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Federally Funded Friday – Jawbones and Asses

6-27-2013 6-30-21 PM govsWheeeee, what a ride!

The Federal Reserve giveth and they taketh away and they giveth again, and taketh some more.  Remember when the markets were ruled by sales and profits?  Me either…  As Dave Fry points out, the key turning point came on Wednesday, when usually bearish Lacker said he didn’t see the Fed as “anywhere near cutting balance sheet size” and “maybe markets got a little bit ahead of us on QE." He is also “fine with FOMC tapering QE now” or at any time evidently, but he’s a team player.

Thursday we got a troika of Fed governors beginning with uber-dove and former Goldman Sachs honcho William Dudley. He restated Bernanke’s view that QE tapering may begin in late 2013 and/or early 2014. He was followed by Fed governor Jerome Powell who stated, “Market adjustments since May have been larger than would be justified by and reasonable reassessment of the path of policy," adding, “

The reaction of the forward and futures markets for short-term rates appears out of keeping with my assessment of the FOMC’s intentions, given its forecasts.” In other words, the markets were just wrong. Lastly, Fed governor Lacker stated, “…as the Chairman made clear, there is no 'predetermined' pace of reductions in the asset purchases, nor is the stopping point fixed.”  The bottom line is Fed governors have been united in their efforts to jawbone financial markets higher. It’s no coincidence that POMO today was unusually large at over $5 billion.

IEV WEEKLYAnother important point Dave made was a quote by Terex CEO, Ron DeFeo, who said “I am hesitant because I really don’t believe the U.S. economy is in a strong growth mode.”  TEX makes the machines that actually build things and, if this guy isn't seeing the economy improving – it's not really improving!  

As I noted earlier this morning in Member Chat, Draghi shoveled another pile of BS on us this week and it did it's trick but, as with the last 5 times he talked up the markets – no actual action is taken and, in fact, the EU is going the OPPOSITE direction – releasing a $1.25Tn 7-year budget that CUTS spending for the first time in their history.  

So, Europe is cutting their budget, the US is sequestered and China is cutting back – I guess it's up to Japan to carry the Earth on their back next quarter.  Japan did, in fact, have good Industrial Production numbers this morning, rising 2% in May vs 1% in April but, unfortunately, I have to point out that Industrial Production is measured in Yen and the Yen was around 2% WEAKER in May than April so of course the Yen-price of goods went up YOU FRIGGIN' IDIOTS WHO CALL YOURSELVES ANALYSTS!!! 

Japan’s Consumer Prices Stop Falling as Energy Costs Climb Sorry, just had to say that.  Certainly no one else in the MSM or even the blogosphere seems to grasp this concept.  If I make a tire that cost $100 and that's 10,000 Yen when the Yen is 100 to the Dollar and, a month later, I make the same tire that I ship overseas for $100 but the Yen is now 102 to the Dollar – that same tire is now 10,200 Yen.  Did I produce 2% more tires or did the tires I produced  just rise 2% in price?  Really analysts, I test these things on my 11-year old daughter to make sure she understands it before I call you frigggin' idiots.  There's a show called "Are You Smarter than a 5th Grader?" and trust me, you don't need to watch it – because you're not!

In fact, right below the report on Japanese Industrial Production is the report on Japanese CPI, which is showing inflationary pressure all over the place.  Of course, in Japan, inflationary pressure means less DEflation than usual as the CPI is still contracting – only less so.   Excluding food and energy, prices fell 0.4% in May (for the year) and a key component of the "increase" was energy costs, which also contributed to the rise in Industrial Production.  Why?  Because Japan doesn't have any oil so they buy it.  And what do they buy it for?  Yen.  And what is oil priced in?  Dollars.  So, when the Yen is weak, they need more of them to buy oil and that too registers as gains in Industrial production.  

FXY WEEKLYAnyway, that one does confuse Jackie (11) as there's a lot of moving parts but at least she knows she's confused and doesn't go out and write articles pontificating on Japan turning around based on that data!  I asked Madeline (13) what she thinks of it and she said something to me in Japanese that I totally didn't understand and she thought that was very funny – children can be very annoying that way.  

So, where was I?  Oh yes, I'm old and my children are learning things I never did – that's very scary.  This Asia thing is playing out as we expected though and we took an aggressive play on FXI on Tuesday for the Short-Term Portfolio, taking the July $31.50 calls for $1.16 and selling the July $31.50 puts for $1 for net .16 when FXI was right about $31.66 so the plan was to capture 100% of the upside from the move back up in China.  This morning, FXI should be up around $32.75 and we'll take that money and run as it's too risky to go into the weekend with all those gains on that position.   

Unfortunately, we are also long on AAPL, BTU, TLT and GLD and short on TSLA and AMZN and none of that is working so far but we're playing under the assumption that pretty much everything happening this week is fake – to dress up fund portfolios into the end of the quarter and likely to reverse pretty harshly next week.  If not – then we'll capitulate and play the rally.  As we demonstrated last month, when we had 5 Trade Ideas that Made 1,816% in 21 days.  It's not that hard to make money in a real rally – the tricky part is making sure you have money left in the downturns so you can play those rallies later.  

We capitulated on gold somewhat and took an aggressive hedge with GLL in yesterday's Member Chat, picking up the July $107/114 bull call spread for $3, which pays $7 if gold fails to hold $1,200 so a nice 133% gain there will allow us to take another stab at a gold recovery from a lower basis – if it does continue to head lower.  

Otherwise, we intend to go into the weekend a bit bearish and we'll see how much of this week's nonsense survives the next few days of trading. Then it's time for earnings and, as Buffett likes to say – we'll see who's been swimming naked.

Have a great weekend,

– Phil

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Not surprisingly a down day as the Dow and S&P failed to cross their 50 DMA! Fed not helping with conflicting statements.

Short trading week but plenty of data. Monday could prove very interesting with PMI from China and Europe on the same day. And Friday will see the job numbers but with very few traders on board could make for quite a volatile day (that's my prediction for the week!).

Why, all of the sudden, is Gold no longer subject to the laws of supply and demand? The price cannot fall below $1200 because that is what it costs to mine it? As I understand it, miners have bid up projects, fattened up on G&A, made some very poor decisions and the cost has doubled for mining over  a couple years. Why can't the price drop to $500 and watch all the miners go out of business, declare bankruptcy, and better stronger, leaner minors are all that is left. Isnt that how the system is supposed to work?

take this TSLA – its all over …

sleeping?
 
Phil–does this news knock ABX down more in your opinion?
 
From Bloomberg, Jun 29, 2013, 12:01:00 AM
Barrick Gold Corp. (ABX), the world’s
biggest gold miner, may take a writedown of as much as $5.5
billion on its Pascua-Lama project in the Andes after the price
of the metal plunged close to a three-year low.

where are the posts??
i only see mine since wombat at 5:44 on June 29th?

Don't worry jabo, you are not alone….
Thanks to you guys in the SW part of the country for taking one for the team. Whatever is heating you up is making the middle part of the country have San Diego type weather. I mean come on, low 80's all week are forecast for highs here in Kansas?? 95 to 100 is normal for us.

rj–why are we the only guys posting all day?

Chat does seem pretty light. I've been enjoying the relatively nice weather in New Jersey this weekend. Although it is time to catch up on recent market news…

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