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Thursday, December 1, 2022

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Monday Mourning – What Happened to Our Rally?

Friday was a disappointment.  

We failed to re-take the 50 dmas on the Dow (15,041), the S&P (1,621), the Nasdaq (3,404) and the NYSE (9,298).  The Russell did pop 970 and went on to an impressive finish at 977 and, this morning, is back at 980 in the Futures (/TF) and once again our leading index.  The Russell had intra-day highs 1,008 in late May and 1,001 in mid-June and both the 50 and 200 dmas have made 20 points of progress since then so it should, in theory, be EASIER for them to get over 1,000 this time – if the rally is real.

We're sure not going to know if things are real or not this week as it's the July 4th holiday in the US and, traditionally, the 2nd lightest trading week of the year, behind Thanksgiving, which is essentially a 3-day week.  This week, we're closing early on Wednesday (1pm) and will be completely closed on Thursday and good luck getting traders back to their desks on Friday! 

So, the question is, do they have the balls (beach, that is) to go away for the long weekend with long positions or are we going to see a lot of selling pressure this week as Fund managers exercise caution and get back to cash? 

Our Futures are pumped up about half a point this morning but that's off the highs and, of course, proves nothing as it's the Futures and, often as not, is just a head-fake to cover the pros as they head for the exits while calling the retailers in to hold their bags.  

There is some good news though, on the Bankster front as Mark Carney, former managing director of Goldman Sachs, takes over as the head of the Bank of England, just 3 days ahead of a crucial vote on monetary policy.  We've already been promised the moon by Draghi at the ECB and the stars by Kuroda at the BOJ and even our own Fed spent most of last week back-peddling on the very thought of tapering in the near future so what will the Bank of England promise us on Thursday morning, when the US markets are closed?  Now the question may not be whether fund managers dare to go long into the holiday weekend – but do they dare to go short?  

manufacturing pmiThe ECB also has it's rate decision on Thursday morning and there will be speeches etc that will throw the market one way or another while we're eating hamburgers and hot dogs and making sure the chicken isn't pink in the middle.  Pink in the middle is a good way to describe the global economy as our weekend reading list includes:

A record $79.8B was pulled from exchange-traded and mutual bond funds in June, TrimTabs estimates, with the number almost double the $41B that was withdrawn at the peak of the financial crisis in October 2008.

German manufacturing PMI dropped to 48.6 in June (flash 48.7) from 49.4 in May, dragged down by a renewed fall in new orders and as employment declined at the strongest pace since January, says Markit. Weak markets, particularly for exports, and stronger competitive pressures hurt new business despite manufacturers slashing prices. The PMI readings could get worse in the coming months, especially after the flooding in June. (PR)

China's HSBC manufacturing PMI, which focuses on smaller firms and exporters, fell to a nine-month low of 48.2 in June (flash 48.3) from 49.2 in May, as new orders dropped even though producers cut prices. 

South Korea's exports dropped 0.9% for the year.

Asian stocks are downgraded by Goldman Sachs, which lowers it 12-month price target on the MSCI Asia ex-Japan Index (AAXJ) to 480 from 550 (it's currently about 430). "The macro environment has turned less favorable for regional equities … growth estimates have declined, notably in China, as policymakers turn more constrictive." 

Pawnbrokers Thrive as Poorest Aussies Bear Brunt of Slowdown

Automobile sales in Japan fell 15.6% to 266,913 vehicles in June, according to the Japan Automobile Dealers Association. The weak month continues a trend seen in the nation since last September when government subsidies on alternative energy expired. 

Automobile sales in India fell 13% in June to 84,455 vehicles amid weak consumer demand.

As Zero Hedge very cleverly says about Asia – it's a Schrodinger Economy:  It may be alive — until you actually measure it!  

negative positive earnings preannouncementThe same is very likely to be said about the earnings of US Corporations, where 80% of the earnings pre-announcements have been negative so far.  Soon there will be nowhere to hide as we roll off the Holiday Weekend right into earnings season and THEN we'll see what's what but, until then, Cashy and Cautious is still a pretty good investing strategy

Other than Germany, there has been some improvement in overall Euro-Zone PMI, with Markit's measure coming in at 48.8, up from 48.3 in May but, unfortunately, anything below 50 is still contracting, just more slowly:  

"Output and new orders barely fell during June, says Markit. "On this trajectory, a return to growth for the sector is on the cards for the third quarter."

Barely falling is the new up in our upside-down Global Economy!  

ChartBarely falling is also how the BEA describes US Personal Consumption as it's still up about 1% and that's only 1% lower than last year and still 1% away from zero and, of course, we shouldn't be concerned that the US Consumer makes up 70% of our recently downgraded GDP, should we?  Well, maybe we should worry – just a little

As noted by The Washington Blog this weekend: "The Fed Engaging In Quantitative Easing Until Unemployment Falls Is Like a Medieval Doctor Bleeding a Patient with Leeches Until His Iron Deficiency Goes Away."  Ken Griffin, head of Citadel Capital, noted "As we’ve all learned over the years, if you reduce the cost of capital you increase your use of fixed assets and you take out jobs. Corporate America, seeing an ever increasing cost for its employee base and extraordinarily low interest rates, is taking every step it can possibly take to reduce employment, to build factories abroad and domestically to substitute technology and automated processes for people."

This echos the sentiment in my "2015-2045 Market Outlook – Men vs. Machines" and Robert Auerback, former economist for the House Financial Services Committee comments on the new paradigm, as hundreds of Billions in Fed money continues to be given away to companies that ELIMINATE jobs, rather than create them:

"There is a massive misconception about where the Bernanke Fed’s stimulus landed. Although the Bernanke Fed has disbursed $2.284 trillion in new money (the monetary base) since August 1, 2008, one month before the 2008 financial crisis, 81.5 percent now sits idle as excess reserves in private banks. The banks are not required to hold excess reserves. The excess reserves exploded from $831 billion in August 2008 to $1.863 trillion on June 14, 2013. The excess reserves of the nation’s private banks had previously stayed at nearly zero since 1959 as seen on the St. Louis Fed’s chart. The banks did not leave money idle in excess reserves at zero interest because they were investing in income earning assets, including loans to consumers and businesses."

I have been making fun of this for so long, the video I made on the subject (2011) looks old-fashioned, but it's what Bernanke has said since the crash – that he will keep interest rates artificially deflated and continue to create endless amount of free money for the top 1% Corporations "as long as unemployment stays high."   In other words – "More Free Money – As Long as You Don't Hire."

I made my speech on gold and ABX last week and both are in a bit of recovery this morning with gold back at $1,240 and ABX back near $16 pre-market.  As correctly pointed out in Market Currents this morning:  While some say Barrick Gold (ABX) should walk away from its Pascua-Lama project after the latest production delay, that wouldn't be easy: Once complete, the mine would produce 800K-850K oz./year at all-in sustaining costs of just $50-$200/oz. in its first five years. Plus, ABX already has spent ~$5B on the project, shuttering costs could top $1B, and it would have to pay out Silver Wheaton (SLW), which has rights to part of the mine's silver output.

Peter Schiff said it's time to buy both gold and silver this weekend and we caught AGQ right at $15.75 on Wednesday in that morning post and it fell to $15.25 by Thursday (can't always time it perfectly) but now back to $17+ this morning for a nice quick victory and should mark incredible gains on our leveraged option play.  There's still plenty of bullish calls from Wednesday morning's post that are playable and will be great if we get a real leg up here and, either way, we were looking at the LONG-TERM picture, this fast pop is just a bonus.  

It looks like we're going to get a strong pump into the open – but we're going to be a lot more concerned with where this day ends up.

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TSLA – at this rate we will have to roll everyday!

CNBS – What's sad, is to see the top 5 CEO's annual pay package at 50M+++…..

INO – going higher…that is my premise, and I am sticking to it.  Long term for me.

Phil
You talk about options but what the heck are you trying to accomplish with this position?  It can't be protecting you from a short-term move because any short-term move up in TZA is BAD for this position so it's a terrible hedge.  
I understand everything your saying. The original intention was we broke the Oct $30/37 spread and you suggested pairing it up, or covering with a Jan14 $35/44 ( with a stop on the short Oct $37's ) to let them expire worthless. AND at the same time protect if the RUT decides it wants to challenge 1000 again.
I'm really trying to understand your long term plan. My thought was that since the world is assured theres a drop coming, being long TZA would be a good hedge, like we've always done
What I take from your explanation is since the the short Oct$37 decay twice as fast, let them run and just hope ( not a strategy ) in October they expire worthless or my stop triggers and the spread is in the money.
Is that fair ?

This market is on mushrooms; here's today's news impact:

Time Warner Cable to bring 300 channels to Xbox 360 – and Microsoft is unchanged.
Netflix Signs Exclusive Deal to Rerun ‘New Girl' – and Netflix is up 6%!

ROFL.

And tomorrow's headline today:
Netflix signs exclusive deal for Gilligan's Island reruns, stock up 55%.

mrm – in the case of TSLA, meet must be magic mushrooms. 

mrm – in the case of TSLA they must be magic mushrooms. 

More on NFLX – how long will it take Amazon to take ownership of the space? Why I Won't Be Buying Netflix Anytime Soon

Phil,  UBER is friggin fantastic.  I live in DC and this is my opinion.

Here is a quick summary of how to use it. 

1.  Open UBER app on phone.

2.  Hit hail a car.

3.  Car shows up at your feet and takes you wherever you want to go.

4.  Automatically billed to your credit card and no need to tip.

Some things to note, I will always try to UBER before I hail a cab.  UBER screens the cars and drivers which acts as quality control.  Some of the cabs that pick you up in DC are quite sketchy.  In general, there are more black cars available than cabs.  A black car is only 30% ish more expensive than a cab.

If UBER were public I would buy as much as I could get my hands on.

BBY – one heck of a move on an upgrade

Craig — UBER — my wife and daughters love UBER, especially when they are in sketchy places. And, it tells you exactly how much time it will take for the cab to arrive.  Also, the cab drivers like it too, because (as I am told) it removes the "flake risk" because the fare is paid automatically.

Phil,  I have talked to the founders of UBER and asked them that exact question before.  The problem in Vegas is that car services are heavily regulated and have made it illegal for any competition to crop up.  But they said they are trying to work with the Zappos guy to get the old timey corrupt guys out.

Phil:GMCR
 
It was fun to read those old posts on GMCR 2 years ago.  I have learned nothing goes to the sky and also that it doesn't always pay to keep rolling short calls up to put them in more premium.  When a momo does finally come back to reality the short calls in the money can provide better profits than rolling the calls up and buying put spreads.  Uses more margin of course on the run up.  Also, companies with a tangible product can't keep up the BS like companies who can talk up their "service" or "new business model".  Hence TSLA is about as sure fire short as you can get, eventually the analysts will start counting how many actual cars are being built and sold and stop extrapolating to infinity.   fwiw

nnow Gartman is bullish on gold.. watershed?
 
Amazing..

UBER – Vegas is on their list and I sent the info to my niece who own a limo service in Vegas.  Thanks Craig!

UBER – At least their web site for potential partners say Vegas is on their list.  Need a car in Vegas, let me know and I am sure my niece can give anybody a great deal.

UBER:  I think the Hold 'em winner should receive Uber transportation to and from the seminar.  That makes them the Uber Winner. 

Phil or anyone–Could I ask you a favor? Could you give a bearish argument as to why PCLN isn't a $1000 stock? You have written about it before but I don't know how to look it up on the site? I know you said it isn't a MOMO stock but is it a $1000+++ stock in your opinion?

Phil–you are right. I guess I am looking for a reason to stay short the OTM calls.
I guess I am hung up on the number because I am short 1050s, 1080s, and 1200s.
I thought with Europe being so weak that it would sting PCLN–not yet I guess.
thx!

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