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Thursday, March 30, 2023


TGIF – Just Stop the Madness Already!

California lost more than Michael Jackson yesterday.

They also lost their credit rating as Fitch dropped them to A-minus and even that rating was immediately placed on negative credit watch.  California faces a $24 billion-plus budget deficit for the fiscal year that begins Wednesday, rapidly declining sales tax revenues and an impotent legislature that can’t agree on solutions.  Faced with the prospect of running out of cash, State Controller John Chiang said Wednesday the state will begin to issue IOUs for all general fund payments other than those categories protected by the state constitution, federal law and court decisions.

California has always been a trend-setting state and we have to wonder how far behind them the rest of the country is.  According the the Congressional Budget Office, the US's projected debt is now growing so quickly that is will exceed the size of the economy in 2023, that is 7 years earlier than the projections of the last report just 18 months ago.  The culprit is not the huge sum of stimulus spending that President Obama and Congress have injected into the economy this year, the budget office said. Instead, rising health care costs and an aging population together continue to push government spending upward at an unsustainable pace, only faster than the budget office last estimated. 

US DebtDebt soars because of unrelenting growth in federal spending on health care programs and a rise in Social Security spending” as a share of the economy, the report said. Up to 90 percent of the increase is due to Medicare and Medicaid spending rather than Social Security, it added.  Senator Kent Conrad, a Democrat from North Dakota who is chairman of the Senate Budget Committee, released a statement saying that the budget office report “reinforces the importance of not only paying for health reform, but ensuring that it significantly bends the cost curve on health care beyond the next ten years. We simply must get these health costs under control.” 

Gee, we can't afford health care, we can't afford rising energy costs but people are buying stocks as if both industries have nowhere to go but up, despite lower demand and rising unemployment.  I guess we can keep borrowing and borrowing and borrowing and borrowing to pay the ever-increasing prices projected by commodity futures and biotech multiples but one would think there's a theoretical limit…

There's a major disconnect going on between the markets and reality – perhaps it is end of quarter window dressing by financials and funds so desperate for a good quarter they will do anything to maintain the market for another 7 days .  Just this morning the Nikkei was up 84 points despite the Dollar falling back below 96 Yen.   That wasn't even the bad news for Japan though:  Inside the country, consumer prices fell at a record pace in May adding to the risk that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession.  Prices excluding fresh food slid 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since comparable figures were first compiled in 1971.

Defaltionary Spiral Profits fall, then wages come down, then consumers stop shopping,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “And because people aren’t shopping, companies lower prices. That’s the process that we’re starting to see. It isn’t easy to break out of.”  Some 47 percent of 775 Japanese retailers surveyed by the Nikkei newspaper plan to lower prices in the year ending March 2010 to spur sales, up from 9 percent a year earlier.  “With demand deteriorating, companies are finding it more difficult to sell goods and services and are turning to discounting,” said Azusa Kato, an economist at BNP Paribas in Tokyo.  

I hope I didn't give you the impression that THAT was Japan's biggest problem though.  Oh no, they've got much bigger fish to fry (or eat raw, as the case may be).  While their CPI does the moon-walk, the London Times points out this morning:

Anaemic exports, a struggling domestic economy and a dramatic plunge in summer bonuses could cause Japan’s version of the sub-prime mortgage crisis to explode, a leading think-tank has warned.  A housing loan default problem is looming and likely to begin in the next few weeks. It amounts to the detonation of a ten-year time bomb that, researchers at the Tokyo Foundation say, started ticking around 1999 in the immediate aftermath of the Asian financial meltdown. This is the result of flawed government policy, whereby the state housing loan agency offered mortgages to families that they knew were unable to pay.

The impending meltdown, which the Tokyo Foundation believes could affect some hundreds of thousands of households, will be focused initially on the country’s industrial heartlands, where corporate bankruptcy rates are rising. The residential zones around Toyota’s home territory of Nagoya could become ghost towns, Kazuo Ishikawa, the think-tank’s senior research fellow, said.

The alarming prediction comes amid clear signs of upheaval in the micro economies of Japanese households. With Toyota, Panasonic and other groups expected to finish the current financial year in the red, the system of company bonuses has been shaken. The Japan Business Federation calculates that June bonuses will suffer an almost 20 per cent cut across the board, and a dip from which there appears little immediate prospect of recovery. Because those twice-yearly bonuses amount, on average, to about a quarter of the annual salary package of mortgage-payers, the effect is likely to be severe.  Mr Ishikawa said: “The next six months are going to see a sharp increase in housing refugees. People are first going to try to defer payments, but then they will default and be forced to abandon their homes and head somewhere cheaper.”

I keep telling people but the market does not listen to me:  Commodity hyperinflation is causing DEFLATION in the price of everything else, especially when neccessities like fuel are allowed to run out of control.  This is sucking money out of the rest of the economy and causes a deflationary cycle that ends up snapping back and bursting the commodity bubble anyway.  IT JUST HAPPENED LAST YEAR – WHY DOES NO ONE THINK IT WILL HAPPEN AGAIN?

There, I feel better now…  This is really serious stuff though and it's why I called a top for Members at 8,450 in yesterday's live chat session.  This is really just getting silly and we take our profits and run at this point, especially with the holiday weekend looming shortly where it all may hit the fan very hard.   That is the World's second largest economy and China's second biggest customer and the World's favorite low-interest lender (0.1%) sitting on what may be an economic implosion and WHERE IS THE FEAR?   The VIX fell to 26.36 yesterday, back to pre Lehman levels as if nothing can possibly go wrong with the global economy.  Well it's a great time to by VIX leaps, that's for sure! 

Look, I do not like being negative.  You do not like to hear negative things – this is human nature, we like to be happy.  But this is seriously dangerous stuff people!  If nothing happens then fine but please do not get all bullish as if nothing will.  A major bank or a medium-sized country could default tomorrow and who knows who they owe money to who would also default and so on and so on.  Very sadly, we're going to have to do a weekend post on catastrophe protection because the VIX isn't the only thing back to pre-Lehman levels.  So is the level of economic idiocy….

Personal income was out today and "economists" (the ones we trust to tell us how the economy is doing) were off by 600% in their estimates.  Personal income was up 1.4% due to massive inflows of stimulus but what's disturbing here is how wildly far off the "experts" can be.  This is their job, they are supposed to have a clue!  While boosing incomes for a month by 1.4% may sound great, what we really have is an indication that you can't stimulate a dead cat as Personal Spending was up just 0.3% and the PCE came in at our own deflationary 0.1%.  US consumers look pretty much like the cow in the above cartoon and if they stop giving milk, the whole World economy begins to starve. 

The media can do their sunshine and lollipops dance all day long and I guess that's one of the reasons I start turning negative – just trying to balance out the nonsense.  I am optimistic that, long-term, we can work our way out of this crisis but we need to do it through hard work, not make-believe games that everything got magically better with no pain at all and, until the market begins to embrace that reality, I will continue to watch the sky for signs of cracks, just in case….

Be careful out there and have a good weekend,

– Phil



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C’mon Goldman.  Hit the buy button already.  I have a tennis lesson this afternoon.

My FSLR trade is sitting here flat.  Should have sold during the intial excitement.  You can never loose when you do.
Cap, probably selling the 60 puts for a quarter maybe the only way to salvage it.   Those won’t move much on a 5-10 dollar drop but it also ties up some margin too.    But RIMM just seems too strong to drop that much, even on a bad day. Now 6-12 months ago that was another story.

Singa Stv: I bought a few shares of RIMM a little too late this morning. Hardly made enough to cover commissions. Sounds like you would advise just holding the stock?

Looks like us bears are going to suffer the indignity of yet another stick. Already picking up.

You could always sell the 70 for about 3.50 for some protection.  3.4% return in 21 days  if called away.

Daggone.  So what exactly was it about Monday and Tuesday of this week that caused the selloff?  Because for the last 3 days so far.. there has been an unwavering committment by the buyers in this market and they are steadfast in their determination today!

CNBC … VLO getting "crushed today".   Down 38 cents is crushed ???

Are we going to get hit by an astroid?

Shorted more PALM at 16.53…. this will turn out to be a gimme putt.

MrM – sorry, out to meetings.  ITMN still looks good to move up next week.  I am waiting them out.

I can’t believe that PALM is up 17% on crappy numbers.  There used to be a time when a company would be taken to the woodshed.  And to say it will all come together in 2010 with positive cash flows when by that time AAPL, RIMM will be eating there lunch again.   Reality will soon set in.   Cap,  looks like you can buy a good bottle on that put.

PALM IV is still sky-high. Buying put calendars with me long Aug 25s, selling the July 15s.

Sing Steve
I thought the same thing about Palms 2010 statement.  How many new devices and operating sysytems will be out between now and then?  The landscape will be so different by then.
you holding your Palm short over the weekend?

This market is an earthen vessel full of waste matter.

"CNBC … VLO getting "crushed today".   Down 38 cents is crushed ???" – Cap that is good.  They are within yesterday’s range, the day before, the day before, and the day before!  VLO is asleep…  Don’t wake them.  Shhhhh…

By the way should we be buying VLO, should they wake up?

Brokerage – I may need to check out IB shortly.  Getting nervous having too much money in TOS.  I already have OptionXpress & TDA (whose trading platforms are very painful to do rolling).  I did look at the account insurance at TOS, which is the standard $100k in cash and $500k in equity, and they have additional insurance of a total $200M from all accounts  from Lloyd (it’s on their Web site).  However, they have $4Bn in asset a few months back, so $200M may or may not be enough to cover the excess balance.  I’ll be talking to their insurance guy after getting back from vacation.

chuck … oh yes … palm.

maxt, maybe we should be calling you Isiah or Noah.

PeterD – The insurance protects against fraud, otherwise even if the company goes BK your account cannot be touched by TOS creditors. The question to ask is if the cask in your account is held in the general or separate account, and I may be wrong, but I do not think a brokerage firm can hold client assets in a general account.

Still have the stock from yesterdays Oxen Trade.  Bought for about $5.  What calls would you recommend selling against it?

If the XLF gets over $12 I am going to be a very happy camper

just keeping it clean for you all’s sensetive ears.

It’s amazing how little actual trading is occuring.  Looking at level II for QID/QLD they are almost all intermarket swaps.  I attribute those trades to balancing between the two or MMs just moving the thing around.  Very few normal trades are made.  Just a computer driven chess game to extract money from our pockets.

looks like Mr Stick just showed up.

Whoa stick it to me!
look at the big green candle on RUT  (5 min chart)

I feel really cheated and frustrated by this. Your stock market stinks

Will an investigative journalist ever look into this or would (the firm that shall not be named) just have em killed?

They won’t hold it!

Just another $hitty day in the la la land we like to call a stock market.  Well, my bad.  Instead of it being a red candle in the naz with nice long tails it turned out to be a green candle with hardly any tails.  I was just about as wrong as you can get.  Which means my ‘or’ scenario happened.  Which is to say the madness from yesterday continued today.  I don’t get it.  Shoot.  I don’t even try to get it anymore.  I’m just working on acceptance. 

If this market was jam, it would be called Schmuckers.

Have a Goooood Weekend heavy body, look forward to reading your mad posts.

I already moved half my money back to the UK at the start of the month. This crap each day means I’ll probably move the rest soon. Phil will have to open a UK trading blog for me.

I wonder if GS has guys like me on staff?  I mean, they have me so figured out it’s ridiculous.  Think about it.  A panel of matt1966s.. where they have them provide premises for market moves on a daily basis.. they take the consensus from the panel, throw it over the wall to the programmers and they just put an ! in front of it.  For you non-programmers, ! means NOT! 
I would really like that job.

DB – Are you the one tanking the USD by converting to the Pounds?    If that is true, you are doing the opposite of what GS does.  A theory is that they have returned the TARP money, so they are getting out of commodities at a high and buying the USD at a low (while you are selling the dollar at a low and buying the pounds at a high).
I can see the frustration being a bear or a bull in the past few days.  But remember that the Neutral Strategies are raking in big bucks in this stagnant market.  Try to sell premiums while you wait for a direction.  For the Short Strangles, you can always turn bullish or bearish by cutting/reducing one side of the strangles.  There are plenty of rolling options too.  The key to the neutral strategies is to avoid that one big loss (due to sudden movement of 5-10% of the entire market), and I’m sure it can be managed as we are a bunch of relatively experienced traders.

Matt – LOL !
It’s crazy; that’s for sure; somehow my hit and run trading is working out ok…. that’s good enuf for me.
Good weekend all.

PeterD – Given that my dollars were 2 to the pound this time last year I was happy with the 1.6 this time round. Not quite the 1.39 of the low. I think the dollar has more to lose yet, hence the move. (And also because , as stated, I’ve had enough of the crap in the pre-market and the end of day pump)
I know I harp on about being a bear (because I am bearish on the economy/market) but I still have spreads and some bullish bets to cover when I have a bearish position. Wouldnt be able to afford being here otherwise 🙂

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