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Monday, February 6, 2023


Which Way Wednesday – EFSF’d Up Edition

QEC (China)?

That's the word out of Asia this morning as the Hang Seng flipped 360 points higher after Premier Wen Jiabao said economic policy needs to be fine-tuned and asked local governments to check for signs of lending distress. The markets took that thin sauce as sign that monetary easing is on the way.  You would think people in China would be happy as minimum wages rose at an annualized 21.7% pace in September and when Wen Jiabao promises a chicken in every pot to his people – they are literally excited about the prospect of actually getting a chicken in their pots!  

Shenzhen in China is now matching Hong Kong, paying their workers a lucrative $207 per month (don't spend it all in one place boys).  Beijing is the place to be if you are an hourly worker though, with the minimum hourly rate now a screaming $2 – putting the average Beijing worker just 50 hours a way from buying a square foot of living space in the city.  

The rise in minimum wages is in line with China's efforts to boost spending power and domestic consumption.  KPMG says that minimum wage levels in China are four times greater than other places in South and South East Asia.  However, it believes China can defend its position because of its productivity and infrastructure – something the US used to be able to do as well, one upon a time, before we allowed our infrastructure to slip into 3rd World status (see "America's Infrastructure Crisis").  

As I mentioned in yesterday's post, Congress is now in year 3 of ignoring the 2009 report (commissioned by the previous administration) that concluded that this country was on the verge of spiraling into a state of permanent decay if we did not IMMEDIATELY put $400Bn a year into fixing things from the above list.  In those 3 years, every single one of those infrastructure bills (which create millions of good jobs that can be filled by our millions of unemployed construction workers) has been filibustered out of the Senate with not one reaching the President's desk since his initial, inadequate stimulus package.  

Even if Europe fixes their mess and China does whatever it is China does to paint their numbers for another few years – it will only serve to swing the spotlight back on this dinosaur of a Nation that is little more than a shell of its former self.  The myriad of problems facing the US economy did not go away, they were merely overshadowed by the more immediate-seeming disaster in Europe, with it's endless stream of artificial deadlines (now in year 3) that would spell the end of the European Union if this or that vote did not go through by Monday (almost every Monday).  

Anyway, I'm bored talking about Europe.  Que sera, sera on that one at this point.  We cashed out at the top (as I just mentioned on TV) with perfect timing and now we just sit bemusedly at the sidelines, waiting for some proper resolution – one way or the other.  We HOPE that things are resolved and the markets move higher because that would be better for the Global Economy and better for the millions of people who need jobs and are in danger of losing their homes but HOPE is not a valid investing strategy and our main investing job is to make sure that we are not so unfortunate as to be knocked down the ladder into the bottom 99% or (God forbid!) the bottom 90%, where we'd really have to make sacrifices like waiting for one-day sales and ordering off the Dollar Menus at McDonalds.   

Charlie Rose had a great discussion last night about the reality behind the Occupy Wall Street movement (who now have their first Corporate backer: Ben and Jerry's!) that's a must-view but even more so is this fantastic clip of Stephen Colbert consulting with noted Conservative spin doctor Frank Luntz.  If you've ever wondered why all politicians sound like they have the same pull-strings in their backs when they talk, this is a great quick-view of the process that politicians go through before deciding what they think:

There's 3 parts to this so you have to click forward to part 2 and part 3.  Although it is done in Colbert's light-hearted manner – you get more truth out of this 15 minutes than you get from 15 hours of Republican debate watching.  Colbert sums it up in his first question to Luntz: "What are the most effective ways to lie to people?"  What's interesting in the focus group is how they are, at first, universally disgusted by the phrase "Corporation are People" but then, about an hour later, Luntz has them all working together on a campaign to "humanize" Corporations.  

As Luntz explains with impeccable Republican logic: "A + B equals C but B + A does not necessarily equal C.  C + A may equal B but C – B does not necessarily equal A."  If you can understand this, then the Republican debates will make a lot more sense to you.

Maybe embracing the A + B might = C if that's what the suckers want to hear attitude can be applied to the markets as well.  We sure did yesterday as we ignored the silly, low-volume sell-off (we already had our hedges from testing the top of our range) and took advantage of the dip to pick up a couple of bullish trades for our White Christmas Portfolio.  10 SSO Weekly $45/46 bull call spreads were .40 ($400) and we hope to make $600 if the S&P can pop back to 1,250 by Friday's close.  

Another bullish trade idea for our new WCP was 20 FAS weekly $13/14 bull call spread at .60 ($1,200), selling the Nov $11 puts for .65 ($1,300) for a net $100 credit on the $2,000 spread.  Our goal is to make just $10,000 by Christmas in our virtual portfolio and it would be off to a great start if we can nail our first couple of trades.  We also have a longer GNW trade working for January but that's it so far in our new set. 

Our logic is that, if the EFSF passes today, the markets should grind steadily higher and, if the EFSF fails today, we're going to have a whole lot of great shoring opportunities on the way back to 1,100.  As you will see from this morning's RE-relief rally open – you have to grab those long plays while we're down because they tend to gap right back up in pre-market trading, making it much tougher to catch a good entry.  

AGQ $70 calls were another bullish play from Member Chat and we added 5 of those to the WCP at $2.10 ($1,050) and they are at goal this morning at $4.40 ($2,200) for a nice 100% gain in a day – now we just have to put a stop at $4.25 and see what happens but it looks like we're well on our way to that 80-inch flat-screen this Christmas!  

Our goal remains to hit and run in our short-term, aggressive portfolio.  It's still a wild rumor-driven market and, even if the EFSF passes – then they will begin to argue about whether it's enough, etc. so, as the great Yogi says: "It aint over 'till it's over" – be very careful out there.  



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