What’s Next Wednesday – Powell Keeps it Easy but States are Raising Taxes

How does Money Printer Go Brrr: Part 1 — Bonds or Bondage? | by  Thoughtmosphere | MediumMORE FREE MONEY!!!

That was the message from Fed Chair Jerome Powell yesterday as he told the Senate the the Fed would hold interest rates near zero pretty much no matter what and the Fed would keep buying as many TBills as they want to print to allow Infinite Stimulus to keep going well into 2022.  “The economy is a long way from our employment and inflation goals,” Mr. Powell said, just days after the PPI Report showed the highest inflation in 20 years.  Powell will deliver the same message to the House this morning.

Consumer confidence in the U.S. rose in February for the second consecutive month as Americans grew more upbeat about current business and labor market conditions, the Conference Board reported Tuesday. Still, nearly a year after the crisis erupted in the U.S., the nation has about 10 million fewer payroll jobs than in February 2020.  Of course, 1M of those jobs were cleaning offices – they're not coming back…

The Fed’s semiannual report delivered Tuesday said that business leverage “now stands near historical highs” and that insolvency risks at small and midsize firms remain considerable.  Noting that asset bubbles triggered recessions in 2001 and 2007-09, Powell was asked if he sees a link between elevated asset prices and the Fed’s easy-money policies.

“There’s certainly a link,” Mr. Powell said. “I would say, though, that if you look at what markets are looking at, it’s a reopening economy with vaccination, it’s fiscal stimulus, it’s highly accommodative monetary policy, it’s savings accumulated on people’s balance sheets, it’s expectations of much higher corporate profits…. So there are many factors that are contributing.”

While the markets recovered on Powell's testimony, they didn't go any higher because, as I said yesterday – what more can this guy say?  He's telling you that the Government can spend as much as they want for as long as they want and the Fed will back them up by buying every note they issue and the Fed will continue to lend money at 0% – even though no one in the private sector will do anything close.  That's nothing more than perpetuating an artificial environment.…
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Toppy Tuesday – What More Can Powell Say or Do at this Point?

The FED Squeeze – Grrr GraphicsHere we are again.

Indexes are still hovering around their all-time highs and Fed Chairman Powell is speaking to Congress.  What is he going to say?  What can he possibly say to make you believe that the stocks you are massively over-paying for now are going to be even more massively over-paid for by the next sucker down the road?  How much money will they have to pour into the system to maintain this farce?  Will there ever be consequences or were we just being silly for the past 245 years having a budget?

Money can just be printed when you need it.  No matter what you want to spend, you just print more and buy whatever you need, right?  That's our current fiscal policy and, as we noted yesterday, the Fed is responsible for most of it and yes, we need the stimulus and we need the liquidity BUT THERE IS A COST – and we haven't even been considering it.  

Since the financial crisis, the Fed has kept the cost of borrowing money for banks at near-zero percent interest. That allowed those banks to borrow money to buy their own stock (as did many corporations) to inflate their value but not, of course, the value of their service to Main Street.  When money is cheap because interest rates are low or near zero, the beneficiaries are those with the most direct access to it. That means, of course, that the biggest banks, members of the Fed since its inception, get the largest chunks of fabricated money and pay the least amount of interest for it.

Let’s recall that on September 15, 2008, Lehman Brothers crashed. That bank had been around for more than 150 years. Its collapse was a key catalyst in a spiral of disaster that nearly decimated the World financial system. It wasn’t the bankruptcy that did it, however, but the massive amount of money the surviving banks had already lent Lehman to buy the toxic assets they had created.  In the wake of Lehman’s bankruptcy, $16 trillion in bailouts and other subsidies from the Federal Reserve and Congress were offered mostly to Wall Street’s biggest banks. That flow of money allowed them to return from the edge of financial disaster. 


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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…
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PhilStockWorld February Portfolio Review – Part 2

Image for postDoes trading have to be exciting?  

While the market remains at all-time highs, I remain skeptical and a lot of that is because I allowed myself to become complacent in 2007, after having missed the rally of 1999 because that, too, was ridiculous.  In retrospect I was right – but not until March of 2000 and I could have had some fun betting on anything with a pulse in 1999 so, when 2007 came along – I finally went with the flow and, while we had pretty good timing in 2008 getting out on top – a lot of people didn't.  So I guess, this time around, I just want to make sure nobody gets burned when this thing collapses.  

We are all shaped by our past and we all run our own gauntlets to become the people we are today.  I know I trade like an old man because I learned from my Grandfather, Max Davis, who was born in 1903 and, in 1973, 10 year-old me laid on the floor on Sundays with the stock section of the paper laid out on the floor (you only got stock reports on Sundays back then), circling companies that made new highs or new lows so we could later investigate why it was happening and then Grandpa would do his Fundamental Analysis of the companies (often including actually visiting the company) to decide if there were any hidden values there.  

Having lived (in England) through World War 1, the Pandemic that followed, the Great Depression and World War II, Grandpa Max had seen a lot of shit – and he was very good at conveying his experiences to me from both a Social and Economic perspective.  Though he never went to college, Grandpa Max was a voracious reader and a very sharp businessman.  Learning from him always gave me a long-term and patient perspective on stocks and, since we only got stock news on Sundays anyway – you learn to be patient by default.  

So of course, growing up, I gravitated to books by Jeremy Grantham (also British) and Warren Buffett and that's my "style" – value investing but my twist on it (as I'm 30 years younger) is to use options for hedging and leverage – rather than just trying to…
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PhilStockWorld February Portfolio Review

Image result for one million dollars animated gif$1,766,591!  

Our paried Long & Short-Term Portfolios have gained $157,564 since our January Review and that is, of course, ridiculous and reflective of this ridiculous bubble rally.  The LTP went up and the loss of the STP went down – even as we increased our hedging.  That's because we sell a lot of premium and the premium decays regardless of the market direction.  Time is our friend using this strategy.  

Also, we have SUBSTANTIAL amounts of CASH!!! across all of our portfolios as we think this entire market is BS and will collapse at some point.  At least 2 or 3 days each week I wake up wanting to just cash out and go on vacation – only I can't go on vacation and I'd be bored so we stay invested – but that's a really stupid reason to risk your assets if this is money that is critical to your future.  

The S&P 500 is up almost 100% from it's March lows and yes, that was a 35% drop from the February highs but now we're 20% above those (3,393) and it's simply too far, too fast so we're being very careful with our positions and very aggressive with our hedges.  In our last STP Review, we determined we had a good $300,000 worth of protection and we only have $551,828 worth of position in our LTP – that is well-covered!  

We added new longs however in the LTP on BABA, GOLD, OIH, TOT, VLO, WPM and WU in the past 30 days as we've been enjoying earnings season and the bargains it brings.  We still have $1,057,650 of CASH!!! sitting on the sidelines and we've sold very few naked puts so we also have tons of margin to play with.  On the whole, we'd love a good crash – so we can go bargain-hunting.  I will repeat what I said back on December 16th as the strategy still holds and, after making 10% for the month, perhaps more people will pay attention:

We have 33% less


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Retail Wednesday – Is America Shopping?

Retail Sales.

They make up 60% of our GDP and December's Retail Sales were down 0.7% in December from the previous month, rather than up 3-4% as expected for the holidays.   Anything positive this month would be an improvement but the trend has not been our friend recently.  Excluding Autos, the trends are far worse as people still bought new cars last year, something the auto industry wisely locks in as 26% of all cars (50M) in the US are leased – so you HAVE to get a new car every 3 years or so.

14.6M cars were sold in 2020 and that's pretty much the amount of lease turnover for a year.  Auto Sales overall were down 15.5% from 2019 and even leasing was down at 26% from 30%, so that dropped about 15% too.  The key takeaway from the last Retail Sales Report is that it was clear that Consumer Spending decelerated at the end of the fourth quarter, partly because of expiring benefits, weakening confidence in the short-term outlook, and restrictions on certain activities due to worsening coronavirus trends.

  • Motor vehicle sales increased 1.9% m/m after declining 1.5% in November
  • Gasoline station sales were up 6.6% after declining 1.6% in November
  • Electronics and appliance store sales dropped 4.9% m/m following an 8.3% decline in November
  • Nonstore retailer sales fell 5.8% after declining 1.6% in November
  • Food services and drinking places sales declined 4.5% after declining 3.6% in November

We'll see what we get in the 8:30 Report but, to give you and idea of how insane the market is these days, this is what the Retail Sales ETF (XRT) looks like DESPITE these FACTS: …
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Tricky Tuesday – Futures Jacked Up During US Holiday to Fool Who?

This is total BS!

The S&P 500 is up 40 points (1%) since Friday's close and the Dow is up 300 points, etc. on NO news and NO trading – just some last minute window-dressing into the bell and after hours – when no one is actually trading.  This is what fund managers like Jim Cramer do when they need to sell their holdings – they create a false sense of excitement to lure the suckers into buying shares while the fund managers are dumping their overpriced holdings.  

And, by the way:  Since I pointed out how blatantly Jim Cramer used to manipulate the market in his confessional video back on January 29th, team Cramer has been busy redacting that video from the Internet.  Very 1984!  If you can't find the video – it never happened, right?  A text description survives on Seekeng Alpha (for now) but who knows how long it will last.  

Who controls the past, controls the future: who controls the present, controls the past… The mutability of the past is the central tenet of Ingsoc. Past events, it is argued, have no objective existence, but survive only in written records and in human memories. The past is whatever the records and the memories agree upon. And since the Party is in full control of all records, and in equally full control of the minds of its members, it follows that the past is whatever the Party chooses to make it. – Orwell 

Image result for control of the mediaI find this disturbing and you should find it disturbing but, unfortunately, to our kids – reality is only what Google says it is.  How many generations before, like 1984, there are no written records and the only past we can refer to can be erased at the whim of a censor – or simply because a "leader" like Donald Trump doesn't like what it says?  We're having that discussion now in Congress and we're losing the battle – but you wouldn't know you're losing the battle because the 6 Billionaires that control the media aren't interested in telling you that, are they?  

 

 

 

 

 

 

IN PROGRESS

 

 

 

 

 

 

 

Thousand-Dollar Friday – Our Futures Shorts Pay off Nicely!

Are we having fun yet?

In Wednedsday's Live Trading Webinar, we discussed using $58.50 as a shorting line for Oil (/CL) Futures and we had a couple of small dips but we finally caught the big one this morning.  We don't need to be so quick to jump back on and re-short as we'll certainly get a strong bounce AND it's a holiday weekend – so "THEY" are as likely to drive us back to $58.50 as they are to panic out and sell.   

That's why, last Friday, we went with the Ultra-Short Oil ETF (SCO), picking up the March $9 calls at 0.65 – to play for the post-holiday drop without having to worrry about the Futures over the weekend.  Those calls dropped to 0.55 on Thursday, as oil topped out, but finished the day at 0.72 and we have 35 days left to play, looking to make 0.25 x 50 contracts at 0.90 is $1,500 on our $3,250 outlay (50 contracts in our Short-Term Portfolio).  

Similarly, we played the Russell (/RTY) Futures short at 2,300 (as noted Tuesday in: "Tuesday Trouble at 2,300 on the Russell 2000") and, so far, that's been good for $1,250 per contract but were up $2,500 per contract on yesterday's dip and we should have taken that money and ran – but we didn't.  Though I still like them for a nice, weekend hedge.

Keep in mind that it's only a hedge when you have long positions that will gain as much or more than your potential loss on the (in this case) short position if the market goes higher – otherwise it's a BET and BETTING on the Futures is a very dangerous thing to do.   

As noted on Tuesday, according to our fabulous 5% Rule™, we've had a 10% run in 10 days on the Russell from 2,100 to 2,310 and that's 210 points so we expect a 20% (weak) retrace of that run or 42 points – back to 2,268 or a strong retrace back to 2,226.  If the weak retrace holds (has so far), then we may be consolidating for a move higher but, if the strong retrace fails…
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Faltering Thursday – Economy Shows Signs of Struggle

These are not the headlines for a record-high market.

Best Buy isn't cutting jobs because the 2nd quarter is going to be fantastic, are they?  The Biden Administration isn't cutting school expectations because everything is going to be normal after the Summer break.  The virus isn't resurgent in Germany because it's about to go away, Seadrill isn't going Bankrupt again because the oil industry is rebounding.  

At what point do we plan on getting realistic?  We don't have to because Uncle Sam keeps writing checks and everything is awesome until the money runs out (and maybe it never will).  Meanwhile, we're being asked to pay record-high prices for stocks based on future expectations that everything will remain awesome for years so come and will, in fact, get much better because, currently, we're paying 30-40 times the earnings potential of these stocks.  That means it will take 30-40 years for those companies to generate a return on our investment – AWSOME!

That means people are either buying stocks with irrational expectations or they are rationally using them solely as trading vehicles and have no intention of being long-term investors.  To the extent that is true, market sentiment can turn on a dime and, if it does and if there are no fundamental investors to underpin the stock prices – what is going to happen when that sentiment changes?

The change in sentiment in February led to a 35% correction in the market and it could have been worse but the Government quickly stepped in with FREE MONEY and, since then, we've been promised MORE FREE MONEY over and over again and, though we are still waiting for it – it does seem very likely that it will be here in a few weeks.  March's…
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Which Way Wednesday – Powell and the 10-Year Note

Image result for brother can you spare a dimeBrother can you spare 410Bn dimes?  

That's what we need to sell in today's 10-Year Note Auction and, if you have $41Bn to spare for 10-years, our Government will be happy to pay you almost (but not quite) 1% interest for holding your money.  Needless to say, these auctions have been attracting less and less interest and, if it is perceived that the US has trouble borrowing money, that could put upward pressure on rates and we certainly can't afford that since we are $27Tn in debt – soon to be $30Tn in debt when Biden passes his $1.9Tn Stimulus Bill.

That's why Fed Chair, Jerome Powell is jumping in to make a speech at 2pm – we may need him to spin those auction results to calm the markets if the auction doesn't go well.  We are only in the early stages of the debt crisis that began in 2008 and has essentially kept going since – the pandemic is only the latest excuse to prop up our economy by printing more money and it won't be the last as our debt burden is projected to grow another 100% over the next 20 years:

After World War II, our Government initiated higher, progressive taxes to pay down our debt.  This Government doesn't have the stomach to ask the people to make sacrifices, so we force the sacrifices on our children and our grandchildren – who will one day have to deal with the mess we are making.  

Here's the real kille, even at 1%, the interest on our debt is $400Bn a year yet, NORMALLY, the government pays around 4.5%, which would be $1.8Tn so, if rates ever do normalize, we would have to find $1.8Tn (1/2 the entire budget and double the entire discretionary budget) just to pay the interest on the debt we already have and, since we would have to borrow that too, we'll quickly be in a cycle of ever-escalting debt until we finally have to default.  

Interest on the federal debt

Image result for federal budget interest paymentSo how
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