What a fun day yesterday was.
I called it "Which Way Wednesday – For Oil" and we got huge moves in both directions as oil fell from $71 to $69 and then back to $71, all the way to $71.60 early this morning where I called on another short in the oil futures (now $70.83 so, yay!). As I said in Tuesday's post: "We'll take the $2 daily swings if they want to keep giving it to us." It's not just oil prices that give us a thrill-ride, the Dow itself continues to go up and down 100+ points at the drop of a hat and we spread that to take advantages of moves either way but, generally, we found ourselves going short again and, sadly, winning again on the short side as the market continues to be very weak.
While we WANT to see a healthy correction in the markets, there's a fine line between a healthy correction and yet another panic sell-off and we, like our government, would like to have our cake and eat it too. Can the markets make a proper test of May lows (Dow 8,200, S&P 880, Nasdaq 1,700, NYSE 5,600 and Russell 480 – roughly) without breaking down and heading to our March lows? Sure it's a slippery slope, but it's one we need to take in order to see if the rally is real. Manipulating the market every day to keep that from happening only serves to sideline $11Tn in capital of "smart money" while all the dumb money pours in to prop up this fantasy market.
Even yesterday, 1/3 of the day's volume came in the last 25 minutes of trading. Just like a basketball game, the whole thing is a pointless waste of time until the last few minutes. Is that how we want to run our markets? We've gotten into the swing of things by taking advantage of oil (play for the pump at 1:30 into the 2:35 NYMEX close) as well as the Dow (look for the stick around 2:30-3pm on any low-volume, down day) but that's just playing a scam. It's like watching a game of 3-card Monty and making side bets that the sucker can't find the red queen. Is that what the markets have been reduced to – a suckers game where a few insiders get rich and the general public gets fleeced on the principal that another sucker will be along shortly?
Carnival barker extraordinaire, Jim Cramer was busy raking in the suckers last night, this time claiming that the COMMODITY trade has become "too crowded" (after he shoved his minions in there like a Japanese subway stuffer) and now he wants to herd the sheeple into Health Care and Defensive (not Defense) Stocks. Perhaps Jim, the entire market is "too crowded" after a 40% run off the bottom without a significant pullback and throwing your fans from one overbought sector to another may not be the best thing for their virtual portfolios. As the great philosopher WHOPPER once said: "Sometimes the only winning move is not to play."
I understand where Cramer is coming from. We stopped buying in early June and have now spent a month on the sidelines AND MY RATINGS HAVE GONE DOWN. Just yesterday, a member canceled saying we're not making enough long-term picks (despite the fact that we are currently running an entire long-term, sample $100K Hedged Virtual Portfolio that is making 1% a week for 9 straight weeks). It's an interesting psychology people have – they would rather be betting, even if they are likely to lose, than waiting for an opportune moment when the odds are more in their favor. Stock pros, of course, count on this and take advantage of it and they use media stuffers like Cramer to stir up the feelings that you may be missing something if you don't get in now (just like all those Email offers you are probably smart enough to throw away).
We would love to get back in. We HATE sitting in cash but we'd LIKE to see some proper indication of a market direction before we throw our money bags onto the market train. The hedged virtual portfolio is easy to play, it's market neutral and, since we've been pushing against upside resistance for 30 days I've teneded to find it safer to take short-term bearish bets off the resistance lines but that does not make me a bear. THE LACK OF BULLISH PICKS DOES NOT MAKE YOU A BEAR – it only makes you cautious – why is cautious a bad word?
So, I apologize to all the horses who are bucking at the gate and anxious for the next leg of this race to start but I'm not going to sell out just to pander to the Cramer crowd. When we see some deals (and we may soon if the VIX heads higher), I will be happy to tell you but let's not try to force it please. We had perfect clarity in March as I hit the BUYBUYBUY button every day and in April we were happy buyers too but May seemed a bit overdone and June now obviously was, at least, a bit overdone. Patience is a virtue but, sadly, it doesn't generate web traffic!
As a fundamentalist, I like the data to support the charts and all this government interference makes it very difficult to see what's real and what's not in all those squiggly lines that they paint every day on the charts. Just yesterday, we had a proposal for the biggest overhaul of financial regulations since the Great Depression and, although economists are still arguing the fine points of those regulations 80 years later, it took just 8 minutes after Obama's speech yesterday for CNBC and their guest flacks to vilify his proposed policies. As John Maynard Keynes himself said:
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
Even as I write this, the futures market jumped half a point at 8:30 on news that "only" 608,000 people lost their jobs last week because continuing claims fell 148,000 to This is the first drop in continuing claims since Jan 3rd, caused more likely by 148,000 running out of time on their benefits rather than finding work – unless you believe that those 148,000 people were better qualified to fill the jobs of the 608,000 people who managed to hold onto their jobs up until last week. Still it's a green shoot and we all know that green shoots come from magic beans and there will soon be beanstalks and golden geese and talking harps for everyone so we're ready to BUYBUYBUY into this fairy tale – IF – they can only get past the giant-sized barrier at S&P 946 and NYSE 6,232.
Speaking of defunct economists, the World Bank raised their forecast for China's growth this year to 7.2% and that's the headline, although they also said it's entirely due to stimulus and: "it is too early to say a robust sustained recovery is on the way." In March the World Bank lowered their outlook for China from 7.5% to 6.5% and the Hang Seng is up over 50% since that call. Today they raise it back to 7.2% and the Hang Seng fell 307 points, down 1,500 in 5 days – go figure! A really big help in boosting China's GDP 7.2% is the 2% increase in the money supply in the revision. Now M2, the broad measure of money supply, is projected to be up 19% this year. 19% more money and 7.2% more growth – Yay, I guess…
The Shanghia Stock Exchange took the news better and went up 1.5% but the Nikkei gave up another 1.4% and the rest of Asia was down about the same. Japan exporters were hit very hard as the Yen went back to 95 against the dollar. Also hurting Japanese exporters was UK retail sales fell 0.6%, double the estimates of "expert economists." EU unemployment also came in higher than expected and the EU's plans to regulate their own financial markets are keeping those markets down about half a point ahead of our open.
We'll be enjoying the pre-market pump and grabbing more shorts into the open as there's really nothing in the news to justify the run-up. We will be very interested in the progress of bills moving through the house and senate to utilize the Strategic Petroleum Reserve specifically to stick it to speculators. The House bill aims to set aside 70M barrels for this purpose while the Senate Bill is looking to use the entire SPR to make life a living hell for energy speculators by flooding the market with barrels at very inopportune times. I will say right now that I will be happy to serve if called to serve in the capacity of barrel-dumper-in-Chief, it's like my dream job!
Heck we can go to the NYMEX right now and buy March and April 2012 contracts for $62 a barrel. Since 500M barrels of crude were traded on the NYMEX yesterday (and we haven't even investigated ICE yet!), it shouldn't be too much trouble to accumulate enough contracts at $62 to refill 400M barrels of the SPR at that price and then I can start dumping current barrels at a rate of 2-4Mb a week between now and April 2012, when I'll get my refill. Heck, dig me a bigger hole and I'll even take the opportunity to buy another 500Mb below $40 – I'll bet theres a few countries who would love a long-term contract like that. It's "only" $20Bn to sock away another 3 months' worth of US imports for a rainy day (1.5Bn barrels are currently in storage) and we could even pay a small country in advance to sweeten the deal.
This is going to be great!