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Friday, March 31, 2023


Toeing the Line Tuesday – Constructively Bullish?

As I said yesterday, we're still looking "constructively bullish" on our Big Chart as long as we hold those lines:

Looks can, of course, be deceiving.  Keep in mind that this entire pop to form the right-hand top of a very nasty "M" pattern, that can take us right back to the June lows by the end of the month, is the result of the G20 holding hands and singing  Kum Ba Yah – along with a few hundred Billion in extra stimulus and, of course, RULE CHANGES that create stealth stimulus

So, when you have a leak in a $60Tn pool and the water level is down to $55Tn and you pour in $12Tn worth of stimulus and, 3 years later, the water level is only back to $59Tn – do you say "all we need is another Trillion and we're done" or should you be looking for the leak that continues to drain $8Tn over 3 years from the Global Economic Swimming Pool?  

If we don't address the problem (unemployment, inadequate tax collections) – we're never going to find a lasting solution, are we?  

On the other hand, if your pool is leaking at a rate of $8Tn over 3 years, that's "only" $222Bn a month so any month you dump more than $222Bn worth of Global Stimulus into the pool, you will see the economic levels rising and you can declare things to be "fixed" and all the bulls can jump in and play again until the next time the activity levels get dangerously close to the line at which the pumps seize up and then we have more meetings and do it all over again.  

We have to accept the fact that our "leaders" are unwilling or unable to fix the actual leak and this is essentially the cycle we will have to put up with.  If we assume we have an infinite amount of stimulus to keep pumping our economic pool back up – then this system is just fine but, judging from the way they had to scrape up this recent few hundred Billion – do we even have enough ($1.2Tn) fresh water to get us through the end of the year?  

As planned in yesterday's pre-market post, we cashed in our DIA $129 calls in the morning and that left us a bit bearish in our small portfolios.  Our main portfolio, the Income Portfolio, still remains bullish as it's long-term.  In fact, it's very long-term as we already took the money and ran on our July and January positions, leaving us with all 2014 short puts and spreads but up a stunning $17,180 in our first month of virtual trading with our new portfolio:  

Note that $11,420 of our gains are unrealized (NLY needs to come off as it's too far ahead to risk) so the question is – do we need to protect them?  As our goal was to make $4,000 a month and we're already 3 months ahead of schedule with very little of our cash deployed.  To some extent our gains become a hedge but that does not mean we should be cavalier about giving them back, does it?  On the other hand, if we hedge we are essentially spending part of our gains on insurance and, although we did very well with last year's Income Portfolio – our biggest mistake was over-hedging – playing it a little TOO cautious.  

So, we will pay very close attention to the 5% lines on our Big Chart especially our 1,360 line on the S&P (see Blain's charts in Chart School)  and we'll have no tolerance for a failure of our indices to hold that "constructively bullish" posture because we certainly did not get enough stimulus to give us much more than the quick little boost we've gotten so far and only rumors of more to come are really keeping things going at the moment.  As with our $25,000 Portfolio – after getting so much ahead of our goals, it would be a relief to get back to cash and wait patiently for the next real buying opportunity.  

We have no technical reason to be bearish and there WAS a lot of stimulus pumped in over the last couple of weeks so we SHOULD be good at least until earnings kick off in a week – at which point 9,000 reporting companies will have a chance to poke fresh holes in the economic dyke. 

imageTo some extent, we are probably having a bit of a short squeeze on G20 action but it's done nothing to shift the EXTREME bearishness we're seeing on the Sell Side Consensus Indicator, for example.  

Conventional wisdom dictates that, when bearishness gets this extreme – it's a good idea to bet against it and we have been but in Jan of 2009, people were right to be bearish as the Dow dropped 25% into March.  I think it's a bit silly to look back another 10 years and try to compare the situation at that time.  What this chart tells you is that analysts are idiots and sheep and you follow them at your peril – THAT is an important lesson to learn!  

As to the logic that "if everyone is bearish, we should be bullish" – that's nonsense.  If my daughter's 10-year old football team is given the opportunity to square off against the NY Giants in a game the Giants need to win – I'm pretty sure even the proud parents of her football squad would have a hard time placing bets on the Panthers winning the game.  Would the fact that we are all bearish on my daughter's chances mean you should bet on her team to win or might it be the accurate assessment of the situation?   Don't get sucked into being a Contrarian "just because."  

As you can see from the picture on the right, we have a global economy that is about $60 TRILLION in debt and that is the entirety of our GDP but we can't use the entirety of our GDP to pay off the debt as we use it to live.  Not only do we use it to live but we are, as I noted above, running another $3Tn a year (5%) more into debt and this does not, of course, include hundreds of Trillions of Dollars of unfunded liabilities like health care and pension benefits for aging populations and don't even think about $350 TRILLION worth of derivatives that are floating about or it might ruin your holiday.  

We've got BIG PROBLEMS and, so far – only small solutions.  

Let's be careful out there…  

Have a great Holiday, 

– Phil


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Happy 4th.  Enjoy the day and the 4th tomorrow with friends and family! 

I could use some of your of your creativity to roll V – 250 K's  Ju21   120's  (basis 1.29/k currently @ .50)  and  50 Ju21  125's (basis 3.29 currently 1.50). I sold the other half of my 120 position at 2.75 last week but wasn't paying close enough attention to remainding position – sometimes my day job gets in the way.  I still believe V as well as MA and AXP are   overpriced and just a matter of time for market correction.  Would like to hold the position through next two earning cycles.. thks

I've been wanting to own Cisco for awhile now so going to sell some puts.
Which puts do you like better:
Jan 2014  15's @ $1.85
Jan 2014 18's @ $3.25

"…If we don't address the problem (unemployment, inadequate tax collections) – we're never going to find a lasting solution, are we?"
This the perceived and completely unanimous analysis of the essential disaster befalling nearly every first world country.
The 2nd, 3rd, and 4th world economies have been 'dealing' with it for many decades, witness, not-so- Great Britain, with generations on the dole. Sub-Saharan Africa, and Haiti.
It's called just muddling thru at subsistence or less levels. 
As we move thru time, the young particklerly, will increasingly demand from their government (which is theoretically, themselves) more and more doles. Read: Print us some money.   
It is not too far fetched that Employment as we knew it will devolve, as you have noted from time to time (what's wrong with only 30% of the people working) to other ways to prevent insanity which is the main reason work was invented in the first place. Over half the country's people have found something else to do besides work at a paying job so in one sense we have already sailed, many of us, on the ship of alternate living.
My guess is the young will be even more creative in concocting ways and means to live their entire lives without ever having traditional work in manufacturing and services that we have known.
Because unless the so-called leaders develop billions jobs that need doing, there is no alternative.  Work will cease to be how people define themselves.   Luxurious, middle class living, will cease with the paucity of growth and Malthus will once again reign supreme in his predictions that unlimited Growth is impossible.
For those with young children, I don't think they want to face that.

OXY – I always enjoy reading Ycharts daily analysis every morning (free email) and they had a nice article on OXY vs. CHK today.  I'm not ready to jump in today, because I think oil could come down some more, though I will watch Phil for a good call on when to get back into oil.  This may be one of my first priorities at that time.  Good dividend, net profit margins and better balance sheet, trading 25% under historical multiples.

Inflation sign? – Sugar prices are rising.  If sugar breaks out, what is the play?  I'm not interested in sugar futures, and most brands of sugar are probably owned by large conglomerate food groups.  If this is the start of overall food inflation, then it could start hitting the restaurant business.  Any ideas for companies to short? 

GLL/Phil – like any gold shorts with this bit of enthusiasm?

Oil/ Oil back to R1 under just 24 hours. How cute!
A good short candidate in the coming 🙂

Wheat prices are up over 20 percent in the last 20 days probably due to hot weather in the corn belt.  If the trend continues, it could trigger inflation across the board.  FWIW

Pretty easy this morning with few positions open. I'll update Peter's portfolio for Thursday.

Oil Lines

R3 – 87.46
R2 – 85.94
R1 – 85.14
PP – 83.62
S1 – 82.82
S2 – 81.30
S3 – 80.5

PHil, is this an insane move in USO?  Should I be taking USO Aug. 35 calls off the table or expect more over the holiday?

sugar/rev: FWIW, I had my arse handed to me trying to short DBA and MOS in 2010 the last time sugar took a giant leap thanks to the combined influence of QE, China, and shortages.

Sugar/Revtodd – I think if your scenario of rising sugar prices hurts anyone, it would start someplace like SBUX – and maybe places like pastry shops or ice cream parlors.

As I noted above, we should be taking the money and running on NLY in the Income Portfolio and I honestly feel like cashing in the whole thing with those silly gains and calling it a quarter. 

Maybe I'll just hold off on those CSCO puts.

Oil up 10% in two days, what a CROCK! Ill be shorting thursday…

They let Ford get clobbered then release some news.  Smells like another classic GS screw the retail investor maneuver.

McClellan Oscillator now at highest point of the year on overbought.

I might have to add to my personal rules
The absurd moves can be dangerous to one's portfolio

PCLN up $45 in two days+.  WOW.

When is the next FED statement expected?

Rev — Sugar — there is a very thinly-traded ETF….SGG.  But at least it has options.  Also, I believe that CZZ is sugar-sensitive.

Book – enjoyed a quick read last weekend: The Fear Index, by Robert Harris. I expect some others here might enjoy it as well. "With The Fear Index, Mr. Harris has turned his gimlet eye on the secret world of billion dollar hedge funds, namely those that seek to earn profits by computer driven program trading. The result is a wholly unique entertainment: a strange, compelling, and utterly propulsive novel. I’m not sure who would enjoy it more: George Soros, Arthur C. Clarke or Edgar Allen Poe…"


Sugar and wheat breaking out?  Thanks for the heads up WillsonsKinkl, I'm always nervous about shorting fertilizer stocks.  Won't they use more if food prices are going up?  I will take your experience to heart, thx.  Snow – I think that may be the right track, looking for who gets squeezed.  SBUX, Dunkin, YUM, what will this mean for SVU?  Glad I'm going to the farmer's market, because the grocery stores are going to get expensive.  escohen5 – thanks for the heads up on the ETF for sugar.  It reminds me too much of SRS, VIX, TBT and other broken etf's

rev / sugar — KO? PEP?

revtod64   I was looking at food inflation yesterday, and got these  stocks from an SA article.   Most vulnerable from rising food costs  (primarily corn):   CAG    GIS   K   TSN   HNZ  HRL   KFT   HSY 

Food inflation – Thanks Rain and Stockbern – that's a nice list for further research!

Phil / FAS Money – The short weekly call is pretty deep ITM.  Just curious what your strategy is for timing of adjustments, if any.

Are you going to roll the SQQQ spread before the holiday?

revtodd: Yep.  Shoulda went long… shoulda went long……

Rev — SGG — it's more like BAL, for cotton.  So thinly traded it's hard to trade…spreads are way too wide.  

rev / KO — I don't drink soft drinks so I may have gotten that one wrong after reading stockbern's comment.  Do soft drinks have sugar in them anymore or is all corn syrup?  Anyway, Krispy Kreme should be on the sugar list!  The smell of that place makes me want to vomit when I drive by.

Holy APPL!

AAPL indeed! We shud have waited till today Ifla.  

GLL – Gold is up, VIX is low.. buying some cheap OTM calls (Oct 23) to play against the pop in gold. not heavy though as WHO KNOWS?

CHTP – well, that solves that one.  FDA does not see things moving forward without another trial.  Dilutions will happen.  The drug works, but the FDA is going conservative with them….holding the small amount of shares, and will consider DD later on.

CELG and VAR calendars are acting very well.

Phil, you missed my USO question – would you advise to cash out USO Aug 35's or hold on til after the holiday?  They are up quite nicely, but oil does seem to be on a run for time being…

M&A Plays – anyone see any of these forming out there with good oppty to short the high valued and long the low valued parties?

What's the lag time for that 'beat' on factory orders.  With ISM being a disaster, I assume the lag is about 3 mos.  Meaning….things are going to get fuggily soon.

Rule number one:  when it goes up 20% in a day, get out and be happy.  Adding rules two and three – pay attention and don't swing for the fenses (i.e. greed kills).
I have  250 July 120 puts at $1.29 now .50 and 50 July 125 puts at $3.30 now $1.25.

MoMo trade :  Bought to open 10 AAPL July 600 calls for 11.40

I guess the juniors working on the street were told to drive this puppy up on very thin volume, then when the seniors come back, it will be time to yank the rug.

PHil/USO – thanks, my thesis was that since they are Aug USO calls, there's time to wait but rather than be a greedy dumbell I'll just take them all off the table…I'm a good buyer but I find it much harder to sell…

Anyone able to roll SQQQ from 49 to 47 for .40? I see the midpoint at .50 and ask at 65.

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