Friday Flip Flop – Warsh Calls for Rate Cuts – Market Continues to Panic

This is too funny.

They can't get anyone on the actual Fed to call for a rate cut so they bring back Ex-Fed Governor Kevin Warsh to call for an "IMMEDIATE GLOBAL RATE CUT" and, if that isn't enough, CNBC interviews him and Joe says "You know there are rumors you are going to be the next Fed Chairman."  We've been through this dance before – no matter how much Donald Trump wants to put "his guy" on the Fed to throw money (borrowed) at every problem (like he did with his casinos before they went bankrupt) – he doesn't have the right to force Powell to resign.  It's one of the very few checks that remain on Trumps power – now that the GOP Senate has become his Yes Man.

Warsh is yet another Republican talking head from the (and you can't make this up) Hoover Institution, where most of the Fellows seem Hell-bent on repeating the mistakes that led to the Great Depression – as if Hoover is some kind of Economic hero to be revered, rather than reviled.  This is the last bastion of Trickle-Down Economics in Americ or, as Bush the First liked to call it "Voo-Doo Economics" or, as Trump likes to call it "Loans from Dad".  

Since 2016, Warsh has been one of Trump's economic advisers – and look where it's gotten us! 

Where it's gotten Warsh, however, is married to Jane Lauder, granddaughter of Estee Lauder, who is worth $2Bn – so they do know a lot about trickling on poor people, at least…

“This thing’s moving pretty darn quickly,” Warsh said. “At the very least, a statement on Sunday night before Asian markets open would buy them a little time and let us all learn a little bit more about where things are.”

Image result for federal reserve ammunition cartoonWarsh agrees with my take that the Fed doesn’t have a lot of ammunition to help markets and the economy, but he thinks that means it needs to act quickly in a coordinated fashion with other Central Banksters like the European Central Bank, the Bank of England, the People’s Bank of China and the Bank of Japan
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Faltering Thursday – Trump Fails to Reassure the Markets

Down we go again.

Yesterday's press conference with Trump and the CDC did NOT calm the markets down as we gained 600 more global cases yesterday and 400 more cases in China, where things are "under control".  “We’re testing everybody that we need to test,” Trump said yesterday, “and we’re finding very little problem, very little problem.”  Nonetheless, right after he put Pence in line to take the blame when this thing goes bad, the CDC announced the first case in Califonia not linked to foreign travel – the guy just caught the virus in the wild in California!

As you can see from the chart above, the Nasdaq (/NQ) Futures shorts we added during yesterday's Live Member Chat are doing well as that index drops another 150 points, giving us gains of over $2,500 per contract (you're welcome) and we are having a FANTASTIC week shorting the indexes but tight stops here (8,750) to lock in those gains.  

We're benchmarking a bottom this morning at 26,500 on the Dow (/YM), 3,065 on the S&P (/ES), 8,700 on the Nasdaq (/NQ) and 1,525 on the Russell (/RTY

 

IN PROGRESS 

 

 

Will We Hold It Wednesday – Must Hold Line Edition

Wheeeee, this is fun!

Suddenly we're making a lot more money on the way down than we did on the way up on our Futures trades and that's not a good sign for the market.  We played the Dow (/YM) Futures and the Naturar Gas Futures (/NG) for a bounce in the morning and only bounced from 28,000 to 28,100 (up $500 per contract) before we stopped out at the opening bell and we quickly got our bearish crosses which allowed us to play the Dow (/YM) down from 28,000 to 27,000 for gains of $5,000 per contract at 27,000 – now that's a nice hedge!

Sadly, we're still in the index shorts as we haven't had a reason to  stop out as the weak bounce line on the Dow, for example, after a 2,000-point drop in two days, is 27,400 and we haven't gotten over that yet.  More importantly, as noted on our Big Chart, the Dow has failed it's 200-day moving average at 27,223 and, below that, we may be on the way to the -10% line at 24,750, which would be nice for our /YM shorts (another $20,000 per contract) but terrible for the markets and the US Economy – so we're not exactly hoping to make that much money.  

 

That's what the Must Hold lines are on our big chart, they signal the beginning of a bear market and we really need to stay on top of them or things are likely to get much worse indeed as we only capitulated and raised our Must Hold lines earlier this year.  Before that, we had been predicting a fall back to 2,850 on the S&P anyway so, on the whole, "everything is proceeding as I have foreseen".  

As in yesterday morning's PSW Report (except lower), we'll stop out of our shorts at 27,250 and, like yesterday, we can reshort if the indexes cross back under their low supports at 27,000 on the Dow (/YM), 3,100 on the S&P 500 (/ES), 8,800 on the Nasdaq (/NQ) and 1,565 on the Russell (/RTY).  We certainly need to see the Dow back over it's 200 dma and the Nasdaq has to clear 9,000 before I'd…
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Testy Tuesday – Looking for a Market Bounce

Wheeee – that was fun!

As you can see, we made great money on our Russell (/RTY) Futures shorts on the way down ($5,410) and, this morning, I sent our a special alert to our Members at 6:30 am, saying about the Dow (/YM) Futures:

We failed at 28,200 and back to 28,000 on /YM, which is playable for a bounce but super-tight stops below.  Lined up with 3,220 on /ES, 9,100 on /NQ and 1,630 on /RTY – I'd make sure 2 are over at least and get out if there are any failures at all (in other words, the others should cross over shortly, not fail).

We're hoping to catch a strong bounce up to the 28,280 line and that would be good for $1,400 per contract but once we're over $1,000 we should put a very tight stop on half our contracts and then stop out the rest at $750 to lock in average gains of $875.  If we do fail at the weak bounce line – look out below!  Once we're over the weak bounce line – that becomes our stop.

We can go bearish below our lines with the same rules we went bullish with – that's what's fun about the Futures – our stops had us risking very little to make what is already (8:07 am) over $600 per contract – not bad for 97 minutes work!  

So far, this market has bounced back from everything so today will be a good test to see if its still got its mojo.  Still, we set our stop here at $500 per contract ($1,000) as that's nice gains for a morning so it would be silly to lose those just because we're greedy, right?  We already failed our first attempt to take back 28,200 at 3am (the EU open, Asia close) so the selling pressure is likely coming from Europe and may ease off when they close at 11:30 – we'll keep an eye on that as the day progresses.

The WHO said China’s unprecedented lockdown may have averted hundreds of thousands of cases. The United Nations agency also said that Gilead Sciences…
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Monday Market Mayhem – Virus Suddenly Matters

833 infected.  

What?  That's low!  Well, that's just South Korea now and Italy has 215 cases, 154 in Japan and 89 in Singapore.  Even the US has 35 people infected now.  As I said last week, just because China seems to have things under control (though that is debateable), doesn't mean we won't get fresh global outbreaks in countries that will have a much harder time locking down their citizens to prevent the spread of the virus.

As you can see from the big chart, however, we "only" have 79,524 total cases and 25,163 have recovered so big progress in China – we just have to hope these other hot spots don't get out of hand.

The market crashed hard on the news as the Futures came back on from the weekend break last night – dropping 2.5% across the board in the US but we chose to go long on the Dow (/YM) Futures as they tested 28,200 in our Live Member Chat Room this morning – as that's the 2.5% line and should be bouncy by at least 0.5% or about 150 Dow points which would be good for morning gains of about $750 per contract if all goes well. 

Anything less than that is a weak bounce and, if so, it will be a strong indicator that the market wants to head 2.5% lower by Wednesday.  All in all though, it's just a minor correction in a massive rally that's been going on since early last year.  We've been very cautious with our entries so far and this is a nice sale the market is throwing so we can go out and do a bit of bargain shopping – if the virus issue isn't getting worse. 

Of course, Corporate Profits will be worse in Q1 and some countries may spiral into a Recession – because not every country gets to print money the way the G7 can.  China's President Xi warned yesterday that the virus epidemic is “still grim and complex,” calling for more efforts to stop the outbreak, revive industry and prevent the disease from disrupting spring planting of crops which, as I mentioned last week – is our next looming disaster (a year of hunger from missed farm production).  


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Faltering Friday – Weak Week Ends in a Whimper

What happened to our highs?

We had a nice rally Wednesday and Thursday, after the Fed Minutes but that's gone now and we're back where we were on the 10th – two wasted weeks in the market.  You can blame the virus or blame Bernie Sanders (who Leon Cooperman says is worse than the virus) or blame Donald Trump (the list is endless) but, for whatever reason, we're having trouble going significantly higher than we were on Jan 15th (3,320), before we fell back to 3,200 when the virus first broke out.

NOW we have some guidance and, generally, it's not good.  Obviously, no one is saying the virus is going to be a boon to business – outside of mask makers and a few Pharmecutical Companies hoping to have a treatment of vaccine.  BUT, on the other hand, the Coronavirus is costing the Airline Sector $30Bn and $30Bn is A LOT of money – even these days.  In 2003, SARS cost the Airlines $7Bn so – inflation.  Losing $30Bn, however, when you are trading at 15x earnings means you are losing $450Bn in market cap or 0.5% of the entire global market.  

The 5 Biggest Automotive Companies In The World’s Largest Car Market 2And, while we don't have the exact figures, I know when I go on a trip, the airfare is generally less than 1/3 of what I spend overall so we can assume another $1Tn of capitalization damage to the travel, entertainment and restaurant sectors so now we're chopping 1.5% off the Global Markets.  China's auto sales dropped 92% in the first half of February in the World's largest car market, accounting for 25% of global sales.  

We're getting horror stories from manufacturers all over the World, including Apple (AAPL) and Proctor and Gamble (PG), the World's two largest consumer products companies. 

"China is our second largest market – sales and profit," PG's COO Moeller said in a statement that was also included in an 8-K filing. "Store traffic is down considerably, with many stores closed or operating with reduced hours."


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Thrilling Thursday – The View From the Top of the Market

Image result for Well , here's another nice mess you've gotten me intoEverything is fine.

Hubaei (center of the virus outbreak) has asked firms not to resume work until March 11th.  It's Feb 20th so that's only 3 weeks from now – why should that concern anyone?  I'm sure things are fine.  Chinese companies (as I predicted, thank you) have been unable to pay their workers, delaying paychecks and cutting salaries.  That's fine.  Shopping malls and restaurants are empty; amusement parks and theaters are closed; non-essential travel is all but forbidden.  Fine.  

“A week of unpaid leave is very painful,” said Jason Lam, 32, who was furloughed from his job as a chef in a high-end restaurant in Hong Kong’s Tsim Sha Tsui neighborhood. “I don’t have enough income to cover my spending this month.”

He's fine.  “The coronavirus may hit Chinese consumption harder than SARS 17 years ago,” said Chang Shu, Chief Asia Economist for Bloomberg Intelligence. “And SARS walloped consumption.”  That's fine.  Without full, regular paychecks and few places to spend them these days anyway, Chinese consumers could cut spending in some categories to zero, said Shu. And it may not bounce back: For example, she said, if you skip your daily latte for two months, you’re not likely to make up for those missed drinks later in the year.  SBUX is fine.  

Rick Zeng, deputy general manager at the Lionsgate theme park in Zhuhai, said they’ve been shut down on government orders since the end of January. Starting next week, some staff will need to go on unpaid leave.  In the southeastern city of Fuzhou, hotel manager Robert Zhang said all but two or three of his 100 rooms are vacant on average nights. Two-thirds of the employees are effectively on furlough, getting some salary but not as much as they’re used to.  They're fine. 

South Korea's number of virus cases went from 31 yesterday to 104 this morning (up 235% in a day) and they had their first death from the virus this morning. 
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Wild Wednesday – More China Stimulus Brings Back the Highs

Virus, what virus?

75,282 infected, 2,012 dead, 15,030 recovered and last Wednesday we were at 45,204 infected, 1,116 dead, 5,085 recovered and the Wednesday before that it was 24,607 infected, 494 dead and 988 recovered so, in the past two weeks infections jumped 83.7% and 66.5% and deaths jumped 126% and 80% and recoveries surged 414% and 195%.  Overall then, it does look like we're SLOWLY getting things under control but even "just" 33% more infections next week brings us over 100,000 – I would not say we're out of the woods by any means.  

Nonetheless, if more infections is bullish for the markets, we need to learn to play the market that way, right?  So far, the more people are infected, the more stimulus China provides and that's what's lifting stocks this morning as China’s Ministry of Industry and Information Technology said the government would connect factories with technology companies to identify weak links in their supply chains

What does that actually mean?  No one knows but it SOUNDS good and that's all it takes these days to rally the markets.  “There will always be someone to save us’--that is the outlook from investors at the moment,” said Lewis Grant, a portfolio manager at Hermes Investment Management.  That seems to be the typical attitude of people who are managing other people's money – just keep buying!

The Nasdaq (/NQ) Futures are back at 9,680 and 9,687.5 was our high on Monday and, in our Live Member Chat Room yesterday afternoon, I said:

That's why I went flat earlier but time to short 2 /NQ again at 9,638.  We fell from 9,675 on Friday and I'm happy to DD if we test 9,700 to average around 9,660 on 4 short.  But yes, shorting is a fool's game in this market.

As you can see, we're down $1,685 so far (can't win them all) and it's very tempting to double down here at 9,680 but that makes the commitment too heavy ahead of the Fed minutes this afternoon so we'll stick with the plan and patiently wait for 9,700 and we'll see how things are going this afternoon, when we have our Live Trading Webinar at 1pm.  

We'll be reviewing our Member Portfolios this week and
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Turn Back Tuesday – Virus Fears Heat Up over the Weekend

Now Apple (AAPL) has warned they will miss on revenues.

We went from 64,456, 1,384 and 7,115 Friday morning to 73,336, 1,874, 13,054 so that's 13.7% more infected (that ship is a nightmare), 35.4% more dead (we knew that was coming) and 83.4% more recovered – there's a bright spot but almost 2,000 dead is certainly not.  SARS killed only 744 in a much longer period of time.  

At some point, investors are going to start taking this seriously, I think.  130+ S&P 500 companies have mentioned Coronavirus as affecting them somehow but only 40 guided down over the issue but now AAPL is one of them so it's making things interesting.  Fortunately, in Friday morning's PSW Report (which you can subscribe to here), we shorted the index futures over the weekend and that was good for a total gain of $6,622.50 – a great way to start the week! 

We're done with them for now as we expected the indexes to snap back a bit into the open (I called that in this morning's Live Member Chat Room) but we'll either look to re-load or add some more index shorts to our options portfolios later today as there's no reasn not to have protection in this volatile evironment.

Germany looks like they are heading into a Recession and now Japan is at the brink with 9 out of 14 Economists seeing the economy shrinking in Q1, after already shrinking sharply in Q4.  As we were discussing last week, Japan is about 300% of their GDP in debt and if we combine that with a shrinking economy, we can get Greece 2008 on steroids.  

Economists now see the virus preventing a rebound this quarter and keeping the economy in reverse. The immediate impact of the epidemic has been to stop hundreds of thousands of Chinese visitors to Japan, the biggest source of tourist income. The outbreak could also further curtail dismal spending by Japanese consumers, as they avoid crowded places after reports of some infections in Japan’s biggest cities.

Japan, in fact, had a huge jump in infections over the past week, from 28 last Wednesday to 66 this morning – that's…
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Valentine’s Day Virus – Dow has 30,000 in Site

Happy Valentine's Day!

64,456 people are now infected, 1,384 are dead, 7,155 (11.1%) have recovered in the month since this virus began.  There are over 8,000 people hospitalized in "serious" condition, that's almost 15% of those infected – especially if you include the dead, who were probably considered "serious" at some point as well.  Still, the markets are generally ignoring not only the actual virus but the effects it is having on the global economy

The Nasdaq is, in fact, 5% higher than it was before the virus oubreak and 7.5% higher than it was when it sold off on that news.  I guess you can say it simply resumed it's climb, now up almost 20% since December because, you know, that's how the stock market works now.

Unfortunately, that's also how viruses work and I'm not going to bore you with any doom and gloom stuff other than to point out that we are heading into a 3-day weekend in the US (President's Day on Monday) and, even if we are only adding 4,000 new cases per day, that means we'll be at about 80,000 on Tuesday and around 100,000 by next Friday so I'm still very concerned about next week – as people tend to freak out about 6-digit numbers.  

Last Friday, there were 31,523 (1/2) infected, 638 (1/2) dead and 30 in Singapore (1/2), 25 in Thailand (.75), 25 in Hong Kong (1/2), 25 in Japan (.86) and 24 in South Korea (.86).  That's what we have to watch closely as Singapore and Hong Kong are a huge worry with a 100% gain in a week and, of course, you can see how 100,000 by next Friday is OPTIMISTIC as we're projecting a 50% slowdown from the current pace of the spread.  

Even as the virus is mostly contained to Japan, the economic impact is already spreading across the globe with Germany reporting ZERO (0) GDP growth in Q4 and, due to the virus, possible NEGATIVE GDP in Q1 – pretty much a recession with 2 non-positive quarters.  

"The impact from the coronavirus on the


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