Failing Friday Finish – Dollar Over 112 Gives us a Nice Bottom (we hope!)

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1209

112.

Dollar Sept 22 2022

That’s the highest the Dollar has been since 2002 and it’s up 24% since last June – barely over a year ago.  As I said on Monday, it’s all about the Dollar very simply because the market is priced in Dollars, commodities are priced in Dollars, earnings are priced in Dollars and, unfortunately for some companies (as we discussed in Wednesday’s Webinar), many companies have to pay their employees in Dollars so – if they collect their money in a weaker currency – that conversion becomes expensive as well.

SPX Dollar Sept 22 2022

The S&P 500, for its part, was at 4,300 last June and now we’re at 3,726, which is only down 13.3% but, from our 4,800 peak, we are down 22.4% – a bit less than the Dollar is up.  As you can see from the two charts, the Dollar has a short-term effect on the market but not so much a long-term effect.  The last time we had such a big move in the Dollar was 2014/15, when the Dollar rose 25% in a year and the S&P 500 didn’t even fall – it just stopped going up until the Dollar stopped – then it continued it’s journey higher.

Oil peaked at $114 and this morning we’re at $80.50, that’s down 29% (and that’s a good long to bet with tight stops under $80 on /CL – as is Natural Gas (/NG) off the $7 line with tight stops below).   Gold peaked at $2,000 and is now $1,650 – that’s down 17.5% but Silver (/SI) has taken a deeper hit from $28.50 to $19 this morning (also a good long) and that’s down exactly 1/3 (33.33%), which is a great place to look for a bounce.  

Silver suffers from being an industrial metal and everyone is screaming RECESSION!, even though the US still has 11M job openings that are unfilled, which indicates the average Corporation would like to have 7% more workers than it currently has, which means our GDP COULD be about 7% higher if we could actually find 11M workers but we can’t – so the economy stalls and wages rise as companies compete for workers but they wouldn’t be competing for workers if they didn’t REALLY need them and you don’t hire workers unless you think they will lead to more profits, do you?  

This is the sad thing about market analysts, most of them seem to have forgotten Econ 101:

  • First (2017), we kicked out the immigrants, which made America great again but deprived us of a few million farm workers and, even worse, 300,000 top-notch scientists and programmers that were desperately needed for our S&P 500 companies to be competitive.
  • Second (2018), the remaining workers demanded more money.  The minimum wage was last set in 2009, when workers felt lucky to have a job and were being exploited.  At the time it was $7.25 per hour and movie tickets were $6.  

Price Changes Over the Last 20 Years Prove the Economy is Rigged

Sadly, there are still 21 states that still have a $7.25 minimum wage (the GOP has shut down every effort to officially raise it) but the Blue States are mostly on their way to $15 with California beginning to push to $22/hour, long-term.  New Hampshire, it should be noted, has continued the tradition of their state motto, which is “Live Free or Die” – because those are the choices given to that state’s low-level workers.  

  • Third (2017) we began a trade war with China and other countries with Tariffs on goods that raised prices on imports.  
  • Fourth (2017) Trump lowered the tax rate on Corporations from 35% to 21%, which increased the Federal Deficit and put more money into circulation.  The tax cuts also helped wealthy investors keep more of their money, to the tune of $5,500,000,000,000 over 10 years.  Billionaires got SO MUCH richer – not so much the rest of us… 

Growth of Wealth

  • Fifth (2009-2021) the Fed kept pumping money into the economy and kept interest rates artificially low.  
  • Sixth (2018) was STIMULUS – $11Tn worth of it between Government handouts and Fed balance sheet expansion.  Trump was handing out cash to his voters before Covid but Covid kicked it up about 100 notches and Trillions and Trillions of Dollars were spent – but only a few Billion actually fighting the disease.  Go figure…

Covid led to a slower global economy that was papered over with stimulus so the same money was chasing less goods and services – so prices began to rise because there was now more money than the economy could accommodate at the old prices. 

Covid also led to supply chain bottlenecks that take a long time to unwind.  There are, for example, 3 ships that can hold 1M Barbie Dolls and they take a month to go from China to the US and usually one is being loaded and one is in California (a month to cross) and one is on the way back to China.  Mattel makes 1M Barbie dolls per month and all is well until Covid when the ships suddenly stop running and, before the factory shuts down too, 3M Barbie Dolls are sitting at the doc.  

Now we have a container shortage as well.  Once the ships start running again the factory starts running again and keeps putting out 1M Barbie Dolls per month but people were buying Barbies on-line and the stores have empty shelves when they used to have a month’s supply and, even if you can put 20% more Barbies on each ship – it will still take you 15 trips (months) to work off your excess Barbies and get the supply chain back to equilibrium. 

Meanwhile Barbie has to compete with people who need any extra shipping space for auto parts and pacemakers so they all bid against each other for shipping space and then UPS and FDX and the rails get overwhelmed and we’re rolling every truck in the World 24/7 trying to catch up, which sends fuel prices through the roof and places a premium on drivers (not to mention pilots) and we’re back in the wage pressure cycle.

Gosh – who could have seen this coming?  Only people who took Econ 101, I guess…

The bottom line is these are all natural consequences of economic factors that have been years in the making so let’s not be all shocked that we have inflation and let’s not live in some fantasy World that the Fed will snap their fingers and it will go away.  This is a process, we will have to unwind – but it is also not the end of the World while the market is acting like it is.  

Have a great weekend, 

– Phil

“We’re in the basement
Learning to print, all of it’s hot
10-20-30 million ready to be spent
We’re stackin’ ’em against the wall
Those gangster presidents
Livin’ simple and trying to get by
But honey, prices have shot through the sky” – B52s 

 

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Phil / Watch list -AKAM this hit 81 today

Phil / Watch list -AKAM this hit 80 today. some debt but manageable…

Phil / Can you please review the Nasdaq and S7P levels / hold lines etc

Liking GOLD down at $14.50. IBM on my watchlist

GPN. it’s not like I love it, but it’s getting cheap. what do people think?

Phil/ EXPE. how cheap would it have to be for you to like it?

“War crimes were committed” duh. Anyone who watched the news could see that. At least the UN finally said something

Good Morning.

Good Morning Phil – Just so you know, I checked the front porch at 5:22 AM PST and the ‘paper’ had not been delivered, so I started and finished a second cup with the better half, which is always a better alternative when compared to the morning read…. 🙂

BTW, Thanks for All You Do!

Phil/adjustments

I’ve got a decent hedge in place in TZA but have kept about a dozen BCS in companies I like. Unfortunately they’re getting clobbered. My question is, when do you start adjusting down? It’ll cost me some money, obviously, and I’d prefer to try to adjust when we’ve found some sense of a bottom, I think.

I think we bottom when AAPL sells off and we see a 2 after the 1

TWTR is green today… a little
AEM ( I know we have GOLD and like it better ) 2025 covered call is worth 10% a year at $9.50 plus the 3.89% dividend is pretty conservative

Phil / AKAM – Thanks for the overview…. I’ve been watching them for years and they have not gotten to my trigger point till yesterday. I need to look more closely on them…. the large foreign sales is one item I had not looked at (need to look at all my positions, in addition to debt ) .
I sold the putters this am at 10 ish….. will look again after in November.

Phil,
Your thoughts on the following positions;
30 1/23 long calls 30 strike 15.68 cost, 18 now
10 1/23 long calls 37 strike 9.89 cost, 13.55 now
30 1/23 short calls 50 strike 9.85 cost, 9.65 now (slight profit)
Do I roll the 30 short callers higher to 1/23 55s (7.45)
or 4/23 55s @ 10.65 or something else.
My feeling is that the market will recover before ’23.
TIA

Phil,
Oops! Sorry the options are for TZA

Phil like I said yesterday I think your original targets are still in play. Global market correction may influence our markets here and get that S+P closer to 3200.

Worker shortages are global – I was just in Ireland, Portugal, Spain, Morocco. If there’s no one coming to fill those jobs from the boomer retirees/deaths… then the GDP remains depressed, no?

Phil, the cost of the above trade seem to be 11,500 as opposed to $900. Am I missing something?

I get $39,255 – 29,130 – 17,120 = 6,995 now.

I am looking at 2025 Jan options. I assume you are looking at 2023 Jan options.

Phil,
with people like Michael Burry, Chamath Palihapitiya, Grantham
calling for a market crash with as much as 50% from the top and
now Carl Ichan is saying “the worst is yet to come”,
how do they come to this conclusion ? How do the “Big Boys”
estimate or calculate what they consider being a fair value of
the market ? I’m just curious in how these people are coming up
with their targets and opinions.

Great question and looking forward to Phils comments along with other members, it would be helpful if we all shared our thoughts on where you see the markets.

If I may, I cant see how with rates where they are today compared to where they were in 2019 during the markets peak (pre covid stimulus) that somehow fair value is not lower. In 2019 markets and the economy were expanding, not the case today, I see lots of contraction in construction. I would be surprised if markets dont overshoot to the downside. I may be narrow focused, but 2019 was a great year for business, much better than today. Its much more difficult to plan ahead, people are skittish and reluctant to move money around due to all the unknowns going forward.

$225 next year S&P earnings x 12 multiple = 2700
$225 x 16 = 3600
$212 x 15 = 3180

Seems more likely on the lower end

I used to read these soothsayers as entertainment just like the daily horoscope- a few grains of truth but mostly gibberish. My guess, since nowadays all the celebrities have brand managers, they probably run a variety of market prediction through some algorithm that predicts the most potential clicks then run with that.
As has been the case forever, nobody knows!

Phil-would like your thoughts on possible consolidation in the streaming/entertainment industry via merger or acquisition. You previously mentioned PARA would, or should be a target, at what point is it a no brainer and do you think it might happen in a recession.

CROX-

I know we have the in the portfolios already but just an observation—
I was at a high school football game last night in South Florida and there were hundreds and hundreds of people (mostly teenage) of people with crocs on — and it was raining
It is the footwear of choice down here

nothing here