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Sunday, October 2, 2022


Falling Thursday Morning – Will the Dips Buy?

Wow, just when we're trying to get bullish, they take away the punch bowl.  

They almost had us yesterday, all they had to do was get that S&P over 1,359 and we were planning to join in with the crowd – but only as long as that line held.  That's why we have lines, right folks?  They help us to be DISCIPLINED so we don't let our "feelings" get in the way of our trading.  We are NOT technical traders but you HAVE to respect the technicals simply because so many people are technical traders.  

It's the same reason we force ourselves to watch CNBC – they move the markets.  I wish they didn't as I can feel my brain cells dying as they speak but you can watch Bloomberg all day long and not one thing they say affects a stock but just last night, CNBC released the TBoone, who spouted off more of his insufferable BS about oil going to $125 and gave us another fantastic shorting opportunity betting against him at $102 (now $101.24).  So how can we not watch CNBC – they are a counter-party driving machine!  

But this is not about TBoone, or the elitist propaganda network – this is about tecnicals, about our Big Chart and our 10% lines and about the Dow, the S&P 500 and the Russell 2000, who all face critical tests today.  The S&P is, of course, our most important index and not even AAPL could get them over our 10% line (1,359) on yesterday's silly spike in the morning.  That led to (finally) a pullback in the markets and a nice test this morning of 12,749 on the Dow and 813 on the Russell.  Holding those levels will be bullish but we already bet they'll fail in yesterday's Member Chat as we added a couple of aggressive short hedges to our already too bearish (maybe) collection, 10 minutes after I was able to glance over the Fed Minutes (2:10):

  • SQQQ March $12/14 bull call spread at $1, selling TZA March $18 puts for $1.03 for a .03 credit on the $2 spread. 
  • TZA March $19/23 bull call spread at $1.05, selling TZA March $18 puts for $1.03 for .02 on the $4 spread.  

Obviously my take on the Fed Minutes was not bullish (see full notes here).  Bernanke had promised QEvermore on January 25th – what more could we possibly learn from the minutes?  Actually what we learned was that only a few of the Fed members favored another round of QE while a few said it "could become necessary" if the economy slowed but the US economy did not slow, did it?  Inflation is not lower than 2%, is it?  Unemployment is not up, is it?  Well then – NO QE FOR YOU!  

We also got this cool table that gives us a good insight into just how unbalanced those Fed brains are.  Despite predicting a 2% drop in unemployment by 2014 and 3 years of 3% GDP growth (maybe 4.3%!), not ONE Fed Governor sees the Core Inflation Rate rising past 2% – not even at the top of their range. 

Variable Central tendency1 Range2
2012 2013 2014 Longer run 2012 2013 2014 Longer run
Change in real GDP 2.2 to 2.7 2.8 to 3.2 3.3 to 4.0 2.3 to 2.6 2.1 to 3.0 2.4 to 3.8 2.8 to 4.3 2.2 to 3.0
November projection 2.5 to 2.9 3.0 to 3.5 3.0 to 3.9 2.4 to 2.7 2.3 to 3.5 2.7 to 4.0 2.7 to 4.5 2.2 to 3.0
Unemployment rate 8.2 to 8.5 7.4 to 8.1 6.7 to 7.6 5.2 to 6.0 7.8 to 8.6 7.0 to 8.2 6.3 to 7.7 5.0 to 6.0
November projection 8.5 to 8.7 7.8 to 8.2 6.8 to 7.7 5.2 to 6.0 8.1 to 8.9 7.5 to 8.4 6.5 to 8.0 5.0 to 6.0
PCE inflation 1.4 to 1.8 1.4 to 2.0 1.6 to 2.0 2.0 1.3 to 2.5 1.4 to 2.3 1.5 to 2.1 2.0
November projection 1.4 to 2.0 1.5 to 2.0 1.5 to 2.0 1.7 to 2.0 1.4 to 2.8 1.4 to 2.5 1.5 to 2.4 1.5 to 2.0
Core PCE inflation3 1.5 to 1.8 1.5 to 2.0 1.6 to 2.0   1.3 to 2.0 1.4 to 2.0 1.4 to 2.0  
November projection 1.5 to 2.0 1.4 to 1.9 1.5 to 2.0   1.3 to 2.1 1.4 to 2.1 1.4 to 2.2  

Now, in a sense, they are probably right because, no matter how bad things get, the Fed will certainly devise a way to recalculate inflation to pretend it doesn't exist – so I guess we'll have to give them that one.  The Fed has lots of other lovely charts that look very much like they come out of some economic fantasy camp with all the things we like going up and all the icky things going down and inflation (my favorite) turning rock steady at 2% despite the fact that it was over 3% under the same conditions (pre-2007) they think we are going to be back to in two years.  

Figure 1. Central tendencies and ranges of economic projections, 2012-14 and over the longer run

Isn't that just PERFECT!  China couldn't make prettier projections than that – and those guys REALLY try hard!  These projections give me far less confidence in the Fed than they would if they said 0-5% GDP growth and 5-10% Unemployment and 1-10% Inflation because at least I would feel like these bozos had some real discussions and were prepared for any possibility.  If you follow the link, the last set of charts says it all – uncertainty of projections on GDP Growth, and Unemployment are extreme – to say the least.  

But clearly, the ranges of their projections don't reflect this uncertainty at all and therefore, we must conclude that this is nothing more than a political document – as much as any we get from China – and is not a reflection of any kind of serious economic modeling.  Obviously, we're not shocked by this – it's what we expect from this joke of an organization.  Unfortunately, there will be Hell to pay when this thing begins to fall apart.  At least now we have a road map that tells us when we're off the Government rails – thanks for the transparency, boys!

All is well here and pay no attention to that Troika behind the curtain, they have everything well in hand, I'm sure!  Spain's GDP fell 0.3% last Quarter and we're not going to worry about that because they just sold some Bonds (more debt?) at 4.4% so all must be well.  Coincidentally, the ECB just bought a bunch of Spanish Bonds for 4.4% so they are making money too – how wonderful to see such a robust demand for Spanish debt that's not fake at all!  


GDP: €0.7 tnForeign debt: €1.9 tn
€41,366Foreign debt per person
284%Foreign debt to GDP
67%Govt debt to GDP


Risk Status:MEDIUM
Spain owes large amounts to Germany and France. However, its number one worry is bailed-out Portugal, which is indebted to it by billions of euros. As the country attempts to get its own debts under control, there are fears the country could be thrown back into recession after November's parliamentary elections. The bursting of a housing and construction boom in 2008 had plunged Spain's economy into a recession deeper than in many other European countries.

I know when I look to buy bonds, the first thing I ask my broker is "which countries have economies that are contracting with 20% unemployment, a collapsing housing market, declining industrial output and a 284% debt to GDP ratio?"   Then he says "why Spain would be perfect for you" and then that's where I want to put all my money!  I guess, if I want to look on the bright side, I'd say – "At least it's not Ireland":


GDP: €0.2 tnForeign debt: €1.7 tn
€390,969Foreign debt per person
1,093%Foreign debt to GDP
109%Govt debt to GDP


Risk Status:HIGH
One of three eurozone countries to so far receive a bail-out, Ireland has introduced a series of tough austerity budgets. Its economy is now showing a modest recovery. After the boom years leading up to 2008, the country fell into recession as a result of the global credit squeeze, which ended the supply of cheap credit that had fuelled the unsustainable growth in its housing market. It shows a very high level of gross foreign debt to GDP because, although it is a small country, it has a large financial sector – including a big overseas presence. The UK is Ireland's biggest creditor.

Keep in mind the above numbers are AFTER austerity measures and AFTER they already got a bailout – see how well it's working!  What could possibly go wrong?  As you can see above, every man, woman and child in Ireland owes 390,969 Euros ($508,259), which works out to a bit over $1.5M per family – there's a great interactive chart here – and most of that money is owed to the UK ($135Bn) but we're not going to worry about it because it's a drop in the bucket to the UK's $1.7Tn in debt and besides, they owe Ireland $147Bn of their own so each Irish family has already lent Britain about $600,000 through their own Government's largess and none of this should concern us because it's not like any of them have the ability to ever pay it off so – no point in worrying, right?  

Back home in the USA, "only" 219,941 foreclosure filings were placed on US homes in January and that's 19% less than last year when 1 in 33 US homes were foreclosed on.  

However, that reflects the hold-up in foreclosures as the banks worked out their legal issues regarding rights to foreclose and, now that they've settled that for a wrist-slap, we can expect the rates to tick up fast – like they are in Florida, where filings are UP 20% from last year, along with Connecticut and Massachusetts.  Certainly one out of 20 homes on your block being foreclosed is nothing to worry about – still 19 left this year

See, I can be bullish!  It's easy – just take any horrible news you hear and pretend it doesn't affect you or any of the companies you invest in (or any countries you live in).  It's "Not in my backyard" to the power of infinity and that is literally true for us as we are members of the investing class and we have jobs and money and health care plans and retirement savings – as do most of our neighbors so:  Things look great to us, don't they?  

Just remember darling, it IS better to look good than to feel good and, if we do manage to hold our technicals – it will be maaaahvelous for the bulls but, until we see it – contniue to color us skeptical.  


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Interesting points above about the reweighting of the stock and B. Gates holdings approaching the 10% level. I have always thought that the relative  lack of progress of rangebound MSFT stock might be linked to the founder regularly liquidating something like 5 million shares per month to fund his foundation, because this is almost the equivalent of a secondary offering every few weeks. Anyway as I am long MSFT it was nice to see the stock rising an unprecedented 4% in a day. I am sure $40 per share is just around the corner now. Tongue in cheek, but the stock does look like it might be breaking out. Only a few weeks ago I was writing about selling $24 puts for income. Now $24 puts are virtually free. The MSFT 2013 $20 calls only have about 15 cents of premium and make a good proxy for the stock, only no dividend. The chances of MSFT ever falling below $20 again must be very slight now. If it does, then I don't want to think what the DJIA might be showing. Due to the low premium and spreads, one might also be able to day trade/swing trade the 2013 $20 calls with relatively low risk of catastrophe.

Diamond:  Great article.  There's no way they can pull this Greek refi off in the time frame they've allowed themselves. Or, if they do drag it over the finish line in some conditional form and declare victory, the whole bailout game is going to change.
Germany, the Netherlands, France and Finland are going to take a second look at where Italian, Spanish and French unemployment and GDP are headed,  and realize that the mathematics of playing King Canute with the Euro as the debt tide rolls in will eventually require a better fiscal adjustment mechanism that just passing debt obligations back and forth.  They might offset current fiscal imbalances among the Eurozone countries that way. but they cannot make the Peripheral economies competitive in the future by simply effecting transfer payments. 

I like your trade idea for FRT!

“FTR/Jrom – They’re in the middle of a massive integration that’s going as expected (slowly and painfully).  It’s a utility, it’s not a growth play but VZ trades at 44x earnings, T at 45x, S doesn’t even make money, CTL 25x (also a good one)…  FTR is running at 27 and just raised guidance that should drop them to 20 next year and now people are upset because they will “only” pay out 10% dividends?  If you can get them for $4.25 in the morning and sell the 2014 $3 calls for $1.50 and the $5 puts for $2.20, that would be net .55/2.78.  So, is the question am I still uber-bullish about laying out .55 to get .10 per quarter in dividends with a call away at $3 in two years (up 445%), which is 33% below the current price?  I do kind of like that – even at the risk of ending up with 1x at $5 for a net $2.78 entry at the end (less the .80 dividends, of course).”

If I wanted to put $6000 (scaling in) over a 2 year period into FTR for a long term holing, how would you go about it? Same question with SVU, MO, BAC, F, WY.

Do you think now is a good time to start scaling in on the rails?

Phil I’ve also been wondering if you had an idea how to hedge unleaded gas?I currently spend 3500 to $4000 a year on it and was looking for away I could protect myself in case of a future increase without the hedge being to expensive.

Being very familiar with compensation packages for CEOs and his immediate underlings (even more so with HER underlings) what Business Week doesn't seem to understand is that CEOs do not negotiate their pay anymore than a movie star, a top sports figure, or other 'talent'.
Those packages are negotiated by Attorneys and Compensation Advocates for their clients, the CEOs.
As such, they, the Comp people, dictate what the terms are, not if they are "worth" what they are paid.  No more is Meryl Streep 'worth' $20 mm dollars per pic than is Brad Pitt, than Immelt is at GE.   But they have no say (or know to keep their mouths shut) in the amount of money the Comp people can get the hiring body to pay.
Their tactics doing this are for another post.
Is Any CEO Worth $189,000 Per Hour

A lot of CEO pay is 'justified' by reviews by independent compensation consultants who know which side of their bread is buttered and magically produce a report which supports the proposed pay package.  Of course, weak boards also enable this.  It's corp Amer at its finest.

I love the Republican presidential campaign. Now it is down to the Stormin' Mormon vs the Pennsylvania Papist.
Anyhow, at least we don't have a Christian Scientist running for office, or they would be declaring that employers should not have to provide any health insurance at all.

VRTX, nice jump!

Gilead / Phil – They are bitting the dust (-20%) premarket. Opportunity for a bull play? As you say there arent meny long opportunities around.

Gilead / Pharm – Or maybe i should direct the question to Pharm.  Thanks for your perspective

Looks like GIS is off too on weak volumes.

Phil, regarding your am note about salaries and wealth distribution. I would offer it is really "sharing wealth creation" when it comes to salaries versus distribution which would apply to umemployment assistance, etc. What say you?

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