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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Faltering Friday – Will Oil Drag the Markets Down in August?

Will the last short seller please turn out the lights?

According to S3 Analytics, Bets against the SPDR S&P 500 (SPY), the largest ETF tracking the broad index, fell to $38.9Bn last week, the lowest level of short interest since May, 2013.  The same thing is going on in hedge funds as we're well below 2013 levels in short funds – people have simply given up on the idea that this market is going to go down – and that's probably the best time to short it!  

In our Portfolio Reviews this week, we have been pressing our hedges by using about 1/4 of the money we have made on our longs, simply trying to lock in our gains as we certainly don't expect the market to make 4-7% every month – that would be silly, right?  These days, you have to wonder as the S&P is up 25% from the mid-point (not the lows) of 2015 and early 2016 (2,000) yet, as I noted in yesterday's Live Trading Webinar (Members Only) the earnings of the components of the S&P are not matching those gains at all:

Apple (AAPL) is the top component of the S&P.  With an almost $800Bn market cap, it makes up 3.7% of the index.  In 2015 they had $233Bn in sales and made $53Bn, last year they had $215Bn in sales and made $45Bn and this year they are looking for $220Bn in sales and $46Bn in profit yet AAPL is trading 60 points higher (66.6%) than it was at the beginning of last year (after 2015 earnings were reported).  What has AAPL actually done to justify a 66% gain?  Mostly, it was drastically undervalued but, other than that – it has added no profits to the overall S&P.  In fact, it has subtracted them!  

AAPL is also the largest Dow component and $1 in share price is 8.5 Dow points (yes, it's an idiotic system).  So AAPL alone is responsible for 510 points (12.5%) out of the Dow's 4,100 point run from 17,500 (23%).  Now I love AAPL, it was our Stock of the Year in 2013, 2014 and 2015 (this year it is WPM), so I'm fine with their value now, it was simply too cheap before.  By the way, we make…
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500,000 Thursday – Trump Orders GOP to Kill Over 4,000 People Per Month

Every 12 minutes.

That's how often an American citizen dies due to lack of health care.  Trump gave a fiery speech yesterday ordering his Republican goons to repeal Obamacare at any costs – and the costs are turning out to be staggering.  According to the Congressional Budget Office, Trump's plan will throw 32 MILLION Americans off health care and that will cost over 500,000 of them their lives over the next 10 years.  

That will make Trump, the GOP and the people who voted for them, the greatest mass murderers in the history of this country – right up there with the worst in World history (would rank #12, actually).  And why are they doing this, why do 4,000+ Americans have to die every month?  Well, according to the Congressional Budget Office, taking health care away from 1 out of 10 people you see today will save us $473Bn – over 10 years.  That's $47.3Bn a year and that does sound like a lot but there are 165M taxpayers so we each save $286.66 per year.  

$286.66 a year!  How many people would you kill for that kind of money?  Next time you are at a football stadium (50,000 people) pick 8 people to kill because that's how many out of 50,000 (1/6,400) are being killed to give you $286.66.  In fact, the amount of people in the stadium (all of them) is just about how many people your vote will be killing each year.  Isn't that GREAT!?!?  America is truly great again when we can value $286.66 over 50,000 human lives.  

And, if you think your own health care bill won't rise quite a lot more than $286.66 without Obamacare protections, then you are way too far down the rabbit hole to be saved.  The repeal-only act will increase premiums for those who hold plans, according to the CBO.  The office estimates that "average premiums in the nongroup market (for individual policies purchased through the marketplaces or directly from insurers) would increase by roughly 25%" in one year.  That average premium increase would hit 50% by 2020 compared to projections of rates under the current law, and double by 2026, the CBO said. …
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Will We Hold It Wednesday – New Highs Again?

Up and up she goes.  

Now we're watching that 6,000 line on the Nasdaq (/NQ) Futures which is up 33% in 18 months and up 40% from the lows of Jan, 2017.  We barely paused at 5,000 and didn't pull back at 5,500 but our first attempt at 6,000 was rejected and, if we call it a 1,500-point run from 4,500, then the "weak" reatracement, according to our 5% Rule™, would be back to 5,700 – and it was.

Holding the weak retracement is a sign of strength – indicicating that it's more likely we're consolidating for a move up than making a sustained move down and now we're testing 6,000 again but now we have to raise the bar and cannot accept more than a 150-point correction (5,850) to stay bullish on the Nasdaq and failing 5,700 would signal the start of a broader correction, down to 5,400 or possibly all the way to 5,000 before stabilizing.  That's why we pressed the hedges in our Short-Term Portfolio (which protects our Long-Term Portfolio) as well as our Options Opportunity Portfolio, though we still didn't find many long plays we wanted to take off the table.

That leaves us, so far, net bullish and more bullish than we thought as we "only" have about $300,000 of downside protection in our Short-Term Portfolio against a Long-Term Portfolio that gained $200,000 (17%) in the past 30 days – very aggressively bullish.  The Nasdaq is up 300 points (5%) since our last LTP review and that in itself calls for at least a 1% correction (60 points), back to 5,840 but that would then be below 5,850 – so you can see why this is such a tricky spot.  

Not much to do but see how the week plays out.  In yesterday's Live Member Chat Room, we took the money and ran on our Tesla (TSLA) short position and we added a long on Chipotle (CMG) towards the close as their sell-off has just gotten silly.  I'm not supposed to be giving away trades but this is such a juicy one I'll tell you what I said to our Members at 2:37:

"CMG Aug $370 calls are $14.30 and were $47 two weeks ago.


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Temper Tantrum Tuesday – GOP Wants to Scrap Obamacare Without Replacement

Image result for you'll get nothing and you'll like itYou'll get nothing and like it!  

That is the new GOP plan for your health care as their 3rd attempt at crafting a replacement for Obamacare goes down in flames.  "Republicans should just REPEAL failing ObamaCare now & work on a new Healthcare Plan that will start from a clean slate. Dems will join in!" wrote the Whiner in Chief on Twitter last night.  He was right, I am tired of whining

 

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Monday’s Missing Market Mechanism – Infrastructure

Image result for tanned and restedI'm back!

In my quest to better understand the Global economy (and it's affect on teens), I dragged my family off to France and the UK for the past two weeks and tested the effects of Socialism on two girls who were raised in an entirely Capitalist system.  While we're still tabulating the data, certain trends are evidend such as "public transport is amazing", "free health care, are you kidding me?" and, of course, "free college – can we move here Dad?".  

Jackie was very impressed that the beaches don't charge fees, Maddie is actively finding out if she can keep her 504 Plan College fund if she goes to Europe instead.  Not a bad idea, really, as she's fully-funded for college but, if she takes an Advanced Learning Loan in the UK (which would require her to establish residency first), she would have her college paid for with the obligation to pay back 9% of her income over $27,000/year.  After 30 years, the program terminates, whether the loan is fully paid back or not.

That's a very fair way to have students pay for college and Madeline realizes that, since she already has enough money to buy a house in her US fund – she'd be miles ahead of the game.  Frankly, if I hadn't wisely funded the kids' 504 plans when they were born or had the market been unkind to their funds – I would have seriously considered moving the family to Europe when they started high school becasue we're talking at least $300,000 and probably closer to $500,000 to put two kids through good schools and we too could have gotten a free house in exchange for moving to Europe.  Now do you see why housing prices in London are soaring? 

Image result for london housing prices

Not only that but my Uncle has a $2M home in London and pays about 20% of the property taxes I pay on my much more modest home in New Jersey.  He also doesn't spend $20,000 a year on health care for the family with no co-pays, no deductibles – NOTHING!  For that, he is taxed 45% of his income over $150,000 but there's no tax…
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Funtime Friday – Earnings Season Starts Today

It's my favorite time(s) of year!

JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC) kick off earnings season this morning but it's a very low bar set for the banks as they have all cut their profit forecasts in the last few weeks so expectations are low – especially as the 2nd quarter is usually weak for trading.  Overall, the sector (XLF) is up 10% since early June and now we'll see if it's justified or not. Q1 results, which came out in late March, sent the sector off a cliff but they've climbed back since on the same fairy-dust that's powering the rest of the bubble.

Bank Notes:

  • Related imageJPM missed, WFC missed and C beat but C reduced their loan-loss reserves from $12.3Bn to $12Bn, something banks can do "because they feel like it" and that effectively popped their bottom line by $300M.  C's outstanding loans was up 2%, to $645Bn so the reduction in reserves is C telling us that they don't feel more than 1.86% of those loans will default while the industry standard is 2-2.5% or $12.9Bn – $16.1Bn so, effectively, C is goosing their bottom line by $900M-$4.1Bn by simply pretending their loans (student loans, sub-prime auto loans, retail store loans) are the safest in history!  
  • JPM dropped their loan-loss reserves to $1.22Bn from $1.4Bn, adding $178M to their "earnings" and, if that seems a little thin to you, consider that they did, in fact, write down $1.2Bn in loan defaults in Q2 and that covers just 0.56% of their portfolio, down from 0.79% in Q1.   
  • At least WFC is honest about it, saying "Net income increased $315 million, or 15 percent, from second quarter 2016, primarily due to the tax benefit in second quarter 2017 and lower loan loss provision" but, then again, it's kind of hard not to mention a $450M decrease in your loan loss reserves!  For those of you keeping score, that is  % of their earnings.  WFC now has $11.073Bn provided for on $957.42Bn in loans or 1.15% – that'd double JPM's joke of a reserve but half of Citi's.

Don't forget that if ANY of these banks fail –…
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Thrilling Thursday – Back to the Top at 2,440 – Time to Short Again

The markets will go down again now

The reason doesn't matter – just that 2,440 is our magic number at the top and it's been a reliable shorting line since early June.  Yellen's testimony yesterday was a very silly reason to have a rally – she said the same things she's been saying all year, neither more hawkish or more doveish than she was when the S&P was 10% lower than it is now.

This is right where we thought we'd be as yesteray, at 9:09 am, in our Live Chat Room, I said to our Members:

On the indexes, 2,440 on /ES is our current shorting spot and we can see that's going to line up with /YM 21,500, /NQ 5,775 and /TF 1,425 so we WANT to short /ES at 2,440 as long as the others aren't breaking over and if ANY of them break over, we stop out of /ES and wait for at least 2 of them to cross back under and then short the laggard.  

The Nasdaq plowed up to 5,800 but the other indexes are right where we want to short them and the Russell (/TF) is our favorite short, at 1,425, moving $50 per contract (we prefer 2) per point in our favor.  

 

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