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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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Phil – Is there a point (generally) where you would not recommend "chasing" a buy/write?  As an example, I never got the fill on the "write" portion of the SO – recommended 7/23 – although I did get filled on the buy of the stock, and if I did it today at the mark would mean a net entry approximately 3% higher than the one you recommended.  I’m curious how do you analyze if/when to forego the hedged entry?  Thanks!

phil, what are your thoughts on a ICE sep put spread?  buy 95’s for 8 and sell 90’s for 5.9?  this mo fo has got some juicy premiums (ice that is)

dstill, I’m long a lot of US equities and indexes, FWIW. So while I tend to post bearish short trades more often, they are against the background of a bullish portfolio. I suspect others are in a similar position.

Phil or others,
What are strategies when a buy/write reaches the upper limit of the short calls? For example, I bought AUY (Yamana Gold) at 9 and sold a strangle: Oct 8 puts for .40 and Oct 10 calls for .50 for .90 credit. I would have been very happy to buy AUY at 7.10 if it was put to me but the opposite has occurred – it has gone up 12% to 9.80 in the last 4 days (no complaints). I am still overall bullish on gold but not sure the best way to handle this. The calls have gone up much more than the puts so closing out the strangle would show a loss. I could roll up the put to an Oct 9 but that would only give me .20 to .25 more premium – and I would like to protect  some profits. Any ideas?

BTW; this is not a FMD    .   more rangebound

AMZN; well I pounded the table short at 88; I will stand by that as a compelling short play

Thanks, EricL.  I wasn’t venting about member posts as much as the procession of links/references to other writers/analysts telling us why this is all a horrible joke.  (And I’m not qualified to vent here anyway.)  We know "it" and "they" are a joke.  The idea is to be in on the joke, right?  All good.  I’ve had my coffee and meds.  Back to normal.

David,
What’s your latest on UNH?

QC – there are a bunch of players in the H1N1 arena.  I think big pharma will beat them to the punch (NVS, Roche, etc), but NVAX, SVA, CMXHY.PK, and many others.  There are many overseas that are playing b’c of the gov’t backing in the EU and Australia.  Right now, it is a crap shoot, and will have to me monitored carefully.  The virus changes as well, maybe as rapidly as AIDs, but time will tell.  I play these on the momentum, unless something is VERY compelling.

 On my SPY chart I have a resistance line at 100.37 that has been there since Nov 4, 2008…
SPY just kissed that line with a topout of 100.35 at 10:32 and then started selling off…. finally

Didn’t mean to suggest i don’t have any short plays open – or that I don’t look for same opps as they occur.

maxt –
David is answering in his post

edro,
thanks.

BAC sept 15 puts for 0.79 ….

Interesting behaviour on SPY – its jumping up $0.2 on very low volume (about 10K shares) yet coming down $0.05 on much higher volume. (100Ks) – Oh and it just jumped $).3 while I was typing !

Anyone else play F buy getting puts?  I’m up about 10-12% and wondering if I should be happy with that ahead of the sales number?

TBT/Peter D – It was a good call!
I went much conservative.  I sold puts at 45 strike.  The price on those putters hasn’t move enough to warrant a buyback yet (not after commissions).  So, I’ll wait a little longer.

Emerging Markets – This morning on Bloomberg Radio, I heard one of the commentators say, that all emerging market indexes are back at pre-sept 2008 (pre Lehman) levels. Is this true ? Any exceptions? I have been looking at my own data and apparently I am missing something.

CIT share halted for pending news !!

Smasher – Anytime you make 10% you should be happy haha. I think that the stock probably won’t have a lot more movement up or down just follow market direction. I think it may not be able to hold onto these increases going into the afternoon.

David

CIT – 64% take up of note offer.

 phil lebeau is such a  auto industry apologist.

SPY – Going up and up on exponentially decreasing volume.

I missed out on any plays this morning. Are any of them still worthwhile? If so, could you please tell me which ones. thanks

Phil, I missed the thread about SRS.  Is the $5K portfolio still into SRS Aug $16 calls, basis around $1.35?

Can we keep the $100K Growth as is, and add the $100k Senior?

Phil: finally UNG is moving to the MA 50 line and might go higher,
my position in UNG is:
stock at 14$,
calls oct 14 opened at 3.08, now 1.5$,
callers 1/2, oct 12 at 1.56$. now 0.85$.
can this position be improved ???

Thanks Phil!  I follow you now.
By the way on the 100K- dividend income portfolio question, whatever you do, I think the value comes mostly from people watching you set it up over time, buy in over time and commenting why you do it the way you do (selection, rolls, timing, other considerations, etc.).  This is by far the most important thing to me.  Does not matter what you call it, 100K, 5K, etc.  Just seeing how your goals influence what you do and just being reminded again about the principles you outline on your site.

Phil
This would be a good idea, maybe for an IRA with call only and a regulars call/puts
“Income/Steve – I’m talking more about the kind of portfolio retired people want to have, one that you put $100K into and draw out $1,000 a month without eating into the principal.  There are two key factors there – you have to preserve the capital and you have to have a pretty steady income so, unlike the $100KP, you have to manage your expected dividend payouts and buy/writes to make sure there is cash to withdraw each month. “

SEC charge BOfA with making false statements. !

These damn DIA puts move up and down soooooo much.  On Thur and Friday, when the GS computer did its "controlled descent" routine at the end of the day, I could have broken even on my DIA puts but I kept holding them hoping to make a 10% profit the following day.  Let’s just say that’s not happening right now :).

Mish – "the recoveryless recovery"  –  LOL

Phil, everyone seems to think we need a correction before going any higher.  I wonder if a lot of people bet that it would correct before this months options expiration.  That would give "them" a good reason to keep the market propped up until after expiration.  At which point they can let if fall.

V is taking off…any ideas Phil?

Jeepers, when will HOG ever run out of gas?  I keep wanting to short it but can’t bring myself to do it with such a strong market around it…

Hey  confizzled! I bought naked dia puts today and saw  the market fly up. I ended just selling them for a loss of $1,000. Its alot easier to lose money in this market.  

So much for the market going down throughout the afternoon. We shall see what the end of the day does.

Cap
Are you playing SPG into earnings BOM tomorrow??

edro; not particularly; I am short some SPG stock and have no problem holding it into earnings ….

Oil just over $72.

They just did it again w/ AMZN; pressed the jam it up button for an instant 30+ cent move out of nowhere …

No worries … Bloomberg TV said that the World Health Organization has rased the H1N1 alert to a level 6 which is a pandemic. They are investigating whether, once vaccines are available, a requirement will be put in place to have all US resident vaccinated twice, one shot followed by another 30 days later. They are commenting that, if so, this would place a huge burden on the US health care system.

Phil Speaking of taking off CBS has flown. Is it time to roll, Aug 5  calls/ Puts, or  let them ride? Puts will most likely end up expiring, calls may result in the stock being called away?  Great call now what?

DENN (Denny’s) – looking like a nice little breakout going on.  1 yr Upper resistance is 2.45 which it bounced off of, but most likely will go through.  In at 2.41.  Let’s see how it rolls.

miracle-  We’re only losing money because we’re being rational LOL.

Hey for all of you SRS longs…thought you might like this from an AP preview of Centex for what’s ahead.

WHAT’S AHEAD: Builders could see a dent in some of the improving trends they’ve seen of late as a federal tax credit for first-time homebuyers, which has lured many into the market, expires on Nov. 30.

A $10,000 tax credit for buyers of new homes in California helped spur sales there in recent months, but was discontinued in early July after it ran out of funds.

Meanwhile, the pace of foreclosures is expected to pick up again in the next few months as moratoriums on foreclosures implemented by several lenders expire.

Story click here

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