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!
Pharm… yes the same Fed ( with the help of Greenspan ) that gave us a 50% depreciated dollar over the last 20 years.
JRW- The only hope I have for a 5 year hiatus is we develop renewable energy commercially tomorrow!
JRW – patience and a little $$. Our house of cards is about to fall.
Pstas / HERO
Thanks, I agree with your strategy and targets. I am also bullish on oil long term, and the Gulf is a strategic necessity for oil production, IMO.
pharmboy- the banks will lead us down once again!
1 bank, jthoma…1 bank.
Phil–what do you think of selling the SLB 2012 $50 puts for $5.00? thanks
Well, I wouldn’t buy any right now. What I am going to do is monitor the list for times when they become attractive. Most of them will become attractive at the $5 level. It will sort of be the signal to buy most of the time. Once they hit $5, if the stock is attractive to institutions and mutual funds, they will load up on them.
I will alert you when to buy. I don’t know much about playing them with options, so I will recommend stock buys. Perhaps, you can ask Phil or another user for the option strategy on them if that is the route you want to go.
Hope that helps!
Pharm… The house of cards is suffering from a life threatening problem, and the doctors are ill prepared for the task. I hope you are keeping that Kansas bunker ( undisclosed location for security purposes ) in a "ready to occupy" condition.
Gel, I buy HERO 2,15 and sel 2012jan 2,5 C 0.75 month ago.
english- Are they giving away SBUX coffee with all NFLX movie rentals now?
Fed Minutes – Part II:
What a crock this is! Consumer prices are up and core prices are up but Producer Prices are down and commodities are up so the Fed is pleased with the "balance".
Purple because it’s great for business but sucks for humans.
It’s interesting to see what kind of things they are watching….
Could be signs of a bottom finally, but a rough one…
So, if companies start coming out with good earnings reports – what happens to this whole QE2 thing?
What a schitzo bunch!
Where exactly is the investment opportunity here???
A big case for QE2, or at least a justification for it.
So, what they are saying is if they baffle us with BS, rate/inflation expectations will rise and spur people (who have no money and no jobs) to buy. So the stimulus they are leaning toward is nothing more than a trick to squeeze a few more bucks out of consumers, without solving any of their actual problems.
Wow, this is a tough one. What has the data really been since Sept 21st? Generally better I think and that’s — Bad...
At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:
The vote encompassed approval of the statement below to be released at 2:15 p.m.:
Voting for this action: Ben Bernanke, William C. Dudley, James Bullard, Elizabeth Duke, Sandra Pianalto, Eric Rosengren, Daniel K. Tarullo, and Kevin Warsh.
Voting against this action: Thomas M. Hoenig.
Mr. Hoenig dissented, emphasizing that the economy was entering the second year of moderate recovery and that, while the zero interest rate policy and "extended period" language were appropriate during the crisis and its immediate aftermath, they were no longer appropriate with the recovery under way. Mr. Hoenig also emphasized that, in his view, the current high levels of unemployment were not caused by high interest rates but by an extended period of exceptionally low rates earlier in the decade that contributed to the housing bubble and subsequent collapse and recession. He believed that holding rates artificially low would invite the development of new imbalances and undermine long-run growth. He would prefer removing the "extended period" language and thereafter moving the federal funds rate upward, consistent with his views at past meetings that it approach 1 percent, before pausing to determine what further policy actions were needed. Also, given current economic and financial conditions, Mr. Hoenig did not believe that continuing to reinvest principal payments from SOMA securities holdings was required to support the Committee’s policy objectives.
It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, November 2-3, 2010. The meeting adjourned at 1:10 p.m. on September 21, 2010.
Volume is just 97M on the Dow at 3:15 – very low. Crazy low for a Fed day!
Chemicals/Alik – Not my thing but I’d be happy to take a look on the weekend.
AAPL shooting up to 52-week highs, that’s keeping the Nasdaq moving. Russell still reporting wrong % increases, very annoying.
IWM puts right on the line, $1.55 now and it looks like a stick in the making so a nickel/.06 loss and running since things didn’t work out is a good idea.
Hoenig is the only smart one in this committee
1020 / Italia
If you have relatives there, get a letter or two saying they need you, take it to the Consulate and let them do the work; that should save you a great deal in legal expenses !!
One of my favorite momentum plays ( ICE ) is still doing what is expected. With the recent upward moves, I am setting a new stop @ $97. to lock in profit. I still believe this stock has the fundamentals to climb far further, particularily after their next earnings announcement.
It is a bit late to respond on you question on C I rolled the Oct 4c to Jan 5c and sold 1/2 Jan 4 p for .23 moving up like a snail.
Metals/Gel – If the Fed officially announces QE2, I will join better late than never. Clearly there are many willing to pump this market higher and higher at the moment and a real scarcity of sellers.
XLF taking off, almost testing $15!
Minutes/RN – See comments. It’s enough talk about easing that the bulls can hang their hats on it.
HERO/Pstas – Nice trade!
Looks like they are going for AAPL $300.
Getting tedious but DIA $112 puts are now interesting at $1.65 with a $1.50 stop or stop at Dow 11,051 (4 points up).
This is extremely painful..
JRW – Great Idea! Hopefully they want me….. 🙂 Thanks!
Any interest in playing Intel $20 puts overnight?
Have you done anything wth the Oct 49 Q’s you rolled into from last Friday?
Hopefully you won’t have to buy a "villa" and make a rather sizable bank deposit 😎
So… are we all supposed to hope for bad economic data now? Or taking it to an extreme how about terrorist attacks and stuff. Wouldn’t that necessitate more easing?
Gel thanks for SVM, followed you on that. Now have small positions in EGO, SVM, ABX and NEM, so covered on miners. Still thinking about soft commodities.
If QE2 doesn’t come, yikes!
Phil / FED
Remember Ben’s charge is to ensure the well-being of the Banks, NOT the People !!
David/Achou – I think it’s best asking those questions on David’s $5 post – that way the conversation is useful to all. Thanks.
DELL/42L – I agree with him, it could be run much better but he already returned as CEO and didn’t help it much so I don’t know what more he will accomplish as an owner.
LOL Pharm – Great summary of our Fed!
Kustomz: Oil $81.80, Gold $1,353.30, Copper $3.812, Dollar right on the 77 line.
Buy program stopped dead at 110M on the Dow at 3:37 – Strange…. No momentum at all to the move so they’ll have to run it again to get interest (if there is any).
SLB/Datuu – I like that a lot because they are a great company and that would be a great entry.
INTC/Dr.C – I think you are better off with SQQQ calls or QIDs as a poor INTC report will shock the Nas.
More easing/Kinki – Terror, global warming, record unemployment, oil shortages, war, asteriods, super bugs – all bullish for the market under the new rules! 😎
I was looking at the NOV VIX options and they have a very weird Prob of expiring… The market has priced in a major move up in the VIX. $19 Calls at 5.60 and $19 puts at .30…. Is this a sign? I don’t understand the mismatch other than a strong bias for the VIX to move up dramatically… Can you enlighten?
Phil / Bull — what’s bearish in this market? What a bunch of BULL!
Never fear, QE II will come; it has to, as who else will buy our paper in sufficient quantities !!
Ben/JRW – Don’t I know it! What a freakin’ disaster this is for America and all the happy talk about it on CNBC is just so grating.
AAPL $299.46 – does everyone have their $300 hats?
VIX/Novice – It’s an indication that a whole lot of put buying is going on for Nov expiration. That’s in line with my expectations of a correction either now or soon after the elections.
$1.35 on the day, 2 1/2%; add that to yesterday’s 12 cents and it makes me wonder why I get up so early 😎
Hoss…. Good luck to us. I am not much worried. I believe the Fed action ( or inaction ) is not the catalyst long term. All of my metal plays are targeting the inevitable, that is being created by a consortium of causes. There are so many other countries that are easing that will fill in the gap. You might want to consider GG – they are a big player in this scenario, and are a low cost ( relatively ) producer.
Here’s the second weekly newsletter, 10-10: http://ilene.typepad.com/ourfavorites/phils-stock-world-weekly-newsletter.html.
It’s kinda mind bending, but be patient with it…he really clarifies the steepness of the Volatility Horizon currently. Basically, his supposition is the correlation of the markets, and it’s continuing increase due to QE2 expectations, creates increased risk and that has to be reflected in VIX. Phil can probably explain much better, but this was VERY enlightening article for me.
Correlation may not be a good thing in a recovery…..
correlations/hoss: Nassim Taleb posits a similar theory in his book "Black Swan". I am paraphrasing from memory, but that rapid increase of complexity and interconnection between assets and markets creates incredible unpredictable risk — the proverbial "Black Swan". ABS’s, CDO’s, CDS’s, ETF’s, Monetization of Commodities etc, all create a complex "diversified" global web in which the failure of anyone aspect can set off a chain reaction. The diversification has a "moderating" effect, but it also hides catastrophic risk at the tails of the bell curve. Which is why he suggests buying OTM puts to hedge against Black Swans (or make money off of them). Similar is Phil’s "Disaster Hedges".
ilene – not sure if it is adobe or my computer, but the newsletter keeps crashing Chrome, Mozilla and IE….
Newsletter opens fine on my pc.
A bit off topic question:
Would appreciate explaining why (foreign??) buying of a country’s sovereign bonds, in large amounts, would cause that country’s currency to, relatively, [at least] not go down/strengthen?
Newsletter opens fine on my Mozilla (PC not Mac)
> a poor INTC report will shock the Nas.
Is the inverse also true? INTC at $.52 EPS beat estimates ($0.50); probably finding a lot of easy money in exports right now.
Adobe 9.4…..hummm….that’s the problem child.
The ‘whisper number’ (whispernumber.com) for Intel was for earnings of $0.55 which compares to $0.52 actual and $0.50 estimate. According to their logic, beating the estimate but not meeting the whisper number should be negative for the stock so it will be interesting to see how they do tomorrow.
Does it make sense to roll the Oct 16 65 sold OPEN calls (in at 1.53/now 2.00) to Nov 70’s for 3? Thanks.
When you have an opportunity, could you provide some guidance on how to hedge gold and silver bullion positions? I have ~$50k in gold bullion after some very sizable capital gains, and I’d like to keep the position, but I’m concerned about rapid 5-10% pullbacks in the coming months. I’ve been playing around with various GLD put spread scenarios, but honestly I am baffled as to the ideal sizing, whether the long put should be ITM, or 3-5% OTM. Best I have come up with for each $10k in bullion is +3 GLD Nov 129P / -3 GLD Nov 124P, with the intent to roll up or down 2-3 weeks prior to OpEx.
Any advice/suggestions would be greatly appreciated!
Poor JRW! 😎
Bonds/Reza – That’s a confusing question but the simple answer is that buying bonds denominated in dollars requires you, the foreign country, to get dollars to pay for them. So you have $82Bn Yen and you want to buy $1Bn worth of bonds – what happens. 1st, you must exchange your Yen for $1Bn – that is fine as they are both "in circulation." Next you swap $1Bn of cash for a piece of paper that says Uncle Sam owes you $1Bn in 10 years (boy are you gullible!). You have taken your $1Bn US Dollars OUT of circulation and exchanged it for a piece of paper, thus reducing the overall supply of available US dollars by $1Bn, making the remaining ones more valuable.
When the Fed buys bonds, however, they create money by writing a check. Rather than decrease the money supply they artificially lower the interest rates that are paid for money (by bidding low at Treasury auctions) and cause all the people who have real money to get paid less for the use of it. That is how the Fed robs you every time they write a check. They don’t "create money out of thin air," they create money by devaluing all the other money that exists by whatever small percentage – a crime so small you don’t report it but it’s done to you on weekly basis!
INTC/JVest – I don’t know if it can pop the Nas higher but it sure should give us a good view of the top. There are just such huge expectations built into things right now, it’s hard to imagine how earnings will end up.
And what lotter said (thanks!).
OPEN/DClark – I agree with that short. They are only at $65.69 with 3 days to go. I don’t think you want to pay that premium ahead of time. Just make sure your net $1 collection for the roll doesn’t get away from you (maybe at .50 you execute before it’s too late).
Yodi, thanks for response. I was gone the last 2 hours of the market today, and was not able roll C Oct 4’s before I had to leave. Ouch.
Social Security … no increase in benefits again. 0% for 2010; 0% for 2011.
Way to screw over the seniors DC !
That’s one way to try to hold down the deficit without doing any "cutting".
Unfortunately, seniors have to cope w/ very real food and energy inflation and no COLA on Social Security.
This will also hurt consumer spending, as Zero Hedge is pointing out.