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Thursday, December 1, 2022

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Tumblin’ Tuesday – Will the Fed be Able to Save Us?

Always in a hurry, I never stop to worry, 
Don't you see the time flashin' by. 
Honey, got no money, 
You got to roll me and call me the tumblin', 
Roll me and call me the tumblin' dice. – Stones

The chart on the left is from an excellent article by Charles Smith titled "Bernanke -The Only Game in Town: Really?" which is a quote from Senator Schumer as he incredulousy questioned the Fed Chariman as to the need for the Fed's constant monetary machinations.  

As pointed out by Smith:

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

Click to ViewThis morning, in Member Chat (see morning tweet), we discussed the possiblity that ECRI may be right and that the US may be headed back into a recession.  Why else would the Fed be keeping their foot on the gas with the market up 200% from it's bottom?  

The leading indicators have been turning sharply lower since January, which means it's not very likely that our Q2 GDP number (released tomorrow at 8:30) is going to hit the expected 1.1% target set by leading Economorons.  More likely we have a sharp dip, possibly below 0%, like the one we had in Q3 of 2011, that dropped the S&P off a very sharp cliff (in the last week of July), from 1,356 to 1,100 (19%) in just two weeks and, ultimately, to 1,074 – for the full 20% correction.  

SPY 5 MINUTEWe are not worried about a correction – we NEED a healthy correction.  Hopefully it won't be 20% but the expections reflected in equity prices simply aren't matching up with the reality of the economy, or the earnings we're seeing this quarter.  You may have thought yesterday's action wasn't that bad but it may surprise you to know that 919 stocks advanced on the NYSE while 2,145 stocks declined.  On the Nasdaq it was 789/1,705.  

As I noted to our Members early yesterday morning, heavy-weight stocks like AAPL were pumped up to mask the fund managers running for the exits in the majority of their positions – leaving the retailers to hold the ever-expanding bag.  

Cramer was doing his best to herd the beautiful sheeple into the markets by extrapolating 3 mergers to 300.  The ELN deal was known for a long time and the stock is really just now back where it was last year.  SKS has also been on the table since May and and the OMC takeover was not only baked in but the terms caused them to drop back to $64 yesterday, after opening at $70.  

This does not stop Jim Cramer from telling his followers to run out and BUYBUYBUY everything that's not nailed down – whipping them into a frenzy and making them susceptible to all sorts of M&A rumors (like TSLA being bought by AAPL) – no matter how silly they may be (like TSLA being bought by AAPL).

M&A rumors often mark the blow-off top of a market as it allows the carnival barkers to throw valuation out the window.  The timing of real M&A deals is, of course, coordinated by the IBanks, who then use the sector pops to sell off other stocks they've been pumping up into the deal as fresh money is drawn in.  

I'd like you to travel back in time to July 21st of 2011, when the market was running up into the Fed and the ECB rate decision (sound familiar?).  Though I was on a cruise ship in Monaco that day, I could see from 3,000 miles away that it was time to get more bearish.  Cramer, of course, disagreed and the Dow rallied 152 points that day saying "there are so many ways to win" and urged his sheeple to buy and hold and not listen to the "news" or pay attention to "fundamentals."  My reaction the next morning (Friday, July 22nd) was – "Short it some more"  in what I called "Fully 'Fixed' Friday – Extend and Pretend Edition," with this chart:

On August 9th, just two weeks later, the S&P was down 19%, to 1,100 – right after that 150-point blow-off top.  As you can see above, we were simply playing the odds that the S&P was not likely to have the energy to sustain a move over the top based on the data we were seeing.  Here's what a longer-term chart looks like today:  

In a one-year chart, we don't account for inflation but, in a 13-year chart, it would be ridiculous not to, right?  Now an optimist might say that perhaps then, we have no resistance until 1,785 and that person would be correct – except TA people rule the waters and they don't care about silly things like inflation or actual values – they care about big, round numbers and squiggly little lines that make pattens like a Rorschach test that they can point to in order to "prove" whatever it is they are looking for. 

Note the pattern of 2007 – the top, the dip, the bigger top and the much bigger dip.  M&A news was rampant then and you couldn't short anything because either that stock or one from it's sector (often commodity plays, financials and small tech) would leap up on the rumor du jour but, at the time, there were plenty of real deals going on but again – these deals are scheduled to close months in advance by the same banks that are allowed to bet on the market.  It's not insider trading if you bet on a different stock in the same sector!  

Speaking of manipulating the markets – JPM is accused of manipulating power markets in California and the Midwest from September 2010 to June 2011, obtaining tens of millions of dollars in overpayments from grid operators, the U.S. Federal Energy Regulatory Commission alleged today. JPM has agreed to a fine of $400M – 2% of their annual NET profits, which is nothing but the good news is it gives the Senate more leverage to shove JPM and their cohorts out of the commodity business (or else we'll take a look at the next 2 years as well!).  

More class warfare from the President today and Consumer Confidence at 10 but it's all up to GDP and the Fed tomorrow and then the ECB Thursday.  As with July of 2011, hope can spring eternal – until it doesn't anymore.  

Please be careful out there!  

 

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wombat – Muir Woods is my favorite for tree stare'n…. 🙂

last year FOSL had a spectacular drop on earnings. Given what COH did today, it's worth some Aug puts.

HRB looks toppy

I sold some of those FB 28.50 calls for 9.10 today. 0.38 basis (2,297%).

 

That's a winner….

Well done Bdc

Phil / Trees – don't know if I would see that as a 'progression' – I just need silence. It may be a buddhist thing ; > 

1020 / it's 30 min from my house. Ashamed I don't get there more. Redwoods are pretty awesome. Puts TSLA into perspective ; >

Oh, the BAC play was something you mentioned a few months ago, selling monthlies again the long Jan15 $15's / Sonce we're approaching $15 – $1.25 to roll up the Jan15 $20's – Keep going ?

test

BDC _ Well done !

a dead cat bounce on POT was easy money. Maybe next time.

 

If they drift up more one could play puts for the coming downgrades

Phil/hagee   It could be due to his viewing this little snippet, that left Mr. hagee a tad self conscious….. 🙂

http://www.youtube.com/watch?v=iaysTVcounI

just for fun – SPWR AUG 23/28 BCS for net 3.4 selling the Jan 23 puts for 2.4

Speaking of trees: Here is a favorite Buffet quote that ties into PSW theory:

 Someone’s sitting in the shade today because someone planted a tree a long time ago.

 

FB I was on the wrong side of that, I owned puts & thought it would correct at sometime.I was wrong. MOMO’s have there own reality distortion field.

This has been the least fun earnings season in a while.  No great momo plays.  No hold your breathe anticipation.  I feel like I'm going to a funeral.

Phil – I think they have the best tech, and due to the TOT transaction, the finances to do large scale rollouts. As time goes on, I think they become one of, if not THE dominant player. What the politicos do, I have no idea.

Interview with Economic Hitman author, John Perkins

http://www.lewrockwell.com/2013/07/no_author/confessions-of-an-economic-hitman-2/

Phil- Thanks. Will make some changes tomorrow on CMG. What is your fundamental value based on the recent quarterly report? 

scottmi/ino

I am still holding my free 1/2 also. Thought about selling, but at this pace I will wait until momentum slows. They could have a TSLA like market cap in another week 🙂

All these indices are showing an "Angry Camel" formation which statistically ends up with the market going lower 50% of the time. Otherwise it goes higher. But it's highly dependant on outside factors…

Cute little exercise in fiction writing:

http://www.slate.com/articles/technology/low_concept/features/2013/wargames/what_if_google_and_apple_went_to_war_in_real_life.html

Some good moments in there…

Within 24 hours Al Gore is in prison, the Apple fanboys have retreated to their online comment boards, and Larry Page has been exiled to his own private beta-test country. All that's left is some infighting among the Alliance, where a push to install John Boehner as president is overruled by cooler heads. In the name of bipartisan reconciliation, the Oval Office goes instead to former Wal-Mart board member Hillary Clinton. Bing becomes the world’s default search engine, Amazon and Facebook shareholders rejoice, and peace is restored to the land.

Somewhere in Bel Air, Elon Musk has a devious gleam in his eye …

That guy from Forbes on Kudlow is wondering why we only have sub-2% growth in the economy. Where do these people live? Europe is basically in recession, China is surely slowing down, Japan is a basket case and the rest of the BRICS have their own problems. And to top it off, this guy's friends in Congress want to impose more austerity measures. Where is the growth going to come from? I guess tax cuts would be the answer. Althought not anymore because Obama proposed that this afternoon for corporation and they are already against it.

Kind of smart actually on his part – since the GOP opposes everything he says, might as well rule by "opposite". Next thing you know he will propose the elimination of taxes on capital gains. And see Ted "Calgary" Cruz throw a tantrum!

My quote of the day:

Phil Birnbaum, “You gain more by not being stupid than you do by being smart. Smart gets neutralized by other smart people. Stupid does not.”  (Slate)

BTW, more post at night since my real job is keeping me busy during the day!

Stjean

Angry Camel? I thought it was the spitting cobra.

It's a new one Dc…  Don't you see the double hump?

Phil – thanks for the advice earlier. I fully expected a lecture but I find value in the discourse and a second opinion. I adjusted throughout the day and cut my losses by half. 

stjean

:)!

FB – just read the article on 15 second TV style ads. So I asked my wife who uses FB what she would do.  Her response was to quite using it. 

CLF – Working a loser into a winner:

Sold Short 3 Puts (2/25/13) Apr 25 strike for 1.20 (was assigned)

Sold Short 3 Puts Jan15 18 Strike for 4.45 (3/13), took profits of (.85) 5/9

Sold short 3 Puts  Jan15 13 Strike for 3.20

Not counting the 13 strike, the cost basis (commissions included) is now 22.92

 

So deciding what to do with this position as the market (and CLF) is topping.  Selling the Jan15 25 Call for 2.65 puts me in a Buy/Write at 17.07/15.04 (if my math is correct).  Max Profit at expiration with CLF over 25 is 7.93 (47%) or Put to me at 15.04 a 34% discount.

 

What do you think Phil?  Set it and forget it?

CLF – On the above Cost basis includes a 45.00 dividend for 300 shares.

Hi Phil,

Really like your Butterfly/Double Diagonal Trades of IBM, GS……Having not much experience in those types of trades, what is the expected outcome of these types of trades? Since they resulted in a credit, is the play to hold them to expiration to gain full credit? Or take them off individually as each becomes profitable….Thanks for any insight….

On planes all day, catching up.  If one were interested in a long muni / short Treasuries play, what instruments might be useful?

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