What if the World is flat?
It sure looks flat. You have to go to space to see that it's round, even in an airplane it looks pretty flat, doesn't it? Well, fiat currencies are like that too. We talk about Quantitative Easing as if the World is flat because Americans (who are trained to be self-centered to the point of Xenophobia from birth) don't think of their connections to other counties on this planet. To understand the American investor is to look at this map and understand that it is not a joke…
So investors in the US discuss Quantitative Easing as if we can simply devalue the dollar and every other country on Earth has no choice but to bend over and accept our worthless currency because they are lucky we even bother to trade with them. To most American's, it's still 1950 and we just won the war and Europe better kiss our ass and the rest of the World better fear us or they're NEXT. That pretty much sums up our next 50 years of diplomacy, doesn't it?
That is the mindset that now permeates investors attitudes towards our currency which is, in fact, the World's Reserve Currency. What does it mean to be the World's Reserve Currency? Well, nothing more than the fact that it is held in significant quantities by governments and institutions as part of their exchange reserves. That is what our government and the Fed are now taking advantage of by printing Trillions of additional dollars and devaluing our currency, which is currently 62% of the World's reserve holdings, although that is down from 71% in 1999 and 64% in 2008.
That's the problem the rest of the World faces as we race to devalue our own currency – they simply can't replace it fast enough to stop us. The only real alternative to the dollar is the Euro, which makes up 27.3% of the World's reserves, next is the Pound at 4.3%, followed by the Yen at 3%. Let's say, for argument's sake, there is an even $100Tn in the World. That means $62.2Tn of it is the US Dollar and $3Tn is the Japanese Yen. No matter how irresponsible you think the US is being with it's currency – you simply can't buy enough Yen to replace them. There are only $27.3Tn in Euros (and they don't look like a good bet, do they?) and $4.3Tn in Pounds. What has been happening? Well between 2008 and 2009 $1.9Tn was moved out of the Dollar (3%) and $900Bn went into the Euro (3.4%), $300Bn into the Pound (7.5%), the Yen LOST $100Bn (3.2%) and "Other" currencies picked up $800Bn (36%)!
A 36% increase in "Other" currencies, which flew from 2.2% of global reserves to 3.1%. Others are Rupees and Yuan/Renminbi and even Rubles as well as Aussie Dollars and Canadian Loonies but the sum total of ALL those currencies is just 3% of Global Reserves. It is tremendously destabilizing to those countries to have their currencies go up in value as it makes them all less competitive as exporters. That is the goal of the US at the moment – to create a monetary sink-hole of such mass and gravity that it begins to actually suck global trade dollars in – instead of spitting endless amounts of them out, as has been the norm for the past few decades.
Can creating a black currency hole really save our country, or do we risk being sucked in as well? Clearly the "Greenspan Model" we've been running has been nothing but destructive for America as we have exported 10% of our labor demand to China, who have accumulated $2.5 TRILLION dollars of our currency reserves while we have run up $9Tn of debt since Al Gore lost his election bid in 2000, despite getting the majority of the popular vote.
Why bring up Gore? Well it was Gore who wanted to protect both jobs and our "lock box" but that lock box was raided and our Social Security SURPLUS was used to fund a decade of runaway Government spending that has gotten so extreme that we now need to borrow over $100Bn a month just to keep the lights on in this country. $100Bn is more than the ENTIRE GDP of all but 67 countries on this planet and that's what we need EVERY MONTH to keep up the pace of our spending. Annually, our $1.2Tn deficit is the ENTIRE GDP of all but 14 countries on Earth (about Canada or Spain's entire GDP).
Our monetary black hole has already sucked up all the money on Earth and that's why 72.1% of our Treasuries are now sold to ourselves – we've pushed the rest of the World past their limits and $4Tn of our debt has been dumped on the Social Security Trust since the "lock box" was raided and now we are devaluing our currency at a rate of 1.5% PER MONTH in order to keep up the illusion of solvency but we're really not fooling anyone BUT OURSELVES!
It's US we owe the money to. Sure China has $2.5Tn of our debt and other countries have perhaps $8Tn more but the other $30Tn in the world are held by Americans and the Government's insane scheme to devalue our currency by 10% in order to borrow 10% more money is costing us $3Tn for every $1.5Tn we borrow. That's CRAZY!
Of course crazy isn't just our current policy – it seems to be what the voters aspire to as well. Unlike Europe, we do not have serious policy discussions about taxation and Government spending – instead we have two parties that totally disagree with each other on every issue other than maintaining the status quo which is destroying our nation day by day.
The MSM is no better, with nothing but polarizing opinions as if the whole World is right or left with no room in the middle for rational thought. On Friday, I called Newt Gingrich an idiot and my patriotism was subsequently questioned – that's the way politics are played in America these days – the way they were played under Joe McCarthy in the 50s…
Unfortunately, the lunatics have clearly taken over this asylum and we continue to create dollars at the pace of about a dozen Bahamas per month. That's right, the entire annual GDP of the Bahamas is $9.3Bn and we drop 12 times that in debt load on a monthly basis, going 144 Bahamas deeper into debt every year! Our debt and deficit is now so massive, that we need to measure it in terms of the GDP of other nations because 1,500,000,000,000 is fairly inadequate to grasp the scope of our deficit spending. Suffice to say that it's more money than exists unattached on the planet Earth so, in order to go further into debt – we have to create more money.
As I mentioned, because other countries aren't as stupid as we imagine, we need to create 3 dollars in order to borrow 1. That gives us $1 more debt (out of 10) and $2 less value to our remaining pile. How long can that go on? One reason our currency creation is so inefficient is because the people we are giving the money to, the Banks, aren't willing to invest it in America either. They have their own debt holes to fill and most of the money we give them goes into a derivatives ($200Tn and rising) juggling scheme that makes them look solvent and masks their very, very questionable asset bases.
The banks take the money the Fed is dumping on them and speculate in commodities and foreign currencies and THEN they buy some TBills in order to keep the treadmill running. This forces asset bubbles in things like gold and oil but they too are a complete illusion because it's only the idiots with dollars that are buying them – the rest of the World stopped chasing shiny metals in June but the flat-Earthers in the US just didn't seem to get the message. Here's gold priced in Euros, which is DOWN 8% in 3 months!
Our stock markets, of course, look just even worse – down 10% to the Euro in the last 3 months, but that won't stop the MSM from engaging in the Grand Dellusion that they are feeding to the voters this month – that everything is somehow going according to plan (what plan?) and happy days are just around the corner – as long as Americans can keep pretending the World is not round at all but a neat little square with our great nation on top and in the center.
Well, there's a lot to be said for getting out while you're on top – or at least while there are still enough people fooled into believing you are on top. As the Joker says in the "what plan?" link above – Nobody panics when things go according to plan, EVEN WHEN THE PLAN IS HORRIFYING!
That's what we have now, a horrifying plan to prop up the US Economy based on the belief that the US is the center of the universe and that the rest of the World will be fooled by our fiscal nonsense. As you can see from the gold chart and the S&P chart – we stopped fooling them a long time ago. What will happen when we can no longer fool ourselves?
For my take on the markets today, see the weekend's Member Chat but, as indicated above – it's a meaningless semi-holiday in America – a day the bulls can only pray will be quiet, because all my charting indicates that real activity is very likely to come to the downside this week.
Phil–on the PRE PSW positions —CME and TMV
700 sh of TMV at 83
100 sh of CME at 440
they were all purchased by broker before I took over the portfolio–please do not tell anyone what an idiot I was–I have many more I am slowly trying to clear up:(
This mortgage / foreclosure fraud story looks like it could explode … http://www.zerohedge.com/article/4closurefraud-exclusive-%E2%80%93-president-obama-falls-victim-chase-robo-signer
Why do you think only Americans are "xenophobes"?
We don’t exactly see the French, Italians, Russians, Spanish, Peruvians, Vanuatuans, Firth of Forthians, Irish, Brazilians, Californicans, Canadians, Africans, Brits, Asians, Indonesians, Aussies, Kiwis, Danish, Swedes, Norwegians, Saudis, Yemenese, Japanese, Chinese, New Yorkers, New Jerseyites, Alaskans, Greenlandians, Penguins, Libyans, Moroccans, etc. thinking their countries aren’t extra special.
Why do you?
I think the dollar may rebound sooner than we think. Also agree that the hope of QE2 is already well embedded into current asset prices. There is no compelling reason to destroy the world reserve currency, at least not yet. One major international upset will prove that point.
If commodities and fuel continue their rise and there is no jobs and wage inflation to go along, we will enter anoter recessison.
Thanks for the reply on the banks….
Are there a new batch of 500%er, positions that you have in mind?
Good morning Phil — need your help agjust Goog position that I short 5 of Oct 550 call for $4 and 3 October 560 short cal for $2.60. Forgot that this thursday is earning for goog, possiblity up side after earning, should I buy ITM nov call like 540 and after earning roll the call up and turn to a spread … not sure what to do thx
Phil—are you still bearish on WYNN? It’s up 2.5% today. Time to DD on the puts?
IWM 66.56, 67.09, 67.34, 67.93, 68.14, 68.33, 68.61, 69.01, 70.18, 70.55 and 71.62
Phil/lWYNN—-per my above comment, I meant DD on short calls.
Well, I feel better getting that off my chest. Sometimes I get into focus and realize what is really bothering me and it turns out that it’s this whole illusory market we’re building up based on debasing our currency in order to inflate asset prices.
Now, the question is, if you possess piles of these devalued Dollars, what is the best thing to do with them. Gold, copper and oil are losing traction to the Euro so that means commodities aren’t the best way to go right now (Platinum was my metal of choice a couple of months ago and they are up 13% but also stretched now at $1,700 an ounce). It really does look like the best payoff we can hope for is shorting the market and hoping the dollar pops as that will increase our supply of dollars at the same time as they increase in value but there’s no indication that the US will do anything to willingly increase our dollar’s value just as China has no interest in inflating the value of their own currency (which is pegged to the dollar and has been devaluing just as quickly). The devaluation of the Yuan means the Chinese get the same return on their reserves as they did when the dollar was higher – only the de-pegging of the Yuan from the dollar gives us a debt reduction with China ($2.5Tn in debt).
So we screw ourselves by devaluing the dollar but not our largest foreign creditor – SMART!
Levels are the same and I’m still looking to see if we hold those 5% lines into expirations. The critical test levels above 7.5% are Dow 10,950, S&P 1,160, Nasdaq 2,400, NYSE 7,450 and Russell 690– all green for day 2 and that does put us technically bullish if we hold it, even though it’s a BS, low-volume day. Our other levels are:
Friday’s put plays were DIA Oct $108 puts at .40, now .24 and I still like those. The weekly Qs popped then dropped and the QQQQ Oct $49 puts not only hit our .25 target but dropped to .20, where I really like those too. They are speculative but what a ride if we get a sell-off today or tomorrow. By Wednesday, we’ll capitulate and find things to buy if need be!
A totally meaningless day in either direction so be very careful.
PHIL DXD and SDS putters to roll by friday. Would you roll to January?
VIX back down to Apr. levels. Looks like everything is hunky dory.
VIX below 19.50
hmm,if i criticize anything about the Obama administration I am told I am too stupid to understand and an I am a rascist!! Not that the stimulus was wasted on a bunch of social mumbo-jumbo,Larry Summers was a bad choice,the war goes on in Afghanistan,an promoting class warfare sure is not "Washington as usual"…PS…George Bush is long gone!! Can you say"Jimmie Carter?"
Hi Phil– what is your recommend AAPL trade before earning or recommend to wait after earning. thx
Phil-do you still like theTLT Dec 102 puts ?
swellesley5 – No, plenty of criticism here, you must be thinking of another board…….
With vol low what do you think of picking up leap puts on spy and iwm.
Thinking about writing weeklies against the puts or just covered calls with locked in protection.
As I have often said, we either go Up or DOWN from here !!
Swelley, GWB is not long gone. When we are no longer spending 100s of billions on Iraq or Afghanistan, or dealing with bullsh!t rulings by a conservative Supreme Court then he will be long gone….
A BIG IF, but……………..
Phil – VECO – do u like the below VECO play?
Phil’s Buy/Write strategy can be initiated by buying half of your desired VECO position and then for each 100 shares of VECO, SELL one Jan $36 2011 put and SELL one Jan $36 2011 call on Monday:
Buy 1/2 position in VECO Long at open Monday (approximately $36.50)
Sell 1 Jan. $36 Call per 100 shares of VECO (approximately $4.40)
Sell 1 Jan.$ 36 Put per 100 shares of VECO (approximately $5.20)
TMV/Savi – you bought 700 shares at $83 and they are now $34? Ouch! Well you still have $23,800 and you want to make $34,000 back and the best way to do that is to perhaps sell 1/2 the Nov $35s at $2 and buy 1x the Feb $45s for $1 so you spend nothing and you add 1x to a potential move up. If you get called away, you have the same cash you have now but you still have all but $10 of your upside. If you don’t get called away, you sell another $2 and buy another $1 and maybe, if you are lucky, you have 3x or 4x of the long calls by the time TMV takes off again. You may have to do this for a year or two but you get the idea, you accumulate a large, free, long position making use of your holdings to leverage an upside move.
CME/Savi – As I said, much easier to fix since owning the stock is silly anyway. You own 100 shares at $260 for $26,000 and all you have to do to make $20K there is agree to DD at net $196 and sell 2 2012 $195 puts for $16 and buy 2 $220/270 bull call spreads at $17, which returns $18,000 profit at $270. I would caution you on CME that their weak performance in the face of a big commodity boom may indicate they are generally a poor bet though and you may be better off moving on from this one rather than trying to "fix" it. I won’t say you were an idiot but realizing you are in idiot is the first step to becoming a better investor. If you go into every trade supposing you could be totally wrong and taking steps to hedge your decisions, would you be better off or worse off than you are now? If you set stops that takes your money off the table when you are wrong – better or worse? If you scale into a position because there is at least a 50/50 chance that you did not pick the perfect entry point – would you be better off or worse? Only by accepting FOR A FACT that you are not a perfect trader will you be able to make rational decisions based on imperfect trading outcomes.
Morgages/Cap – Absolutely, it’s a total sham. MERS was a disaster that robotized the whole mortgage system without following established rules and the fact that they neglected to change those rules has led to the whole thing now imploding as all illegal schemes do once the damage becomes obvious. I never thought it was a big deal (being in the industry) because I always thought they were working on changing the law or something but it turns out they forgot that little part when things were good and now they are in the very uncomfortable position of having to ask 30M upside down homeowners, 10M of whom they are in the process of foreclosing on, to abrogate their rights in order to make sure the banks can proceed with repossessing their homes. Oops….
Xenophopes/Flip – Wow, I hope you are joking but, if not, we can discuss after hours… Here’s one recent video on the subject as well as the classic history lesson from your friend Michael Moore.
Recession/BPS – Without job growth we are in big trouble. We may not see it but Europe and Asia do.
500%/Jasu – Same ones as last week still work. So far, nothing has changed.
GOOG/Gucci – Well, I’ll point out that GOOG is not at $550 so it’s hard to be worried at $541 with a week to go. No way should you buy Nov to cover because that premium will get wiped out too on a move. If you want to keep and cover, I would roll the $550s ($8) and $560s ($5) to the Nov $580s ($7) and you can cover their $24 delta with March $680s at $4.75, which have a .12 delta so they will mitigate 1/2 the damage on the way up (and you can always DD and roll them while you roll the callers up to match). Since the thetas aren’t even close, you are playing the time-decay game on the trade but, of course, this is still a bearish play on GOOG with a hedge, you will still take a hit if GOOG goes up.
WYNN/Fortep – Yes, I’m still bearish on all the stuff that went up as they all went up for the same silly reasons. I wouldn’t DD on things while we are sitting up here in technically bullish territory. More like roll along and wait for sanity to resume at the moment.
DXD, SDS/Willsons – Which positions?
VIX – I told you guys they could go much lower. Now it’s getting interesting as we finally broke 20!
Later for political nonsense please Swellesley. We try to keep that discussion in non-market hours so we can make money and fix the world later. Thanks!
TLT/Savi – Yes, I do still like them. I think the wheels will come off the QE2 bus soon.
Puts/Samz – I would hesitate to do anything long-term where you are paying the premium but as long as you feel you can control the short-term trading, it can be interesting. I am worried about another flash crash or a relentlessly bad week messing up those covered put strategies.
Up or Down/JRW – BRILLIANT!
My morning FX play is:
Buy ( long) AUD/CHF at market
Stop (sell) at .9350
Stop (limit) at .9850
Methinks this mortgage fraud issue is going to be a catalyst for some downside …
Still short FCX
PHIL DXD Bull call January 27-32 October 27 putter. Roll putter to January by friday????
JRW… I like your optomism !
Dollar showing some life. Go Greenbacks.
SLT – A long I bought some of and plan to add to with today’s double-bottom breakout
Target is just shy of $18 in 4-8 weeks. Good commodity diversification long-term trade…
Will bee adding to my NEM ( Newmont Mining ) positions today. This is a play on gold primarily, but also copper.
Lots of talk about the anticipated quantitative easing…. why not just get to it and go one step further and talk about the inflation that will result from it. Since 1971, the American dollar has lost 90% of its purchasing power relative to the hard currencies.Greenspan liked to be referred to as a Fed chairman that fought inflation… ya sure… In his 19 year tenure the dollar dove over 50%…. And Ben… he will will set a record, and might even be presented with a Nobel prize after all the dust settles.
Good article on the dollar !!
Obama pushing the much needed infrastructure – yet another bill to be filibustered… (am I getting cynical?)
VECO/Terra – Yes, I did like that one. Usually if Ilene puts them up, I’ve already worked on the trade idea but always worth asking. Sabrient was justifiably bullish on VECO and, based on their short-term target, I liked this play to take advantage.
FCX/Cap – One day…
UUP had a strange spike in the pre-markets, up 10% then back down.
DXD/Willsons – Oh the putter. Yes, that has to be done, can spend .40 to roll them down to the Jan $25 puts.
Nobel/Gel – Maybe one for physics in finding a value for the dollar that is so small he ends up proving quantum theory…. 😎
Phil: I’ve been traveling and I’ve lost track of the hedges you are recommending. i have a long-term stock portfolio to protect. I’ve sold premium against many of my long stock positions and am heavily short FCX calls but I need additional downside protection. I am long QID Nov 13 calls, short QID Nov 15 calls, and short QID Jan 13 Puts (total cost .29). I some have DIA Oct 109 puts (cost .88) and a small position in SPY Oct 116 puts (cost 1.48), these have lost 50% of their value and need to be rolled as they are getting too close to expiration. I am considering moving a percentage of the stocks to cash (say 25%) but need to hedge the rest. I am not adept at hedging and could use guidance. Thanks.
will keep a look out for something else and get out of CME
Good morning! I hope all got out of ALXA last week…..they took a 60% haircut on the FDA denial.
Hedging/John (Everyone) – It’s best to focus on just one leveraged hedge along with the normal DIA or SPY mattress play. Right now, due to earnings, my two favorites are QID and FAZ as I think we could get a scare in tech or financials. I think CRE is scary too but they go up and up and up no matter what so tech seems more likely to shockingly disappoint and the financials may not guide as well as people think.
Alxa – got out at 3.49. I love it you get a win "by the skin of your teeth" 🙂
JRW / Currency devaluation
Your link is very descriptive of the transitional demise of the dollar. The United States is not alone in this overindulgence and the resulting problems. Many other global currencies have suffered similar debilitating devaluations, beside the dollar. In the post WW 11 period, Latin America literally saw its currencies crumble in the inflationary 1970’s and 1980’s. In the late 1990’s currency values were desecrated in Asia. Russia devalued and crashed in 1998. Other currencies that have tanked over the last 35 years are: South Africa, Turkey, Iceland, India, Pakistan, British pound, and the Italian lira – just to name a few…. oops I almost forgot Mexico. The US has joined the party and we are the RESERVE currency. Have I mentioned lately I like Gold? — reading this stuff does tweak your interest, as with so much in the way of currency problems, folks are looking for stability when it comes to a store of value that is reliably immune from these massive devaluations.
I added a 2012 bull call ratio spread to my NEM plays, and also sold some December 60 puts, to help pay for the spread.
ALXA – got out just in time, thanks Pharmboy! Now the question is: do you think this one was unfairly pounded and we start while it’s down, like with CRIS?
"[The US political system] has two parties that totally disagree with each other on every issue other than maintaining the status quo, which is destroying our nation day by day."
That quote’s a keeper!
Phil, I have a long call F Jan 2010 12.5 which I rolled down from 17.5 due to margin req, against them I have been selling covered calls with not a great succes because F has been in uptrend lately, anyway now I have shorted March 2011 12 at 1.20 and today is at 2.46 but still 0.65 premium in them, what shall I do? wait until the premium is consumed and THEN roll or is there any other adjustment I can make to improve rhe trade? Thanx
sorry the long call is Jan 2012 12.5
THE THING ABOUT CHAOS: IT’S FAIR
hahaha that’s a great line too….
Phil, CMG continues higher.. I have short 2x Nov $180s (from a previous roll) @ $6.7 in premium and 1x Oct $170s @ $5.70.. I want to roll the remaining Oct to 2x $180 Nov to end up with 4x Nov $180s. This is now getting a bit oversize, HOWEVER margin is not (and will not) yet an issue even if CMG shots up to $200.
I was thinking of buying 3x Mar 2011 $200s @ $9.50 and convert the whole play into a ratio backspread, but I SERIOUSLY have trouble buying calls for such an expensive price, even if the intention is to have the shorter calls expire worthless and sell whatever value remains in the long-term ones.. or buy an additional caller if CMG announces spectacular earnings and raises guidance and then roll the short ones to higher prices and convert it to a vertical call spread. However I feel that if CMG misses by one bit, the plunge will be significant and I will end up LOSING money from the ratio backspread.
What would u suggest?
At the open: Dow +0.12% to 11020. S&P +0.1% to 1166. Nasdaq +0.05% to 2403.
Treasurys: 30-year -0.07%. 10-yr +0.06%. 5-yr +0.03%.
Commodities: Crude -0.54% to $82.21. Gold -0.04% to $1344.80.
Currencies: Euro -0.04% vs. dollar. Yen +0.19%. Pound -0.14%.
10:00 AM On the hour: Dow +0.1%. 10-yr +0.05%. Euro +0.04% vs. dollar. Crude -0.07% to $82.60. Gold +0.26% to $1348.80.
11:00 AM On the hour: Dow -0.02%. 10-yr +0.06%. Euro -0.28% vs. dollar. Crude -0.44% to $82.30. Gold +0.09% to $1346.50.
12:00 PM On the hour: Dow +0.08%. 10-yr +0.09%. Euro -0.45% vs. dollar. Crude -0.34% to $82.38. Gold +0.27% to $1348.90.
Three lunchtime reads:
1) The $6T opportunity: emerging-markets infrastructure
2) Currency tensions rising
3) The Fed’s mystery is gone
Bought the EUR/NOK… looking to take profit at 8.39…. could be a very long play… betting on continued Euro strength.