Anti-Claud is coming to town!
You’d better not print, you’d better not ease you’d better not contract or your wages will freeze – Jean Claude Trichet is coming to town… The EU’s Central Banker has a lunch meeting at the NY Economic Club and there is no one who knows better when Bernanke’s sleeping and when the recovery is fake, so we’d better pay attention, for the country’s sake! THIS is the most powerful banker in the World, not the hollow Bankster puppet we have setting US policy, and Trichet has fought easy money tooth and nail -even as the US embraced it this year.
As you can see from the Chart on the right, Europe is a bigger (slightly) trading partner of China than the US and a MUCH bigger buyer of US goods than China by a factor of 3. The strong Euro lowers Europe’s trade imbalance as they have to send less Euros to both the US and our peg-partners in China for the same amount of goods they bought last year while the same goods they sold last year ship out in exchange for larger amounts of foreign notes.
With the Bank of Japan this week boosting its asset- purchase plan and the U.S. Federal Reserve mulling a similar shift, Trichet said last week that ECB policy makers are in the “same mood” as a month ago and for now remain committed to phasing out their unlimited lending program. That boosted the Euro back to $1.40 for the first time since February. The ECB and Fed compose “two different schools of thought,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “The ECB is looking at their own economy and seeing some signs of a revival. They’re very concerned about going down the line of the Fed.” Now Mr. Trichet will attempt to school us this afternoon – not coincidentally, on the same afternoon that the Fed Minutes will be released and QE2 mania is likely to peak out.
As noted yesterday by Zero Hedge, "While risk assets may hit all time highs courtesy of free liquidity, the economy, also known as the middle class, will be stuck exactly where it was before QE2… and QE1." The article does a great job of outlining my long-standing premise that money simply cannot be printed fast enough to overcome a drop in velocity and, as indicated by this chart, the drop is precipitous:
50% WORSE than the cumulative decline of the Great Depression! That would be BAD. Even worse, the idiotic policy of pumping free money into banks who don’t lend other than to corporations who don’t hire (and, in fact, have been using the money to buy each other out which leads to consolidation and more firings!) has grossly distorted the economy and the markets and, Dahling, in economics, it is NOT better to look good than to feel good…
According to the UK’s Telegraph: "A depression may have been averted, but nothing has been fixed. This is the depressingly downbeat message that came across loud and clear from last weekend’s annual meeting of the International Monetary Fund. The destructive trade and capital imbalances of the pre-crisis era are back, banking reform appears stuck in paralysing discord, public debt in many advanced economies remains firmly set on the road to ruin, and the spirit of international co-operation that saw nations come together to fight the crisis has largely disappeared."
Jeremy Warner sums it up, saying: "I don’t want to belittle the difficulties faced by some of the peripheral eurozone nations, but in the scale of things they are a sideshow alongside the malaise which has settled on the world’s largest economy. The house price collapse means people can’t sell and move to economically stronger parts of the country, as they’ve tended to in past downturns. High US unemployment – already at 9.7pc and getting on for double that on some wider measures – is becoming entrenched."
US Treasury forecasts, both for growth and the public finances, continue to be based on delusionally optimistic use of "the Zarnowitz rule", which posits that deep recessions are followed by steep recoveries. Regrettably, it’s not happening this time around. There’s no political appetite or will in the US for the long term entitlement reform and tax increases necessary to bring the deficit under control. Nobody believes US Treasury forecasts that public debt will be stabilised by 2014. Much more believable are IMF estimates which see gross US debt rising to well in excess of 110pc of GDP by 2015.
"So what’s left?" Warner asks. "The Fed can act, by pouring more money into the economy (QE2), but the Hill is paralysed. A second fiscal stimulus of any size is blocked by political division. More monetary stimulus is all very well, but it’s a blunt instrument which struggles to get through to the job creative bit of the economy – small and medium sized enterprises – and threatens new bubbles in emerging markets as abundent liquidity chases yield."
Nonetheless, the markets are in the throes of QE fever with commodities spiking up over 10% in the past month, driving Global Inflation out of control with UK CPI clocking in at 3.1%, forcing BOE Governor, Mervyn King, to write his 5th letter of the year explaining to Treasury why he can’t keep inflation under control – AGAIN! King is required to write an explanatory letter when consumer inflation misses the 2% target by a full percentage point in either direction, then once every three months that inflation remains outside the target by more than a point.
If only our own Fed were somehow held accountable to the people of this country – even symbolically…
Meanwhile we are left to read the tea leaves of todays Fed Minutes (2pm). The door was opened to QE2 at the last meeting and now traders will be looking to take the measure of the madness that is the Fed and Treasury’s policy of devaluing $30Tn held by US citizens (see yesterday’s post) by $3Tn, in order to borrow $1.5Tn more, most of which we ship overseas to fund our massive trade imbalances. This will come right on the heels of today’s $32Bn 3-year note auction, just a small fraction of what we’ll be needing to get by in October.
Consumer Confidence is at 10 am along with the IBD Economic Optimism Survey and the Employment Trends Index so let’s watch that for some market direction this morning. We already had a reasonable ICSC Weekly Retail Sales Report (up 0.4%) and the Redbook Chain Store Sales Report declined only slightly at +2.5% vs last week’s +2.7% – a minor disappointment.
Tomorrow we have Morgage Applications (not good), Import/Export Prices (probably bad) and Crude Inventories. Despite record inventory builds in the US and Europe and prices that are up 15% since the end of summer driving season, OPEC has RAISED the demand forecast for 2011. The Global Cartel predicts 3.6% growth in global GDP in 2011 despite the fact that the US will slip from 2.6% to 2.3% and Japan will fall from 2.8% to 1.3% and Europe will slip from 1.2% down to 1% in 2011. Even China (9.5% to 8.6%) and India (8.2% to 7.7%) are forecast to decline so it’s a little hard to see where our Saudi Masters see +1Mbd of usage next year but it is good news in that this should keep them from calling for production cut-backs at their next meeting.
Like all runaway commodity assumptions, OPEC sees a never-ending flow of bailout money supporting flagging demand and rules out the possibility of a double-dip recession simply because the rulers of the West are far too wise to let anything like that happen. Notice the OECD demand goes to zero but never below – it is unthinkable to OPEC that we would cut back, even though – according to their own projections – we are a good 2 years away from even getting demand back to where it was in 2008.
Never let it be said that lack of actual demand ever got in the way of a good commodity story. GS reversed what was looking like an ugly global pullback in metals this morning by raising their target on Gold to $1,650 12 months out. That turned Europe around from a very poor open and dropped the floor out from under the dollar, which rescued the US futures from what was looking like a very bad open with the Dow down to 10,875 at 4am on the futures. Don’t worry, everything is back to normal now and the Yen has bounced back from 82.35 to the Dollar last night all the way to 81.85 (it’s always 0.5) just ahead of the US open.
This move did not please the Nikkei, which fell 2.1% (200 points) back to 9,388 and the rest of Asia was down mildly except the Shanghai Composite, who are still catching up from their vacation. Copper was very happy as it lept from $3.72 to $3.78 and gold came of the $1,340 line back to $1,355 with oil jumping from $81 back to $82.25 so a very exciting morning already and tons of data to keep things lively through the day.
We’ll be testing our watch levels for real today and we’ll be looking to hold Dow 10,950, S&P 1,160, Nasdaq 2,400, NYSE 7,450 and Russell 690 if the markets are going to impress us. Below there are the 7.5% lines at Dow 10,965, S&P 1,146, Nas 2,365, NYSE 7,280 and Russell 672 and if those fail, it’s a quick ride back to 5%. Our morning plays yesterday were shorts on the DIA and the QQQQ weeklies and, at 12:09, I sent out a special Alert to Members outlining 4 very high-reward spreads on QID and FAZ heading into earnings so we are still expecting things to slip (we even cashed out last week’s aggressive SSO trade yesterday with a nice-enough 800% gain out of 4,000% possible (see this week’s Newsletter for details on the trade) – not bad for 3 days on a hedge we didn’t really believe in!
what was the reverse split on YRCW?
and what rmm12 asked
Well, "they" had the perfect opportunity yesterday and let it fail; right now they are trying to get over an ascending trend line now at IWM 69.49, if they can we go up if not we just keep drifting up. I think it depends on the FED minutes and to a lesser extent the 3 yr auction. If the FED says "we are prepared to do whatever is required" I think we go up; if they give out a number, it will probably be too small and we’ll get a pull-back. We are still in the channel (68.37 to 70.43 today) that we have been in since late August; when we break out, either way, it should be fun 😎
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1020 / Biblical Proportions
Ha – The best way to start a trading day is with a good laugh… that way you do not make a joke of some of your trades !
Informatica’s product line is very impressive. Recently sat in on product demos from an Informatica sales team. High quality, very well-integrated.
A tidbit on WFR: It’s a new purchase in Third Ave. funds’ latest Q report which I would think is a (LT?) bullish sign notwithstanding its recent spectacular run up –besides dollar strength, and a whole host of other usual suspects.
Phil, what do you think about an artificial buy/write in BAC, buying the Jan 2013 10 call for 5, selling the Jan 2013 15 call for 2.31 and sellin the Jan 2013 10 put for 1.51, for a net 1.23 in the BS already in the money?
Biblical/1020 – Ah, that certainly clarifies it!
YRCWD/JMM – That’s what we expected off the reverse split. I think I decided $3.50 would begin to get interesting but they just look pathetic, don’t they?
France/Flips – So I agreed France did something good and now I worship it as a God? Oh well, I can’t argue with that logic… Of course we can’t compare 50 highly diverse states each with their own constitutions, legislative bodies and taxing authorities to the different countries in Europe – that would be idiotic. To even suggest that the culture of NY or California is different than that of Alaska or Louisiana would be just as ridiculous, right? So I will not waste your time since, as you say, any attempt to do so would be in vain.
YRCWD/Maya – They did a 1 for 25 reverse split from .25 to $6.25 a share. They have since dropped down to $4.11, which is like .16 per old share and we had liked them at .14, which is $3.50. I will point out that you can sell the Jan $4 puts for $1.17 but I still don’t find them all that appealing until they show some kind of strength.
$5 List/David – Nice Job!
12:00 PM On the hour: Dow -0.27%. 10-yr -0.02%. Euro -0.12% vs. dollar. Crude -0.61% to $81.71. Gold -0.41% to $1348.90.
Three lunchtime reads:
1) Three weeks that will rock wall street
2) The final end of Bretton Woods 2?
3) Who’s saving where?
Holy Canoli ( Italian term ) …. INFA is starting to move…. must be Cramer reading PSW again. I added a short March straddle ( 37.5 ) to my stock purchase, and converted it into a Buy/Write giving me a 22% discount on the stock purchase.
Thanks, boobearsdad for the confirmation – makes me a lot more confidant of the play !
The difference, as you well know, between Californica, as a state within the United States, is overseen and governed by a massive central government operating out of the dungeons of Washington D.C. The money we send in taxes from Pennsylvania goes to Californica or West Virginia based on a ridiculous system based in the trade Union philosophy of seniority, not merit. A bridge to nowhere under Ted Steven’s aegis in Alaska gets paid for by citizens in Rhode Island. And so the merry-goround goes, as these Incumbents game the Federal budget. Try that in Europe and see how far you get.
This, as you also well know, is not the case with France. To compare them once again, in spite of their incomparability is more than a desperate stretch. Give it up. It doesn’t and can’t work here UNTIL the U.S. breaks itself into a European model in substance. And that possibility is as likely as lefties giving up on an idyllic socialist state.
I can’t find anything official from NY but this is what I hear Trichet is saying and it was published on ForexPros (linked):
WFR/Reza – They are an excellent long-term stock.
INFA/Gel – Good one!
Yes Flips, I do give up….
01:00 PM On the hour: Dow -0.39%. 10-yr -0.15%. Euro -0.07% vs. dollar. Crude -0.61% to $81.71. Gold -0.46% to $1348.20.
BAD NOTE AUCTION – TBT Flying TLT DROPPING – Very strange with QE2 and the Fed coming up at 2.
Hi Phil ; what do u think of NOK at this level?
Phil: Thanks for reply on VZ. What I was doing was setting up the first leg of collar on VZ. However, I have not had much luck with this type of trade. Seems like it is difficult to ever get enough premium back by selling calls to pay for the puts. By the way, I rarely pay premium anymore thanks to you.
Phil- If your last name was Bernanke- do you force rates lower and risk Jimmy Carter inflation all over due to the 10% increase in commodity prices we have had or do you bite the bullet and force rates up= interesting food for thought! Which one does not tank the market?
I think I will wait for it to come to me, perhaps around $3.50 before selling some puts
Or may get in a 1/2 position
Bad note auction, have you ever witnessed such distorted markets? How can you have a weak currency and such high demand for treasuries? Bernanke..
Hi Ho Silver !!! – Just executed a nice Buy/Write on SVM ( Silvercorp Metals ), buying stock and selling a short March straddle @ $9.00. It gave me a very nice 26% on the stock purchase on a down day.
kustomz / Auction
The Fed can absorb only so much Treasury debt, but they have not yet discovered this yet, and what is even more amazing is the number of naive that think they are safe with this junk…. What will happen to them when the Fed changes their policy? Hmmm
Jbur–just wanted to make sure you saw my response to you today at 10:09–
What do you think about specialy chemicals sector, in particular, CE, SCL , FOE, ROC?
gel – Holy Canoli! I thought only my family says that! 🙂
From Tim Duy:
Put simply, the Federal Reserve is positioned to declare war on Bretton Woods 2. November 3, 2010. Mark it on your calendars.
Consider the enormity of the situation at hand. The Federal Reserve is poised to crank up the printing press for the sake of satisfying their domestic mandate. One mechanism, perhaps the only mechanism, by which we can expect meaningful, sustained reversal from the current set of imbalances is via a significant depreciation of the dollar. The rest of the world appears prepared to fight the Fed because they know no other path.
Thanks for reply. And, yes, I would appreciate receiving some info on Cook Islands. My emai is: firstname.lastname@example.org.
I looked up several books by the author you mentioned, and they look intriguing. Have a good day.
Tx Phil on SVU–
NOK/Dflam – I don’t like them because their strategy was too dependent on giving everyone in the World a cheap $49 phone but that’s kind of shot right now and I don’t see them doing a quick turn. We’ll see how they handles the 200 dma at $11 but I wouldn’t be surprised to see them fail here.
Speaking of failures – FSLR still having a rough time of things.
Collar/Jbur – Ah, not my favorite kind of play.
Bernanke/Jthom – Well if I were the Fed chair I’d be a toady to the banks and I’d flood the market with cash in exactly the stupid way he’s doing it so banks have all the money and they can force sales of the assets as they inflate and, after they go back to cash, THEN I would make money more valuable by tightening up, throwing yet another round of homeowners onto the streets. If I were me and you gave me the reigns of the Fed, I’d prioritize bringing 30-year notes down to 1% so businesses, banks and even homeowners could refinance and free up cash. While doing that I would drain as much other liquidity as possible to make short-term money more expensive than long-term money. Also, to keep housing prices in check despite low rates I could continue buying homes from banks but quickly turn them around and dump them at auction. THEN, on a date I telegraph years in advance, I would begin to raise rates 0.25 per quarter back to 2% and then I’d really tighten up money so the dollars people have become valuable and that would take the sting out of rising home prices and keep a lid on commodities and lowering the cost of exports (lightening our trade imbalance).
Meanwhile, 10 mins to minutes!
YRCWD/Maya – Yes, I think they will be great to look at IF we have a big pullback – hopefully we’ll see where the floor really is on them.
Notes/Kustomz – It’s nutty. A total charade but everybody’s willing to play so the game continues.
SVM/Gel – Sounding like you have many metals…
Bretton/JRW – Oh, I forgot to mention today, we are pushing the envelope of what middle America can afford as evidenced by huge increases in people who walk away from their prescription medications at the counter (now 10%) because they simply can’t afford the medicine anymore.
Is there anyone else on the site that is short C Oct 4 calls? If so, what are your thoughts, roll to Nov 4’s or just buy them back at a loss? Banks are acting a little exuberant right now ahead of the meeting.
Phil… Yes, my precious metals are Gold, Silver, Palladium, and Plutonium… The plays on these metals are diversified by holding ETF’s, mining stocks, and bullion, as well as a few others that are related to the underlying stocks ( options etc. ) All of the plays are following a central theme, but diversified as much as possible.
Did you see today where JRW had Lloyd give an upgrade to Gold, in the not too distant future ?…. thanks, JRW !
Is there anything market moving in the minutes? It seems very uninformative…
HERO- up 10%- deep water drilling ban lifted- what the heck, I’ll take it.
Watch gold ($1,350) and copper ($3.80) and oil ($82.50) – why are they not happy enough to get over those lines?
Fed Minute Highlights:
So they are STILL expanding the list of people they will give FREE MONEY to.
Don’t forget, more red economic data is good as they WANT the Fed to be worried about jobs and have an excuse for QE2.
Wow, kind of bleak, isn’t it?
Whuck?!? So our buying premise is things are so awful that the Fed prints free money and we use it to buy stocks that inflate even though they have truly awful fundamentals – NO THANKS!
More to come….
So in reading the Bretton Woods II article…basically, Ben’s giving the rest of the world, especially the emerging markets, the finger by hitting them with a firehose of dollars.
Wow..that can’t end pretty. So how’s the song go…."So where do we go from here…."
JRW / Fed easing
We all must remember, that the Federal reserve is controlled by a guy ( surrogates included ) that believes in inflationary measures to jump start the economy. This was his thesis in graduate school, and he still believes in the theory, albeit somewhat out of touch when comparing our problems today to those that prevailrd in the 30’s. Inflation can cure many ills, such as sectors in the economy that are suffering from deflation ( real estate for one ). This cure is like many medications in medicine, they must be very carefully metered out, or the result can be very toxic, and kill the patient. Personally, I believe our Congress would be a better source for a cure through proper fiscal and regulatory revisions, BUT we can forgrt that – they are not qualified to understand the problem or the revisions necessary, and like we all know they can not agree on ANYTHING ! Thanks, JRW for the link.
gel / GS upgrade of gold
Lloyd always manipulates in His own self-interest; selling into the excitement in anticipation of a dollar bounce, IMHO 😎
Gel1 / Plutonium: Ha ha, I’m guessing a Freudian slip there. Platinum perhaps? I am a big fan of nuclear energy (hence CCJ spreads and sold naked puts as you have) but have never been able to find Plutonium as an investable metal! 🙂
Pstas / HERO
Nice, eh ! Does this move have legs? – Wondering about short covered calls.
hoss… my take is this… the dollar will surely drop, and all of the emerging markets will try to adjust their currencies to get in line with the USD ( classic race to the basement ) – great for precious metals !
Oh, we need the clip from Pacino in Scarface…."I’d like to introduce you to my little friend…."
Phil- You want the job- anyone could do better than BEN- he has a situation that has no winning hand!
gel / Congress
I completely agree; we need a National focus, like the space race (going to the moon). Focus on energy independence, a new electrical grid, infrastructure and to set up the next generation to succeed !! I only hope it is not too late.
neverworkagain – LOL.. Got my "p’s" mixed there. I meant platinum. Plutioium is precious ( very, if you are in the Iranian government , I guess )
David/List – Thanks for the list, and keep up the good work! I haven’ been as active reading the forum the last few days, so pardon my ignorance. My questions are: What is the time line for the stocks listed? IE: How long would we hold them for?Do we sell after certain % gain, also do we execute buy/writes on them as well? Just wondering.
M. Dell said to be preparing to buy the company, any thought?
JRW / GS
I do agree… that is why they are #1… I also noticed your reverence, by capitalizing " His " – LOL
Classic DR: This is a market completely based on hope. Throw fundamental investment principles out the window. It’s now all about how the Fed can manage to inflate asset prices now that fiscal policy has tested its limits with the voting public. But where does this renewed faith in the Fed come from? Is this not the same Fed that took the funds rate from 5.5% to near- zero? The same Fed that tripled the size of its balance sheet in QE1? The same Fed that thought the housing and mortgage crisis would stay “contained” back in 2007? The same Fed that confused a credit contraction with a liquidity squeeze? The same Fed that believed, in the summer of 2007 when the crisis first broke that we would see 2.5-3.0% real GDP growth in 2008? The same Fed that was contemplating its exit strategy just a short six-months ago and believed it could start to shrink its balance sheet last spring? The same Fed that investors have so much faith in, and is the same Fed that passively tightened policy with a 25 basis point hike in the discount rate to 0.75% back on February 19th. The same Fed that just trimmed its forecast three times in the past four months, and is this not the same Fed that investors now have “faith” in? The question is, the “faith” to do what?
On the the road can anyone give me an update on gold oil Dollar please
It gives one comfort to be able to remain calm in these troubled times 😎
Gel- HERO- legs? Near term, I don’t know. I am trading around a core position as a longer term value play and selling puts/calls as conditions warrant for income and accumulation under $2.50/share. Earnings coming up later in Oct (28th?) and they usually "beat" so looking to sell Nov calls into that. If not, will sell more puts on a pull back. This is still a good little company that no one seems to like but I am patiently waiting for the ship to come in.
JRW/Focus I’m afraid it’s too late. In order to have focus, you would need agreement and cooperation towards a common goal. What we need is a Monarchy 😉