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Tuesday, November 29, 2022

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Monday Markets – The 3 Percent Solution

We're getting that pullback we expected – let's hope it doesn't go too far!

The watered down version of the stimulus is already spooking the markets and I am firmly in the camp with those who think we should be committing more, not less, to boost this economy.  The opposition naysayers seem to think that only money spent by people getting tax refunds (see cartoon from last stimulus) goes back into the economy but, to the extent that some of that money is saved or used ot pay off past debts – it is wasted from the point of view of STIMULATING the economy.  Government spending, on the other hand, is just that – SPENDING.  Whether it is hiring a person to do a job who was previously unemployed or buying laptops for schools, stimulus spending does work as advertised so killing appropriations for NASA (as was done this weekend) only serves to put less money in Aerospace firms and killing Food Stamps (also chopped) only serves to give less money to supermarkets, food retailers and farmers – not to mention the people who starve to death in order to cut a Billion off a Trillion dollar spending bill

It's hard to look at the original list and try to find the logic in what was completely cut: Head Start, Education for the Disadvantaged, School improvement, Child Nutrition, Firefighters, Transportation Security Administration, Coast Guard, Prisons, COPS Hiring, Violence Against Women, NASA, NSF, Western Area Power Administration, CDC and Food Stamps or to see how reducing Public Transit by $3.4Bn (people have less money so let's take away their buses, which are bought from GM and cut driver jobs so even more people have to walk) or School Construction by $60Bn (which would have created tens of thousands of jobs) really accomplishes an improvement over the first bill.

Of course, like the TARP, the headline spending of $800Bn is nothing compared to the TRILLIONS that will be committed by the Fed and, hopefully, some of that relief will actually find its way to struggling homeowners this time.  I am advocating a 3% solution – giving a 3% mortgage to anyone in America who can make the payments.  For a person with a $200,000 mortgage at 8%, this would drop the monthly payment from $1,467 a month to $843 a month (42% less) and even a 6% mortgage ($1,199) would drop 30% at 3%.  Would knocking off 30-40% of your monthly mortgage help you?   Would it cut down on a significant amount of foreclosures?  Would it save the commercial real estate market?

How about if we extend the 3% deal to people who are paying 18% on their credit card debt?  A family with the average of $6,000 in credit card debt pays $90 a month in interest alone.  At 3% that amount drops to $25.  You can even raise the minimum principal payment requirement to 3% and you are still saving people half their monthly credit card bill while putting them just 3 years away from paying down their credit rather than the endless treadmill most families find themselves on.  The Fed is already giving money away for 0.25% so the lenders would be making 2.75% on the loans, better than a 5-year note pays!  For those who cannot make THOSE payment obligations, THEN we can set up a bad bank but why not rescue 90% of the troubled assets first rather than saddle the government with millions of unpayable loans

If you can think of 10 people this would help then imagine how many people this would actually help.  Don't forget the government is already loaning money at 0% – just not to you and the government also already pays 35% of mortgage interest anyway in the form of tax deductions so this program would net cost very little to implement but it would put hundreds of Billions of dollars back into the hands of homeowners and business people, put cash back into the banks as old mortgages are paid off and no longer discounted as "bad assets" and maybe even ignite some interest in home buying (as we are knocking 1/3 off the effective cost of a home). 

Feel free to send this to Congress or the Senate(who even have a phone number you can call).

Two weeks ago we ran the Big Chart and our big concern was hitting the 50% off line with the SOX, all of Asia and the CAC already across.  Every single index we track was at least 40% off their highs and the CAC was actually retesting the November low in what I called "Freak Out Friday."  Things were looking so bad that morning I had to call for calm but we never even went as low as last Monday so everything is relative! 

 

    2 Week 2007 % 40% Nov 50%
Index Current Move High Loss Down Low Down
Dow 8,280 158     14,021 41% 8,413 7,449 7,011
Transports 1,742 130       3,114 44% 1,868 1,418 1,557
S&P 868 41       1,576 45% 946 741 788
NYSE 5,475 304     10,387 47% 6,232 4,607 5,194
Nasdaq 1,591 126       2,861 44% 1,717 1,295 1,431
SOX 252 29          549 57% 329 167 275
Russell 470 28          856 45% 514 371 428
Hang Seng 13,769 1,191     32,000 57% 19,200 11,814 16,000
Shanghai 260 23          588 62% 353 172 294
Nikkei 7,969 224     18,300 56% 10,980 7,406 9,150
BSE (India) 9,583 909     21,200 55% 12,720 8,316 10,600
DAX 4,635 507       8,151 43% 4,891 4,034 4,076
CAC 40 3,111 308       6,168 50% 3,701 2,838 3,084
FTSE 4,279 294       6,754 37% 4,052 3,734 3,377

Sadly, the only real improvement over Jan 23rd is the CAC coming back over the 50% line (almost right on it now) and the FTSE, which crossed above 40% off it's highs and is, surprisingly, the World's leading index from that perspective, off just 37% from the 2007 top.  Sadly the FTSE is the only major index that is less than 40% off and the Dow is closest at 41% but we are a long, long way from feeling better about this market.

US market watching will be easy this week as we watch the action between 45% and 40% to see which way things break.  We don't like to see the Dow up there all alone at the 40% line and, if another $800Bn isn't going to move us above that line – I'm not sure what will.  The magic numbers on the Dow are 8,217 and 8,066 but we really need to hold 8,217 if we want to see the other indexes playing catch up.   We also need to see some positive action on the CAC, which is dragging the EU markets down.  France is still on strike and the strike has spread to French colonies like Martinique and Guadeloupe, causing chaos in those tourist destinations as they begin to run out of goods on islands were almost everything is imported.

Certainly the global Dow chart (right) is nothing to get excited about as the entire index is off about 50% from it's highs and pretty much drifting along at that level.  Emerging markets are in tremendous pain although Chavez said "The global economic crisis hasn’t touched even a hair of the Venezuelan economy."  This seems kind of strange with oil at $40 but we can take it with a grain of salt as Chavez is campaigning for a Feb 15th referendum to amend the constitution to allow him to seek another term in 2012.  Oil accounts for 93 percent of Venezuela exports and crude oil prices have dropped 72 percent since touching a record in July.  Venezuelan consumer prices rose 30.7 percent in January from a year earlier, the highest annual inflation rate in Latin America. Chavez said that curbing inflation is a “battle for everyone.”  

Over in Asia, the Nikkei pulled back sharply off a strong open, harshly rejected off a 2.5% gain to end up down 1.3% for the day, a clear reversal on the 5% rule and they have just one chance to re-test 7,900 before making a very ugly pattern.  Brokerage Nomura holdings led the financials down with a 14% drop after saying they would issue $3.3Bn in stock to raise capital.  The Hang Seng added a point and the Shanghai Composite hit 2.5% on the button but is running out of gas as they approach the critical 55% off line at 264, which is a must this week as Shanghai has to lead Asia out of the sub-50% basement.  China is making several moves to bolster consumption with programs aimed at their 700M rural residents.

Europe is being held down by the energy sector this morning, as well as concerns about the passage of a US stimulus package.  There is a G7 meeting at the end of the week, which is a much bigger deal to them than to the US press, who barely mention it.  BCS came through with BTE earnings and jumped 11% this morning – the bank said they have no need for fresh capital but still expect a rough 2009.  Barclays is the World's 3rd largest bank so maybe (and I know this is blasphemy) Whitney and Roubini are wrong and we will survive this crisis.   NYX announced a loss but a lot of it was goodwill impairments and I'm ready to pull the trigger on those, buying the stock around $21 and selling the March $20 puts and calls, hopefully for $5 before the premium washes out post earnings.  That's net $16 if called away at $20 and net $18 if put to us on March 20th, which is just about their non-spike lows

We'll be watching 8,217 on the Dow to see if it holds. Obama speaks to the nation this evening and we won't be hearing about the Treasury plan today.  Tomorrow we get Wholesale Inventories at 10 but not much going on until Thursday data-wise when we get Jobless Claims, Retail Sales and Business Inventories.  There are tons of earnings still to come with some tough ones on Thursday that I mentioned at the end of Friday's comment section which have us concerned about the end of the week – but let's get through the beginning of it first!

 

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Baltic Dry Index up again (10.5%).  What a run!

 Peter D, I’m up about 45% already on my sold SPY March 75 puts (didn’t sell calls, I’m still too afraid of break up). 
 
My guess is that getting 50% in two weeks (with just under 6 still to go) or less means cash out, purely from a risk/reward standpoint. I could then always resell it if we drop. On the other hand, I could hold it to the bitter end (we’re quite above 75, and I don’t see us dropping much so what if I can’t resell it?), and if the worst happens, I just roll it to April. How do you handle this? Do you trade them much or let them lie until your hand is forced (roll at exp)?
 
While I’m here, I’ll just add that I’m still short the Feb 75s.

Hi S. Steve, Try Firefox instead of IE.

BDI …. impressive percentage gains; but still 90% off its highs.
 
I think BDI simply overshot to the downside.  The current level is nothing to throw a party over IMO.

Steve / Peter. B/c I DT only DIA or SPY couple $ OTM. I have not noticed any significant change in the volatility skew during the day. When I have open a DT position, I am comfortably parked before monitors, watching streaming market data and option price. So far these underlying did not gapped on me. I DT-ed even 3 days before OpEx, but it was Phil’s trade. When I see some discrepancy between the ETF and the Market I just switch to the next month. Fidelity’s pricing ($8 + .75/ctr) does not put large penalty for OTM trading. Sometimes I even flip from long puts into long calls, or vice versa, in one ticket. I trade fixed amount of $, trading cost is about 15-20%, so it is not negligible, but the difference of contracts cost between ATM and OTM is probably compensated by increased leverage. Thx for your input, I will rethink my ways.

Steve – ref IE. My backup system, which runs concurrently, is using Vista Ultimate, (I do have 4GB though).  On PSW I have installed refresher set for 1min. Usually, once a week, Windows and IE are checked for latest updates. This system had not froze in last two years. Yesterday and today PSW site went down for a minute or two. Data from other sites streamed just fine. My suggestion is to leave Task Manager running and monitor processes’ CPU usage. Hopefully, at start you are loading something that creates big overhead, but it is not necessary for trading. FWIW.

Good Morning everyone.
 
 
UK down quite a bit this morning. -1.5%. Bad housing sales seem to be the culprit but losses are across the board. US futures currently down about 90pts.

Good Morning DB, Phil & all

Asia Markets :    Tuesday, February 10, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                7945.94     -23.09    -0.29%
Hang Seng*                    13880.64    111.58     0.81%
China: DJ Shanghai*        256.07         3.40     1.35%
Seoul Composite*          1198.87        -3.82    -0.32%
Bombay Sensex*            9647.47        63.58    0.66%
Baltic Dry Index               1815.00      173.00    8.70%

*at Close

Asian Markets Wobble Over US Stimulus Uncertainty

Asian markets wobbled Tuesday as doubts grew about U.S. plans to create a bank to soak up toxic debts, while the euro fell over 1 percent against the yen and the dollar on a report that Russia is set to request a delay in repaying debt.

Japan’s Nikkei slipped 0.3 percent, erasing earlier gains as the yen climbed against the euro and amid growing uncertainty about the U.S. bank rescue plan. Nissan Motor surged over 6 percent after it announced drastic steps to cope with the recession, saying it would cut 20,000 jobs and joining a growing list of automakers warning of red ink this year.

South Korea’s KOSPI edged 0.3 percent lower, with a bearish economic outlook by the new South Korean finance minister and caution before the U.S. government announcement on a bank rescue plan pressuring sentiment.

Australian stocks closed 0.6 percent lower, dragged down by the major banks on uncertainty surrounding the U.S. financial rescue plan, but rare profit surprises gave the market some support.

Hong Kong shares flitted in and out of negative territory, but closed 0.8 percent higher as investors waited for details on a U.S. bank rescue plan to emerge. Power stocks underperformed after data showed a more than 13 percent decline in output in January, a fourth straight monthly drop, likely exaggerated by the week-long Lunar New Year holiday which fell in February last year.

Singapore’s Straits Times Index moved 1.2 percent higher, though blue chips were turning in a mixed performance.

Chinese stocks closed 1.8 percent higher with non-ferrous metals and real estate shares outperforming. Trade remained very heavy as new money continued to enter the market on hopes of an economic recovery.Consumer price inflation fell to a 30-month low of 1 percent in January while its producer prices were 3.3 percent lower in January than a year earlier.

Bombay Stock Exchange’s Sensex ended at 9633.87 up 49.98 points or 0.52 per cent. The index touched a high of 9724.87 and low of 9510.50 in today’s trade. ndian equities consolidated and end volatile session in the positive terrain Tuesday. Gains were led by surge in realty, capital goods and pharma stocks. Second rung stocks gathered momentum and outperformed the benchmarks.

Banks, Commodities Hit Europe Shares

European shares fell early on Tuesday as banks declined following a huge loss at UBS and miners tracked a drop in key metals prices, while investors trained their sights on a U.S. bank bailout package.

The FTSEurofirst 300 index of top European shares was down 1.4 percent at 818.80 points after closing 0.5 percent higher in the previous session. The index is down 1.5 percent this year after plunging 45 percent in 2008.

Banks took the most points off the index after UBS posted an 8.1 billion Swiss franc ($7 billion) net loss in the fourth quarter, missing forecasts, and said it will cut 2,000 more jobs. UBS shares were volatile, at one stage falling as much as 3 percent then rising 7 percent as analysts pointed to inflows in the wealth management business in January. In late morning trading the stock was flat. Other banks fell. Credit Agricole was down 2.9 percent, Barclays fell 3.8 percent, Royal Bank of Scotland slipped 4.4 percent and HSBC was down 3.7 percent.

Miners retreated with a decline in key base metals prices. Kazakhmys, BHP Billiton, Anglo American, Vedanta Resources, Xstrata, Antofagasta and Rio Tinto fell between 3 and 11
percent.

Energy stocks were also under pressure as crude prices declined. BP, Royal Dutch Shell, gas producer BG Group and Tullow Oil shed between 1.9 and 3.3 percent.

Peugeot-Citroen fell 3.2 percent after Christian Streiff, the head of Europe’s second-biggest volume carmaker, told a radio channel he expected group sales to fall 20 percent in 2009 and saw further pain in 2010 in what was proving a "catastrophic" phase for the global car industry.

Oil Rises to $40, Eyes US Economic Stimulus

Oil climbed towards $40 a barrel on Tuesday, partly reversing overnight losses, as some investors took positions ahead of the approval of a $800 billion-plus stimulus package by the U.S. government as early as Tuesday.

U.S. light crude for March delivery [ 40.57 1.01  (+2.55%)] was higher.The contract settled down to $39.56 a barrel on Monday.
London Brent crude [ 48.29    0.67  (+1.41%)] was also up, maintaining a rare premium against U.S. prices.

OPEC Secretary-General Abdulla al-Badri reiterated the group’s willingness to cut oil production further to steady prices at the group’s next supply policy meeting on March 15 in Vienna, but Algerian energy minister Chakib Khelil said the cartel would be under less pressure to cut output if oil stabilised near the $40 a barrel level. Al-Badri said the 12-member group appeared to be implementing production cuts more thoroughly than expected by some, with 80 percent compliance.

A Reuters poll showed that U.S. crude inventories rose for the seventh consecutive time last week, because of a drop in refinery utilisation and higher imports.

Dollar Gains Broadly, Eyes on US Bank Plan

The dollar gained broadly on Tuesday as investors sought the perceived safety of the US currency before the US government announces the outline of a widely anticipated plan to shore up its ailing banking sector.

The euro tumbled on conflicting reports that Russian banks were seeking government help to restructure its foreign corporate debt. Earlier, the euro slipped more than one percent on the day against the dollar and yen after Japan’s Nikkei business daily quoted Anatoly Aksakov, president of the Russian Association of Regional Banks, as saying the industry group had submitted a proposal to the Russian government to postpone loan repayments of up to $400 billion in corporate debt owned to foreign banks. But Russia was quick to play down the report.

The dollar rose against a basket of major currencies. The dollar index was up 0.5 percent at 85.356.
The US unit was also higher against the Australian and New Zealand dollars, up 2.1 percent and 1.2 percent, respectively.

The dollar [ 91.23    -0.21  (-0.23%)   ] was little changed against the yen.
The euro [ 1.297    -0.0032  (-0.25%)    ] was down, after falling to $1.2811, according to Reuters data.
Against the yen, the euro [  118.36    -0.56  (-0.47%)    ] was also down.

The main focus, however, will be the U.S. financial stabilization and economic stimulus packages aimed at tackling the recession in the world’s biggest economy. Three sources told Reuters the bank rescue package included a public-private partnership that could buy up to $500 billion worth of distressed assets, with private investors able to buy bad assets through low-cost funding from the Fed or using Federal Deposit Insurance Corp guarantees.

Gold steady before U.S. economic stimulus plan

Gold was little changed in Europe on Tuesday as traders took to the sidelines ahead of a major economic stimulus plan due to be announced in the United States. Prices steadied after slipping more than $15 an ounce on Monday, as safe haven buying of the precious metal by risk-averse investors stopped the fall

Gold was quoted at $895.50/897.50 an ounce at 1008 GMT, against $895.00 an ounce late in New York on Monday.

Analysts say the passing of the stimulus plan could result in an increased supply of debt via U.S. government bonds, which could cap gold prices.  However, the stimulus plan could also raise fears over inflation, which would be positive for bullion, and in the short term could have a positive effect on the metal if it boosts commodities as an asset class.

A stronger dollar against the euro typically weighs on gold, which is often bought as a hedge against weakness in the U.S. currency. However, the two assets have recently shrugged off their usual negative correlation.

Investment demand for gold is supporting the precious metal. The world’s largest exchange-traded fund, the SPDR Gold Trust GLD, said its holdings rose to a record 881.87 tonnes on February 9. Rising ETF investment has taken up some of the slack caused by weaker jewellery demand in recent weeks. Indian buyers are waiting for a fall in prices before making purchases, dealers said. "Local demand is still poor," said Ranjeeth Rathoid, director at Chennai-based MNC Bullion. India is the world’s leading gold market.

Among other precious metals, platinum broke back above $1,000 an ounce to trade at $1,011/1,019 an ounce, against $988 late in New York on Monday. Meanwhile slow demand from automakers hit premiums for platinum in Asia as dealers struggled to sell inventories, while Chinese jewellery demand fizzled out after the Lunar New Year, industry sources said on Tuesday.

Among other precious metals, palladium edged up to $206/211 an ounce from $205, while silver was at $12.83/12.91 an ounce against $12.83.

Good morning Ramana. The post about Russian banks seeking help with corporate debt was interesting. the RSX ETF was up a lot yesterday. Interesting to see how that reacts today.

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