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Friday, December 9, 2022

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Fake Market Thursday – OPEC, ECB and the S&P 500

SPY 5 MINUTENo one was trading yesterday.

The markets may as well have been closed based on the volume trading on the S&P's ETF (SPY) and, as you can see, the TradeBots that did show up for work dutifully brought us right back to $210 (2,100 on the index) – to preserve the illusion that all is well – even though it's clearly not.  

Obama made a great speech yesterday laying out the good and bad of our current economy and setting the tone for the next 6 months of debate as we decide who will replace him next year.  The things that make me nervous about the markets have nothing to do with our economy – which is slowly recovering – it's about the economies of Europe and China and Japan.  Those are the economic nightmares that keep me up at night.  

Just yesterday, Bloomberg reported that the PBOC is looking to crack down on China's $8.1Tn on-line financing market (ie. shadow banking), which is used to finance everything in China from diamond mines to weddings.  $8Tn is 80% of China's entire economy in unregulated banking and the fear is that it's become a massive Ponzi scheme as more and more small investors get involved in lending schemes in search of higher interest rates than the banks give them.   

"Risks have also emerged because of the relatively loose regulations," Yu Xiangrong, an economist at China International Capital Corp. in Hong Kong, wrote in a recent note, citing reports of Ponzi schemes and operators disappearing with investor money. "We expect China to step up its efforts to address the risks associated with internet finance and to tighten regulations on fundraising, loan-pricing, lending and risk controls."

Meanwhile, casino revenues in Macau fell 9.6% – another indication of Chinese belt-tightening and April was down 9.5%.  The average visitor spent $220, down 30% from 2014 and Macau's economy is down 13.3% in Q1 – it's 7th consecutive decline.  Wynn (WYNN) opens the Palace in July – it will be interesting to see how that goes.  Then Sands (LVS) opens the Parisian in September.  While we wait, Moody's has downgraded the city's debt.  Poor showings for these mega-casinos may panic people out of many other Chinese investments.  

China's Yuan is at a 5-year low, at 6.58 to the Dollar but part of that is high expectations that the Fed will raise rates at their next meeting (15th) but I don't believe that's going to happen and more likely it will be the July 27th meeting or, at the latest, Sept 21st.  Meanwhile, in other looming catastrophes, June 23rd is Brexit day and the Brexiteers just realized that the Government sneakily scheduled the vote on the day of the Glastonbury Festival, where 200,000 young voters will be otherwise occupied.  

The Corporate Masters are out in full force to scare away the Brexit voters with the bosses of Siemens, Airbus and GKN issuing warnings that a vote to leave the EU would endanger future investment and manufacturing jobs.  Nonetheless, an ICM telephone poll put “Leave” at 45% compared with 42% for “Remain.” The pollster questioned 1,004 respondents from May 27 to May 29. A simultaneous online poll of 2,052 adults also gave “Leave” a 3-point lead.  This is going down to the wire, folks. 

I cannot emphasize enough how totally screwed you can be if you don't properly hedge your portfolio against the possibility of and event that, in 3 weeks, can completely upend the Global Economy.  Our 4 Member Portfolios are parked in neutral and have well over 50% of their balances in CASH!!! because we don't know what will happen and we don't know how the market will react so we are far better off WAITING PATIENTLY for more data and THEN we can play the markets again.  

As noted by the OECD, a Brexit could spread "shockwaves" through the Global Economy but, of course, they're no fan of the Global Economy in the first place, saying:

The prolonged period of low growth has precipitated a self-fulfilling low-growth trap.  Business has little incentive to invest given insufficient demand at home and in the global economy, continued uncertainties and a slowed pace of structural reform. Negative feedback loops are at work.

This morning we had an ECB meeting in which nothing happened yet, as usual, Draghi says he's "ready to take further action" while the OPEC meeting ended with no action to support oil, so down we go again and that's going to take the markets with it if we fail $47.50.  Tomorrow we get the Non-Farm Payroll Report and anything over 200,000 jobs added will spur fears of Fed tightening and yesterday we didn't find anything to get excited about in the Fed's Beige Book so, as usual, we're short the S&P (/ES Futures) at the 2,100 line along with Dow (/YM) 17,750, Nasdaq (/NQ) 4,520 and Russell (/TF) 1,160 but, if those lines hold – we like the Nikkei (/NKD) long over the 16,500 line.  

 

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Phil/Maddie  She has management potential.  Oh, and Istand by my dream ticket – Trump/Sanders.  God the establishment would lose their minds.

My son asked me why they have to do chores if we have a house cleaner.  I said because the house cleaner is for mom – you have to go clean your own room.  Then he asked if he could get paid.  I siad sure, at 5 oclock.  He arrived at 5 – and dinner was served.  I told him that's your payment for chores but if you want to renogotiate, I am happy to do so. Totally true story.

Phil/End of the day  So last night, i picked up a hitchhiker.  When he got in the car he asked me geez, aren't you worried I am a serial killer?  I said, no, the chances of there being two serial killers in the same car are pretty darn low.

And with that, I am out of here.

get out of OPTT for good and forever. Yesterday was your chance, but it's still better now than it will be later

LOL Hanj!

I am surprised no one is reporting a nuclear meltdown around the Trump Tower tonight following the speech by Hillary… Going to be a lot of nasty tweets coming up I am sure.

This looks like good news for financial stability:

http://www.motherjones.com/kevin-drum/2016/06/heres-best-news-weve-gotten-all-year

Federal Reserve officials strongly signaled they will toughen big-bank capital requirements even more than they have since the 2008 crisis, a move that will add to the pressure on the largest U.S. banks to consider shrinking. Fed governors Daniel Tarullo and Jerome Powell, in separate public comments on Thursday, said the Fed would require eight of the largest U.S. banks to maintain more equity to pass the central bank’s annual “stress tests.”

“Effectively, this will be a significant increase in capital,” Mr. Tarullo said on Bloomberg television….Mr. Powell said at a banking conference that the Fed’s move would make big banks “fully internalize the risk” they pose to the economy.

“I have not reached any conclusion that a particular bank needs to be broken up or anything like that,” he said. The point is to “raise capital requirements to the point at which it becomes a question that banks have to ask themselves.”

null

People actually don't move to avoid paying taxes:

http://www.slate.com/blogs/moneybox/2016/05/31/study_says_few_millionaires_really_move_to_escape_taxes.html

For the average state, the authors find that a one percentage point increase in top tax rates would lead them to lose 23 millionaire families. “Because the average state has an annual millionaire population of more than 9,000, this is clearly a small effect size," they note. A 10 percent increase in tax rates would lead to a 1 percent loss in the millionaire population. In the end, they calculate that states could maximize their tax revenue with a 68 percent top rate on high earners. I wouldn't exactly take that as a hard, unimpeachable number, but it suggests New Jersey, New York, and California aren't exactly in danger of causing too many of their golden geese to migrate.

/NG commentary from RJO.     

Expectations for this morning's EIA storage report are for an injection in the range of 85 bcf. Resistance for July natural gas comes in at the April 25th swing high at $2.427, with an upside pattern target coming in at $2.462. Support comes in at $2.268 

St jeanluc/ bull markets.  Keep drinking the kool aid. It's amazing what $3-4 Trillion will buy ya. 

Bull market / Latch – I actually don't believe that this will go on… Just posting for information. I am mostly in cash now patiently waiting.

Anyone short /ES this AM ahead of jobs? My thinking is if jobs beat, rate hike more likely which markets won't like. If jobs suck, rate hike less likely but we're already so high. Flawed logic?

Phil thoughts on the July uso trade I posted?

GILD Still attractive at 86.90 obviously not as good as 82!!! -) CAT as well is heating up again. Quite a difference to the end end of Jan16 at 58.00 !!!!

Jobs awful, but unemployment number is good so I think they still have to hike.

Brexit camp building steam, as well:

http://www.moneysavingexpert.com/poll/31-05-2016/how-will-you-be-voting-in-the-eu-referendum-or-are-you-a-39dont-know39

I think going in to Brexit and Spanish elections you´re supposed to remain short here.

Phil,  

How do you interpret this morning spike down?   What does it mean to you?  Is it a sign of steadily decreasing market stability?  Is it a test flash crash like you mentioned a week ago?   Other?  

Morning Spike / Phil, 

Disregard,  Just saw the news on the job report and went to your Friday post…..

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