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Monday, February 6, 2023

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Toppy Tuesday – Can the Dollar Fall Faster than our Indexes?

It's a race to the bottom!

While we may have thought we were flatlining yesterday near our breakout, Europe and Asia had a different view of our markets as we pulled back -0.5% to -1.73% when priced in other currencies.  While you may not care what happens in other countries, there are 6.5Bn people who would disagree with you there and the US is not the World leader anymore (despite what the citizens of the US may think) – we can no longer afford to ignore things like how exchange rates affect us.  Here's the chart for the Dow, S&P and Nasdaq priced in Dollars, Euros and Yen for the past two months:

Fortunately for the bulls (especially the commodity ones), the dollar has resumed it's pathetic decline as Obama and The Bernank have combined to dilute our currency by another $2Tn over the next 48 months, from about $14Tn to $16Tn (+14%) plus, possibly, the $110Bn of new $100Bills the Treasury is trying to run off.  This has sent the dollar back down from it's Thanksgiving high and now it's going to be all about whether or not we can hold that 78.5 line as our Congress finalizes their vote on the Obama Tax Cuts and another $1,000Bn of US debt taken by our citizens in order to hand another $650Bn to the top 1%.

When $100Bills are being printed faster than rolls of Charmin are being made, your currency is probably on it's way to a crisis.  You reach a certain point at which it's cheaper to just wipe your butt with dollar bills than to go to the store and buy toilet paper and, of course, we've all seen pictures of Germans in the 1920's, fueling their fireplaces by burning bills, which were cheaper than wood.  Of course stocks and commodities are going up when priced in dollars – they are making more dollars every day, even Disney now has cartoons trying to explain to kids why this is a bad idea.

On top of the relentless devaluation of our dollar-denominated assets, we also have wild rumors driving up demand for commodities by speculators, who are generally those same top 1% who are being handed money by our Government at a rate of $2Bn per day.  If you had to put away $2Bn a day, where would you put it?  Well they've made Treasuries very unattractive with historically low yields and low deposit rates and a declining dollar have made saving the money look like suicide.  Bonds are getting crazy too so that leaves stocks and commodities and, since the top 1% are every bit as stupid as the bottom 99% – the best game in town is to start rumors to drive their money in and out of "the next big thing" like dot coms, oil, natural gas, housing, mortgage-backed securities and now oil (again), gold (again), copper (again) and silver.  

At least sliver hasn't been used since the Hunt Brothers crashed the market back in 1979 but that was long enough ago that we have an entirely new generation of suckers who are willing to believe that JPM has been foolish enough to be short 3.3Bn ounces worth of silver ($99Bn) to the point where if everyone in America bought an ounce (300M ounces for $10Bn) it would bankrupt them.  Aside from the fact that the math doesn't work in the first place (10% isn't going to blow out JPM), what are the odds you could get more than 2% of the people in this country to do something so stupid as to buy silver for about 100% above it's 5-year average based on some idiotic rumor.  

Surely American's can't be that stupid again, can they?  LOL, just kidding – of course they can!  These are the same Americans that think oil can go back to $100/barrel without destroying the economy and plunging it back to $45, these are the same Americans that are buying NFLX for $200 (we shorted last week), PCLN for $412 (we will be shorting), CMG for $262 (we shorted already) along with $89 oil (our short entry) and $1,406 gold (our hedged long at the moment).  Kid Dynamite did an excellent job of deconstructing silver and I really don't have time or space here for the rest but I would urge you to seriously consider all of your runaway investments in light of Kid's logic as there are people pushing all of these stocks and commodities at you every day – no different than silver except in scale.  

Rather than listen to the blather of the MSM to tell us how great the economy is, we tend to rely on actual reports – like the very depressing December "Rail Time Indicators" report, which shows a very steep drop-off in the actual delivery of commodities (pg 2), indicating demand has NOTHING to do with prices right now.  Average Weekly Carloads excluding coal and grain (pg 11) are closer to 2008 lows (+20K) than 2007,8 highs (-30K) with petroleum shipments (pg 12) similarly depressed while auto shipments (also on 12) have actually crossed below the lowest trends.  

Another report we pay attention to is the PSW Holiday Shopping Survey where our Members, many of whom are or have been successful captains of industry themselves, head out to the Malls and report their ground level observations.  Last year's survey led us to go short on the markets into January earnings and this year, we're already seeing a fairly sharp pullback since Black Friday's early excitement.  

That has led us to stick to our guns on the above short plays as well as our repeated success on oil shorts.  Just yesterday, in the morning post, I mentioned we'd be shorting oil at $89 (we did in the futures for a very nice .75 gain) as well as picking a USO put.  It took only as long as 9:32 for my Morning Alert to go out to Members with a trade idea for the USO Dec $38 puts at .41.  We took .60 and ran at 1:23 (up 46%) as well as a too early exit on those NFLX Jan $155 puts at $2.25 (up 40%) that I had mentioned we'd be getting back into in Friday morning's post, when they opened at $1.50.  

Well, as my Dad always said: "You can lead a horse to water but you can't make him think."  We choose every day to listen to one media source or another and I simply try to introduce a healthy level of skepticism that, on occasion, enables us to find nice investing opportunities – often as we play on the opposite side of "The Beautiful Sheeple."  What's scary is I can tell 250,000 people that a trade's going to work in the morning and it still does – that is one MoFo of a rigged market when we can pile in the opposite side of a trade and it fails to affect the outcome!  

Speaking of data – BBY missed by .07 with just .54 of Q3 EPS and that is in-line with our observations as we were simply not seeing a lot of big-ticket items going out the doors at the stores (watch out WHR!).  ICSC Retail Sales were up 0.8% this week so that's trending up and November Retail Sales were also up a strong 0.8% but this one has a breakdown and, as you can see from the tables, it's pretty much all Gasoline sales, which are up 16.6% due to inflation and on-line sales, which are up 13.3%.

Meanwhile, we have a PPI report that, coincidentally, also shows a 0.8% increase, which is DOUBLE the last reading of 0.4% and, ex-autos (which are being heavily discounted to move inventory), the November PPI is up 1.2% vs 0.4% in October.  We'll have to wait for tomorrow's CPI report but raise you hand if you think that the Producers will have trouble passing that 1.2% increase along to the unemployed masses (Best Buy sure did!).  

You should be rooting for runaway inflation if you are a bull as we need that Dollar to die so we can keep pretending how great things are in the economy.  UK inflation shot up to 3.3% in November, 65% over the BOE's 2% target rate and the EU, not wanting to be out-inflated by their island neighbor, is looking to increase their own bailout fund beyond it's current $1Tn level even while trying to tell bond investors that they will have no need of the first Trillion.  As I said over the weekend, when you are peddling a fiat currency, trust is about the only thing you have going for you.  

Small businesses trust our government with a 1.5% increase in the NFIB Optimism Index since October but that's slowed considerably into the holiday's from October's 2.7-point increase and, let's not kid ourselves, we're still deeply into recessionary numbers.  This is like when we get excited about home building going from 400,000 to 410,000 when the high was 2M.    

As usual, you don't want to look too deeply into the data or you'll notice that Earning Trends had a -24% impact on the survey and Current Inventories also knocked 24% off the gains.  So how could the index be going up?  Well EXPECTATIONS are up 47% on the overall economy and up 29% on sales expectations with 24% of small business owners planning to increase inventories.  That means the summary is, inventories are building out of control and the margins on things that are selling are contracting but The Bernank says things are getting better so I'm going to put on my 3D glasses and watch the cool charts on Fox news while I wait for customers to come through the door.  

OK America – good luck with that plan.  Meanwhile, we will wait to see if they can finally break 11,500 on the Dow and force us to get more bullish but, until then, it's a different kind of BS I'm worried about.  

 

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Redlog / Rates   Yes, in Charlotte NC, but not a banker.  My feel, reading Phil, is that accelerating global dependence on debt financing will force competition and rising rates globally.  This will crash real estate further and bankrupt millions of consumers.  You’re right that the Euro could collapse first, giving a temporary lift to dollar and TLT, but the US must also pay the piper for our selfishness.  The consumer austerity will crush our stock markets.  Hopefully Phil will tell us when to enter the short play.  I’m chaffing at the bit!

Parmboy?? you hiding under the covers at Disney? Did you see MTXX today?

Phil / Who’s Lying — And there you have it. The jobless recovery!

Lying / Phil – Is there a connection between private industry wages going down by $213  billions and businesses posting the biggest earning growth in 22 years?


Milken/Flipspice – I won’t defend the man, but how do you make the comparison with the Fed when he ran a business with customers who were free to buy or not buy his products? He didn’t load anyone’s balance sheet with anything. Companies and LBO funds that financed themselves through Drexel’s underwriting, and banks, insurance companies and bond houses that bought the paper were responsible for their own decisions. Turns out that a lot of those decisions were very costly – to shareholders, employees, and, eventually, taxpayers., – but don’t put that all on Milken. He got busted for genuine crimes, but being a great salesman wasn’t one of them.

I believe that many corporations got fat and sluggish from the top down over the last few decades. Payrolls got over-bloated and people underachieved and accepted ever-increasing wages as their birthright.
 
We are now in the process of correcting this. It is not going to be pretty.

 The security video of the $1.5M casino chip heist:
http://www.youtube.com/watch?v=NktlrixHG78&feature=player_embedded
Must have been a lot of $25K chips since he doesn’t seem bogged down.  Notice how security was tracking him on the camera, but did not confront him.   Company policy and a good one I think.   


 
I don’t exonerate the CFOs, CEOs, and boards of the companies who ‘bought’ his spiel to use borrowed money to take over companies, not by a long shot. 
 
But it takes two to tango and Milken was surely the lead in that dance. To me the ‘first cause’ is always the creator and Milken, if you believe it, being  found not guilty of insider trading, is not the same as him not actually doing it. In spades.
I’m in the process of reviewing all his deals and will post what happened to those companies as soon as the results are in. If you’re interested.  And I’m envious of no one with Prostate cancer, or serving even one month in prison. He ruined many lives and his penalty was a slap on the wrist.


..forgot to add this at the end of above…for openers
 
Drexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was forced into bankruptcy in February 1990 by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. At its height, it was the fifth-largest investment bank in the United States

jromeha:
Yes, I definitely remember you guys going thru this about 5-6 months ago. Can’t get the gruesome pictures out of my head. I had no idea, before then, that this stuff actually went on there. I probably will never use my time share there again, but  will be safer so.  By the way, Cancun felt much, much different when we first starting going there almost 25 years ago. Perhaps too many hardened individuals moved out from Mexico City looking for a quick buck.

 411/Flipspice – definitely interested in Milken’s deals, it’ll be interested to note which ones worked and which didn’t and why.

 Our Elected Reps at work:   The Pigs continue to feed at the trough.
 
 
The Senate Omnibus Is Out
 
 

It’s nearly 2,000 pages, and even the tables summarizing its thousands of earmarks are a sight to behold.
The AP is rightly portraying the bill as the porkers’ last hurrah, a kind of monster’s ball for old-guard appropriators — Republican and Democratic alike — “seeking one last victory before tea party-backed GOP insurgents storm Congress intent on ending the good old days of pork-barrel politics.”

“That omnibus bill will be loaded down with earmarks and pork barrel spending, which is a direct — a direct — betrayal of the majority of voters on Nov. 2 who said ‘Stop the earmarking, stop the spending, stop the pork barrel projects,’” protested Sen. John McCain, R-Ariz.

And Sen. John Barrasso (R., Wyo.) tells National Review Online that while he hasn’t had a chance to review the package, it “sounds like a last gasp effort of a congress that spends too much.”
Indeed, the Senate bill has more pork fat than the House counterpart passed last week, and far worse, it contains funding for Obamacare implementation.


Two huge cmpanies that immediatley come to mind are Global Crossing and MCI —both kaput…

"Gubmint Knows Best"
http://slopeofhope.com/2010/12/gubmint-knows-best.html

No comment needed.

Just a note on unemployment payments.

Last time I checked I was paying into the fund on my W2.

It’s not really accurate to say that paying out unemployment compensation is borrowing from future generations.

Yes, it’s an entitlement, but sometimes people are actually entitled to their entitlements, i.e. they have been paying into the fund their entire lives and now they need the help. Maybe the gov. does a bad job of saving funds from unemployment insurance a la social security but it seems like unemployment insurance might be one of the few things that we have paid for.

 Interview from today w/ CMG co-CEO.   
 
http://www.fool.com/investing/high-growth/2010/12/14/live-chat-chipotle-co-ceo-monty-moran.aspx
 
I recommend simply reading the transcript; you can do what was a 1-hour Q&A in 5 minutes.
 
Nothing very illuminating here IMO.  Here is my takeaway:
 
–  "Asian concept".  Whatever it is, they plan to test in 2011 with 1 store  (no big near term growth oppty).
–  No discussion of #’s, margins, costs, anything financial
–  CMG does not franchise.  All stores company owned.
–  CEO seems to think that going to Chipotle is "exciting".  I don’t agree.  Its just a quick, modestly inexpensive, decent lunch.  There is nothing exciting about it.   If anyone wants to share the excitement of their lunch at a CMG, please do share.
 
An interesting read, but not terribly informative from an investment perspective.

 Man, GX brings back some memories – a friend of mine had a boatload of restricted Global Crossing stock – used to work at CIBC, which was one of their bankers that also invested in the company cheaply and had all sorts of cheap warrants.  Lots of CIBC folk had potentially lucrative stakes.  My buddy’s was worth 10’s of millions at one point … but it was restricted and they could not sell; by the time they could, it was worthless.

 Samz3700 — companies pay into unemployed insurance funds – at state level.   As a W-2 employee, you do not.
 
Plus, to the extent that governments are paying out more funds than they are taking in (and they are) that is borrowing money to pay out "entitlements" or handouts or whatever you want to call it.

Samz: you  are probably thinking about State Disability Insurance,  Unemployment insurance is an employer expense (at least here in California)

 Flip
 
Milken was a "deal maker", much like a pimp… He is entitled to his service fee at a fair market value… but remember, he was not the "whore" or the "john" to put it all on "street" terms. The parties benefited from his services and were happy. His efforts resulted in LBO’s that represented fair market values for the assets transferred.. A lot of efficiency was achieved, through these acquisitions, as the assets were better utilized. You say  Milken caused job loss… that makes no sense, as he was nothing more than a marriage counselor and introductory agent that gave advice about the financial consequences of a marriage. If, after the leveraged purchase was consumated, there were employees that were no longer needed, then, I’m sure Milken had no responsibility to provide them with unemployment insurance, as I believe you think might be appropriate. When you are introduced to a potential mate for marital purposes, is it appropriate to blame the one who introduced you, for ever, if the marriage turns out less than desirable? No. Milken was accused by many that were envious of his success, and as always the false accusations and resulting legal problems fall on the ears of those that would "like to believe he was guilty". This man was innocent, and FORCED to plea bargain… just to salvage any life in the future. He, in my opinion, gave new life to dying businesses. Unfortunately, many that sought his services were cockroaches, and "if you lay down with the dogs, many think you might have fleas"….. All of this was guilt by association, and this guy was the target of those that could not stand the thought of his success.This book has been written before and I’m sure you will see a new version some day in the future, as envy is far more pervasive than success.

" Gubmint" knows best when most have given up thinking, as they assume that is being done for them…. before long the brain and the body reaches a state of atrophy, and we all have become "mind dead robots" That is OK, as we all have the "Gubmint" looking out for us, and all is well..

Flipspice – MCI and Global Crossing were involved in large bankuptcies, neither had anything to do with Milken, though. Looking at the settlement with the SEC I don’t believe he got off easy. Not a lot of prison time, but $200 million fine, $400 million returned to investors, and a lifetime ban from involvement in the securities industry. The list of crimes he pled to makes me think it was quite a negotiation – love this one "Sending confirmation slips through the mail that failed to disclose that a commission was included in the price." Ok, ya got me, don’t shoot G-man, don’t shoot.

humvee,
It varies from state to state. In PA, unemployment insurance comes out of every check.

It seems that we get a little more as well. My hubby’s unemployment was more than someone I know in OH that makes more than him.

interesting information on  unemployment insurance: 
http://usgovinfo.about.com/od/federalbenefitprograms/a/ucprogram.htm

Great call at 2:24 Phil!

Phil, Please to see you running to fly to Mexico,
Most of these cases have links to drug dealing. If you mix with these gangs you might be hang with them. It only stops if the US stops buying drugs.


Let’s agree to disagree on Milken. Ivan Boesky got off practically scot free for testifying against Milken, telling Giuliani where some of the bodies were buried. Milken got off pretty well considering the number of companies that he had leverage their balance sheets to unsustainable levels, laying off employees,  pay the high interest rates his junk bonds commanded.
Given the nature of the men and women involved in the latest Mortgage backed securities credit fraud/ fiasco of global proportions, their essential criminal minds, I will never be convinced that only envy was the cause of–at that time the greatest credit fraud in history which was committed at least 2000 times.
Saying that Milken was not a filthy crook is like saying Paulson, Blankfein, Fuld, Greenspan, TheBenbernank, Geithner, o’neal, Lewis, Mack, Fink, and all the others  are just really good businessmen.    He may not fall to the level of a Madoff, but two years in jail, giving up some money he obtained thru the borrowings of the companies he got financing for at usurious rates, and a ban from securities trading only looks draconian compared to the fact that all those listed above aren’t serving life sentences for their past and continued crimes.
If anything, the prosecution of Milken only looks bad in contrast to the fickle nature of  the characters responsible for balancing the scales of justice. 
I lived thru Miken’s shenanigans and watched closely as the companies that he initially wooed, spread the word that Milken could get financing for good but undervalued companies—his best moments—,  and then watched as he got paid hundreds of millions for obtaining financing for   so-so companies, then companies that should have been and eventually did bo bankrupt allowing owners and managers to walk away with borrowed money that they would never have to pay back, AND saw as he ‘trained’ other thieves like Gary Winnick at Global Crossing.  I saw it happening in real time. And I remember the employees of Drexel standing on the street with their lives now in shambles.


Seeing as how bankruptcy is essentially a credit problem,(Owing more than you own)  I don’t know how you can say that Milken arranging 1 billion in financing—doesn’t sound like much now, does it? but it was serious money back then, BIG serious— for MCI, and Global didn’t have anything to do with Milken.

Still on vacation….but saw a few questions on the biotech/pharma sector
 
ARRY/tacha – I have liked them for a while and we have played them a few times.  Their MEK inhibitor is critical, and any hints at working and they will be a takeover candidate.
 
ENDP/gel – I have been watching them but not seen anything this week obviously.
 
BSDM – now lookie there at that one…..unreal and if you have ANY profits….um….take ’em.  If still on the down side from our original play, then hold on tight.  I expect them to pull back soem as well, but could be fun for a nice few days of trading. 
 
Phil  or original FCX play for Feb11 $90 P are down….DD or should we roll up to 95s for 70c?

Milken/Flipspice – 2 things, Global Crossing was founded in 1997 long after Milken pled guilty and was officially out of the securities business in 1990, so either he had nothing to do with their failure or his evil powers are greater than any of us dares to imagine; MCI was merged into WorldCom in 1997 and went down in the accounting fiasco that led to Bernie Ebbers joining the Club Fed for a 25 year term. Finally, anyone who bankrupts their company by overleveraging bears the responsibility for their bad decisions. Blaming the investment bank doesn’t work.


Since boldly jumping into selling the   2012 $4 TZA puts, I’ve learned the hard way about decaying value of triple ETFs.
Since learning about ‘rebalancing’ that these triples and all ETFs do, would it be advisable to double down at this time or just eat the small loss and forget about EVER going more than a few months out on these things again?


Sorry to get back so late….
Your reference to Milken’s evil powers is right on though you think it is a myth.  His evil powers spilled over for decades and indeed still pervade the credit markets.  He is essentially responsible for the creation of the tools used for balance sheet destruction no less than Einstein, Oppenheimer are for the Atom and hydrogen bombs.
Winnick was the primary culprit behind the Global Crossing fiasco. You must know that he learned at the feet of Milken all about leverage with junk bonds as did Bernie of Worldcom infamy and Kozlowski at Tyco.
As the primary mover, Milken encouraged outrageous leveraging and anyone who picked that up from him can hardly be credited with inventing the single most destructive tool for  wiping out companies that–to that time–was ever concocted.
We will differ on this forever so let’s just let it go.  I lived thru what he did and remember clearly how he bankrupted his own company. That, to me, is evidence enough that, while he used his original idea for a lot of great investment— the LBO with junk bonds—-leveraging great companies which were undervalued, like all other megalomaniacs, he let it take over his ego, and wound up letting it get out of control, becoming disastrously avaricious. 
It’s at least some justice that as he flew to close to the sun, he crashed and burned.  
He is far from the neutral innocent that some claim him to be.  

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