Which Way Wednesday? Vaccines by May and $1.9Tn – So What?

Ben Sargent Takes on the Texas 'Stay Home' ProtestersStill not enough? 

As I pointed out last week, these things don't happen in a vacuum and the vacuum at the center of the US economy really sucks.  The stimulus package is being passed, Biden has stepped up the pace of vaccination so that we all should have our shots by Memorial Day and, just this morning, the Governor of Texas announced the state will be "100% open as of March 10th" and sure, he's an idiot and not listening to Health Experts but neither is MIssissippi Governor, Tate Reeves, who will open up his state on the 9th.  

"Our hospitalizations and case numbers have plummeted, and the vaccine is being rapidly distributed. It is time!," Reeves tweeted Tuesday.  In the last year, Texans have "mastered the daily habits to avoid getting Covid," Abbott said. As of Monday, 6.57% of Texans have been fully vaccinated, according to Johns Hopkins University.  "Now is not the time to reverse the gains we've worked so hard to achieve," Harris County Judge Lina Hidago said in a written objection: "At best, today's decision is wishful thinking. At worst, it is a cynical attempt to distract Texans from the failures of state oversight of our power grid."

Even Jason Brewer, of the Retail Industry Leaders Association, thinks this is a bad idea – saying: 

"Relaxing common-sense safety protocols like wearing masks is a mistake.  Going backwards on safety measures will unfairly put retail employees back in the role of enforcing guidelines still recommended by the CDC and other public health advocates.  It could also jeopardize the safety of pharmacies and grocers that are gearing up as vaccination centers."
Trump's Screechy Swan Song: Lining Up Ugly Ducklings for Biden | Random  Lengths NewsHouston Mayor Sylvester Turner said Abbott's announcement "really undermines all of the sacrifices that have been made by medical professionals, doctors, nurses, EMS workers, firefighters, police officers, municipal workers, people in the community."  Austin Mayor Steve Adler told CNN's Anderson Cooper on Tuesday night


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Toppy Tuesday – Again?

Last weeks was: "Toppy Tuesday – What More Can Powell Say or Do at this Point?"

Today I can take the day off becuase here we are again, back at S&P 3,900 along with Dow 31,500, Nasdaq 13,250 and Russell 2,270 all trending lower than their previous two Tuesday's.  Why Tuesday?  Because Monday markets are very low-volume and easily manipulated with M&A Rumors and Analyst Upgrades along with Government Happy Talk and, of course, a healthy dose of 401K deposits rolling in from Friday's Payrolls.  

That allows "THEM" to take advantage on a weekly basis and overcharge long-term savers for their positions as they drip-feed their retirement accounts,  In fact, Randers pointed out last week that the weekend performance of the S&P 500 (when no one is trading) accounted for about 25% of all gains over the past 10 years.  

Even "better", overnight trading (when no one is looking) accounted for OVER 50% of the total market gains.  So nights and weekends are when all the real money is being made, apparently.

That's why shorting on Tuesdays has been good to us – by Tuesday people are trading and, when there is volume in the market, it usually turns lower because there aren't that many real buyers out there – certainly not at these elevated prices!  Guo Shuquing agrees with me and he's the Communist Party Boss at the People's Bank of China.  Guo (last name) said this morning: "We are really afraid the bubble for foreign financial assets will burst someday."  Guo is also the Chairman of China's Banking and Insurance Regulatory Commission – kind of a right wing Elizabeth Warren...

Investors, hedge fund managers and former central banking officials have all expressed concerns too, as Wall Street trades near record highs even as the United States continues to grapple with the effects of the coronavirus pandemic.  Guo echoed such fears, adding that the rallies in US and European markets don't reflect the underlying economic challenges facing both regions as they try to recover from the brutal pandemic recession.

Guo's remarks shook markets in the region. The Shanghai Composite (SHCOM) and Hong Kong's Hang Seng Index (HSI) were both trending upward before Guo's speech, building on Wall Street's rally Monday. But both indexes reversed course soon after. Shanghai's benchmark was down 1.2%, while the Hang Seng fell 1.3%.
 

IN PROGRESS

 

 

Just Another Manic Monday

Up we go again!

In the end, the S&P 500 only made a weak retracement of the rally, back to the 3,800 line on the button, per our 5% Rule as we noted on Friday morning.  Since then we bounced back but it's a fall from 3,900 so those bounces then should be 20 points so 3,820 (weak) and 3,840 (strong) and we don't pay much attention to the Futures but a fail to hold a strong bounce today means we are still more likely to be consolidating for a move down to 3,700 this week.  

Bonds finally stopped falling (which indicates rates are rising) but they too are likely just bouncing after falling 5% from 140 to 133 so we're not very impressed with that move either until we see a strong bounce – which would be 2 points back to 135 – where you can see we paused on the way down.

Pausing here is certainly nothing to get excited about as the US just held a TERRIBLE 7-year note auction that got very little interest (the lowest demand in history) and the 10-year note yield is still about 1.5% – back to where it was pre-Covid and miles above the Feds 0.25% target rate – a gap that shows how far away from reality the Fed really is at the moment.  

Almost everything that mattered was red on Thursday. Treasuries sank, driving the yield on 10-year notes up as many as 23 basis points to 1.61%. Stock losses were most pronounced in Nasdaq-100 and small-cap shares that, with help from frenzied speculators and economic optimists alike, had led equities higher. Corporate bonds continued to rack up the biggest losses since the pandemic began as companies scramble to sell debt before yields go up even more. The dollar surged in a classic haven trade.

A return to pre-pandemic yield levels didn't calm anyone

So, what's gotten better over the weekend?  Nothing really.  “I was surprised to see the almost complacency from Fed officials, with naive comments about U.S. bond yields reflecting a stronger outlook,” said Thomas Costerg of Pictet Wealth Management in Geneva.  What sounds like reassurance to US investors sounds like idiocy to Global Traders – that's why no one is buying our bonds anymore – no faith in our Fed is a dangerous thing because faith is all we have holding this monetary system together at 200% debt levels.

 

IN PROGRESS

 

 

TGIF – The Weak Ends Just in Time

Now oil is down 2.5%.

Of course $62 is going to be bouncy, that's our shorting line and, according to the fabulous 5% Rule™, a 5% drop gives us 1% bounces (20% of the drop) and we're down $1.60 from $63.60 so 0.32 bounces to $62.32 (weak) and $62.64 (strong).  If we fail to hold the weak bounce and head back to $62, there's a good chance it will fail.  Failing at $63.64 is a bit trickier as we could be consolidating for a move up or down – it requires patience.  

If we fail $63.64 and then fall back below the weak bounce line and consolidate between the strong and weak bounce lines – THEN we can anticipate a break lower.  How much lower?   At least half of the previous drop so another 1.25% to $61.66.  Now that we KNOW how much the potential reward is, we can calculate the potential risk and decide whether it's worth the trade.  Clearly, at $62.25, I can make a bet that $62.32 will fail and set a stop at $62.35, risking a loss of $100 per contract if we stop out at $62.35.  The next test would be at $62.60, with a stop at $62.70 – so another $100 risked but the reward of a drop back to $61.66 would be $1,000 gain per contract.  

We've been playing the Oil Futures (/CL) with conviction and, although we have a nice $10,000 gain this morning – it only makes us even as we've had to double down our two shorts twice.  Now we're at goal as all we ever wanted to do was get back to even and get back to 2 shorts – but now at a much higher basis ($62.24) for a long-term play.

Conviction shorts are very different and require a lot more risk tolerance – they are certainly not for everyone.  Our conviction is that next week's OPEC meeting will not do enough to keep prices over $60, so we're positioning for that.  

So we're back to just 2 short at $62.245 and we'll add 2 more at $62.60 with that same stop at $62.70 on the 2 new ones.  If we go higher than that, we wait to DD again at about
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32,000 Thursday – Dow Touches Another Record

Dow 36, 000: The New Strategy for Profiting from the Coming Rise in the  Stock Market: Glassman, James, Hassett, Kevin, Glassman, James K., Hassett,  Kevin A.: 9780812931457: Amazon.com: BooksDow 32,000!

I guess it's time to read that book by Glassman and Hassett from 1999 – as that was their prediction at the time for where we'd be in 5 years.  Sure it's 22 years later but, hey, better late than never, right.  At the time, with the Dow at 12,000, they said:

The single most important fact about stocks at the dawn of the twenty-first century: They are cheap….If you are worried about missing the market's big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average.

The Dow was pushed down by the bursting of the dot-com bubble as the NASDAQ peaked in 2000 and bottomed out in 2002, and by the September 11 attacks in 2001. The Dow fell below 8,000 in 2002, remained below 12,000 until 2006, and below 30,000 until later 2020 and now, here we are at 32,000 (for a moment), this morning.

At the time, the book was largely discredited as misstating the risk characteristics of equity securities as equivalent to U.S. Treasury fixed income securities, it is commonly believed discredited for predicting a grossly inflated stock market.

The point is, everyone sounds like a genius when telling you to follow a trend – for as long as the trend holds out.  When the trend reverses, however, it's more like "who could have seen that coming?"  Well, rational people for one thing.  Water boils at 212 degrees and you can put water on the stimulus of a 500 degree burner and it will heat up very quickly and the trend from 180 to 200 may suggest the water will be at 280 degrees in 10 minutes but it never will be, will it?  That's because, at a certain point, Physics takes over and limitations are reached.  

No matter how much stimulus you apply, you will never get the water over 212 degrees because it simply can't be water at 213 degrees.  The economy and the market may
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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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