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Tuesday, November 29, 2022

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Thursday Morning

Well, we got our stimulus boost – now what?

I’ve been saying all week I’m dreading tomorrow with the GDP report and what I think are going to be disappointing earnings from XOM, which could create a nasty 1-2 punch to the gut of the Dow.  We didn’t want to wait and we covered up and went naked on our downside index puts in member chat at 2:40, weighting the virtual portfolio back to bearish at 8,355 on the Dow.  We were glad then sad that we did that but now we are glad again as the pre-markets are indicating a sell-off back to 8,300.

We certainly got the pop we were expecting as Hong Kong’s markets opened back up with a nice 4.5% gain but the mainland is still closed (why don’t we get week-long market holidays?) and it remains to be seen if the Hang Seng can hold 13,000.  The Nikkei added 1.8%, keeping up with the Dow at 8,251 and the rest of Asia was up slightly following our "rally day" but lack of follow-through on our part can fizzle things fast tomorrow.  When the FXY tests 112 again it is probably time to short the yen… 

Now it’s 8:30 and Jobless Claims came in at 588,000 with 4.8M continuing claims.  I would have to say that I’ve read at least another 100,000 jobs worth of lay-off notes this week from earnings announcements.  Durable goods were also terrible, down 2.6%, but about what was expected but the ex-Transportation number is down 3.6% and that is very bad.  Even worse is last month’s durable goods number turned out to be a farce as it was revised down from -1.5% to -3.7%.  We’ll see if the market can take this in stride but toss in some big oil misses and a -5% GDP and I think this week is going to go pretty much as we planned – even with the Trillions in additional stimulus promised by Obama and "Bad Bank" Bernanke.

Over in Europe, they are giving up about half of yesterday’s gains and both Putin and Wen used the podium at Davos to slam the US, blaming us for the global crisis (kind of hard to argue actually).  France did what they usually do in times of turmoil – they went on strike – with a nationwide shutdown by "public and private workers." (now THAT’S a union!)  Pierre Rattier, a commuter, told APTN. "So I really don’t think it’s the best time to have done this, but, well, this is typically French."  Protest marches were planned throughout the day in some 200 municipalities. Thousands of teachers, postal employees, and hospital staff also have stayed off the job. Many banks were shut, and some workers at factories that have been hit by layoffs also joined the strike.

RDS.A booked a $2.8Bn loss in Q4 but they are an outperformer compared to COP, who reported $31.76Bn in losses over 3 months or $21.37 per $50 share.  "Oil is a boom and bust business: This is a bust cycle," Paul Sankey, an oil analyst at Deutsche Bank, wrote in a recent research note. "We expect poor reserves reports, write-downs, poor earnings, more [earnings-per-share] cuts and bankruptcies."  COP did warn two weeks ago and sold off about 10% ahead of earnings, XOM has made no warning but is generally expected to have 32% less earnings tomorrow – a figure I think is too generous.  This is really not too different than home builders, who wiped out multiple years worth of profits in one bad quarter as the write-downs and expenses caught up with them when their bubble burst.

The House passed Obama’s $819Bn stimulus bill literally over the dead party of the Republicans, all of whom voted against it along with just 11 Democratic defectors but that’s a big yawn today as we already rallied on that yesterday.  We had poor earnings from MMM, SNE and EK and F was about as bad as expected but supportive of our $2 floor.  BDK, FO, RCL, HOT, TXT and ZMH issued lower guiidance on earnings with TXT the big surprise there as it’s on our buy list, hedged at $13.69 so, if they don’t bounce, we’ll need to adjust that one.  I had said at the time "they may be down for a while but doubtful they’ll go out" but I hadn’t counted on $293M of mark-to-market write-downs on finance receivables held for sale.  Truly almost anything that touches finance has turned toxic!

We’ll see what holds today, hopefully we’ll have reason to day-trade covers on our index puts in the morning but we’re certainly going to have some naked puts heading into the close as I remain very, very, VERY concerned about tomorrow.

 

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Man, that Fast Money crew has been dead-on with that TBT trade this month…

He should say something meaningful or stay the hell off TV.
 
He should be trying to build confidence; not be nanny in chief.

Does he not also realize that lots of Wall Streeters take low salaries and count on their bonuses ?  And the bonuses raise tax revenue and result in spending and home buying ?
 
As someone who has no real world experience, I guess he doesn’t …

what time does Xom report?

YRCW – Down 20% before earnings. Should make tonight interesting.

Cap, they can’t have it both ways, they can’t say "we’ll take a small so salary so we get a gigantic upside when times are good" and then also give them a gigantic upside when things go bad.   If they want a higher base salary I have no problem with that, they just don’t get a big upside when they do well.

I think everything should be expectations based.  You figure out what the job is worth, say $100,000, then give the employee the choice.   You can have $100,000 in cash, or $50,000 in cash and a 50% chance of earning a $100,000 bonus.   They might make $150,000 or they might make $50,000, but in terms of expectation both salaries were the same.

How about buying drys at $8.25 and selling feb puts for$1.07 and waiting for a better time to  sell calls

Phil: no, of course not, I expect some downward action on SKF tomorrow.
 
Its amazing how they yanked SKF up the last hour.

Wow, what an ugly close!  Looks like people are positioning themselves for tomorrow for sure.  But with govt manipulation of GDP… what if we’re in for a positivie suprise?

SLG experiment was a failure.  Market closed at lows; someone was pounding SLG into the close; kept throwing shares out.  SKF and SRS went out near highs.

Phil, why do you think YRCW got killed today?  Earnings not out yet…

How about that TSO lately ?  A champ.

Eph- salary. I agree with you about bonus scheme for employees who’s earnings are based on the outcome of their decision. But, for the guy on production line, who comes every day to work, does what is told and at the of the year is told that he gets ½ salary is just not right.

UYG damn near gave up everything from yesterday.  This is one crazy market. 

RMM; sorry to get back to you after the close.  the 180s or 190s — as long as the market doesn’t crash to new lows; you should be fine if you can afford to hold them.  But if tomorrow is a disaster it could be a rough day.
 
Keep in mind as we move forward from here, the decay gets bigger and bigger.  I think the banks will have a bid under them, barring another disaster, which is why I am so negative about SKF.

AMZN w/ good beat but bad guidance.
 
Anyone a buyer at 54 ?

Reports Q4 (Dec) loss of $2.51 per share, may not be comparable to the First Call consensus of ($0.66); revenues fell 17.9% year/year to $1.93 bln vs the $2.04 bln consensus. "Although we cannot control or even predict the economy, we have considerable opportunities to improve our financial position while enhancing service to our customers," stated Zollars. "The network integration at YRC is now on track to deliver a run-rate of $200 million of operating income improvement by early in the fourth quarter of 2009. Combining this with the employee wage reductions of around $300 million, we expect to improve our results by more than half a billion dollars going into 2010."

YRCW loss of 2.51 per share when only 66 loss was expected? wow
Stock is amazingly calm AH.

 How the Stimulus Payments works: (From my accountant)  LOL!!!
 
This year, taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that , as an accountant, I thought I would attempt to help you understand using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a small part of it .

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn’t that stimulating the economy of China?
A. Shut up.

Below is some helpful advice on how to best help the US economy by spending your stimulus check wisely:

If you spend that money at Wal-Mart, all the money will go to China.
If you spend it on gasoline it will go to the Arabs.
If you purchase a computer it will go to India.
If you purchase fruit and vegetables it will go to Mexico, Honduras, and Guatemala (unless you buy organic).
If you buy a car it will go to Japan.
If you purchase useless crap it will go to Taiwan.

And none of it will help the American economy.

We need to keep that money here in America. You can keep the money in America by spending it at yard sales, going to a baseball game, or spend it on prostitutes, beer and wine (domestic ONLY), or tattoos, since those are the only businesses still in the US. 
 

Phil – Should today have been titled "Thursday Thump"?  Will tomorrow be titled "Friday Thumpier"?

Thanks DB.

😆
 
Pelosi wants you to spend it on abortions and no show jobs.

They keep calling these people talented performers….I think we have a definition problem.  

Nice one on AMZN, up 10% AH.

Phil: I want to be prepared for SKF,
2 outcomes: SKF goes down, I close with a gain,  SKF goes further up, is there a roll in the future ?
How does this work , TXS

AIG might have been the most egregious example of the problem with pay.   The guy in the London office led a team that pumped out bazillions in CDSs, showed big phantom profits for a couple of years, took huge bonuses, and then when the market imploded it destroyed what had been one of America’s premier financial instiutions.   What’s most amazing is when they finally kicked him out they gave him an additional $20million above what was required.  It is insanity!
 
The old partnership model on Wall Street meant that you had to leave your capital in the firm.  You got big salaries and  big bonuses in the good years, but their fortunes were personally at risk if the firm went down.   That’s why they took much more prudent risks.   Now that they’ve gone public they’ve shoved most of the risk of on other people, first the shareholders and now the government, but keep paying themselves ridiculous sums of money.   It doesn’t take great skill to make a lot of money if you lever up and don’t care how your ultimately turn out.

how you bets ultimately turn out.

AMZN – Good I didn’t do the bearish trade – In AH, it is up $4
 http://www.247wallst.com/2009/01/bezos-laughs-to.html

AMZN  I bet Cap’s Amazon play of 12:15 still works out even with the jump in AH.   It might even be profitable tomorrow because of the vol crush, but by expiration, as Snoop would say, "fo-shizzle"

that’s what I am counting on …   I also sold $35 puts today.

good work Cap!

Today’s highlight the move on the Ten Year….. not good at all.
Ben is trying to keep a beach-ball underwater ….. it’s just going to keep popping up on him.

Phil,   Thanks for the comment on OSK today. (I live near a JLG plant.) I do not think the co. will go BK and ,long term, they will tough it out. Years ago,  OSK employees were a bunch of good hard working farmers who would work there for a day job.

SRS and SKF just took off (SKF – 4 pt move up to 139).  The only news I see is Moody’s cutting Allstate’s ratings at 6:46 pm.
 
Anything else out there ?

Here is my fuzzy maths on how much money is needed to buy the trouble assets for residential mortgages.  Feel free to make correction or add to it.
 
There are 100 million homes with mortgage in the US (300M people, 2.8 people per household, ignoring the home ownership of 65%).  The average price is $200k, so the estimated total mortgage amount is $20Tn.  Freddie and Fannie has half from my memory, so the other banks have $10Tn in loans.  Let’s say 30% of the loan goes bad, and the house value is cut in half, we are looking at $1.5Tn in losses from the banks.  Banks already written off $1Tn, so theoretically we only need another $500Bn.
 
If the mortgage rate is 6% and treasury is 2.5%, the bank gets 3.5% gross profit on the $18.5Tn mortgages.  This is about $650Bn gross per year, easily covers the $500 Bn losses in one year.  Of course, these gross margin is eaten up with big CEO and banker’s paychecks.
 
What I don’t quite understand is all the derivatives and credit default swaps.  These looks very scary as no one knows the exact impacts.

Good Morning everyone.
 
 
UK up about 0.3% this morning. Bad results from Porsche. Not unexpected. US premarket is up about 20pts. All irrelevent ahead of the economic data I guess.

Good Morning Phil, DB & everyone.

Asia Markets :    Friday, January 30, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                   7994.05    -257.19    -3.12%
Hang Seng*                       13278.21     123.78      0.94%
China: DJ Shanghai**         223.87         -0.98     -0.44%
Seoul Composite*             1162.11         -4.45     -0.38%
Bombay Sensex*               9438.31      202.03      2.19%
Baltic Dry Index            1036.00    22.00    2.08%

*at Close
** Markets closed. Data from Friday (Jan 23,2009)

Asian Markets Fall as Global Economy Worsens

(The Chinese markets are closed, will reopen monday)

Asian markets snapped a four-day winning streak Friday and the yen and U.S. dollar rose as investors retreated to safety with job losses accelerating globally while Washington scrambled to finalize a fix for banks.

The Nikkei losed 3.1 percent lower, sliding on growing economic woes and a 17 percent tumble by Toshiba shares after it was hit by a ratings cut, a massive loss forecast, and news it may merge some chip operations with NEC. A firmer yen and deepening recession worries also hit other exporters.

Seoul shares closed down 0.4 percent after a batch of weak domestic and U.S. economic data deepened worries about the economy.

Australian shares finished 0.4 percent higher, reversing early losses as banks and gold miners offered support.

Hong Kong shares fell 0.5 percent, heading for their fifth monthly decline in six months. The blue-chip Hang Seng Index was among the worst performers in the region this month, topped only by a more than 10 percent slump on Tokyo’s Nikkei, as investors shunned Chinese financial stocks amid stake selldowns by foreign investors.

Singapore’s Straits Times Index was down over 1 percent, with financials leading the declines.

Bombay Stock Exchange’s Sensex ended at 9438.31, up 202.03 points or 2.19 per cent. The 30-share index touched an intra-day high of 9438.31 and low of 9087.36. Some heavy buying in frontline stocks Friday helped benchmarks close to day’s high. Rally was led by metals, realty and oil & gas stocks while pharma stocks had a subdued session.

Pharmas Lead Euro Shares Higher, Banks Recover

European shares recovered on Friday, led by pharma stocks as Roche lowered its takeover bid for Genentech, but also ahead of economic data from the United States and Europe which is expected to be bleak.

The FTSEurofirst 300 index of top European shares was up 0.4 percent at 799.61 points, after having been down as much as 0.6 percent earlier.

Swiss drugmaker Roche Holding rose 1.7 percent after it launched a hostile bid for Genentech, and cut its offer for the 44 percent of the U.S. biotechnology company it does not already own.

Banks also recovered from Thursday’s losses as strategists pointed to positive sentiment returning to the sector. Barclays was the top gainer, up 6.3 percent. In Davos on Friday, Chairman Marcus Agius said he sees the package of measures announced by the British government last week as positive. Royal Bank of Scotland and Deutsche Bank were up between 5.7 percent and 3.2 percent, respectively while the DJ Stoxx banks index was up 1.2 percent.

Data showed that euro zone unemployment rose to 8.0 percent, above the Reuters poll of 7.9 percent.

Chemicals were the top declining sector, with the DJ Stoxx chemicals index down 0.4 percent. BASF fell 1.7 percent, after Morgan Stanley lowered its price target in the stock to 30 euros from 40 euros

Oil Edges Firmer but Grim Economic Outlook Nags

Oil firmed modestly on Friday after a nearly 2 percent fall on another round of grim U.S. economic data the previous day.

U.S. crude [ 41.47    0.03  (+0.07%)] was down , while London Brent crude [ 46.01    0.61  (+1.34%)] followed in its footsteps.

Oil has fallen nearly 11 percent over the past week but is only down 6.8 percent from December, its smallest monthly percentage fall since prices began tumbling off a record high near $150 in June.

On Thursday oil fell 1.7 percent on data showing the U.S. jobless rate rose to a record peak in January, single-family home sales fell in December to their lowest ever and new orders for durable goods tumbled for a fifth straight month. Shrinking demand for fuel has also contributed to the biggest four-month build-up in U.S. crude stockpiles since 1990.

Data showed Japan’s unemployment at a near three-year high and industrial output in the world’s third biggest oil consumer plunging a record 10 percent last month.


Risk-Wary Investors Favor Yen, Dollar Ahead

Growing investor caution towards risk fuelled broad dollar and yen gains on Friday, with poor economic data concentrating minds on deepening global concerns ahead of key growth figures later in the day. The rush to dollar and yen liquidity was hastened earlier in the global session by falling Asian stocks, with European shares following suit early.

World stocks, as measured by MSCI’s all-country index, fell 0.6 percent on the day.

The euro stayed under pressure, having taken a hit the previous day as billionaire investor George Soros told an Austrian newspaper the currency may not survive without a European Union plan to deal with toxic assets. European Central Bank President Jean-Claude Trichet’s comment that the ECB could push interest rates below 2 percent also kept the currency on the back foot.

Euro zone inflation figures due at 10 a.m. London time are expected to show consumer price growth slowed to 1.4 percent on the year from 1.6 percent previously, although lower-than-expected Spanish inflation suggests it may be lower than forecast.

The dollar was up versus a basket of six major currencies, while the euro [ 1.2874    -0.0083  (-0.64%)    ] fell after dropping more than 1 percent on Thursday.

The euro [ 115.35    -1.31  (-1.12%)   ] slid against the yen, while yen [ 89.54    -0.47  (-0.52%)   ] strength pulled the dollar down.

The New Zealand dollar [ 0.5111    -0.0028  (-0.54%)   ] struck a six-year low against the U.S. dollar at $0.5077, according to Reuters data, after Reserve Bank of New Zealand Governor Alan Bollard said there was room for more interest rate cuts.

The kiwi later recovered most of the day’s loss to the greenback but sank to yen [ 45.78    -0.49  (-1.06%)    ]. It struck an eight-year low of 45.03 yen last week.

U.S. gross domestic product, due at 1:30 p.m. London time, is forecast to show a 5.4 percent decline on an annualized basis, hit by plunging consumer spending as unemployment swelled.

Gold rallies 2 pct on haven buying, hits euro high
Gold rallied more than 2 percent in Europe on Friday to a three-month high, as investors once again sought the safety of bullion from volatility in other assets. Market talk of China taking an interest in gold as an alternative to U.S. Treasuries, and of a European fund buying bullion, also helped boost prices.

Gold climbed to a high of $926.10 an ounce, and was quoted at $918.50/920.50 an ounce at 1018 GMT, up from $906.75 in New York late on Thursday. Gold priced in euros hit a record high of 720.53 euros.

Gold has risen around 3 percent this week as investors have scrambled for the safety of gold and bullion-backed assets such as exchange-traded funds. "The ETFs were up another 15 tonnes yesterday," Simon Weeks, director of precious metals at the Bank of Nova Scotia, said, adding safe haven demand was driving the market. The world’s biggest gold-backed ETF, New York’s SPDR Gold Trust GLD, said its holdings jumped more than 10 tonnes on Thursday to a record 843.59 tonnes.

 ETFs, which issue exchange-traded securities backed by physical gold, have proved a popular alterative to investment products such as bullion bars and coins. SPDR’s holdings have risen more than 63 tonnes or 8 percent since Dec 31.

A new wave of risk aversion also hit the currency markets, with the yen and dollar edging higher as investors worried about risk after a spate of poor economic data.  Although gold usually moves in the opposite direction to the dollar, the negative correlation between the two has broken down in recent weeks as both assets gained on risk aversion.

But jewellery demand remains hamstrung by high prices. In India, the world’s biggest bullion market, gold futures touched an all-time high of 14,407 rupees per 10 grams, deterring buyers from purchases. Scrap sales are booming, however, as consumers cash in on the price rise.

Silver prices tracked gold higher, rising to a peak of $12.57 an ounce, their highest since Oct 1. It was later quoted at $12.46/12.53 an ounce against $12.31.

Silver ETFs have also risen sharply this year, with the largest, the iShares Silver Trust SLV.A, up 660 tonnes or 10 percent in the year to date.

Among other precious metals, platinum and palladium were little changed. Platinum was at $971.50/976.50 an ounce against $972.50, while palladium was at $191.50/195.50 an ounce, against $191.50.

Good Morning Ramana

Hmmm XOM beats GDP better!!!

I was afraid of that.

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