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Monday Market Momentum – Slowing on China Data

CHINA!!!

Think about how many companies pin their hopes and dreams on the infinite possibilities of selling stuff in China.  If TSLA's stock can pop 10% because Musk announces he's going to put superchargers in China (he announced he'd put them in America 3 years ago – where are they exactly?), why does the stock then ignore declining auto sales in China or the slowdown of the whole economy over there?

The slide in Chinese manufacturing has been accelerating since the fall and we're in danger of breaking through a floor we haven't seen breached since we ignored it in early 2008 – the last time the MSM shrugged off a China slowdown as "no big deal."  

How can China be the biggest deal in the World when you make a bull case but no big deal when it turns the other way?  This is why investors are so confused about the markets – the information they are being fed is spun to CAUSE them to make poor investing decisions.  Remember when the Senate investigated Goldman Sachs because, internally, they called $600M worth of Timberwolf Securities they were ACTIVELY selling to their investors a "shitty deal" while bonusing their "financial advisors" for pushing it on their clients.  

The only thing unique about Timberwolf is that they got caught.  China has been a "shitty deal" for years – I've been telling you for years but not the MSM, not the Fund Managers, not the Investment Professionals that get fees for whatever crap they get you to put your hard-earned money into – China is far away, hard to understand and even harder to verify – that makes it a perfect story for con men who want to get their hands on your money.  

Like the US, China's growth story is a stimulus story.  China's money supply grows faster than their economy and, in the past 5 years, as you can see on the chart, it's gone into hyper-drive with loans up almost 100%, which is ANOTHER 150% of the country's GDP in debt.  China began their stimulus program in 2008, while our Congress was still arguing over TARP.  

They have plunged their entire nation into massive debt (like us) in order to keep up GDP appearances (like us) and last week, just to confuse potential investors further – the MSM began talking our China's PPP (Purchase Power Parity) GDP surpassing the US.  What utter nonsense that it – go to China and see what $9,844 buys you.

That's the trick though, isn't it?  They know that you (the generic you, of course) aren't very likely to go to China and check out their story and you probably don't even know anyone who has gone to China unless they were fairly well off and had a nice vacation.  That doesn't tell you anything about an economy.  Knowing you can't check a story out is step one into conning people out of their money – it's the same scam they've been running for hundreds of years – because you'll believe almost anything if it supposedly happened "a long time ago, in a galaxy far, far away."  

Instead of "amazing medicines and treasures from the far east" we now have BIDU and QIHU and soon we'll have Alibaba to invest in.  We also have TSLA and 100 other companies who tell you how great their sales are going to be in CHINA!!!  

But look at the chart above, even with the best estimates, the average Chinese citizen has just 20% of their counterparts in the US.  How then, is China going to "save" us?  I like that chart because it points out that China's economy is roughly on par with turn of the century America – an example I used to use with my consulting clients who were looking to do business in Asia.  

This is not to say there's not business to be had in Asia.  You can even sell $100,000 Teslas because, even if you went back to 1900 with a few hundreds Teslas – there'd be plenty of people rich enough to afford them then as well.  I just wouldn't recommend opening up too many dealerships west of the Mississippi at those prices.  Just like 1900s America, China is a vast nation that is only recently getting electricity, telephones, internet – and now it's being connected by rail and air and new cities are sprouting up along the transport routes.  

The long-term growth story is definitely there – it's the expectations for the time-horizon I take issue with.  China is benefiting from a well-educated, cheap labor force – just as we did in the 1900s, as people left the farms for the factories.  That gave us a huge boom that lasted until 1929, when the farms began failing and a speculative bubble burst and the banking system collapsed.  Think we're too smart to repeat those mistakes 100 years later?  Think again:

China’s great real-estate bust has begun, says Nomura. A combination of a huge oversupply of housing and a shortage of developer financing is producing a housing market downturn that could drive China’s GDP to less than 6% this year.

“To us, it is no longer a question of ‘if’ but rather ‘how severe’ the property market correction will be,” three Nomura analysts wrote in a report released Monday.  And there isn’t much the government can do to head off problems.

Nomura bases a lot of its argument on the observation that that property investment turned negative in four of China’s 26 provinces in the first quarter of 2014, and in two of them, Heilongjiang and Jilin, the fall was greater than 25%. To Nomura, that’s a warning sign of similar problems to come in other Chinese provinces.  Falling investment  leads to falling levels of construction and sales. And given the property market’s huge role in the Chinese economy, declining growth in the property sector means declining growth in GDP.

Japan, South Korea, Taiwan and Australia have already shown the negative effects of a Chinese slowdown on their economy and this morning, they were joined by Indonesia, whose GDP came in at just 5.21%, well below the 5.8% forecast – just like our GDP was 0.1% vs 1.1% forecast.  China’s economic slowdown is weighing on the outlook for Indonesia’s exports even as the trade balance improves, Finance Minister Chatib Basri said May 2 in an interview with Bloomberg News in Astana, Kazakhstan, where he was attending the Asian Development Bank’s annual meeting.  

This is why, once again we went back to CASH!!! last week.  Not all cash (see our Member Portfolios) but "Cashy and Cautious" as we have not really been encouraged by the earnings reports we've seen so far.  It's another heavy week of earnings and data with Yellen speaking Wednesday at 10am and 4 fed speakers on Thursday, including Yellen again at 9:30, ahead of a 30-year note auction where the US borrows another $60Bn to keep the lights on this month.  

I wonder what they are saying about us in CHINA!!!? 

 

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Good Morning!

GM!

FU TSLA!!!!

Major Earnings for the Upcoming Week:

 

Monday:

BMO: OXY, OWW, PETS, PFE, SYY, TESO, TSN

AMC: AIG, APC, LF, NTK, PZZA, PRI, SMG, THC, TXRS, VND

 

Tuesday:

BMO: AVTI, CBOE, CNK, COCO, DTV, NUS, OPP, TW, TRIP

AMC: ALL, COKE, DIS, EA, FEYE, FMD, GRPN, MRO, PBPB, VTSS, WFM, ZAGG

 

Wednesday:

BMO: AGN, AOL, ARIA, CHK, CTSH, DVN, EE, HTZ, HUM, TAP, MDLZ, VSI

AMC: NLY, CAR, CZR, CTL, GMCR, MDR, PRU, SCTY, TSCA, RIG, Z

 

Thursday:

BMO: APA, DF, DISHPCLN, WEN, TST

AMC: DVR, CBS, JCOM, JMBA, NVDA, TUMI

 

Friday:

BMO: HLT

AMC: N/A

TSLA:  Saw an ad by Mercedes Benz for its new all electric car.  It has has a Tesla power plant under its hood.

Hi Phil,

Good to be back after long time. Your research, recommendations and commentary are just too good to miss for long time. I also advertised your work to people in my excel VBA class and collected some referral discount…little less from the bottom 90% (me) to 0.1% (you) :-). Sorry but not sure how many will continue to reap benefits.

BTW, is there a place where I can view the current member portfolios holdings? Will I have access to view it?

Pat

Looks like we may be seeing some lift-off in CMG!

This bounce back to Friday's close looks very weak, don't be surprised if we go back down. Money flow is not posative.

CMG/Phil:  I guess part of my enthusiasm is b/c I added some Jun 500/510 Bull Calls last Thursday.  It was just too tempting for me to resist.  ðŸ™‚

Phil,

A question on the BTU butterfly, if you can stand it.  I have the May $17 short call and am wondering whether you would roll to the June $17 or June $18 (or something else), and when? Wait until mid-next week? 

Beware Experts Bearing Predictions — Millennial Invest

was that little burst up the stop grabber before we leg down?

Phil, I have a position in Gild.  The movement is not making sense to me. Gild at $79. Please help:

20 Jan15 75 calls, basis 14.05/ today 11.15;  -20 Jan15 85 calls, 9.75/6.60; -20 Jan15 67.50 puts, 5.50/3.92.

With 9 months remaining, does this indicate a strong bias to the downside?  For example, the erosion in the puts seems small. Thanks.

taihuichi – Just my 2c.  You're net is -1.2 credit.  GILD reported very very good earnings.  You will be put the stock if they are below 67.50, with a net of 66.30.  While the spread might not reach full value in Jan15, it still is "working" to me.

Phil // Learning to love flies
I have been holding BTU through the storm ( Jan15 15/25 Bull / Jan15 $18 short puts )
It's currently up 20% – would love to move it into a butterfly
Can you point me to the trade or since its in motion, redo a new one //

Thanks /

Phil

Any trades on beef or Pork  ?

Thanks

From BBC:

Could India's election outcome threaten beef business?

5 May 2014 Last updated at 00:29 BST

India is one of the world's biggest beef exporters.

It supplies about 20% of the global supply and while, economically, this might seem to be a good thing, in India the cow is revered as holy by Hindus and the consumption and sale of beef always sparks fierce political and religious debate.

Now the issue has made it onto the election agenda, with the opposition BJP Party – tipped to win the country's vote – threatening to ban the industry.

Shilpa Kannan reports from Delhi.

BTU / Phil:  "Buy back the short Call…."  That is exactly the ticket.  That is a great lesson.  I'm glad you highlighted it.  One of several key lessons to be learned that have ramped up my trading since joining PSW.  

Thanks  Burr.  Thanks Phil.

Looking for a whee on the RUT IF WE CAN BREAK 1122.25

denlundy
how are you playing those – futures ?

Wombat. Just day trading with the various ETF  's.  DIA, TNA,TZA,DXD

QCmike

Beef prices have become too high for average people and that reduces demand. I have never seen beef that wasn't US so who buys India beef. Other than I have no clue Texas and California, not a big producer mostly milk and cheeze, most beef production states have a good outlook this year. No rain question only time tells but that mostly effects growing.

Not much going on in earnings tonight.

Tomorrow we'll have EA, ATVI, GRPN, TRIP and DIS for possible plays but really nothing that great. GMCR and TSLA should make for a fun Wedneday. And that's pretty much it for the week. Winding down right now.

Phil

This is what I was looking at for  Pork 

Thanks

Pork prices jump as fatal disease kills millions of pigs; consumers will feel the pinch

http://www.omaha.com/apps/pbcs.dll/article?AID=/20140329/MONEY/140328598/1697

QC pork or beef

Living in a hard luck area I can assure that price is everything. Locally they have the almost $20 per pound steaks out but never more than 6, around the corner chicken breasts $1.19, 250 packages all 6 lbs or more. Same thing in produce. 2 weeks ago butter $2.50, 2 cases, otherwise maybe 25 pounds. The store buyers are squeezing the holesaleers because high prices don't sell period. Same with gas, last 2 weeks the gas stations are empty, that is why $100 oil is history!

GLD   July $129 15,000 calls traded today.  That seems like a lot.

Wombat Just have a look at CZR are you not happy you did not close the play?

RFMD breaking into new highs since 2006

 this will do wonders for teen suicide rate..

 http://www.businessinsider.com/what-is-yik-yak-2014-5#!IXGJR

~~About 480 million shares from Twitter insiders will become eligible for sale tomorrow for the first time since the San Francisco-based company’s initial public offering in November.

Earnings / Phil – I was actually looking for more misses, but no real luck so far… Of course, this markets discounts anything and there is always weather and China!

AAPL – Finally hit a new high.

LQMT filled for .2144 at IB.  So just a little more than the 1050.

Alibaba – I don't get it.  Maybe because I'm not a importer.  Everything I try to buy on there costs tons to ship to the USA, and even buying a container of stuff, the per unit cost breaks down to minimal savings over SamsClub.  I'm sure it's more that I don't get it, rather than it doesn't work.

CZR – I like the 2016 CZR -12.5P +15/20 bull call for a 0.02credit.  I really like these net 0 spreads.  If the stock doesn't go up, it doesn't really matter to me.  They just have to *not* hit 12.5 and it's a wash.  If they hit 20, I make $500/spread

Keeping Things Simple. Phil made a seminal post last week on keeping things simple re. a set of AAPL positions (apologies but I forget who asked the question). Cashing out ITM positions, going short 2014 and offsetting by going long (or longer) 2015 is the way I am adjusting my portfolio right now. I am also reducing the number of positions to force myself to focus; AAPL, GS & PCLN. There are crazy combinations available (Phil has covered them all, you just need to look) that can bring pots of gold if the market plays ball, with minimal downside if it does not.

An important point about this board. Phil's recommendations are all educational trades in educational 'virtual' portfolios. They are akin to the involvement of the chicken in a eggs and bacon breakfast. I, for better or worse, have a portfolio which is the proverbial pig in that same breakfast. That means I am totally committed. That's real money, earned by real blood, sweat and tears. 

Some will tell you we are at a top. Some will tell you we are ready for lift off. Some will tell you to cash out. However, sooner or late, everyone sits down to a banquet of consequences.

Burrben – FWIW, I'm showing the highest price paid for LQMT in the last hour was .2135.  You might want to question that fill.

Phil – That 500Bn  number reminds of some of some of the voting totals in Chicago ! 😉

Alibaba – 500Bn users? Aren't there only 7 billion people in the world? Maybe, the user figure was 500 million – which still sounds pretty high.

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