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Monday, February 26, 2024

Friday Fizzle – Week Ends with a Whimper

 "Woke up this morning, what did i see
A big black cloud hanging over me
I switched on the radio and nearly dropped dead
The news was so bad that i fell out of bed
There was a gas strike, oil strike, lorry strike, bread strike
Got to be a superman to survive
Gas bills, rent bills, tax bills, phone bills
I’m such a wreck but i’m staying alive
" – Kinks

I thought some uplifting music might help today as the markets have not been turning in a super performance this week despite a $1Tn tax cut/stimulus package pumped into it just 3 days ago.  That morning, I posted Chris Kimble’s charts from our Chart School and we were looking at key resistance at S&P 1,224, Nasdaq 2,600 (NDX 2,191), NYSE 7,751 and Russell 756.  We’re above all those this morning but what we’re not above is my 11,500 level on the Dow.  In fact, if you look at the Dow over the past 6 sessions, you’ll notice we hit quite a wall at about 11,375.  

What’s it going to take to punch through that wall and get us up over our 11,500 breakout target?  We had this same problem in early November, when the Dow just couldn’t close the deal over 11,450 and fell sharply after 3 days of trying despite the fact that the Dow Transports are up significantly (but also flatlining) since then (how now Dow theory?).  

I had said we would wait PATIENTLY for confirmation at 11,500 but it’s already getting tedious.  Our picks from Tuesday’s post were C at $4.56 and BAC at $11.79, with BAC outpacing C but both positions much more exciting with option plays than straight stock picks, of course.  By Wednesday morning I had done the math on the Obama Tax Cut and concluded that, for 95% of America, all we could say was "Thanks for the Gas Money, Mr. President" and I’m not even sure we’ll get that as oil once again tests $89 this morning, which is fine for us as that’s our shorting spot on the Futures and has paid us for many, many tanks of gas this week.

FXI WEEKLYIt is, of course, all about the Dollar and our poor currency has been brutalized in the past 24-hours, with a relentless push down from yesterday’s high at 80.82, all the way back to 80.25 at 6am.  This did, not, of course, make our friends in Japan very happy and the Nikkei fell off a ridiculous gap open all the way to 10,375 back to 10,211 at the close but, ignoring the gap up, that was down just 0.72% for the day, pretty much tracking the dollar tick by tick as exporters were very upset about the Yen’s failure to hold 84 to the dollar.

Of even greater concern is China (see David Fry’s chart) which was pulling us up and now threatens to pull us down. In fact, Monday promises to be a wild ride with China raising its reserve bank requirements 0.5% this morning, after its markets closed for the weekend in another step to the cool its economy after new data showed a sharp increase in exports and a continued pickup in the property market.

"Exceedingly strong exports growth amid an already overheated domestic economy is not good news, as it adds to the overheating pressures which will require the government to take even more stringent measures to bring down inflation," Goldman Sachs economist Yu Song said in a note.  Last week, the Politburo of the Communist Party, the highest decision-making body in China, ratified the transition to a tighter monetary policy, which it now officially describes as "prudent" rather than "moderately loose."

Meanwhile, over in Europe, things are still a bit shaky as the European Central Bank warned governments Thursday that they risked unleashing an "unsustainable debt spiral" in the financial markets if they failed to follow through on their pledges to cut budget deficits.  Although turmoil in European government bond markets has eased in recent days, the central bank of the 16 economies that use the euro said the "overall economic and financial situation is still fraught with risks."

In a 210-page report, the ECB also highlighted vulnerabilities to the region’s banking sector, but didn’t provide—unlike in its previous report in June—an estimate of future write-downs.  One potential trouble spot for banks in the euro bloc will be their need to refinance roughly €1 trillion (about $1.32 trillion) in bonds over the next two years, it said. That task will be even more difficult as private banks compete with governments for investor funds. "There is this question of competition with sovereigns," ECB Vice President Vitor Constancio told a news briefing.  Asked whether banks will face difficulties in meeting their refinancing needs, Mr. Constancio replied "it is hard to predict, of course, …even for the next two weeks."

Have I mentioned I like cash lately?

Well cash and our EDZ play.  We found another one of our famous 2,900% plays on EDZ in Member Chat yesterday and we only need them to hit $24 at January expiration so we’ll be sleeping pretty soundly over the holidays, not in the least worried about a meltdown in Asia – or anywhere else in the World, for that matter.  EDZ (now $22.55) makes a nice hedge against bullish commodity plays as most of those countries rely on exports, other than China, who are the net importer these days.  

China’s economy is history’s biggest bubble and may be headed for collapse, according to Richard Duncan, author of “The Dollar Crisis”.  A more than 50 percent surge in China’s money supply since 2008 helped fuel economic growth in excess of 9 percent per year, even as trading partners sank into recession. The expansion also saddled the country with factories that produce three times more goods than can be bought by China’s workers, 80 percent of whom make less than $5 a day, said Duncan.

China has the greatest economic bubble in history.  There’s a real risk it’s going to collapse in a Great Depression-style scenario.” 

Monetary and fiscal stimulus by governments around the world helped keep the recession from becoming a depression, Duncan said this week. They don’t address the core problem, which is the collapse of American manufacturing.  The U.S. government should boost investment in fields such as nanotechnology and solar energy that could help rebuild the nation’s export sector, according to the economist. “The current policy response — trillion dollar budget deficits and paper money creation on a mind boggling scale — is based on the belief that it’s better to die tomorrow than to die today,” Duncan said. “There’s no evidence to suggest that it’s going to correct the root cause of the problem.” 

I have said for a very long time that only hyperinflation will save us.  It will be a de-facto default on International debt and a means for the remaining 67M US homeowners (down from 70M) to pay off their mortgages and credit card bills with monopoly money and we can all start from scratch again.  Shadowstats’ John Williams says the numbers are already creeping into the data and, like me, he is concerned that Bernanke’s Top Down inflation is the WRONG kind of inflation as it will cripple the people.  What we need is wage inflation and, as Duncan said above, that’s only going to come through stimulus measures that are laser-targeted towards job growth.  

Speaking of China AND job growth, one industry that’s booming in China is: Day Trading!  That’s right, as many as 10,000 people in China are doing speculative day trading of American stocks, according to the NY Times.  They have been hired (ie. outsourced) by our own Banksters to mess with our markets from 9:30 pm to 4 am China time.  

Before you rush over to Beijing to put in your job application, consider that the Gang of 12 is using thousands of Chinese traders for the same reason our Manufacturers are using tens of millions of Chinese workers to do our jobs – it’s much cheaper!  Chinese firms are paying roughly $1,000 a month but that still attracts top talent when the average college graduate in China earns $300-$400 a month.  

China prohibits its citizens from using Chinese currency to buy or sell shares of companies listed on foreign stock exchanges, though there appears to be no prohibition against trading stocks for an account owned by a foreign entity. “This is a jurisdictional mess for the U.S. regulators,” says Thomas J. Rice, an expert in securities law at Baker & McKenzie. “Are these Chinese traders essentially acting as brokers? If they are they would need to be registered in the U.S.”

Day trading is like a battlefield,” says Qu Zheng, 24, who has been trading for over two years and typically trades a million shares a day at Lazer Trade’s office in Beijing. “It’s very challenging because you can feel the pulse of the market.”  Gee, I guess we do have a lot in common with our Chinese cousins!  So be careful guys, that Bot you’re trying to trade against may actually be a kid in China with a real pulse

Those kids better be making big bucks as China’s official November Inflation numbers (to be officially announced tomorrow) are looking to come in at 5.1%.  Anything over 4.9% is very likely to lead the PBOC to raise rates next week.  Currently the key one-year lending rate is 5.56% while the deposit rate is 2.5%.

You don’t have to warn Fund Managers about inflation – $50Bn worth of new investments have already flowed into commodities in the first 11 months of this year, smashing previous records as the multitudes panic into gold, copper, silver, oil, wheat, corn, cotton and a stunning 91% of 300 investors surveyed at yesterday’s Barclays Capital Conference in New York yesterday said "they will initiate, maintain or increase commodity investments over the next three years."  This is, of course, why I don’t go to these conferences – the only way I want to hang out with a herd of sheep all day is if I’m picking one out to roast for dinner…

It’s not that I don’t think commodities may go higher – in a hyper-inflationary scenario they certainly should.  It’s just that they will only go higher to offset the decline in currencies but that doesn’t make them a good investment.  As I pointed out to Members yesterday our July investments in NAK, HMY and ABX have done considerably better than a similar investment in GLD (the gold ETF) as, in an inflationary scenario, you want to own the companies that MAKE the commodities, not the commodities themselves:

Please note that we feel gold is bubbliscious at the moment and have short plays on it – our longs on gold, as well as pretty much everything else, are off the table as we have moved back to cash, probably through the holidays and gone short with what little cash we’re willing to put at risk with some financial plays as our upside hedges (see last week’s posts for some interesting trade ideas there).  As I said to Members yesterday:  

Why does a kid take an armful of cash to the store in Zimbabwe? Is he buying gold? Is he buying stocks? Is he buying oil? No, they buy bread and seeds and milk. Gold is an artificial construct. Stocks in companies that produce things have value, stocks in companies that trade other stocks and commodities are a joke and if you didn’t learn that lesson from their 90% fall in "value" during the last crash, you never will. 

That’s what The Bernank is doing now, he is pumping endless amounts of fake money into the banks, who produce nothing but more fake money and it pumps up the PRICE of the things they trade but does nothing to create real wealth for the people.  The Fed doesn’t give a damn about the people, the Fed is there to make sure that, come hell or high-water, the banks get paid!  

Oops, I was trying not to get angry today.  We’re having a great week so let’s just enjoy our own piles of cash as we head into the weekend!  Speaking of cash piles, it may be time to pile on top of NFLX again as they have been included in the S&P 500 and have shot back over $200, which is fantastic as we were forced to stop out of our short position on NFLX on Wednesday afternoon, as they began to recover and only yesterday in Member Chat, I was saying (about re-entering the Jan $155 puts):

NFLX/SrF – I’d go for $1.70, maybe $2 but a bit greedy to try to get back in here. Of course, you can use that logic to set up a small scale on it as it is the kind of play we’d roll along until they finally fall but not the kind of thing I feel safe enough with right now to make a general call.

Well we didn’t get $1.70, or even $2 yesterday as the $155 puts finished the day at $2.15 but it is game on again over $200 and I think this time we may be able to go a little bit more aggressive but first, we’ll have to see how much legs the S&P addition gives them.  And boy, do I feel sorry for the S&P for including this empty suit of a stock, but that too is just a game played by the Gang of 12 to give them nice exits on momentum stocks as the "force" index funds (that would be your IRA!) to buy the crap they run up to extreme valuations by suddenly including them into broad indexes and forcing them to "rebalance" their virtual portfolios to include whatever they’ve run up the flag pole.  Today we’ll play along and force those funds to buy overpriced call options from us – great fun! 

So sorry, passive investors – between the Banksters in the country and the day traders in China – it’s very hard to catch a break, isn’t it?  

We caught an economic break today as lack of demand for oil at these ridiculous prices drove the October Trade Deficit down over 10% to $38.7Bn, down from $44Bn in September as exports also surged 3.2% and imports fell an overall 0.5%.  In fact, oil, gas and other petroleum product EXPORTS were up $1.3Bn (30M barrels) in just one month (up $17Bn for the year) as our local energy cartel desperately attempts to create the impression of demand in the US by shipping as many barrels as possible out of the country.  Oddly enough, no arrests will be made… 

You stay out of trouble and have a great weekend,

– Phil

Beast on World Stock Market Bubble picture credit: Elaine Supkis at Culture of Life News


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