It’s only the Futures and we’re still waiting for the CPI Report but traders do not seem to feel the need for facts as the market continues to press higher in what is still a very low-volume rally.
Oil is also up and Natural Gas is up and bonds are up and even the VIX is up this morning – people are just in an up mood and who are we to judge? There’s a headline in the Wall Street Journal saying “CEOs Expect Short U.S. Recession” and I guess that’s good news though it seems to me the market is pricing in no Recession at all and I would take the fact that CEOs expect a Recession right before they report earnings a bit more seriously.
As you can see, this is the data gathered into mid-December, so it’s pretty recent and a more honest spin on this is that LESS than 10% of CEOs say “Economy is Not Weak” while HALF of the CEOs feel Economic Growth will NOT improve until mid-2024 or later. Not exactly a BUYBUYBUY sort of survey, is it?
The top external concerns for U.S. survey respondents were Recession, Inflation and Labor Shortages. A year ago, the top three were Labor Shortages, Inflation and Supply-Chain Disruptions, with Recession ranking sixth.
A separate quarterly survey of more than 1,300 executives by recruiting firm Russell Reynolds Associates also found that concern about economic growth rose sharply at the end of last year, with two-thirds of respondents ranking it among their five biggest external concerns, roughly matching concern over the availability of key talent and skills.
I do love that diagram! Sadly though, it indicates they don’t feel very prepared for the two most likely threats they face – kind of like the Human Race with Climate Change and Mass Extinction – what is wrong with people?
Speaking about what’s wrong with people, mass extinction and corporate propaganda: The WSJ is also featuring an article about Climeworks removing miniscule amounts of carbon from the air as if that’s going to solve the problem. Possibly if combined with fusion to power them it can start making a dent but 4,000 tons out of Billions required is simply a diversion.
Speaking of diversions: It looks like the Recession is beginning as the December CPI Report came in at NEGATIVE 0.1%, which was lower than +0.1% expected while Core CPI came in as expected at 0.3%, which is up from 0.2% in November.
That means inflation is now at 6.5% for 2022 and that’s the highest in 40 years but at least it’s down significantly from 9.2% in July. Energy costs were down 1.6% in December and that’s why the core is up and the headline is down as Energy is not in the core.
“Logistics prices have also slowed materially, shipping costs are back to where they were pre-Covid,” said Jake Oubina, senior economist at Piper Sandler. “These were all inputs that a lot of retailers had to pass through to consumers, and the alleviation on the cost side is creating the wherewithal to discount more aggressively as we head into 2023.”
The Futures are pulling back a bit because, as we thought, they were simply too excited about this report and reality is not matching up to expectations. Still, if you want an optimistic spin on the thing, note that the “Annualized Rate Over Three Months” is now just over 3% and the Fed’s target is 2% and they raised rates from 0.25% to 4.5% to drop that 3-month bar from 10% to 3.5% so, logically, it should not take much more to get things down to their 0.2% target – ex Food and Energy, of course!
That’s right, things are so bad that people are buying Vicama Sticks but the Fed doesn’t count that kind of suffering. They even turn a blind eye to green beans, which taste like those wax sticks they used to put colored sugar-water into when we were kids.
Also this morning, we had no movement on Jobless Claims, which means labor costs and availability are not easing up and THAT is what the Fed needs to drive down if they want to truly slay inflation. It will be interesting to hear their spin as CPI doesn’t give them an excuse to destroy jobs and deflate salaries like it used to – now they are just evil.
Tomorrow we get Import Price Data and we’ll see how that looks and then we have Consumer Sentiment, which has been TERRIBLE but you would think a lower CPI will cheer them up a bit.
Price changes over last year (CPI report)…
Fuel Oil: +41.5%
Gas Utilities: +19.3%
Food at home: +11.8%
Food away from home: +8.3%
Overall CPI: +6.5%
New Cars: +5.9%
Medical Care: +4.1%
Mohamed A. El-Erian @elerianm
… (from 0.2% to 0.3%) with some components such as apparel and housing surprising a little on the upside.
*FED-LINKED SWAPS SHOW TRADERS SEE 25BPS RATE HIKE IN FEBRUARY AS OVERWHELMINGLY LIKELY
Overall, we should be in for an up day.
Dollar already down to 102.5.
Still long /NG?
4 long at about $4.10 average at the moment. If we fail $3.85, I’ll go back to 2 and the average will be $4.35 on those – then add 2 more around $3.50 and average drops to $3.925 – hopefully we’ll eventually get ahead of the game.
And now the stop is $3.90, of course.
So stopped out 2 at $3.90 so 2 left average $4.30 and now goal is to add 2 more again below $3.60 to average $3.95 on 4.
I have 30 x BOIL march $15’s, basis $1.90. Seems to be responding correctly.
Yikes and down we go again.
It’s all so silly…
• Fed’s No-Rate-Cut Mantra Rejected by Markets Seeing Recession: Policymakers insist rates will be held high into 2024; Markets see rate cuts later in 2023 as economy deteriorates (Bloomberg)
• Fed Officials Ask How to Better Understand Inflation After Surprises: Federal Reserve officials, including Lisa Cook, a board member, are wrestling with how to think about price increases after 18 months of rapid change. (New York Times)
• Used-Car Prices Are Finally Dropping: Covid-era production snags and supply constraints for new rides sent prices for older ones skyrocketing. No longer. (Businessweek)
The Secret That Explains the Price of the Cheapest Tesla: Elon Musk’s always-changing prices are unique in the auto world, and will be under the microscope like never before. (Bloomberg)
• As Infrastructure Money Lands, the Job Dividends Begin: Trillions of dollars in government spending will profoundly affect the labor market, but in ways hard to measure, and mostly under the surface. (New York Times)
• 10 Breakthrough Technologies 2023: Every year, we pick the 10 technologies that matter the most right now. You’ll recognize some; others might surprise you. We look for advances that will have a big impact on our lives and then break down why they matter. (MIT Technology Review)
• Vancouver Skyscraper Twists Around Zoning Restrictions: Danish architecture firm Bjarke Ingels Group used limitations to its advantage with the gravity-defying Vancouver House apartment tower. (CityLab)
• Lawyers who enabled Trump in election plot face heightened risk of charges: House panel refers John Eastman, Jeff Clark, Rudy Giuliani and Kenneth Chesebro to DoJ for offering Trump bogus legal cover. (The Guardian)
• Jeff Beck, Guitarist With a Chapter in Rock History, Dies at 78 His playing with the Yardbirds and as leader of his own bands brought a sense of adventure to their groundbreaking recordings. (NYT) see also Jeff Beck: The British rock guitar legend’s career in pictures (BBC)
Here is the link to the PSW Youtube page where you can find all of the replays of past webinars. They are put up by Thursday, the latest
Ahh, The old first move is wrong. A lot like a misdirection play in football. 😏
All moves seem to be wrong today – we keep reverting to the mean.
phil, if enter into an SQQQ hedge today, would you still use the Jan 25 Call 50/90 spread?
how easily would i be able to sell/buy 200 of each at 30/70 at those prices?
The way we’re swinging up and down today – not too hard.
Unless I think the market is breaking up or down, I just offer to buy 20 at a nice low price and to sell 20 at a nice high price and I wait to see what fills first, then I adjust and do it again.
Good morning Phil,
/NG – still on it. What do you think about taking a small profit and then rolling to the next month?
I always think that’s a good idea – but make sure the next month isn’t overpriced, of course.
phil i took microsoft 220- 240 bull call spread like you suggested for cloud play. now msft is 238. is it worthwhile rolling to higher strike or would you just hold on to it. thanks
Just be happy you are on track. It’s a nice profit if we end up at goal so why turn it into a risk? Save the money for fixing the things that are broken – not the things that aren’t.
Agreed that reversion to the mean is a strong tendency. I have made a little “bet” on it.
We had one on the top snow events recently in Minnesota. My neighbor and I shoveled out our garage driveways and made a mountain pile of snow almost to the roof of the garage. He named it Brokeback Mountain. He is headed to Columbia for 2 months (must have been traumatized by the event) 😉 . He asked if I would consider shoveling his area while he was gone. I think there might be less snow events going forward and it’s not really a lot of additional work as I need to do mine anyways. He plied me with gifts including Japanese Whisky that I would feel guilty buying. It is elegant and well balanced but on the expensive side. It has worked out well so far. No snow for a week and it’s nice to sip the whisky by the fire
Now that’s a smart way to play the market!
You are really getting the hang of things when you apply those lessons to everyday life…
+85 TZA Jan 19 ’24 $30 Calls
-15 TZA Jan 19 ’24 $50 Calls
-20 TZA Jan 19 ’24 $55 Calls
-55 TZA Jan 19 ’24 $60 Calls
Would you roll at least the long calls down to the ’25 20’s and write the ’25 40’s ?
Well TZA is at $30 and $60 is up 100%, which would take a 33% drop in the RUT. Generally I plan on a 20% drop, which is maybe $50 that’s realistic.
The 2024 $30s are $8.20 and the short $55s are 4.50 so that’s about the average for your short calls.
2025 $20s are $14.50, $30s are $11.75 and the $40s are $10.25 so clearly the $30s are worth the extra from the $40s but are the $20s worth $3 more?
If you roll 85 2024s $30s to the 2025 $30s, that’s $6.30 ($53,550) right there and all you are buying is an extra year of protection, not more protection.
2025 $60s are $8 so I’d roll the short 2024 $60s ($4.25) there for $3.75 ($20,625) and let the other short calls expire (you can always roll them) and then you can do another sale next year to get most of your roll money back.
Thank you Phil!