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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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 i never came across as being against one man one woman (you made that up because it fits your view of me). Just wondering why federally written language on the subject is aptly ignored?

Ilene -great newsletter–summarizes the weeks thoughts and trades in one place–splendidly done

strawman & slippery slope/jakester – those bestiality arguments against gay marriage are specious. The most important point to my mind is that the US civil marriage laws are an intrusion of religion into civil matters, and therefore, as a Quaker, an affront to my religion – which supports and performs same-sex marriage.

Actually the marriage issue amuses me, beyond most social issues, which are generally tediously boring. Nothing is scarier to someone than the own deep, dark thoughts they cannot escape. It must be so hard to be closest case and know someone in San Francisco lives a life free of fear and repression, and all that self loathing.  Flaunting it even! How dare they!  The fear and hatred runs is so deep it is incalcuable. It might even lead an individual to confuse a human being with an "animal." Probably the single dumbest argument I have ever heard, if it can even be called that.

Shadowfax,
Where would I move?  I still have the 3 locations in mind, San Jose, Irvine and North San Diego, where Pharmboy is.
 
This is the time of the year that those locations got more than 1 hour day light than WA state, plus a lot more sunny day, and are about 14 degree warmer.  The downside is the 9-10.5% state income tax versus 0% for WA state.  Comparing to Seattle, housing in those areas are only about 30% higher, which is worth the better weather.  Everyone talks about how bad CA fiscal problem is, but I see the same state budget issues in WA and Oregon.  Plus, WA and OR have the distinction of having one of the highest rate of meths users.  The other macro issue that I have now is the still high cost of housing is not affordable, and would need to come down to match the income rate.  In contrast, who can afford a $1M 3 bedroom home?  Lots of foreigner have bought them up in CA, and they continue to do so as our USD got killed.  Our housing looks cheaper and cheaper to the Asian folks, while it’s more and more expensive for the locals.  One can sell a $2M townhouse in Seoul and buy a $2M acreage property in San Diego easily.
 
The long winded answer means I want to move south of the Jet Stream that brings cloudy weather, and avoid cold winter, hurricanes and desert’s area.  What are my choices left?

 I’m just pissed about PCLN so I’m spouting off. I’ll go do some patent work now.
 
GO DOWN PCLN DOWN DOWN DOWN F*******
 
eh.

Seattle is nice. WA has no income tax (unless i-1098 passes), but sales tax is 10%. So its good for high income earners and terrible for everyone else. Actually this reduces April filings by one document, which is convenient. WA is probably the last state with no income tax actually worth living in, with the exception of NH.
 
I love this real estate blog tracking Seattle area home prices. Good reading if you are really considering living around here.

So much for the "politically correct" stuff…. now on to the things that matter…..
 
Bought into a very nice momentum play on SWKS ( Skyworks Solutions ) –  buying stock and selling a straddle ( January 22.5 calls and puts )  Great fundamentals….. big time supplier to AAPL, RIMM and many others.Good play on the tech strength!

PHIL
i really like the play by play, i hope we get your thoughts once you have time to reflect and form an opinion.
thank you

Some of us PSW members are residents of California and are wondering " what happened"??
 
Well…. do you know what happened 160 years ago this fall – back in 1850??   Yes, California became a state.
Back then the folks had no electricity. The State had no money, and almost everyone spoke Spanish. There were gunfights in the streets…… So basicially nothing has changed since, except ….. The women had real body parts, and the men didn’t hold hands!

Phil–re your comment on C (ie VIX too low not a good time to sell puts or calls) I did put on the Div trades–HCBK -should I have waited ? I am a little confused
Tx

Peter D – I grew up in San Jose – it’s changed a lot over the years, does not have the open space of 30 years past. Irvine is nice, Just about 40 miles north of where Pharm and I live (Carlsbad). I think the best of all worlds would be the Fallbrook/Bonsall area, north and east, about 10 miles from the coast. Rolling hills, open space, better pricing than the coast, Irvine or San Jose, yet you can enjoy ocean breezes and a drier climate. Takes about 30 – 40 min. to San Diego and about 90 min. to L.A.  ๐Ÿ™‚

Where is California:  I grew up in north san diego county, Escondido to be precise; Fallbrook/Bonsall is nice but too far from civilization for me.  Carlsbad is great, but a lot of course the coastal dampness can bother some.  If money were no object, I’d suggest  Rancho Santa Fe; more temperate weather than Fallbrook and closer to San Diego and you can have Phil Mikelson as  a neighbor.

Peter D
I will be in San Jose Wednesday…. and not looking forward to it.  It is overcrouded, and the traffic is nasty. Twenty minutes away is Los Gatos… one of the best places to reside in No. California that is not coastal. That is a great location if you are in the tech business, as everything is nearby. No guns in the streeets of Los Gatos!

humvee… Ranch Santa Fe is my choice as well. Mickelson has his house for sale though!…. maybe buying a different one in the area.

Santa Luz, adjacent to R.S.F. is a very nice community, kind of a Scottsdale feel with coastal breezes….. ๐Ÿ™‚

Rancho —- that is the top 1% of the top 1%.  Us po’ folk in Carlsbad will take the dampness, and have the ocean as our playground!  We had a fantasy football draft in Rancho and the driveway was worth more than my house!

When we were thinking of moving back to s cal; looked seriously at Encinitas, its close to rancho and much more affordable. 

Humvee – Fallbrook/Bonsall v. R.S.F.  You can drink the Dom Perignon $$$$ or the Blue Moon $.
 
Which would you care to drink?…… ๐Ÿ™‚

i have lived in both rancho santa fe and lajolla –i prefer the coast but getting in and out of both of those places is a nightmare–my favorite is actually del mar then sloana beach/encinitas west of I-5  —

Its all about how much one can afford; the way things are going lately all I can afford is moonshine  ๐Ÿ™‚

Peter D – Carlsbad, Encinitas and Rancho Santa Fe will have better schools…..

datuu – Very nice as well. Staying west of the I-5 is best……

Peter D – One last thought. You can buy a nice home with a least an acre or two in the Fallbrook area for a 2,000 sq.ft. on a postage stamp at the coast……Though having better schools and the ocean in your backyard is pretty sweet….:)

i like fallbrook as well–but i really like starting my day by getting in the waves

Thanks, guys!  I like Los Gatos a lot, and houses are even cheaper than Irvine.  I also like the area just inland from Del Mar and Solana Beach.  Encinitas & Carlsbad also look good.  I’ll definitely make a trip down next year.

1020, no kidding about the postage stamp lot by the beach!  Those lots are fetching crazy prices.  An acreage for $1.5M just East of Solana Beach/Del Mar looks very nice.  May be down to $1.2M in a couple of years??  I doubt it.

datuu – Many of my neighbors start their day that way. I’m not patient enough for waves so I "ride the waves" in the nearby hills on my "Connie"  ๐Ÿ˜‰    (Kawasaki Concours)

ARNA
Nice review of this mornings conference call if you missed it
seekingalpha.com/article/232092-arena-s-weight-loss-drug-faces-relatively-easy-path-to-approval
 
Very positive – approval before spring!

1020
that sounds like fun–never tried it but i guy i worked with from carlsbad was really into motocross–i went to see one of his competitions–pretty wild

Peter D – The coast has held up well, I guess because they aren’t making any more of it.  I like "Encinitas Ranch". A Family community built around a golf course and lot sizes are a pretty good size (6,000-10,000 sqft.) Excellent location with many views of the Pacific. Only 3 miles from the beach. 
 
At 1.2-1.5 m for a lot and then building a home, I would buy in Rancho Santa Fe. If you want to build, you can buy a lot  (resale) starting at 400-500k in Santa Luz – I’m telling you, THAT is a neighborhood to look at if you want to build! 

datuu – That would be fun but I prefer pavement….  ๐Ÿ™‚

Peter D
 You have a tough decision to make….. California is the place to be, if the elections play out in a way that could provide recovery in the economy. It is the most populous state for a reason…. The weather !,  and of course year round recreation. If you need to be in the Silicon Valley region, then Los Gatos would be my choice.. Has dinner the other night at the Dio Decca ( one of the best restaurants in the country ) – right across from the Los Gatos High School.. The beach ( Santa Cruz ) is a short drive away. Be careful of the hop-heads though.
 
If Silicon Vally location is not a requirement, then your best choice is in N San Diego. RSF is a good choice, as you can get good SF for a reasonable rate, and you are still a short drive from the beach, and all the related recreation. The further east you go, the less desirable the location becomes, and correspondingly, the pricing is less. The coastal area was developed first, and it is for the reason – weather prevails.. Dope addicts…. ya, they are EVERYWHERE. I even have one in my extended family…. a nitwit  nephew that destroyed his brain using meth…. very sad, but very common in CA
Good liuck, and keep doing your research without forcing a decision..

Thanks Savi! 

Peter, have you considered moving to Eastern Wa – true, it’s colder than Seattle in the winter, but not as wet, great summers, no income taxes, cheaper property, little traffic, and the meth users really aren’t much of a bother…

 p.s. JDA has been writing about how much she hates SF, CA and is finally leaving, this is her farewell post:  http://www.jrdeputyaccountant.com/2010/10/goodbye-california.html

Peter D ,ilene. 1020, biodiesel, and all
Thanks for all the input on California and Washington. I got the feeling that nobody would move to Oregon and then there is the east coast and it’s pros and cons. California is still on my list, but in the 1970s LA ,Irrvine, Los Gatos, South San Francisco, and many areas had so much polution I had to limit outdoor time and was 50% why I moved out. Are any of these areas cleaned up enough to breath? I know that in 1977 just south of Irvine on the beach I could see the mountains east of L.A. but a thousand times I couldn’t see a mile. I flew to Burbank once then had to drive  over the big hill east to ?, I got so sick from polution I pulled the car over and barfed to dry heaves, never made it.  Reality please!

shadowfax,
The air quality in southern California is nothing like it was then; it’s much better.  You do have to maintain an emission control system on your car (tested every couple of years, repaired if emissions get to be too high), but a small price to pay, I think.  We had frequent smog alerts when I was a kid; I remember not being able to go outside and play because of it.  You never hear those things anymore here.

Where are you from Ilene? How do to know about the forgotten side of WA? True, it does have more sun, but it is also doesn’t have the ocean…

boobearsdad
Can’t thank you enough for a believeable answer. I know that today if you tried to kill yourself in a garage you would die from heat or lack of oxigen if the car didn’t stall first. Glad to hear all the polution controls actually made a difference. I used to have family in El Toro, an uncle was an admiral maybe in the marine corp, never paid much attention to rank. After that he managed Marriot Mo or Hotels at a corp headquarters. A son lives in Juno Alaska, not for me. A grandson is in jail somewhere near Boston for meth something, lost touch after too many deaths. My parents are the last 2 from both sides and the decendents are everywhere USA.  My mother is a daughter of the American revolution and nobody in the west even knows what that means, ansestors to Mayflower II, nodoby cares anymore people act like i’m an import sucking up on entitlements. Really my ansestors killed indians on the east coast 1500.

 I second what Boobear said about the air here.  It is vastly improved since the 70s.  When I was in high school in West LA in the 70s, they would cancel PE class many days because of the brown, heavy smog.  That never happens anymore.  The TV weatherman used to say "and the air quality tomorrow will be blah blah," but now that is not even mentioned.  You’ve got to hand it to the county and state officials on this one…they fixed the problem, even with probably three times more people and cars than 35 years ago.  From where I am on the westside, you can see clear over to the Hollywood sign, no problem!

snow: A Quaker? I attended a Quaker boarding school in PA (outside Philly) many many years ago. Those were the days. Life was carefree and easy.

Gel, Ilene, 1020, humvee, datuu & all,
I’m saving these posts for future reference.  Thank you all. 
 
Ilene,
Yes, I did look at Eastern WA previously and decided that I could get bored to death there.  We are going to Wanatchee and Leavenworth almost every year (not quite Eastern eastern WA yet), and love the area, but it will be hard to live there because of my city dweller background.  As for San Francisco, I would have to agree that it will be hard to live in the city itself.  It even tougher with children.
 
I also lived in New Zealand for 10 years.  What a beautiful country and friendly people (just like the Northwest)!  We have a joke that if all the Kiwis go back to NZ, the two islands would sink.  Given that I’m spoiled by technology and opportunities in the US, I don’t think I would be back there to live.

ilene
JDA’s farewell post was funny to say the least…. After reading it, I do believe she was REALLY ready for the departure. She did not have to get 3000 miles away to satisfy her needs… why not move a few miles away, just over the GG bridge in Marin, and all would be well. DC- no thank you!

Hi Phil,  thanks for the interesting looksee at your high falootin conference.  Good stuff and what a crowd-  As someone who has prepaid all 3 of his kids college tuition through Virginia’s PreP program, I’m a little nervous about state insolvency.  Fortunately for me, VA is one of the fiscally strongest members of the Union.  I agree with what you said that the options for getting out of this without insolvency look bleak.  Moral hazard is such a quaint notion.  The truth is, so far, and I don’t see how they can stop now, all debt gets transferred to the federal govt and then it’s monetized by the Fed.  So where is the greenback going?  Down of course.  I suggest you seek counseling to get over your aversion to Au quickly!
 
Isn’t it ironic that when the Fed prints money to stave off deflation and create inflation it works… but in emerging markets, not ours?  Can you explain further what the cutie from S&P meant when she said, our qe in the west is shoving inflation into emerging markets and is calling this inflation as a mechanism for defaulting.

I noticed that NO ONE mentioned NJ.  Why does Phil live there?  Oh, but I have to say that I lived in Princeton, NJ for a few years and found it to be one of the most beautiful and peaceful places on the planet. (and the train to NYC is a breeze)  Born in Boston so that is where I am now.  (Great town, outstanding ocean/beaches on the Cape but the weather is HORRIBLE in the winter.
If you’re not from here and don’t have to be here – other than the summer (in Chatham, of course), I agree totally with Gel.
DD

Interesting notes on regions: It hits pretty close to home for me. I lived in the SF bay area for 20 years- The City, Marin & the east bay. My wife and I got tired of the commute & paying other people to raise our kids,we felt it was time to step off the fast track. I was even a stay @home dad for 2 years until my wife fired me- she much better domestically. We sold our home in 2007 and moved to the Minneapolis area (where i grew up). I liked the housing equation -3 times the house for 1/2 the price. Cost of living is like another currency here,$5 movie tickets,better access to great plays and music. Career wise has been a step back,but i see my kids more and have more vacation time. It has been a good trade. The schools are better and my kids acclimated well. My mother in-law lives in Rancho Santa Fe, we were married there and still visit- Love the fish tacos and paella. We have family near Los Gatos. Those are great places, very upper crust. There is no paradise, if there was everyone would live there. It just depends on your priorities and resources.

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