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Wednesday, November 29, 2023

Friday: Draghi Fever has Traders Ignoring more Terrorism

170 hostages were taken at the Radisson Hotel in Mali

I know – where's Mali?  Who cares?  Apparently, not too many of you do because the Futures have gained 0.5% since this happened early this morning, so let's just keep going and invest as if nothing bad is ever going to happen.  

Today's market cheerleader was former Goldman Sachs Director, Mario Draghi, who said the ECB is prepared to deploy its full range of stimulus measures to fight low inflation, indicating that the Central Bank will apply additional easy money policies at its next meeting in December.   

That sent the Euro down half a point and, so far, the Dollar is up 0.5% to match, which is pushing oil back down to $40 (the Dec contract, on it's last day) and giving us a nice buying opportunity into the weekend on both /CLF6 (the Jan contract, now $41.50) and /RBF6 (Jan Gasoline, now $1.275) into next week's holiday.  For the Futures impaired – the Gasoline ETF (UGA) should be at $28.75 and that should put the Dec $29 calls under $1 – a fun way to pay for a tank of gas for next week's visit to Grandma's.

Keep in mind that Draghi is a guy who thinks Bankers should run the World, the quote in this picture comes from his actual interview in Der Spiegel in 2012 and, since then, he's simply moving his agenda forward, in a subtle(ish), diplomatic fashion:

 "It is not that we want to replace the national supervisory authorities; on the contrary, we want to work closely with them. However, they need to be independent of their governments in their assessment of the problems. In the past, problems in the banking sector have been hushed up time and again.

"I am not going to mention any names. However, I am certain that we will be able to act more independently and quickly if Frankfurt is at the heart of the decision-making."

On our side of the pond, the NY Fed's Bill Dudley (former Goldman Chief Economist) was heard saying, in his opening remarks at a regulation conference: "If we begin to raise interest rates, that’s a good thing. That’s not a bad thing."  Indeed GS has all their minions flying around the World saying anything and doing anything they can to get the S&P over 2,058.90, which is where we were at the market close on Dec 31st of 2014.  Since then, the markets have gone nowhere and it's hard to get prospective clients to give you Trillions of Dollars to collect fees on if they don't think the markets are going to make them rich.  

SPY  5  MINUTEThe volume yesterday was a joke and the markets went nowhere and the day before, on the rally, the volume was a joke as well.  We still worry that the joke will be on you if you load up on stocks into the holidays and we're staying Cashy and Cautious though, of course, we are doing a bit of bargain-hunting when we can.  

It's not that we don't have faith in a long-term recovery – how could we not with all these Trillions of Dollars being thrown around by the same Central Banksters who tell the Governments they are borrowing too much money?  We just see a period of instability ahead as the Fed begins to tighten while the ECB continues to loosen and the super-strong Dollar is NOT likely to improve our rapidly declining export numbers, which look much worse when you take into account actual end use exports, rather than just the traditional payment balance model.

This is the Fed's own chart illustrating how dire End Use Exports have become.  They are ALWAYS a leading indicator for the broader Export numbers.  Now, when is the last time we've seen numbers this low?

The hardest thing to do as a trader is to stay on the sidelines while the market is rallying.  Other people are making quick money and yours is just sitting there and, if you are nimble – you can make some really good money at the top of a bubble but, if you get caught in the fall – the consequences can be dire.  

We just reviewed our Butterfly Portfolio yesterday afternoon and it's up $10,510 (10.5%) in the past month despite being mainly in cash and despite being very well-hedged.  When I say we're "Cashy and Cautious" – it doesn't mean we're afraid to trade – it's just that we are trading in such a way that we won't be caught by surprise when the market finally begins to pull back and, if it never pulls back – we have lots and lots of long-term plays that will do very well.  

SPX WEEKLYOur Long-Term Portfolio, in fact, is up almost 5% ($23,000) since our October 4th Portfolio Review despite the S&P having gone up just 1% while our Short-Term Portfolio has lost $24,000, because that's where all of our bearish positions are (we use the STP to hedge the much-larger LTP).  That's what I mean by staying on the sidelines – it's not that we don't have money in the market – it's just that we're very well-hedged and leaning bearish but, if they want to rally us further – our long-term positions don't mind at all!  

If we do break out to new highs, we'll be happy to cut back on our hedges and let our long-term plays run but, for now, we prefer to keep our main portfolios in neutral until we are sure this isn't yet another low-volume head-fake, designed to pull the retail suckers in off the sidelines while the professional traders cash in for the holidays.  

Have a great weekend, 

– Phil



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