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Monday, August 15, 2022

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Monday Market Momentum – Prices Go Parabolic

Two percent!  

That's how much the price of EVERYTHING has gone up IN AMERICA since Christmas Day, just 6 weeks ago.  This is according to the very reliable Billion Prices Project at MIT, which collects pricing data every day from online retailers using a software that scans the underlying code in public webpages and stores the relevant price information in the database.  The daily online index is an average of individual price changes across multiple categories and retailers that provides real-time information on major inflation trends.    

 

 

In other words, this is not Bernanke's BS – THIS IS REALITY FOLKS – and reality is NOT GOOD!  We're talking parabolic short-term moves that you know and I know and the data shows is absolutely happening.  Yet the Chairman of the Federal Reserve Bank of the United States of America tells us over and over and over again that it is not happening.  

He tells us that inflation was down in 2010 from 2.4% in 2009 to 1.2% last year and that he sees no inflation.  In fact, he is basing his mathematical models on it and directing our nation's policies on this basis and he is conducting the most dangerous monetary experiment in the history of the Universe – ALL BASED ON HIS PREMISE THAT INFLATION DOES NOT EXIST!  

But, what if it does?  What if every other nation on Earth, including now even Japan, who see 3, 4, 6, 8, 12% and 20% inflation are not wrong and it is, in fact, Ben Bernanke who is wrong.  I would not be as worried if The Bernank got on TV and said:  Inflation is heading up to double digits, which is our plan but that's not at all what he's saying.  This means either the Chairman of the Federal Reserver is either lying right to our Congresspeople's faces, under oath, or that he is a clueless policymaker with his finger on the button of a weapon that can wipe out the wealth of nations – that can kill tens of millions of people through starvation and can just as easily wipe out everything the American people have worked to save their entire lives.  Crazy or lying – take your choice

"Wait," you might say – "If Ben Bernanke is that wrong about inflation, wouldn't there be some other hard evidence?"  How about racking up $76Bn worth of losses in the 3 month-old POMO program already?  Yes, that's right,  in just 90 days the Fed has racked up $76Bn in losses on existing and new Treasury, Agency and MBS purchases, according to Zero Hedge.  "Gosh that sounds like a lot of money," you might be inclined to say.  Don't worry about it, it's not going to be the Fed's problem – it will be yours.  As Dr. Bernanke testified last week:  "At the appropriate time, the Federal Reserve will normalize its balance sheet by selling these assets back into the market." 

As noted by ZH: "The Treasury is borrowing from the Fed, which, when it loses money on those loans, will then borrow from the Treasury, which will probably still be borrowing from the Fed" so this can go on for quite some time and "all" it does is add to the National Debt that you, your children and your grandchildren will be saddled with for the rest of their lives.  

Inflation is certainly creeping into our budget deficit, which is coming in at a whopping $1.65Tn for 2011, and amount that will equal (assuming GDP growth is 3.6%) 10.9% of our Nation's Gross Domestic Product.  Overall, the Government which collected less than $300Bn in Corporate Taxes against that $15,000Bn GDP (less than 1.5%) in 2009.

The actual amount of taxes paid by US Corporations in 1999 was $191Bn out of $15,000 Billion of goods and services sold in the United States that year.  Man, those must have been some horribly unprofitable sales, right?  Poor General Electric – who produces the News that tells you how unfair corporate taxes are in America had such a rough time with their $156Bn in 2009 revenues that they had to ask for a $1Bn Tax REBATE from Uncle Sam last year.  It's amazing how fast a gross profit of $77.8Bn (49%) can disappear as it becomes an Operating Income (bonuses must be paid) of $29Bn (18.5%) and then, for tax purposes, just $10Bn which, somehow, causes GE to get a refund of $1Bn (10% of reported Income).  Did they have a loss in 2008 that offset it?  No, they declared $19Bn in taxable income and paid $1Bn in taxes (5%).  How about 2007?  No, they declared $26.5Bn of taxable income and paid $4Bn in taxes (15%).  

This isn't about GE, of course.  When the sum total of all Corporate Taxes collected against $15Tn of goods and services sold in the US is just $200Bn – we should consider ourselves lucky that GE "only" took $1Bn from us.  Just ask DIS, NWS or CBS ($13Bn in sales, $182M in taxes paid) and they will tell you (through the media they control) that, if anything, US tax policy is strangling their ability to prosper.  It's true!  It must be, because I saw it on TV AND I read it in the Wall Street Journal!  

We are playing a game and the game is called "Grand Theft USA" and our country is being stolen from us by Corporations, who use the skills of our people (government education), the health of our people (pay your own health care), the infrastructure of our nation (best in the World and falling apart) and the life savings of our people (top-level borrowing rates kept artificially low through massive Federal devaluing of our currency) while placing the PEOPLE (not the Corporations) of America ever deeper in debt.  

Our Multinational Corporations use and use and use and use and pay nothing back.  Despite the fact that many may have had their origins here, they are now nothing more than Global Carpetbaggers.  In post Civil War in America, Carpetbagger was the pejorative term for Northern Capitalists (mainly Wall Streeters) who came in post-disaster and politically manipulated and controlled former Confederate states for varying periods for their own financial and power gains. In sum, carpetbaggers were seen as insidious Northern outsiders with questionable objectives meddling in local politics, buying up plantations at fire-sale prices and taking advantage of Southerners.  Gosh, wrap a flag around that and it's exactly what the multi-nationals are doing to our country now!  

By the way, notice how the MSM has changed the definition of carpetbagger over the years to mean a politician who runs from another district.  In fact, I challenge you to come up with 3 negative phrases that describe Corporate activity.  Come on, you've lived long enough – you've watched thousands of newscasts, read thousands of pages of newspapers – what are the phrases they use to describe negative corporate behavior?  I know poor people are fat, lazy, illegal, unwashed, unmotivated, uneducated, lying, cheating, scamming, octo-baby producing big losers who suck on the government teat every chance they get but, what are Multi-National Corporations?

The purpose of Newspeak was not only to provide a medium of expression for the world-view and mental habits proper to the devotees of Ingsoc, but to make all other modes of thought impossible. It was intended that when Newspeak had been adopted once and for all and Oldspeak forgotten, a heretical thought—that is, a thought diverging from the principles of Ingsoc—should be literally unthinkable, at least so far as thought is dependent on words. Its vocabulary was so constructed as to give exact and often very subtle expression to every meaning that a Party member could properly wish to express, while excluding all other meanings and also the possibility of arriving at them by indirect methods. This was done partly by the invention of new words, but chiefly by eliminating undesirable words…  The vocabulary consisted of words which had been deliberately constructed for political purposes: words, that is to say, which not only had in every case a political implication, but were intended to impose a desirable mental attitude upon the person using them.  – George Orwell, 1984

Now, before you start checking to see if you are accidentally reading the Daily Worker, let's see what kind of investing thesis we can draw from all this.  We were discussing the wisdom of playing long-term shorts on momentum stocks like PCLN, NFLX, OPEN and CMG in Member Chat this weekend (see very extensive strategy discussions under our Breakout Defense Trades as well as our still-bearish $25,000 Virtual Portfolio) and my comment regarding whether NFLX should be used as a "focus short" (the kind we stick with and roll along) was:  

NFLX is NOT a stock you want to press short into inflation. Neither is PCLN, who collect a fee and outsource their labor so costs are relatively fixed. The models can be gamed by inflation. CMG, on the other hand, has a wider distribution and suffers margin pressure from time to time and rising local labor costs can be very painful – that’s the kind of business that we can expect an eventual sell-off in. But, in a real inflationary environment, it’s hard to bet against anything other than utilities and insurance – who have regulated charges and often can’t get increases fast enough to keep up.

The rising tide of inflation can certainly lift all market ships.  Of course we're ignoring the relative value of stocks to real inflation but that's a deep kind of discussion we have with Members over months, not in 2 paragraphs of a morning post.  As a quick example, check out the S&P 500 priced in gold since the crash.  If we assume gold is a real hedge against inflation and the real value of a dollar, then US equities are STILL down 41% off the highs with a DECLINING 200-day moving average.  In other words, we are losing ground to inflation and currency devaluation with our market plays:

Does this mean we don't buy stocks?  No, stocks need to catch up to inflation and they, like prices, are likely to go parabolic if inflation continues at the pace being measured by the Billion Prices Project.  Also, we are blessed to be able to leverage our stock market gains and that should keep us well ahead of inflation but not so much for the tired, huddled masses we will be leaving behind as we hunker down in our luxury bunkers to ride out the revolution, which may come sooner than you think if speculators are right in projecting an additional 50% jump in the price of rice.   

As Mubarak has shown us – you can rob and oppress people for three decades without a peep as long as you feed them but, once they begin to starve – it is amazing how fast they take to the streets.  Les Miserables is the World's most popular musical – you would think some lessons would have been learned by the bourgeois audiences that walk out of the theater humming the tunes, but no…

 

 

Happy Valentine's Day!

– Phil

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 NFLX – I’ve been home sick all day – watching stuff on Netflix.  Who could ever short such a great concept?!  Think I will put my whole portfolio into March NFLX calls and retire early.  🙂  

insiders, now thats what I call wealth creation

Happy Vday

matt
Shadow doesn’t know. My watch is only very short term but it looks like up. My 2cents is I we go down tomorrow. That last minute push doesn’t show much XLF needed 17.12, miss, and IWM 82.48, 82.48 crossed with 5 seconds left. Let me know what you see after hours. Thanks for your input!

 marinermac1  –  Yes, I agree on the mechanics of how price supports work.  The bottom line is this-whose pocket the money ultimately rest in?  You are correct.  It is not the family farmer.  So who is the price support subsidizing?  
 
I happened to be watching a movie called "Sweet Land" last night (on the ever popular Netflix, which I am not short) and the farmer who is the main character said over and over, "Banking and farming don’t mix."   It’s worth a watch, and has a nice romantic overriding theme that is great for Valentine’s Day.  I cried at the end.

Phil
Insider selling explains what I have seen!

nicha (fundies) — My version of fundamentals starts with things like figuring out how badly wrong I think the analysts are.  And how much the management is sand-bagging.  Putting together some projections about the overall marketspace of the company I’m examining.  And eventually building my own earnings projections with a range of PE ratios.  Essentially attempting to ascertain whether or not I can find a discongruency between the company, the market, and the stock in this manner.

AAPL, for example has gotten way easier to do this kind of thing with thanks to folks like http://aaplmodel.blogspot.com/ and http://aaplmodel.blogspot.com/ .

With FNSR I’ve been blessed / cursed with tracking them all the way through the recent market collapse.  While I bought them all the way down, it’s only in the last year or so that they’ve started to fully behave in a manner that I first predicted back in something like 2007. 🙁

Anyway, there’s always a market somewhere.  I prefer to use fundamentals to identify grossly underpriced assets.  Then sift through those for stocks likely to have some kind of catalyst.

And I’m hugely biased.  I started working on networking technologies in the mid-1980’s (and way back when I was even a contributor to AMD’s Ethernet controller chip design).  I focus on technology stocks.  Especially semiconductor and networking technology stocks. 😉

Cute, I just found this in an October, 2007 email suggesting a friend look at FNSR:

I have some lower probability scenarios that result in them as high as 300 times their current level 7 to 10 years from now.  But my "realistic" scenarios are 8 times current level 2 to 3 years out, "optimistic" scenarios are 4 times the "realistic" ones.

At the time, FNSR would have been around $20 (reverse split adjusted).  So they’ve a long way to go to get to the upper bounds of even my earlier "realistic" analysis. 😉

For what it’s worth, FNSR as a company is executing better than I anticipated.  However obviously the macroeconomics didn’t work out as well.

So, in short, yes, I like fundamentals.  Even in this market.

reinharden

 

 

chuckerd / DIA — Been playing these occasionally as well. Had too much action this morning to get an order in. I short VIX puts around the 15.80-16 area as a hedge before entering the long DIA calls.

Insiders, another ponzi…insiders sell while the companies take on debt to buy back the stock in the open market..

Rev – have you watched “the road”? Might not be so valentinish but it might get you ready for the crash.

 Phil,
I’m naked short the NFLX Feb $235 & $240 Calls and also the March $265 Calls.  In my place, what would you do to avoid getting killed?
Thanks

Oh yes, I’m sorry. Victor Hugo, silly me saying Voltaire. Terrific work though so rich, and operating on so many levels…..wow.

Lol..Voltaire, man I am stupid sometimes.

 Any reason for the AH move down on SPY?

Technicals
If this way of looking at things has vaidity  todays action is confirmation of a reversal. My rule is 3 strikes your  out and this is only strike 1. Confirmation of strike one would be a pullback tomorrow, the jury is still out.

Morx – thx for the article.  THAT is gonna come back and haunt the lawmaker…..but so true it really is. The Loonie and Aussie dollar are looking mighty good.

Pharm, looked into PLX – i think there is an equal chance of downside which is cheaper, so i bought some march 5 puts. Too much insider selling, plus this FDA is too unpredictable.

 cslanson2/NFLX
I’m in the same situation, and have already gotten killed.  Phil recommended buying March or April Calls if NFLX crosses over 250, to get your delta back to neutral.  Phil said the following earlier today
 
Hedge/LV – Right, you want something with about the same Delta, maybe .50.  You are already protected by your caller although, of course, you’d rather make the money on the naked one so you play like we play the futures – pick a line, buy on a move over that line and get out fast on a pullback.   You can always buy again and set a new line over and over again so just don’t get attached to them.  Generally I like to be 3-6 weeks out and slightly in the money so the March $250s ($11.25) on NFLX would be my choice at the moment with a delta of .48.  The key is, like the futures, to watch a line that forms up as resistance, like $247.50 is today on NFLX and then plan on making your buy on the cross over that line.

Jo – insiders own 42% of the company and have only sold a few hundred thousand shares.  Yes, downside is there, but with their technology and efficacy equal to or better than GENZ, I think the FDA needs to look at them seriously.  Further, their COG are much less than GENZ, so that is another good reason for the FDA to give them approval. 

Here is a presentation by them….PLX.

Phil – I entered a bull TZA spread as best I could figure for some downside protection.  How could I have improved it [including not doing it at all]?
Sold April 11s @ $1.21; Bought April 13s at $1.81.  Sold April 18s at $.43.  Net $0.17.    Thxs.                                                                                 

Phil, 
Sorry to pile on with the NFLX parade (and again I am just trying to manage the MoMo’s I have in my account to finally get out for good) but I didn’t get a chance to trade today other than trying to sort out issues with executing IncomeTrader’s March cycle– I was trying to execute the trade on Friday and wasn’t filling so just before I was able to cancel out the last of the 4 orders at precisely 4:14 PM some goddamn marketmaker or my own broker, came and filled my long puts–with 30 seconds left so I couldn’t fill the cover! It is a freaking nasty game out there. But I waited all day to try to execute the order in pairs and even though I was way tilted to the bid/ask respectively on the orders (natural being 1.15, midpoints being 1.50 and I put the orders at 1.30 expecting immediate execution). I don’t know if this is an issue with Schwab but I am sick of them in any case. The problem is doing the transfer to TOS (learning the platform, and parceling in the positions while still trading on the 2 platforms… not something I am looking forward to). 
In any case I have digressed quite a bit, sorry, but I am fuming… 
In the meantime the NFLX June 205 Calls have now gone past the 25% premium (sold for 14.50 as per your recomm hedge against the leftover short puts from a bearish spread) with this damn and idiotic move up. So I would be looking to make back $35…tall order and I guess it will take patience and a multi faceted approach… I know I know you will say I should have acted before, but I thought as long as I was close to the 25-30% premium leftover, (and feeling there was no other catalyst for NFLX to continue higher–aside from your point about inflation) a move back was soon to come and I’d get bang for the buck versus going further up and out.
What would you recommend?

Phil your recommendation of FNSR, wow that seems like a very aggresive play–$1 on the $16 spread expiring in 6 months? I liked Reinhard’s points about the company and that you are behind it, but it seems a bit too greedy a bet… I have CSCO play, and based on Rein’s input they might be in the doldrums for a bit… would you recommend I do 50% on each instead to hedge the bet on CSCO and potentially reap much larger benefits on FNSR?
Thanks

 morxlntway 
I haven’t seen "The Road" but it looks good from the reviews on Netflix.  Think I will wait till after Valentine’s Day, maybe after it stops snowing too.

CSCO — If I had more time, I’d dig deeper into CSCO’s report (and earnings call) and I’d look for two or three specific things.
 
1) With Enterprise Networking growing at 50+%, at what points does it hide the diminishing returns from routing and switching and make CSCO appear to be a growth stock again?  I think that they should be nearing that crossover point (but I haven’t been paying enough attention to them to know when).
 
2) With routing and switching suffering from product transitions, how far along is that product transition?  The new products are allegedly better for CSCO both revenue-wise and marginwise.  And allegedly they have less effective competition which would also lead to better marketshare.
 
3) How does CSCO’s growth look internationally?  Particularly in China?  Or is Huawei still ruling the roost there?  Most of the world ain’t going to be great for core networking without some economic recovery.  Asia might be the only near-term upside catalyst.  And that’s traditionally been a hard market for CSCO.
 
Elsewhere I’d glance at JNPR and RVBD for signs of growth in CSCO’s networking core markets.  While they’ve taken market-share the last few years, if the overall market turns up (and I think they’ll lead their segment), CSCO will follow.
 
I think that sometime in the next quarter or three, CSCO might become a value stock.  But I don’t have time to see if they’ve already become one. 😉
 
I’d certainly love for someone else to do the work to let us know!
 
reinharden

Anybody shorting the canadian dollar here?

Today, after 12 years and a long and painful immigration process, I’ve officially become a permanent resident of the United States of America! But with what is going on with this country and the markets I’m not sure I should be as happy as I am now… Oh well I’m super happy! =D

 Congratulations ravalos! 

Great news ravalos!
Welcome to the club!

Congratulations Ravalos! Thank you for taking the time, effort , and patience to do it the right way.

 
zeroxzero
One note on TZA – they are going to have a reverse split (1:3) on Feb 23. Last time TZA had reverse split, the options chains from before the split became very thinly traded. Might not be an issue for you but good to know.

I’m long the canadian dollar for the long term. I have fxc since I don’t trade currencies. I sell calls/puts against it.
Better fiscal picture than us, lots of natural resources, etc.
One canadian told me it often followed oil. But, not recently. It might be ready for a near term pull back.

jromeha – see previous post.

Judy, I agree with your overall premise and am just playing it for a shorterm pullback to parity in the near future…

Oh yeah, congrats Rav! My Longtime g/f is Ukrainian and it took her 12 years to get it as well. After all the BS you all put up with during the process I know it can be emotional!

Ravalos,
Nice work! Remember, we all bitch and whine but we still love this country.

NFLX — Well, my version of fundamental also includes the precept that no amount of analysis is likely to decide that a stock with a forward PE ratio of 100+ is likely to be a value stock (although NFLX is no longer quite that high).  Although I do find the occasional exception to that rule. 😉
 
I most recently traded NFLX around its earnings report.  But that was primarily because it looked to me like NFLX was trading in a rising channel.  In late January, they broke below that channel when they hit $176, but then climbed back into the channel (and above the 50 day moving average).  So I was willing to see whether or not they’d bounce back up to the top of the channel.  I’d used the $174, $184, and $199 peaks as my channel top reference points.  I thought the $209 peak was noisy…  Which means that the current top of my channel was $235’sh.  I’m not really a technical investor (I’m occasionally a technical speculator), but a break above a channel could go either way… 😉
 
 
NFLX’s CEO argues that international expansion will make them larger than folks give them credit for; however, I perceive international expansion as possibly being more difficult than he realizes.  We’ve all watched AAPL roll out iTunes internationally and it has not been an easy process.  Furthermore, it’s much more common internationally to pay "by the bit".  Which might well make the cost/benefit analysis of international customers different.
 
There’s international potential no doubt.  But I just don’t feel comfortable enough evaluating it to give it much weight.
 
[Having said that — Netflix Japan or Netflix Korea could rock.  Both have got fantastic Internet infrastructure, Internet subscription rates that are unbelievable (90+% of Seoul has truly high-speed broadband), and a population that spends a lot of time commuting while staring at mobile devices…]
 
 
Or, in short.  In the meantime, I don’t own NFLX.  But I think NFLX is worth watching as a channel stock.  As yesterday’s move put it well outside my channel, I’m not comfortable declaring whether the next 20 points will be up or down.
 
reinharden

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