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Tuesday, February 7, 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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Whoa! Greece must be fixed! pretty good spike in the RUT!

for stock and futures trading i find ib simply the best..however don’t make an error in your margin calcs coz they will blow you out fast..but thats a good thing too

Greece – Nope still not fixed. Latest news is that the meeting with the party heads is suspended as the PM is on the phone with ECB and IMF (probably talking about the latest X factor episode).  

Peter D/IB:
 
Get ready for the margin hit . 🙂
 
Five standard deviation stress test both up and down. I'm learning how to live with it.
 
They've put some work into the Options Trader tool recently.

Markets care less about Greece and more about flush, drift then lift. AUD/USD not nearly as lively as EUR/USD. Todays trading action is same old.

An interesting market valuation attempt:

http://econompicdata.blogspot.com/2012/02/equity-valuation-based-on-gdp-growth-20.html



This is an attempt to compare historical S&P 500 valuation (relative to the size of the US economy), relative to the current valuation level. For example… if the S&P 500 (blue) is below the nominal GDP line (yellow), then the S&P 500 was cheaper then (on this relative measure) than it is now. It also means when the lines cross, valuation levels were equal to today.

One used to be able to count on the Stick being punctual (as opposed to 6 min early) !!

USO – every time it forms a filled Green Bar – it tanks the next day. (Using TOS)

Hate these bull market bots…  the unmistakable 30 degree slope up day after day after day…

Phil / WFM — Yes, I am nuts. And burrito factories aren't supposed to have P/E's of 55 either. I figure I have about 15 more PE points in my favor 🙂 It's kind of an interesting exercise to graph both on the same chart for the last year. I believe there is actually a reason for the correlation (and a strong correlation with TSCO believe it or not — yes, retail farm stores aren't supposed to sport 30 PE's either!).  My cost is $40 and I've been milking it.  I'll exit when the 200 DMA/EMA is violated in a serious way or turns down. "It works until it doesn't" and "don't fix it if it ain't broken"! Thanks, you gave me some ideas (but I'm not selling puts even though I'm still long term bullish — I'm nuts, not quite crazy).

IRWD…now that is a candle on the daily chart!

I guess it's not a bed of roses in Germany either:

http://www.reuters.com/article/2012/02/08/germany-jobs-idUSL5E8D738E20120208

Wage restraint and labour market reforms have pushed the jobless rate down to a 20-year low, and the German model is often cited as an example for European nations seeking to cut unemployment and become more competitive.

But critics say the reforms that helped create jobs also broadened and entrenched the low-paid and temporary work sector, boosting wage inequality.

Labour office data show the low wage sector grew three times as fast as other employment in the five years to 2010, explaining why the "job miracle" has not prompted Germans to spend much more than they have in the past.

 

Pay in Germany, which has no nationwide minimum wage, can go well below one euro an hour, especially in the former communist east German states.

 

"I've had some people earning as little as 55 cents per hour," said Peter Huefken, the head of Stralsund's job agency, the first of its kind to sue employers for paying too little. He is encouraging other agencies to follow suit.

Data from the European Statistics Office suggests people in work in Germany are slightly less prone to poverty than their peers in the euro zone, but the risk has risen: 7.2 percent of workers were earning so little they were likely to experience poverty in 2010, versus 4.8 percent in 2005.

It is still lower than the euro zone average of 8.2 percent. But the number of so-called "working poor" has grown faster in Germany than in the currency bloc as a whole.

JRW       You ever watch time and sales with your system?  Besides volume.  

Sarkozy news / Phil – You have a news bit about the VAT being raised in France in exchange for a payroll tax cut. What they don't say is that the payroll tax cut is on the employer's portion of the payroll. Employees won't see a penny more but the VAT will increase. It is supposedly to make it more competitive for French companies who will presumably pass along the savings to the customers. Right!

Phil
The big deal with Windows 8 is working with touch screens, makes windows flow like the ipad. Otherwise the same as 7 with the now you do it this way differences to the same thing. They still need someone to make the ipad clone.

chaps,
Yeah, we talked about those 5 standard deviation stress test.  It's not happening yet until tonight.  Would you be able to estimate for me how much margin would the 1 SPX 1160/1440 require after the stress test?  I can buy a long strangle to lessen the margin.
 
Phil,
I'm not switching to IB, just diversifying.  TOS has been rough with the eggs.

willsons,

No, but I am an eager student !!
 

willsons,

Or do you mean level2 ?

JRW    I think after two years following your system…i am the student  🙂  meant t/s

Slaves / Phil – But they do behave like sales don't come from the bottom 99%. If only the top 1% could afford to buy iPhones and flat screen TVs, how much profit would Apple have. We have saying for a while now, a healthy and well paid middle class benefits everybody!

TLT / Phil,
 
So I understand this properly, your comment "TLT was exciting for a few minutes and now not so much at $1.66 so let's sell the Next Week $116 calls for $1.53 and we'll fill the rest of the roll tomorrow. " does not refer to the 5KP recommendation of the $115 – $116 Calls BCS that we are long on, correct?

Because, there we are short the $116 next week calls.

Peter D/ 5 SD Estimation:
 
I can't do it within IB, because I have positions on and the margin calc is incremental. So it wouldn't be accurate for you. But you can model it in TOS, which I just did. 30-day SD of SPX is currently about 26.2, 5 SD is about 131. So +/- 5 SD is 1480/1214. The corresponding margin hits for a single contract are about 4,516/1,668 (the "white lines" in the TOS Analysis tool.) So the max is 4,516. It's the call side that gets you on this one.
 
If you create a trade, they'll calculate the margin hit for you before you confirm that you want to enter the trade. Then you just cancel the trade if you don't want to enter it. As far as I know, that's the only way to calculate the hit of a potential trade.

Phil, to follow through on your other news bit about the Dow being a bad index, Bespoke has run a simulation to see where the Dow would be now if they had chosen Apple instead of Cisco to replace GM back in 2009.

The red line is the Dow with Apple, the blue line the current one. Kaboom…

http://www.bespokeinvest.com/thinkbig/2012/2/8/aapl-vs-csco-woulda-shoulda-coulda.html

Phil/ 3:17pm Rant/ Germany
Phil
You are not only hilarious describing this, but accurate as well IMO!
Never a dull moment on your website! LOL!

STJ/ Stock market cap
Good info

Did anyone fill on the GLL spread in the 25KP? I even moved my order to 0.35 but it's been sitting there all day.

Thanks, chaps.  I also just did a crude simulation using the Bollinger Bands and changed the standard deviation to 5.  The result was 1230 and 1405, so no sweat and will keep it naked overnight!  RUT would be more troublesome, with a wider band.   I'll try your simulation shortly.

Marxism has been rightly called "The Opiate of the Intellectuals."  Not that there's anything wrong with that!

Some reaction to an article about FoxConn's practices in China…

http://www.nakedcapitalism.com/2012/02/wireds-embarrassing-whitewash-of-foxconn.html

And a nice chart:

 

Yet it was a sonofabitch capitalist, Henry Ford, that helped create the American middle class in 1914 by paying his workers double the prevailing rate, which partly paid for itself by reducing costly turnover and increasing productivity (well paid workers are grateful workers and want to help their company what a thought!). But the big benefit for Ford was the higher wages were in large measure met by manufacturers in other cities, and created a consumer base for Ford’s own big ticket product. It was not safety nets that created higher consumption and greater American prosperity; it was higher wages.

Ford didn’t see his pay raise as a wage increases but as profit sharing. The chart Alea highlighted shows Apple could kick start a revolution in China that would help American companies, including Apple, at comparatively little cost to itself. What stood in the way when Jobs was alive was his monumental ego and his desire to leave a legacy though his products rather than his conduct as an industrialist. And now that he is dead, Apple’s practices are likely to be guided by American short-sightedness and bad incentives for executives of public companies.

Phil,
I have the FAS Feb 18 84C sold for $3.46, now 7.75 (got away from me last Friday) – down $3.30 with only $1 in premium left. What would you recommend as a good roll, or should i get out and cut my losses until this cow comes back from over the moon!!!

Got into $WFM reverse iron condor: 77.50/80 bull call spread, 75/72.50 bear put spread. 48% gain if WFM closes at 79+ or 73.50- on 2/17.

One_T
I helt the Feb 18 85c Phil advised this morning to double the 84c to Feb 18 90c This has worked out very well so far

Peter D:
 
I keep a relatively small % of my money with IB. I've been running SS there for several months. The purpose is basically an experiment to see what it's like to run SS there. If I become comfortable that it's workable at IB, I have an option if I get terminally pissed off at TOS.
 
I've been running it without the long strangles, taking the full margin hit. I know that, left to my own devices, I generally would take on less risk than what IB comes up with for margin requirements. But their calculation does reduce my flexibility in adjusting trades (e.g., when you want to have more shorts on one side than the other.) The stress test is like a blunt, one-size-fits all instrument. If you go very far at all in any direction, the margin starts going through the roof.
 
When I recently moved some money from IB to TOS, they called to ask why. I said it was the way they calculate PM. They seemed to know immediately what I was talking about, like they'd heard it before.

Yodi
Are you saying you sold 2 next week 90c  for every 1 84c you had?  Sorry if I got this wrong, just trying to understand what you are saying.

HI Phil?BMY: I was thinking of sell BMY  2014 $28 P at $2.90 to pay for 2014 $30/$35 BCS at $2.25 for net credit of $.65 on $5 spread. what do u think? Thanks

Fun day Phil. I was down 10 percent yesterday with TLT, but came back and had a six percent gain overall. I’m holding some $38 USO puts overnight. Thanks for all your wisdom!

I guess the low of the day was 10:30…MST.  Bots musta moved out west.

Wilsons
I have been watching time and sales for almost 6 months. You will need tick data. Some market makers hold large amounts at wide spreads that don't trade often, when they do the prices change very quickly. Right now big trades are in bundles of small like how JRW trades to not wake the bots. Last week the big boys came out after hours and here we go again!

One_T
FAS if you have 2 x 84 to roll to Feb 90 and sell two additional Feb 90 so the roll cost you more or less nothing if Fas will not go over 90 by next week The only thing will go up is your margin. We coll this doubling up or down what ever.

Phil/yodi
Thanks, the knowledge on this board is pricele$$.

DMND / Phil – Audit report:
 
The Audit Committee has concluded that a "continuity" payment made to growers in August 2010 of approximately $20 million and a "momentum" payment made to growers in September 2011 of approximately $60 million were not accounted for in the correct periods, and the Audit Committee identified material weaknesses in the Company's internal control over financial reporting.
 
What do you make of this? 

It looks like AAPL did not trade the last 10 min.   Flat line.  Close at 476.00.   Anyone else see this in one minute charts?  I use E*Trade Pro.  Any explanations? 

By the way, now that we are after hours. For those that live in the NY/NJ area, my wife and I are thinking about taking a trip to the NY area this summer. I have never been, but the wife has when she was younger. I am trying to find good places to stay, food to eat, things to do, etc. We are in our late 20s and love to walk around and see big towns. We have good paying jobs, but probably can't afford the most luxurious places. We definitely want to find some great NY resturants, as I love to try to eat local when I travel (a big hobby of mine!). Also, let me know where the best/safest places to stay are. Heck, maybe someone on here has a condo/apartment they might like to rent out for a few days 🙂  I would imagine we would probably be there from a Thurs. to a Mon. night.  I am beginning to come up with things to do/places to see and I figured this would be a great place to start from people that are there on a regular basis.  Thanks in advance!!!

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