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Saturday, September 24, 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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I can’t believe anyone would listen to Alan Greenspan. History will remember his as the worst Central Banker of our generation, maybe of the 20th century. I was looking in more detail at this "the recession is over" call. Guess who called the end of the recession in January 2002? Yeah, you guessed it… Alan Greenspan. The market took a 35% scalping over the next 9 months after his infamous call.  Karl Denninger has a good rant on Market Ticker.
For me, this last few weeks has just re-inforced how crazy it is to try and take fundamental directional bets in the short term. The inmates can run the asylum longer than one can imagine. 

I guess the oil trade now should be: long at all times, except before and through inventories, when we should be short, as the reality of demand briefly makes contact with foaming-at-the-mouth speculation.

The Oxen Group Buy Pick of the Day, UnitedHealth, and Sell Pick of the Day, Ford, are up now for your viewing. If you have any questions, comments, etc. for me, please ask them on my comment box under The Oxen Group tab. Thank you!

David Ristau

Another ridiculous day in the markets, at least at the open.
 
So many tasty short oppty’s to consider if you have the guts ….
AMZN, SPG among them ….
BAC if you have the guts to go against Megatron….

Ebay — of course it should do well … people need to sell their stuff, kids included, for cash !

F –
David has a good rationale here; the only "however" I would mention is that you will be trading against the autobots (no pun intended) in F, and that could add some complexity to the idea …

Oil high and higher. Who needs more oil ?

Oil high and higher. Who needs more oil ?

G’mornin’ everybody!  Looks like the pharma/heathcare sector is back in favor for a few weeks.  Fall seems to be the major time for buying and running up this area.  I have catching up to do at work and here…!!

So I thought I was being really slick by loading up on OIH and USO puts on Friday…..LOTS of them…..since USO had gone from $33.50 to the high $36’s in two days without any any real reason.

Efff, efff, effff.  I’m going to get slaughtered this morning. 

This is why it is SO dangerous holding Biotechs even after positive data:
Shares of Savient Pharmaceuticals Inc. tumbled Monday after the Food and Drug Administration declined to approve its chronic gout treatment Krystexxa at this time, saying the company must tighten its manufacturing procedures and update safety data, among other items, before the agency can further review of the drug.
Now, this is only manufacturing/marketing info, but my word…one would think that SVNT would have this under control after having done Phase II an III trials.  Very hard for Biotechs to be in the elite class of manufacturing of big pharma.  Althought SGP a few years ago had their own manufacturing problems….

Monthly income – absolutely!!

TBT/cwan – I’m cashing out 1/2 of TBT 48 and 46 PUTs sold on Friday as TBT went up this morning

 ditto ssdirk on monthly income

Monthly Income – I’m in….

Phil – I’m younger, so I’m still set on portfolio growth, but any portfolio by yourself (I’ve been a big fan of the $100KP) is a great way to get into some good plays and see how the do over time, so by all means go for it. 

PHil,
I like the monthly cash-out portfolio idea.

Income portfolio – yes, by all means.

Yes on a monthly income portfolio – but with strict risk control. I would like to learn different strategies to do that from a conservative perspective that assumes this is still a bear market rally.

 Income – I’m in!

 phil, thoughts on ewj here – kind of chasing but, seems like japan may have more upside?  like the income idea for 100k port along the same lines do you like nrgy?  read a little about them this weekend.

phil, thoughts on mcd here?

Re the GMCR 3 Aug 70 calls/2 Dec75 Spread.
The 3 August Shorts are down about $3 this AM. There is about a $300 profit on both positions. is a rollout better here?

100KP – am definitely looking to produce income from it so a yes vote from me. Thought that’s what we were doing with buy/writes. Wouldn’t mind if we went for other income producing strategies if you recommended them Phil.

WHR – Phil, what did you do with that Play you had the vertical 60-55.  I bought out the 55 at 2 putting the 60 at net 5.2.  WHR seems to be strong last couple days.  Thoughts?

 See that???… chuckle…..Rejection !!

Sure feels like a blow off top so far today.  Moves up don’t last but a second before they are smacked back down.

999.97   roflmao

amzn    – a greeeeaaat short here IMO

Cap –
Still holding those SPG shorts?
Earnings Tuesday BOM …

Pharmboy
 
Which company has the best chance of developing a quicker test for A (H1N1) viruses to confirm the viruses?
Thanks
Mike

 uh-oh

1000.10

1000.85 – Looks like we are off to the races now. Finally tagged 1K.

The Naz is 2000 and the S&P is 1000.  How cute.

New shorts on SPG !!

amzn/ every time it started to break down; they gun it … but its inevitable this is dropping.

 Naz over 2k, S&P over 1K… if DJIA gets over 9300, then that’s gonna make me sick….
it is really hard to stay in bear positions and watch the account value dissolve away with these relentless up moves, my teeth are grit so hard the enamel is wearing off

Levels to watch are:  Dow 9,297, S&P 1,000, Nas 2,017, NYSE 6,438 and Rut 562.  Only the NYSE is over so far.  Keep an eye on 1.5% and 2% lines, Nas is dragging at 2,000 (1%)
Phil, still trying to figure out how you calculate your daily breakout levels.
– NAS closed at 1979 on Friday. 1.5% is 1999, not 1%
– Dow closed at 9171 on Friday. 1.5% is 9263. 2% is 9354. What is 9297 above?
– S&P at 1,000 I understand: round number.

gotta be careful shorting today of course … fmd …

There is a fair bit of congestion from Oct – Nov on the SPX just above here. If we can push above 1005 today I’ll try some small SPY short positions, unless we have a really big break out this afternoon.
 
Got blown out of my EWZ shorts from last week, but I’m going to keep watching that too. Looking for a modest 2-5% correction.

Its both a riot and scandalous at the same time the way they gun AMZN up 40 cents or so at a time when its about to crater… you need to watch on Level II….

CAT up another 3% today. Must be getting into the good short territory. Hasnt stopped going up since (not very good) earnings.

Phil – I’ve got 40 AUG $34 puts on USO with an average price of $.70.  They’r currently trading for $.35 with a delta of ~15.  The $36 puts with a delta of ~28 are going for $.75.  Thoughts on rolling up or maybe just buying the $36 puts while hoding on to the $34 puts?

Also, what about OIH?  You said to look for a reversal at $108.  It went up above $108 briefly and got smacked back down.  Has been in the $107.XX range ever since.  Would you suggest DD’ing at this point or waiting?

 
Lastly, THANK YOU so much for pointing out the "getting worse more slowly" fact.  A lot of people, especially everyday Joe, think things are getting better based on the way these numbers are presented.  My friends and co-workers always look at me with the "yeah right, we’re supposed to trust you instead of the government and their experts who do this for a living" when I tell them most of the positive mood is based on things getting WORSE but at a slower rate.  It doesn’t help when I try to explain it using the analogy of rate of acceleration vs. velocity (I’m a math geek of sorts)…then I totally lose them :(.

F was a sell today?  I crushed on Sept $9 calls in the first hour of trading this morning.  Didn’t get a chance to grab United Health but (thank the lord, er, imaginary friend I mean) HUM drove those "left for dead" CYH calls up, PD.   And, YES, roll out a new $100K portfolio, man.  My lone voice was not enough to carry the day as it went begging in buried posts on weekends?  LOL

I’m new here – so my comments must be taken with a grain (or two) of salt (even by me) – plus I’m cranky this morn tho chilling in Winter Park.  Still, I find the bear’s daily lament f***ing boring already.  I’m neither bear nor bull – I’m here to learn how to profit in any market.  And I appreciate (mucho) all the help.  But, frankly, what’s the point of the daily procession of bearish press and analyst "exposes" or articles.  As used to say as cocky young trial lawyers: "Your, Honor, I object and I have three reasons for doing so: so what, big deal and who cares?"  Is a correction coming round the pike, probably.  Have we made it clear here the fundamentals for the economy or this mini-rally are unsound and perhaps irrational (respectively)?  For sure.   I know you pros already do – and I truly respect you – but let’s just keep teaching me/us how to work the angles (for lack of a better word.)  Okay.  Sorry to vent.  Hey, look there, another bank about to go under.  Surprise.  (all good humored all) 

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