Well we sure ended Q2 with a bang.
Just because we're in cash doesn't mean we don't have some fun and our final index play of the quarter was a nice 70% gainer on the DIA $86 puts. Other than a TNK spread and some quick GS puts (up a quick 20% and out), that was our only play of the week so far so we're really picking our spots for that sidelined cash. Now that Q2 is finally fading into the sunset, it is time to see what's real and what isn't and we're really looking forward to earnings season, where we hope to separate the haves from the have-nots.
As David Fry pointed out regarding yesterday's action: "Stock price declines today were milder than expected given the news. But, silly me, I forget that this is the quarter and mid-year end—there are bonuses to be had and bullish headlines to be written. Why did the market rise this quarter? An overwhelming amount of liquidity plus an equal amount of BS." It has indeed been a very frustrating quarter to be a bear, mainly because you have an administration that turns a blind eye towards bullish market manipulation because it's "good" for the economy. Unfortunately, it's only good for the economy the same way rigging baseball so the Yankees would play the Mets in a subway series would be "good" for New York sports – it may be good in the short run but, if people begin to distrust the validity of the games, then they may lose interest altogether…
Professional traders like the market to make some sense. We like to see X data have Y effect in a fairly reliable curve. Consumer confidence fell 10% yesterday and consumer spending is 70% of the GDP so you would think it would affect the market by more than 1% right? Not this market – nothing seems to matter and that's OK, we're getting used to the scam but we're now playing the scam – not the market itself and that's never a good thing and it's certainly no reason for us to commit our long-term capital and that's the only way this market will ever get healthy again.
Meanwhile, over in reality, steel prices in the US fell 3.1% in June – the 11th consecutive monthly decline as the only green shoots we see there are the ones growing through the rust of the abandoned steel mills. Steel prices have fallen 64% from their highs and have not had the miraculous turnaround of other commodities, perhaps because there is no active futures market to manipulate. “The steel market continues to be sluggish, despite protestations by some analysts that recovery has begun,” Purchasing Magazine said. “U.S. end-user purchasing is expected to remain weak for remainder of 2009,” the magazine said. “The steel makers admit very little marketplace impact from the government’s fiscal stimulus package is expected this year.”
Over in Japan, where they also use steel when the economy is going well, the BOJ's Tankan Manufacturing Survey remained at minus 48 for June, up from -58 in March but below the -43 expected. Big companies surveyed plan to cut spending at a faster rate than they predicted three months ago as profits decline and factories lie idle amid weak global demand. The report provides the latest indication that Japan’s likely expansion last quarter was short lived after figures over the past week showed a revival in industrial production may wane, job prospects worsened and deflation returned. “The improvement is good news but this Tankan makes me very skeptical about the sustainability of the recovery,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo, who correctly forecast the survey result. “Japan’s economy may start to deteriorate after the third quarter because demand hasn’t rebounded.”
I don't want to be gloomy but this is the world's second-largest economy people! And their interest rates are 0.1% – they are trying REAL HARD to boost demand and it just isn't working… Even with the improvement in Tankan sentiment, the first in more than two years, large manufacturers and service companies remain more pessimistic than they were at any time during the previous recession, which ended in 2002. Large businesses plan to slash capital spending by 9.4 percent in the current business year, more than the 6.6 percent predicted three months ago and the worst-ever projection for a June Tankan. They said profits will tumble 19.8 percent, more than the 11 percent predicted in March, the report showed. Exports and output have fallen by about a third from last year’s levels. While production has increased month-on-month since March, manufacturers plan to slow the pace of gains in June and July, the Trade Ministry said this week. Gosh, it must be time to buy commodities again…
I'm not going to get into commodity prices here, Pragmatic Capitalist has an excellent article titled "Will Commodities Kill the Stock Rally" and I suggest reading that. My real concern is that, with commodities up 40% in Q2, they have accounted for almost half the new money that came back into the market between March and June. Should we have another commodity melt-down like we did last fall, there is no doubt that it will take the entire market down with it – this is a very scary base upon which to build a recovery isn't it?
We get our own ISM data this morning, along with Construction Spending at 10 am. A measure of 45 is expected on ISM with any number below 50 indicating contraction and our inventory of Durable Goods to to shipments ratio is 1.9 vs. 1.3 when the economy is "healthy" so it's going to take a lot more than a 1.2 move up in ISM to begin to repair that 50% gap.
We also get crude inventories at 10:30 and a large draw is now expected as all but 21M barrels scheduled for June delivery were canceled last month, a feat that was matched for July and 11.5M barrels a week less than last year are being delivered to the US, creating artificial shortages that are allowing Goldman Sachs and the den of thieves at the NYMEX to overcharge the American people over $18Bn dollars a month for oil and another $18Bn a month for refined products. It's like Bernie Madoff is set loose once a month to destroy people's savings but, because Goldman Sachs and Co. commit their crime by stealing just $100 from every household in America rather than millions from a select few – there is no outrage – just the quiet destruction of the buying power of the American consumer.
The ADP report showed we lost 473,000 jobs in June, 20% higher than the 400,000 job losses expected but our markets seem undeterred. We get the Non-Farm Payrolls tomorrow and they are also expected to show "just" 400,000 new job losses. In another Wednesday job report, TrimTabs Investment Research estimated that job losses accelerated last month, with 472,000 jobs lost in June. TrimTabs uses daily income-tax withholdings to the U.S. Treasury to estimate changes in employment. "Job losses slowed temporarily in May as consumers benefited from income tax refunds, President Obama's tax credit, low interest rates, and low energy costs," said Charles Biderman, chief executive of TrimTabs. "With the exception of the tax credit, all of those factors have disappeared or reversed."
Hong Kong was closed this morning for a holiday and the rest of was up slightly with Japan having a very strange session in which they gave up all of 150 points worth of early gains to finish the day down 18 points at 9,939. If we didn't know better, you could look at this chart and conclude that the entire move over 10,000 in the afternoon was forced and faked. It's a good thing we know stuff like that would never happen… Except in Europe of course, where the FTSE gapped open 1% over yesterday's close but has flatlined since the open as real traders take the opportunity to lighten up into what is essentially a commodity rally spurred on by the $2 rise in oil in overnight trading (back to $71.70). The DAX and the CAC have very similar charts – just a coincidence I'm sure…
We're still mainly sidelined ahead of the holiday weekend. The window dressing has been accomplished for Q2 and now we'll see if all the lipstick they put on this pig will attract any buyers as we begin Q3. We'd love to see earnings reports catch up to the massive increases in valuations but please, show us the money first – we've had enough happy talk for now.
Hey – I dont gey you guys. If one of our counties was broke and out of budget enough to pay people with IOUs and declare Fiscal Emergencies I’d be appolectic with those councellors/govenment. I supose its just another $trillion of debt – who gives a **** Wierd
Volume 122M, about normal, nothing to stick on the whole but not a bad day.
Tomorrow/Maxt – Way too tough to call, we are in a strange spot and could go up or down 5% fast but I think we’re treading water here and if we don’t keep climbing we will sink so the easier money is to the downside.
Broke/DB – Cali has been going broke forever, hardly a surprise. What will be interesting is what’s going to happen next….
Phil / FAZ…
Thanks for the hand holding. Got out. Same question for UYG… As part of $100K portfolio, in at a basis of $3.51. Made modest income selling puts/calls in past few months, but at June expiry was hoping to get called and never rolled. Now have 1,000 shares that are not yet covered (low premiums). Sell or get covered as part of the $100K portfolio hold???
Qs failed $36.50, GOOG blew $420, AMZN still going down….
DRYS nice and cheap again at $5.68.
F sold back off.
AIG nice study in a reverse split for those of you planning on holding FAZ!
UYG/Mirachael – the premiums stink right now but still if you sell the July $4s for .17 that’s $2.04 per year on $3.51, what better do you have to do with your money? Unless you think UYG will fail $3 (and that’s what FAZ is for) you should be very happy to just keep selling until they do call you away.
Cali – Gonna be interesting if a Fireman turns up at a fire proferring an IOU which needs to be honoured before he’ll put out the flames.
Thanks, will keep the covered calls churning…
OSK up 27% today, what are your thoughts on them pulling back?
Wow, I bot OSK Jul 5 calls in Jan and gave up on them near the bottom in Mar, would have been looking good today!
A good article (with numbers) onprogram trading.
Pharmboy – thx re ITMN, I’m staying in with a stop at 15, so set an alert there, it’ll turn north right after I stop out.
OSK/Cdsp – Well, they did win a nice contract but it’s just 15% of sales so unless they are ripping the army off (not unusual) it’s a bit of an overreaction. I don’t think this puts them very high, they are a good company but facing some harsh economic reality. I think the Oct $17.50 puts at $1.95, selling Aug $17.50 puts for $1.50 would be the way to go if you want to short them, with stops on 1/4 the Aug puts at $1.75 and $2 or just starting with a 1/2 sale and covering more at $1.75 and $1.50. They’ve had a huge run up and it wouldn’t be surprising to see them retest $17.
TOT turning down nicely…
Good article DB.
Woops, little slip into the close. Our pals at ICE still trending down nicely…
ZION very out of favor again. PNC also getting boos.
Nat gas stocks not doing well.
nice lil fade into final 30 mins… i’ll take it
I have a beauty little position in ICE w/ -XX Jul 100 puts and -XX Jul 120 calls – was thinking of selling with the gains but with this action I’ll probably ride it a bit longer and let those premiums vanish. Wish I had more like this one.
ILMN – One of my few longs just fell off a cliff -20% !!!! (Earnings miss)
Well that was an interesting day.
Amazingly the week is over already so surely they can hold it together for one more day…
ILMN/DB – That’s harsh! I don’t think this earnings period will be as forgiving of misses as last one was.
Good Morning Everyone
UK down but off the lows , ditto US futures , but the pre-market pump from the lows always starts when Europe opens. It’ll be interesting to see if the job numbers provoke a significant response, unlike theADP numbers yesterday. Loads of negative news items but then you knew I’d say that !
Phil – If you need me to kick some Nigerian rent-a-rebel rear, I’m headed there week after next. As an aside, Baker lost most of thier contract in Nigeria with Shell because they had a radioactive source stolen from them on-site. Halliburton (that’s me) is providing them with some non-chemical nuclear source logging as a replacement.
I’ve found myself looking at the Wimbledon odds on Betfair. At least we know the Wimbledon winners will be based on merit, unlike the joke of these manipulated markets…
Oil falling apart pre-market, that’s going to drag everything down if they don’t recover. $67.76 at the moment. No one is expecting us to make -400,000 jobs now so an upside surprise is possible. Tons of data at 8:30.
Nigeria/Where – Just keep an eye on the nukes please! That’s all we need is NIgerians with dirty bombs….
Wimbledon/Never – Yeah, it’s amazing how people appreciate hard work and talent when it’s allowed to be the determining factor. Capitalism was like that once…
MSFT early for once? WSJ article I think from last night saying that Bing will also search Twitter. Must be a negative readacross for at least YHOO, maybe GOOG? http://online.wsj.com/article/BT-CO-20090701-716342.html
$847 dividend from LYG showed up in my account. WoW – I never expected that. Should I buy another 500 shares Phil- do you think?