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Sunday, January 29, 2023

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Try it Again Tuesday – What Will it Take to Move the Markets Higher?

If it's Tuesday, we must be at the week's highs.  

Obviously, we're still bearish and the news we've been discussing this morning in Member Chat certainly hasn't changed my opinion on that.  Back on August 7th (first Tuesday of last month), I said we were about $700Bn in stimulus short of what we need to support S&P 1,400 and we knew we would have to wait a month to see how much we got from Draghi and Bernanke but, so far, and with Ben already out of the way, we have zero.  

At $10Bn per S&P point that puts our fair value all the way down to 1,330 but keep in mind that the $500Bn we did get only lasts for 6 months so more like 1,310 at this point without a proper commitment by the ECB or Fed this week.  Even 1,310 would be up 50 from the June lows and it would represent a neat 2/3 retracement of the rally since then.  Our $25,000 Portfolio has, if anything, gotten more bearish as we dragged along the top but another thing we've done each Tuesday has been to take aggressive bullish positions to cover ourselves IN CASE someone actually does put up the cash needed to goose the markets over our breakout levels (see Friday's post for current positions in the virtual Portfolio and our levels).  

On Tuesday, August 14th, our trade ideas were as follows:  

  • 2 FAS Oct $105/115 bull call spread at $2, selling 1 BBY 2014 $18 puts for $3.25 for net .75, now $1.80 – up 140% (trade stopped at 150%) –
  • 2014 SHLD $32.50 puts sold for $7.50, now $6 – up 20% 
  • 6 EWJ Jan $9 calls at .53, selling 1 BBY 2014 $18 put at $3.25 for a net .07 credit, still net $2.60 credit – down 3,800% (trade stopped at up 1,000%)  
  • TNA Oct $55/61 bull call spread at $2.50, selling Oct $42 puts for $1.90 for net .60, now $1.80 – up 200% (stopped at 200%)

While we do go into these trades looking for about 300% (not the short put, of course), when we make a quick 100-150%, we take it off the table and move on to what we call "fresh horses."  It should be noted, however, that despite the now highly negative result on the EWJ trade, it now makes a terrific new entry as you can buy those 6 Jan $9s for .44 ($2.64) and sell the BBY 2014 $18 puts, which had dropped below $3, for $4 for a net credit of $1.36 and it could give you a tremendous early pay-off if BBY does get bought out.  The EWJs topped out at .63 the same day the short puts bottomed out at $2.90 for net .88 so keep those expectations realistic and you'll do fine on trades like this.  

The following Tuesday, the 21st, our new trade ideas were

  • 2 FAS Oct $107/117 bull call spreads at $2.05, selling 1 BBY 2014 $15 puts for $3.75 for net .35 is now net $1.30 – up 271% (stopped at up 334%)
  • AGQ Oct $38/45 bull call spread at $3.10, selling BTU 2014 $20 puts for $3.60 for net .50 credit, now .75 – up 50% (stopped up 236%)
  • 3 DIA Oct $135 calls at $4.05, selling 1 HPQ 2014 $20 put for $3.80 for net .25, now -$2.90 – down 1,260%

As I mentioned last Tuesday, when you live by the leverage, you die by the leverage but we took the money and ran on the first two trades, which more than paid for the losses on the third (even assuming you didn't stop out at some point more sensible than down 1,200%) and decided that, since that trade was so "off" that it would be the best one to use for our upside trade last week but we dropped to:

  • 2 DIA Oct $135 calls at $1.23, selling 1 HPQ 2014 $15 put for $2.30 for net .16, now -.80 – down 600%

Clearly the Dow is not being very kind to the bulls and clearly, if you are a QE believer, this is still a fun way to play the upside – especially if you REALLY want to own 100 shares of HPQ for net $14.20, which is a 16% discount off the current price.  So your worst case is owning HPQ for a 16% discount and your best case includes pocketing $1,000 at Dow 14,000 on some happy economic news between now and mid-October.  And, of course, if you make that $1,000, then your net cost on 100 shares of HPQ is down to $420!

You can see from the Big Chart why we were not too keen on adding more upside hedges in the past two weeks as that top is looking more and more solid every day and it's only been the fear (for the bears) of massive Central Bank intervention that kept us from being much more bearish in our main portfolios.  Even our Income Portfolio (Members Only), which is long-term bullish, was augmented with a TZA spread to provide us with an additional $35,000 in downside protection on a 10% drop in the Russell (back to 735).  

Yesterday, we were discussing strategies for setting up a hedge fund and we were forced to conclude that the best thing to do with cash is – STAY IN CASH!  This is certainly not a good week to deploy capital in any kind of quantity and, for small positions, the downside is much more attractive than the upside to this market at the moment.  Should there be an actual infusion of QE/Stimulus into the Global Economy, then we have plenty of time to BUYBUYBUY but, until then – we remain extremely skeptical.  

On the whole, we'll be watching and mostly waiting this week to see how it all plays out.  

205 COMMENTS

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Taxes / Lionel & Phil – As I said, here in the USA we do it legally with tax lawyers – the upper class is cheating the rest of the country as wel. With his battery of lawyers and accountant, Romney manages to pay 13% on his income. If the average upper middle class taxpayers pays around 25% in taxes, he effectively has a 2x income multiplier. Legally! Although apparently in question now….

What wHAT IS THwHAT IS THE aRE WE C

What is the plan with the GLD we purchased last wHAT IS THwHAT IS THE aRE WE C

Greece / Dpas – Does this study make sense from your point of view on the ground though?

OIL
We shut down refineries, had a holiday, so there has to be a draw right? This it the last chance to spin shit and call it shinnolla.

HOV to report earnings before market 9/6. I am hoping
for a pleasant surprise.

StJEan/
All agreed.
You could also add that American middle class is also subsidizing US corporations by letting them operate in an effective tax free environment.
Things have to change and we should be supporting any politicians willing to tackle the issue. Courage is the new gold!

Shadowfax
 
I do clear cookies regularly every few days.after the market. 
thanks for your thoughts

Greece/StJ – Yes totally. As mentioned in the article, mostly occupations around services are the bigget tax evaders.  And top 3 has to be doctors, engineers and lawyers.  You may seem a bit confused regarding the engineers, but in GR there is no industry. They are occupied with trivial jobs especially around building permits and handlng various paperwork for small construction projects.  Regarding education, its all about the teachers  that provide private lessons after hours to make up for a failed education system.  The norm is that no one (or ver very few) of all the above professionwill give you an official receipt unless you really ask. No receipt no taxable income, black economy.  Thats how GR is still surviving after all the salary and pension cuts. 

Makers of Diovan HCT said they will give me free pills until Dec 31. The generics refuse to help. Rediculus, have to return to the high priced stuff and need new presriptions, refuse to fill my refils. Doc office already complained, not the doc.

`williex — might also try clearing the cache.

Tax Free / Lionel – Indeed, the biggest scandal is the corporate tax. The GOP keeps complaining that it's the highest in the world at 35% but on average firms pay less than 15% – when they pay anything at all…

Thanks for the explanation Dpas… A sorry state of affairs altogether!

SQQQ/Draghi – I was looking at a $1.20 roll of the 38s to Oct 38s for similar upside without the extreme premium decay if Draghi says anything at all that is spinable (see Bernanke effect of last week)…or nothing for that matter. 

Some guy on CNBC just said that the market is actually pricing in the bad news, not the good news potential…funny enough he said that bad news, once public, gets factored in immediately, then forgotten.  If this is so how does the same "good news" we keep hearing over and over again KEEP getting factored in over and over again.  Furthermore, the bad news is even good now because of QE possibilities. 
My point was not that I see a significant ECB move happening Thu; rather, it seems like no matter what they say or hint at, the spin factor will at least limit the sell off.  Said another way, solid financial logic has gone out the window

willi
I clear them every day, takes ony a few seconds before shut down. I have had a few lock ups and cleared the cookies, ran clean disc during the day, and presto fixed everything still running. I used that most times for PSW but I have not had a problem with refreshes in months. Excellent Phil!

Indeed! and very difficult if not impossible to change. Anyway..have a good afternoon

PM Carpenter comes through again on Paul Ryan:

http://pmcarpenter.blogs.com/p_m_carpenters_commentary/2012/09/since-when-did-paul-ryan-become-an-intellectual.html

 

Which leads to the closely related question: Since when did Paul Ryan become an intellectual?

Any grown man who sees Ayn Rand's brooding, adolescent objectivism as evidence of a towering intellect and excavating philosophy is also a man of remarkably limited cognitive abilities. Mr. Ryan is, incontrovertibly, a liar–and a world-class liar at that. Yet allowances must be made, for he's also little more than a hack, a parrot, an immature, unoriginal "thinker" of extraordinary credulity.

And what's even more disturbing and most astounding is that among the "conservative intelligentsia," he sits at the very top.

The best quote on Atlas Shrugged is still from John Rodgers:

There are two novels that can change a bookish fourteen-year old's life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.

SVU is releasing its own brand of single-serve coffee cups that work in Keurig machines called "UnCups"
 
SUPERVALU Launches Java Delight Single Serve Coffee UnCup

Stock buybacks are not always a good thing:

http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/

In practice, however, as we can see with Dell, it doesn’t always work that way. The company ends up overpaying for its shares when the stock is high, thereby essentially taking money which belongs to all shareholders, and distributing it only to those who are exiting. As a result, the most loyal and faithful shareholders can end up with less than they started with, even when the company has been solidly profitable all along.

And Amazon might be helping Netflix:

http://blogs.reuters.com/felix-salmon/2012/09/04/why-amazons-competition-is-good-for-netflix/

Think about it this way: up until now, when Netflix has signed exclusive deals for TV shows and movies, the enormous sums involved can be broken down into two parts: one part for the right to show the material, and another part for exclusivity. If Netflix gives up on exclusivity, that means that it’s paying less for the material, and that all the money it’s spending appears on the screens of subscribers, rather than showing up also in the absence of that material on the screens of non-subscribers. If Netflix is convinced that its value proposition for subscribers is a good one — and I think that it is — then it shouldn’t need to pay untold millions of dollars to keep non-subscribers from watching certain shows.

Felix is on a rampage – why hyperinflation is not something to worry about:

http://blogs.reuters.com/felix-salmon/2012/09/03/why-you-wont-find-hyperinflation-in-democracies/

Some staggering example:

At their highest, the numbers start to beggar the imagination: in mid-November 2008, for instance, inflation in Zimbabwe reached a monthly rate of 79,600,000,000%. That’s 79 billion percent per month. At that rate, prices pretty much double every day. And Zimbabwe doesn’t even manage to grab the top spot: in July 1946, Hungary saw hyperinflation of 41,900,000,000,000,000%. That’s 42 quadrillion percent in one month, with prices doubling every 15 hours.

And conclusion:

All of which is to say that hyperinflation, in and of itself, really isn’t anything to worry about. It’s pretty much impossible to predict — and if your country has hyperinflation, it almost certainly has even bigger other problems. In fact, I’d hesitate to categorize hyperinflation as a narrowly economic phenomenon at all, as opposed to simply being a symptom of much bigger failures at the geopolitical level. Those failures are exacerbated by hyperinflation, of course: there’s very much a vicious cycle in these episodes. But you only ever find hyperinflation under extreme conditions, and, with a single exception (Peru), I’m not even sure I can find any genuine democracies on this list.

Man, you guys have really convinced me. Paul Ryan is a liar. .
Then again, it may depend on the meaning of "is".

Since English is not my first language Pstas, maybe you can give me another word for someone who tells lies (even picked up by Fox after his speech!).

Denlundy:  That's some serious dyslexia you've got there.

No dyslexia,  my fingers  just suffering uncontrollable stroke like  symptoms  when I saw the option price on 160's  down to 12 cents.

Cut 'em off.  They are leaches.

Phil:  Yeah, that "hollowpoint" story does have a synthetic vibe to it.
 
Shadow / hollowpoint:  So those bullets are just softpoint – flat lead nose — or do they have a concave tip, to be called a hollowpoint?  I thought you could only control expansion by lining the cavity with  a non-lead material [copper/tin, as you say]?
 
 Separately, I'm not sure I buy that story about hollowpoints being more "humane" by not causing a through-and through, because they do a tremendous amount of non-lethal damage [read: unnecessary] if they don't hit a vital area, and the "save the bystanders" argument doesn't hold up very well — all of the rounds fired by the NY Police in the Empire State Building shooting were hollowpoints: http://jimfishertruecrime.blogspot.com/2012/08/empire-state-building-shoot-out.html

Stjeanluc/liar  I believe the word you're looking for is charlatan….. Oui?   🙂

1020/  Great word Monsieur!

An equity strategist for Goldman Sachs [GS  106.41    0.69  (+0.65%)   ] is predicting a September selloff that happens so rapidly he is telling clients to protect themselves before Sept. 14.
http://www.cnbc.com/id/48896105

zeroxzero/hollow points – small caliber hollow points are prohibited in international and non-international conflicts (at least on paper) .  In the U.S., hollow points are allowed for personal defense, hunting, and police duty.  In such cases it makes sense versus regular bullets, for a couple of reasons.  Expanding bullets (hollow points) are like small grenades going off inside soft tissue once they strike a harder medium such as bone, and thus will slow down and stop a perpetrator, animal, or a criminal much quicker and with fewer strikes.  In a close range scenario, hollow points can cause less collateral damage to bystanders as they tend to not leave the body once they fragment (smaller pieces do not have the momentum to escape due to both the loss of mass and increased coefficient of drag).
QE3 – I still believe Draghi disappoints and Bernanke pulls the trigger next week.  Why…because even if Draghi pulls the trigger on short duration bonds (which will not happen before the German Court blessing), everyone already knows that is not going to work so the effect will fade within days in the equity markets.  Ben on the other hand, who I believe is actually intelligent, either knows something the rest of us do not (date in which Israel is going to bomb Iraq, impending bank collapse, fiscal cliff stalemate consequences, etc)…or he is simply evil and enjoys fattening his buddies wallets at the expense of global food riots and worse.  I have to think he has the insider scoop on the global economic picture more than any other human due to his power status (more important than the US Pres at this phase of history, IMHO)…thus I take a glass half full stance that he is trying to save the world, and is smart enough to not destroy it in the process.  Personally myself, I would jawbone the markets until after the new elections, and then let the markets tank hard, which would force Congress to enact some fiscal policies that hopefully create jobs.  Perhaps Ben is just getting the markets higher to allow them a less destructive 20% fall in December.  I believe it is a given the markets will start to implode in December anyway, as the capital gains taxes and dividend taxes increase substantially (Obama wins), or the fed gets real audit threats and handcuffed by Romney…and Japan, China, Europe, and the rest of the world can not hide the dirty laundry any longer.  I hope Ben runs the SP500 up to 1500-1545 territory by December and waste all the central banker bullets…which would set up an epic pullback that would have zero bid and thus an unbelievable profit potential if positioned wisely!

FedEx lowers guidance.  Again, here we go!  Up up up and away!

Pharmboy/Up Up up and away! – Yes but Goldman just said today to pull out and buy the Sept 14 SP500 1375 puts.  Can you imagine, a "crash" to 1375!!!  Hope can't float reality much longer…release the kraken!
 
Question for you Pharmboy—is Matt (red) or JRW (yellow) still around?  I miss the "colors"…=)

Shadow:  I've always leaned toward confusion and incompetence over conspiracy as the principal engine of causality in human affairs.  In the case of Bernanke, I, too, believe he is perfectly intelligent, and understands that monetary policy is not magic, cannot directly create jobs, stimulate consumption [if banks raise credit standards above certain levels], directly lower debt levels or change the partisan deadlock which has crippled the development of effective public policy.
 
Rates are at historically low levels, and monetary policy is by and large a one-trick pony.  Bernanke therefore has no choice but resort to psychology — essentially reprising the FDR ploy that "the only thing we have to fear is fear itself", and trying manfully to stave off the prospect of a downward-spiralling fear cycle where every [depreciating] dollar is sfuffed under a mattress by continuing to imply that he has "non-traditional" methods that can still be deployed.
 
Does he?  Only if by that he means "stuff that has never been tried before, but what the Hell."  His principal gambit for the moment is to sustain "hope" by implying that he has [nonexistent] levers that can still be pulled.  My father once had occasion to end up sitting in the Oval Office with Nixon and Kissinger during a particular political crisis, believing that, after seeing a bewildering series of seeming missteps and contradictory policies, he was finally going to get to the bottom of whatever clever plan had been devised by our senior political leaders.  With a combination of bemusement and horror, he realized that there was none when, after being briefed, Nixon turned to Kissinger and exclaimed "Now what the hell do we do?"  I'd be surprised if this isn't scene isn't being repeated in Federal Reserve meetings these days. 

Charlatan / 1020 – That works….

There was POMO today – is that what pulled us up?
 
http://www.newyorkfed.org/markets/tot_operation_schedule.html

Hi all,
During the 3-day weekend, reviewed a couple of Schwab commentaries (interesting for 3-6 months outlook):
1. Back to work – After the summer, it's time for the market to get back to "work" (volume).  European equities raised to neutral from "sell".   Cautiously  optimistic view of the stock market:
http://investing.schwab.com/public/schwab/resource_center/expert_insight/todays_market/recent_commentary/schwab_market_perspective.html
2. Strategy – if Earnings / Margins are peaking, what about Stocks – A somewhat more bullish case for market out-performance in next year:
http://investing.schwab.com/public/schwab/resource_center/expert_insight/todays_market/sonders/sonders_090412.html

Phil – What exactly does it mean if the ECB does start buying bonds with the markets at these levels or even QE3?  What is the catalyst for higher stock prices.  Oil is at peak levels, gas is at all time high, food costs are out of control and their are NO JOBS being created.   Can someone break down the how up-side works here. Short Euro long Dow?  This is seriously backwards. 

All this talk about cruises. Regarding shore excursions, the cruise line gets 50% and of course whoever handles the excursion begs for tips. I've been on 11 cruises and I quickly learned to book my own shore excursions in advance (it's called the Internet, it's not hard) or just hop off the ship (it's not called a boat – the captain hates it when you call it that) and find something. I love grabbing a taxi (cheap, usually) for a few hours and we do our own thing. Practically the same price as the ship priced shore excursion – less if I have all 3 kids with me. I have many stories. Regarding Disney, I started cruising with my kids in 2000 when my youngest son was 10 (I have three sons, spaced 1 1/2 years apart). When we went on our first cruise I actually asked them all if they wanted to go on a Disney ship and they said NO. So we went on Carnival, they loved it, and the rest is history. After a few years of Carnival we went on a Royal Caribbean ship and my kids all like it better although I still have a very soft spot in my heart for Carnival. I'm almost 57 but I don't feel it at all and I'm just not ready for the upscale, more sedate ships  (Princess and Celebrity). And I'm definitely not ready for the "geriatric" Holland America ships. Nuff said.

The daily closing of the India/Pakistan border, and, no, this is not a Monty Python skit.  Grim economic times, but it's glad to see that the sub-continent is maintaining a modicum of propriety in international relations. http://www.wimp.com/indiapakistan/

zero
That is a good bit of how I feel about Bernanke. The country is in a series of mistakes. give without take in world trade, and allowing the sale of intellectual rites undermines everything. Lets just free up the banks and that means no free money. They will all find out soon how much of high pay they  have earned.
Hollow points are hollowed out which actually makes them larger,  they have some silces in the copper to control expansion but flat points do the same thing. Sierra bullets and some others say the hollow allows a smoother slice through the air, The full jacketed match semi wad cutters slice the paper target better, real accuracy requires a point and a boattail rear end. The most accurate use a very controled slower burning power to increase the push after the rifeling starts the twist ,also extends the barrel life. There are a few supper special killer bullets that I have never seen a photo of, unobtainum. A small amount of mercury in the hollow  sealed over is unbelievable, they explode, and anyone can do that, then untraceable fragments. Based on hunting it is where the bulet hits that makes the difference not the bullet. Not going through is to protect what is behind.
http://www.outdoorsplus.com/sbi-357-158g-jhc.html?utm_source=pgrab&utm_medium=cse&utm_content=EB-0808830&utm_campaign=pgrab

Ships boats and such. The bigger they get the more staying on land makes sense. Boats that have a feel for the water are where the fun comes. Sailboats are fun if the wind keeps blowing. Want exctitement try fishing for big fish and there is something special about eating what you catch. Nothing comes close to killing and cleaning a fish as soon as it is landed, cooked on board if you can, you can't buy that at any price. In Montana I had a special lake that when the ice melted we would hike in with a single burner stove, fry pan, butter, and salt. Cooking those brookies and cut throut trout  out of 32.5 degree water ASAP. The rest of the year through them back, not worth eating.

ECB/QE3/Joel
1) No new stimulus from either Mario or Ben.
2) It turns out that somehow Mario has gotten his plan to buy 3-yr bonds approved (there's a constitutional question here) but then nothing from Ben.
3) Mario has nothing, but then Ben launches the "flexible" QE3.
4) Both Mario and Ben come thru.
 
For planning purposes, I'm regarding each outcome as equally likely.  For some interesting ideas about case 2) see Zero's post at 10:52 pm on 9/3/12.

What happened an hour or so ago? All markets simultaneously jump about 1% because!? Probably the same reason we did yesterday….Which was?

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