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Tuesday, February 7, 2023

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Wrong-Way Wednesday – No QE3 For You!

Yesterday, we talked about the BS that is Fox News.  

Ironically, some of the "news" outlets that generally carry my articles (who's names shall be protected because they are wimps) decided it was too controversial for their readers so we know that's not a topic we're allowed to discuss in America, for fear of being black-listed.  Today we'll see if we can make it a two-fer in the Bracket of Evil, as I have a juicy resignation letter from Greg Smith of Goldman Sachs (thanks Rev Todd), who is no small player, but the head of the firm's US Equity Derivative Business in Europe, the Middle East and Africa.  Just a couple of excerpts:

I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.

What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym. 

I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail.

So we established yesterday that you can't trust the MSM and clearly you can't trust your Investment Banker and we KNOW we can't trust the Government (I don't even need to do a post on that, do I?) yet – based on the information THEY are giving you, the stock market is back near it's all-time highs and the VIX (fear index) is back near it's 10-year lows – as if you don't have a thing to worry about – just give them your money and all will be well… 

Are you really that dumb?  Clearly they think you are.  Despite being exposed by Matt Taibbi in Rolling Stone and despite Senator Carl Levin exposing internal GS Emails in which GS division heads called Timberwolf Securities a "shitty deal" at the same time as management made pushing the Timberwolf deal to clients the firm's "top priority."  GS declined from $170 a share at the time of this investigation (April 2010) to $85 a share last Fall but now they are rocketing back over $125 as – hey, it's been almost 2 years – all is forgotten and forgiven, right?  

This isn't about Goldman Sachs per se but about the overall investing climate in which the Corporations and the media they control, along with the puppet Government they fund through their lobbyists, have devised a massive wealth extraction machine that lurches this country from crisis to crisis (real and imagined) in order to justify first excess prices for goods and services, then excess fees for banking and insurance and then, when you begin to run out of money, exorbitant prices for food and energy (which you NEED to live) until you go broke and then they turn around and demand a bail-out to relieve them of whatever jacked up assets they are stuck with when the bubble they created finally bursts.  

WE JUST SAW THIS HAPPEN PEOPLE – yet here we are, getting right back on that horse as if we are none the wiser just 3 years almost to the day after the great bottom of 2009.  Markets don't crash because they were priced correctly – markets crash because the people who are buying the assets do not correctly identify the risk factors that may affect prices down the road.  That's what the Big Business/Government/MSM triumvirate is all about these days – getting the masses to once again believe all is well so the can get you to run back into the markets – AT THE SAME PRICES YOU OVERPAID FOR LAST TIME! 

Again, I have to ask, are you really that dumb?  Just yesterday the market began to sell off after the FOMC minutes (see my comments to Members here) failed to give an indication that additional Quantitative Easing would be coming and the market began to sell off and then, by "accident" JPM (every bit as bad as GS), revealed they had passed the stress test a day ahead of schedule by announcing buybacks and dividends that couldn't occur if they hadn't.  That started the rumor mill and a buying frenzy in Financials (up 3.5% in an hour) that took the market to new closing highs and then the Government backed up Big Business and fed the Media frenzy with an early release of the stress tests.  

This would be truly amazing – if it weren't the exact same spike move up, in the exact same percentage – also making new highs, as we had on January 25th – the day of the last Fed meeting, when they also failed to come through with QE3.  I think the real difference between investors and muppets is that the muppet knows it's being manipulated…

Anyway, we shall see how this all plays out today and into option expirations on Friday.  Less than two weeks ago, we had 10 long-term bullish trade ideas – one per day to add for each day the S&P was over 1,360 – just 50 points higher than the line at 1,310 we drew in January so not too much to ask for a "bull market."  We failed on the 6th and the 7th (back to 1,340) but have been up since and our 10 bullish trades still have a couple that can be played over 1,390 and we'll just keep pushing the line higher until the market does finally break.  Our 10 trade ideas were:  

  • SKX Oct $10/14 bull call spread at $2.20, selling $12 puts for $1.55 for net .65, now .90 – up 38%
  • SU 2014 $25/37 bull call spread at $6, selling XOM 2014 $65 puts for $5 for net $1, now net .70 – up 30% – still playable
  • USO June $40/46 bull call spread at $2, selling SCO Oct $26 puts for $3 for net $1 credit, now .24 credit – up 76%. I like this one because you are long and short oil at the same time.
  • AA 2014 $10 puts sold for $2, still $2 – even – still playable
  • X Jan $25/2014 $20 buy write at $17.04/18.52, now $17.84 – up 5% – still playable
  • PEG Sept $30 buy/write at $27.07/28.53, now $27.20 – up 1% – still playable
  • HOV 2014 $2 puts sold for .90, now .85 – up 5%
  • BAC 2014 $3/7 bull call spread at $2.75, selling $10 puts for $3.30 for net .55 credit, now 0 credit – up 100%. 100% seems like a lot but it's just .20 out of $5.10 (927%) of potential gains so still very playable.
  • HCBK Jan $7 buy/write at $5.14/6.07, now $5.55 – up 8%
  • FTR 2014 $5 buy/write at $2.43/3.71, now $2.37 – down 3% – still playable.

Not too bad, right?  You didn't miss much if you held back as they are well-hedged positions where we really only care if they are "on track" or not.  This Friday will be trading day 10 and I promise to have 10 new trade ideas for the next two weeks if we're still in this technical (certainly not fundamental) rally.  Meanwhile, please be careful out there – this rally seems as fake as any I've ever seen and, while I don't mind playing along – I think it's prudent to always have one hand on the exit and to make sure we're one of the first ones out the door when this party begins to wind down.  

Be careful out there.

249 COMMENTS

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kustomz
I am sticking with my statement yesterday afternoon, this is the top.

Well, I'm back from my young son's 'graduation' from a NASA training program.  Great thing put on for grade school kids by the Air National Guard.   And, I see that AAPL has been to 594 and back.  Honestly, i'm  the greatest AAPL fan on the board, but this stock can't go up 15 to 20 points a day forever.  Seems like some 'dumb money' has started to buy.  And they may have the rug pulled from under them when it decides to correct to 550 or so so.  Anyway, I remain in AAPL cash for the moment.  I'm going to make money on something else for the time being.  

Shadow/kust…top for today, or the year, or several years?  I pray to global warming that that statement is correct…..but all the chartists say more up side ahead.  Maybe 'they' are messing with them…..

could we go one day without mr stick?

Here sticky stick….

BOT buying yesterday worked, today it has not. Computer only market.

Pharmboy….Unlikely AAPL will miss earnings…..but….It's already being 'priced in' and they could drop anyway.  I can't say where I'll be with AAPL on earnings day but if this keeps up I'll likely be an observer of that event.  

VIX / Phil – Well, I don't disagree that the VIX at 15 does not match the market volatility and actually it's one of the reason why I have been staying away from the condors I was selling last fall. At the time Peter and I had a discussion that the prices were not taking into account the upside risks and that turned out right. Obviously in 2007 with a VIX around 12, downside risks were not being rewarded either! But the facts are that we plowed along toward that cliff for 3 years between '04 and '07! It might turn out that we are stupid again! In the meantime cash and some hit and run sound good!

Phil – Thanks for the FAS July put/October bull call spread!  
 
Looking shorter term … do you see any April FAS bull call spreads that you would be comfortable with?

pharmboy
Lots of idle chainsaws without logging!

The AAPL gyrations have been unreal today – up $15, down $15! I guess no volatility in this market!

AAPL just spiked down to 575 and back in a few minutes.  You boys had better be careful with this stock today!

If we have a market selloff, for any reason, I could see AAPL taken to the woodshed!

Can anyone explain why AAPL would change $6 in less than 30 minutes?

Phil, i'm in faz bcs april 26/28 @.66 now .23
and in faz bcs april 25/28@.91 now .40
what could i do to adjust? how can i decide when i'ts convenient to roll down in strike rather than in time?what should i look for?thanks

Make that $8?

Shadowfax….Either a BOT trade or a (smart) seller of a large bloc

iflanthreman
Thanks, it moved ove $2 in less than a minute. A sign of thin trading, whatever that is for Apple?

Shadow / Top

My model has the top next week, fwiw !!

CCJ- anyone see news to account for the sell off today?

JRW III
I don't have a model, I have red flags that I take note of. Have you noticed that the last couple days changes have happened at the confuence lines after some time making no sense? Thanks

Bradley turn is Friday +/- a few days FWIW.

Shadow / Sense

Not really, I noticed a big change on 2/3 and since, some say it started in late December, but today for example, text book !!  (82.95 to 83.18 to 82.34 etc)

FWIW my timeframe is very soon. Yesterday and mre so today IWM has price changes with 100 to 300 shares. Maybe my vote will decide the next president?

Hi Lflan, when you feel that it would be time to enter another bcs on aapl, what would be your thinking on strike price. Forninstance wold you typically buy ATM and sell 50 or so higher, or do you have a way of deciding where to put the spread based on other factors?

Phil – Thanks!

Is today just a bit of profit taking or is it the shape of things to come?

Hey!  A short went my way with WTI.

O.K.  ,  so I couldn't go a day without making an AAPL trade.  I sold 20  this weekly 620 calls for 1.225 each.  Will roll if needed.  

JRW
Thanks for the confirm! Too many things don't make sense for too long.

Shadow,

FWIW, trend line and R/S support at 82.00; R at 82.34, if either break, go that way !!

Downside targets at 81.81, 81.58 and 81.41-44

Upside at 82.69

AAPL, I did buy a few weekly 595/600 bcs @ 591 when I posted, in case the bots are coded for 600.  So I missed the top this time by more than $2, I guess I'm losing my mojo.  Will keep overnight just for giggles.  Sorry I didn't post it, Phil.

Phil
Apple action = 1 of my red flags.

Thanks JRW/Shadow/Phil
Shadow we had a boost in volume yest, maybe your right. I was thinking Thur Friday this week. The $ is also performing well and the chart pattern is very similar to 04/05 and looks to be on a bullish run, but with this guy in charge of the money supply, one can never be too sure.
 

July 2005
INTERVIEWER: Tell me, what is the worst-case scenario? Sir, we have so many economists coming on our air and saying, "Oh, this is a bubble, and it's going to burst, and this is going to be a real issue for the economy." Some say it could even cause a recession at some point. What is the worst-case scenario, if in fact we were to see prices come down substantially across the country?
BERNANKE: Well, I guess I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don't think it's going to drive the economy too far from its full employment path, though.

BERNANKE: You can see some types of speculation: investors turning over condos quickly. Those sorts of things you see in some local areas. I'm hopeful — I'm confident, in fact, that the bank regulators will pay close attention to the kinds of loans that are being made, and make sure that underwriting is done right. But I do think this is mostly a localized problem, and not something that's going to affect the national economy.

DCM/Phil:  Thanks.  Not exciting at all. As long as they hold those 2009 lows 🙂

kustomz
But everything is different this time, Ben fixed it!

TLT under 111—wow…
 
FU TLT!!!

Ugh, not another stick ending.  Like the market needs it after yesterday's nonsense rocket.

Michelle/Phil
 
Well it's not for her looks anymore either and she always has a scowl or condescending look on her face.

Phil,
Any thoughts on whether SVU will be reincarnated anytime soon? Any news/reason for steady decline?
Thanks

Portfolio Margin / Phil – I have no objections to the high margin. My point was that people should be aware of the costs. The $5KP was started as a no margin portfolio so that's understood and not an issue. There was no such restrictions on the $25KP (or FAS Money and IWM Money for that matter) so we are free to manage the trades as we need to. But the total margin used for the current positions has to be taken into account for people to understand the risk/reward ratio of the trades.

Beafleurs…..I  like to buy spreads for the months of Jan,Apr,July and Oct.  I try to estimate where I think AAPL will be that month and use that number for the cover.  Example:   If I think AAPL will be at 700 next October  then I might get a 650/700 spread.  I also use a computerized spreadfinder to give me more information about probability and percent gain (www. poweropt.com).

the shift is in, people have caught the bug. Money is coming out of bonds and going into stocks (I mean, AAPL). I could last awhile… it could die tomorrow … you never know.
 
Straddles are a good way to go: premiums are low.

Pharmboy – Bradley turn date …
 
Beware the Ides of March (+1?) 😉

$5KP – The DMND Mar 22.5 are back down to $2.85 which is still above what we bought them for. But they were 3.10 yesterday morning (I did put a note on that) and $3.21 this morning. Worth riding them until tomorrow?

I got into a MA 415 put. If anyone goes to the woodshed soon, I hope it's them (along with AAPL for that matter).

another new all-time high for CMG today also..

BDC – ur on…..

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