Entries by Phil

Non-Farm Friday – Is America Working?

209,000 jobs.

That's pretty good, only 183,000 new jobs were expected and June was revised up by 9,000 more jobs (231,000) with unemployment now down to 4.3%.  More importantly, the Civilian Labor Force is growing, now about 160,500,000 (of which, about 7M are unemployed).  Average weekly earnings are up to $909.42 from $884.42 last July so up $25 (2.8%) but let's call it $100 per month and $1,200 per year more times 153.5M workers is $184Bn more Dollars in the economy this year but last year we only had 151.5M workers so 2M workers making 52x $909.42 ($47,290) is $94.6Bn new Dollars so, overall, let's say the working economy is up about $300Bn or 1.5% of our GDP.

That's not hard math, any economist can do it.  Any analyst can do it but, where you do need some kind of Quantum Mechanics is to try to explain how $300Bn of new salary money (most of which went to the top 10%) translates into the kind of buying power that would send the US markets $10Tn higher – that's 30:1 leverage!  

Of course, that makes sense as the market multiples on earnings have gone up considerably along with expectations but where I feel we're running ahead of reality is by looking forward and even assuming we add $600Bn of wages in the next 12 months – we're still miles behind what would be needed to support this bullish premise.  Also, consider that $600Bn more wages would be a 5.6% increase, which would then put cost pressure on businesses (until the robots are ready) and that would drag the economy.

So it's hard to paint a more enthusiastic picture than the one that's already been painted because, as noted by Calvin, "Alexander contemplated his victories and he wept, because there were no more Worlds to conquer."  What will we do for an encore when we only have 7M people left who are unemployed?  At this pace, in 3 years, they will all have jobs and we will have 0% unemployment.  What is the World the market expects down the road to justify a 20% improvement in 9 months?

The market is still benefitting from a benificent Fed and a lack of alternatives to invest
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Thursday Market Folly – You Need an AAPL a Day to Maintain Dow 22,000

So far, so good.

After a quick rejection, the Dow is drifiting along under the 22,000 line and it LOOKS bullish but let's remember that it took big moves by Caterpillar ($10), Goldman Sachs ($10), JP Morgan ($8), Boeing ($30) and Apple ($7) on earnings to give the Dow it's last 500 points.  That's a tough act to follow for sure.

And it's been a sort of a feedback loop because each earnings win pops the index, which raises all the Dow components and then the next one hits and reinforces the gains from the last win and then the index makes a new high and more money pours into the ETFs, etc.  All very nice if you are bullish but the rally, on the whole, has come on fairly low volume and, now that earnings are over, we'll have to wonder what catalysts is going to take us over 22,000 (our shorting target), let alone hold us up here.

Over in Europe, they have earnings too and the Europeans were not as impressed with earnings as the US investors were.  In fact, Germany's DAX is down 5% from their June highs along with the Euro Stoxx Index, which fell from 3,650 to 3,450 while the S&P added 50 points (2%).  

Major Global Indexes don't usually diverge from each other that much and the Nikkei has been trending down as well so someone is delusional and it's probably the country that elected a reality show host to be their President – I'm just saying…

The Dow is up 600 points since it's June high and that's 2.8% but, more importantly, since the election, the Dow is up from 18,000 so 4,000 points is 22% and I have to ask you – has Trump made things 22% better in 9 months?  And we're not taking about a 22% rebound after a sell-off, the Dow had already gained 50% since 2012 (4 years) from 12,000 to 18,000 so this 22% is just a cherry on top of all that fudge and whipped cream that was already piled on the QE sundae that had already taken us from 6,000 to 12,000 in the 4 years before that. 

Granted we were at
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Whipsaw Wednesday – The View from Dow 22,000

Wheeeeeee – This is fun!  

Dow 22,000 is our shorting spot (predicted last week) and we hit that that yesterday after Apple (AAPL) announced their earnings and popped $10 after hours, adding 85 points to the Dow.  This gave institutional sellers the perfect cover to dump everything else and the index is back below 21,950, despite Apple's help.  50 points on the Dow (/YM) Futures is $250 (you're welcome) but we can do much better than that and we will be taking advantage of today's pop to add to our hedges (while it's cheap) and that's for Members Only but, for you, the cheapskate reader, we can give you a new hedging idea using the Dow Ultra-Short (DXD), which is a 2x inverse ETF:

  • Buy 100 DXD Oct $11 calls for 0.45 ($4,500)
  • Sell 100 DXD Oct $13 calls for 0.12 ($1,200) 
  • Sell 5 AAPL 2019 $120 puts for $4 ($2,000) 

DXD is at $11.24 so in the money and $13 is $1.66 away or 15% so a 7.5% drop in the Dow will pay you back $2 x 10,000 options (100 per contract) or $20,000 and the net cost of the spread is $1,300.  That's a profit of $18,700 (1,438%) if the Dow drops 7.5%, and stays down, into the October expirations.  You are obligating yourself to buy 500 shares of AAPL at $120 ($60,000) so make sure you REALLY want to own AAPL if it drops 20% but, chances are your will be safe with that bet if the Dow stays up and, if the Dow falls and puts AAPL in the money, then you have an extra $20,000 to buy the shares with!  

Meanwhile, we could not be more pleased with the AAPL options we do have.  AAPL is the largest holding in our Options Opportunity Portfolio and we had already gained $15,800 on our net $5,600 credit position so up $21,400 but that's nothing as our profit potential for AAPL is $185,600 so we're merely "on track" to our goal of $170.  No wonder the Options Opportunity Portfolio is up 200% in two years!  

We will have to roll out the short callers but,
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Toppy Tuesday – Back to our Shorting Line on the S&P 500

2,480! 

That's where we called the short on S&P (/ES) Futures last week and we fell back to 2,460 ($1,000 per contract gained!) and now we're back at 2,480 so what do you think we're doing?  I already put a note out to our Members this morning in our Live Chat Room, saying:

Markets blasting up yet again for no particular reason.  Now I like /YM short at 21,950 with tight stops but then again at 22,000, /NQ 5,900 is good as well and you know 2,480 was my target short on /ES and that's lined up with 1,430 on /TF – definitely a short the laggard day.  

We're also shorting Oil (/CL) at $50 but long on Natural Gas (/NGZ7) at $3.07 and long on the Dollar (/DX) at $92.75 – all fun trades for a Tuesday morning.

 

IN PROGRESS

 

Monday Market Maintenance – Dressing the Windows for One More Day

Image result for market contrarianRecord highs! 

That's what the Banksters want to print in their monthly reports to get their customers to pull their CASH!!! off the sidelines and put them into something that generates fees for the bank.  They don't give a crap whether you win or lose – as long as they get their fees.  

Morgan Stanley says "this time will be different" and that we shouldn't worry about Central Bank de-leveraging or China's Credit Collapse because (and these are their points, not me just making it sound absurd), although "global growth will moderate somewhat, and will remain above trend."  That would be great but the "trend" has been around 2% and global stocks are not priced for "above 2% growth" they are priced for 4% growth or 6% growth and we are miles away from that!

Goldman's Chief Equity Strategist, David Kostin says the company's HNW clients are "confused" by the lack of inflation (as that's what we expect in a great economy) and he ponts back to the disparity of measurement that we touched on last week.  

Like me, Kostin is recommending inflation hedges, urging his clients to ignore what the Fed is saying and pay attention to the evidence that's right in front of their eyes.  Zero Hedge does a very good job pointing out what's wrong with inflation measures as they note that: "A leading driver of disinflation has been the Video, Audio, and Computer category where prices dropped by 5% in 2015, by 10% in 2016, are declining at an average pace of 7% YTD."  This is one of the stupidest things the Government does when measuring inflation.  Basically, if you bought an IPhone last year for $1,000 and it had 64Gb or Ram and this year you spend $1,200 but it has 128Gb of ram, the Government says you are getting more for your money so that phone is counted as 40% CHEAPER than the one you bought last year.  

Of course it's a bit more complicated than that but processor speed per Dollar goes up too so yes, electronics are almost always a drag on inflation, as are appliances.  So take this chart with a Lot's wife-sized
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$2,000 Friday – Big Win on Nasdaq Shorts offset Oil Losses

It was a mixed bag.  

In yesterday's PSW Report, we called for shorting the Dow (/YM) below the the 21,650 line and we never really got there but the Russell Futures (/TF) crossed below our 1,445 target and plunged another 20 points to 1,425, yeilding a nice $1,000 per contract win on the day.  That was enough to offset our loss (so far) of $600 per contract on oil shorts at $48.50 (for those who did not use the tight stops suggested, of course).  

Oil is $49.10 this morning and we still think the short story will play out during August but it's likely to be a rough ride along the way.  The Nasdaq was good for a 100-point drop, yeilding gains of $2,000 per contract from our Wednesday morning call and the S&P (/ES) was rejected at our 2,480 line, dropping to 2,460 and that was also good for gains of $1,000 per contract in just two days.

In Wednesday morning's PSW Report, we also discussed our Wheaton Precious Metals (WPM) spread, which was net $3,825 at the time and is now net $4,180 so up $355 (9.2%) in two days – I told you it was good for a new trade.  Chipotle (CMG) was also a great spread, going from net $16,900 to $23,050 for a very quick $6,150 (36%) gain but sadly, for Seeking Alpha readers, the report we submitted on Wednesday was rejected by the editors because they didn't feel the trades were "new enough" – since they were both derived from older trade ideas.  Pinheads!  

If you want to read our Morning Report BEFORE the market opens every day – you can sign up HERE – I've lost my patience with Seeking Alpha and will no longer submit content there – other than the occasional blog post and, for now, my Options Opportunity obilgations.

Speaking of politics:  32 Million thank yous to Republican Senators Lisa Mukowski, Susan Collins and yes, even John McCain for saving health care for 32M Americans (for now).  They voted against the Obamacare repeal last night and there were gasps on the Senate floor when John McCain, who Trump just called a real hero for voting to allow debate…
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Thrilling Thursday – The View from the Top

Image result for stock market roller coasterHere we are again.

Once again the Fed failed to raise rates and the Dollar dropped, sending the indexes and commodities higher.  Boeing (BA) was the entire story for the Dow (DIA), as their $20 gain was good for 170 of the 97 points the Dow gained.  That's right, without BA, the rest of the Dow components lost 73 points and the S&P ended up red (slightly) despite Boeing's boost.  

We had a live Webinar yesterday and we talked about the internal market weakeness and decided to stick with our index shorts from Tuesday morning's Report, notably the Dow below the 21,650 line and the Russell below 1,445 – with tight stops over the line.  

We're also still shorting Oil (/CL) Futures below the $48.50 line as that too, seems overdone after it's 15% run since Mid-June rom $42 to $48.50.  Considering how much effort has been made to talk oil up – $48.50 is pretty pathetic, a strong indicator of general weakness.  Also, we're getting into that time of year when there's already a tremendous overhang of fake, Fake, FAKE open contracts at the NYMEX from traders who have no intention of taking delivery.  December already holds open orders for 342M barrels – that's 20 times the amount that will actually be delivered!  

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Wishful Wednesday – Fed Edition

Image result for draghi whatever it takesHappy anniversary!  

It's been 5 years today since ECB President and Goldman Sachs (GS) stooge, Mario Draghi said: "The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."  At the time, the EuroStoxx index was at 2,000 and now we're at 3,500, a 75% gain in 5 years and Germany's DAX is up over 100%, from 6,000 to 12,281 as of yesterday's close.  That's an average gain of 20% a year for 5 consecutive years – happy anniversary indeed!

The Euro has fallen 20% over that time period, making the gains somewhat less impressive but not too much and "only" down 20% is very surprising as the Yen is down 30% over the same period and the ECB's money supply is up 30% as well.  Actually, the EU money supply is up closer to 100% since 2008, Draghi's "whatever" was just icing on that already well-iced cake.  

None of that comes close to the flood of Dollars that have been printed since 2009 with $3Tn new Dollars in circulation which QUADRUPLED the supply of US Dollars in the World.  Keep in mind those are hard Dollars which the banks then turn around and lend out 10 times each, which is $30Tn more Dollars or 1.5 times our entire GDP so, when you hear our GDP is growing at 2%, you should say "WTF?" as our money supply has been growing at an average of 30% per year for a decade…  

Image result for money supply dollars 2016

That money, in turn, gets pumped into the stock market, which also levers up the cash by about 10:1 on inflows and PRESTO! – it's a "recovery".  Steely Dan said "You Can't Buy a Thrill" but you can certainly buy an economy if you are a motivated Central Bank and no one was more motivated than the former Managing Director of Goldman Sachs, Mario Draghi, whose "former" firm is up 120% since he did "whatever it takes" for them.  

It's kind of cute the way people think there will be no consequences to 300% increases in the money supply.  The way gold, silver and uother commodities are trading – you…
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Tempting Tuesday – S&P 2,500 in Sight

Beat crazy!  

With the very notable exception of Google (GOOGL), who had higher than expected Traffic Acquisition Costs, most of today's reporting companies are nicely green and oil (USO) is back to our shorting line at $47.20 (/CL Futures) after yeasterdsay's failure to turn back down from $46.50, which is a loss of $700 per contract if you did not heed our warning, in yesterday morning's PSW Report, to use tight stops.

Nonethelss, you can be redeemed by doubling down at $47.20, which would raise your short average to $46.85 and then get out of at least half even there and back to tight stops above $47.25, which we shouldn't even see if oil remains weak.  That lines up with $49.50 on Brent Oil (/BZ) – which also should be a point of non-futile resistance.  

Seagate (STX) just missed and is down 20% and that does not bode well for Amazon (AMZN), who we've been shorting to no avail, as the only place they make any money is cloud storage.  That's right, turns out it's not profitable to pack and ship you a $3.99 case of Pepsi overnight – who'd have thought?  I was at the post office yesterday, contemplating what a stupid business Amazon really is.  Yes, it's nice that they can ship me all that stuff but, even at the post office, shipping costs are expensive and AMZN doesn't MAKE the stuff they ship, they only get a commission on it.  Even if they send you a book, where they take 30% of the sale price – by the time they pack, wrap and ship it to you – it's break-even at best.

Related imageThat's why Amazon doesn't have any real competition – there's no money in their business, why would anyone compete?  Don't get me wrong, you can sell the crap out of a service that doesn't make any money because the people will love it but how long before they wise up?  For instance, I was at the super market and I saw Starbucks (SBUX) Cold Brew Cofee with cream, cocoa and honey – 3 things I like in coffee so, even though it was $4, I had to buy one and it was…
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Manic Monday – Saudis Cut 600,000 More Barrels and it’s Still Not Enough!

As we predicted on Friday, the Saudis have unilaterally cut production.

It was less than we recommended, however – 600,000 barrels vs. 1Mb needed to make enough impact to get Brent Crude back to $50 so we'll be back to shorting oil once the bulls get done reacting to the headline.  At the moment (8am), US Oil (/CL) is trading at $46.06 and hopefully we can short it at $46.50 but we'll take a short under $46 with tight stops above as they may not get there on this half-assed effort.

The Saudis have to act in loco parentis at these meetings but it was hoped by oil bulls that holding the OPEC meeting in St. Petersburgh meant Russia would be joining in with more cuts.  Not only didn't that happen but both Nigeria and Lybia have room to INCREASE their production under today's agreement, which offsets most of the Saudis' new cuts.  The success of this deal rests on the rest of OPEC complying with November's production cut – something they are notoriously bad at.  

Long-Term, the OPEC nations face a disaster of biblical proportions as their oil-dependent economies are running headlong into the end of the oil era.  According to a new book. Burn Out: The Endgame for Fossil Fuels takes the view that oil prices will not just be “lower for longer”, as BP chief Bob Dudley predicted, but lower forever.  The evidence for author Dieter Helm’s case rests on plentiful supply unlocked largely by the US shale revolution, “unstoppable” global action on climate change, and technological advances.  

My view is that oil prices will probably carry on falling forever, and $50 is a high price for oil, not low,the University of Oxford professor told an audience in London.    

Helm described his book as “very bleak” about the fate of the Middle East’s oil producers, who he warns face challenges “at best uncomfortable and at worst close to existential”.  Of Opec, he writes: “The popular narrative … assumes that these countries still have the power to move the price, and hence assumes that, eventually, Opec will restore order and return to the good days of ever-higher prices. This narrative is profoundly wrong.”…
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