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Wednesday, March 29, 2023


Will We Hold It Wednesday – Copper $3.80 Edition

Can copper keep above $3.80?

They call it "Doctor Copper" because copper pricing is a pretty good indicator of economic health.  It's more of a demand metal than gold or silver and hard to fake and there aren't any silly ETFs stockpiling it although China has socked away a full-year's supply, which has given copper a very false sense of demand while our masters hoarded the World's substantial excess capacity at an average of less than $2.50 per pound.  China is up 52% on their investment, not bad considering they're holding 300,000 tons of it.  

We went short on copper at the $3.90 line in the futures and we took a huge win yesterday so now the question is, will that $3.80 line hold up?  MT reported a 21% DROP in Q3 earnings and said "Steel demand was well below pre-recession levels as the construction and automobile sectors continued to struggle."  Chief Financial Officer Aditya Mittal said demand in China fell as the country tried to slow its economy.   AK Steel Holding Corp., based in West Chester, Ohio, said on Tuesday that it lost $59.2 million during the third quarter as iron ore prices soared, nearly doubling. AK Steel said the higher ore prices added $76 million to its operating loss.

While these reports are not necessarily dire (we'll see how the Durable goods numbers look before we run for the fallout shelter) they certainly do raise the kind of red flags that one would think would give global markets pause on the way to 20% gains since July (as I noted in Monday's Chart Art post) even with the 14% decline in the dollar goosing the results.  Kelly Evens points out in the WSJ that orporate earnings aren't quite as impressive as the headlines suggest. Much of the overall growth has come from the financial sector, helped by its weak performance a year ago.  

Exclude financials, and year-on-year earnings growth falls below 21%. The average "surprise" margin, by which earnings beat estimates, falls from 9% to 6.5%. Meanwhile, for the fourth quarter, expected earnings growth drops from 32% to just 11% if financials are excluded. Revenues for that period are seen up just 6.3%

David Rosenberg points out that we should keep in mind that with the U.S. dollar heading down to 15-year lows, this equity market “rally” in the U.S. has been far less than impressive for a global investor (a good take on this in the “Short View” on page 15 of today’s FT).  While September existing home sales in the U.S. rose 10.0% to 4.53M, which far surpassed consensus forecasts, median house prices fell 3.3% MoM, the steepest monthly drop since January 2010 and the third decline in as many months (all regions were down too).Over that three-month span, resale home prices have tumbled at a 22.5% annualized rate — the largest drop on this basis since February 2009 when the economy was in the abyss.  Rosenberg continues:

One of the most comprehensive measures of the economy is the Chicago Fed National Activity Index and for all the talk of how the economy has turned around, this broad barometer weakened to -0.58% in September (versus -0.3% expected).This was the second negative reading in a row. The key three-month moving average metric dipped to -0.33%, from -0.32% and has been negative now for four months in a row, signalling below-potential growth. We ran some regressions and found that the Chicago Fed index is pointing to sub 1% real GDP growth in Q4.That is not a contraction but it is too close for comfort.

Did I tell you so?  Of course I did!  Another thing I've been going on and on about is the money supply and the VELOCITY of money and I want to thank Dr. John Hussman for putting it all in a nice, straightforward article that explains the issue so well.  PLEASE read the whole article but this chart pretty much says it all, increasing our money supply by 10% a year is TOTALLY INEFFECTIVE when the base velocity of that entire 100% (110%) supply is declining by 6% a year.  Conversely, when and if the RATE of money picks up, all the tightening in the World will not be enough to put this genie back in the bottle:

Hussman points out that real economic growth has no observable correlation with growth in the monetary base (the correlation is actually slightly negative but insignificant). Rather, economic growth is the result of hundreds of millions of individual decision-makers, each acting in their best interests to shift their consumption plans, saving, and investment in response to desirable opportunities that they face. Their behavior cannot simply be induced by changes in the money supply or in interest rates, absent those desirable opportunities.


Simply put, monetary policy is far less effective in affecting real (or even nominal) economic activity than investors seem to believe. The main effect of a change in the monetary base is to change monetary velocity and short term interest rates. Once short term interest rates drop to zero, further expansions in base money simply induce a proportional collapse in velocity.

8:30 Update:  We got the worst possible Durable Goods report with a MASSIVE headline beat of 3.3% vs 1% expected by economists, who can be off 230% in their predictions yet still have the nerve to show up next month and make more predictions.  The last report was revised down 50% to -1.5% but the MSM generally ignores last month, which is real and refined, and focuses on the current month, which is inaccurate and subject to change.  Anyway, 3.3% is BAD because it's good and good news is bad for QE fans.  Not only does the Durable Goods Report look good (and Fernando would be proud) but it does not feel good, as the ex-Transportation number is off a cliff at -0.8%, down from UP 1.7% in August.  How do we fall 150% in a single month?  Perhaps we weren't all that strong to begin with.  Ask MT and AKS – they already told us things weren't so good, didn't they?

Asia had a rough morning despite New Zealand locking in as the location for the $500M production of "The Hobbit" and even despite AAPL's launch of the Chinese version of the App Store.  With the elections and the Fed decision looming next week, markets are now getting worried that QE2 may not be as big as expected ($100Bn a month).  Hong Kong dropped 1.9% and the Shanghai fell 1.5% and the BSE dropped 1% but the Nikkei held flat as the dollar's strength encouraged exporters.  

China is still in a quandary as they are being heavily pressured to float their currency to the dollar but they sure don't want to cut the strings while the dollar is bouncing back because retail food prices jumped 10-13% in October  as soybeans traded in Chicago are at their highest price in 14 months – largely on the strength of Chinese demand. Palm oil on the Malaysia Derivatives Exchange breached a 27-month peak this week. Thai rice prices are nearing a six-month high.  Food is close to 60% of the cost of living for the average Chinese family.  10% in a month is a problem – 20% is a crisis because, at 30%, people begin to die. 

EU markets were disturbingly weak into yesterday's close and did not better this morning with the FTSE dropping 0.75% in a big gap down at the open and the DAX is down 0.3%, failing to hold 6,600 while the CAC is down a quarter-point at 3,842 and needs to get those 8 points back or they start looking weak as well.  Greece is the word once again as 10-year bonds fell for the 3rd consecutive day as yields jumped 58 bpts to 10.34%.  The revised projections on the Greek budget show a deficit of over 15% of the GDP – pretty much in the default zone – AGAIN.

Of course Greece is considered the place to be – if you are Turkish!  Things are so bad in Turkey that the EU has agreed to send a rapid-response border force to help Greece patrol its land frontier with Turkey, as local Greek law enforcement has been overwhelmed by an influx of thousands of illegal immigrants.  Perhaps we can send Sharon Angle over to help supervise troop deployments…  Romania is somewhere around there and their government has been overwhelmed by protesters and facing a "no confidence" vote so lots of cool chaos in Europe this week.  

Meanwhile, France jammed through the retirement changes despite national protests there and consumers all over the EU are reeling from sugar prices hitting 30-year highs and even potatoes are up 15% in October at 135 Euros per ton, up from 64 Euros a ton last year.  NOW does MCD look a little high to you?  

Now did you read the news today
They say the danger's gone away
But I can see the fire's still alight
There burning into the night

Oh, Superman where are you now
When everything's gone wrong somehow?
The men of steel, the men of power
Are losing control by the hour – Genesis



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One of the funniest Colbert clips I have seen in a long time….

Phil–a question –what does one do when a vertical is deep ITM
ie– B  9 AKAM  jan 12, 40’s @ 12.15  and sold 9 AKAM jan 12′ 45’s at 9.60–wait or can something be done to enhance the profit( bloody greedy, I know)

Politics / Phil — YOU are a true independent ?   ok-dokey-pokey !   ROFL. 
U made my day w/ that one !
You do, however, sound quite resigned to the reckoning the Democrats will be receiving on Tuesday.  And I am proud of you for that.
Like you, I don’t hold out tremendous hope for politicians to be "fixing" things, but at least we will get rid of some of those who have been simply destroying us, and put the brakes on Obama’s reckless and unpopular agenda.
Even Jon Stewart (tune in tonite) joins in the bash fest:
The Daily Show comedian Jon Stewart called President Obama’s legislative agenda timid during an interview with the president set to air this evening.

“Is the difficulty you have here the distance between what you ran on and what you delivered?" Stewart asked. "You ran with such, if I may, audacity, yet legislatively it has felt timid at times. That I am not even sure at times what you want out of a health care bill.”
“You ran on very high rhetoric, hope and change and the democrats this year seem to be running on please baby one more chance,” Stewart joked.

Stewart continued, back on health care.

“I don’t mean to lump you in with other presidents, but I think if I were to try to coalesce whatever criticism of it may be it’s that you ran on the idea that this system needed basic reform. It feels like some of the reforms that have been passed, like health care, have been done in a very political manner, that is papered over a foundation that is corrupt.”

Asked the humorist: “What have you done that we don’t know about? Are you planning a surprise party for us, filled with jobs and health care?”



It must be a sign of something when Cap is quoting the Daily Show.

Sorry I forgot that you folks were missing the Fox feed all week. That explains the Cap

It’s Madness I tell ya !

ben… A crazy travel day for me, but it ended well with your post on SYMC – Thanks!

Fraudclosure update – a must read from case before a  Brooklyn judge:

Thanks for your thoughtful post regarding the situation in Boston…. It is very similar to the status in the San Francisco Bay. I was a member of the San Francisco Yacht Club, and had a slip there. Always lots of scruteny, as who gets permission to join. If you are in to racing ( not for me anymore ), then you have an automatic approval, even if you are a little rough on the edges. All the clubs want a winning racing record under their burgee. They never recognize those that can out drink the others at the bar!  When I moved away from San Francisco, and relinquished my membership at the club, I sold my boat sip for a small fortune, as there was a long waiting list. Always a huge demand and limited supply – sounds like gold investments!
The Boston Yacht Club would be my choice, as I am not a snob, and many who are quite frankly are some of the most boring folks I have known. I am still scoping out the many choices and decisions that need to be made. My wife thinks it might be a fun excursion… she says it would be good for me to be exposed to the newer version of "East Coast culture", as she believes it would temper my overly conservative political views. Not sure about that, but I agree the diversification would be enlightening.

Damn, didnt know there are so many of you people living in the Boston area!!!

Cap… LOL !….. Obama at bat is one hell of a funny piece.

Ummm, from AW

XLK – Technology Select Sector SPDR Fund – One big options market participant traded a total of 524,600 put options on the technology SPDR ETF this afternoon. It looks like the party responsible for the massive transactions rolled a previously established debit put spread in the December contract forward to the longer-dated March 2011 contract. Shares of the XLK, an exchange-traded fund that mirrors the performance of the Technology Select Sector of the S&P 500 Index, are down slightly by 0.20% to stand at $24.19 as of 2:15 pm in New York. The XLK jumped to the top of our ‘most active by options volume’ scanner after the 112,300-lot December $23/$20 put spread was sold for a net $0.31 per contract. This spread appears to have been initially purchased for a net premium of $0.68 each back on October 7, 2010, when the price of the underlying fund was trading around $23.14. Today, the XLK-options player sold the massive spread in order to purchase an even larger one at the same strike prices in the March 2011 contract. The new put position involved the purchase of 150,000 lots at the March 2011 $23 strike for a premium of $0.96 each, and the sale of the same number of puts at the lower March $2011 $20 strike at a premium of $0.31 apiece. In isolation, the net cost of buying the longer-dated put spread amounts to $0.65 per contract and yields downside protection for the investor should shares of the XLK trade below the breakeven price of $22.35 by March expiration. Enormous trades such as these tend to be tied to stock. Perhaps this trader is augmenting the size of the put spread because he has increased his exposure to the technology sector. Around the same time the puts were bring traded, some 733,000 shares of the underlying were purchased for $24.12 each. We note, however, that at this time there is no way for us to determine whether these shares were tied to the spread or not.

gel/Atlantic sailboat dock – Purchase Cedar Island on the Outer Bank, a 270 acre island (90 developable uplands) for 1.4M, and then build a 1.6M pad.  Deep water on protected Pamlico Sound and only 5 miles to the Atlantic Ocean…and then you can sell me a few acres in the process…=D

Am I reading this right?  Bloomberg reporting that the Fed asks the banks "Gee, how big would you like QE2 to be?"
Should I be reconsidering my short positions?

boobbearsdad/Fed QE Survey – I’m wiring more cash to my trading accounts, and preparing for next week.  Goldman is the ring leader (thus can influence "the 18" who will be participating in the survey), and they have been asking for $2-$4 Trillion QE…so if the markets get $2T, we get a huge short squeeze in the process.  If the markets get more than $2T….to the moon!  Of course then we should all follow JRW’s lead and buy a villa in Monaco…as the future fallout of such treachery could spell social unrest at some point in the near future.  Nov 2 and 3rd could be a historical pivot point for America…determined by a single Keynesian economist, who is hell bent on creating worldwide commodity hyper-inflation.

Found one glass half full article on QE2…although I personally believe the glass could easily get shattered in the process instead…
The Case for Quantitative Easing
Per online.barrons.com/article/SB50001424052970204742304575546140224527342.html
Hyperinflation occurs when central banks lose their discipline and monetary policy gets into the hands of the politicians. Once you turn the printing presses on it’s hard to stop the process. And tamping down inflation afterwards is just as painful.
That’s why you want a commitment tying any quantitative easing to a forward-looking outlook. The Fed should say it is going to be purchasing securities as long as inflation in its outlook is below mandate. By doing so it is implicitly saying it will not only stop all purchases but actually sell bonds once inflation in the outlook exceeds its mandate.

The problem with the hyperinflation "cure" posted in the article above ^^^ is that the politicians will never allow the fed to enact such a "cure" when the voter majority being so negatively affected by such actions.  With politics added to the equation, long term solutions quickly become indeterminate and thus effectively unsolvable… 

Per http://online.wsj.com/article/SB10001424052702303891804575576533845166848.html
Some investors say the Fed doesn’t have much margin for error next week. Too modest a move could disappoint those who say the economy needs aggressive Fed action, but an overly muscular approach could prompt concerns the Fed is overreacting. "There is room on either side for a negative surprise," said Mike Ryan, chief investment officer for UBS Wealth Management Americas.
A Wall Street Journal survey of private sector economists in early October found that the Fed is expected to purchase about $250 billion of Treasury bonds per quarter and continue until mid-2011, amounting to about $750 billion in all.
Per http://blogs.wsj.com/marketbeat/2010/10/27/qe2-may-not-be-so-big-stocks-pull-back/
According to the Journal, the program will results in a “few hundred billion dollars” of Treasury bond purchases over “several months.”
“If true, it confirms that the Fed is moving away from shock and awe tactics and towards are more measured approach, as hinted at in the last FOMC statement,” said Gavan Nolan, analyst at Markit, a data provider.

I am turning into a "nighthawk" trying to figure out the best strategy for the anticipated inflation soon to pay us a visit. It is not only the US that is going down this path, but so many others that have debt that can never be paid.  At the very least, I am going to lay in a play on TBT tomorrow, just to get started – selling puts ( got to get paid for all this after hours work.)
Outer Banks…. not a good idea. It is cheap for a good reason – Hurricane Alley!  But then Pharm’s retreat is in "Tornado Alley"  An island would be nice though…. no need for a moat.

Currently have 30 contracts short on Jan 2011 200 calls NFLX.  Just want some protection on these  I hate that I am in this thing with this carnival stock.  The huge short squeeze and the pump job is kind of making me crazy that I would play so aggressively with a stupid stock like this. Do you have a recommendation?
I should have stayed in Cash like I was but was wanting to Sell into the excitement.  That was a bad idea.

Lots of crap on the currencies today, the dx/y looks down but started tracking stronger at 9:30 and the market sold off
at 11:00 EST
dx/y = (1.11)%,  e/$ = +1.17%,  e/y = +.33%,  Y/$ = +.98%,  $/swiss = (.75)%,  $/yuan = flat
so netting out the basket currencies, we have actual extra dollar strength of 1.47%.  Then taking the e/$, e/y and y/$, lets arb out the Y, so e/y = +.33% and Y/$ =+.98 = 1.31, vs the printed e/$ of 1.17, so actually  net extra weakness of (.19)
netting those out, shows observed dollar strength of 1.28% vs the dx/y of (1.11)%, dollar is actually net up  .16% at european close
the morning has been net  dollar strength 0% and between (.05)% and +.05% all morning, it started going higher 9:50 EST on a net basis and the market sold off
Overall very weird currency moves, since the Geithner comments last WED about the $-Euro-Yen
Now Japan saying this morning about rates staying low for a number of years (Japan version of extended period)
Something very weird going on, currencies moving in lock step or I am going crazy

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