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Thursday, August 18, 2022


Testy Tuesday Morning – The Spin Is In!

We did get our stick save yesterday – only it came at 7:45 pm!

That's right, on pretty much no news at all and without any global markets open, the US futures all took off in synch at 7:45 last night and went up and up and up into Asia's open.  There was no particular news and Jim Cramer had just finished telling his viewers that the markets may be overbought.  Cramer also is now targeting a "3-5% decline," which is amazingly the exact decline I predicted last week and he also swiped my BBT pick as his "find of the day."  So good morning Jim, nice to have you back!  We don't mind Cramer stealing our buy picks because we have a full day advantage over his flock so welcome aboard suckers – er, fellow Cramer fans

Anyway, so the after-hours markets were flat but the ubiquitous futures market took off as soon as all the retail traders had their trading accounts turned off for the night and you would have thought something huge was happening to watch the relentless, non-stop, 3-hour climb in the Dow, the Nasdaq, the S&P and even the Russell futures that led into the Asian open.  Did this blatant manipulation of the indexes fool Asian investors?  Of course it did!  The Nikkei opened at 8pm EST and had gapped down to 10,200, exactly 4% off the high of 10,620 on Friday.  As I said to members in yesterday's chat, that 4% line is critical in the follow-through day on the 5% rule as it represents our expected bounce off 5%, so holding that line is still bullish.

Well, never let it be said that Mr. Stick doesn't know how to paint a bullish picture and the Nikkei was rescued from failing that 4% line by the relentless futures buying between 8pm and 10:30, which coincided with 9pm to 11:30 on the Nikkei, which just so happens to be when they close for lunch.  What happened at 11:30 Tokyo time?  Well, suddenly everyone lost interest in the US futures and they fell ALL THE WAY BACK to where they started in just 60 minutes.  Please Congress, whatever you do, don't look into this nonsense – better to just sit there in your little offices and say "the market forces are too complicated for me to understand" and let 12 people control the world, that's what America's all about right?

So, where was I?  Oh yes, manipulative BS!  Of course, coming back from lunch and seeing that the US futures had nose-dived sent the Nikkei right back to 10,200 but there was another way to prop up the Nikkei and that would be a dollar rally against the Yen.  The dollar had already been jacked up from 94.37 Yen at the Nikkei's open to 94.75 at lunch but, at 12:31, the minute the Nikkei reopened, the Dollar began flying up all the way to 95.30, which rallied exporters and lifted the Nikkei 100 points into the close.  After the Nikkei closed, the Dollar fell back to 94.9 Yen – mission accomplished, time to rest…

shanghai1The Hang Seng also had an exciting session.  Having already blown the 4% mark on Monday, the 5% test was inevitable and we got it out of the gate with a dip just below 20,000 at lunch (down 100) but that was all reversed in a 500-point up move from 11:45 to 3pm that even a sell-off into the close couldn't prevent from printing as a net up 169-point day (0.8%), which is EXACTLY the 4% line (20,400) so not bullish again until they cross it.  The Shanghai Compsite posted a 1.4% gain on the day (less than a 10% retrace of the drop – so not significant yet) with a huge run back into metal stocks by "bargain hunters." "The rally in equity prices has disguised what are still large imbalances in the real economy. And, as equity prices fall, these imbalances will find themselves under more scrutiny, especially after July's economic data disappointed," Royal Bank of Scotland economist Ben Simpfendorfer wrote in a report.

What was the big news that rallied China's metal markets?  No news at all, just speculaion on behalf of big-three manipulator JPM's Jing Ulrich, the head of China equities and commodities, who said "In the event of further correction, the Chinese authorities will be prepared to put a floor under the stock prices." Beijing may do that through measures such as slowing measures to absorb excess liquidity and eliminating stamp duty on equity transactions, she added.  So the promise of more government stimulus in China from one of the 12 guys who control the markets in America keeps things going in Asia – very neat! 

We've already discussed the fine art of global plate spinning by our beloved I-Banks so I won't get into it here but this is one fine example of the way that a small buy here and a little rumor there can move the entire world's markets as money never sleeps (and neither do, effectively, tens of thousands of global employees of the Big 12, who coordinate announcements in Asia, Europe and the US to craft the headlines in the cooperative media).  The media never stops looking for quotes and investors never stop jumping on news.  Archimedes said "Give me a place to stand and, with a lever, I will move the whole world…"  Leverage is what it's all about as the analysts get to stand on a global soap box and tout the party line while the bosses run the buy programs to make their analysts look even smarter which reinforces their influence in the eyes of the retail investor, making them easier to control the next time the bosses want something bought.  Simple enough, right?

If you look in your favorite media outlet this morning, you are unlikely to see this Bloomberg story that Corporate Credit is deteriorating rapidly and yields relative to benchmark rates on U.S. corporate bonds jumped the most since March, while credit-default swaps tied to investment-grade debt rose to an almost-four-week peak. Investors are concerned the recovery in Japan’s economy, which emerged from its deepest postwar recession in the second quarter, will falter once governments worldwide complete $2 trillion in stimulus spending. Speculation the U.S. consumer will help revive global growth was dented last week when a confidence index fell to the lowest since March.  “While there is a rebound in economic activity, consumption is still impacted,” Philip Gisdakis, a Munich-based strategist at UniCredit SpA, wrote in a note to investors today. “This problem will not disappear in the short term and indicates that the current recovery might not be sustainable.”

You'll have to excuse, Gisdakis as UniCredit is not one of the 12.  Of course it is coincidence, not self interest that contracts on JPMorgan, the biggest U.S. credit-card lender, rose about 5 basis points to 81.6 basis points, the highest level since July 16, according to CMA. Credit derivatives tied to debt of Goldman Sachs gained 10 basis points to 150 basis points, the highest since July 13, CMA prices show.  Credit swaps on Citigroup Inc. jumped 21 basis points to 298 basis points, the highest since July 29, according to CMA. All three banks are based in New York and all 3 banks have analysts talking up the economy, which will lower their borrowing costs by Billions if effective.  Motive, means and opportunity – case closed! 

In the Fed's Quarterly Survey of Banks it was found that: "With delinquency rates rising to a record high, banks were still clamping down on lending to businesses and consumers over the past three months, and they said they planned to keep their credit standards tight for at least a year."  In its quarterly survey of banks' senior loan officers, the Fed said lending standards got even tighter for almost every type of loan, from prime residential mortgages to commercial and industrial loans. The survey covered May, June and July.  "The degree of caution exhibited in the survey of senior loan officers over coming quarters will act as a drag on the coming recovery," wrote Richard Moody, chief economist for Forward Capital. "This is one factor that has been, and remains, behind our forecast of a tepid recovery from the Great Recession."  

Doesn't this sound like something the MSM SHOULD be talking about?  Isn't a credit crunch what crashed the markets last Fall?  Isn't it almost Fall?  Didn't we give these banks TRILLIONS of dollars so they COULD lend money to keep businesses going and isn't this the OPPOSITE of what was supposed to happen?  SHOULDN'T we be concerned???  Outstanding loan balances FELL by 2% at 22 banks receiving federal assistance from the Troubled Asset Relief Program.  WHERE IS THE OUTRAGE?

In a separate report released Monday, the Fed said the delinquency rate for all loans and leases rose to 6.49% in the second quarter from 5.58% in the first quarter. That's the highest delinquency rate since 1985, when the Fed began collecting the data.  The charge-off rate rose from a record 2.03% to a record 2.65%. Before this recession, the highest charge-off rate had been 1.70%.  Delinquency rates for real estate loans rose from 7.10% to 8.27%, the highest since the data begin in 1987. Delinquency rates for commercial and industrial loans rose from 3.12% to 3.73%, while delinquencies for consumer loans rose to from 4.69% to 4.92%, also a 22-year high.

Not surprisingly to members of PSW but apparently a shock to "expert" analysts is today's PPI report, which came in -0.9%, 350% worse than the -0.2% expected by the usual idiots they ask, even though we JUST got a CPI report that flat out told us we were going to be down more than 0.2% unless Corporations bought a lot of apparel and visited the doctor, which were the only two parts of the CPI that had increases.  I mean REALLY, are economists actually so dumb that they can't pick up a CPI report on Friday and adjust their outlook for the PPI report the next week?  Well, it seems they can't so the MSM is "taken by surprise" this morning as the PPI disappoints (and that JPM analyst in China must feel very silly). 

Also from the land of Duh, Housing Construction and Building Permits fell 1% in July.  Could it possibly be due to the almost total lack of lending?  As I pointed out last month when the markets rallied on a 1.7% gain in starts, we're talking about 581,000 homes a year – it's still down 75% from the highs so who really cares if the number is 581,000 or 586,810 (+1%) or 575,190 (-1%)?  The margin of error is 4% as this is a survey, not a full count.  Housing starts for July are off 37.7% from last July, when they were down 50% from the previous July – now THOSE are numbers that dwarf the margin of error!

The bottom line is that just 55,600 homes are being built in 50 states for the month of July.  Just how many people can that really employ?  How much material can be consumed?  How many realtor and broker fees can be paid?  How many new appliances will be placed?  How much carpet?  Housing has a massive effect on the economy, second only to consumer spending in it's effect on the GDP and housing remains dead, dead, DEAD and you can try to ignore the unemployment, credit debt and bankruptcies that are killing the consumer and you can try to ignore falling prices, tighter lending requirements and excess inventory that plague the housing market but, sooner or later – these things WILL matter.   You can fantasize about a recovery all day long but one day, something needs to actually recover besides expectations.

So forgive me for today's rant but this ridiculous pre-market pumping has really ticked me off.  I do hope we hold our levels today – only the Dow held the levels we predicted in yesterday's morning post and the others hovered just below it.  Tuesdays are often test days and certainly all the stops are being pulled out to prevent the markets from failing but we're going to remain cautious with our cash on the sidelines, waiting for some REAL bargains to present themselves. 



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Alan Greenspan 1966
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.


Kus, that’s interesting.  Looks like Greenspan must have Halveseimers cuz he sure forgot that history lesson.

David Ristau:
Very Positive news from ADI… I sold Sept. 27.50 puts for a net of 26.05. If market can’t figure out today what good news this is, then I’m happy to be assigned the shares at this price, and will profit later. Thanks!

Let me ask, did anyone else notice a substantial increase in their credit card interest rates this month? I was just hit with a 50% increase ( I had a historically low rate, carry a low balance and pay 3x the min ) ahead of the new OBAMA regulations ( thank you Mr. Pres. ).
The CS representative indicated that the rates were increased "across the board". Does anyone think this is good for the increasing CC default rate? I personally think we are going to see a huge increase in defaults as people simply stop paying on their cards.

And Phil, I am almost done turning my charts upside down, TY. LOL

CaFords – Apparently a lot of card companies are raising their rates now before the rate constraint provisions of the Consumer Financial Protection Act go into effect.  I had a card that was never late with a low balance go from just under 6% to 18.5%. I’ll keep the account alive because it’s got such a long track record but I made sure that card is the last thing I reach for and even then, only in an emergency.  
There are also a lot of games going on with cards that have high limits and low balances.  Banks see them as potential time bombs and their trying to compress the limits.  I was just at a conference where a guy was talking about lending money as a function of FICO scores.  One of his main themes was that the real difference between a guy with a 550 and a guy with a 750 score…the guy with the 550 had most of his problems behind him and the guy with the 750 had most of his problems ahead of him.  Weird way to see the world but that’s bankers for ya.

Cap – the SEC is shopping around a new short sale rule.

Keyser – I agree, I am not concerned with the impact to me as I made it a point to not carry debt into this mess. The thought process behind your second point is simply amazing to me, albeit rational from a bankers point of view.
I was told that the companies block of business was performing, and that the recession warranted higher rates, even though current market rates were low. This seems to be a bit of an oxymoron to me.
This action will definitely reduce outstanding debt: by way of defaults. I think this will simply be the final nail in the coffin so to speak for the consumer and for the CC companies. You gotta love that banking lobby that changed the bankruptcy laws.

All I know is that I am going to short the hell out of JP Morgan.

Matt……..Amazing how quickly they forget

MY MY MY how they’ve lost their way and we losing our wealth, Greenspan continued
Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

 Phil-I have GE Jan ’11 calls (4-7.5 & 4-10 Calls) fully covered against Aug -9’s. What are your thoughts on adjusting this? 

UNG – its NAV is now at $10.69 (so it’s trading at 12% premium).

Shanghai tanking, followed by Hong Kong.
SRS – Manhattan office building sales at standstill

Good Morning everyone.
Everything down after a bad night in Asia (Shanghai down 4.3%) yet well off their lows as the morning pump tries to work up a steam. S&P holding above yesterdays open so not great for the bears yet.

Pump doing its job again. SPY is now $0.4 off its lows, And Phil wonders why Bears are impatient – what with the pre-market pumps and the closing sticks there’s hardly time to get in a good short 🙁

 Good morning Phil & all,
I’ve got 985 drawn as a fairly important support for S&P right now. If the bears fail to breakdown the index here, then it’s probably bullish for the market and an early tell that it is going to go up and test 1050 resistance.

 I hear ya Phil… but I think we already have had our consolidation. We spent 12 trading days in August consolidating S&P 1000.
This quick drop down to 985 support we’ve had this week could be a setup for another quick move up… it’s like the crouch a cat makes before making a big leap up on top of something
My expectation is that we trade today in a narrow flat line around 985 on the S&P, if the bulls still control this market. If 985 breaksdown, then look out below.
But I doubt this is IT for the bears to start having free money days… no not yet. Given that consolidation of S&P at 1000, the bulls could have enough to juice the markets for one more sudden pop and catch the bears by surprise.

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