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Wednesday, February 8, 2023

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Wednesday Worries – Yentervention, Euro Style

78.50 on the Dollar!

The Yen finally got back to 77 and EUR/CHF back to 1.21 so my theory that the BOJ has given up on the Dollar and moved to boosting the Euro is playing out nicely.

This does not make me more bullish (expecting falling Dollar to boost the markets) because, in the grand scheme of things, this is kind of like now there are two kids building a sand wall on the beach instead of one – sure it will last longer than the wall just one kid was building but, eventually, the tide will get it anyway or, as Jimi Hendrix said more poetically: "Castles made of sand, fall in the sea, eventually." 

Once you start messing around with Forex markets, you are messing with major macro forces that are hard to control.  Japanese banks have $7.5Tn of Japanese bonds at 1% – what happens to the value of those bonds if the BOJ does push the Yen down 10%?  Who takes that $750Bn hit?  What if rates go up to 2% – what's the value of the bonds then?  Who will bail out the Japanese Banks when they have a multi-Trillion Dollar (several hundred Trillion Yen) hole in their balance sheets?  Do Japanese spreadsheets even have room for Quadrillions?  They are going to need it!  

Then there's this Bloomberg article on the Central Banks, who have doubled their balance sheets since 2006 to $13.2Tn but, magically, have caused no inflation (according to Ben Bernanke – not according to people who actually buy food and stuff).   China is now sitting on $4.5Tn of other people's TBills (mostly ours) and that's up $1.5Tn in a year.  The ECB is right behind them with $3.6Tn and another $1Tn supposedly coming in the next EFSF round and the Fed has $2.9Tn plus whatever nonsense they are running off book.   

So, how is it that WE are the bad currency here?  If the Dollar is a problem, then China, who's GDP is only about $8Tn (optimistically, possibly $5.5Tn depending on who's measuring) is almost as insane as Japanese bankers and maybe more so as they are betting on our country's ability to pay and maintain the value of the Dollar (already a fail, right?).  I suppose no one can ever recognize losses and just carry more and more junk on their balance sheets forever but that's kind of a scary plan because, all it takes is that one little boy to point out that the Emperors have no clothes and this whole thing can collapse like the house of cards that it is.  

Anyway, my point is that Forex traders do get this and that's why you can't fight the tide.  You can fool stock investors all the time, they are generally sheep who don't even understand what it is they are putting money into and, as we well know, between the low volume and the BS ratings and the pumpers on TV and the completely inaccurate guidance given by the companies themselves and the insane analysts and the people who follow them – it's a total joke.  That was made evident in 2008 when the markets were "worth" what they are now in August and then, 60 days later, they were "worth" 50% less.

That doesn't happen with Picassos or Baseball Cards or Classic Cars or Comic Books or Houses or other things of actual value – they generally have enough sophisticated investors that there is genuine price discovery that holds up over time but stocks, on the other hand, can go up and down 20% on rumors because there are plenty of uninformed buyers and uninformed sellers on both sides of the aisle.  

The S&P is up 22.5% since October 1st.  The US Equity market is about $50Tn, with $10Tn added in the last 4 months.  At the current volumes of under 2Bn shares a day, let's say it's a generous average of $50 a share ($100Bn) and let's say we had 100 trading days (also generous).  That's $10Tn too.  So I guess we could say that the move in the market is justified if EVERY SINGLE TRANSACTION that has taken place in the past 4 months has been a buy with $10Tn pouring into equities (as you can see from the chart on the left, only $1Tn came from the Fed and the ECB) and supporting a move in the market that is almost the size of our entire economy and, of course, globally, it's double that.

The Central Banks have taken advantage of the low tide to build some beautiful-looking sand castles and investors are flocking to admire them with the Mainstream Corporate Media simply falling over itself to congratulate them on their epic victory over reality but how many of those investors are really planning on moving into those sand castles – or will they all run out as soon as the next crisis wave laps on the walls and the begin to crumble once again?  

I said to Members in early morning Chat

Unfortunately, I've been reading the news so it all seems completely ridiculous to me and I'd say shorting the RUT (/TF) below the 830 line (just tested 833) and shorting the Dow below 12,850 (now 12,854) look like the most attractive plays in addition to same old shorting gold at $1,750 line. 

I would love to have a bullish play but I just can't do it – I'm sorry, I'd rather be in cash than pay these prices just because the Dollar is driven down to ridiculous levels against a currency (Euro) that is 1/3 it's size and just did a $750Bn round of QE and is about to do another $1.5Tn round and all that, so far, has barely "fixed" their smallest member state.   This is like us fixing Rhode Island and the rest of the World declaring America all fixed…

Obviously, we need to watch that 78.50 line on the Dollar – below that and we can't be bearish but it should hold. 

I know I promised to try to get more bullish but it is literally impossible to read the actual news (see Member Chat for today's rundown) and buy at these levels – certainly not with any long-term conviction.  So this is my little therapy session where I will try to get it all off my chest as we TRY to disconnect our brains and follow this rally – assuming the madness continues just because Greece is fixed – which, as I said, is the same as declaring America's finances fixed if we bail out Rhode Island

Speaking of Greece:  Government revenues in January are down 7% year over year versus the 8.9% increase expected by Econonomorons, who were sure that drastic austerity was the key to prosperity.  VAT receipts are off 18.7% and I guess that explains why Greece is only up 0.5% today – someone must have accidentally read this report!  I'm sure the next round of austerity measures being demanded by the Troika will do the trick and turn Greece around – after all, how many times has austerity failed to produce a recovery?  

I'm sorry, that was a trick question as austerity NEVER works, not in the past 200 years, at least.  Even Forbes knows this and those guys are pretty slow on the take…  

Austerity does work for the people the victim owes money too – much the way that donating 8 pints of blood works works for the vampire, but tends not to have a positive outcome for "donor."  Like vampires (and I'm not the first to make this comparison), the bondholders will simply move on to their next victim once Greece is drained dry. 

There are Trillions riding on a successful Greek bailout – not because of Greece itself but, by making it look like Greece is "fixed" and harsh austerity measures including pay cuts, benefit cuts, reneging on retirement promises made to the people while the Rich continue to enjoy their special loopholes – they set the stage to run rampant across all of Europe, the US and Japan with the same song and dance, just like they did in the 30s – until the "recovery" came crashing down around the World and plunged us into WWII.  Ah, good times for the Military-Industrial Complex indeed!  

Anyway, so that's what's bothering me but we can't let it stop us from playing the market to higher – we just need to recognize that it probably won't last.  Last week on Thursday and Friday, we featured 10 bullish trade ideas, as promised, to take advantage of the insanity because – as we often say – we don't care IF the markets are fixed, as long as we can figure out HOW they are fixed and take advantage of it.  Our plan was to add one bullish trade each day we were over our breakout levels and here we are at day 5 already so let's see how we're doing:  

  • FAS Feb $77/80 bull call spread at $2, selling $75 puts for $1.50 for net .50, now net $2.25 – up 350%
  • FAS March $75/80 bull call spread at $3.05, selling $70 puts for $3 for net .05, now $2.15 – up 4,200%

Not bad for a week's work, right?  As a bonus, in Thursday's post, we also featured some alternate bullish offsets that were less aggressive than selling short FAS puts:

 

  • CHK Jan $17.50 puts sold for $2.05, now $1.74 – up 15%
  • GE 2014 $17 puts sold for $2.50, now $2.23 – up 10%
  • GOOG June $450 puts sold for $4, now $2.35 – up 41%
  • ISRG Jan $310 puts sold for $10, now $7.66 – up 23%
  • KO Jan $62.50 puts sold for $3, now $2.60 – up 13%
  • MO 2014 $23 puts sold for $2.15, now $2.05 – up 5%
  • PFE 2014 $20 puts sold for $2.65, now $2.80 – down 6%
  • XOM Jan $65 puts sold for $2.50, now $1.95 – up 22%

I know – so dull!  Still it's a great way to enter positions and a great way to use your sidelined cash to generate a little additional income – a strategy we concentrate on in our Income Portfolio, which was also updated this weekend.  You don't want to sit around in a bull market like a deer in the headlights – just because you think it's nonsense.  Surely there must be SOME stock you would be willing to buy if it drops 20%?  If so, then sell the put at that strike and someone will be paying you just for promising to buy a stock at a lower price than it is today.  This is not complicated, folks

In addition to our aggressive FAS trade ideas, which were meant to make big money if the rally held up to help balance out too-bearish positions, we had a few longer-term trade ideas featured in Thursday's morning post:  

  • CHK 2014 $15/20 bull call spread at $2.65, selling 2014 $15 puts for $2.35 for net .30, now $1.16 – up 286%
  • AA July $8/10 bull call spread at $1.40, selling 2014 $10 puts for $2.10 for net .70 credit, now .40 to buy back – up 42%
  • AMZN Jan $170/180 bull call spread at $5.20, selling Jan $110 puts for $4.15 for net $1.05, now $2.90 – up 176%

Friday we continued to concentrate on long-term trade ideas as FAS was already looking promising and there were no aggressive plays I liked better:

  • BA 2014 $60/80 bull call spread at $11, selling $65 puts for $8 for net $3, now $3.45 – up 15%
  • F 2014 $8/12 bull call spread at $2.40, selling $10 puts for $1.50 for net .90, now $1.25 – up 38%
  • GS 2014 $80/110 bull call spread at $20, selling $90 puts for $12.50 for net $7.50, now $8.10 – up 10%

I ran out of time in the post but, in the Morning Alert to Members, we added:

  • SVU at $7.10, selling 2014 $7 puts and calls for $3.70 for net $3.40/5.20, now net $2.97 with SVU at $6.87 – with buy/writes, we're either on or off track but .13 below our exit strike is still on track on this one and an even better entry now than it was on Friday for a possible double in 2 years. 
  • HPQ 2014 $20/30 bull call spread at $5.60, selling $23 puts for $3 for net $2.60, now net $2.97 – up 14%
  • SKX July $11/13 bull call spread at $1.20, selling $11 puts for .90 for net .30, now .70 – up 133%
  • 2 BTU 2014 $30 puts sold for $5.40 ($10.80), buying 1 Jan $40/50 bull call spread at $3.20 for net credit of $7.60, now $5.30 to buy back – up 30%

So let's not fear the rally.  Of course we balance out our winners with a few bear hedges (see yesterday's Member Chat for TZA spread) to lock in some of our quick gains.  Also, there's nothing wrong with taking some cash back off the table here as this "rally" is just ridiculous and, if the tide comes in this week or next, we'll be thrilled to get back to cash but, if we're going to head up forever – we can do this week after week so we're not going to miss much by sitting out a few! 

Let's be careful out there…  

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Phil/therapy session
Your morning post are my therapy sessions too!!!
They help me to remain in a hit and run attitude on my longs.
I will just wait for Greece to be solved to join the short side ")

Hello all.  Are there a links to portfolio summaries (25K, 5K, etc) or do we just read the summaries as documented in the daily comments?

Only 500 years after Columbus and his crew were failed to locate commercial quantities of gold, the government of the Dominican Republic has signed a contract with Barrick Gold, who will be trying to extract gold from them thar hills. Hopefully they will have advanced from the labor practices of Christopher Columbus PLC who also sought to start a gold production industry employing local labor to pan for gold in the rivers of the Cibao valley. Incentive schemes included cutting off the hands of those whose productivity was not adequate, however the operation unfortunately ran into recruitment and retention problems and eventually filed for bankruptcy.
 
Barrick will be spending $25 million dollars on "environmental  protection" (formerly known as bribes to government officials) so hopefully workplace injuries and executions will be kept to a minimum.
 
http://www.dominicantoday.com/dr/economy/2012/2/7/42585/Fernandez-lauds-Barricks-investment-to-extract-gold

shorting dow/rut/gold
do you do all these in futures market or use other vehicles

Barrick's new gold mine in the Dominican Republic expects to produce 1 million ounces a year once it gets up to speed, says CEO Aaron Regent.
 
http://www.dominicantoday.com/dr/economy/2012/2/7/42582/Minewilproduce-more-than-10M-Oz-of-gold-yearly-Barrick-CEO-says

Phil – Im still long /dx…. Im assuming you still like it here….

Portfolio / jjf – The spreadsheet can be viewed at:

https://docs.google.com/spreadsheet/ccc?key=0Anwf9je9MizqdGQzN2NZUjNfdjhrbjFwWlc1eDYtWnc

You might need to copy the link to your browser as clicking on it doesn't always work.

Oil Lines

R3 – 103.34
R2 – 101.23
R1 – 100.05
PP – 97.94
S1 – 96.76
S2 – 94.65
S3 – 93.47

Yesterday's high and low – 95.84 / 99.13

Breakout lines – 104.45 / 87.22

Unreal action yesterday with a 4% move!

tommyt………..if you reside outside the US you can trade CFDs………allows for approx $10,000 lot sizes and you can access the NA, European, and Asian equity indexes also OIL, gld and silver
 
depending upon the company you can also trade interest rates, VIX, ags, gasoline/heating oil…….sugar etc.
 
advantages are selection, scaling for position sizing……..disadvantage is wider spreads

China CB / Phil – I wonder what else the Chinese CB holds because they have actually reduce their US T-bill holding over the last year. This from November 2011:

Meanwhile, as of the end of this September, entities in mainland China owned $1.1483 trillion in U.S. Treasury securities, according to data published todayby the U.S. Treasury Department. That was down slightly from the $1.1519 trillion in U.S. Treasury securities the Chinese owned as of the end of September 2010, according to the same Treasury Department report.

In essence, 25% of their holding is US T-bills. So, if their balance sheet has increased by $1.5 trillion, it might actually be a more scary scenario – it could be domestic debt and that would represent 30% of their GDP. That would be a massive stimulus package! I don't think that it can continue much longer!

Also, can someone tell me why CNBC feels the need to invite people like Sam Zell in studio. The guy brings nothing to the table except for tired talking points! Why do they keep on having people like him or Trump who calls in sometimes when they could invite people who actually know what they are talking about? They had Goolsbee after Zell and the discussion became much more informative with actual facts about GDP and unemployment. Sure he was an Obama guy but he even admitted to some errors from the administration. Good luck getting that from Trump or Zell!

Phil,
 
thanks for your rant……..i actually feel relieved and was beginning to wonder if i was losing my mind before reading it.

Phil,
 
OIL is testing the descending channel top at 100…………

Phil……"Austerity never works……."     Once you've given something to people they don't want to give it back.  This includes politicians (especially!) and people.   Human nature.   For a test, give a couple of cookies to a toddler, then just try to retrieve them.  Will lead to a temper tantrum (like the ones in Greece).  

Italy's ec contracting "at least 0.3% annualized run rate."
 
then this; http://www.zerohedge.com/news/european-bank-run-full-frontal
 
if the bank run is ON, asnd the money is flowing out of the periphery countries to the core then by extension SOME of it MUST be seeking haven in USD?
 
that is my guess which means a prop for the Dollar……..all comments welcome on that subject

Phil,
Trying to grasp a concept and getting confused:
If I have 10 AAPL Mar 460 short calls now $18 ($9 premium), should I hold on to these? I think AAPL has catalysts for a move up to $480-490 in coming weeks with ipad3, etc..
Or, should I roll to the July $500 calls, for even (now $19.20 and ALL premium) ?
Please advise and why, or if you think another scenario is better.
BTW, these are covered calls.

How about a little dollar surge. as it is auction day?

HI Stjeanluc:
I saw the same interview this morning.  I am a 25 year real estate developer and the most important points that Zell stated, is that he does not believe the bottom is in with regard to commercial real estate (which is why he is not buying in the U.S.), and that he can't figure out a way how to buy (create a process) the mass quantity of houses and get them to make a profit.  These 2 points, are very potent becuase without either one seeing the light of day, the U.S. economy will not grow, and all the nonsense being fed through the press (8.3% unemployment when the real number is 15% – 4% always unemployed [defined as full employment] is actually 11%) are diametrically opposed to the 2 canaries in the coal mine which are housing and commercial real estate.  I am in Phil's camp with regard to taking more bearish positions currently, and longer term positions based on value.  I am buying developable real estate from the banks at severely distressed prices, in premium locations, for cash.  Financing in Texas is available and not easy in other states.  Stil difficult times ahead.  
M. 

PP 4 2day:

Phil, do you think it makes sense to add a FAS bullish play to the 25KP since it's so bearish?

Good morning, still nothing new,

 

IWM     79.10,  79.53,  79.80,  80.46,  81.12,  81.41,  81.92,  82.42,  82.81,  83.07  and 83.75

stj/AAPL port….suspect an error on the flowsheet but can't find it.   AAPL port has risen in value each of past 3 days in real terms but spreadsheet shows 4k drop. 

AAPL Portfolio / lflan – It changed dramatically when I add the trade on the 450 you did yesterday. And it's not up to date just yet with the latest prices.

@Felipe
"……as you can see from the chart on the left, only $1Tn came from the Fed and the ECB)…"
Wouldn't their 'purchase' of triple ETFs and  ''sales'  of short ETFs belie or make these charts suspect, if not outright wrong?

stj….thanks….Thought for a minute there I was losing money!    Gads!   

Lflan, here is the updated position. Let me know if this matches…

stj….uep….matches now.

Any advice on the Feb $115 TLT call?  I got in at $1.86

Booked yesterday was the TLT day trade that lowered our entry price to $1.73 and we also closed the SLM position.

Rumours from GRC – Latest rumours i read from blogs and unofficial sources are that at least two of the major party heads will not support the new memorandum.  Their party members are under heavy pressure to vote against these measures when they reach parliament on Sunday.  Still not official, but if it turns true it would be a bear's dream scenario. Will keep you posted

I would like to get a bit of a sell-off in AAPL.  The positions we hold in the AAPL port are April and July calls, well positioned to come in.   A sell -off would give us the opportunity to buy back some of the covers or to buy some more bull call spreads.  And if no pull back?  Well……whatever.     And, no, I'm not going to buy any downside protection stj, even though I agree with Phil that a Greece solution will probably be a 'sell on the news' event. 

It's too bad none of those bullish trades in the morning were added to the 25K portfolio.  It would be looking much healthier right about now.

mvex/R/E
Whatdo you mean by developable real estate…. raw land….???

Phil- Wondering waht you would do in this situation. I had a 45- 52.5 Feb BCS with CSTR . The shorts calls were assigned last night. So far it has been a good short as the stock has lowered a bit today. Any tips on maximizing the now long call option and short stock positions ?

JRW flight good point!

cwan: re: I wonder if Peter & chaps have considered weeklies.  You'll be amazed how fast they decay.
 
Yes, I trade some every week. Straight short strangles. Maybe 15% of what I do with monthlies. To me, it's sort of like other people here trading futures and the 25K portfolio. Fun and generally profitable, but don't know if you'd want it to be your primary investment vehicle. I haven't studied the weeklies enough to know if they could be, but my instinct says no (could be wrong on that, of course).
 
With the weeklies, since I take profits at 70%, one side is typically closed out for a profit after the weekend. That means I can flip to that side if the other side gets into trouble without making too many overall commitments. Doesn't seem to me you can hedge weeklies with weeklies (duration too short). So hedging would probably have to involve longer-duration longs, making the plays diagonals that could get out of trouble over the long term.
 
Given the short duration, your margin hit will go through the roof with weeklies with a major downturn. But on the other side, you can get plenty of margin and position relief by rolling out to monthlies since the duration of the monthlies is so long compared to the weeklies on a percentage basis.

Buyout rumors on WFR.  Private equity firm supposedly offering $9.25 / share.  That would be sweet since I had 8000 shares put to me in January!

Real Estate / Mvex – These are good points and I guess Zell can talk about real estate (I wish he would stick to that)… And Goolsbee was making the same point after that – real estate and construction have not participated in the recovery yet. This could cut both ways meaning that they could start participating (not sure how) and we get a stronger recovery or they don't come back and we tread along at 2.5% per year. So plenty of reasons to be careful…

JRW / deposits — Looks like austerity is working! 😮

Warning – Bearish news…

There are still more downgrades than upgrades in 2012…

http://www.bespokeinvest.com/thinkbig/2012/2/8/daily-number-of-upgrades-and-downgrades.html

I'v shorted OPEN….Sold Feb 18   50 strike calls for 1.00.   Will roll if necessary.  Earnings report was OK but they provided no Q1 guidance and are not expected to do so well in the coming few months.  Not to mention P/E of 60. 

@Felipe
Thanks again for urging the sale of AAPL 2014  290 puts. Although I didn't go that far out, (2013 instead) it has paid my fee for a year.

IWM needs to pass Friday's 83.23 high.

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