6.1 C
New York
Friday, March 31, 2023


Friday Follies – No Jobs but Hey, Look at Facebook!


That's all we have lately.  Greece's silly $171Bn loan is meant to distract us from Europe's $17Tn debt hole and the US continues to borrow $171Bn PER MONTH to cover it's deficit and we don't even talk about Japan as the debt climbs over 220% of their rapidly declining GDP and who knows what's going on in China but, generally, when you have double-digit declines in home prices on a monthly basis – there's going to be a problem down the road.  

This may be my last bearish post before drinking the technical Kool-Aid this weekend and we've already selected 5 trades for our Members that will make 200-500% if the market keeps moving forward and there are still plenty of stocks we can make a lovely Buy List out of if this rally has legs – especially the way we like to bet, since our hedges allow us to make very nice returns, as long as we simply hold our current levels.   

There's the rub though – are the current levels sustainable?  The nice thing about consolidations like the one we've been having this year is that they firm up a floor and give us a very obvious exit point on the way down so we can move some of that sideline cash into play – as long as we hold 12,500 on the Dow and 1,300 on the S&P and 2,800 on the Nasdaq – pretty simple strategy, right?  

Notice the 2nd row has our major indices priced in Euros and our third priced in Yen.  My main issue has been that we've been much weaker than it seemed as the Dollar's relentless decline masked a downturn in the inflation-adjusted price of our stocks (and the weak Dollar also serves to inflate revenues reported by multinational companies) but, at the moment, we're at our breakout levels by any measure so we may as well go with the flow until we see a proper reversal.  

First we need to get past our NFP report at 8:30 of course.  I'm expecting a miss but will the market even care or will that just mean Uncle Ben has an excuse to pump up the QE according to their new "formula"?  

Keep in mind that what Bernanke said last week regarding the Fed's system for determining policy boils down to – As long as US corporations don't hire American workers, he will continue to give them money at historically low rates.  I don't know about you but if I'm GE and I'm thinking about hiring 10,000 workers but I'm also looking to borrow $100Bn – I think I'd put off the hiring until after I get my loans lined up in the very least.

8:30 Update – Well, I'm wrong (or so it seems from the headline number)243,000 jobs were added, almost double the 125,000 officially expected and unemployment dropped to 8.3%.  Hours worked up is up as well so this is a strong report.  Private-sector employment grew by 257,000, with the largest employment gains in professional and business services, leisure and hospitality, and manufacturing. Government employment down slightly for the month.  Manufacturing added 50,000 jobs, mainly in the Durable Goods space – another positive.  Even Construction added 21,000 jobs.  

On top of all this good news, they bumped November up from 100,000 to 157,000.  While it's horrible to think that the figure we have today could swing 57% one way or the other, the trend does look good with the initial adjustment to December going from 200,000 to 203,000.  I guess the Conservatives will have to start calling Obama the Great Job Creator now…  

NOW we get to see how much gas the market has left in its tank as there is no possible excuse not to bust out to new highs on this one.  The big drag I see is that more people working means more demand for Dollars to pay them and less QE per the Fed's formula (especially if prices also kick up) and that is, of course, Dollar bullish which is oil bearish (not that oil should need any help with Shell saying oil may fall to $70) and other commodity bearish and makes for a tough dollar-adjusted gain in our indexes the same way that a week Dollar gave us an artificial boost before.  

So let's keep an eye on that Dollar as it can really hold back the rally and this would also be a great time for the BOJ to run a Yentervention as they've been waiting for a chance to goose the Dollar into clear market strength and we're not likely to get a stronger number than this and we have TBills to sell next week so this should be the spot to run the Yen back to 77 at least.  

As I mentioned, we had our 5 bullish trades in yesterday's post and it looks like we can look at 5 more already.  Our plan was to add one a day, beginning yesterday, to layer up for an extended rally.  Of course we've been doing this every week with FAS, BAC, TNA, etc. as we're never all bear or all bull (70/30 is EXTREME in our balance).  

Since we are going to be popping into the open, let's concentrate on some longer-term trade ideas that will be less affected by the morning move.  Keep in mind, as long as the net of the trade is the same, it doesn't matter what each leg trades for:

  • BA ($75.22) is still very cheap at $75.  If the World economy isn't going to collapse, then BA has over 3,000 planes to deliver against a current capacity of under 500 planes a year so a 6-year backlog and last year they grossed $65Bn with a $3Bn profit delivering older and less profitable planes as just ONE 787 was delivered in 2011.  Although they pay a 2.5% dividend, I think it's unnecessary to own the stock as the 2014 $60/80 bull call spread is just $11 and you can sell the $65 puts for $8, which TOS says has an ordinary net margin of $6.50 so net $3 of cash to make $20 (566%) if BA gains $5 into Jan 2014 is better than holding and covering the stock for the $1.76 dividend.  Don't forget, when you have those calls, you CAN exercise them and become an owner – if they raise dividends, for example (doubtful with their current cash-flow profile as they ramp up).  
  • F ($12.26) is still down in the dumps and their volatility makes them a fun stock to sell calls against.  As I said, the way we hedge, we don't need the markets to go up, they can just stay flat and with F, you can pick up the 2014 $8/12 bull call spread for $2.40 and sell the $10 puts for $1.50 for net .90 on the $4 spread that's 100% in the money to start.  TOS only wants $96.50 per contract of ordinary margin on this trade that makes $310 if F flatlines or better for 2 years.  Meanwhile, SINCE you have a 300% upside, you can buy 10 of the long spreads (net $900 cash, $3,100 potential) and sell 2 March $12 calls for .65 ($130).  If you get away with a $130 sale every couple of months, you have a free trade by the end of the year and you're giving yourself a very nice 15% bi-monthly dividend while you wait for your 300% pay-off!
  • GS ($115.45) may be the devil but don't you think they know how to profit from a market that NEVER goes down?  Let them worry about day-trading while you pick up the 2014 $80/110 bull call spread for $20 and offset that with  the $90 puts at $12.50 for net $7.50 on the $30 spread that's $35.45 in the money to start.  Your worst case is you end up owning GS long-term for net $97.50, which is 15% below the current price.  TOS says net ordinary margin for shorting the $90 puts is just $9 – not bad..

Oops, out of time, I'll have a few more in Member Chat, of course – looks like we'll be closing this week off with a bang!  

Have a great weekend, 

– Phil


Notify of
Inline Feedbacks
View all comments

A guy's wife I work with said yesterday he wanted to buy into Facebook's IPO. The same guy's financial planner also convinced them to sell Apple from a few years ago when it was around 90.
I don't understand the logic behind either of these lines of reasoning.


I agree that you need to stop the bearish post.  Every morning I'm ready dive in long, then I read your bearish comments, which incidentally I happen to agree with, and I don't plunge in. 
Hold your nose and jump.  The waters great.

Wow!!! Were the job numbers that good?

I cannot believe i was forced to close out the TLT 118/117 short put spread due to the options exercise. Would have expired worthless today.

Oops, that was the short CALL spread on TLT. .95 down the drain.

These numbers are really unreal… It's going to be tough to argue that the economy is not doing better now! Tough for bears and the GOP I guess.

FAS Strangle – It's going to be a tough morning I guess… Once again, we have been lucky so far and I expected to have a bad week eventually, I just was not expecting it on the upside. Might have to roll these calls really out of danger now because these markets are on a roll now and we've got to stay out of the way! As I said last night, momentum is tough to fight and we are gathering more momentum this morning!

There go all my profits for the last few months.  Between the EDZ, TZA, GLL hedges going bust, the FAS Strangle getting killed, a long term DIA hedge worth 0, a dumb XRT trade,  and a stupid RUT bear call spread very close to blowing up.
Thank god for LFlan and his AAPL portfolio or my Q1 PnL report would look really awful!

Interesting enough, the dollar didn't tank on these numbers and is actually strengthening decoupling from the markets.

Looks like a sell into the initial excitement day today.

StJeanLuc – FAS
I'm not convinced it makes sense to roll the call.  It's probably just going to get run over again if the markets keep on pushing higher.  I'd rather try to make the loss back in other ways, like some of the bullish trades from yesterday.  

If I didn't know better – Joe Kernan on CNBS looks and sounds "disappointed" with the good jobs number….

Good Morning!

Bust / Burrben – It's been a tough week to be bearish… I hope that you had the long plays to go along with hedges though!

USD / StJ – Why should the dollar tank because of strong numbers? Shouldnt it strengthen as the "economy" is getting better? Also it could be that as unemployment goes down so does the probability for QE3. Looking forward to your perspective, it would be my lesson of the day 🙂

FAS / Burrben – It's really your choice on what you do with the position. There will be corrections in the run-up that will allow us to recapture some of the cash I am sure. But it might get rough for sure… It's a risky setup!

StJean –  Well my bullish trades are all longer term 2013 option plays, but my short term trades were mostly bearish.  So the pain is more accute right now.  

What types of trades will benefit from Yentervention? If dollar goes up… Oil down? Gold down? Other commodities down? Others?

One of our old fav's GNW beat.
8:32 AM Genworth Financial (GNW) +7.6% premarket after reporting late Thursday Q4 EPS of $0.22, reversing a year-ago loss of $0.33 and beating consensus $0.20. Q4 revenue unchanged at $2.6B, in-line. Losses in U.S. mortgage insurance narrowed to $94M vs. $352M a year earlier; U.S. life insurance posted a $114M profit.

USD / Dpas – Actually my point was that the dollar had been moving in the opposite direction of the market and with this huge move in the S&P futures this morning I was expecting to see the dollar tank and yet it is moving in the same direction. I would agree that the dollar should be strengthening on good news and given the fact that everybody is printing money as fast (or even faster than we are).

1020/Kernan — I thought the same thing…he looks like his whole day is ruined by the good news. I can't wait for Mittens to spin it down….

Record 1.2 Million People Fall Out Of Labor Force In One Month, Labor Force Participation Rate Tumbles To Fresh 30 Year Low
it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation

FU bearishness!!!
3x, decay, wrong way…

Any ideas to sell into initial excitement?

Kernen / 1020 and Esco – He was trying to spin this after the numbers, saying that it was still going to be tough race because Obama is still basically a European socialist… If these numbers keep coming back this way, historically speaking – recall Reagan coming out of the recession, it will not be close. It's tough to spin that the economy is doing worse in the face of good numbers. You could argue that they could have been better if another plan had been put in place, but it's a tough argument to win.

Here is the WSJ spin on reduction of labor force
"The latest drop in the jobless rate, which is obtained from a separate household survey was largely because of genuine job growth rather than a reduction in the labor force, the report showed. The number of unemployed people fell to 12.8 million, a three-year low, and the jobless rate has fallen from 9.1% since August."

Regardless – those of us on the short side are about to take a serious beating

Its going to be the day of the thousand FUs in Phil stock world today.. 

So keeping with the them of 'Distractions', ZH initial analysis concludes that BLS 'determined' that 1.2M people dropped out of the labor force in one month. It is a 30 year low in labor force participation. so that's how we say unemployment of 8.3%. So they just need to drop the participation rate and we 'recover'. Lies, damn lies, and statistics…

Esco/Mittens   You mean my favorite cat detective?  LOL…

Wow – serious surge in the dollar against Euro –
I don't get DX quotes anymore – anyone have real time

/DX, 79.435

as you all know i ve been short the futures since 1307 but thats one tenth of my portfolio so i ve given back all my futures gains in january my overall portfolio is up..qe3 is clearly being discounted..insane but don't count on the markets to be rationale..price is the final arbiter..i am going to have a mt gay and ginger and an eight ball now

samz 79.435 hitting some resistance from last tuesday levels

1020 — Good one.  I meant to say "Willard."  FU TLT!

From Forexlive
ni ecoECB will take the crown for easiest central bank at the end of February
It now appears clear that the Fed can hold off on QE3 for the very near-term at least. It is also clear that there will be very large demand for euros at the February 29 auction of 3-year loans (LTRO) from the ECB.
The ECB’s balance sheet is already larger than the Fed’s in USD terms($3.5 trln versus $2.9 trln)  and it will take the crown by a mile if the ECB auctions anywhere near the EUR 1 trln that has been rumored in recent sessions.

stjeanluc/argument   Agreed, but it will be fun (and sad) to watch…. 🙂

My only good short trade, long uup is heading up?? I'll take it

Great to see both the SNB and BOJ @ work!

Almost forgot the oil lines:

R3 – 100.33
R2 – 99.16
R1 – 97.78
PP – 96.61
S1 – 95.23
S2 – 94.06
S3 – 92.68

Yesterday's high and low – 97.99 / 95.44

Breakout – 102.11 / 88.76

For good measure, some dollar lines:

R3 – 79.81
R2 – 79.56
R1 – 79.35
PP – 79.10
S1 – 78.88
S2 – 78.63
S3 – 78.42

I presume we are going to need some adjustments in the 25KP.

Goog morning everyone. Market is up what is so negative about this Looking at the FAS strangle we down 1520$ but I am looking at the bright side my Portfolio is up 20K inluding the -1520. So let us sit back and enjoy the ride and wait what the day will bring I think the market might kool off and than we see where we roll to.

"$VIX falls as much as 6.3% to 16.84, lowest intraday level since July 8” .  how can we benefit from that? Buy puts?

Any chance we get a meltdown today?

This may explain why we rally like this. The FED is engaged in liquidity swaps that are possibly a covert bailout of Europe!

1 2 3 8

Stay Connected


Latest Articles

Would love your thoughts, please comment.x