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Tuesday, November 29, 2022

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Inflationary Thursday – Dow 15,000 + $5 Will Get You a Happy Meal

Are they rioting in Africa?

Check – they are rioting in Africa!  Toppling governments in Tunesia?  Check, government toppled.  Riots and demonstrations also in Albania, BelarusJordan, Libya, Lebanon, Ireland, Egypt, Yemen, Zambia…  Even the British Royal Family attacked in their limo after being booed and jeered by a mob chanting "off with their heads."  

If nothing else disturbs you while you buy your NFLX today – that last one should.  Rich folks in an industrialized nation trying to go to the theater in their limo and being attacked by an angry mob.  How long before we (in the top 1%) need to armor our cars and hire bodyguards?  Is this part of the Fed’s plans to create jobs – make the top 1% so much richer than the bottom 99% that we’ll need to hire guards just to go shopping at Whole Foods as we drive past the bread lines?

We’re in an era where the world and nations ignore the food issue at their peril,” World Food Bank’s Josette Sheeran said in an interview yesterday at the agency’s Rome headquarters. Risks of global instability are rising as governments cut subsidies that help the poor cope with surging food and fuel costs to ease budget crunches.

The global recession has eroded government aid that helped people in poorer countries afford bread, cooking oils and other staples. The U.N.’s Food Price Index surged to 214.8 in December, exceeding the previous record in 2008 when rising costs and fears of shortages sparked riots from Haiti to Egypt. More than 100 people have died this month in protests in Tunisia against food inflation, unemployment and alleged corruption, according to the U.N.

Michael Klare writes: "Already, combined with staggering levels of youth unemployment and a deep mistrust of autocratic, repressive governments, food prices have sparked riots in Algeria and mass protests in Tunisia that, to the surprise of the world, ousted long-time dictator President Zine al-Abidine Ben Ali and his corrupt extended family. And many of the social stresses evident in those two countries are present across the Middle East and elsewhere. No one can predict where the next explosion will occur, but with food prices still climbing and other economic pressures mounting, more upheavals appear inevitable. These may be the first resource revolts to catch our attention, but they won’t be the last."

Let’s begin with food, the most important and volatile of these commodities. Food prices declined in October 2008 after the onset of the global financial crisis, but that seems to have been an anomaly. The December 2010 index of global food prices compiled by the U.N.’s Food and Agricultural Organization (FAO) hit a record 215, one point higher than in the spring of 2008. (In that index, based on a “bundle” of food staples, a baseline of 100 represents average prices in 2002-2004.) In fact, some food products, including sugar, cooking oils, and fats, are now trading substantially above their 2008 levels; others, including dairy products, grains, and meat, are inching perilously close to record levels.

The numbers are already staggering.  According to the IMF’s very conservative measurement, which peg US inflation at just 1.5%, the end of year inflation is 4.6% in China, 3.7% in the UK, 5.9% in Brazil, 8.8% in Russia, 8.3% in India, 4.4% in Mexico, 6.4% in Turkey, 5.7% in Indonesia, 10.9% in Argentina, 11.9% in Iran, 26.9% in Venezuela, 10.4% in Egypt, 11.8% in Nigeria, 15.5% in Pakistan…  Judging from who’s rioting and who’s overthrowing their government I’d say about 10% is the point at which you may want to consider doubling up your security detail before you head downtown.  

Don’t worry though, we can easily afford the minimum wage thugs we hire to bash in the skulls of the unemployed thugs who want to get their hands on our stuff, right?  POT, for example, announced a 103% increase in earnings last quarter as the price of fertilizer skyrocketed as speculators snapped up supplies.  The stock is so high now ($175) that the company is announcing a 3 for 1 split so we can give a few shares to the help next Christmas – isn’t that charming?  

India’s market plunged 5% this month, the Shanghai Composite is off 17.5% since November and Egypt (EGPT) dropped 10.6% TODAY but don’t let that bother you – everything is just fine – until it isn’t, of course but then, who could have ever seen that coming, right?  

Most of this Global inflation is being sparked by our own Federal Reserve, since the Dollar is 62% of global reserves and almost all commodities are priced in Dollars and the Dollar is down 4% for the first month of 2011 – putting that much more pressure ON TOP OF those shocking 2010 inflation rates.  Well The Bernank gave the rest of the World a huge FU yesterday as the Fed announced (unanimously now that Hoenig is no longer a voting member): "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period." 

That comment has been interpreted to mean until US jobs come back and that means, pretty much, forever.  This was enough to send the Dollar down to month-lows at 77.70 and that popped gold back to $1,346 (up 1.5%) overnight and sent oil back to $87.50 (up 1.5%) and copper back to $4.30 (up 1.5%) and silver up to $27.50 (also 1.5%) – so a pretty uniform boost to commodities on a 0.5% dip in the dollar is clearly disproportionate and will, of course, choke the life out of global consumers.  Yay – let’s buy some commodities!!!  

Actually, to be honest, we already did.  We went bullish on gold on Tuesday and bullish on silver yesterday in Member Chat, even as we took short-term short bets on the indexes because we feared exactly what happened yesterday – the Fed is keeping those free money spigots going full-throttle, no matter what the consequences are for the bottom 99% (hence the title of yesterday’s post).  This is good for the markets but bad for the World.  

I feel bad about making money this way but, as I said yesterday: "You’d better be out there making an assload of money because you’ll need it to keep up with rising prices for things you buy and declining values of your US assets."  Now we have to factor in the price of security people to guard our gold when we’re going out to the AAPL store for our IPhone 5s (which will also be able to be used as a credit card!). 

Keep in mind that gold and silver are our defensive plays.  In Member Chat yesterday, Jromeha mentioned he’s 80% in cash and 85% short the market on the 20% in play and I said I thought that was an excellent way to play what I felt was a blow-off top after the Fed.  We added 2 disaster hedges yesterday, a TZA spread that pays 500% if we get to $17 by April and a QID play looking for a quick 66% if they hit $11 by March.  That’s in addition to our very short play on the Dow so we are SHORT in the short-run – DESPITE all the foolishness out of the Fed.

Something has got to give and the dollar remains stubborn above the 78 line and the Russell hasn’t taken back 800 and our "Secret Santa Inflation Hedges" from Christmas and our "Breakout Defense Plays" from early December are up HUGE and need to be protected, as do the dozens of other long-term bullish trades we’ve selected since the beginning of the year.  It’s those short, sharp shocks that will get you in this market – the long-term will take care of itself.

454,000 of our fellow Americans were shocked with pink slips last week as Unemployment Claims rocketed back 12.4% up from last week’s 403,000 job losses.  That’s the GOOD news compared to Durable Goods, which plummeted 2.5% in December (isn’t that Christmas?) and that is off a whopping 266% lower than "expert economists‘" expectations of a 1.5% gain.  The next bit of bad news will be November Pending Home Sales at 10 am and we’ll be buying the F’ing Dip after that because, regardless of our World View, the farce is still with us in the US economy. 

Hey, at least we’re not Japan, who lost their AA rating this morning as S&P downgrades their long-term debt to AA-.  S&P also notes Japan’s demographic situation will strain government finances even more in the future.  Will this cause the Yen to drop and the Dollar to pop?  Hell no – Japan’s economy may be a 20-year disaster in progress but it’s not a Bernanke!   

Sarkozy is over in Davos talking up the Euro, saying: "Whether it be [German] Chancellor Merkel or myself, never will we turn our backs on the Euro. Never will we abandon the Euro," he said.  He added that those who bet against the euro should watch out for their money.  "The Euro spells Europe. The euro is Europe and Europe has spelled 60 years of peace on our continent, therefore we will never let the Euro go or be destroyed," he insisted.  BUT – "The dollar will continue to be the world’s number one currency," he said.

Spain, Ireland, Greece and Portugal will probably remain “stuck in recession” for the next 18 months and be the laggards in a three-speed European recovery, Standard & Poor’s said.  S&P sees Germany, Europe’s largest economy, and Finland leading the euro region’s recovery this year, with growth of at least 2 percent, Chief European Economist Jean-Michel Six in Paris said today. The U.K., France, Italy, Belgium, Luxembourg and Netherlands will follow, with expansion of in a range of 1.5 percent to 2 percent. The “three-speed” recovery will “complicate” the job of the European Central Bank this year, said Six, who sees the first interest-rate increase at the end of 2011.

If the Pending Home Sales don’t send us off a cliff, we’ll be looking at an upside play on FAS and XLF again (we had one on Tuesday that went very well already).  Our last entry points (with option plays, of course) were $29.25 on FAS and $16.25 on XLF and today is another POMO day, courtesy of the Fed, as is tomorrow and free money always does wonders to cheer up the Financial sector.  

NUE missed earnings and RCL, RTN, PG, MUR, CY, MO, MJN, JBLU, BMY, DHI, CNX, CL, AUO, OI, DRE, ETFC and AMLN all missed either earnings or revenue targets since yesterday’s close but don’t let it bother you as long as the dollar keeps going down – that makes everything we buy more "valuable" – even poorly performing stocks!   Isn’t investing simple?   

We can’t wait to clear the last of our technical hurdles (Russell 800) so we can put that sideline cash into play and, like our mindless inflation hedges from December that have doubled and tripled up already – we look forward to betting on the next round of the decline and fall of the United States of America – you burn Rome, we’ll bring the fiddles!  

 

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Phil / IBM Math – My apologies if you thought I am questioning your math. I wanted to understand how to calculate the basis of $3,120. I am trying to learn how to calculate rolling costs. My calculations are as follows. Please advice if I am wrong below. Thank you for your patience 🙂
 
Original trade: (4 X $2.49 = $996) – (5 X $1.65 = $825) = debit of $171.
When I rolled from Jan $150 to Feb $150, I got a credit of $250. 
Trade Cost after the roll: credit of $79.
I then doubled up on the April calls for (4x $8.80 = $3520) + (4 X $2.49 = $996) = $4516
Rolled the 5 Feb $150 calls to 8 March $155 calls: (5x $11.70 = $5,850) – (8 X $7.85 = $6,280) = credit of $430
Total Cost of the trade = $4516 – $430 – $79 = $4007.
 

 T-dog;  Yemen is already moving, I’ll bet the Saudi royals are indeed worried.  And they certainly have the capacity to pump more [although less than they have been claiming, I  suspect.] But, other than for a very short period, I think $60 oil is a bridge too far for Saudi Arabia.  FT wrote about Chinese consumption yesterday [and if you believe that China is tightening in a meaningful way, how come they won’t let their currency rise?]:
Lex, 26/1/2011: "China’s commodities consumption is so voracious that when the country’s demand hits a fresh record the market barely takes notice any longer. Even so, Beijing’s recent record-breaking run in crude oil and thermal coal consumption merits attention.
The IEA forecasts that China will consume on average 9.8m b/d this year, roughly double the 4.7m b/d of ten years ago. The consumption rate is staggering. China will consume this year the same amount of crude oil as all the top buyers of Europe combined: France, Germany, the UK, Italy, Spain, the Netherlands and Belgium.
Oil is not the only area in which China broke records recently and hit key levels.
The country’s imports of thermal coal, used to fire power stations to produce electricity, surged for the first time above the key 100m tonnes in 2010, according to official data. The spike puts China as the second largest coal importer, behind Japan.  The surge in Chinese thermal coal is even more staggering that the spike in oil demand as the country was until only three years a net exporter of thermal coal."
Saudi Arabia may bribe their way out of a revolution by making internal payments. But Yemen, Libya, the Emirates, Bahrain — there are lots of nearby candidates for a popular uprising.  As written on Monday, I’m long PBR, SU, and other Western Hemisphere oil producers.
 

 Suggestions welcome on how to do a currency cross with options.

That was a dramatic solution to one of today’s problems:
Unlike modern day climate change, however, the Mongol invasion cooled the planet, effectively scrubbing around 700 million tons of carbon from the atmosphere. […] Over the course of the century and a half run of the Mongol Empire, about 22 percent of the world’s total land area had been conquered and an estimated 40 million people were slaughtered by the horse-driven, bow-wielding hordes. Depopulation over such a large swathe of land meant that countless numbers of cultivated fields eventually returned to forests

Not everybody in the top 1% is blind to what is happening:

Martin Sorrell, the CEO of advertising and public relations giant WPP, was just at the Sundance Film Festival, where he saw a documentary called The Flaw. The title comes from Alan Greenspan’s now-famous admission to a Congressional committee in 2008 — "I have found a flaw in the model that defines how the world works" — and as best I can tell it posits that extreme income inequality was a precipitating factor behind the financial crisis.
It certainly left an impression on Sorrell. "Wealthy people invest in financial assets; they create asset bubbles," he said this morning. When wealth is distributed more equally, he went on, you get more sustainable growth.
Sorrell is a wealthy man, and he said all this while at the front of the room at one of the opening events of the World Economic Forum’s annual meeting in Davos, one of the world’s great gatherings of those near the top of the wealth pyramid. It seemed like a significant moment.

Jim Turley, the CEO of Ernst & Young, immediately went and ruined it by changing the subject to the decline in business-bashing in the U.S. But then Zhu Min, a top IMF official and former central banker in China, brought it up again: "Increasing inequality is the biggest challenge the economy faces for the whole world — not just advanced economies," he said. "We cannot let the income disparities increase further." 

From Rosenberg:
Obama’s State of the Union: 
“Two years after the worst recession most of us have ever known, the stock 
market has come roaring back. Corporate profits are up. The economy is 
growing again.” 
Herbert Hoover, May 1st 1930, US Chamber of Commerce Meeting: 
“While the crash only took place six months ago, I am convinced we have now 
passed the worst and with continued unity of effort we shall rapidly recover.”

Obama’s State of the Union: 
“Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger 
today. Every business can write off the full cost of the new investments they 
make this year. These steps, taken by Democrats and Republicans, will grow the 
economy and add to the more than one million private sector jobs created last 
year.” 
Herbert Hoover, October 22, 1932, campaign speech in Detroit: 
“It can be demonstrated that the tide has turned and that the gigantic forces of 
depression are today in retreat. Our measures and policies have demonstrated 
their effectiveness. They have preserved the American people from certain 
chaos. They have preserved a final fortress of stability in the world.” 
Obama’s State of the Union: 
“But now that the worst of the recession is over…” 
Herbert Hoover, June 1930, to a delegation requesting a public works project: 
“Gentlemen, you have come sixty days too late. The depression is over.” 
Obama’s State of the Union: 
“The steps we’ve taken over the last two years may have broken the back of this 
recession…” 
Herbert Hoover, State of the Union, December 6, 1932: 
“The unprecedented emergency measures enacted and policies adopted 
undoubtedly saved the country from economic disaster…” 

 Pharm / OMG – woppps – should have read up all the comments I missed today 🙂

IL Supreme Court allows Emanuel to be on the ballot for mayor.

StJean, I hear you! I cancel A LOT of orders! Still, not having the opportunity to go long rice cost me almost 4k per contract already! Very disheartening!
Exec – Really? StJean’s comment was mild….. You definitely smoking some good sh!t if you think the American people are DUMB enough to elect another Bush…. Well, after the last election you MAY be right. However, if you feel like betting some $$$ on it just let me know, I’ll oblige huckleberry! Already have a bet with the member formerly known as Gel that Obama will beat the Morman,…. I’ll gladly take the bet if you want to place some money on Jeb Bush Vs Obama (bet nullified if Bush doesnt run or isnt party nominee).

 Ephmen / NFLX … WAG … the top in NFLX is in or very very near.
 
I sold a June 260 call today for $7.60.  I have no exposure at all below $220 +.
 
I did short and cover a few times for small gains today; added up to about 4-5 points.
 
I think any short over 210 tomorrow is money.

 Hanna, the great thing is you can love NFLX and still short the stock !   

 Pharm – weekly 200 AMZN’s … right you were … and weekly anything else too !

Phil:
Is it right that recently the $ <=> commodities & US markets inverse relationship is not as strong as 2-3 months ago.
What other factor(s)  (if any) are weakening this relationship?
TIA

exec
 
Jeb has left Foridia  with a huge budget defciect. 

Phil – I don’t think Obama will lose to anyone, republicants have no legitimate candidate and I dont think things change over the next couple years. The Mormon is OK but I think when it comes down to it people would feel funny voting for someone whose religion views other ethnicities as ‘cursed’. Plus, he’s kind of an awkward public speaker and I think the only way anyone beats him is if the economy gets even worse…. Still, he didnt help himself by passing that BS tax bill and letting it expire during the election year! But the various ‘independents’  on this board all have their favorite candidates so I let them pick one and give them an out if their candidate doesnt make the cut. Im hoping Palin is their pick, I would LOVE watch her debate foreign policy and see how she does thinking on her toes…. Oh wait, I know the answer to that – http://www.youtube.com/watch?v=nokTjEdaUGg 

 Jeb Bush is changing is name to Jeb Clampett, so you have nothing to worry about … his poll #’s went up 20 points.

Market rally / Phil – Do you agree that the strong  [inverse] dollar / commodities, markets relationship of the past few months recently has not been as strong?
On several occasions recently $US and oil/gold were down at the same time and the markets ended up [slightly].
What has recently made this strong US$ [inverse] correlation to markets looser/softer? or am I just dreaming . . .?

reza,
I’ve seen the same thing lately.  Good question. you are not imagining it. The tie is definately less strong. I think part of the issue is that I look at the dxy. The dxy is heavily weighted with the euro. In one case the market was going up and the dxy. It appeared that the dxy was up due to the euro being down. However, the $US was down against canadian, new zealand, aussie …..looking at the forex. The oil/gold/$ connection has weakened. The demand for gold has lessened more than the $ has gone down. Less euro debt fears, less inflation fears, etc. Thus, both down.  I think the same for oil/copper, etc. They were frothy.  And, some of the froth is coming out. 
I’m sure there are other factors at hand as well. You’ll notice, if there is no news driving things one way or the other, they float in inverse. I have on my TOS chart –  a line showing how spy trades against dxy. If its flat, they are trading together. This has become much less flat over the last few weeks.

Interesting, thanks Judy for explaining the inflation/debt fear factors playing into this correlation.

So, here is the new deal if one can find a sexy target and a few researchers to put their heads together and get good compounds to clinic….This is why I am in the space, b’c if one can get the deals, there is money to be made.

 

We’re seeing a trend that Big Pharma isn’t waiting in the push for new biotech’s drugs. And for our university clients at Bioscience Bridge, this trend is relevant because of the rising pressure to find new products is prompting companies to license or acquire experimental medicines – even if they’ve barely been tested in human trials.

A recent report in The Wall Street Journal said that while traditionally the sector’s big players preferred drugs with solid clinical evidence to show they work, they are faced with the loss of patents on some big sellers, an overhaul of its own research-and development-priorities, and demand for more innovative medicines. That means Big Pharma is gambling more of its deal dollars on riskier bets in an effort to replenish its pipeline with new technologies.

For example, in June, Bayer AG paid $40 million to Redwood City, Calif.-based OncoMed Pharmaceuticals Inc. for access to its experimental anticancer stem-cell therapeutics, which haven’t yet been tested in human trials.

All these deals provide for further payments if the drugs are successful in later stages of development and royalties on eventual sales. The average upfront payment for a Phase I asset was 68% higher in 2009 than a year earlier at $46 million and 39% higher at $37 million for a phase II product, according to data from research firm EvaluatePharma. Total deal values, which include payments for hitting development targets and royalties on eventual sales, also rose.

Daniel Mahony, a health-care fund manager at Polar Capital Holdings PLC, was quoted as saying one reason drug makers will continue to scoop up biotechs’ early-stage programs is because they’ve overhauled their research-and-development activities to focus more on clinical trials and less on lab work.

SGEN – insider trading case…..nice.

Short sellers hitting one of our little plays….D’oh.  I think they want in on the play.

3. BSD Medical Corp. (BSDM): Medical Appliances & Equipment Industry. Market cap of $143.42M. Daily MACD Line(12,26,9) at 0.083. Shares shorted have increased from 2.07M to 2.94M over the last three months (+42.03% change). Short float at 13.92%, which implies a short ratio of 2.14 days. The stock has gained 172.07% over the last year.

4. Seattle Genetics Inc. (SGEN): Biotechnology Industry. Market cap of $1.59B. Daily MACD Line(12,26,9) at 0.232. Shares shorted have increased from 9.89M to 13.46M over the last three months (+36.10% change). Short float at 13.46%, which implies a short ratio of 14.73 days. The stock has gained 47.56% over the last year.

PHIL,
Robert in his post to you touched on something that I have been trying to figure out for sometime.  He was asking about how to spot the big guys using the BID & ASK .  You relpied to him in your  3:27 pm post  asking him to keep track of the blocks (which i think are block trades if so how big are the blocks from the big guys 10,000  5,000 shares) ???  I’m guessing this will depend on the price of the stock.  Also you talked about the retail suckers paying more or selling for less than they should.  Are they the guys trading  inside the bid and ask? to make sure they get filled?   In the time and sale window i see groups of colors for specific prices. I have a color key for those shares traded so I know which ones were bid ask etc.  within one color at a specific price lets say $ 5.25 and a number of shares say 100 next to it, i will see that same price and # of shares in the same color on the next 5 lines of T&S.  is that the same  person buying 500 shares or is it five differnet people with 100 shares per trade. and when 5,000 shares scrolls up on T&S am i to assume that is a big guy.   I’m like Robert just trying to gleen info from bid ask # of shares traded and looking for the big guys if i’m wasting my time let me know.  but i have devoted alot of time to this aspect of trading i would hate to give up. i think i’m a little preoccupied with finding the big guys 🙂
 thank you for all you do,  because of you i now longer feel i’m scuba diving in a dark and muddy lake called the stock market. i can actually see where i’m going and I no longer get scared out of trades because i’m unsure of what might be next. 

Jromeha/Bush,
 
I was just kidding Jeanluc about his rant.  Although I’ll bet the vains in the side of his neck were buldging out as he feavorishly typed his message.
 
As far a Bush goes……seriously…..another Bush???? 
 
Interestingly,  I was talking to a conservative guy the other day who was asking me who I thought would emerge as the Republican frontrunner for president.  My response was that I didn’t see a good one in the bunch.  In either party for that matter.  He actually brought up Jeb Bush as being the likely nominee and he was serious.  I told him it would be a cold day in hell before another Bush was reelected to any national position.

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