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2024
August 22nd, 2012 at 9:30 am
Good morning!
Done with my post early – not much new to say – the economy sucks and the bulls expect that means stimulus even though, as I pointed out a week or two ago – it would be kind of ridiculous to stimulate the economy with near record-high stock and commodity prices. Actually, it would be flat out irrational and insane and the only reason we even THINK it will happen is because we've had several massive bailouts already.
China is doing stimulus (and we're falling anyway) BECAUSE their markets are in free-fall. Since 2010 – they are DOWN 40% while we are up 40% – that's 80% worse than us. THAT is a reason to add stimulus, not S&P 1,400.
Don't get sucked in to the gross over-simplification of the MSM. The ENTIRE Global Economy rose and crashed in the '00s but that was almost 5 years ago and, since then, we have gone our separate ways. That means that our interests are NOT aligned and what's good for China may not be good for the US or Europe. Coming into Jackson hole next weekend – QE3 is considered to be "in the bag" but, if The Bernanke doesn't print MORE money than Draghi – the Dollar will bounce and that will be a huge drag on the markets.
If we do get easing/stimulus – of course we're going to go up. But we'll have plenty of time to make bets that will return huge amounts of money and it really won't matter if we miss the first week of the rally (see 2009, 2010, 2011 stimulus events). It's the crashes that tend to catch us with our pants down, not the rallies and this great consolidation (if it is that) we are having below our breakout levels will create a tremendously solid floor that we can bet on once we break over it (IF we break over it).
For example – let's say they announce QE3 tomorrow and XLF pops 5% to $15.90. That would send FAS to about $110 . Did we miss anything? Sure, the first pop but very likely we go up 10%, 15%, 20% from there as Operation Twist, which was barely QE – sent us up 36% from $11 to $15 on XLF. Even if you assume we're pre-rallying from $13.50 – 25% over that is still $17. Of course, we don't need something to go up to make money – we just need it not to go down. With FAS now at $97.41, we can sell the Sept $97 calls for $5 and buy the $90 calls for $9.60 for net $4.60 on the $7 spread and all FAS has to do is NOT GO DOWN for 30 days and we make 52%. Isn't that sort of play extremely obvious if we get QE?
If I felt that we were going to get QE and the S&P was going to 1,550 – I would be as gung-ho bullish as anyone. Last year, in September, when EVERYONE thought we were going off the cliffs again – I DID think the Fed would step in because it was logical for the Fed to do so and I put out our September's Dozen list (on Aug 27th, actually).
Look at that chart from last year – it certainly wasn't obvious we were going higher and it was a pretty rough fall but we stuck with our list and our PATIENCE was rewarded in October.
Like the Long Put List, our time-frames in August were mostly for Oct and January because you have to let these things play out over time. I feel the same way about the Long Put List now as I did about the September's Dozen then – it's only a matter of time. We hedged those bets with some aggressive short plays just like we're hedging our short plays with aggressive longs because – as always – I could be totally wrong but I URGE YOU to consider remaining cashy and cautious here – no matter how many promises the Banksters make.
Until we see actual capital committed – it's all just hot air fueling a bubble that's already blown the S&P up 12% since June and now up 30% since last September. 30% in a year is a lot. That's more than doubling a $60Tn Global Market every 3 years in a $60Tn global economy where they tell you there is no inflation.