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Tuesday, February 7, 2023

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Just Another Manic Monday – Stagflation Official in China

Wheeee, everything must be great! 

We are crushing our levels as the market flies ever higher.  Our 11,500 target on the Dow looks sure to be tested and we're already flipping bullish with our "Breakout Defense" trades, in which our goal is to make 5,000% in 5 trades or less.  We are not ashamed to jump on the bullish bandwagon – if they are giving away money, we'll stand in line with everyone else, only we'll take a larger share – thank you very much.  We certainly know how to use leverage just like a Bankster – we have a spread and we're not afraid to use it!  

Speaking of Banksters, the must-read article of the weekend is the NY Times piece that goes into surprising details of secret bank meetings that are regularly held in NY where the Gang of 12 (just 9 of them) do their best to manipulate the derivatives market, influence regulations and regulators and, of course, crush their competition.  The article even goes so far as to name my old friends at ICE as possibly maybe having something to do with these shenanigans and I am SHOCKED at these allegations as the good people at ICE were so good about telling me how I had things all wrong when I made similar statements last year (which I now legally know cannot be proven and therefore must not be true).  

And thank goodness that the commodity and derivatives clearinghouse that was founded by Big Banks and is controlled by Big Banks cannot be proven to be operating in favor of Big Banks because we wouldn't want to think that the Big Banks had some preferential treatment (beyond the access to the discount window and the TARP money and the POMO money, etc.) – that would just be unAmerican.  By unAmerican, I mean the old America that they write about in the Declaration of Independence and the original Constitution, of course – not the Corporate Kleptocracy this country has developed into.  Under the new guidelines, leveraging your influence and having the government rob the people to increase your profits on which you don't pay taxes is the very definition of patriotism, isn't it?  

VIXAh well…  As I said last Monday, this is really Somebody Else's Problem because we are in "get it while the gettin's good mode" at the moment.  So we're not going to dwell on the negatives and we will, instead, accentuate the positive as sell our premiums to Mr. In Between to fund our bullish plays.  Our first two bullish plays in this series are already a week old as I put up trade ideas on DBC and FAS in the December 3rd morning post.  

While the FAS trade is already getting away with an 833% gain in the first week (out of 3,233% potential gain by April if the XLF keeps climbing), the DBC trade idea is still playable as commodities haven't quite run away just yet.  As you can see from the VIX chart on right, market complacency may be peaking or the fabulous Obama Administration may have truly eliminated all the potential economic negatives in just two short years – INCREDIBLE!  

Unfortunately, China does not seem to be as lucky as we are to have such tremendous leadership that all of their problems are solved and just this weekend they reported shocking 5.1% inflation – if by shocking I mean pretty much totally ignored by the US MSM.  The inflation was not, however, ignored by China's own Deputy Director of the Finance and Economic Affairs – He Keng, who was reported as saying that China began experiencing a period of stagflation in the second half of this year with high inflation and unemployment. The nation will also face the possibility of an economic double dip next year, the Guangzhou Daily cited He as saying at a meeting yesterday.  That's STAGflation, as in stagnant economy, not the more benign INflation, as in the stuff the US pretends doesn't exist.  

Speaking of inflation that doesn't exist – commodities are flying this morning as the dollar takes a nose-dive from 80.70 down to 80.20 and that should be good for yet another 1% day in the markets.  Gold is testing $1,400, oil is $89.30, copper is $4.18, natural gas is $4.52 and hi ho silver is away at $29.59.  That's enough to get us to finally move some of our cash off the sidelines as we're going to get less and less stuff for it every day at this pace.  The Euro jumped an entire penny from $1.318 to $1.328 since their open at 3am and our normal 3am trade on the Yen (as it tends to go down while the Nikkei is open) didn't see the Yen bottom out until 4:30 but then it violently gained half a point against the Dollar and is now (8:30) at the day's high.  

The dollar is down on excitement about the Obama Tax Cuts moving through the Senate today and the House is now expected to pass tomorrow so there's $1Tn worth of new debt we'll be taking on.  At the same time, the EU has been making moves to stabilize the Euro and it's expected that, by the year's end, there will be a fund bigger than the current $1Tn bailout fund the EU currently has at its disposal.  

Meanwhile, the Shanghai Composite leaped 2.9% this morning and led Asian markets higher as an anticipated rate hike by Beijing seems to have been put off until at least after the holidays.  Lack of tightening by the PBOC gave commodities the green light to fly higher with both Jiangxi Copper and China Oilfield Services hitting limit up at 10% this morning.  Investment sentiment in the region was also helped by Wall Street's gains Friday after data showed that U.S. consumers were more upbeat on the economic outlook in early December and that U.S. exports in October surged to their highest levels in more than two years.

It's the same old story – we go up because China went up and then Europe goes up because the US and China goes up and then we go up because Europe and China went up.  As long as none of us ever look down, it will all seem perfectly normal, I suppose – kind of like when the coyote heads off a cliff and keeps walking until the road runner points out that he's standing in mid-air.  

One short we will be taking today is oil as that is just silly back over $89.  We have a standing entry to short the Futures but USO puts should be attractive at $38.50 on that ETF as there are still 550M barrels on pretend order for the three front months at the NYMEX with 194M barrels scheduled for January delivery to Cushing, OK – a facility that has a capacity of 45M barrels and happens to be full.  Those contracts that are still open next Tuesday must be delivered and, with the January contacts at $89 and the June contracts at $90.08, it's hardly worth storing oil for 6 months to make $1, is it?  

As I pointed out to Members this weekend, there's no point in being skeptical when the Gang of 12 is determined to run the markets.  Just this morning the big gun analysts weighed in at Bloomberg with an average forecast of 11% gains on the S&P in 2011 (about 1,379) with Goldman's own David Kostin leading the bull charge with a 17% rally target.  Readers of the WSJ this morning were treated to GDP upgrades from the economists they polled with 3% growth now expected in 2011.  GS is also targeting index movers like AAPL for big upgrades – just what the doctor ordered to push the Nasdaq even higher..   

Yep, things could not possibly be better, I suppose – and that's what scares me!  

 

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blogs.wsj.com/deals/2010/12/13/everything-you-need-to-know-about-the-ap-bankruptcy/
my other rant
sure seems like the FED and ZIRP, is just being funneled into these pre-structured bankruptcies as stealth bailouts

Up almost 90 cents going into close, what a joke.

while we are waiting, Phil, i am looking at the CAKE trade from this weekend. Cake is a bit down today but the spread looks to be costing more than you calculated. I’m seeing about 4.90 instead of 3.90. Is that what you get? thank you.

Pre-Lehman S&P/mike:  Looks like the DXY index was in approx. the same area (79) at the time too. 

Phil just like to correct DIA Mar 11 114 to 116 is .92

Full story here !

 

Based on the latest S&P 500 monthly data, Short concludes that the benchmark is overvalued by 59%, 42% or 37%, depending on which of the three metrics you choose.

Indeed food for thought …

Click here or on the graph below for a larger image:

maybe I can get this right eventually on embedding

According to Richard Russell,

"and as I write the dividend yield on the Dow is 2.56%. I go along with Charles Dow’s ’rule’ − a dividend yield under 3.5% is risky if not dangerous.

Based on history and based on the current dividend yield, stocks are not now priced to produce profits over coming years.”

 NFLX & CMG being taken to the woodshed today !
Now its FCX every bot wants.

JRW
Thanks for all the input today, I posted last week that I believe the market is do to retrace but are we wrong? I am still holding those IWM puts like you. I think next time I will sell calls for half the position to offset the premiums. As usual you see things better than me but I need to make up for the shorts that lost. SELL SELL SELL!!!

Phil / Cash   What % cash are you currently guiding?

South Korea boat sinks in Antarctic sea; 22 feared dead

 
In this undated photo, South Korean fishing boat No. 1 In Sung is in a port. Fishing boats searched for 17 missing sailors from the South Korean vessel that sank Monday, Dec. 13, 2010 in the Antarctic Ocean, leaving five dead, officials said. YONHAP / AP Photo
By HYUNG-JIN KIM & RAY LILLEY Associated Press
Published: 12/13/2010  6:57 AM
Last Modified: 12/13/2010  6:57 AM

WELLINGTON, New Zealand — A South Korean fishing boat sank in the Antarctic Ocean’s frigid waters Monday, with 22 sailors feared killed in the open sea where vessels trawl for deep-water fish.
Five sailors were confirmed dead and 20 survivors were rescued shortly after the 614-ton vessel went down some 1,400 miles (2,250 kilometers) south of New Zealand, about halfway to Antarctica, South Korea’s Foreign Ministry and coast guard said. Seventeen sailors were missing.

Read more from this Tulsa World article at http://www.tulsaworld.com/news/article.aspx?subjectid=13&articleid=20101213_13_0_WELLIN49134

1213-fear

 Hi everyone:
GOOG just completed "Filling the gap" from its last earnings announcement ($540-$600 on Oct 15, 2010), closing in today on $600, after dropping to about $555 two weeks ago.  Looking to sell short term (dec) 600P covered by 580P for net credit of about $5.  I am already short dec 600C (sold at $4.7), so via this trade, looking to create a buffer that GOOG will be pinned somewhere between $590-610 into expiration, and hopefully,  with luck, at $600.
It’s a bit too risky and would like to hear what others think about this trade idea..

wow
 the NET $ just jumped to +2.30%, as the dx/y = (1.24)%

 

DrMtv/GOOG – since stock prices mean nothing except in relation to market cap / shares outstanding, I sometimes I like to remove a digit or two and then ask myself if it still sounds like a good idea. For example, if GOOG was a $60 stock, would you expect it to stay in a $59-61 range? If it was a $6 stock, would you expect it to stay in a $5.90 – $6.10 range?

JRW
do you have a subscription to the Tulsa World or did you find that article on another site. The link you have won’t let me read it.   Thanks

Sell the f-ing pops!

z401 / OK subscription

No, but this should work; and then there is this.

matt / pop — but this is a dip! šŸ˜‰

Now that’s funny! Maria says the momentum has come OUT of the market! Looks like downward momentum to me!

JR,
 
RUT weak today any idea why?

Colder than a well diggers rear end at Disney World.  Not busy at all (which is why we chose this week).  Nothing missed in the market I see…check back late tonight.

 

OREX – someone sent me an email and I apologize about not getting back right away.  Scaling into the Ps in April range is my preference and selling C and Ps in the front months (January now) on the ups and downs of the roller coaster is the best way to play.  I am going to look into some good verticals or even a few OTM Ps. Later all!

Does anyone know if tomorrow is a POMO day?

funny almost went negative on the S&P and then everyhting just came to a screeching halt

cannot have that

exec / RUT

It’s been a MOMO; now it’s not šŸ˜Ž

No POMO tomorrow !!

 Market Watch Article on NFLX – reasons not to short

 samz/NFLX — and marketwatch published this on a -6% day …. credibility zero.

Phil,
Here is the root of my question earlier today in trying to understand the estimated high percentage gains for these trades. Following the FAS trade introduced on Friday 12/8 …
 
Buy the FAS April $20/25 bull call spreadfor $2.70, sell the April $21 puts for $2.55, which is net $0.15 on the $5 spread that’s already $4.25 in the money.  So, if FAS makes a $0.75 gain between now and April expiration and holds it, this trade makes a 3,233% profit
 
In forcing those limits into ToS today (Mon 12/13) and using actual costs (factor of 100) – buying 1 contract  of the call spread and selling 1 contract of the puts, it looks like I commit $2,115 in capital and the net profit at expiration (if transacted today) would be $485.
 
 
If we assumed that it was bought at Friday’s low of 25.96, it looks like there would have been another approx. $30 of profit at expiration which would bring estimated profit at expiration (expires above $25 strike price) to $515.
How do we get to 3,233% profit? I must be missing something elemental.
 
Thanks,
Ken

Phil,
Never mind. šŸ™‚ It’s a good think I thought this out in front of everybody.
-ken

 Ken,  I didn’t get this either at first, but for a .15 cost you earn 458.  .15/458 is 3,233%

 Sorry 485/.15 is 3233!  

Well, I am sure he was objective:
Henry E. Hudson, the federal judge in Virginia who just ruled health care reform unconstitutional, owns between $15,000 and $50,000 in a GOP political consulting firm that worked against health care reform. You don’t say! 

 I was hoping CMG would get this sell-off in before Dec expiry.

 Phil
FAZ is now about 15% lower than it was back at the April highs. Do you like it as a bearish play? if so – how?

 For you shoot the messenger folks, expand your minds behind knee jerk liberal talking points:
 
 
Judge Hudson’s opinion is particularly valuable because it dispatches the White House’s carousel of rationalizations for its unprecedented intrusions. The Justice Department argued that the mandate is justified by the Commerce Clause because the decision not to purchase insurance has a substantial effect on interstate commerce because everybody needs medical care eventually. And if not that, then it’s permissible under the broader taxing power for the general welfare; and if not that, then it’s viable under the Necessary and Proper clause; and if not that, well, it’s needed to make the overall regulatory scheme function.
But as Judge Hudson argues, the nut of the case is the Commerce Clause. Justice can’t now claim that the mandate is "really" a tax when the bill itself imposes what it calls a "penalty" for failing to buy insurance and says the power to impose the mandate is vested in interstate commerce. Recall that President Obama went on national television during the ObamaCare debate to angrily assert that the mandate "is absolutely not a tax increase."
Moreover, Judge Hudson says that no court has ever "extended Commerce Clause powers to compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market."
Liberals are attacking Judge Hudson because he was appointed by George W. Bush, but his ruling is relatively narrow. He didn’t strike down the rest of ObamaCare even though it lacked a severability clause, and he didn’t enjoin the law’s implementation pending appeal. His opinion also doesn’t touch Virginia Attorney General Ken Cuccinelli’s long-shot claim that his state’s "health freedom" law can nullify an act of Congress. In fact, federal laws that are constitutional are supreme under the 10th Amendment.
Yesterday liberals were crowing that even if the mandate is eventually declared illegal, it’s no big deal because the rest of ObamaCare’s new system would remain intact. Yet they’ve argued for years that the mandate is essential to health reform, because the mandate is at the heart of the regulatory machine. ObamaCare without a mandate would mean individuals wouldn’t have to pay into a system until they were sick, driving up costs even faster and ruining what’s left of health insurance markets.
While Judge Hudson’s ruling is the first to declare part of the law unconstitutional, more than 20 state attorneys general and the National Federation of Independent Business are also suing in Florida. Oral arguments will be heard on Thursday in that case, which we think is the strongest constitutional challenge to the law.
As the Virginia case shows, ObamaCare really does stretch the Commerce Clause to the breaking point. The core issue is whether the federal government can order individuals to do anything the political class decides it wants them to do. The stakes couldn’t be higher for our constitutional order.
 
http://online.wsj.com/article/SB10001424052748703727804576017672495623838.html?mod=googlenews_wsj

 Cap
 
I’ve been away all day… looks like I did not miss much – just a lot of "back and forth" trading dollars. It is hard to overlook your posts, as I "get religion" after reading your late in the day missives. Lots of stuff happening in the "tug-a-war" between the libs and conservatives. I think the balance is in favor of the conservatives, as the folks are tired of the fiscal mismanagement and extraordinary level of deficit and accumulated debt., which is "killing" this country. As a California resident, this catastrophe is in full dress, and it is honestly not even a concern of the liberals. " As Pompeii burns, the party-goers are oblivious to the consequences. Keep it up, Cap… at least I know I am not alone in my thoughts!

Gel – you know you arent alone! Flip, humvee, Hoss, Cap, all are very vocal in their politics! The liberals on this board (myself, shadow, Biodiesel, and others) are usually quiet and only RESPOND to CAP’s constant attacks…

 
Today Hussman writes a warning to stock investors: 

“In recent weeks, the U.S. stock market has been characterized by an overvalued, overbought, overbullish, rising-yields syndrome that has historically been hostile to stocks. Last week, the situation became much more pointed. Past instances have been associated with such uniformly negative outcomes that the current situation has to be accompanied by the word "warning." 
The following set of conditions is one way to capture the basic "overvalued, overbought, overbullish, rising-yields" syndrome: 

The following set of conditions is one way to capture the basic "overvalued, overbought, overbullish, rising-yields" syndrome:
1) S&P 500 more than 8% above its 52 week (exponential) average 
2) S&P 500 more than 50% above its 4-year low 
3) Shiller P/E greater than 18 
4) 10-year Treasury yield higher than 6 months earlier 
5) Advisory bullishness > 47%, with bearishness < 27%
 The historical instances corresponding to these conditions are as follows:
December 1972 – January 1973 (followed by a 48% collapse over the next 21 months)
August – September 1987 (followed by a 34% plunge over the following 3 months) 
July 1998 (followed abruptly by an 18% loss over the following 3 months)
July 1999 (followed by a 12% market loss over the next 3 months)
January 2000 (followed by a spike 10% loss over the next 6 weeks) 
March 2000 (followed by a spike loss of 12% over 3 weeks, and a 49% loss into 2002)
July 2007 (followed by a 57% market plunge over the following 21 months)
January 2010 (followed by a 7% "air pocket" loss over the next 4 weeks)
April 2010 (followed by a 17% market loss over the following 3 months)
December 2010
…cyclicals are nearly as overextended relative to staples as they were at the 2007 peak… 
From our standpoint, the return/risk profile of the equity market is the most negative that we ever observe historically, so we are willing to speculate neither on the hope for government wisdom, nor on the hope of government recklessness.”

See the whole article for more detail: Warning- An updated Who’s who of awful times to invest. 

 jromeha
 
Yes, we must all keep each other "aware" of the hazards of poor government – the debate "must go on", as our work is cut out for us to influence our fellow man to follow a road that leads to prosperity, and not self-destruction, as is so apparent today.
I am relieved we all recognize the abyss that our government has so selfishly created through their profound stupidity, and Cap as well as so many others, are just doing their best to hopefully spark a change for the better. I respect the libs on the board, as you guys are intelligent and offer an opinion that needs to be fully considered – as consensus will always have to be structured with intellectual thought on all sides. All issues certainly have diverse opinions… makes for interesting debate, as long as those that participate are informed and intelligent. I mustl admit, Cap does know how to get the thought process activated !  He keeps us informed, for sure.

http://www.brookings.edu/~/media/Files/rc/reports/2010/1130_global_metro_monitor/1130_global_metro_monitor.pdf

Very interesting Brookings study of worldwide metro-area economic standing/performance pre/post recession.

"because metros
form the fundamental bases for national and international economies,
understanding their relative positioning before, during, and after the
Great Recession provides important evidence on emerging shifts in the
location of global economic resilience and future growth."

"Nearly four in five boast average incomes (as
proxied by per capita GVA) that exceed averages for their nations."

"As a result, these metro areas punch above their weight in national
and global economic output. In 2007, they accounted for just under 12
percent of global population, but generated approximately 46 percent of
world GDP."

Pre-Recession
Between 1993 and 2007, roughly half of the metro areas that achieved
the strongest growth in GVA per capita and employment were located in
rising nations of Asia, Latin America, and the Middle East that benefited
from new heights of global economic integration

Recession
The negative impact of the global economic downturn, commencing
in 2008, was widespread among the 150 metro areas. Roughly seven
in eight lost either employment or income in at least one year between
2007–2008 and 2009–2010.

Fully 28 of the 30 top-ranked
metros during that period were located outside of the United States
and Europe, with China accounting for the top five

Recovery
The most recent year, from 2009 to 2010, appears to have further
strengthened the relative economic standing of metro areas in the
rising nations of Asia, Latin America, and the Middle East. Of the top 30
ranked metros in this period, a diverse group of 29 was located outside
the United States and Europe. China and India alone accounted for 10,
Latin America registered seven, and the Middle East and North Africa
recorded four. Most of these metros posted annual growth rates of at least
2.5 percent in employment, and 5 percent in income, in the first year of
worldwide recovery.
While the recession hit U.S. metros harder than their European
counterparts, the recovery seems slower to take hold in European than
American metros. Metros along Europe’s western, eastern, and northern
peripheries, from Porto and Valencia, to Thessaloniki and Sofia, to
Helsinki and Stockholm, anchor the bottom 30 economic performers
from 2009 to 2010. Meanwhile, several U.S. metros that suffered severe
economic declines during the recession, such as Detroit and Cleveland,
posted significant rebounds in their rankings on the strength of robust
income growth, even as metros such as Atlanta and Las Vegas await a
stronger recovery.
The upshot: The past two decades have seen lower-income metro areas in
the global East and South “close the gap” with higher-income metros in
Europe and the United States, and the worldwide economic upheaval has
only accelerated the shift in growth toward metros in those rising regions
of the world.

.….the shifting metro map points toward
an emerging array of productive metro-based economic relationships that
could drive regional and national prosperity in the decades to come."

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