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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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Wow. Nice Graph Phil. I hope that gives the perma bears some pause for thought. 
Would you see disadvantages in using the new "income portfolio" and retaining/reinvesting monthly to produce growth?
Like many, probably, I would like to produce a base level of income plus growth.
I really don’t mind if the "growth" came from "excess income", money is money, but am I missing something basic?

Just had some FXE Sept 141 puts fill at 1.15. This is a bit of a lottery ticket, with the idea being that if the dollar strengthens against the Euro, the move may be sudden.

C/Phil & All: I have a spread on C, long Jan 2011 $2.5 Calls & short Jan 2011$5 Calls; paid $0.53 per contract.  As C goes up today, this position is $0.76, over 43% profit, if I close it.
C seems to be rangebound lately.  Should I hold on to this position?  Or, should I cash out? And if C comes down again, repeat?  What are your opinions?

PHIL, PETERD and all……I’,m back from a week at the VA hospital  and don’t have to return until 8/13.  Gives me time to make some money and I;m roaring to go.  Your help will be greatly appreciated.  GABBY

Correction: 1.20 on those FXEs.

confizzled
I think its been about two weeks since we’ve seen a bad day. I distinctly remember how three weeks ago the market headed down for a week straight without mercy. Now it’s the other way, except like you said, us rational people are thinking the market is going down.

You know they’re desperate to find someting, anything to buy that is not hugely overbought, when they start buying airlines on a day like today with oil screaming higher.

PHIL….I.m in for the monthly portfolio…………………..GABBY

The swiss and Madrid indexes, the two most sensetive to financials and real estate in
Europe, closed way off their highs.

 wow, this market is truly bewildering. i am overcovered andunderinvested.  too late to go long and to early to go short.

 phil, thoughts on tm here?  looks a little stretched.   conservative guidance + dollar rebound  could tumble tm

FOE on a tear.  Right at upper resistance, and if THEY break through, then 13 is the next stop.

BAC –talk about a slap on the wrist !   
 
The gov’t has too much bailout $$ at stake to give BAC the hammer.

FWIW – the last few posts are not for the faint of heart, and not Pharma/Biotech.  Just ones that come across my tickers that are moving in the upward direction.

FOE – "not for the faint of heart" is right, from $2 to $5.50 in 12 trading days!  That’s the stuff that millionaires are made of (which these days is former millionaires trying to work their way back to millionaires).

I get the feeling they will keep this up until options expiration.

Clunkers – read the reports – the majority of sales went to Hyundi – good use of US taxpayers money.

22% of Hyundi July sales – clunkers

GGC is another one, MrM: 0.32 to 24.10 in five trading days.

Phil: DE reports aug 19, DE up ,
have sep 45 calls, (5.57$ to 3.2$),
what move should I make:
leave call open longer,
roll out,
 and go into a spread ??

Phil, I have the CAL buy/write that you referenced above.  I am in net 7.64 and sold both the Sep 9 calls and puts.  The stock is now 11.60 and if no changes I will be called away with a 17.8% return.  Not bad, however, I am trying to grasp rolling up and out.  If I were to take out my callers and putters for 3.10 and then sell the Dec 12 call for 1.90 and the Dec 10 put for 1.35 it would decrease my cost basis by another .15.  If put to me at 10 I would be in net for 8.75, and if called away at 12 it would be a gain of 59%.  Am I on the right track or off base?  Thanks.

Eric, GGC had a reverse split so it’s really from 8 to 24, still a great run!

Phil – Advise on SIRI, if someone already sitting in from .07c? Looks they are running up ahead of the earnings on thursday. Any insight?

Hello ppl !
 
FOE: damn, I got them at $2.15 and sold all close to $3 …  done same mistake with BAC months ago. The disadvantage of been rationale 🙁  I will take a look into DENN
 
Earnings , tomorrow before open i got 3 in my radar, 2 bullish : ADM  and  HSIC , but they already jumped big time. Any ideas to play this ones?  TY – Spider

Phil, since it seems like your resigning yourself to go bullish, does that mean you may change your position on SRS?

a 6.9 earthquake just occurred in Baja CA…I couldn’t even access USGS site.
let’s pray nobody gets hurt.

Phil,
Case in point: YRCW up 12%.

I’m not predicting anything but another selloff into the close would make it 3 in a row and it would mess with people’s heads a bit.

Max – Be careful what you wish for. Might just come true. TRIN just shot up to 1.3. So, going bearish are we now?
maxt1234 – I’m not predicting anything but another selloff into the close would make it 3 in a row and it would mess with people’s heads a bit.

AMZN:  who luvs ya baby ?

Phil
I am looking for your advice as to what stocks/options to get into. Where am I supposed to find it. I’ve been reading this column pretty often and can’t seem to find your advice on what exactly to buy. thanks

Dear God – I promise (really, this time) to unload most of my short positions at measly gains if you can trigger a selloff in the last hour today. 

Dear confizzled- I promise you that you are going to make the same mistake next time.  Better to learn from your mistake this time and it hopefully won’t happen again.

Phil: yes, costbasis for DE sept 45 calls is 5.57$,
 
UNG: should I not cover  the UNG stock with aug 14 callers ?
 
BUCY: have stock (33.26$ base, now 32.14$),
sell Call aug 34 for 50 cents, sept 34 for 1.3$,
sell Put sep 28 for 1.2$ ( will take stock at 28$),
appreciate you evaluation.

Dear confizzled, I promise you that once you sell your puts at a loss, the market will start to go down. 
From GD 

Phil
whats on the schedule for tomorrow? Are we really going up again or do you think the news coming out will give us one bear day?

Back to bullish again.

Hey everyone. I just posted a new segment called The Oxen Gamble of the Day. Might want to check it out under the homepage or my tab.

Thanks,

David Ristau

Phil: UNG – Have etf long (@12.50/ now 13.94), Aug $12 Put (@88cents/now 20cents), Do not have caller.  Next move? thx

Miracle:
I promise you that once you sell your puts at a loss, the market will start to go down. 
From GD
It happens to EVERYBODY!  As soon as you closes your longs at loss, the market goes up.  You look around, the other guy closes his shorts at loss, the market goes down.  How can that be??  GD is so all powerful and omnipotent!?

David Ristau: on Gamble of day: the trade is to buy the stock ? or calls ? or sell puts ?

MDAS: If you can get a fill on the Aug 20 calls at .50, that’s actually not too bad from an IV standpoint (about 40%) given that they report tomorrow.  A few of those could be the poor man’s way to play the "Oxen gamble".

RMM – I am not an options investor, so it is the stock, however, if you like options, it can be played that way.

I should offer more guidance on the buying and selling. First attempt at it.

David

Closed out my F daytrade at a 2.6% gain. Hope it tanks now so I can learn to be content with leaving $ on the table

Phil, I’ve been pigheaded on some DIA puts from last week and didn’t cover.  If the market looks like it is going to close above our lines should I buy 1/4 or 1/2 cover on calls into the close in the event of another move up tomorrow?  It was a speculative play to begin with and I foolishly doubled down one day last week after missing closing the position at about 2% of break even.

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