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Saturday, September 24, 2022

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Testy Tuesday – Kan Keeps His Job, Yen Makes New Highs

Japan has the same Prime Minister!

That is big news after having 5 different ones the past 4 years.  With the last PM lasting just 9 months, word was Kan was going to challenge the record for shortest term after being forced into this election just 3 months after being elected the first time.  When we talked about this yesterday, the race was considered "too close to call" but the incumbent Mr. Kan ended up winning 60% of the vote – kind of makes you wonder how far off our own pollsters are with their early election calls

Now the stage is set for the Oct 4th meeting of the BOJ, where action must be taken to get the Yen under control.  Ozawa was clearly better for the Dollar, as he favored strong intervention to bring the Yen down including a program of both QE and stimulus and they Yen blasted to 15-year highs on the result of this election, now at just 83 Yen to the Dollar, down from 120 in 2007 (30%) with a 15% move up since May.  This is TERRIBLE for Japanese exporters, who get paid relatively less for everything they sell but it’s good news for commodity pushers, who get paid in devalued Dollars.  

To what extent is Japan’s deflation simply a function of their currency appreciating an average of 10% a year?  If their deflation rate is 2% then doesn’t that mean it’s really an 8% INflation rate masked by a too-strong currency?  Perhaps that’s why the people of Japan, who get paid in Yen and shop with Yen, strongly preferred Kan, who was only really opposed, in the end, by Parliament, where he won 206 to 200 – the Japanese version of the US Senate.  This means that, like Obama, it will be very difficult for Kan to get anything done despite his popular support and, also like our own Senate: "Having witnessed the shaky ground he stands on, opposition parties are licking their chops to begin their attacks on Mr. Kan," said Koichi Nakano of Sophia University.  

Doesn’t it make you feel good to know that, despite our cultural differences, politicians around the World are all the same – just a bunch of power-hungry, vindictive bastards who put their own interests ahead of the people who they are supposed to represent?  Like Obama, Kan still faces difficulties navigating what the Japanese call a "twisted parliament," where the DPJ has a minority in the upper house, following a drubbing—under his leadership—in July elections. This gives opposition parties power to block most types of legislation, much like our own filibuster-plagued Senate..

The Nikkei only fell 22 points this morning but we’re done with last week’s EWJ play, which was a gamble ahead of the election and, since the premise of the election change is gone, it’s no longer interesting.  The rest of Asia doesn’t mind a strong Yen – it means they get to sell more stuff to the Japanese.  The Hang Seng and the Shanghai were flat but the BSE jumped another 138 points (0.72%) to 19,346, still the World’s leading index.     

Not only did the Yen hit new highs but the Yuan moved up against the dollar on rumors that the Chinese will allow their currency to appreciate to head off talk of trade sanctions from Washington.  “China doesn’t want to see the relationship with the U.S. get hurt because of the currency issue,” said Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch. “There will be more space for yuan appreciation also because signs show the economy will have a soft landing.” 

Europe is flat ahead of the US at 8:25 and we’re waiting for retail sales reports as our indices are all hovering around 5% gains for the last 30 days, but already well over 5% off the late August lows, where everyone was panicking and my commentary on the sell-off on the 31st was: "I still think it’s all BS.  I’m still more in favor of buying off these levels than selling but I am getting VERY lonely over here."  Fortunately, the move since then has given me that hope we were looking for:

Russell 650 was the key to happiness we were looking for, now we’ll see if they can hold it!  Our 2.5% watch levels were Dow 10,455, S&P 1,100, Nas 2,255, NYSE 7,000 and Russell 650 but one day does not a breakout make although the NYSE already popped the 5% mark with the S&P testing yesterday so happy days may finally be here again if we can get over the 5% hump at: Dow 10,710, S&P 1,123, Nas 2,310, NYSE 7,140 and Russell 666.  That 666 line on the RUT has been very ominous for us al year so we will be hedging up at these levels, using the 3 of 5 rule on the 5% line to flip back to bullish. 

Retail sales are up a better-than-expected 0.4% for August.  Well, BTE than economists but not better than we expected because we pay attention to hard data, not the nonsense that’s spewed by the MSM.  The Beige Book was pretty clear on the matter last week and just yesterday, one of our Members asked me if I thought it was a good idea to short BBY and I said:

BBY – I don’t know, I think electronics are selling so I’d go for the Dec $35s at $2.30 to give yourself a little room in case they do take off.  You stand to make $1.20-$3 if all goes very well and you risk a $2 move up that costs you about the same.  I like the idea better if they have a big run up (200 dma is $38.50) and there’s excitement to sell into but not so much as it is now.

As it turns out, BBY’s earnings are up 60% on a 3% increase in sales and the stock is up 10% in pre-market trading, looking very good to hit the $38.50 target.  Not all retail sales are sparkling though.  Gasoline sales were up 1.9% (go VLO!) but, as also mentioned in the BBook, durable goods dragged us down with furniture sales off 0.5% and appliances down 1.1%.  Still, core retail sales (ex-auto) were a huge relief – up 0.6% vs. up 0.3% expected by those expert economists.  Notably, the rise in retail sales exactly mirrors the 0.3% increase in wages in the August Employment Report, once again proving that nothing is better for the economy than hiring people and paying them well enough to shop. 

Of course, this is not the plan of the GOP or the Tea Party for 2011 as the Tea Party Express called for a repeal of Health Care Legislation yesterday, saying: "Unfortunately we will not be able to pass repeal legislation until there are 60 amenable senators to avoid a filibuster and a Republican president to sign it.  By the time such a majority is secured, Obamacare will be well on its way to becoming another entrenched, immortal entitlement program.  Therefore, a more immediate and comprehensive strategy is in order to ensure this train wreck of a law doesn’t leave the station.”

This repeal tactic is similar to the one planned for Social Security.  As Conservative pundit Karl Denninger pointed out last month, the attack on Social Security payments can be based on the 1960 Supreme Court decision of  Flemming .v. Nestor, which held that Congress reserved the right to alter, amend or repeal any provision of the Act.  According to Denninger:

There is no "debt" owed to those receiving entitlement benefits through these programs.

They are legally welfare programs which Congress can modify or even eliminate at any time without triggering any sort of Consttutional or "full faith and credit" problem, or any other legal obligation to those who have allegedly "paid in" to them over their working lives.
That is, your FICA and Medicare taxes are in fact a simple tax and your Social Security and Medicare benefits are in fact a simple welfare program. 

So the eyes are clearly on the prize this fall as Republicans look to fund those tax cuts by going after the $800Bn annual Social Security obligation…. oh, excuse me, welfare program but I wonder what will happen when that $800Bn is removed from the economy and what will happen to the $2Tn of assets that were paid in… oh, excuse me, taxed by the retirees and what  will happen to the $4Tn the government borrowed… oh excuse me, stole from the fund (lock box)? 

It’s going to be an interesting election season – be very careful out there!  

 

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kinkistyle / Yen
I have a feeling the strengthening Yen is somewhat coupled to the strengthening Yuan, so this could go on for a long period. They are very close trading partners.

Gel/ FX
AUD/USD going balistic, next resistance levels upwards are 95 then 96.50 then who knows …. parity?
My AUD/YEn play is also doing fine.
USD/Yen, I have a entered a small position (way too early)
Equity Markets are moving up on good volume. September optimism maybe?

Tx on SQQQ

Phil
with all  of our indices up why do you think XLF is lagging?
thank you

Good morning,

IWM  63.33, 63.87, 64.41, 65.46, 65,83, 66.39 and 67.09

 

655 on the Russell is the key; watch for a possible flush before the push higher

ARNA/Eph – Are you saying buying them?  I don’t like paying 25% premium for 4 days at all!  If you want to gamble $1, how about the Oct $4/9 bull call spread for .95?  You limit your upside but you stand a pretty good chance of recovering .50 if things go against you too. 
ARNA…..I’m sorry..the Sep $4 PUTs selling for $1.40, and I was surprised that selling those was not mentioned as an entering position if one was bullish on the stock.

Phil, what is point buying ARNA 2012 1 call for 3,2? Buying stock 4.2 is same and 4x less margin. I mean same risk  is ordinary buy/write.

sry, buying 1 call is equal margin to buy 100 stock

Phil/Pharm what do you think of Orex here? I know arna is your favorite but if we go by what happened to vvus then we could expect orex to fall if arna is not recommended but recover in a month or two. If arna is recommended then we might see orex get an initial pop as well…

Lflantheman,
sorry for bothering you again. any APPL suggestions now? going into earnings?

Good Morning!
 
stjeanluc/reference – Good article, thanks for the link!
 
samz3700/first — in theory, yes, your order would go first. However, in practice, it doesn’t always happen since there are multiple markets for the same order and yours can only appear on one at a time. This is where good broker "execution" comes in.
 
gel1/nighthawk — Well said my friend. Disturbing isn’t it?
 
I’m starting to get a little altitude sickness at these levels but we’re only 120 off that 10700 line. I wouldn’t doubt we bump that before seeing a pullback. The bots are slowly creeping up on 10,600, watch for the club if they don’t get over it before the 2:00pm test.

Why is my comment awaiting moderation? I remember someone mentioning that a lot of links can cause this but I don’t have any.

Phil / CHK – do you think we have seen the bottom in this stock?  we’ve been in a pretty tight range btw ~$20-$22 since June.  I hold Jan. ’11 22.5/27 bull call spread since late June/early July (2 trades).  Was thinking about buying back the short call which I have nice gain on and riding the long calls out from here.  

Yen/Phil:  LOL.  I’ve long been thinking about starting some sort of importing business of Japanese products into the U.S. because of the demand among young people, but this Yen issue forces me to turn the tables and start thinking of exporting U.S. good out to Japan.  Unfortunately, I can’t think of anything we have that the Japanese would want.  All our stuff is made in China anyway.   You can download porn off the web now too…
 
A microcosm of the U.S. manufacturers problems.

stjeanluc – RE: your above cited report- despite obvious biases and some rather trite handling of market forces I recommend it as a good read for those on both sides of the political spectrum.
Thanks for bringing it to my attention. Lots of fodder for more after hours discussion.

kinkistyle/exports — I think you can export 50’s-70’s nostalgia, but that was a thought several years ago, not sure if it’s still a fad over there.

ARNA has nothing else in the pipe worth mentioning.  They do have data coming out in Q4 for diabetics (BLOSSOM-DM), so that is another set that could propel them, but on pg. 29 is clearly states that

The results of two Phase 3 studies are consistent and confirm the efficacy of lorcaserin 10 mg bid and 10 mg qd compared to placebo after 52 weeks of treatment, in the co-primary weight loss endpoints of average weight loss compared to baseline, the percentage of subjects who lost at least 5% of baseline body weight, and the percentage of subjects who lost at least 10% of baseline body weight.

lionel / AUD
Damn… I missed a good one!  I thought the election results would be a negative, but I guessed wrong.

 I’ve mentioned this before but still really confused. If JNK tracks DIA to within a fraction of a percent over two years, and JNK pays 10.8% yield and DIA pays 2.45% yield, then couldn’t one have simply bought X shares of JNK and sold short X shares of DIA and made 8.35% with no risk? Does this represent the aggregate buildup of the amount that the overall market is discounting the risk of bonds??

This is a triple witching as well, so should be nice and violent.

Gel/AUD
You were right. Election results were not positive for the currency. But job creation, GDP growth were higher than consensus which means higher chances to have a rate hike before the end of the year.
But today s move is just the USD taking a 1% plunge against EVERY major currency (even Gold).
On an FX basis, Oil, Copper and equities are down today by .5% on better than expecetd US economic news.

rainman:  I was thinking of that.  Kitschy, retro stuff from antique and garage sales is one of the uniquely American things that I can demand a premium for. Also Americans are obsessed with health and exercise fads.
 
On a side note, my wife is apparently eligible to receive a "stimulus" check from the Japanese government because she is having a pregnant.  Looks like my first export will be a baby!

MA heading back to 200 ๐Ÿ™‚

DNDN – my broker is IB – you know one of the biggest options houses ๐Ÿ™‚
Phil – seriously – what should i do here about getting out of the Jan 2012 25s calls. The spread is now bid$18.45 vs ask of $21.20 – now deep in the money so kind of hard to get out of them – but i did good – bc my basis is $12.70 –
I sold the nov. 45 calls for $3.10 and nov 41 calls for $5 to try and burn off the premium – but I would really rather take the money and run.
Who has priority on execution if an order does come through? Is it the first one sent to the exchange or what?

biodieselchris,  revtodd
does it make sense for IRA acct to buy JNK , and sell deep ITM (bid/ask spread is large) getting over 8% return?

 "Today we have the opposite happening. Interest rates have fallen to the point where the RFP model would predict that the S&P 500 should be more than double where its current value of 1,035. Other than the possibility that the model is wrong, this leaves us with three possibilities at the extreme.

Bonds are valued fairly and we are heading into a catastrophic double dip recession and earnings on the S&P will fall by 50%
Bonds are in a bubble and rates should be much higher
Equities are undervalued"

link
 
PSW doesn’t so polls, but maybe you can vote for which one you think?

Kinkistyle/ Congratulations to you and your wife. Just out of curiosity, how much is the baby check in Japan?

 Above, those are supposed to be 1,2,and 3 in front of the coice but the comment generator ripped out the numbers. I’m voting for 3. The author claims/predicts a FMV of 5% for treasury rates (20% drop in bond price from here) and a higher S&P500.

lionel:  Thank you!  Its actually part of the National Healthcare system — like a baby insurance benefits check.  Its around 420,000 yen per baby, which in todays exchange rate comes out to around $5000 USD.  Hmmm… how can I convince my wife to have 7 more babies…. ๐Ÿ˜€

CMG has touched $170.. I have short 3x $165s .. I’m not sure whether to roll now to Oct $170s or wait until Friday’s expiration to get all of the premium. $170 is insane for a food chain..

kinkistyle/babies — I’ll bet you can find a group of american men that would help you export more babies!

ARNA pipeline-yes, they do have ADP597. Their deal with JNJ was not very strong. JNJ jas been able to run many phase I studies without taking it phase II and triggering a milestone payment. But they have to decide before November 1 if they take it to phase II or release it back to ARNA. If they release it back, it will be a vote of no confidence. But they did run 4 or 5 phase I trials, so maybe they see some value there. 

 


kinki/7 more — I didn’t get to that comment before I posted about american men. I Didn’t mean babies for YOUR wife, just to Japan in general. 

Kinki/ Thanks for this information. I am sure you will find a way to convince her ๐Ÿ™‚

Coal, Peebody on CNBC at the exact moment im researching coal demand in India
India’s spot buying has been a critical price driver in the coal market for the past three years. Any rise or fall is soon reflected in international benchmark prices.
Last week benchmark October South African coal prices — a key supplier to India — fell by over USD 5.00 a tonne in two days to USD 80.00 because a widely expected resumption in Indian buying from the beginning of September had failed to emerge.

"Everybody’s been waiting for new Indian buying but they are still completely out of the market so where is all this South African coal going to go?," one major European trader said.

 
"There was no business done at the September Delhi coal conference, a lot of talk about 2011 demand but they don’t seem to want anything for the rest of this year," said one of South Africa’s largest coal producers.
Producers and traders who had been counting on renewed Indian buying to prop up prices said they were feeling pressure to sell South African coal wherever they could even into the depressed European market, and brace themselves for further falls in the value of their long positions.
http://www.moneycontrol.com/news/business/pentindia-coal-demand-may-burst-outq4_484339.html

hmm… 2013 leaps are out, didnt notice that before

Phil / WWE – your thoughts on this stock?  I’m thinking about a buy write on this one.  10% yield. 

Phil- do you have a regular, reliable source for S&P composite earnings forecasts?

Phil: Sorry for a out of topic question. Is there a better way to contact the site-admin than the form available on the "Contact Us " link on your website? My membership dues have been charged twice. I sent a message through the form in "Contact Us" link yesterday – but I didn’t get a response.  If there is a better email contact, I can send a email again.  Thx

kinkistyle …. Congratulations!  Wishing you many more!
Importing into Japan is almost an impossible task.  I have done it, but the government makes it ALMOST impossible. They really want "home grown" products. I had medical, dental and pharmaceutical products that were needed my them, but it took years to get the import license. Better to choose a different country, if this is your objective.

JR,
 
You think they’ll take another shot at RUT 655?

ARNA/  I like selling Sep 3 Puts @ .50  – leaving you open to a net $2.50 entry.  And you can fund Phils suggested 2012 Call spread at some 1 to 2 ratio (1 spread for every 2 puts).

coal/kustomz – there is a lot of coal sold in the black market in India. Factor that into your research. See, for eg.:
http://timesofindia.indiatimes.com/india/Korba-coal-making-it-to-black-market/articleshow/6515689.cms

Just looking for excuses to be cautious at these levels,  both the YEN and Euro gaining wont help the situation

Industrial output in the 16-nation bloc remained flat in July after a 0.2% decline in June, Eurostat said Tuesday. Economists were expecting production to edge up 0.1%. June’s decline was revised from 0.1% reported initially
http://www.rttnews.com/Content/EuroEconomicNews.aspx?Id=1417963&SM=1

Japan’s industrial output fell 0.2
percent in July, revised data showed on Tuesday, indicating
production may be slowing down as Japan’s export growth
moderates.
http://www.reuters.com/article/idUSTOE68D04Q20100914

Manufacturing is at the heart of Mexico‘s export-driven economy and while that sector expanded 0.4 percent in July from the prior month, growth in a trend reading from the statistics agency slowed for the ninth straight month.
http://www.reuters.com/article/idUSN1318587620100913

 

Phil, C is down 1% today to $3.95. From yesterday’s play, can you confirm whether you meant to sell $5 CALLS and not puts?
"C, on the other hand, looks nice at $4 and I like the 2012 $2.50/5 bull call spread at $1.25, selling 1/2 the $5 calls at $1.40 for net .55 on the $2.50 spread and a break-even on the 1/2 assignment at $5 way down at $3.62 as your 2 $2.50 calls would be about $3.50 as that would return $2 on 2 calls to offset the loss of the $5s ($1.50) and pay back the .55 you put in!  To the upside, it’s got almost 400% upside with worst case owning 1/2x C at net $3.50. "

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