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Thursday, March 30, 2023


Thrill-Ride Thursday

That was a short rally!

I have long said that there are 3 things that can take the markets down 20% EACH (from our 8,650 Dow target mid-point, already looking far away).  They are:  A major bank failure, a medium country failure (bigger than Iceland) or a major auto failure.  Well today we're getting negative outlook warnings from Moodys on 3 major banks (JPM, WFC and BAC) and GM's auditor "expressed substantial doubt about the auto maker's ability to continue as a going concern."  On top of that, Russia has been forced to substantially raise the rates they pay on bonds to 9.98% in order to stabilize the Ruble, which has fallen 30% in the past 6 months despite Russia spending 1/3 of their currency reserves trying to support it at various levels.

When we say S&P 500 will we be talking about the 500 companies in the index or the index's value? 

Things are indeed getting scary out there.  Russia is paying people 10% to lend them money, the Ukraine is paying 28.7% on 2015 bonds (any takers?).  With all these struggling economies willing to pay ANYTHING for a loan – how long will the US be able to keep borrowing cash for 30 years at 3%?  Even Warren Buffett is feeling the pain as Berkshire Hathaways credit default swaps (instruments that protect lenders against Berkshire defaulting on a loan) jumped to 535 yesterday – that is near JUNK levels.  This CDS level is generally consistent with Ba2 credit, 11 grades lower than Berkshire's pristine Aaa rating.  So if a triple-A rated company is trading like junk, what chance do the rest have?

GE's CFO is also feeling the pain: "We have an incredibly strong liquidity position," Keith Sherin told CNBC.  "We've got $45 billion of cash; we have no triggers that we could see that would have any call on our cash in the short term."  He said the capital unit will post a profit in the first quarter, and the larger company's position is even stronger.  "We can basically fund ourselves all the way through 2010.  You look through a three-year period here, we're going to basically deal with $35 billion of losses and impairments, while being profitable in GE Capital."

Yawn right?  Another financial CFO saying his company is in good shape while the share prices are relentlessy driven into the ground.  Well GE was one of the few stocks we added yesterday as we took a hedged entry at 10:30 when I said to members:  "GE at $6.15, selling Apr $5 puts and calls for $3 is $3.15/4.08 if you are very brave."  Today Deutsche Bank backed me up saying "the market was factoring the unit of General Electric at a negative valuation of as much as $60 Billion."  The firm is inclined to be much more positive, it said, since GE's industrial businesses are "clearly worth" more than the current share price."  There are plenty of stocks that are priced irrationally low in this market but GE certainly tops the list

Unfortunately, the market is dominated by technical selling programs and they don't read annual reports, look at balance sheets or sit down with CFOs.  Yesterday we failed to hold the technical gains of 2.5% I said we must have in Wednesday's morning post and it looks like this morning we'll be heading back to test our lows.  We went into the close slightly bearish but mainly hoping the rally would follow through but with so many of our worst-case scenarios clearly in play this morning, there's not too much surprise that we are looking at a substantially lower open (8am).  “People are doing crazy things in this market right now, but if you just stop and ask about the logic of it, it doesn’t make any sense.” said Guy Spier of Aquamarine Funds

As expected, Wen Jiabao promised to bolster China's economy and reaffirmed an economic growth forecast of 8% this year but he stopped short of promising a new stimulus package that had been widely rumored in China and that hit the Asian markets hard. "We must significantly increase investment and government expenditures to stimulate economic growth, improve people's lives and deepen reform," Mr. Wen said.  The Hang Seng did hold onto most of yesterday's gains, giving back one point but holding onto 12,200.  The Shanghai Composite added a point to close at 253, up 47% from their November lows and running into a very critical test of the declining 200 dma (speaking of technicals).  The Nikkei gained 2% DESPITE a 17.3% decline in Q4 capital spending and a 64.6 decline in pre-tax profits among 25,000 firms surveyed.  India cut their rates half a point but the Bombay Sensex still fell 3% this morning.

Europe is also adding monetary fuel to the fire with the ECB cutting half a point to 1.5% while the BOE cut rates in half, leaving just 0.5% on the table.  The BOE also launched a $105Bn program aimed at pumping money into the economy.  The bank can spend the cash on a wide range of securities, but policy makers' statement Thursday suggested they will focus the bulk of their firepower on government debt in the program's first three months. Ideally, much of the money will make its way into the banking system, increasing banks' ability to make new loans.  "I don't think it's going to change things overnight, but together with all the other measures it could ultimately help turn things around," said Howard Archer, chief U.K. economist at consultancy Global Insight in London. 

European markets are testing the 2.5% rule to the downside today, giving up 1/2 of yesterday's gains and we'll keep an eye on yesterday's goals of DAX 3,800, FTSE 3,600 and CAC 2,650, all of which are blown as of 9am.  If the EU markets can't retake those levels, then it's doubtful anything Asia can do will save us from breaking through our lows over here!

There is some good news though:  Jobless claims actually fell last week to "just" 639,000, below the 650,000 losses expected but productivity fell 0.4%, far worse than the up 0.8% expected and unit labor costs climbed 5.7% – both indicators showing that corporate cost cutting has already passed the easy stage where less jobs save money and moved into the trade-off zone, where companies are forced to decide what permanent production cuts will be made as they try to trim losses.  Too much of this and there will be no back to bounce to…

Non-farm business output plunged 8.7% during the fourth quarter, the Labor Department said Thursday, the steepest decline since 1980. Hours worked fell almost as fast, by 8.3%, the biggest drop since 1975.  Hourly compensation increased 5.3% last quarter. Real compensation, adjusted for inflation, jumped a record 15.9%, a sign that falling energy prices increased disposable incomes at the end of 2008.

So all we can do this morning is strap in and hold on for the ride, we'll see if the bottom of this loop in our roller coaster holds or if we are going to drop to new levels of pain.  Yesterday I was not in a buying mood as we were very concerned that it was just a weak bounce.  If we hold our levels today, I'll be a little more inclined to do a little bottom fishing and turn a little bullish at the finish.  We are still speculating on the SKF puts but we are also still worried about a run up to $250 on that index – where we will short the hell out of it! 

For now, my favorite SPECULATIVE recovery plays are still FAS – the dreaded triple-long financials at $3.50 as well as SKF puts like the $160 puts for $6 or less, but you have to be prepared for them to drop to $2 or less and then spend $5 more to roll them up to higher puts (maybe the $200 puts) and even then, with just over 2 weeks left, there is a possiblility of a wipe-out so not for the feint of heart by any means.   Meanwhile, I'm very, very glad we agressively rolled up our DIA hedges yesterday! 

Retail sales, notably Wal-Mart's were better than expected with WMT posting a 5.1% increase in sales.  "We believe falling gas prices significantly boosted household disposable income in February and therefore allowed for both more trips and more spending towards discretionary categories," said Vice-Chairman Eduardo Castro-Wright said.  As usual, the WSJ has an excellent chart to keep track of retail sales.



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Seems to me that if we stand conventional CNBC logic on its head…. Look at the negatives as a positive… forcing a bottom TODAY! Buyers with money can pick up “names” on abnormal lows… IE: GE

Oh great, GS came out with a call that the global recession is worsening

That sound bite has been playing all day on Bloomberg radio

SKF stil at 240s yet the 120 put up to 1.90 and 150 put holding 4.80.  Weird.  Not complaining though
Still waiting on the big BM from this play

Phil, what about POT: buy @70 and sell the ultra cautious  60 puts and the 65 calls and you’re in at 61?

 SKF should close around 233 today

Doc, why?  I"m thinking it will close near its high.  I’ve seen it happen many times.

that’s the second resistance level measure from closing price yesterday

 But then again, if the mkt implodes, support and resistance levels are meaningless…lol

Phil/Names – While your looking at the BUY LIST – most of the buy/writes must have been put to you by now. Whats the next phase of your strategy ? More BUY/Writes to cover the extra shares and look for another 20% ?

phil is this capitulation ?

WOW…and I don’t mean Opie and Anthony WOW either….

Cap,  Where’s Cap….
DOW 6500… its almost here.  Never thought I would say that.  Told ya…  People we laughing at the ideal a month ago…

Lookin at lots a red 5m candles on SPX, DJI, ES, YM … even the Q’s. what just happened 15 m ago.  watching an options video in silence.

Phil – I have screwed up something with subscription cancellation, so please put up with me for another month.
Please parse your remark : “…HOV is now officially fun to own at .63 with a stop at .58.  Plan on losing 6 cents and risk $1,000 leads to 20K shares for $12,600  with a max loss of $1,000.  You can take the first dime off the table by selling half and let the rest ride for a no-lose trade (same stop). “ Thanks

Somewhere between 0 and 679 there’s got to be a floor…
Hm… I’m almost ready to take 10 years of zombie banks than 1 year more of selling off. 


Does anyone know what the  catch is to selling  Jan 11 puts with strikes 3 for $2.05?

This is fun, bought SKF 130P when SKF was 190, just sold for a profit. Woo Hoo

What’s your feeling on AMGN?

So if the script plays out from your 2:55p comment the markets got another ass whoopin coming tomorrow!?!?

Dia Puts
I have not been daytrading these but have a fully hedged position.  There are 5 extra longs which were supposed to pay off if movement went down
My shorts are
-10 Mar70P basis 3.10 now 5.00 planned to roll to April 67
-15 Mar69P basis 2.35 now 4.30 planned to roll to April 66
-20 Mar68P basis 2.62 now 3.65 planned to roll to April 65
The plan was to roll down 3 strikes to Aprils even but that was blown away today. 
Longs are
8 Jun71P basis 6.48 now 8.5
25 May71P basis 5.55 now 7.60
17 May70P basis 6.55 now 7.10
Suggestions?  Thanks

Phil, was volume good enough for a turnaround?  What is the right comparison?

Phil, 60% off from S&P high of 1576 is 630. We spent some time in that area back in 1996.  Just a thoght.  Looking forward to the chart review!

 “Has anyone contemplated the massive burden this will place on the world with a whole generation of retirement wealth wiped out?  There are about 80M Americans between 45 and 65 who have pretty much nothing for retirement now.  That will be a fun thing to deal with.  Of course there’s another 20M people over 65 who got their retirement cut in half and they don’t have time to wait for a recovery.”
Yes, I have considered it for about 5 years… Collectively, The Baby Boomer generation is by far the worst generation of humans to grace this planet. With all of the “advances” they have made since the Greatest Generation (their parents WWII), they never learned accountability or how to save. (Collectively) These highly educated idiots with degrees and MBAs have as much sense as a turd. My father once said, “Son, a turd is a turd… You can’t polish a turd”. I will admit that these highly educated idiots make great robots around the office. 4 years of high-school, training them for college. 4 years of college, training them for a  “career” or more education/training, etc…. By the time these “Boomers” have spent 8-20 years getting good grades, protesting wars, scoring ass and good grass… they became highly functional slaves with degrees.   Therefore, when they took their first steps in to the REAL world, they thought they knew everything…  To bad all of that education does not equate to common sense and wisdom.  Since, they cannot make a REAL connection with the rest of the world and reality, they pump themselves and their children full of drugs and other substances (illegal/legal).
If you need evidence of my assertion above… Look at who is running our country and economy. The “smartest” idiots in the world!   They can pontificate about Marx and tell you how to run your life, but they can’t balance their checkbook or STOP SPENDING WHEN THEY HAVE NO MONEY LEFT.
Sorry, I call them like I see them. I have every right to offend them b/c myself and my children will be taking care of these lunatics who’s life expectancy will be the longest in history. Let me also state that the “Boomer’s” life expectancy is longer than their children b/c of the garbage they feed their offspring AND the sedentary lifestyle they pursue… BTW, 30 minutes in on a treadmill once a week is NOT exercise, you bums!  You have set the worst example possible for your children and you should be ashamed of yourselves!!!!
Boomers… you are welcome in advance for the help my generation will provide 🙂  I guess we have no choice but to clean up your freakin’ mess… 
Ps. If anyone has a problem with the statement above? Please meet me behind the gym at 3pm….

DIA Puts
Thanks Phil –
I added 8 more long May70P in case we keep going down.
Yes, it is a lot of positions to keep track of.

Holy Balls Phil!  Your 4:55 post has me head spinning.  To my great disadvantage I’m a 2-5 position player
and must admit I am weak on the rolling & covering concepts you and your subscribers so aptly discuss in these
posts.  But I’m learning a lot (at minimum losses) from you and co-subscribers on these concepts.  Thanks to all!

Phil, very confused with your 4:55 comment.
I have 20 DIA June 74 Puts at 8.7 covered by March 72s at 6.
Also, have 20 uncovered May 69 Puts at 6.2
Any recommendations?
I gather that I can roll the May 69s higher to the 71 by paying about $1.
Any changes to be done on the others? What should be the plan for the 74s and the 72s?

I picked a helluva time to have to go out of down.  FUGLY !
Anton, NO QUESTION, CDS has been used to facillitate bear raids on common shares.
I am AMAZED that the gov’t hasn’t clamped down on that.

Get rid of CDS; get rid of Ultra ETFs; reinstate uptick rule; crack down on naked shorting.
Then, this would not have happened as it did.

SKF, apparently the biggest components included JPM and WFC  (both crushed today).
Thank you Moody’s for that….

Guys did you hear Obama’s quotes the other day about the markets ….. how "bobbing" up and down, he doesn’t pay attention to; its just like polls to him (he never noted that there is no bobbing, only collapsing.
And the one about P/E’s ….. the "profit to earnings ratio"….   Geez. if BUSH had said that …..
Oh, never mind; I need a drink.

 Texas:  Come on now, some math wizard boomer invented CDO’s and CDS’s.  Kind of like inventing the nuclear bomb for banks and investment firms…

Phil:  Would you please explain the 5% rule that you often refer to?

Get ready for SKF to come crashing down when MTM is suspended on march 12 (let’s hope!). In any case, as we get closer to the 12th, the possibility of MTM suspension should put some downward pressure on SKF and a rally in the financials. Things are getting so bad now, I’m positive they’ll do this! Just in time to save me before opex 🙂
House Financial Services Committee http://financialservices.house.gov/schedule.html

Most of the underlying stocks we bought using the buy-writes in Jan/Feb seem to be down 50%! Ridiculous. BAC, TXT, FAS, UYG, CAT. DRYS. The put/call premium received can only protect so much.

Good Morning Phil & all

Asia Markets :    Friday, March 06, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                 7173.10    -260.39    -3.50%
Hang Seng*                     11921.52    -289.72    -2.37%
China: DJ Shanghai*          251.45        -2.09    -0.82%
Seoul Composite*            1055.03        -3.15    -0.30%
Bombay Sensex*              8325.82     133.51    1.63%
Baltic Dry Index                  2167.00       83.00    3.69%

*at Close

Asian Markets Slide on Wall Street Tumble

General Motors’ warning that it faces possible bankruptcy and concerns about the banking system’s fate pulled down Asian markets. But the region’s fallout was less pronounced, compared to the impact on U.S. stocks, which dropped to 12-year-lows with the DJIA losing 4 percent on Thursday.

Japan’s Nikkei as problems in the U.S. triggered broad selling. Exporters such as Honda Motor and banks stocks slid. Japan’s Financial Services Agency planned to extend curbs on short-selling of stocks beyond the end of this month, two sources familiar with the matter said. But the move— a continuation of measures put in place last year— had no immediate impact on the stock market, analysts said.

Australia’s benchmark S&P/ASX 200 ended 1.4 percent lower as persistent worries about the global financial sector dragged on bank stocks.

In Seoul, South Korea’s Kospi index closed 0.3 percent lower after sliding as much as 2 percent in early trade. Bank and shipping stocks led the way down, but a stronger won and gains in tech issues helped the index to trim losses.

Hong Kong’s Hang Seng Index lost 2.4 percent but held above the psychological 12,000 support level.

China’s key Shanghai Composite Index declined 1.3 percent after a two-day surge powered by hopes for an early economic recovery gave way to profit taking.

Singapore’s STI shed 0.4 percent while Malaysia’s KLCI fell 1.3 percent.

Indian shares bounced more than 1 percent on Friday afternoon as investors picked bargains in the battered market that fell 1.8 percent early, a day after dropping to their lowest close in more than years. By 2:37 p.m. (0907 GMT), the 30-share BSE index was up 1.3 percent at 8,305.49 points.

Euro Shares Tick Down Ahead of US Jobs

European shares edged lower early on Friday in a choppy session ahead of key U.S. unemployment data, with commodities leading the risers.

The pan-European FTSEurofirst 300 index of top shares was down 0.6 percent at 666.81 points, having been down as much as 668 points earlier in the session. The index is down around 19 percent this year.

Energy stocks were in demand. China’s central bank chief, Zhou Xiaochuan, said that he sees signs of the economy recovering and officials would err on the side of acting sooner rather than later to revive growth in the world’s third largest economy. BP, Royal Dutch Shell and Total rose 0.2-0.9 percent.

Mining stocks were on the up as copper gained 2.3 percent and gold rose to $940 per ounce. Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources and Rio Tinto were up 0.5-2.3 percent.

Automobiles were higher. French carmaker PSA Peugeot-Citroen gained 0.5 percent as Chief Executive Christian Streiff told a German newspaper the group is negotiating with Germany’s BMW over an expansion of their existing cooperation. BMW was down 0.7 percent.

The banking sector fell back from earlier gains. UniCredit, BNP Paribas, Societe Generale and Banco Santander were down 1.7-6.7 percent. UK banks Barclays and Lloyds Banking Group, however, were up 1.8 percent and 3.9 percent, respectively. Life insurers were also in the doldrums, with Aviva, Legal & General, Prudential and Swiss Life all down between 1.2 and 8.1 percent.

Among drugmakers, who were also weaker, AstraZeneca, Novo Nordisk and Sanofi-Aventis were down between 1.5 and 4 percent.

Across Europe, the FTSE 100 index was down 0.2 percent, Germany’s DAX was 0.5 percent lower and France’s CAC 40 was down 0.8 percent.

Oil Rises Above $44 Before US Jobs Data

Oil rose above $44 a barrel on Friday, after sinking 4 percent in the previous session, gaining support from a weaker dollar and a meeting of OPEC later this month.The market was also supported by China’s optimism that its domestic economy was recovering and official promises of more swift stimulus action when required.

China is the world’s second-largest oil consumer.

U.S. crude [ 44.62    1.01  (+2.32%)] was up after rising as high as $44.61, while London Brent crude [ 44.0    0.36  (+0.82%)] advanced.

Oil has traded in a band from around $33 to $50 since mid-December, pressured by slumping demand due to the economic downturn.
Expectations OPEC might cut production again when it meets on March 15 have added support. Angola, which holds the presidency of the 12-member group, will not advocate further production cuts when the group meets, sources said, but Venezuela, Algeria and Libya have raised the possibility of a further cut.

Dollar Index Tumbles 1% Ahead of US Jobs Data

The dollar dropped more than one percent against a basket of currencies on Friday, reversing recent sharp gains as investors braced for data that is expected to show the U.S. jobs market took a severe knock in February.Economists expect the U.S. economy lost a massive 648,000 jobs in February, with the unemployment rate seen rising to a 25-year high, but traders said talk that the figure could be as many as 1 million has hit the dollar hard.

"The rumor of a very bad number for U.S. payrolls data in a normal world would be good for the dollar, but the knee-jerk reaction this time round has been to sell it," State Street currency strategist Lee Ferridge said. He added that investors were squaring up positions ahead of the data after recent sharp gains that took the dollar index to a three-year high earlier this week.

The Swiss franc was a major gainer, with the euro tumbling to a four-month low against the currency, with analysts saying the Swiss unit has briefly resumed its safe-haven status amid intensifying concerns about a severe global economic downturn.

The dollar index fell 1.1 percent to 88.139 as the euro [1.2673    0.0135  (+1.08%)   ] gained 1 percent against the U.S. currency.
The dollar [ 1.1544    -0.0183  (-1.56%)    ] fell against the Swiss franc,
as did the euro [ 1.4633    -0.0053  (-0.36%)    ] , having earlier dropped as low as 1.4580 francs.
The yen also gained against the dollar [ 96.79    -1.27  (-1.3%)   ] and the euro [ 122.7    -0.25  (-0.2%)   ] .

European Central Bank and the Bank of England cut interest rates to record lows on Thursday, with the UK’s central bank resorting to unconventional measures to boost the supply of money in the economy. In an accompanying press conference, ECB president Jean-Claude Trichet signaled further rate cuts and painted a bleak picture on the economy, with staff forecasting the euro zone may contract by more than 3 percent this year.

Analysts were unconvinced, however, that the latest move down in the dollar was an indication that the currency could be starting to lose its safe haven status.

Gold up on flight to safety; U.S. jobs data eyed

Gold rose in Europe on Friday, building on the previous session’s near 3 percent gains, as Wall Street’s slide to 12-year lows curbed appetite for equities and the dollar tumbled ahead of U.S. jobs data later this session. Investors spooked by volatility in other assets such as currencies and equities are buying the metal as a safe store of value, analysts said.

Gold climbed to $938.80/939.80 an ounce at 5:14 a.m. EST from $932.00 late in New York on Thursday. Earlier it touched a high of $941.90.

But analysts remain skeptical about gold’s ability to extend its gains. Commerzbank’s Weinberg said gold’s weak underlying fundamentals, with jewelry demand falling sharply and scrap supply picking up, pointed to a much lower price. Demand for gold in India, the world’s largest market for the precious metal, remained slack as prices rose for a second day on Friday, while selling of scrap stepped up as gold holders cashed in after the recent price gains. "There are no hopes of traders buying," said Haresh Acharya, head of the bullion desk at Parker Agrochem Exports in Ahmedabad. "Sellers are coming in in huge numbers."

Buying of gold-backed exchange traded funds was also stagnant, with holdings of New York’s SPDR Gold Trust, static for a fifth consecutive session.

Among other precious metals, silver tracked gold higher to $13.42/13.49 an ounce from $13.22. Earlier it touched a one-week high of $13.49. Holdings of the world’s largest silver ETF, the iShares Silver Trust, declined by 82.8 metric tons on Thursday, and are down 282.1 metric tons or 3 percent from the record level they held last Thursday.

Platinum firmed to $1,070/1,080 an ounce from $1,058.50. Palladium rose to $200/205 an ounce from $196, having earlier reached a 10-day high of $201.

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