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Sunday, February 5, 2023

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Friday – QE Fever Turns To QE Forever!

DBC WEEKLY$85Bn a month!

Oh boy was I wrong when I said Ben Bernanke wasn't crazy enough to ease into a bull market.  Yesterday, he exercised the full power of the Federal Reserve to confiscate your wealth and hand it over to the bankers.  That's right, by engaging in what many consider reckless money-printing practices and announcing there is no end in sight, Bernanke caused the Dollar to fall below 79, down from 84 (6%) before all this QE talk began.  

That's like taking all $100Tn worth of US Assets – everything you worked for your entire life – and just devaluing them by 6%.  Many of our Conservative friends decry the 1% tax on wealth imposed by the French – but at least they are honest about it.  At least they debate it and vote on it.  Not Bern Bernanke – the Federal Reserve Chairman simply decrees that you will contribute 6% of your dollar-denominated assets towards more bank bail-out and there's no cut-off if you are below the top 2% – this is a confiscation from every man, woman and child in America.  

How far down will Dr. Bernanke take your Dollars?  That's the beauty of it – there's no limit!  He warned Corporate America yesterday that he will continue to give them FREE MONEY as long as they keep refusing to hire more workers.  The less American workers they hire – the more money he will give them.  Sure, they can hire and spend overseas (most are) because that won't affect US unemployment rates but, if they start hiring Americans – THAT's when he will begin to take away the punch bowl. 

See how this scam works?  

It is hard to see how another round of QE would help the economy. Long-term interest rates are already at historic lows. With rates this low, even if QE put effective downward pressure on rates — a dubious proposition — the economy would be unlikely to benefit. If a 3.5% mortgage rate is of little consequence, there is no reason to believe that a 3.4% or even 3.3% rate would suddenly produce results.

Nor would quantitative easing result in a burst of money creation, as per traditional monetary policy, because the Fed now pays a quarter-point interest on excess bank reserves. With little growth in the demand for private credit, banks have chosen to leave their additional reserves on deposit with the Fed, earning this paltry but completely safe return.

The real problem with QE — beyond increased near-term uncertainty — is that the Fed must at some point unload all these bonds it has bought. The Fed will buy bonds in soft markets and sell them when interest rates are already rising, pushing interest rates up further, faster. The problem, in short, is that the Fed will have failed to prop up the economy when it was weak only to risk killing the recovery once it really takes off.

We discussed this and some other concerns I still have in Member Chat this morning.  Meanwhile, we have to play the hand we're dealt and, for the moment, we've been dealt two aces and we MUST play our hand.  Keep in mind we have to make 6% just to keep up with the devaluation of the Dollar the Fed is causing.  For those of us who have real estate assets, metals and other commodities and, of course, stocks as the majority of our wealth – All is well as The Bernanke is working for us (top 1%'ers).  I happen to be in Las Vegas this week, helping rich people get richer with Real Estate and then it's on to LA, where we look at ways to allocate some long-term investments in this market. 

Also in Member Chat this morning (and sent out as an Alert to Members) we updated our uber-bullish Twice in a Lifetime List and we'll be taking a look at our long-term Bullish Income Portfolio this weekend.  With virtual allocations of $500,000 in the Income Portfolio and $100,000 in the TWIL, our short-term $25,000 Portfolio was tasked with the job of protecting the rest.  Thus we went aggressively bearish, but that was because we genuinely believed the Fed would disappoint the markets this week.  Being wrong there cost us dearly as our virtual portfolio dropped from being up 60% just two weeks ago to now just up 20% since we began it in early June.

As you can see, we've made a lot of adjustments since last week but we haven't gone fully bullish yet, as we'd still like to see where we are next week before taking our losses on what's left of the short side.  Not reflected here, of course, are our general bullish hedges like last Tuesday's 2 DIA Oct $135 calls at $1.23, selling 1 HPQ 2014 $15 put for $2.30 for net .16, now $2.05 for a quick 1,181% gain on cash – a very nice way to offset some losses on a few bearish plays.   We have been picking aggressive offsets like this every Tuesday morning since the beginning of August and all 12 of them have exceeded their 300% return goals already.

Making money in a bull market is easy – especially with the low VIX giving us such cheap entries on long option contracts.  Making 1,181% in 10 days is an excellent way to stay ahead of inflation (for now) and you don't need to make a major commitment to aggressive plays like this to keep a more conservative portfolio humming along.  The FAS spread in our $25KP is one of those plays and already halfway to it's 500% upside.  

So it pays to be patient and it pays to be cashy and cautious ahead of these events.  Sure we may have missed some of the rally but now we can invest with a lot more confidence as we shift to a more bullish stance next week.

Have a great weekend, 

– Phil

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Polls / Angel – What is the history of polls in presidential elections? Have polls taken in mid-September always been wrong? I don't track that data so I can't really have an opinion. But people like Nate Silver make a living out of that and they seem to give a slight advantage to Obama right now. We'll see…

Barry has some insights from a GOP insider:

http://www.ritholtz.com/blog/2012/09/gop-sours-on-romney/

 

Just got back from vacation, with Congress on an extended recess, and getting ready to go out again for elections. After that, nothing gets done in lame duck. Bet on Congress doing something to avoid the fiscal cliff, but not until doing everything possible to screw it up.

Romney looks like he’s toast. Which means four more years of more or less the same crap we’ve seen. Great for big banks–Michael Lewis has a piece out where he talks about how no one realizes just how good Obama (and he really means Geithner) were to Wall Street. Did you ever read that Lawrence Baxter piece I sent you? You should. Terrible title, but goes into detail on Obama doubling down on even bigger banks. Betting Big: Value, Caution and Accountability in an Era of Large Banks and Complex Finance,” 31 Rev. Banking & Fin. L. XXX (Oct. 2012))

Republicans are up in arms about QE whatever. The big complaint seems to be that it may actually make things better. Funny part is imagining what Romney would want if he were president; surely he wouldn’t want the Fed choking off his recovery by tightening up. (Bit that no one picked up on: Hubbard talking about how great a job Bernanke had done and was doing, only to have Romney turn around a week later and say no way would he reappoint Bernanke as Fed chairman. Either the campaign is clueless and disorganized, or Romney really will say anything to be president.)

Some articles today talked about how Wall Street was starting to have second thoughts about a candidate who wants to turn off the spigot; a couple of weeks ago, the FT has a column on how Wall Street should be careful about wanting a Republican victory, because that means that the “break up the bank” types like Hoenig will have even more influence. Hard to figure out what’s what: Big GOP talking point is “Dodd-Frank did not end TBTF,” but then being absolutely schizophrenic on the issue of whether big banks are a good thing and whether the American economy needs big banks. Marx was wrong: capitalism will not collapse under the weight of its internal contradictions; The GOP, on the other hand . . .

The new Congress is going to have quite a shuffle of Chairman. You should pay attention to Jeb Hensarling, a Phil Gramm protege. He is likely to be running the House Financial Services committee, which ibviosuly impacts what you do. Hensarling’s really, really smart, charismatic, organized, and has a coherent view of the world.

Like Gramm, it’s a world view that turns out to be wrong–but at least it’s consistent . . .

Phil
Back in Feb I did a Jan 13 $12.50 buy/write on NYB with stock at $12.70. I bought back the Puts and took the profit prior to the latest Fed decision (just in case). The $12.50 callers now $1.65 have squeezed out the entire premium with the stock now at $14.12. There is only one more dividend of $0.25 in November that I could capture, but there is a good chance I would get called first. I am inclined to just cash out the trade since there doesn’t seem to be any more profit to squeeze out and unlike most people, I still think stocks can go down. The Jan 14 $13 calls are $1.50, so a roll would cost me $0.15 to only gain $0.50 in position. Do you see another way to play this that I am missing?

ST JEAN POLLSTER OR POLLTEGEISTS (SIC) Mark Blumenthal, publisher of Pollster.com, wrote that Silver's methodology, in which he awards bonus points to pollsters based on their membership in the National Council on Public Polls and their endorsement of the American Association for Public Opinion Research Transparency Initiative, "appear[s] to significantly and dramatically alter rankings prominently promoted as "pollster ratings," ratings that are already having an impact on the reputations and livelihoods of individual pollsters. That's a problem." Blumenthal noted, "My bottom line: These sort of pollster ratings and rankings are interesting, but they are of very limited utility in sorting out "good" pollsters from "bad." 

Like I said, we'll see Angel… BTW, I mentioned that before, but in the last French election undecided moved more toward the incumbent Sarkozy at the end. He was expected to lose by 6 points and lost by 3 only. Sometimes the devil you know…

As for myself, I can't wait for this election season to be over….

Phil / A Favor Request
On my birthday, Sept 7th, got some awful news that my mom was in the hospital.  She passed away last Wednesday (yes, the day before QE) and I've been running around ever since.  This is the 1st time I've gotten to do anything at all close to trading.  I obviously haven't been reading the blog, or following trades, and I know I probably lost out on some easy $$.  Anyway, my request is just a few trade ideas for Mon morn that I could put on and capture some $$.  I'm in "follow the leader" mode right now.  Thanks for understanding.  This week I should be able to trade again.

Burrben,
 
sorry to hear the news . wish you and the family the best.

Stj / Leadership:  FDR, yes.  But, again using my definition, he was not the last one.  That distinction I would venture belongs to Lyndon Johnson, a man with tremendous vision and a Large Boot.  He crashed and burned on Vietnam, but the country was, and is, much better off for his Presidency: 
 
 

 "
The Civil Rights Act of 1964[9] forbade job discrimination and the segregation of public accommodations. The Voting Rights Act of 1965 assured minority registration and voting. TheImmigration and Nationality Services Act of 1965 abolished the national-origin quotas in immigration law."
 
"The Civil Rights Act of 1968 banned housing discrimination and extended constitutional protections to Native Americans on reservations. Johnson, who, as a teacher had observed extreme poverty in Texas among Mexican-Americans, launched an "unconditional war on poverty" in the first months of his presidency with the goal of eliminating hunger and deprivation from American life. The centerpiece of the War on Poverty was the Economic Opportunity Act of 1964, which created an Office of Economic Opportunity (OEO) to oversee a variety of community-based antipoverty programs."
 
"The War on Poverty began with a $1 billion appropriation in 1964 and spent another $2 billion in the following two years. It spawned dozens of programs, among them the Job Corps, whose purpose was to help disadvantaged youth develop marketable skills; the Neighborhood Youth Corps, established to give poor urban youths work experience and to encourage them to stay in school; Volunteers in Service to America(VISTA), a domestic version of the Peace Corps, which placed concerned citizens with community-based agencies to work towards empowerment of the poor; the Model Cities Program for urban redevelopment;Upward Bound, which assisted poor high school students entering college; legal services for the poor; the Food Stamp Act of 1964 (which expanded the federal food stamp program);[13] the Community Action Program, which initiated local Community Action Agencies charged with helping the poor become self-sufficient; and Project Head Start, which offered preschool education for poor children. In addition, funding was provided for the establishment of community health centers to expand access to health care,[14] 
 
Major amendments were made to Social Security in 1965 and 1967 which significantly increased benefits, expanded coverage, and established new programs to combat poverty and raise living standards.   Federal funds were provided for special education schemes in slum areas, including help in paying for books and transport, while financial aid was also provided for slum clearances and rebuilding city areas. In addition, the Appalachian Regional Development Act of 1965 created jobs in one of the most impoverished regions of the country. The Economic Opportunity Act of 1964 provided various schemes in which young people from poor homes could receive job training and higher education."
 
"The most important educational component of the Great Society was the Elementary and Secondary Education Act of 1965, designed by Commissioner of Education Francis Keppel. It was signed into law on April 11, 1965, less than three months after it was introduced. It ended a long-standing political taboo by providing significant federal aid to public education, initially allotting more than $1 billion to help schools purchase materials and start special education programs to schools with a high concentration of low-income children. The Act established Head Start, which had originally been started by the Office of Economic Opportunity as an eight-week summer program, as a permanent program.
 
The Higher Education Facilities Act of 1963, which was signed into law by Johnson a month after becoming president,[17] authorized several times more college aid within a five-year period than had been appropriated under the Land Grant College in a century, and provided better college libraries, ten to twenty new graduate centers, several new technical institutes, classrooms for several hundred thousand students, and twenty-five to thirty new community colleges a year.[18] This major piece of legislaton was followed by the Higher Education Act of 1965, which increased federal money given to universities, created scholarships and low-interest loans for students, and established a national Teacher Corps to provide teachers to poverty-stricken areas of the United States. "
 
"The Social Security Act of 1965 authorized Medicare and provided federal funding for many of the medical costs of older Americans.[20] The legislation overcame the bitter resistance, particularly from the American Medical Association, to the idea of publicly funded health care or "socialized medicine" by making its benefits available to everyone over sixty-five, regardless of need, and by linking payments to the existing private insurance system.  n 1966 welfare recipients of all ages received medical care through the Medicaid program. Medicaid was created on July 30, 1965 under Title XIX of the Social Security Act of 1965. Each state administers its own Medicaid program while the federal Centers for Medicare and Medicaid Services (CMS) monitors the state-run programs and establishes requirements for service delivery, quality, funding, and eligibility standards."
 
"In September 1965, Johnson signed the National Foundation on the Arts and Humanities Act into law, creating both the National Endowment for the Arts and National Endowment for the Humanities as separate, independent agencies.  The Public Broadcasting Act of 1967 chartered the Corporation for Public Broadcasting as a private, non-profit corporation."
 
"The Urban Mass Transportation Act of 1964 provided $375 million for large-scale urban public or private rail projects in the form of matching funds to cities and states and created the Urban Mass Transit Administration (now the Federal Transit Administration). The National Traffic and Motor Vehicle Safety Act of 1966 and the Highway Safety Act of 1966 were enacted, largely as a result of Ralph Nader's book Unsafe at Any Speed."
 
"In 1964, Johnson named Assistant Secretary of Labor Esther Peterson to be the first presidential assistant for consumer affairs.  The Cigarette Labeling Act of 1965 required packages to carry warning labels. The Motor Vehicle Safety Act of 1966 set standards through creation of the National Highway Traffic Safety Administration. The Fair Packaging and Labeling Act requires products identify manufacturer, address, clearly mark quantity and servings.  The Wholesome Meat Act of 1967 required inspection of meat which must meet federal standards. The Truth-in-Lending Act of 1968 required lenders and credit providers to disclose the full cost of finance charges in both dollars and annual percentage rates, on installment loan and sales. The Wholesome Poultry Products Act of 1968 required inspection of poultry which must meet federal standards. The Land Sales Disclosure Act of 1968 provided safeguards against fraudulent practices in the sale of land. The Radiation Safety Act of 1968 provided standards and recalls for defective electronic products."
 
"At the behest of Secretary of the Interior Stewart Udall, the Johnson Adminstration included several new environmental laws to protect air and water. Environmental legislation enacted included:
§  Clear Air, Water Quality and Clean Water Restoration Acts and Amendments
§  Wilderness Act of 1964
§  Endangered Species Preservation Act of 1966
§  National Trails System Act of 1968
§  Wild and Scenic Rivers Act of 1968
§  Land and Water Conservation Act of 1965
§  Solid Waste Disposal Act of 1965
§  Motor Vehicle Air Pollution Control Act of 1965
§  National Historic Preservation Act of 1966
§  Aircraft Noise Abatement Act of 1968
§  National Environmental Policy Act of 1969"
 
"Amendments made to the 1931 Davis-Bacon Act in 1964 extended the prevailing wage provisions to cover fringe benefits,[26] while several increases were made to the federal minimum wage.[27] In addition, a comprehensive minimum rate hike was signed into law that extended the coverage of the Fair Labor Standards Act to about 9.1 million additional workers."
 
And that, gentlemen, is what  leadership looks like..  http://en.wikipedia.org/wiki/Great_Society
 
 
 

LBJ / Zero – I would not disagree with that and I was thinking of him when I wrote my post. But he is still a pretty controversial figure among many as FDR is widely admired. I have no doubt that history will be kind to LBJ… 

Of course, much of his legacy would be in danger if Romney were to be elected I think!

Economic Calendar for next week. We have the BoJ rate decision (might get a yentervention as well) and then on Thursday a deluge of PMI information which will paint a picture of the word economy. Plenty of Fed speakers next week as well.

Phil….WHR…what the FU.Up 27% In 60 days. SLD 10 sept 75c and 10 77.50c for 3.65..now at 10.80. I still believe in the postion,but waited way to long to do something. Got any of those DD thoughts on a possible DD out?  or did I just fall in love with my hand?…Keep up the good work

Burr – sorry for your loss. My sympathies!

Burr:  Very sorry for your loss, it's a heartbreak.   I lost my mom 8 weeks ago; she followed my dad by 18 months, after 62 years together.  I hope your parents had a good run. too.

Per ZH:
 
 
Here is a summary of where the world stands:

Unable to reach a compromise over the weekend, South Africa is now in an all out labor strike, with the police again firing rubber bullets at miners with lethal escalation guaranteed
Back from vacation, the once again penniless citizens of SpainGreece, and Portugal have resumed protesting austerity
US embassies attacked, in many cases with numerous casualties, in EgyptLibyaTunisia, Morocco, Sudan, LebanonIndia, Balgadesh, Indonesia, and others.
Japan "appropriating" China-contested islands provoking a firestorm of retaliation including demands for "war with Japan"
The Japanese ambassador to China dying mysteriously
Netanyahu telling Meet the Press Iran will have a nuke in six-seven months and must be stopped beforehand
Warships from more than 25 countries, including the United States, Britain, France, Saudi Arabia and the UAE, launching a military exercise in the Straits of Hormuz
A third US aircraft – the CVN-74 Stennis – carrier is en route to Iran with an ETA of about 10 days
And finally, a potential catalyst to light this whole mess on fire, Iran's Revolutionary Guardannouncing that its troops are now on the ground in Syria.

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