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Tuesday, November 29, 2022

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Wednesday – Stop GM Before They Kill The Economy Again!

Another $16Bn for GM – are they freakin' kidding us?

GM is currently producing 128,000 cars a month, a pace of 1.5M cars for the year.  $16Bn on top of the $14Bn we already gave them means it is costing the Untied States $20,000 PER CAR that GM sells to keep them in business.  But wait – it's worse than that….  GM only employs 140,000 workers in the United States and their "plan" is to lay off 47,000 of them.  That means they are asking for $16Bn to keep 93,000 workers – that's $172,000 PER WORKER!  Surely the money would be better spent just giving it to the workers themselves and telling them to find jobs with real companies or, better yet, start their own companies and maybe employ some other people

So who are we really saving here?  I have no pity for anyone who put money into GM over the past few years, they've been on life support for decades so high-risk doesn't even begin to describe the lunacy of giving them money, whether it was stocks or bonds.   Just let them die and let Chrysler and Ford buy the useful parts out of bankruptcy and leave us with two relatively healthy auto companies.  Even if "only" 1/3 of the current GM employees find work with the remaining auto makers, GM was going to let go of 1/3 anyway and we can give the remaining 47,000 people the $16Bn and that's $340,000 per worker – not bad for a severance package. 

This is what I find so frustrating about this entire economic crisis.  We are certainly spending incredible amounts of money but we are spending it stupidly.  Here is one example how the Phil administration would spend money.  It costs $40,000 to fit the roof of a typical home with solar panels.  In sunny areas, you can offset 80% of the energy usage.  If we assume just 1/2 of American homes are good candidates (50M) then outfitting them all would cost a total of $2Tn.  That would reduce our oil consumption by 2Mbd (20% of our imports) and if we assume it takes a 5-man crew 2 days to do an installation we're talking about 500M days of work or jobs for 2M people for a year.  As these are primarily construction skills, it's perfect to put those industry workers back on the job right away.  On the back end, we're saving 50M families an average of $3,000 a year in energy bills or $150Bn a year and we are cutting down about 20% of the drain on the US energy grid, something we are already concerned about. 

 

So we could look at it as spending $2Tn (and the money goes right into the economy) to create 2M jobs (and they pay tax so 1/3 of the money is returned to the government anyway, not to mention less unemployment, welfare etc.) and we can either give it away or recoup 1/2 of the energy savings or $75Bn a year over the 20-year lifespan of the panels or $1.5Tn.  That would still leave $1.5Tn in the hands of the homeowners over the same period and, since the governemnt can finance spending at 3.5% over 10 years, the whole operation would cost "just" $19.77Bn a month, less the $75Bn we collect (not including taxes) means we can start tomorrow for about $13.5Bn a month.  NOW THAT'S A STIMULUS BILL!

This is not rocket science people, just spend money on things that:

  • Create Jobs
  • Have A Lasting Benefit
  • Save Money Over the Long-Haul

Take California's proposed high-speed rail system that could connect most California cities as well as Las Vegas by trains that travel 220 mph.  This program creates over 200,000 long-term jobs and will cost a total of $40Bn so $20Bn would be plenty to subsidize private investment that is already lined up.  That's a cost of $100,000 per job created and if the average worker pays $10,000 in taxes, then 50% of that money is returned to the government in 5 years.  Meanwhile, we save fuel forever as well as wear and tear on the highways as we create an entire new industry that is projected to generate $4Bn a year in revenues.  This is a project that is ready to go and could be launched with a pen-stroke.  Do this across the country and we won't have enough workers to fill the jobs!

THIS IS LESS MONEY THAN WE ARE GIVING TO GM JUST TO GET THEM THROUGH A YEAR!!!

So please don't tell me the situation is hopeless.  I've outlined several solutions to the mortgage crisis that could make it go away in days, not years – there's a lot you can do when you are willing to spend $1,000,000,000,000 and it is simply shocking to hear people say they don't think the $9.6Tn the government has already committed is going to help.  Our whole economy is only $13Tn so allow me to be the first to tell you that analysts will be "surprised" by the better-than-expected Q2 GDP report as they apparently have no ability at all to forecast the impact of ramped-up government spending against what is "just" a 5% drop in real GDP.  Still, the bears are firmly in control of the markets and the administration, rather than appoint me Commerce Secretary (a position that is still open), has provided nothing more than a poorly compromised stimulus bill and vague references to mortgage and bank bailout plans – it's just not enough to get investors back in the game

I called yesterday "Terrible Tuesday Morning" and, as expected, we plunged back to November lows.  We fell below my 7,650 line on the Dow but hit my exact 50% off target on the Russell at 428 and finished 1 point over our S&P target of 788 so a successful bottom test overall.  We picked up a few bullish plays during the dip but ended the day with a new round of naked DIA puts – hopefully we'll have a reason to cover them this morning with 795 now being the line we're going to watch on the S&P to sell or buy back the Feb $77 puts,  now $2.45, which is half premium so a good sell.  I mentioned to members in chat this morning that it's time to take the money and run on the FXP covers while $23.50 would be a good re-erntry point on the FXIs, selling March $23 puts and calls for $4.25 for a net entry of $19.25 (19.5% profit if called away) or an average entry of $21.13 (10% discount) if put to us.  We're banking on the Hang Seng holding 12,500 of course and the Shanghai should hold 240.

Speaking of the Shanghai, they fell 4.5% this morning while the Hang Seng held flat while the Nikkei fell 1.5%, overall, a muted reaction to the dive the US took in yesterday's trading.   The Baltic Dry Index quietly added another 2.5%, finishing at 1,895, up 200% from it's December lows after a brief pullback from 2,055 last week.  Our pals at DRYS got all cheap again and the stock can be picked up for $4, selling the March $2.50 puts and calls for 2.25, which is net $1.75/2.13 and if making 43% in 30 days if called away with a 46% discount if put isn't sexy to you – then hedging is just not your style!  Investors are back to trading the market as if nothing has any value and that spells opportunity for us – especially with the VIX nosing back around $50!

[On the Hook]Eastern Europe is still shaking the global financial markets pretty much exactly as I predicted on December 11th, when I said: "Speaking of Moscow burning – The Ruble is on the rocks and much closer to collapse than you may think.  If oil does persist below $50, the Russian economy may fall and that will imperil the Baltic states as well as the  breakaway nations that have joined Europe but are still in Russia's economic sphere of influence.  A breakdown in the ’stans will harm Asia as well and this was one of my "worst case" possibilities for the market along with GM failing (still on the table) and a major bank failing (not off the table) any one of which can take us to 7,000."  So here we are at 7,500 on only the fear of one of those things happening – a little overkill perhaps

Europe is down another point today (8am) as the Ruble hits a new low against the dollar, which jumped 1.8% yesterday and accounted for almost 1/2 of the markets relative losses (and made gold's rise even more impressive).   Deficit spending is also becoming a problem in the EU as France, Ireland, Spain, Greece, Latvia and Malta are already at the first step in the European Union's excessive-deficit procedure, which forces states to reduce their budget gaps. The six countries all had budget deficits above 3% of GDP in 2008. The commission, in a statement, said France's budget gap was 3.2% of GDP last year. Ireland's budget deficit was 6.3% of GDP last year and is expected to balloon to 9.5% of GDP this year. "As a result of the sharp global financial and economic crisis, EU public finances are under stress. The crisis brought about a decline in tax revenues and a rise in expenditure," European Commissioner for Economic and Monetary Affairs Joaquin Almunia said in a statement.

We have plenty of data out today with Housing Starts, Building Permits, Import/Export Prices and Industrial Production & Cap Utilization ahead of the Bell with Fed Minutes coming at 2pm so busy, busy today and nothing likely to give us a big boost.  Tomorrow we have the PPI, Jobless Claims, Leading Economic Indicators, the Philly Fed and Oil Inventories with the CPI coming on Friday.  All this data looks back to January and there is little to make us think any of it will look good.  We still need bold action by the Administration – something that will change the game.  So far we are effectively using band-aids to reattach severed limbs and that is just not going to be a winning policy.

9am Update:  Now there are rumors of a $75Bn "homeowner stability initiative" that will bring down payments around 60% and includes some principal write-downs.  That should help HOV. XLF, FAS etc and SKF is always a fun short in these situations (we sold calls short yesterday).  Let's see what kind of boost this gives us!

 

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Phil, have some HPQ leaps.  Didn’t cover last week, hoping for runup that didn’t happen.  Thinking about covering half with March 32.5’s.  That way i can sell the other half into the excitement, if earnings are good?  Have HPQ 35 ’10 Leaps.  thanks again.

Phil: looks we will end flat ???

Phil – This can wait until later, but I’m curious what you mean by Whitney’s decision to go out on her own being a "turn signal". Thanks.

I guess market doesn’t care much about stimulus, or troubled mortgage plan. I wonder if that’s the reaction the administration expected.
Seems like re-test time. I’m about 50-50 that we hold there at s&p = 740, but have no real basis for choosing a direction with any conviction.

Does anyone really think stock traders are still evaluating the plan?  I doubt it.  What we are doing is burning time before oe.  Tomorrow will be interesting.  I think we’ll open down but turn around at some point during the day.  If we don’t turn or open up, look out!
 
Dusted off my ira account today and put an order in to buy the SP500 index fund (5%) and a health sector mutual fund (4%).  I’m dippin my toes!!

Phil: at least my SRS shorts  closed with a 3.6 % gain

Wow!  Look at em keep a lid on XOM!  Check out that 5 minute volume spike with a price barely budging an inch.  ‘They’ are in control.

Wow, seems like they were really keeping the market down today.  All indices closed red when they were all green just 5 minutes till close.

Phil, how to best adjust DRYS Sep 7 1/2s covered with Mar 7 1/2s? Buy back the covers and sell Mar 5s and use the money to roll myself down to Sep 5s?

well hp #’s next. watch ibm to follow!

Phil,  I’d like your thoughts on XOM for tomorrow through Monday.  Earlier you mentioned there were alot of open contracts that needed to be dumped which would keep the price down.  Do you still feel that way?  If so, do you think it could reverse on Monday?  Or are there now alot of March contracts that will probably need dumping, too?  Thanks. 

Phil, I have some ITM Feb putters that I need to roll. Do I basically look for an even roll to March? For example, I can roll DIG Feb 27s to Mar 25s? In some cases, I may choose to do a 2x roll to an even lower strike?

WFMI  Thanks for the reminder on earnings.   I rolled my Jan 11 10s –> 7.5s for 1.00 just before the close.  Looks like a nice pop AH.

hpq going down and ibm with it

I don’t like the way thinkgs are drifting down afterhours. Look at FAS after hours trading for example.

Anything happen w/ the financials or overall market after hours ?
 
Looking at C, BAC down, SKF SRS up.

Jordan & Cap,
I also noticed that SPY is off 0.5%, DIA off 0.4%, Qs off 0.6%.  USO is up 10c, just a rounding error for them.  It was a fierce battle between the bulls and bears today.  I saw SPY whipping around like madness.  People may be worry about the economic indicators tomorrow.  I cannot draw much conclusion from the after hours action, even though the last time we had a similar drop after hours, there was a big dip in the morning.  On the other hand, when we expected a dip on a bad job number on Thursday two weeks ago, we had a rally instead.  Many people are ready to throw in the towels and the bears like Matt are starting to scale in.  So hedge both ways and trade the direction.

Matt got a Pinky box!

phil- i  hope you are joking with the pink box. i tune into this site for your advise and humour, but im not laughing now.

Thanks, Phil. Here’s a tricky one for you… I started off with naked XOM Feb 80 puts at 2.2, which would have been a GREAT investment. Instead, I’ve screwed this one up badly. I rolled myself down into a bad position with Mar 75 puts and covered with XOM Feb 80 puts. I don’t really see any profitable way out of this mess….

LMAO…matt its totally you!! Thats not red Phil.

Might be funds selling their positions, May come early this year.

I love the color, do not change it. Pleasing to the eyes,

I throw my hands up every single day and just say WTF!!! Its hopeless. I really cant put any thoughts into words. My brain is totally fried trying to interpret all that’s happening. Not the markets, but all the interference that’s going on all over the globe.
 

Thanks, Phil. Took me a bit to model it out and I see how this is better than simply rolling into a Mar 75 covered with Mar 70s (a vertical). While the vertical does make me better off if we break to 70 or below, there are a whole range of values where I am worse off.  The approach you suggest is good, though it appears I am in for 0.68 on the -3 spread, so I won’t quite get to break even, but it does give me the opportunity to attempt to recover some of the losses, or end up in the same position as if I closed out the loss now.
 
If I end up stopping out the 70s, I’ll have to close out the rest of the position at my current loss, correct? There won’t be any other adjustments left to make? 

Good Morning Phil& All

Asia Markets :    Thursday, February 19, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                    7557.65    23.21    0.31%
Hang Seng*                        13023.36      7.36    0.06%
China: DJ Shanghai*             254.12      2.88    1.15%
Seoul Composite*               1107.10     -6.09   -0.55%
Bombay Sensex*                 9042.63     27.45    0.30%
Baltic Dry Index                      1986.00    91.00    4.38%

*at Close

Asia Markets Edge Higher, Caution Lingers

Asian markets edged higher Thursday as recent selling pressure eased and the safe-haven bid for the dollar and gold retreated, but reminders of the global economic gloom and financial sector woes kept investors cautious.

Japan’s Nikkei closed 0.3 percent higher, a day after closing at its lowest point in nearly four months, as blue-chip exporters gained on the dollar’s first move above 93 yen in six weeks. The market largely brushed aside news from the Bank of Japan, which said it would extend the deadline for its buying of commercial paper to support corporate funding. It kept its key policy rate unchanged at 0.10 percent by a unanimous decision.

South Korea’s KOSPI fell, weighed down by persistent economic worries that sent exporters while some banks turned down despite government corporate restructuring plans.

Australian shares rose 1.1 percent, led by bank stocks as investors bet their limited exposure to overseas markets would shield them from the global financial meltdown.

Hong Kong shares fell 0.5 percent in fading turnover as investors were sidelined amid the bleak global econoic outlook, but China’s power producers bucked the downtrend lifted by lower coal prices.

Singapore’s Straits Times Index was down 1.2 percent as investors offloaded shares after yesterday’s bounce.

China’s Shanghai Composite Index rose as news on industry aid lifted steel and electronics shares although turnover shrank, suggesting that investors remained cautious and flows of fresh money into the market were drying up.

Bombay Stock Exchange’s Sensex ended at 9043.56 up 28.38 points or 0.31 per cent. It touched an intra-day low of 8977.66 and high of 9111.95. Indian equities ended choppy session on a higher note led by gains in IT and auto space. Capital goods, realty and banking sectors ended subdued.

Euro Shares Rise, Led by Nestle, UBS

European shares were higher on Thursday, with food producers adding most points to the index, as Nestle, the world’s biggest food group, posted 2008 results and beat sales forecasts.

The FTSEurofirst 300 index of top European shares was up 0.7 percent at 768.70 points, having fallen 0.3 percent on Wednesday. The index is down 7.6 percent so far this year. The DJ Stoxx food & beverages index was the top sectoral gainer, up 2.5 percent.

Shares in Nestle rose 4.8 percent after the company beat forecasts with underlying sales growth of 8.3 percent in 2008 and was cautiously upbeat for 2009.

Banks were also up with UBS gaining 4.7 percent after the Swiss company said it agreed to pay $780 million in a deal to resolve fraud charges that it assisted rich Americans to evade taxes.BNP Paribas, too, rose 3.1 percent. The company posted a fourth-quarter net loss that was in line with analyst expectations, and cut its dividend. Shares in Swiss Re added 0.9 percent, after it posted a 864 million Swiss francs ($736.6 million) net loss for 2008. AXA led decliners and was down 6.3 percent after the company said 2009 would be another tough year for Europe’s second-biggest insurer.

Across Europe, the FTSE 100 index, Germany’s DAX and France’s CAC 40 were up 0.8 percent to 0.9 percent.

Good Morning everyone.
 
 
Odd thing today – I got assigned on my MARCH HOV PUTs this morning. Someone couldn’t wait till March. Still no worries I’ll just keep em and sell against them.

Oil Rises Above $35 Ahead of US Inventories

Oil prices rose above $35 a barrel on Thursday ahead of United States data expected to show crude inventories in the top energy consumer hit an 11-year high amid a worsening recession .Oil stockpiles in the U.S. have risen by 20 percent since September as the downturn has crushed consumption, and helped pull crude prices more than $110 off their peaks last summer.

A day ahead of expiry, U.S. crude futures for March delivery rose 53 cents to $35.15 a barrel, while April delivery contracts
[ 38.53    1.12  (+2.99%)] rose above $38 a barrel.

London Brent [ 40.72    1.17  (+2.96%)] for April delivery rose.

Crude stockpiles in the United States likely rose last week by 3.0 million barrels to their highest since May 1998, a Reuters poll of analysts showed ahead of the U.S. Energy Information Administration (EIA) data due out later in the day.


Dollar Dips; Euro Rallies on Steinbrueck Comments

The dollar dipped on Thursday, the day after hitting a six-week high against the yen and a three-month peak versus the euro, with a rise in European share prices reflecting an easing in risk aversion. The euro’s rally was underpinned after Germany’s finance minister, Peer Steinbrueck,  repeated comments that euro zone countries would be forced to come to the aid of a fellow member state if it encountered serious financial problems.

The yen remained under pressure due to worries about the Japanese economy — which suffered its deepest contraction in more than three decades in the latest quarter — and political uncertainty as voter support for Prime Minister Taro Aso sinks.

The euro [1.2674    0.0146  (+1.17%)    ] climbed against the dollar, recovering from a three-month low of $1.2511 touched the previous day, with markets also welcoming German moves to stabilize its banking sector.

The euro [ 118.53    1.01  (+0.86%)   ] rose versus the yen, while the dollar [ 93.51    -0.25  (-0.27%)   ] fell against the Japanese currency, having hit a six week high on Wednesday at 93.96 on trading platform EBS.

Political uncertainty in Japan was adding to gloom about the economy, in contrast with the U.S. and European governments’ swift moves to combat the global recession, traders said.


Gold eases on profit-taking but gains expected

Gold eased from the seven-month high it hit earlier on Thursday as investors took profits, while traders said an uptick in interest in other assets such as equities was also diverting interest from bullion.

Gold eased to $971.10/972.70 an ounce at 1010 GMT from $984.50 late in New York on Wednesday. Earlier it touched a peak of $985.95 an ounce, its strongest level since July 15.

Buying of gold-backed exchange-traded funds in particular is very strong. Holdings of the world’s largest gold-backed ETF, the SPDR Gold Trust GLD, rose 1.5 percent to a record 1,024.09 tonnes as of Wednesday.

Among other precious metals, silver dipped in line with gold to $14.15/14.21 an ounce from $14.32. Earlier it peaked at $14.38, its strongest level since mid-August.

Platinum dipped to $1,074.50/1,079.50 an ounce from $1,097.50, while spot palladium slid to $213/217 an ounce from $217.

CHK upgraded by Bernstein (other high beta energy names also)
 
AAPL being held at 93 pre-market pre 8 am.
 
USO up pre market.
 
SKF and SRS down pre market.

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