What a save yesterday!
There we were, with just 30 minutes left to trade, down 2.5% on the S&P and all the other indexes when PRESTO, a buy program kicked in with a mania to cut half the day's losses. Even more amazingly, in pre-market trading this morning they cut the other half out as the S&P was taken right back to 940 as "THEY" just can't wait to BUYBUYBUY (as long as there are no sellers around and the volume is low). And so, here we are again, two weeks later – pretty much right where we were on "Double Top Tuesday," the 19th, when I said: "We’ll be watching the May highs (if we can get there at all), to see if we’re just making a double top for the month at Dow 8,657 (8th), Nas 1,773 (7th), S&P 930 (8th), NYSE 6,003 (8th) and Russell 512 (8th)."
While those were, indeed the highs for May and we did VERY well on the pullback but we did not flip bullish as we were waiting for a lower test than 8,200 so we went to cash, where we still wait. On June 1st, however, the market rocketed 2.5% higher on the Dow and now we sit at Dow 8,675, Nas 1,826, S&P 932, NYSE 6,034 and Russell 523. It's progress but not a lot. Under ordinary circumstances, I should be thrilled – I had predicted a return to Dow 8,650 at the end of May and after earnings WHILE WE WERE CRASHING IN MARCH. What I am not thrilled about is the way we got here. We have gone from 6,500 to 8,650, just about 50% up, without a significant pullback. Imagine building a 5 story building (10% per story) and adding another floor each time without testing to see if the previous floor can hold. Would you insure it? Would you move into the top floor? That's where we are as we look to move back over our 40% (off the 2007 highs) lines: Dow 8,413, Nasdaq 1,717, S&P 946, NYSE 6,232, Russell 514, SOX 329 and Transports 1,868. Obviously, we've crushed the Dow and Nasdaq numbers already but that's just 2 of 7 so we are no better off at all than we were 2 weeks ago when we last tested this set.
Unfortunately, the Dow and Nasdaq are the indexes we trust the least. Both can be manipulated by the movement of just a few stocks and anyone looking at AMZN (2.3% of the index) over the past few weeks, AAPL (11.8%), CSCO (3.2%), MSFT (5.1%), GOOG (4.6%) or QCOM (7%) may wonder if the average American comes home from losing his job and says "Hey honey, I lost my job – let's go online at Amazon and buy IPhones which we can run wirelessly off our home router so I can access those mighty fine Microsoft products while I use Google to search for a new job." Those 6 companies are each up 10% or more in the past 2 weeks and those 6 companies alone make up 34% of the Nasdaq 100 so why is the index up ONLY up 3% since May 19th, when it was our clear breakout leader?
I'll tell you why – BECAUSE THIS IS TOTAL BS! Keep in mind I am not one of the "perma-bears" who Jim Cramer whines are picking on him. I like to think I am a realist and I will call the market as I see it, even if what I see does change from time to time. What I see over the past two weeks is consitstent and blatant market manipulation led by the commodity pushers and the parade of fools on CNBC, who's CEO made his own "green shoots" speech back on May 28th in Tokyo and hasn't approved any negative commentary on his TV networks since.
GE/NBC/CNBC/MSNBC LOVES high oil prices. They love to finance oil projects, they love to sell wind turbines, they love to finance solar projects, they love to consult nations on their energy infrastructure and all of those things take on a sense of urgency with oil over $60 a barrel that they don't otherwise so it's no surprise that Jeff Immelt uses an oil can (and the power of his networks) to fertilize his little green shoots. Still, as powerful as GE is, they can't manipulate the markets all by themselves but don't worry – they have plenty of help. We talked about Goldman and other IBanks (or former IBanks) manipulating the commodity markets on Friday and we discussed JPM's blatant attempt to jack up the price of heating oil in yesterday's post and there are so many others you may start thinking I'm a conspiracy theorist if I keep going…
Commodities have led this rally with a 14% gain in DBC and a 12% gain in DBA pulling up the OIH and XLE around 10% for the month of May. Since the commodity pushers make up about 20% of the S&P, that's 2% of the S&P's 1.5% gains for the month right there! Add the 10% jump in the Nasdaq led by just 6 stocks and the rest of the market must REALLY SUCK for the S&P not to be up 5% at least. Don't worry though, there's more than one way to boost a market. In addition to buying long futures contracts which they never intend to take delivery of and renting tankers to store commodities off-short to create demand on one end without creating supply on the other (clever isn't it), our TARP recipients are also our "respected" financial institutions and those that don't control the media directly can still get plenty of press by UPGRADING the things they are blatantly manipulating. Today, despite yesterday's disappointing inventory report that showed US demand down 7% from last year and the worst manufacturing report in EU history – our friends at Goldman Sachs RAISED their forecast on oil for 2009 by 30%, from $65 to $85 for 2009.
Look, it's your money they're stealing – if you can't get motivated to write your Congressman and demand and investigation, they will just keep doing this until they make their next massive mistake and crash the markets and then GS and their pals will go back to the government and ask for more of your tax dollars to bail them out AGAIN. These crooks are using your tax money already to drive the price of oil back up to insane levels – effectively reaching into your wallet and doubling the cost of your energy and now they are saying they won't be satisfied until it is TRIPLED for the year (see yesterday's post for the math on that economic catastrophe). The same thing is happening in Europe as the Stoxx 600's rally has now pushed average valuations to 23.5 times – the highest level since 2004! This is insane but the beautiful sheeple just follow wherever the media and their analyst pals lead them, despite the fact that 10% of their neighbors are jobless and 3% are homeless.
Again, I am not a "perma-bear," I am simply looking at the fundamentals in the face of a 100% commodity rally and a 30% market rally that is led by those commodities and it looks more to me like the very thin green shoots we see are going to be trampled (valuation wise) by a market that is far too eager to take the field and stomp the life out of all that brand new grass before it has time to take root. There's a reason they make "keep off the grass" signs – it is not healthy for the grass (our green shoot economy) to be overused before it has a chance to take root. Valuing the EU market at 23.5 times earnings and then having our market go up because the EU market is going up is just stupid – the same kind of stupid that has our TARP team upgrading commodity pushers, runaway Nasdaq players and themselves despite some pretty poor fundamentals in the economy.
8:30 Update: Today's data shows initial Jobless claims for the last week in May were 621,000, about in-line with expectations and no different from last month so still a rate of over 3M job losses a year. Q1 Productivity came in a little better than expected at 1.6% but Unit Labor Costs, as we expected also came in higher, up 3%. Oil shot up to $68 on the releas of this data (where we are shorting the futures again) despite Retail Sales reports coming in 5-10% lower in many stores including COST (-7%, 50% worse than expected), TGT (-6%, 10% worse than expected), ANF (-28%, 20% worse than expected) and PLCE (-9%, 1,000% worse than expected). The sector is very likely "saved" by the fact that WMT is no longer providing montly data so analysts can pretend shoppers went there even though COST usually does as well as WMT when people run for bargains.
As Germany's PM Merkel said yesterday, people are being forced to chose food (and other necessities) or fuel and families simply can't cut back on fuel fast enough (you must heat homes, you need to drive to work) to offset the rising costs so they are forced to simply consume less of everything else (deflation). Here's your recovery America – thank you Goldman, thank you JP Morgan, thanks CitiGroup, Morgan Stanley and BankAmerica… We're so glad we helped you in your time of need when the last commodity bubble you made crashed at your feet that we are now going to celebrate it when you create another one just 6 months later. Other than Ms. Merkel, world leaders seem to have the attention span of a 2-year old and less of a memory as they are willing to get burned by the same trick over and over again! Come on folks, do the math – wages are up 3% for the month and commodities are up 10% and retail sales are off 7% – Duh!
Consumers are at the end of a rope and there is a noose tied to that end (see Friday's lead image)! Oh well, if we do make our breakout levels we're going to BUYBUYBUY with the sheeple until the party's over – it's not that we don't know how to play that game, we've just been holding onto our cash until GS and company can prove to us that they can take out technical levels no matter how bad the actual data is and today will be an excellent opportunity to show us. Back on May 19th I issued the same challenge and we had the same pre-market run-up, all the way to 8,600 but 48 hours later we were down 400 points. MS raised ADBE this morning, C raised GOOG, someone raised AAPL and someone raised AMZN – these are NOT coincidences, they rally the Nasdaq and hammer the dollar and upgrade commodities so they can herd the sheep into everything they need to dump in case the technicals fail so excuse us for watching from the sidelines for now.
Asia was not in a buying mood this morning despite the Baltic Dry Index flying up another 4% as more and more tankers are being taken off-line to store commodities in order to simulate demand. Korea led the decliners with a 2.6% drop and Australia pulled back 1.9% as their currency got a little too strong for traders' taste. The Nikkei fell 0.75% and both the Shanghai and Hang Seng dropped about half a point despite a 350-point stick save on the Hang Seng into their close. Shippers led Asia lower as well as commodity stocks on yesterday's very mild pullback – probably what led Goldman to attempt to prop up the sector by suddenly upgrading their outlook on oil by 30% – they can't dump their positions if you don't buy them you know…
The ECB held rates steady at 1%, the BOE held rates at 0.5% and Obama's first appearance in Egypt went much better than Anwar Sadat's last one did so that's a relief and, as one of our members mentioned this morning, usually the easing of tensions in the Middle East would be an event you could trade off in the energy markets and, as I said, we're heavy short on the futures at $68 a barrel and will be heavier at $70 so bring it on boys. Oil stocks are leading what little gains there are in Europe this morning as those markets are fairly flat despite our manic moves in the US futures. In yet another example of every country in the world hoping every other country will turn around and help bail them out of the crisis, Italy initiated a $2.3Bn program to stimulate tourism in hopes that other people have money they can come over and spend because Italians are also at the end of their economic rope (and "The Good, the Bad and The Ugly" was a Spaghetti Western so our week comes full circle!).
It's going to be another day of mostly sidelined viewing. I reviewed our $106,191 Virtual Portfolio Tuesday night and there was little to do then and there is little to do now other than probably day-trade some short plays again because, even if we do hit our levels – are we really going to trust them over the weekend? Volume is still very low and we're pretty far away from taking out our May highs so it's going to be one of those days – again!
Just be careful out there, we're going to be…
BA – Cramer speaking positively about it right now.
Instead of the June 48 Buy-Write I posted about earlier today, I think I would look to just write OTM calls against the stock I hold in the excitement tomorrow AM
An email on real estate from my inbox:
PPR DAILY UPDATE – JUNE 4, 2009
A contributing factor to the ongoing reduction in office sales volume has been the widening of the bid-ask spread between buyers and sellers. Uncertainty in the market has led buyers and sellers to reevaluate the value of commercial real estate in light of drastically different market conditions from years past. And disagreements over pricing levels (along with numerous other factors!) have prevented many otherwise mutually beneficial deals from consummating.
One method of measuring the ask-bid disparity is to examine the median "ask percentage" of completed deals. Ask percentage is defined as the closing price of a transaction as a percentage of the asking price (where the asking price is known). Where buyers and sellers have a reasonable agreement on the value of an asset, one would expect the ask percentage to remain near 100%, and decrease as the amount of uncertainty in the market rises.
The graphic below charts the ask percentage of reported office trades going back to 2005. Displayed alongside this measure is the quarterly office transaction volume in the PPR54 metros. The ask percentage is demonstrating a clear downward trend, falling from 96.5% in the fourth quarter of 2006 to 87.2% so far in April and May. It has fallen the farthest in 2008-09, simultaneously with the steepest declines in trading volume.
This impasse will ease this year as softening fundamentals coupled with still-tight credit conditions trigger greater distress, forcing some leveraged investors to capitulate. The consequences will be painful, as heightened selling pressure pushes prices lower. But the resulting decline in bid-ask spreads (or increase in ask percentage) will ultimately prove therapeutic, facilitating a recovery of transaction volume and market transparency – a necessary condition for a healthy recovery.
Holy C–p & No Kidding ….
Warning … Warning…..
How come CNBC had nothing to say on this …. ?
"Is that a buy premise?"
Phil, it’s not a buy premise but this sort of thing happens again and again. It’s a premise to be heads up. That something other than straight up, business as usual may happen. A recent example is a couple weeks ago on Memorial Day and then a year ago this time on 6/5. There are other examples. Often turning points are marked by either long wekends or important reports like the jobs report and the daily setups often they look a lot like today. Today it looks a lot like we’re going up tomorrow. Gap up on the excitement and rally even higher. Stocks can’t go down because no jobs number can be that bad. NOthing can stop this market because it doesn’t care about bad news. The chart is screaming higher. It’s obvious we’re going up. Just like it was obvious we were going down after Memorial Day. I don’t think it will surprise many if we go up and finish off the week with DOW at/near 9000 but it may be a surprise if we go down and then up later.
So, running out of tankers, tanker prices spiking, inventory at record levels, 769Mb scheduled for delivery on the NYMEX through Dec when only 240Mb can actually be delivered…. That means that a person buying a barrel now will probably have to roll that barrel 5 times before selling. That is almost a 10% hit just for getting in the game. The people sitting on 150Mb of oil may have paid $45 for them but, at $1 per month, if they can’t unload them by Dec, they are going to have to book a $6 per barrel storage loss with all that cash tied up. What this game is about now is trying to stir up interest in long NYMEX contracts so the Tanker people have somewhere to dump out in the closer months.
Wow this is REALLY interesting. I am not sure the relationship to BDI though, you can’t store oil on a dry bulk carrier?
Regardless, assuming excess production remain static, it sounds like for as long as the longs can find 11 tankers a month, and the cost of those tankers is less than the price rise in oil, they come out ahead. So understanding availability and lease rates for oil tankers is key? Where on earth do you find such data? This baltic exchange in london sounds interesting?
JPM is paying $1.2million/month for a boat that can hold $136 million dollars worth of oil. Wow! That’s nothing! It’s a smaller percentage than I pay optionsXpress to trade options!
It sounds to me like a short play in oil is therefore a position on the non availability of additional storage places, but the rate would have to rise a long way from $1/month to make it too onerous for the longs to just carry on?
I notice that JPM is not storing Crude oil in their boat, but refined heating oil which presumably is worth more.
And to whoever said it before, I think you are right this should be considered financial terrorism….
"Goldman issues … a bullish report on crude today, and we’re off to the races," said Stephen Schork, editor of the Schork Report, an energy market newsletter. "You sell the dollar and you buy oil."
With trading dominated by the dollar and the oil market’s long-term prospects, reminders of the weak state of current demand haven’t gained much traction. For example, oil prices took only one day to rebound from a Department of Energy report showing a surprise increase in U.S. oil inventories, as well as weak gasoline demand over the Memorial Day holiday weekend.
"The bison are running toward the edge of the cliff," said Tim Evans, an analyst with Citi Futures Perspective. "There are no bullish fundamentals to explain this."
Phil, does the ICE exchange trade the same oil that the NYMEX does or is it oil coming from a different place or going to some place other then Cushings? If it is the same oil, then how the hell can ICE be outside the regulations imposed on the NYMEX? It just doesn’t seem possilbe!
Is this a political contribution thing? Why is it that oil trading by non-consumers, since GS lobbied to for it to be allowed, remains untouchable? Does it generate that much in tax revenues? I’d like to say that if Obama can’t do something about it then no one can… but I don’t want to give him that much credit. He’s awfully full of rhetoric to make the ‘sale’ and so far kinda light on the follow through.
More detailed read on the Shork Report – VERY bearish on oil but that was last night: "In fact, demand for petroleum products in the aggregate fell off of the proverbial cliff. The net amount of products supplied to the market fell below 18 MMbbl/d for the first time since the week following 9/11 and fell to the lowest level, 17.7 MMbbl/d, since May 1999."
About today’s rally, Shork said: "You just can’t step in front of this … this is just a market that has decoupled from reality."
A SHARP drop in prices for iron ore and coal shipments saw Australia post its biggest export slump in 12 years in April. According to the latest data from the Australian Bureau of Statistics, released yesterday, the nation’s balance of goods and services tumbled $2.39 billion to a record $91 million deficit. Australia’s first trade deficit in nine months was much worse than economists’ forecasts for a $1.4 billion surplus last month.
AAPL jammed up 3 in AH. Looking toppy.
I think my comment was silly, on reflection. The 130 million in capital is probably more important than the 1.2 million/month storage. That and how long they have to wait for demand to actually pick up enough to consume the oil being stored without depressing the price too much. If they already cannot unload until December…
I know that a certain litigous investment bank mentioned frequently here holds a 40% return on equity as a minimum benchmark for long term direct holdings.
Oil would have to keep going up at a prodigious rate from here, and demand will eventually have to pick up, to make this game worthwhile.
I think I am beginning to get it.
ICE trades West Texas Intermediate, which as far as I can tell is the exact same contract specification as NYMEX (therefore the same oil) with the exception that it is cash settled. So storage and Cushing capacity should not be an issue for ICE futures. People don’t deliver oil at expiration, they exchange cash based upon a futures "index price".
ICE Oil Futures contracts are cleared in the UK. I think this implies that the market is regulated by the UK’s Financial Services Authority. The CFTC which regulates US futures markets does recognise certain overseas markets and allows US entities to participate without direct US regulatory supervision of the market. However the broker itself is still regulated in the US. We know how effective this has been.
ICE also has an OTC market which appears to be entirely unregulated.
Also looks like $SOX has been lagging NQ to the upside and leading it to the downside the last few days. Looking back in cases where the $SOX lagged on a daily basis, the NQ eventually followed. There are many examples but one notable one is june 08 top in NQ. And again at the peak 12/26/07. And again in the March lows of this year. There are more. I can’t seem to locate one where the futures lead the SOX. The VIX is also holding a higher bottom. Maybe this time will be the exception though and we’ll just plow higher despite all of that.
steve, thanks. That’s truly remarkable. An exchange based on US oil that doesn’t actually deliver the oil and trades are ‘cleared’ overseas. I wonder how long it took GS to cook that one up…
Steve Jobs is returning to AAPL "this month" … WSJ
WSJ: Jobs may return to Apple this month
Interesting Powerpoint on housing in a very annoying format.
Great report on the mortgage crisis. I guess the central question is did the market price in the entire subprime mess already (between 900 and 650). Otherwise it sounds like we will at least retest the lows at some point. And their call for a mid 2010 stablization in housing might coincide with a early spring/late winter bottom in stocks.
BTW, are you guys sitting around watching the ah markets?
Hi, Phil & All,
Several months ago, I did some buy/writes on FAZ. I ended up owning 600 shares of FAZ at the average of about $11.50. What would be a good strategy for my position?
(1) Hold and wait?
(2) Buy more FAZ to average down?
(3) Sell calls? But at what strike?
(4) Buy 600 shares of FAS as hedge? If one goes up sufficiently, sell that one. And then wait for the other one to go up?
Wow, that’s an excellent report on housing by T2. Thanks. Lots of things jumped out at me but one in particular was that private label mortgages, those securitized by Wall St, make up only 15% of all mortgages but that 15% is responsible for 51% of all seriously delinquent mortgages. Boy were they selling crap.
Everyone MUST read this re: Chrysler terminated dealers:
The basic implication is that in Arkansas and Louisiana and other places, Chrysler dealers are being terminated so their territories can be given to competing dealers that in some cases aren’t even in those cities; dealers who are affiliated w/ former Clinton Chief of Staff (?) Mack McClarty.
Very disturbing if true ….
Nice Find Phil! Mr. Tilson is pretty sharp, his previous calls have been spot on. I know a few sharp and hard working individuals in banking and development here in Vegas and over the last year, have had their AZZEZZ handed to them with more of the same yet to come…..
Cap/Chrysler Would this be good for the Dems? 😉
Good morning everyone.
Traditional pump the open after the pump the close continues this morning. Yesterday’s dose of reality from the retail figures failing to douse this ridiculous rally that wont falter.
DB, I think being a bear has become a losing proposition. Thinking about the control GS has over the oil market… and their level of trading in the equity markets makes me think they have a similar amount of control there, too. They are the best at figuring out ways to game the system. And I think they’ve figured it out. With Bear / Stearns and Lehman gone, it gives GS even greater control of the equity market. Throw in heaps of gov’t money that can be leveraged up and you have a nearly invincible force on the Street. As in oil, I don’t think the equity market is going anywhere unless GS says so. And it clearly looks like they are saying, "higher".
Matt -eventually the fundamentals will dictate direction however much GS pump it up, if they take it too far all that money that Phil goes on about will come in from the sidelines to short the market. The longer this goes on the sharper the eventual dislocation.
That’s what I mean by "the longer I’m wrong the righter I’ll be in the end" BUT GS can remain irrational AND solvent a lot longer than we can and the numbers in Tyler’s post (on main page today) scare the crap out of me. As I said in a comment there, it’s like playing Hold-Em poker where you get 2 cards and they get 17… Sure you MIGHT win, but PROBABLY NOT!
Well, it’s all abou the jobs today. If less than 500,000 peoole lose their jobs (6M per year annual pace) we can put on our rally caps because 90% of us are still employed!
Didn’t GS say jobs would be 450,000? So I guess that’s the whisper that needs to be beaten.
So if its saaaaayyyyy 412k, then hello Dow 9000… chuckle
Its all about jobs – and maybe thats just propaganda too !
just saw 600,000 DIA trade at 88
I feel like I’m at some old folks club waiting for the next number ball to be pulled from the box so I can yell BINGO !!
"$1.40 on the Euro is out cover point for bearish positions on oil "
Can anyone help a newbie out? What’s the relationship between the Euro and Oil?
"just saw 600,000 DIA trade at 88"
Do u get block trades listed in time and sales, Cap? What do u use to watch for this?