conversion is 10% less!). "There are no hiding places, even for good banks," said Derek Chambers, at Standard & Poor's Equity Research. The Deutsche Bank news puts added focus on J.P. Morgan Chase, which moved up its planned earnings report to later this week.

Ahead of the market we have Retail Sales numbers, which came in down 2.7% in December – a whole point worse than expected!  Import Prices were down 4.2%  (skewed down by oil of course) and Business Inventories are coming at 10, and have not been showing signs of building.  We have crude inventories today at 10:30 and if they are building all the sabre-rattling in the world is not going to get oil over $40 this week and at 2pm we get the Beige Book, which is sure to be just as gloomy as the Fed minutes were last week.  INFY, IIIN, EXFO and LLTC all beat in yesterday's earnings but Linear guided down so we'll call that a miss.  Still 3 out of 4 beats is not the cataclysmic earnings the bears are looking for so far.  Today we have SCHW, LCRY, CLC and XLNX with a larger sampling tomorrow before we get really busy next week.

All in all, we should be retesting our lows off of this news and we are right back where we were on December 29th, as reflected in our last Big Chart Review so no need to rerun the numbers, as they are all right in that post.  Until we break significantly below our 8,200 floor, we are range-bound and nothing more.  We're going to watch the Qs at $29 as the Nasdaq has been generally outperforming for the past two weeks and we'd hate to lose it.  The Russell faces a very serious test at 465 but, if they hold it today, then we may be back into the UWMs, who should give us a $5.50 entry on the July $15s, which we can hedge later with the Feb $19s at, hopefully $2+.  I'm very disappointed that we're not getting a pre-Obama rally but, with all the bad news today, we'll be happy to hold the line!  If all goes well, it may finally be the time to rebalance our virtual portfolios ever so slightly bullish but let's watch our levels as hope is not a strategy…

Some major banks in Europe are down 10, 12 and 15% with UBS a star, down "just" 2.8% and CS off "just" 6.4%.  HSBC is off 8% on the MS note but, what it actually says is: "While HSBC is winning market share we do not think this will be enough to offset the negative cyclical and structural trends and is more than captured in valuation."  I just don't think that sounds all that terrible…  What does sound terrible is a report from the Man Group, the world's largest publicly traded hedge-fund manager. The company said Wednesday the funds it manages fell 21% in its fiscal third quarter due to increased redemptions from clients and a move to cut its investment exposures. Man Group shares lost 5.6%.

Asia did not know there was a Jihad today so markets there were up with the Shanghai leading the pack, up 4% against a very slightly higher Nikkei and Hang Seng.  India was up 3.3% and the Baltic Dry Index posted yet another 2.5% gain.   China revised their 2007 GDP growth to 13%, putting them 3rd in the world, ahead of Gemany and, perversely, Hong Kong and China markets were led higher by Banking stocks.  "There is still no momentum to go up and it's easier to get a sell-order than a buy-order. People are looking around but there is still so much uncertainty that they aren't getting clients committed to the market at this stage," said Andrew Yates, a senior vice president at Royal Bank of Scotland in Bangkok.

If you strip out gasoline sales, retail sales were off just 1.4% and don't forget that is a dollar-volume of sales that reflects the tremendous discounting that went on in December, so people got more stuff for less money – this is not a terrible thing…  Keep that in mind as you hear the doom and gloom headlines over and over today on TV.  Sales last month tumbled 1.8% at furniture retailers; 2.5% at clothing stores; 1.0% at electronic stores; 2.2% at eating and drinking places; 0.4% at sporting goods, hobby and book stores; 1.3% at general merchandise stores; 1.4% at food and beverage stores; 2.9% at building material and garden supplies dealers; and 1.9% at mail order and Internet retailers.  Sales rose 0.4% at health and personal care stores.

Import prices fell 4.2%, which was far less than the 6% decline expected.  November had been down 7% and, while decelerating, the big decline gives the Fed a lot of leeway to pump money into the economy.  Overall import prices have fallen 9.2% in 2008, the biggest drop ever recorded with oil prices down 47% for the year.  Excluding petroleum's 21.4% decline, import prices were down just 1.1% last month – hardly deflationary.  This should lead to a good PPI report of course.

So we will watch our levels today (as well as oil at that $37.50 line) but we already shifted our strategy yesterday to a little more naked put selling and a little less stock buying as we didn't hold 8,450.  Now 8,200 may be tested but we are well into our sweet spot for buying and there will be bargains aplenty today for the committed long-term investors.  Let's keep our list of Stocks to Buy handy and keep our eye on the VIX, which should get a nice pop today, just in time for us to start selling Feb contracts as today was the day we were waiting for to do our rolls as we were up too much last week.  Today we are right back where we started from this expiration period and, if you are an options SELLER, that is just perfect!



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