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Thursday, December 1, 2022

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Monday Monetary Meltdown – Chart Art

[G20]Last Friday, Geithner's message was "Do as I say, not as I do."

This weekend, Timmy took a big doo doo on the rest of the World as he pressed fellow Finance Ministers into (in theory) setting mechanisms to address trade balances (which means export countries need to strengthen their currencies against the dollar) while importing countries (like US) should not try to manipulate their own currency.  Well, that sounds reasonable EXCEPT, before the ink is even dry on the G20 release, Timmy flies off to China to get them to commit to revalue the Yuan, which is pegged to the Dollar and effectively DE-values the dollar in an entirely manipulative manner.  

No, WE didn't manipulate the Dollar, China did.  We only told them to manipulate their currency which is tied to the dollar, so it's not the same thing at all as us manipulating the dollar and —- oh my God Tim, how can you sleep at night???

So good morning, America, how are ya?  I'll tell you how you are, you are 1% poorer than you were on Friday as the Yen rises to 80 to the Dollar and the Euro rises to $1.41 and the Pound hits $1.58.  That drive oil back over $82.50 and gold back to $1,350 and copper hit $3.89, up from $3.75 on Friday – that's 3.5% inflation of a basic material OVER THE WEEKEND!  That annualizes out to about 1,000% but let's be fair and say this only happens on weekends and call it 52 x 3.5% for 182% – hyperinflation accomplished!  Of course, we don't need 182% increases in commodities to achieve hyperinflation, hyperinflation is anything over 26% and our Dollar is down 15% since May and that's 5 months so we're heading for 36% over 12 months already.  

I've been invited to attend the Economists' Buttonwood Gathering in New York today where the agenda will be discussing the State's Fiscal Crises led by Robert Rubin and Josh Bolten over lunch followed by BOE Governor Mervyn King's speech on "International Reform in the Financial Sector" and then my favorite bond pimp, Mohamed El-Erian will be speaking about "Sovereign Risk and the Banks" followed after market hours by Vikram Pandit (Citigroup's CEO) and then Nassim Taleb (Black Swan) after which there'd better be drinks!  

I usually can't be bothered with these things but this conference is likely to move the markets and I should, in theory, be able to chat with our Members live from the conference, so this should be fun.  Tomorrow is currency day with the after-lunch meeting titled "Global Currency: Crisis of Confidence" with Joyce Chang (JPM) and Paul Volcker giving their views and the 3:30 lecture is titled "China: The Decade of the Dragon?" with the exiled Stephen Roach, Jim Chanos, Gene Ma and Xu Sitao, who is the Economist's China Director.  So, lots of interesting stuff from interesting people and, while the gold bugs and the dollar doomsayers should be able to pull plenty of good quotes, I will be looking to get the mood of the attendees, who are themselves a veritable who's who of the investing World.  

With this global gathering of market movers, I guess we'd better get a global perspective on the markets, right?  Let's take a look at our global multi-chart and see how we are doing.  The blue lines are our mid-points and the greens are the 10% lines and they reveal an interesting pattern

 

It's a tale of two economies with our net exporters following the path of copper (mirroring the collapsing Dollar) and up around those 20% lines.  As we can see from the Baltic Dry Index, which is DOWN 10% – there is not any more demand for goods, they are simply more expensive when priced in a weak currency.  Germany's currency is artificially held down by the weight of the rest of the EU while the UK gets less of a boost despite their oil and mining economy because the pound is not artificially tied down to the weaker EU nations.  France is the World's 5th largest economy and on par with US performance as that country enjoys week two of national strikes.  

As we discussed last week, the weak Dollar allows our markets to "ignore and soar" as 15% pullbacks in our currency are reported as 15% earnings beats to US investors while the MSM does nothing to educate it's readers as to VALUE.  In Friday's Member chat, we compared the Dow, S&P and Nasdaq priced in Dollars, Euros and Yen to get a better picture of where our markets are now:

 

Priced in real currencies, our markets are DOWN 10-20% since May.  That's not entirely a bad thing – it means we look like a bargain to global investors, providing they are as clueless as to exchange rates as their American counterparts.  Unfortunately, I don't think foreigners are that stupid, which is one of the reasons I look forward to going to the conference today as I can actually quiz some of these famous foreign investors to see if they can pass the old "Jay Leno" test.  

OK, that is just sad, isn't it?  But not as sad as the MSM in this country cheerleading stocks and the market as if they are "en fuego" when they are, in fact, LOSING ground to the declining dollar.  October alone has seen a 5% drop in the dollar and only the Russell has managed a 5% gain.  This is interesting because small-cap, relatively local companies benefit the least from the declining dollar but we haven't gotten a lot of Russell earnings yet as the S&P had the floor last week so it will be interesting to see what holds up as the smaller companies begin reporting their earnings.  

 

 As I said to Members last week: "It looks like we COULD break out and up if the sentiment turns enough in favor of the US markets and we certainly look like a cheap laggard compared to EU or Asian investors local markets and that does mean a 10% upside is possble but, from ourt perspective – only if the Dollar stay here or goes down AND foreign investors start to buy American. Not at all coincidentally – that’s exactly what Timmy’s asking for in South Korea this morning!"

Not counting our 10 new Dividend Plays, which are all bullish of course, we did manage to get a little more bearish than the prior week's 21:10 bull/bear ratio of trade ideas.  Last week we cut it down to 16 bullish to 10 bearish trade ideas although, once again, the bear plays were mainly of the hit and run variety as we are still fundamentally bearish but technically bullish – which means we have to take a lot of trades we don't really believe in to play the game (although I favor not playing (cash!) into the election, but we service a large Membership and it is kind of dull not to trade at all, isn't it?).  

Generally, we just want to make sure we make 2.5% a month to keep up with inflation but, other than that, the markets are a very scary place to be and, with Halloween approaching, you never know what horrors you are going to find when you pull that mask off.  

We have a Datapalooza this week with Existing Home Sales at 10 today followed by the old Case-Shiller not adjusted for the declining dollar Home Price Index at 9 and Consumer Confidence (or lack thereof) at 10 along with the FHFA also not reflecting the declining dollar Home Price Index.  Why is it that it's easy for us to understand that if the $1M Zimbabwe Dollars becomes $1Bn Zimbabwe Dollars a year later, that a man selling his home for $10M is a fool but we don't understand how 1 US Dollar, that is now $1.35 US Dollars to buy the same oil, gold, copper, silver, diamonds, corn, wheat, soybeans etc that it did last year means your "stable" home price is actually an additional 35% drop?  Is it really that hard to see?  

The same goes for the people selling cars and clothing and even beloved IPods – if you are collecting the same amount of money but getting paid in what is effectively Monopoly money – are you really doing well?  Now, where was I?  Oh yes, data!   Wednesday we get to see if anyone applied for a Mortgage last week and at 8:30 we get Durable Goods Orders, which should be up as we sold the Saudis a bunch of WMDs in the form of fighter jets.  At 10am we get New Home Sales and, of course, Oil Inventories at 10:30.  Thursday another 450,000 pink slips will be handed to US workers but, more importantly, on Friday we get the Q3 GDP where bad news will be good news for those who pray for QE2.  We also get the Chicago PMI and Michigan Sentiment on Friday and, of course, then we head into the election so fun, Fun, FUN!  

It's going to be an exciting week and it's starting off with a bang as the Dollar tests new lows at the open.  I think this is an excellent opportunity to cash in long positions and sit on that worthless cash through the election or at least to get very, VERY well-hedged.   Seven banks were shut down on Friday, lifting the year's total to 139 banks that were in such bad shape that FDIC examiners had to storm in and confiscate everything over a weekend.  

The Hillcrest Bank of Overland Park, Kan, had $1.6Bn in assets and we are just 1 more bank away from topping last year's mark of 140 bank closures, the most failures since the year after the first Bush left office in 1992 (just a coincidence, I'm sure).   

Perhaps BAC will make the list one day as the are being hit with a Class Action Suit on behalf of homeowners seeking damages for alleged disregard of foreclosure process rules.  The suit, filed Wednesday in federal court in Newark, N.J., accuses Bank of America and two subsidiaries, LaSalle Bank and BAC Home Loans Servicing, of “an undisciplined rush to seize homes” through “pervasive and willful disregard of knowledge, facts and statutes.”  The putative class in the suit, Beals v. Bank of America, N.A., 10-cv-05427, consists of all named defendants in pending New Jersey foreclosure actions initiated by Bank of America or its affiliates. The complaint includes counts of common-law fraud, breach of the covenant of good faith and fair dealing and violations of the New Jersey Fair Foreclosure Act and Consumer Fraud Act.

It continues to be all about the Dollar this week and we shall see how low it can go.  I'll be talking to the luminaries all day at the conference and I'll keep you informed as to the mood, as well as the official spin from El Erian and company.  

Be careful out there!  

 

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Good Morning Phil,
Seeing your remarks on BAC again I I am highly concerned of my holdings we set up Jan 10 Yes I do have some good positions like Jan11 and 12short  20 calls but as well various long callers such as Jan 12 17.5 callers pd 3.26 now .54 Feb 11 long caller 2.70 now .84
But the short putters I am more worried about May 11 16p short rolled already to 3.25 now up 4.70
May 17p 3.90 now 5.62  Jan 12 15p just paid dearly for the roll (113 options off) 4.35 now 4.40
I do not like to lend up like general Motors thought they would never go lower than 5.00 I sold them for 2.50 well you can say 50% profit or 50% loss or Lehman brothers  Where I did not have any holdings.

It’s long past time to dispense with the glossary of terms the FED and the Government use to describe things.
Can’t the rest of us, for instance, stop calling it by some useless term like, "Q.E." or "Quantitative Easing", and call these things by a more descriptive and accurate term that conveys precisely what BEN’s helicopter does when they move to devalue the dollar, raise interest rates, or otherwise monkey around with the value of our currency? 
Who knows..pretty soon the general public might come to know who the person is on the Susan B. Anthony dollar, what animals, besides Lord Blankfein and Larry Fink, are used to describe Wall street action.  

Sell the AMZN 175 weekly calls ….
 
PCLN parabolic .. at some point it will be a great short !

ARIA having a nice day, and a new base forming.  I still like my bull call spread in May, and the Jan12 $3s can be bought for 1.90 or better.

Pharm – do you know anything about CBLI?  They have been on quite a ride.

Phil- Please talk some sense into someone if you have an opportunity!

Nobody feels tempted to sell PCLN Nov $450s? They pay $2.4!! What a tempting short..

Pharm- what’s up with ARNA? The FDA rejected them. What the heck can the CEO do about it?

Can you please post your may spread for ARIA. I missed buying it at $3 ๐Ÿ™

 ravalos, just be careful as PCLN earnings are before NOV expirations.. And this is a crazy stock..

Iflantheman Never seam to have much success in reaching you.
You or any one playing the AAPL weeklies how does the 310 looks to any one 3.25 ???? thks

PHIL
speaking of inflation, i went to the grocery store yesterday and payed $60.00 for groceries, it was in 2 bags. thank goodness i need only a few things.
maybe the MSM crowd isn’t as smart as you give them credit for.

Hey all,

We are looking at the new Play of the Week in one of our favorites in Skechers (SKX).

I am involved at 23.80, and we are looking for a 3-5% gain.

Check it all out here.

Good Investing!

$ USD,
Anyone have any ideas what is causing the USD to bounce after the bad G20 news and causing the markets to pullback from the earlier run?

 Phil,
"Oil flying up now off a nice pullback to $82 but right though $82.50 this time and over $83.  At $84 we might get that same USO weekly play that did so well last week, which was the $36 puts at .38 (were .85 on Friday).  They came in cheapest right at the end of the day so no hurry if it’s going to work. "
So what is the trade you are asking us to make…. Buy the puts at $.38… Thanks. 

Cleveland Biolabs has had a nice run.  They are getting money from defense contracts, and those could be the first to take a hit if/when they do cut back on defense initiatives.  Not sure what the market potential is for the radiation for defence, so will have to research that.  The rest of the pipe does not get me excited (yet), so there is some research to do on them.

ARIA is the 3.5/5 May bull call for 50c, selling the 3.5 Dec Ps, which have also changed value on this pop.  All popped today, so scale in or wait for a pull back.

 jasu1/USO – yes, .38 puts – same as last week

 Help me understand something : Why are 10 yr bond rates continuing lower? Even with the fed buying, OTHER people need to buy to keep demand up. Who are these people? Who is buying 10 yr + notes with such a week dollar? How can we have a reflation/inflation trade (commodities, food, etc) at the same time that we have bond demand at such low rates? These things seem counterintuitive to me….if so many people think reflation/dollar depreciation is coming, they should be shunning bonds. Hmmm….

Pharn,
   If CBLI gets protectan approval eventually, the military would be the first customer. Israel would be next to protect civilians from a nuke. Not much in the pipeline besides protectan.

anyone know the symbol to use in Etrade to track the US Dollar?

Mortgage interest deductions and property tax write-offs are going to be on the chopping block soon.  I’m looking for a phase-in reduction or even elimination for "high earners"…not indexed to inflation so the middle class will pay at some point.  I’m sure there will be some carrot to get such passed, such as bailing out those underwater with a national mortgage cramdown and/or refinance bill…and perhaps even more tax rebates for buyers.
 
Per articles.latimes.com/2010/oct/24/business/la-fi-harney-20101024
  National Commission on Fiscal Responsibility and Reform is supposed to deliver to President Obama six weeks from now.
Although the commission has provided no public hints of where it is headed, housing analysts say it’s inevitable that it will propose cutbacks to tax subsidies for real estate.
Likely targets: The mortgage interest deduction, which added about $100 billion to the deficit in fiscal 2010 and more than $400 billion during the last five years, according to congressional estimates; capital gains exclusions for home sale profits, which cost more than $128 billion between fiscal 2006 and 2010; and property tax write-offs, which cost $70 billion-plus during the same period.

morxlntway
If your useing pro there is a line starting with symbol1: then a magnifying glass, click on the glass, same on web site but different position.

Hanna / 10 year bond rates
I nust agree… It does sound strange. The demand for this instrument is most likely indicative of the " fear factor" – certainly not the "smart factor". One would think, with the dollar dropping in value, the masses would get out of bonds and put their money into commodities and equities. Eventually that will be the rotation. My only guess, is the banks are buying this stuff, as they are benefitting from the spread between free money and the small interest they receive – they are not willing to risk their money making residential and commercial loans.

Hi Guys what happen to all the AAPL players??

Phil/DXD, what do you suggest with the DXD Nov $22 calls from Friday (recommended at $1.30, now $1.00). Since you’re now recommending DIA calls, does that mean you favor stopping out the DXD calls?

goldman / taxes
The current administration has been floating this idea of changing the deductability of mortgage interest, for some time. This will KILL the real estate market, and piss off every homeowner that has a mortgage. If we see a change in the membership of the House of Representatives this November… this will NEVER pass, regardless of how it is presented, unless it is jammed through prior to January 2 – but then it will most likely be repealed.

Good Morning!  I wonder how those who want to "take back America" will react to cuts in entitlements and now the possibilty of cuts to real estate deductions.  Be careful of what you wish for…… ๐Ÿ™‚

CBLI/toph – yes, I understand, so what is the market for that, and how long does the ‘antidote’ last? 

Gel – Tough times, tough choices. BE CARFUL OF WHAT YOU WISH FOR!

gel – when one can invest billions and make a few hundred basis points on free money, banks are forced to use the money received.  The ‘experienced’ bond traders move in and out of the market, making more money than all of us combined.

 Anyone know the symbol in TOS to track the dollar?

nothing like emphasizing a mis-spelt word….. ๐Ÿ™‚

$DXY for the dollar on TOS

 Thanks Pharm.

Dollar watchers,
Yahoo finance posts it and so far the dollar is up inspite of the news talking down. Why is CNBC all over morgage association meeting? Contrarian? Wait for Phil’s news from his meeting!

Would someone mind explaining the attraction of the Yen – the japanese seem even more screwed than we are – they have more debt at a % of GDP and a rapidly aging population.
 I can understand the dollar falling against say Canadian Loonie or Australian dollar – but why the Yen.
Thanks –

Hi shadowfax;  I see the dollar index is at 77.24  down .57%;  what are you seeing in yahoo finance?

YOY corn up 47%, meat up 6%, eggs up over 11%.  The cheap fatty foods are not going up much, yet the healthy foods will soar.  Wonder what this will do to obesity rates over the long term, as more citizens buy fattier, and cheaper foods.  A small increase equates to billions of dollars more in healthcare costs for the federal government.  I’m betting such "unintended consequences" are not listed in Benyackee’s inflationary masterplan…or perhaps they are as obese individuals, by many studies, die 10 years younger…
Per http://www.usatoday.com/news/health/weightloss/2009-11-17-future-obesity-costs_N.htm
•An obese person will have an average of $8,315 in medical bills a year in 2018 compared with $5,855 for an adult at a healthy weight. That’s a difference of $2,460.
•If the percentage of obese adults doesn’t change but stays at the current rate of 34%, then excess weight will cost the nation about $198 billion by 2018.

/DX is the tradable $ index on TOS

humvee4me
I see it up against the EURO and the Pound. Not watching the index and this is inter day not since Friday.

 Interesting daily action on FCX and WYNN. Slow selling off from the morning highs. Keep an eye to see if we get a nice reversal candle today…

Phil…. Japanese sex pillows?…… ๐Ÿ™‚

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