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Thursday, August 18, 2022

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Monday Mark-Down – For the Dollar!

$70 OilThe dollar is off 2% since Friday.

That is sending oil back over $70 and gold back to $960 and has jacked the futures up 1% as the "value" of stocks tries to keep up with the less valuable dollars that they are exchanged for.  People often forget that stocks are a commodity too and are also exchanged for currencies – when the dollar falls, at least initially, stocks tend to rise.  Unfortunately so do our commodity costs but, as we saw in last week's data, wages do not keep up and that, sadly, leads to a deflation of consumer buying power

Every $10 increase in the price of a barrel off oil rips $25Bn a month out of the hands of global consumers, enough money to employ 6M people a year at $50,000 each.  Those jobs are torn away from other sectors as discretionary income goes to commodities and, by the time you add in refining mark-ups and the cascading effects on other raw material cost, the effect of a $10 per barrel rise in oil is doubled to what amounts to about 1M global jobs per dollar. 

What we are seeing is the result of the inaction against GS and other commodity manipulators as they breezed through Congressional hearings, aided throught he process by a massive market rally that kept their nonsense off the front page.  Who cares if GS made a few extra bucks if the market is up 10% in a month?  We'll see if the resurging energy and commodities sectors can provide the catalyst to move the S&P up over the 1,000 mark, a level we haven't seen since the September crash, almost a year ago but also the last time the dollar index was below 78 so everything is coming full-circle, right back to the conditions that crashed us last time! 

This is not to say we are going to fight the tide.  In the Summer of 2008 oil was around $120 a gallon and the Dow was around 11,500 from June through September before plunging 35% in the second leg of the crash.  If the market is determined to climb back up that cliff and try again, we need to at least head on the fact that they might make it all the way back to the top – especially with help from heavyweights like Alan Greenspan, who knocked the dollar down this weekend, saying there was no need for the US to raise interest rates even though he feels the economy will grow 2.5% in the second half of the year.   

This WeekTimmy Geithner also stepped up to the plates (the spinning ones) and hit the talk shows saying: "There are signs the recession is easing… The actions that this administration has taken have been very effective in helping stabilize conditions, help repair the financial system, bring down the costs of credit."  It's an interesting choice of words because certainly the cost of credit is easing but the amount of actual lending is down almost 50% from where it was last year so great for the privelidged few that are allowed to borrow money – bad for pretty much everyone else.

While Greenspan did say: "“We may very well have 2.5 percent in the current quarter.  The reason is there has been such an extraordinarily high rate of inventory liquidation that the production levels are well under consumption.”  He also said: "I’m short-term optimistic, but with many caveats.  Housing markets have “stabilized temporarily” though it is “possible” the economy might relapse if there is a further slide in home prices of more than about 5 percent. If prices dropped by 10 percent or more, that would create a major acceleration in foreclosures," Greenspan said.  So Greenspan's premise is entirely based on housing prices NOT dropping 5% move and, if they should drop 10% more – he foresees disaster.  I guess we'd better keep a close eye on those housing number then!

 

At the same time as Greenspan was spinning plates on ABC's "This Week," fellow PIMCO bond pushers Paul McCully and Bill Gross were out on the road saying the Fed "won’t raise borrowing costs before 2011 as the threat of deflation remains for the U.S.."  DEFLATION?!?  Holy cow, I guess we all better go out and buy bonds, right bond pushers?  This is actually a tough call for us as we went into the weekend a little bearish, expecting a pullback and only 1/2 covered on our long DIA puts.   We did expect the great success of "Cash for Clunkers" to be considered a market positive but this move in oil from $65 at Friday's open to $71 as of 8:30 this morning (9.2%) was not expected as it does seem a little surprising that US citizens found an extra $120M a day to pay for oil over the weekend.  Without even looking at the refining costs and trading mark-ups, that's $1 per day from every single American family – $30 a month, $365 a year – a nice tax slapped on all of us over the weekend to support this attempt to boost the S&P back over the 1,000 mark led by commodities

Over in Asia, commodity stocks led the rally and the Shanghai Composite completed a 3-day, 6% run that completely erased the 5% drop on July 29th.  Stocks on the Shanghai exchange are now trading at 37.5 times earnings, double the average measure of other emerging markets and the index is up 90% this year as banks tripled new loans to 7.37 trillion yuan ($1.1 trillion) in the first half from a year earlier to support a 4 trillion-yuan government stimulus package.  In action typical of China's market in July (when the index rose 15%), China Cosco Holdings Co., the world’s largest operator of dry-bulk ships, advanced 8.1 percent to 19.99 yuan. China Shipping Container Lines Co., the country’s second-largest carrier of sea-cargo boxes, jumped the maximum 10 percent to 6.29 yuan even after the company said it expects to post a LOSS for the first half of this year as the global financial crisis undermined demand for container shipping.

China’s policy to boost growth by pumping the economy with money has led to an “unstable” recovery as investments in property and equities surge, paving the way for another slump, said CIMB-GK Securities Pte. The credit boom has led to expansion fueled by “non-productive activities” with limited trickle down to jobs and consumer demand, Song Seng-Wun, regional economist at CIMB-GK Securities in Singapore, said. If the extra slosh continues to go into property and stocks, obviously the risk of a spectacular collapse is very real because there is no underlying growth of the real economy.” Current bank credit patterns are “not acceptable if the People’s Bank of China is looking for sustainable growth,” Song said.

Over in Europe, bad news from HBC, the world's largest bank, got the same reaction to their 57% drop in profits as China Shipping did for their poor report as HBC and BCS and other British banks led the FTSE and other EU exchanges higher, up ab out 1.5% ahead of the US open (9 am).  HBC Chairman Stephen Green said that while the economic outlook remains highly uncertain, "it may be that we have passed, or are about to pass, the bottom of the cycle in financial markets."  Among the encouraging signs were lower-than-expected impairments at the bank's U.S. consumer finance business, HSBC Finance Corp., which has dragged on profits since the U.S. housing market started slumping three years ago.  In the U.S. consumer finance unit, loan impairments were $7.3 billion, higher than $6.69 billion in the same 2008 period but lower than $8.8 billion in the second half of 2008.  On thing that helped turn the numbers around this quarter – HBC stopped lending to consumers in March!

We will be keeping an open mind this week as we expected (following the pattern of June) another week of consolidation at the top before a break one way or the other but S&P 1,000 would have to be considered a major break up, even by the most bearish investor.  While it's a shame to buy more stocks at this level, we have plenty of stocks we bought cheap that we can dollar cost average into on the way up as well.  Ideally, we'd like to wait until next week to make our decisions, as options expiration for August is still 3 full weeks away but if the market train is leaving the station, we need to get on and there are still plenty of relative bargains to be had like DBA, which is still 20% below last September's levels

XLE is also cheap if you belive oil is heading back over $70 to stay and XLF/UYG have only just begun to fight their way back to last year's fall levels.  We'll be exploring some ETF trades in chat as well as making some earnings play now that the insanity of last week's 1,000 reports is past us.  Before we get too excited though, let's see if all of this weekend's spinning can accomplish the mission to punch the S&P over 1,000.  If we really are going higher, there will be plenty of things to BUYBUYBUY on the way up but, if we are going to fall back off that cliff – we don't want to be weighed down with too many stocks that are going to act as dead weight in our virtual portfolios. 

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ACAS has a trend up as well for those that bought in a while ago….earnings are today after the bell….Come’on Nelly.

Smasher/Phil-   What exactly does "cover" mean?  Is there a preferred method of covering?  When my Aug $90 DIA puts were at $1.33 on Friday, I thought about selling some $86 DIA puts against them as "cover" with the logic that if the market picked up on Monday, my puts would fall in value but so would the puts I sold…so someone would be sharing the pain with me.  On the flip side, if the market tanked, I’d lose some money for having sold those puts but I’d make more money on my puts since the $90 puts have a higher delta than the $86 puts.

David Ristau …it might be a good idea to post a link .,,

All covered now on AMZN day trade short positions ! 

Cap – To the story? or inside the story?

David Ristau

AMZN is still a short at these levels; I just don’t want to hold overnight and am short thru options also.

Well, the levels we are watching are important levels.  If they get rejected into the close again, that isn’t so bullish, so I’ll sit tight one more day.  If they close above, it could, and I stress heavily ‘could’, be bullish, so I’d take a speculative position, if it gaps up again tomorrow then I can hop on the no thinking train and go ahead and eat the loss on the puts, but at least I got some of the overnight gap (and then some on a continued move up).  It’s like a straddle but not with equal size positions.  If the market opens down after I take 1/2 cover then I am losing on the cover but gaining even more on the puts I alread have.

Thanks phil
I just hope I have some money left to trade with. I just bought dia calls. My puts lost me a ton and now I am just hoping it won’t turn on me.

David — inside your post here to the story (gamble of the day I think it was) ….
makes it easier for folks to go directly to it.

Oxen Gamble
Phil – how would you play this with options??

David Ristau
Thanks for your advice. I am hoping to gain somewhere in this wacky market.

RE: BUCY from RIMM
Keep in mind that had you gone consevative and made a 15% cover each month, this would be a huge winner and not a stock you are behind on.  The only thing that stops you from averaging 50% returns is your desire to make 100% returns….
Phil,
On the BUCY trade that RMM has, I understand when you were saying that you have to collect at least 10% premium on a buy/write but I am not sure what you mean by a 15% cover, unless you mean that the initial shorts had to bring in at least 15% of the stock price. Can you explain – trying to learn this better. Thanks.

SRS/Phil & All: When will we see earning reports on commercial real estates?
BTW: Is there a web site where I can get a bunch of earning dates easily?  Does TOS platform show such information?

/ES on the 1000 mark exactly at 4pm

Just got my 1005 target on the SPY today. Covered SPY longs and have a few small (cheap) SPY Aug puts for tomorrow.

Thanks David R. for the F short today.

Will we ever see a sell off again ? Will we ever see a market that goes down again ? I demand to know !

C/Phil: Thanks for the idea.  That’s a great idea, applicable to many situations.
Earning dates/smasher: Thanks for the link.  Exactly what I am looking for.

Sell-off/DB: As per GS (= GD) (see posts above), you close your losing positions, your wish will be granted!

"F/Trip – Just close out 2.5% 200 times a year and see if 500% gives you some satisfaction!"
I know I know…It’s like a golf tip from the course pro. You believe it but it takes a few repititions to internalize the benefits.

PHil
Would USO in the 39/40 range tickle your fancy for a short?

Hey to all – anyone know how the AIG report turned out? or is it later today?

The headline I see is as follows: "Centex Corp. (CTX) said late Monday that it swung to a fiscal first-quarter profit of $85.1 million, or 68 cents a share, from a loss of 150.1 million, or $1.21 a share, in the year-ago period. Revenue fell to $574 million from 1.13 billion last year."  How does this translate into CTX missing by a mile? Genuinely confused.

Pulte (PHM) miss.

Thank you. It was confusing.

Phil, could one extrapolate from this that health care may be the best bargain now?

Phil – I am wondering if there are long term hold dividend stocks which would be OK for buy/writes even at these elevated market levels. Specifically, there are four "dividend play" companies (in "hedging your way to healthy dividends" – issued May 24th) whose today price is not much different than when this article was written: 1) TNK: was then: $11.09, is now $9.79 2) LYG: was then $5.57, is now $5.87   3)PGH: was then:$8.11, is now $8.37  4) KMP; was then: $47.55, is now $53.58.  Are these still viable and if tomorrow Tues "proves" this rally is real, should these be jumped on?

Phil:
Concerning this guidelines:

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That’s why we have guidelines for taking out calls and puts we sold when they are ahead by 50% with more than 2 weeks to expiration and 75% with one week to expiration and 85% during expiration week. 

Does this apply to a side of a buy/write that you’re ahead on, or just front-month putters/callers in calendars/diagonals? I’ve seen you buy back the side you’re ahead on in the $100K portfolio, but wondered about the general applicability of these guidelines.

Good morning everyone.
 
Everything looks flat to down slight;y, but the UK has only been open 10 minutes.
Phil – Tyler is in contrast to that last piece on earnings.

Hello , Good morning.
 
Im not sure if I understand well:  we come down s&p 1500 to now 1000. So 1/3 down from last year and we have in average earnings 30% down… so we are now ok.   BUT that seems only true IF the 1500 level was a fair value. If year ago was overpriced, we can think we are now overprice too.
 
Still I agree the march lows are crazy to be repeated. If it happens we just buy some great companies at ridiculous values. And to go higher we need better numbers. So I do think we will be in a channel for some time. And we have to look into things like inflation and CRE , witch can make move us outside channel (up/down)..  just a very fast reading.

wow, ADM earnings drops 83%   I was expecting -50%, better than BG. But this guys are underpermormers. I have seen so many reports speaking great about ADM and bashing BG and the true is they are biased towards national companies (BG is not american). One of those was Zacks: they placed BG in SELL list when was at 40’s … LOL 

How often do you expect to make adjustments in the new dividend 100K portfolio. I am looking for investments that are on cruise control – this seems to be a good portfolio for that. I don’t want to be checking everyday for adjustments, etc. Also how often do you expect to put new trades on?
Trying to learn – new subscriber.
Thanks

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