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Monday Market Movement – The Weak Ahead

$4,000,000,000,000..

That's how much the M2 Money Supply has grown (26%) in the past 12 months (vs around 5% in a typical year) and it's going to grow another $4Tn this year as the Fed continues their easing policy.  This is the biggest growth since 1943, when war-time Money Printing was all the rage.  The looming danger for the economy isn’t only that the monetary printing presses have been in overdrive since the pandemic began, but also that they are already set for the same in 2021. A monetary surge for this year is locked in.

This is like giving kids an extra piece of candy the day after Halloween – it doesn't change anything, you're not going to get much of a reaction and the effort is probably wasted….  

It’s worth tallying the list of policy measures that got us where we are. The first and largest source of M2 growth in 2020 was the Fed’s purchases of Treasurys and mortgage-backed securities. When the Fed buys such securities from nonbanks, which is its normal practice, it gives the seller a check or payment, credited to the seller’s bank deposit account. This increases M2. Since March 2020, the Fed’s holdings of Treasurys and mortgage-backed securities have increased by almost $3 trillion. M2 has increased by roughly the same amount.

The second largest source of M2 growth has been commercial bank purchases of short-term Treasurys and other debt securities, including mortgage-backed ones. These transactions create deposits in the same way as new loans do, with the deposit account of the seller or borrower being credited. Since the start of the pandemic last year, the increase in banks’ holdings of these assets has added almost $1 trillion to deposits and, therefore, to M2.

Image result for dr seuss inflation cartoonThe U.S. money explosion isn’t over. Bank reserves, currently $3.2 trillion, will increase by about $1.4 trillion this year simply from Fed purchases of Treasurys and mortgage-backed securities at a promised $120 billion a month. In addition, the Treasury indicated in its February Refunding Statement that it will run down its Treasury General Account at the Fed by about $820 billion this year. This money will be spent through federal fiscal programs. These expenditures will further boost deposits counted in M2.

Of course we're setting ourselves up for an inflationary nighmare – as Dr. Seuss pointed out the last time the Government was on a money-printing spree (he was a political cartoonist) – all this money-printing is bound to lead to inflation and inflation always seems like fun at first – but then it can turn ugly very quickly!

We had a lot of inflationary data last week and we're right back into it with Leading Economic Indicators this morning at 10am.  Tomoorow we get the Home Price Index and Consumer Confidence, followed by New Home Sales and Investor & Business Confidence Wednesday, Durable Goods and GDP (2nd estimate) Thursday and Friday we have Personal Income & Spending to go with PCE Prices, the Chicago PMI and Consumer Sentiment.

Powell testifies to Congress tomorrow and Wednesday though, so we could be right back on the FREE MONEY train by mid-week.  

Investors’ bets on an economic rebound later in the year have contributed to a selloff in U.S. government bonds in recent weeks. Declining bond prices result in rising yields, which have stoked concern that highflying stocks are starting to look less attractive than assets considered to be risk free.

“As the yield goes up, there is more demand for [government bonds] in relation to other assets,” said Hani Redha, a portfolio manager at PineBridge Investments. “How much are you willing to pay for stocks? If you’re only getting a very low yield from bonds, you should be willing to pay a higher amount for stocks. But that starts to change when bond yields go up.”

Boeing (BA) has another grounding this morning, this time it's the 777 jets as one of them had an engine explode on Saturday.  Fortunately they were able to land the plane.  That will take a bite out of the Dow and S&P 500 and we'll see what the effect is on Boeing, who can ill-afford more problems just when they are getting the 737 flying again.

Which reminds me.  They are now requiring Covid tests to travel and XpressSpa (XSPA) runs those little mini-Spas in Airports and that has been a bummer for them but now CEO Doug Satzman has made a brilliant pivot and the company (since it already has clearence and staff for most airports) will now become a testing center for pre-flight screenings.  In addition to rapid tests, the "Travel Ready Center" also offers PCR or antigen tests. The centers are so far available in Newark, San Francisco and LAX airports, with plans to expand.

XSPA has a $232M market cap at $2.47 on $50M of pre-Covid revenues and a $20M loss.  It's a dicey investment but the Jan $1 calls are $1.60 and the $3 calls are $1 so we can pick up the Jan $1/3 bull call spread for net 0.60 with a $1.40 (233%) upside and we're starting out $1.47 in the money so let's buy 50 of those for our Future is Now Porfolio and see if we can make $7,000 to pay for those spa treatments while we're waiting for our test results.  

 


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  1. GM PSW!

    Ahh, M2, what a way to run huh?  It is interesting that the dollar has held up so well considering everyone else is increasing M2 (Japan for how many year??). BTC..how many people are going to get wiped out by that one?  GLD….SL….now that is one place to park some cash, but Buffet sold all his gold, hum….. Water and air….!! Nah, biotechs!!!!


  2. Good Morning.


  3. Phil,
    What do you think of CL?
    Thanks


  4. Good morning!

    Biotech/Pharm – Well global warming should insure we have diseases to contend with for decades to come so yes, good growth industry.  People forget the aging population macro driver too.  

    Oil blasting back up to $61 again from $59 last night.  /RB very toppy at $1.90 but too scary to play.  I do feel good going back to 4 short (DD) when Brent hits $65, which shoujld be $61.50 on /CL.

    /NG changes with the weather reports…

    Taiwan Sounds Warning on Currency as Exports Soar on Chip Demand.

    Alibaba, Pinduoduo Join Fight Against Looming China Food Crisis.

    Inflation Angst Is About to Rewrite the Stock Market Playbook.

    U.S. Deaths Near 500,000; Australia Starts Shots: Virus Update

    Powell May Be Dovish in Congress Debut of Biden Era: Eco Week.

    Bubble Warnings Go Unheeded as Everyone Is a Buyer in Stocks.

    The Money Boom Is Already Here.

    ‘Explosion of economic activity’ may put inflation fears in check. Here’s why.

    Clorox making 1.5 million canisters of wipes per day to meet Covid demand, CEO says.

    Michael Burry Warns Weimar Hyperinflation Is Coming.

    "There Will Be Fear" – ARK Invest's Cathie Wood Warns Of Stock Market Correction.

    White House Says HFT Tax "Worth Studying" After GameStop Debacle.

    Are Yields About To Blast-Off: Here Are The 3 Things To Watch.

    92% Of NYC Restaurants Unable To Pay Rent In December, Study Finds.

    Opinion: Inflation is rising and so are investors’ fears about stocks.

    Newt Gingrich: 'Nobody' Can Challenge Trump's Hold on GOP.

    Electric Customers in North Texas Stuck with Electric Bills as High as $17,000 Following Cold Snap.






  5. Iran inspection deal signals window for nuclear talks with US


  6. Image


  7. That's scary – shows how fake the demand is for all these low-rate bonds.




  8. Italian ambassador to DR Congo dies in attack on UN convoy







  9. VTIP and XSPA long and strong. CMG and TSLA puts …. dare I say …. is it time???


  10. remember food and gas don't cost money, obviously, so not in the inflation calc the Feds use. But for the rest of us, gas is up $0.30 in less than a month.

    bitcoiners get wiped out every 3-4 years. It's still has been a long term appreciating asset though. Even from its last tippy top peak of ~19,000 in December, 2017, it's up 38% APY since then.


  11. tdump control – Now that rush is dust, this is what tdump has been waiting for. He'll use a dead man's soapbox to fleece the followers while state AG's

    look for ways to put him away. A smart a.f. strategy when you consider his followers would be paying most of his legal/living expenses….


  12. Nice turnaround for the Dow – up 100 now.  BA went positive – nothing matters.

    Just 19 Stocks Drove Half The Market’s $7.6 Trillion Pandemic Gain

    That's truly amazing.

    Dollar testing 90.

    CMG and TSLA/BDC – Already there. 

    CMG Long Put 2022 21-JAN 1,400.00 PUT [CMG @ $1,446.98 $-26.12] 6 12/17/2020 (333) $124,542 $207.57 $-51.07 $192.40     $156.50 $3.10 $-30,642 -24.6% $93,900
    CMG Short Put 2022 21-JAN 1,100.00 PUT [CMG @ $1,446.98 $-26.12] -3 10/28/2020 (333) $-39,525 $131.75 $-74.90     $56.85 - $22,470 56.9% $-17,055
    CMG Short Call 2021 19-MAR 1,400.00 CALL [CMG @ $1,446.98 $-26.12] -5 1/14/2021 (25) $-60,000 $120.00 $-43.45     $76.55 $-19.45 $21,725 36.2% $-38,275
    TSLA Short Call 2021 19-MAR 900.00 CALL [TSLA @ $742.63 $-38.67] -2 1/13/2021 (25) $-19,600 $98.00 $-91.15 $-129.50     $6.85 $-4.84 $18,230 93.0% $-1,370
    TSLA Long Put 2022 21-JAN 800.00 PUT [TSLA @ $742.63 $-38.67] 4 2/8/2021 (333) $85,600 $214.00 $26.80     $240.80 $12.45 $10,720 12.5% $96,320
    TSLA Short Put 2021 16-JUL 600.00 PUT [TSLA @ $742.63 $-38.67] -4 2/4/2021 (144) $-19,800 $49.50 $12.15     $61.65 $8.92 $-4,860 -24.5% $-24,660

    CMG has potential for $180,000 below $1,100 and currently net $38,570 plus we'll sell more short calls if all goes well.  

    TSLA is an $80,000 spread at net $70,290 – we might have to pull the plug on this one!

    Trump/1020 – Doesn't have the attention span to replace Rush.  Twitter was perfect for him.


  13. BDC / Phil – Any recommendations on CMG / TSLA puts for a new play?


  14. Puts/Jij – Not really as you'd now be chasing and the whole point is to only short things when the top of the range is stressed, so you get enough premium to cover yourself.  You can't miss a move on TSLA by $200 (20%) and then decide to play….


  15. Not a good day for the Nasdaq:

    Apple down at the 2.5% mark – can't hold up the Nas if AAPL is falling (Newton said that).  


  16. rush/Phil  I was not thinking about a talk show…that's reserved for Jr.





  17. Is This the End of Tipping?


  18. Coronavirus (COVID-19) Vaccinations – Statistics and Research




  19. Gas Traders Pleaded for Cash as Texas Cold Upended Their Market




  20. Covid comments:

    1. The CDC just published a study of classroom covid19 transmission in schools (https://www.cdc.gov/mmwr/volumes/70/wr/mm7008e4.htm?s_cid=mm7008e4_w).  Good, basic, CDC epidemiology, and they conclude the spreaders are the teachers.

    2. Some gadgetry that I see getting a lot of press for mitigating indoor risk is CO2 monitors. The more CO2, the more covid19 bugs floating around, so if you see the numbers getting too high, fling open the windows and doors! Don't know who makes them, but there might be opportunity there.