Entries by Phil

Friday Failure – OPEC Does Not Agree to Extend Production Cuts

This will be interesting.

After saying they would for the last 10 days, driving oil from $47.50 on 9/11 to $51 (7.4%) on Wednesday (now $50.45), OPEC has now decided they will "wait and see" what happens between now and their March meeting.  As U.S. shale oil continues to thrive and seasonal demand wanes, the surplus that has weighed on markets for three years could return. If OPEC doesn’t extend the supply curbs, the market will return to oversupply again, forecasts from the International Energy Agency indicate.  

Our average on the Oil (/CL) Futures shorts is $50.48 on 10 contracts and we're waiting fo the great unwind, which probably won't happen today as the weekend is here but these contracts run until 10/20 and there are 1.267Bn FAKE!!! orders over at the NYMEX in the front four months – so we're pretty confident there will be a catastrophic sell-off at some point.

Click for
Chart
Current Session Prior Day Opt's
Open High Low Last Time Set Chg Vol Set Op Int
Nov'17 50.73 50.78 50.32 50.39


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Thursday – F*cked by the Fed (there’s no other way to put it)!

Well, that's that!  

The great unwind has begun and I was off by $100Bn (20%) yesterday, when I predicted the Fed would aim for $500Bn a year in balance sheet reductions (they are going for $600Bn) although, to be fair, they are gradually stepping up to $600Bn so the net effect will be the same $500Bn a year, which is what we calculated would be the most even a recovering economy could withstand.

Keep in mind that treasuries are only half of the assets the Fed holds, they also have a lot of stock they need to dump and a whole lot of real estate and mortgages they need to find buyers for as well and you KNOW what happens when a seller HAS to sell to raise cash by a certain time – they are simply not going to get great prices for the assets they are dumping.  

It's a lot easier to write a check to buy things than it is to sell them – ask anyone who's thrown a garage or estate sale.  Whatever the Fed ends up writing off will be losses that transfer to Treasury and ultimately add to our deficit.  None of this is accounted for in Trump's already pure-fantasy budget and, in fact, the Fed ADDED $97.7Bn in profits to the Treasury last year, reducing our defict.  If instead they lose $100Bn a year – that's a $200Bn swing in our deficit.  That's 5% of Government spending – no small item!

The market seems oddly calm about all this but, as we discussed in yesterday's Live Trading Webinar (where we shorted Oil (/CL) at $51 and the Russell (/TF) at 1,445), the process for large funds and banksters involves several meetings and perhaps board votes before they begin to unwind their own assets – so the real reaction is likely to be delayed into next week.  

The quick reaction was a 1% drop in the indexes, a half-point drop in bonds (higher rates) and goaaaaallllll!!! on our Dollar trade, as it blasted up to our 92.50 target from the Morning Report and that was good for same day gains of over
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Fed Day Follies – Dollar Crashes in Anticipation of MORE FREE MONEY!!!

Is America great yet?

It is if you get paid in something other than Dollars, or if your assets are not Dollar-backed.  Otherwise, it's 3.4% less great than it was in November – as measured by Global confidence in our currency.  Cutting taxes, running up Government spending, threatening war (s) and easy money policies are no way to strengthen a currency.

US Household Wealth is roughly $100Tn so a 3.4% cut in the value of those Dollars means $3.4Tn was essentially taken from us – pretty much confiscated by our Government.   That's a lot worse than any tax because it's 3.4% of EVERYTHING we have.  Fortunately for those of us in the Top 1%, a lot of that $3.4Tn went right back into the market, where we have the bulk of our wealth anyway and, of course, we have enough money that we diversify our assets into other currencies and, of course, Gold, which has flown up from $1,125 to $1,325 (17%) since the election.

So thank you, Bottom 99%, for your contributions to our portfolios.  We couldn't have done it without devaluing everything you own!  In yesterday's morning Report, we discussed the massive debt bomb we are facing and looked at the Fed's projections and concluded the market may be wrong and the Fed may tighten at this meeting.  If they do, the Dollar will shoot higher and shorts will cover so I like Dollar Futures (/DX) long over the 91.50 line – with tight stops below.  

If the Fed surprises us and brings rates up 0.25%, expect the /DX to move up to at least 92.5 for $1,000 gains per contract.  Don't forget, Japan, Europe and China do not want a weak Dollar – this is the point they are likely to step in and prop it up anyway – so I feel pretty good about that play.  If you are Futures-impaired, you can use the Dollar ETF (UUP) as a proxy.  It's at 23.80 and the October $23.50 calls are just 0.45 so 0.15 in premium isn't bad for a month's worth of leverage, right? 

We'll look at that trade this afternoon at
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Testy Tuesday – All Time Highs Ahead of the Fed, What Can Go Wrong?

What can go wrong?

Well, for one thing, the Fed could tighten.  As you can see from the Fed's own projections, which are to be released tomorrow (but are on their web site today), the Fed is projecting a Fed Funds Rate of 2.9-3.9% next year.  This year it was a much wider -0.1 to 2.9% and we're right in the middle at 1.25% but what if we're in the middle next year at 3.5%?  Are you ready for a 2.25% rate hike?  Is anybody?

Certainly people with adjustable mortgages are not ready or revolving debt (reccord highs) or variable loans like Corporations tend to have, which would add $400Bn to their $2Tn debt balance.  Are the banks ready to have their loan margins squeezed as rates climb, which is often the case?  

Even just 3% would require 7 rate hikes in 8 meetings – unless the Fed hikes us this year, then it would be 6 of 8 or, if they surprise us and hike tomorrow, they buy a bit of fexibility next year and "only" have to hike rates 0.25 every other meeting, plut one.  Their other projections are on track.  The market thought lowering the Q3 GDP forecast (see yesterday's Morning Report) would keep the Fed off the table but they are only projecting 2.0-2.4% GDP for 2017 and LESS next year – so we're right on track.

Unemployment is below their target, Inflation is above – there's really no excuse for the Fed NOT to raise rates so don't be surprised if everyone is surprised tomorrow by a quarter-point hike, hurricane or no hurricane.  Of much more concern than the rates going up (though the repercussions of that alone will be tragic) is the potential unwinding of the Fed's Balance Sheet, which currently stands at $4.47 TRILLION and that's up about $3.7Tn since 2008.  

Even if the Fed "only" withdraws their money over the same 8 years they put it in, that's $500Bn a year coming OUT of the economy – no wonder they project a significantly lower GDP next year!   Meanwhile, the BOJ and the ECB have been putting in $400Bn a month and Japan's stimulus is so out of proportion to their $5Tn economy…
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Just Another Manic Monday – World War 3 Edition

This picture from North Korea's official Korean Central News Agency (KCNA) taken on August 29, 2017 and released on August 30, 2017 shows North Korea's intermediate-range strategic ballistic rocket Hwasong-12 lifting off from the launching pad in Pyongyang.Nuclear-armed North Korea said on August 30 that it had fired a missile over Japan the previous day, the first time it has ever acknowledged doing so. / AFP PHOTO / KCNA VIA KNS / STR / South Korea OUT / REPUBLIC OF KOREA OUT ---EDITORS NOTE--- RESTRICTED TO EDITORIAL USE - MANDATORY CREDIT Yes, I know no one cares, BUT:

On CNN yesterday, UN Ambassador Nikki Haley said the United Nations Security Council has just about reached the limit of its ability to economically punish North Korea.  Responding to a question by CNN’s Dana Bash about whether President Donald Trump’s famous “fire and fury” remark was an empty threat, Haley insisted that the US has held back out of a sense of “responsibility.” But now that diplomatic solutions appear to be dwindling, she would be “perfectly happy handing the situation off to Defense Secretary James Mattis, the source of some of the US’s harshest rhetoric against North Korea. Mattis, Haley said, would “take care of it.”   

 

 

“What we’re doing is being responsible where North Korea is being irresponsible and reckless. 


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Friday Failure – S&P 2,500 Remains Elusive

Can we ignore more terrorism today?

I don't see why not, "only" 22 people were injured this morning as a bomb went off on a London Subway and that's nothing to the relief Japan must have felt when the missile North Korea fired over their heads turned out NOT to have a nuclear warhead – isn't that great?  Frankly, I don't know what it would take to spook this market anymore – it seems to only head up – no matter what happens.  Our President, of course, handled the incident in London with his usual compassion:

Loser terrorists must be dealt with in a much tougher manner.The internet is their main recruitment tool which we must cut off & use better!    

 


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Threatening Thursday – North Korea Threatens to Nuke Japan and US – Markets Shrug

Does anything matter?

This morning, North Korea threatened to use a nuclear weapon against Japan and turn the U.S. into “ashes and darkness” for passing fresh UN sanctions earlier this week - fiery rhetoric that is likely to exacerbate tensions in North Asia.  “Japan is no longer needed to exist near us,” the state-run Korean Central News Agency said on Thursday, citing a statement by the Korea Asia-Pacific Peace Committee. “The four islands of the archipelago should be sunken into the sea by the nuclear bomb of Juche,” it said, a reference to the regime’s ideology of self-reliance.

I love that that's a message from the Peace Committee.  I can't wait to hear what the War Council has to say!  

Keep in mind these guys just fired an actual ICBM right over northern Japan and no, it was not shot out of the sky or disabled in flight.  Japan simply advised it's citizens to seek shelter and hope for the best.  There's really no time to react as this would be like New York bombing Chicago – it's a very short flight at 15,000 miles per hour (yes, that's how fast they go).   Anyway, it's all just a fun fact as the Nikkei has already shaken off the news and headed higher this morning and our markets are flat though Europe is turning down slightly.

Meanwhile, in the United States, the war on the poor continues and the Top 1% have scored a major strategic victory by having their pet Congresspeople in the GOP plant legislation in the budget bill that essentially requires the IRS to audit all 28M recipients of Earned Income Tax Credits.  At the same time, the Republicans are cutting the IRS budget so, effectively, they are making it impossible for the IRS to do their actual jobs and audit high-income returns.  

Earned IncomeTaxCreditWithOneQualifyingChild.PNGThe IRS already spends 39% of their time auditing EITC under the current rules and these audits account for just 7% of their revenues, this legislation would triple the time required while lowering the overall budget.  The amounts at stake in EITC audits are relatively small. Overclaim errors are often just a few hundred dollars, compared with the hundreds of thousands or
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Which Way Wednesday – S&P 2,500 or Bust!

Here we are again.

August 8th was "Trendless Tuesday – Stuck at the Market Top" with the S&P (/ES) at 2,480, which made for a nice shorting line and a $3,000 per contract gain back to 2,420.  The Dow (YM) was at 22,050, the Nasdaq (/NQ) was 5,950 and the Russell (/TF) was 1,430.   At the moment, we're focused on shorting /TF with 10 short contracts at an average of 1,419 and they are currently down $140 per contract and we'll see how the day plays out.  

We have a Live Trading Webinar at 1pm (EST) this afternoon and we'll look for some good opportunities there.  We had a lot of great trade ideas in last week's webinar and you can catch up on that one HERE.  In last week's Webinar, Biodiesel Chris noted LIT and SQM were both great Lithium trades (1:04), based on the proliferation of electric cars and the need for more batteries and LIT was $34.59 while we looked at it and Sociedad Quimica Minera (SQM) was $49.99 and both have popped higher so both great calls and worth looking into as the future is very bright for Lithium. 

On SQM, we liked selling the April $40 puts for $1.70, which nets you in for $38.30, which is now 23% off the current price and you can still sell those puts to get your foot in on the very hot Lithium trade.  Those are the kinds of macro trades we like to discuss in the Webinars and kudos to BDC for bringing it to our attention.

Meanwhile, keep in mind that Lithium is "just" a $3Bn industry, which is a spec compared to $90Bn worth of Aluminum, $115Bn worth of Iron or $170Bn worth of Gold being traded each year.  Nickel is another battery component and $21Bn of that is currently mined and Graphite is also used and is being used in a lot of cool stuff ($15Bn/yr), so that's another one I want to discuss in this afternoon's webinar with our Members.

Nothing, of course, holds a candle to Big Daddy Oil, which is a $1.7Tn annual consumable and oil has been on a…
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$20 Trillion Tuesday – Our National Debt Grows as Fast as our Markets

Dow 22,000, S&P 2,500, Nasdaq 6,000, Russell 1,420 and National Debt $20Tn.

It's an interesting combination.  American's also have $18.5Tn in personal debt, that's been climbing at a rate of about $500Bn per year this century (up 124% since 2000) and accounts for 2.5% of our GDP, which is growing at less than 2% so the ENTIRTY of our economic growth is debt-financed.  Even more so becasue our Government is going $1Tn per year into debt too, that's 5% of our GDP ($19.3Tn) in Government debt and that does not include the $500Bn a year the Fed has been adding to its balance sheet through the continuing QE program – that's another 5%.

So, 12.5% of our MAYBE 3% GDP growth is nothing more than deficit spending which means the real economy is DOWN 9.5% if, like Greece, we were forced to balance our budgets.  Of course, balancing our budgets is out of the question because your share of the National Debt is $208,079 and, if you have a family, we're looking over $800,000 just to pay off your Government's share – before you even begin to do something about your own mess.

Logically then, this debt is uncollectable.  Most people don't have $800,000 and aren't likely to get it in the near future.  Even if we made the Top 10% pay 10x, that's "$8M" for our top 1M families, which would be $8Tn but only the Top 0.01% have that kind of money and good luck getting President Trump to pay that bill!  

 

IN PROGRESS

 

 

 

  

Just Another Manic Monday – Hurricane Relief

Image result for dodge a bullet animated gifWell, it looks like we dodged a bullet.  

More like $50Bn worth of Hurricane Irma damage vs up to $200Bn expected, so a nice break for insurance stocks (KIE) – as long as there are no other storms barreling down on us.  The markets have gapped up half a point and we're back to our usual Mon/Tues shorting levels at Dow (/YM) 21,900, S&P (/ES) 2,475, Nasdaq (/NQ) 5,970 and Russell (/TF) 1,410.  We had many, many thousands of Dollars of winning plays from those levels on the short side over the past few weeks (see recent posts), so no reason to change our minds now

Speaking of recent posts, 2 Mondays ago (8/28) our PSW Report was titled "Monday Market Musings – Making Money on Misery" we taled about several hurricane plays and it's important, as an investor, that you learn to turn macro events to your advantage – or you will always be at their mercy.

  • VLO 2019 $60 calls at $10.35 are now $13 – up 25%
  • Oil (/CL) Futures long at $47.35 topped out at $49.45 – up $2,100 per contract
  • Lowes (LOW) Oct $75 calls at $1.70 are now $4.80 (our target was $4.50) – up $310 per contract (182%)

I know it comes across as bragging when we review our trades but it's important to LEARN what worked and what didn't so that, next time a similar situation presents itself, we can make those good trades as a reflex.  The premise was simple, the Hurricane would disrupt oil and gasoline production and repairs (and preparations) from the hurricane would benefit Lowes and Home Depot – not complicated, right?  The only trick is using that knowledge to make the right bet – and that's exactly what we are trying to teach you to do!

July 31st was a Monday and our Report was titled: "Monday Market Maintenance – Dressing the Windows for One More Day" in which I said: "It's going to be a meaningless Monday, we're just going to sit back and see how the month ends up but we'll certainly short the S&P again if we're back to 2,480 – along
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