(click to enlarge)
The Fed announces at 2:15.
Not much else matters until then and then we have Non-Farm Payrolls on Friday and nothing matters until then either so it makes sense that we are flat-lining, more or less this week, as we gather more data to see if we can justify these amazing gains for the month.
We had a rough day shorting oil yesterday as it was a nickel and dime game as we crossed each .50 line but, while we won a few battles, oil won the day and is at $98 this morning in the Futures (/CL) where we're shorting it again into the inventory report. The run-up in oil gave us the opportunity to take some March USO shorts in Member Chat for our $25,000 Portfolio as well as a new SCO, with an aggressive new play on the Feb $36/37 bull call spread for .40, which has a .60 upside (150%) in 16 days if oil drops back to about $96.
That's a speculative play but we put it in both of our $25,000 Portfolios and risked a virtual $800 on 20 contracts and, since the $36 calls are $1.15 (covered with the $37 calls sold short at .75), we can also roll out of the position before the $36s go below .60 - but more on that if it has to happen (hopefully not, as that would likely mean $100 oil). Like a lot of things, yesterday's rally in oil has been propelled by a big dip in the Dollar, which bottomed out (we think) at 79.40 this morning.
(click to enlarge)
Unfortunately, a bouncing Dollar is a danger to all stocks and commodities and, while the Dollar chart looks bearish - with a falling 50 dma acting at a tough top of the recent range - the fundamental reality of the situation is that we simply are NOT printing money faster than Japan and probably not even faster than Europe and, in fact, the demand for Dollars is increasing as housing activity goes up along with employment. So, 79, maybe 78.50 but lower than that is very unlikely and, once we pop back over 80 - shorts will begin to cover and we'll have a nice little pop, which should lead to a market pullback - hopefully not too severe.
Rising oil prices - if true - also create a demand for Dollars as the same 96 million barrels of oil per day consumed globally at $95 last week are now $98 - so $8.6Bn removed from consumers' pockets in just one month. Then there's those payroll taxes also being sucked out of the economy and it's simply a wonder that oil isn't plunging. Perhaps it's the persistent, blatant manipulation, like the "Large Fake Order Strategy" outlined by EconMatters yesterday.
Will the CTFC ever do anything about this? Of course not! That's why George Bush rewrote the rules for Enron and Barclays (BCS) was just found guilty by the FERC for manipulating the California power market from 2006 to 2008, purposely losing $4.1M jacking up energy prices with cash trading so they could reap gains of $34.9M on their positions.
One would think the simple solution is not to let banks physically manipulate the commodities they are trading since the banks clearly have no use for the oil/gas, etc and have no intention of honoring their contracts and taking delivery - but tell that to JPMorgan (JPM), Morgan Stanley (MS), Citigroup (C) and others who have fleets of super-tankers holding oil offshore in order to drive up prices when they are selling and then dumping oil on the markets and driving prices back down when they feel like buying again.
8:30 Update: Oops, forget all that, GDP was a huge miss at -0.1% vs. +1% expected and, even more telling, +3.1% in Q3. Even more amazing than the 110% miss by Economorons is the fact that the markets are quickly shaking it off, without even a major dip but oil, thankfully, is down a quick .50 - and the Egg McMuffins are once again paid for with very quick $500 per contract gains!
Gold skyrocketed back to $1,680 and the Dollar fell back to 79.40 as low GDP means LESS demand for Dollars (because no one is using them) and, of course, it puts the Fed back on the table. Now we may get a more significant statement from the Fed, which has an incentive to do MORE than the current $85,000,000,000 per month in QE and, even better, no quick end to QInfinity is in sight now. All we need is a disappointing jobs number and we have the EZ Money Trifecta this week...
(click to enlarge)
Inflation is, of course, our main long-term premise for buying stocks and we just removed our fear (from just a few paragraphs ago) that a bouncing Dollar will kill the rally. We've discussed our GDX and DBA plays last week and, if the Fed steps up this afternoon with a bigger QE number - we may have to make a special post re. long-term inflation hedges. Oddly enough, we were just discussing how f'd up Spain still is, with their -0.7% GDP but the joke's on us as we're catching up, with our 3.2% net Q/Q decline in growth vs their 0.3% drop.
(click to enlarge)
At least we're still better off than Zimbabwe - which revealed yesterday that they have just $217 left in the bank. Don't laugh though - we'll have less than that if the GOP doesn't extend the debt ceiling! Keep in mind that Zimbabwe's hyperinflation was a good leading indicator to our last financial crisis.
In fact, just yesterday, we were discussing in Member Chat that delinquency rates on student loans had hit 15%, with debt totals averaging 60% higher than in 2007 - the last time we hit those kind of crisis levels.
Still, before we begin to buy wheelbarrows to carry around our worthless currency, we should take a closer look at the GDP numbers, which are NOT as bad as they look: Inventory alone knocked 1.3% off the GDP as it declined sharply and, without that, real final sales increased 1.1% as iPhones and iPads flew off the shelves. Government spending dropped a whopping 6.6%, led by a 15% decline in federal spending while Congress screwed around with cliff issues and that's 20% of our GDP for another 1.32% hit on GDP.
Consumption was up 2.2%, Fixed Investments were up 9.7%, Residential Investment was up 15.3% and our Trade Deficit was also up on rising oil prices and Christmas imports and that knocked another 0.25% off the GDP. So I think the markets are actually reading this GDP report right by shaking it off - we'll see how the retailers react once the bell opens. Here's Briefing.com's breakdown:
| Category | Q3 | Q2 | Q1 | Q4 | Q3 |
|---|---|---|---|---|---|
| GDP | 3.1% | 1.3% | 2.0% | 4.1% | 1.3% |
| Inventories (change) | $60.3B | $41.4B | $56.9B | $70.5B | -$4.3B |
| Final Sales | 2.4% | 1.7% | 2.4% | 1.5% | 2.4% |
| PCE | 1.6% | 1.5% | 2.4% | 2.0% | 1.7% |
| Nonresidential Inv. | -1.8% | 3.6% | 7.4% | 9.5% | 19.0% |
| Structures | -0.0% | 0.6% | 12.8% | 11.5% | 20.7% |
| Equipment & Software | -2.6% | 4.8% | 5.4% | 8.8% | 18.3% |
| Residential Inv. | 13.6% | 8.4% | 20.6% | 12.0% | 1.4% |
| Net Exports | -$395.2B | -$407.4B | -$415.5B | -$418.0B | -$397.9B |
| Export | 1.9% | 5.2% | 4.4% | 1.4% | 6.1% |
| Imports | -0.6% | 2.8% | 3.1% | 4.9% | 4.7% |
| Government | 3.9% | -0.7% | -3.0% | -2.2% | -2.9% |
| GDP Price Index | 2.7% | 1.6% | 2.0% | 0.4% | 3.0% |
It's going to be an interesting day and I certainly feel a lot better about it with Friday's hedges at the ready. Watch the Dollar closely, if it goes back over 80, the markets won't like it one bit but any sign of additional easing from the Fed will smack it right back down. We're also keeping a close eye on Europe, as so many things can still go wrong there - starting with this morning's Italian Bank Scandal.
Be careful out there.
Additional disclosure: Positions as indicated but subject to change (fairly even mix of long and short positions - see previous posts for other trade ideas).
