Poor Bitcoin!
It's back at $25,000 this morning, giving up all its gains since 2020 but, much, much worse, Crypto-Lender, Celsius, told users Sunday night that it is pausing all withdrawals, swaps, and transfers between accounts due to “extreme market conditions.” This is why crypto is BS – you can't count on the "bank" to give you your money…
Celsius lends out customer deposits to other users to earn a return. The firm managed $11.8 billion in assets as of May 17, according to its website. It offers users annual percentage yields of up to 18.63% on cryptocurrency deposits. The company said it has 1.7 million users. Celsius raised $750 million in funding late last year from investors including Canadian pension fund Caisse de dépôt et placement du Québec.
The short story is that a Dollar, with all of it's Government-backing and inherent deposit protections, is worth MORE than crytocurrencies – not thousands of times less. Until that balances out – be very wary of empty promises and unrealistic expectations in that space. On the whole, Cryptocurrencies are back to about $1Tn, half of where they peaked but still – try to buy a large quantity of Gold with Crypto and see how that goes.
Gold and Silver, meanwhile, have also been disappointing meaning what? NOTHING is an inflation-hedge these days? Why is gold not over $2,000 an ounce with the cost of living 10% higher than it was last year, when gold was hovering around $1,800?
The answer to that is what's also ailing Crypto as well as stocks and what's also holding up the Bond Market (which should be doing worse) and that's the price of the US Dollar relative to, well, everything, as it tests highs not seen since since 2002:
The Dollar is up 15% since last year and, if not for that, inflation would be much, MUCH worse from the US perspective (it is much worse to the rest of the World) and Gold, priced in Euros (or pretty much any othe currency) is already breaking over it's 2020 highs.
The S&P 500, priced in Euros, has fallen from a high of 4,241 in Jan and 4,223 in April to 3,708 on Friday and that's down 533 points or 12.6% vs 4,818 to 3,900, which is 19% priced in Dollars. Measuring in Euros or Dollars is just as arbitrary as switching from Celcius to Farenheit – only with C and F you get consistent results while Dollars and Euros are moving targets.
The upshot of this is that, to any International Investor whose currency is weaker than the Dollar (everyone), the US markets look very good compared to their own. Also, S&P 500 earnings are depressed due to the strong Dollars as they get 60% of their revenues from overseas – paid in overseas currencies. You don't hear about this in the MSM because it's too complex for a sound-byte and it screws with the "BEAR MARKET" narrative they are pushing but SHAME on my fellow analysts, who almost never mention one of the biggest factorts moving the markets.
Even savvy market players like us, who do understand the dynamics of the currency and take it into account, still have to carefully consider what to do next. This down leg of the market started last week, when the ECB said they would only raise rates 0.25% at the July meeting while our own Fed is certain to raise rates 0.5% on Wednesday and again on July 27th and probably again on September 21st. That puts us another 0.75% ahead of the Euro on July 27th and currency traders don't need to get hit over the head with a bat before they start reacting to news like that.
So the Dollar rose 3% in 3 days while the Euro dropped 3% and the Dollar is now 105 and the Euro is down to 1.05 and below this is PARITY (1.00), below which is the collapse of the Euro. It's not likely the ECB will risk that so this week I expect them to act to try to preserve 105. If that works, it will give stocks and commodities a chance to breathe and regain some of what they lost last week.
For our own purposes, we're likely to cash in some of our hedges on this morning's dip, which is mainly being caused by the rising Dollar and the Asian and European markets, which are still playing catch-up from Friday's US sell-off. Meanwhile, as noted on our handy Nasdaq chart, 11,000 should be bouncy as it's the Weak Bounce Line which is being met by the 200-WEEK moving average and that is not likely to fail in one shot and a bounce between that and the 50-week moving average at 14,700 would be about 1,000 points – back to the Strong Bounce line at 12,000 so we feel very comfortable cashing in a hedge at this point – not to mention improving some of our long positions.
And look how oversold that MACD line is – that's a good sign too. Of course, it could be a very bad sign if 11,000 fails, but I'm hanging my hat on the fact that there are 12M unfilled jobs in the US and that the inflation we're feeling is mostly demand-driven with housing wealth at an all-time high (although I do expect a 20% real estate correction to adjust affordability to higher rates).
Home prices in the US are up almost 20% this year and are forecast to go up 11.6% over the next 12 months and they were up about 10% during the pandemic as well so let's say the average person who bought a home before the pandemic for $400,000 now has a home worth $520,000 (30% more) with another $50,000 coming in the next year. That's great news for 110M homeowners in the US and let's say just 5M homes are sold in the next year with $150,000 in additional equity – that's $750Bn in bonus equity hitting the economy – 3.4% of our entire GDP.
This is why our parents didn't go broke in the 70s, when inflation was often over 10% – they had homes and the improvements in home equity were LEVERAGED, so they gained much more in home value than they lost in spending power. That's also why your parents are religious about OWNING a home – it is the single best hedge against inflation – or it was because now we're probably at the peak.
The inflation spike we had in the 70s was because Nixon took us off the gold standard and fiat currency values fell hard and fast. That's not what's happening here. We have a war, we have demand returning faster than the workers are returning and that's putting pressure on the price of goods and services. We also have a long-overdue cost of labor adjustment and of course all this leads to a decline in Corporate Profits, exacerbated by the stronger Dollar at the moment.
These things shall pass and I predict the Gap (GPS) will still make jeans and Coca-Cola (KO) will still serve you drinks and your kids will still want to go to Disney (DIS) and you'll fly there on Delta (DAL) and gas will normalize before car-pooling becomes endemic and demand drops 20%. There's a push and pull to everything – it's just not going to happen overnight.
If we're going to be LONG-term investors we need to look at long-term factors when making our decisions and not panic with the whims of the market. On the calendar this week we have the Fed on Wednesday and it's an options expiration week as well – so this should be fun. Tomorrow I see PPI and Small Business Optimism (or lack thereof), Empire Fed, Housing and Business Expectation precede the Fed on Wednesday and Thursday we have the Philly Fed followed by Industrial Production on Friday along with Leading Economic Indicators – not too exciting.
Not exciting is good, it should give things a chance to calm down a bit and we'll have a chance to see what holds – on the Dollar and the Indexes. We get Oracle (ORCL) today and Adobe (ADBE) on Thursday but Q1 earnings have run their course and now we get a rest period there as well:
Mama Mancini (MMMB) just appointed an M&A guy to their board and the stock is tanking pre-market to $1.16 but I think it's more likely a buy-out as $1.53 was only $54.7M and there are lots of bigger companies who would like an extra $100M in sales that they could easily double or triple at 15% margins – far more than justifying a $75M buyout at $2 or more – so I like the stock down here for sure (they have no options).
We are going to have a very busy week reviewing our Member Portfolios – join us inside!
Good Morning! Should be a crazy day. Still waiting for oil and natural gas to fall…
Good Morning.
SOFI! Really close to the double bottom.
Anyone else thinking 5% circuit breaker kind of day…
CRSP reported some very nice clinical trial results this weekend. So of course the stock is down by 15% today…
Good morning!
The premiums on the short calls are ridiculous. Another 10% drop would add 30% to TZA to about $60 – that's all we expect (1,600).
When the dust settles we'll have a lot of cash to go shopping with.
SOFI/Pman – Painful
CRSP/RN – They accidentally made money last year but expect to be -$1.3Bn in the next two. They have $2.2Bn in cash so not too bad a burn rate and we want them to keep up the R&D so yes, we should be thrilled with the progress – even if it doesn't generate any revenues. Once CRSP settles it's patent issues, they should get back on track.
Aside from the strong Dollar, that's costing Gold (/GC) 15%, why is Gold not being a good inflation hedge? To some extent, it's been out of favor or competing for favor with Crypto and now Bonds are starting to offer better returns and the ultra-rich love their bonds – because 3% of $100Bn is $3Bn a year and most people can manage to live off that – even if they do have to cut back on staff a bit or switch from Ossetra Reserve to Ossetra Gold.
Charts are really ugly at the moment, the Dow has gapped lower today and Friday and, including Thursday, we're down 2,500 points in 3 days, which is 7.5% so 2.5% Rule 3 days in a row means we're almost certainly going to test 30,000.
That SHOULD be support and we SHOULD get a bounce back to 31,200 (weak), which is higher than we are now or 32,400 (strong), which would look like a rally at this point. Either way, that's why I feel brave enough to sell the TZA calls but not brave enough not to use half the money to buy $600,000 worth of SQQQ calls.
The TZA 2024 $40/60 spread was $3.50 last week and it's still $3.50, so I'm not worried about that getting away from us if we have to re-cover there.
Dollar over $105!
RB under $4!
China shutdown hitting oil demand. Strong Dollar helping too.
Another reason I'm willing to take a bullish chance – VIX doesn't usually stay this high.
Holy crap:
I hate reading these because it makes you think the system is working but then – Yoink!
Top of the WSJ
phil / TZA hedge
Finally added SQQQ and TZA hedges.
Trying to understand Selling 100 TZA 25 calls transaction.
What's the worst thing that can happen with this transaction? How much cash do I need to set aside if I get assigned? What index level gets $25 TZA?
Thanks.
No need to budge that $13.5k September target on Bitcoin.
WA State is fixing the economy! They take debit cards now for the lottery. Good grief
BD Chris
Might as well figure out a more efficient way to tax stupidity 😉
Washington/BDC – Good job being innovative!
There are so many scenarios in which this ends very badly.
That was a very quick $1,500/contract on /SI – nailed it!
That's all Futures playing is – being patient enough to wait for those opportunities.
Taxing stupidity/Randers – https://www.trumpstore.com/collections/magacollection/
We are all still paying that tax!
Playing weekly QQQ 292 calls for a bounce back. It's ugly out there but nothing goes down forever. If inflation was currency based the dollar would be tanking and gold running. Inflation is structural and the core inefficiencies here will correct eventually (albeit slowly!). Imagine being a refinery shut down in low-demand covid seeing $6 gasoline? You're getting that thing back online so fast now that pigs will be flying.
phil / TZA hedge
Repeating the question.
Trying to understand Selling 100 TZA 25 calls transaction and assess the risk.
Are you betting the index won't go to Nov 2021 high anytime soon?
Thanks.
SI/
not exactly the same but today a trader bought 20,000 Sept 2022 SLV $20 / $24 call spreads for .75
TZA/SK – Sorry, I missed that. We already had those calls from long ago, part of a $25/45 spread. If we can cash out for $25, that's $5 more than our Max and TZA is at $45 so the short calls are 100% premium and we think the selling is overdone. We are able to use 1/2 of that money ($120,000) to buy $600,000 worth of protection from here, which is now covering the 100 open TZA short $45s and, of course, we can always roll the short $45s to higher 2025 calls and cover them as well. The point is, if you aren't going to take advantage of a huge move in your favor – when will you cash out?
With TZA, we have 400 $40/60 spreads and 100 extra short $60 spreads in that set but TZA is at $45 and a 10% drop in the Russell will add 30% to TZA – so $60. A 20% drop in the Russell would take TZA to $75, and we would owe 100 $60 callers $150,000 but our $40/60 spreads would be at $800,000 so we net $650,000 (again, even if we don't roll or cover) and the current net is -$21,500 so, for a 20% drop on the RUT, we have $671,500 in protection on just the first 3 TZAs.
In the next set, we have 500 long 2024 $25s and 300 short $45s and 300 short $55s and 50 short July $40s. Assuming we work out the July $40s eventually, then we have a similar situation to the first set where we'll be $600,000 in the money on the first 300 and $600,000 in the money on the second 200 before we begin owing money at $55 and again, 100 open short $55s at $75 is $200,000 – even if we do not roll or adjust.
Given that we have then $1.8M worth of protection before we get in trouble on TZA and given that we know we can buy $40/60 bull call spreads for $4 ($40,000 per 100) to give us another $160,000 in coverage up to $60 – I have no reason not to cash out $250,000 worth of TZA $25s on a bottom call. I'm not stuck with it – if the levels don't hold we can just buy them back or buy new spreads or 100 other things.
Remember, I'm a Fundamentalist so I believe there's an actual value to the stocks we're trading and, while the PRICE may be completely wrong for a while, after some time the values show up and that's where we make our money.
Today's moves have left us with $1.542M in CASH!!! in the STP but the net of the STP has dropped to $1.041 – because the short calls are going against us at the moment. So, on paper, it looks terrible but you can't run a portfolio to please an impatient audience – you have to have your set-ups for the long haul.
The LTP, by the way, is down to $1.45M so $2.5M combined is down about $800,000 from our previous high yet now, if we pop back to where we were last week, we'll pass $4M easily – and with $500,000 more CASH!!!
As it stands, we'll be looking to improve our bullish positions tomorrow.
SLV/Stock – I like that one.
Indexes still struggling, Dollar is not giving them a break.
Ah, I forgot to mention that this morning. Not only is this demand-driven inflation which is CURRENTLY impacting earnings (but will lead to greater earnings in the future) but it's an artificial earnings recession driven by rising interest rates and anticipation of such, courtesy of the Fed – who are looking to cool down the too hot demand for goods and services.
This is not the same thing at all as a genuine economic slowdown – yet the equities are being priced like it is.
Oh I see what’s going on, there is a lot of chatter about the Fed raising rates 0.75% this week..
Someone is working overtime to force a bottom.
Administrative Question/Phil
I'm having trouble updating my credit card info within PSW. It keeps timing out. It is critical that I update this info before end of month. Hope you can help. Thanks for all you do!
BDC, Phil, what are our no-brainer plays before Wednesday? I'm predicting a relief rally on Wednesday.
CC/Laddoo – I’ll have Andy fix it.
Plays/PMan – Let’s look in the morning.
Phil / plays
Avgo. Aapl. Mu. Tgt. Rh. Qcom
Thanks Phil!
Aren't we missing someone? 😉
Natty Gas just had the rug pulled out from underneath it…. WSJ reports that white house may ban exports to reduce prices here and it dropped 20%
i suspect tecnical difficulty because i had to sign in this morning, but maybe he finally needed some sleep,.
U.K. Gas price just shot up 22% …. well that's the utility bill budget out the window.