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Sunday, January 29, 2023

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Which Way Wednesday – Top of the Charts Edition

Is it time to throw fundamentals out the window?  

As we went through the Sept 21st Fed minutes in yesterday's Member chat we read some things that were AWFUL about the economy.  I went through my usual exercise of parsing out the minutes and making comments for Members and it's been a long time since I had to use red highlights that often!  Still the market rallied, ostensibly on the premise that the economy is SO BAD, that the Fed will have no choice but to flood the economy with newly printed Dollars so that a rising tide of currency will lift all asset ships.

The boy from Zimbabwe  on the right is a multi-Trillionaire and those Trillions should be just enough to buy him a loaf of bread if he hurries to the store before they change the prices this morning.  This is what is happening to our own economy, only on a smaller scale (so far).  Our government,  like Zimbabwe, has gotten into so much debt that they can never hope to repay it but new bills keep coming in every day so – What is a government to do?  

Why print more money of course!  

Now, when a bill comes in, they just crank up the presses and drop the fresh bills in an envelope.  Unfortunately, after a while, the people who provide goods and services you and your government pay for begin to catch on that those bills are suddenly very easy to come by and they begin to demand more and more of them as exchange.  It's a little hard to picture unless you run it into the abstract but think of it like an auction, where 5 people have $5 each to bid on 5 items.  Well those items (commodities) will get somewhere between $0 and $5 from the bidders, right?  Now, what happens if one of the bidders prints himself up $45 additional dollars?  Now he can bid $10 on each item and the other bidders will get nothing.

That's what the top 1% are doing with commodities and other assets right now.  The assets are the same assets they were last year and the year before that.  There has been very little variation between supply and demand and demand has probably gone down a bit during the recession but that doesn't matter as 1% of the people have MUCH more money than the other 99% and they are all racing to snap up the commodities (gold, oil, homes, wheat, stock certificates, copper…) before even more money is printed as they fear THEY may get squeezed out of the bidding by whoever gets their hand on the next round of newly minted cash.

As I mentioned in Monday's post, this only works as long as you stay inside your little vacuum of a profligate nation.  Should our friend from Zimbabwe try to take his Trillions over to your house in America, he will be very surprised to find that a loaf of bread in America is $2 and not 0.20 (US) that he's used to paying at home.  Not only is he not a Trillionaire in America – he can't even afford enough bread to make a sandwich!  This, to a smaller extent, is what happens to us when we go to Europe or Japan.    

It is fairly horrifying for us to read a Fed report where they make the following statements:

  • the pace of the economic expansion slowed in recent months 
  • Housing activity weakened further, and nonresidential construction remained depressed
  • Capacity utilization…  was still substantially below its longer-run average
  • Real disposable personal income declined a bit in July
  • The personal saving rate edged down in July
  • home prices moved down in July
  • Sales of existing homes fell substantially in July
  • consumer confidence remained downbeat in August and early September

There's more but it's just too depressing to go on!  Clearly July sucked but it doesn't seem like things turned around much in August or September either.  That's not the distressing part.  The distressing part is that all this TERRIBLE economic data leads the Fed to conclude that the best solution for this would be to create more money.  Perhaps if they gave it to the American people that would be a good idea but they are not doing that!  They are using that money to buy TBills and to buy bad assets from their Bankster buddies – this is money the Treasury already owes and money the Banksters already lost – it doesn't flow into the economy – it only flows to pay off existing debts by devaluing your own money (12.5% since May!) as a stealth tax on all Americans.  

As I illustrated yesterday, not only is this money NOT moving through the economy but it's slowing down – effectively, the $2Tn the Fed created in the past two years and however many hundreds of Billions of Dollars they plan to create now is barely enough to keep transactions of all kinds from grinding to a halt in America.  In the above chart – the missing step is giving money to the people.  We aren't doing that at all.  The Fed is giving money to banks who already lost the money and they are giving it to the Treasury who use it to fund a massive deficit and to refinance their own $15Tn debt.

The less people money is given to (and increased wages or tax redistribution are the only ways to get money to the working class – neither one being very popular with Capitalists), the more the wealth gap increases.  

Going back to the auction model – if our 5 items are 5 meals and the 5 workers used to work 1 day to make $5, they all get to eat.  But if that one person ends up with $50 inflated dollars and the other workers don't have the opportunity to get the same, then one person can buy 5 meals for $10 each and the other 4 starve.  After missing a few meals, the other 4 people may demand more than $5 for a day's wages as they clearly need $10 to buy a meal, right? 

Well, that only works if the guy with $50 shows restraint.  If the other 4 men show up the next day with $10 each and our rich friend still has $50, he could bid $11 for 4 meals and leave one meal for the other 4 men to fight over.  Until they have $17 each (a 240% rise in their salaries) then 2 of the 4 workers will continue to starve every day while the rich man consumes 3 meals.  If, during the time the workers go from $5 to $17 the rich man gets an "inflation-adjusted" increase of 240% as well, he will have $170 to spend and now, not only can he pay $18 each and take all 5 meals, but he has greatly benefited from inflation as he now has $80 LEFT OVER, where at $50 he had none. 

So inflation does not benefit those who have no assets to begin with – it only serves to greatly widen the wealth gap and right now our Government and the Fed is pursuing an insane strategy of prioritizing paying off bondholders (generally the rich) and inflating assets (generally held by the rich) and ignoring commodity inflation (only noticed by the poor) in order to extend and pretend with their own very bad debt situation.  

The reality of our situation is that we owe more money than we can afford to pay so we have to restructure our debts and come up with a more realistic budget that would demand sacrifices from everyone – and that would include having those that have more pay more while those who have less would have to get less from the government as well.  Should we default, then people who lend us money in the future will probably demand a higher rate of return in the future, as a reward for taking the risk of lending us money.  That would naturally push rates up but the restructuring and balancing of our economy would make our currency strong again and all who hold or earn dollars would benefit.  

$USD WEEKLYThat's not going to happen, of course.  What is happening is the Fed is probably going to create another $500Bn out of thin air and the $6Tn of cash that is held by the American people will devalue another 10% in purchasing power.  Will that be enough to send stocks (an asset that is exchanged for dollars) up another 10%?  That remains to be seen but we have to allow for the possibility as the last $2Tn the Fed pumped in was good for a run in the S&P from 800 to 1,200 (50%).  Of course, adding $2Tn to $4Tn is not the same as adding $500Bn to $6Tn so we get to a point of diminishing returns but, as members of the top 10% – we sure don't want to get thrown into the bottom 90% as we miss the inflationary boat! 

How low can the Dollar go (see Dave Fry's chart)?  88 to 77 in 5 months is an AMAZING 2.5% PER MONTH decline in the purchasing power of the money you worked your your whole life to accumulate.  Adding insult to injury, the one asset class that isn't rising with the rest is your home – for middle class America, that is their main and often ONLY asset.  Possibly you can argue that 12.5% inflation in 5 months has stopped homes from falling 12.5% so Yay!, I guess…

Not wanting to miss the fun was the logic to last SSO and XLF spreads (see Thursday's main post).  The trade idea on SSO was to buy the Nov $39/43 bull call spread at $2.10, selling the $40 puts for $2 for net .10 on the trade.  Today the Nov $39/43 spread is $2.30 and the $40 puts are $1.45 for a .75 gain but we called it off at .80 in Member Chat as a 700% gain is plenty for 3 trading days.  The XLF was more conservative and that one was the Nov $14/15 bull call spread at .60 (still .60), selling the $15 puts for .65, now .60 and that one needs time to cook but XLF is at $14.85 and looking good at the moment and still playable as a new entry (I will add more in Member Chat).  

We'll need to identify some new upside levels if we take out our 10% lines at  Dow 11,220, S&P 1,177, Nasdaq 2,420, NYSE 7,480 and Russell 700.  Note these are the same 5% Rule levels we've been following since last November and yesterday we finished up -200 on the Dow, -8 on the S&P, -3 on the Nasdaq, +9 on the NYSE and -4 on the Russell for a net miss of 206 out of 22,997 index points projected or 0.8% – not bad for almost a 12-month projection!  Our projection also says that we should now be pulling back to the 7.5% lines of Dow 10,965, S&P 1,146, Nas 2,365, NYSE 7,280 and Russell 672.

 

The Dow did hug the 10,965 line until the Fed came out, but they have been far short of 11,220 so far.  That makes them the laggard of the group – the fat kid that can't get through the gap in the fence at the ballpark, forcing everyone else to wait while he tries to catch up.  The S&P has been grinding up with neat pullbacks – I don't think this time will be an exception, hence the SSO exit.  Nasdaq hit the 2,365 line for the past two weeks and does look ready to go over the top while the NYSE skipped it's last pullback to gap all the way up to the 10% level.  The Russell did take off from 672 last week and it does look well tested – technically, we could go much higher!   

Note the Russell has actually outperformed the NYSE on this run but the Russell has been a serial outperformer and they had a higher bar set for them on our 5% lines than the other indexes.  You will also notice that the gains tend to come in big spurts – this leads to something I call "air pockets" – low volume gaps beneath the index where there is plenty of room to fall.  How so – well, in the auction we talked about – what happens to the "value" of the $10 food if the guy with $50 fails to show up and then you have 4 guys with $10 bidding on 5 items?  That's the way our "value" vanished so quickly in 2008 – the Emperor had no clothes and as soon as one little boy pointed his finger and laughed – demand literally went from all to nothing overnight.   

Will commodities and securities suffer that fate?  Eventually but, judging from the Fed minutes, it doesn't seem like we can count on it any time soon.  We are rolling our short plays out to November but we'll need to add more longs to protect them as this can go on for quite a while (or it could end tomorrow!).  Sorry I can't be definite here but calling tops is much trickier than calling bottoms because, at the bottom, there is an absolute value to things that will be discovered but, at the top – well NFLX is back to $155 – I will say no more…  Fortunately, we did a good job at the near bottom with our September's Dozen List, 12 aggressive trade ideas we added on September 3rd, when we were worried we weren't bullish enough?  

We attempted to replicate this success going the other way with "October's Overbought Eight" and we've had some quick successes and a couple that haven't gone so good – but notice that's what happened to some of the "Dozen" as well at first.  September 3rd we were at the bottom of our expected S&P range at 1,070, now we're at 1,170 and testing that 10% line so we flip bearish as the percentages say we're more likely to pull back than break out and the fundamentals say "RUN AWAY!

So our "bullish" premise is that the Fed will shower the economy with money and, based on that, or course it's logical to buy Netflix for 55 times this year's projected earnings.  We are literally holding our nose and buying at these levels but we do seem to find things to buy – the hard part is not to take too many short positions – tempting though they may be.  The key is not to fool ourselves – we are well aware that the stock gains are generally an illusion.  In fact, here's those same 9 stocks priced in Euros:

Not looking so smart now, are we?  So let's keep a very close eye on that dollar index and also note that about $500Bn worth of QE2 is already priced into the markets so anything less than that will likely be a disappointment.  How much and how fast will the Fed come to our rescue remains to be seen but, in the meantime – let's be careful out there.  

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What the heck is going on with EUR/USD?

 Flip …. try Green Trader Tax   http://www.greencompany.com
and/or http://www.greentradertax.com

How much further can the $ fall before a bounce!? This is friggin’ ridiculous!

ben, comparing the US to a Government that had become overburdened by its obligations (interest rates in our case/Germany’s reparations and war debt obligations) and forced to print away due to lack of foreign investment would be foolish of me and if Keynes were around today, he’d have this all fixed by now   😉

 I cant help myself, its just when I hear the word fool I get all nostalgic and teary eyed (from laughter)
http://www.youtube.com/watch?v=eKgPY1adc0A&feature=related

 

Anyone else tempted to short oil going into inventories tomorrow?

I think copper will hit $4 before it comes down. This rally feels even worse than the last one! Damn, beginning to sound like Matt here!

jro, If the dollar doesn’t bottom in this area say hello to low 75 area and everything else goes higher

Thanks Shadowdfax, surviving means everything to them and me. And I hope I serve as some inspiration to everyone in my life. We don’t always get to pick the path we take in this life, but we do get to pick how we handle it. I choose to be grateful and happy.

I know my cancer will return, probably in the next few years, and eventually it will get me as its incurable, but I look at it this way. When my numbers up, it’s up. Between now and then I try to find ins I enjoy and experience them. Trading has been one of them, especially since finding this site.

So thank you, and to everyone who helps make this a great site, even if y’all don’t see eye to eye on everything. And congratulations of the cat.

T

Kustomz – Im hoping it bottoms, just shorted the yen futures

Singapore raises rates.  Dollar gets crushed.  that’s it, I’m out!  all remaining cash into australia, canada, yuan and gold.   

 Phil / Foreclosure Fraud:
 
Here’s the issue …. There are laws that specify how lenders can enforce their claims.  If they don’t follow the laws, they are simply not entitled to foreclose,
If you can’t prove you own the loan, you can’t foreclose.
If you have "employees" who execute documents attesting that they have actual knowledge as to what the facts are, the details of the loans, the details of the lenders claims, etc., and they actually DON’T … that they are just blindly signing documents that they have no actual knowledge of … they and their employer banks and law firms are committing a fraud.  They cannot foreclose.
In these instances, it doesn’t matter if the borrower is a complete deadbeat.
The lender has an obligation to follow the process and the law.
This goes beyond cutting corners, it is institutionalized fraud.
I have no sympathy for the banks if this is what they were doing. 
It is a perversion of the legal process and the borrower’s rights to due process.
There can be no presumption that the lender is in the right.
 
You have been involved in litigation, as have I.  How would you like to be up against a party suing you who is submitting false, fraudulent affidavits that affects the outcome of your case ?  And then try’s to dismiss that as a mere technicality. 
 
There simply is no excuse whatsoever for the banks here.  And there must be real consequences.  It doesn’t mean that deadbeat borrowers get off scot free — but at the minimum, people must go to jail; damages must be assessed; and any faulty foreclosure must be thrown out … the banks can then start over and do it properly if they have and can prove a valid claim.  But if they can’t produce notes; or can’t prove ownership; then they are simply screwed.  
 
 
See below:

"The mortgage servicers hired people who would never question authority," said Peter Ticktin, a Deerfield Beach, Fla., lawyer who is defending 3,000 homeowners in foreclosure cases. As part of his work, Ticktin gathered 150 depositions from bank employees who say they signed foreclosure affidavits without reviewing the documents or ever laying eyes on them — earning them the name "robo-signers."

The deposed employees worked for the mortgage service divisions of banks such as Bank of America and JP Morgan Chase, as well as for mortgage servicers like Litton Loan Servicing, a division of Goldman Sachs.

Ticktin said he would make the testimony available to state and federal agencies that are investigating financial institutions for allegations of possible mortgage fraud. This comes on the eve of an expected announcement Wednesday from 40 state attorneys general that they will launch a collective probe into the mortgage industry.

"This was an industrywide scheme designed to defraud homeowners," Ticktin said.

The depositions paint a surreal picture of foreclosure experts who didn’t understand even the most elementary aspects of the mortgage or foreclosure process — even though they were entrusted as the records custodians of homeowners’ loans. In one deposition taken in Houston, a foreclosure supervisor with Litton Loan couldn’t define basic terms like promissory note, mortgagee, lien, receiver, jurisdiction, circuit court, plaintiff’s assignor or defendant. She testified that she didn’t know why a spouse might claim interest in a property, what the required conditions were for a bank to foreclose or who the holder of the mortgage note was. "I don’t know the ins and outs of the loan, I just sign documents," she said at one point.

Until now, only a handful of depositions from robo-signers have come to light. But the sheer volume of the new depositions will make it more difficult for financial institutions to argue that robo-signing was an aberrant practice in a handful of rogue back offices.

Judges are unlikely to look favorably on a bank that claims paperwork flaws don’t matter because the borrower was in default on the loan, said Kendall Coffey, a former Miami U.S. attorney and author of the book "Foreclosures."

"There has to be a cornerstone of integrity to the process," Coffey said.

 gel — I can’t quite agree w/ you about Canada.   Anyway, while its a large country in terms of land; its small in population (about 30 million, roughly 10% of the US).
 
The political system there is not quite wonderful either (although compared w/ our crooked pols, maybe they look better right now).  They have all sorts of immigration issues; they have PC issues; they have these out of control "human rights commissions" which is nothing short of a PC Grievance Theater assault on free speech and freedom generally.  Their stock market is even more corrupt than ours. 
And the weather is cold !  And they play hockey !   and curling !
And they say "eh".
😉

 ban 2 – lol – fcx.
 
9 toes is better than 5.
 
I have been hit and running FCX.  Today was a challenge; I shorted and covered several times early for small gains; and currently am short some at 98.50.  And short some $100 calls for Oct.
Its moving wildly w/ metal commodities like copper and silver.  Its insane; the key is not to get over extended and pick your spots carefully.
A little selloff tomorrow would be nice.
 
Its not for the faint of heart, that’s for sure !

 ban 2 … Jan 105’s ?  That seems too far out for my tastes.  Why not go w/ Oct 100s or Nov 105s ?
 
This thing is moving 5 points up and down in a day.  Better off trying to catch some of that lightening.
 
 
Mocha – even HK showing some life.

Pharm SPPI, someone I know is trying to push this one on me…whatyda think?
http://www.spectrumpharm.com/products_Spectrum.html

Cap…ha, ha ha… You are most certainly right about Canada… It is damn cold, but the folks there are "warm". I was born in Canada and played organized hockey for eight years, and was offered a scholarship to play in college. I have seen Canada at its best and its worst, but I will say they are politicially and governmentally superior to what we have today here in the US. In the past Canada has had some of the worst governments imaginable. In the province of Saskatchewan, not too many years ago the government was Communist. The government, upon taking power socialized the entire medical community, and all but a few MD’s departed for other provinces and many left Canada all together. The Health Care system in Canada is horrible, unless you can afford to pay the tab on your own, a left over from Socialist regimes in the past. So the past is very checkered but comparable to the US today, the country has fewer problems, because of a superior educational system, and governmental regulations that preclude irresponsible bank lending, both for residentual mortgages and commercial lending in general. Canadians are very onservative by nature, and do not embrace the reckless spending habits found here in the US, or the liberal approach to the acceptance of crime that exists in the US. I believe there is a broad cultural difference between the two countries that over the long haul will identify Canada as a leader in the world, and the US as a country in decline. Some of the cause is attributable to core values and beliefs that are different, and the rest is a result of the sloppy immigration policies of the past and present in the US. The educaational system in Canada is still one of the best in the world, and to the contrary the system here in the US uis one of the worst.  Over the long haul, this differential has broad implications when evaluationg which country will advance and be able to compete with other countries. It took a while for me to drop the "eh", and ‘oot " for out, but at least I learned ta good work ethic and had an opportunity for a good education, in spite of the sometimes -40 degree below weather, with the occasional snow storm in May. 

Kust – well, we were there, we played them got out for either a small loss or gain….revenue is growing, although their SG&A has grown astronomically.  If I were to re-enter, I would do a bull call spread or buy the $5 Jan12C and sell some Ps along the way.  They have a growing revenue, so that is the good thing, and the pipeline is ok, not stellar, but ok.

 

Funny thing, going back through the charts and comparing UUP to SPY, when the FED announce QE in small amounts, the dollar started its move down (April/May time frame).  In Dec, when UUP (the dollar) was at 75ish, the SPY was about 109/110 area.  Now, the dollar is in the same range, and SPY is 117/118 range.  Earnings are coming in a tad better, BUT guidance …. remains to be seen (INTC guided down, right?).  Q4 is where the rubber meets the road.  I would also like to see how HD, Lowes and BBY do.  If consumers are paying down debt, who’s buying?  Oil is going up, food (corn, sugar, etc), dollar is weakening and consumers make up 70% of the economy.  Must be the top 1%ers buying adds for the media positions.  Maybe we should look into those, Phil!

Cap – forget CHK and HK, look at CQP and that dividend.  Options are fairly liquid as well.

Thanks Pharm guess I missed that one..

gel you must have the thighs of a bull (no man crush here, no worries), I played street hockey as a kid on the streets of NY and love the sport (lets go Rangers) so how many teeth are you missing  đŸ˜‰

Gel – you grew up there so you’d know more about the educational system but I wasnt too impressed with what I seen.  Do you really think Canada has few problems b/c of its educational system, rather than the fact that they have a small military (b/c their foreign policy consists of minding their own business) which enables them to spend a ridiculous amount on social programs, they have more untapped natural resources than we do, and they have a smaller population to support. Again, I dont know as much as you but Im not entirely unfamilar with Canada. My hometown is Mount Vernon, WA (you probably passed by it if you ever made the trip from Vancouver to Seattle) and I have an uncle and some cousins who are Canooks.

 Pharm — 23 straight weeks of retail exiting the market.  Nothing is gonna bring ’em back.
 
Phil / love that Pink Floyd / Dogs.

 Oot  and Aboot Gel, eh !

 I like Canada and have many Canadian friends (from Toronto, Montreal, Winnipeg, etc.)

 Phil – The Wall – in NJ in Nov. i think.
Let me know; I’ll join you w/ my kids.

 Palotay … I think that’s right, as long as we don’t get totally blown out by an insane run …

Gel, I’d hardly call any of the former Saskatchewan governments communist. Yes, they have been a very left wing province for many years with the NDP and the CCF (who introduced universal health care to Canada). The new Saskatchewan Party, led by Brad Wall, is centre to right wing and they seem to have done good things for the province. As for the Canadian medical system, I don’t agree that it’s terrible. Yes it has its problems and a lot of folks don’t have family doctors (although that’s improving) but everyone has access to quality health care. My kid’s (well they are adults now) have broken various bones and encountered various emergencies all of which were taken care of promptly by the nearest hospital. No money ever exchanges hands – you just produce a health card. Anyway I don’t want to get into a protracted discussion about health care systems – none are perfect – but from what I’ve seen and heard I feel more comfortable with the system we have here, especially since I’m currently unemployed.

Stu.

 Thanks Cap and Kuru.  The rest of the week should be interesting to say the least.

Gel- I am paper trading your NZD/USD trade just to get a feel for an FX trade. Do you set hard stops , i.e., with orders placed at the time the original trade is made or are these "mental" stops?
Also, if hard stops, any reason you don’t use a trailing stop to protect a profit run from an unexpected reversal?
Thanks,
"Just entered a long term FX play on NZD / USD. This pair is testing a double-top resistance. I sold the pair at market (7615 ) and set my stop @ .7720, and have a limit target of .7235. This one could take a month, but lots of pips if it plays out"

cap, on getting totally blown out…since we have lots of cheap money looking for a place to go I would worry about being short. Trillions went into the housing market blowing it up to unbelievable levels. Where in the world can money go today? Bonds, stocks, commodities…lord knows real estate will be a dead market for some time to come and markets can go beyond ludicrous….we’ve gone plaid!!

http://www.youtube.com/watch?v=NP6DXoNKITc

@Cap
Thx for the referral to Green trader. Will follow it up.

Phil/Gel/anyone else fairly knowledgable about currencies- what do you think is the likelihood that The Bank of Japan intervenes again, and how soon do you think it would be? I was an idiot and shorted the yen futures last night and was debating riding this out…..

Pharm:
I have a small position in DCTH. You suggested selling front month calls earlier. Could you be more specific about your comments. Are you negative on the stock and do you think they are a buyout candidate? Thank you.
dclark41

Phil:
I have TLT DEC 102 Puts buy (in at 2.27) and NOV 105 Calls sold (in at 2.3). Can I get your opinion on TLT? Do you think I should hold or take what I got and be happy? Thank you.
dclark41

Phil,
I am still blocked from the Premium membership. Can someone fix this?  I have tried 3 different computers.
Thanks!
DD

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