Forget-About-It Friday, Again

Includes: AMZN, MSFT, QID, XLF
by: Philip Davis

Goldman who? Fuhgeddaboudit!

Greece what? Oh we fixed that thing last week! Yeah, the Germans (who are $4.5Tn in debt), the French (who are $4.4Tn in debt), the English ($9.2Tn) and, of course, the Italians ($4Tn in debt) are gonna give the Greeks a little something to keep the lights on until Christmas. Hey, the world’s supposed to end in 2012 anyway so it’s not like we gotta keep worrying about this stuff, capische? See, Merkel tells me she knows a guy who knows a guy who’s got the green to keep this whole scam going until then and, after that - who cares? It’s gonna be somebody else’s problem…

I’m not going to complain, I complained about all this stuff on our last Fuhgeddaboudit Friday, just two weeks ago - so you can read that post, where there was a chart of the XLF at $16.40 pre-Goldman and two weeks later, after our mini-crisis on Wall Street, XLF is at $16.65 - just like nothing happened.

Inflation is rising, home prices are even lower than last year, housing starts are anemic, unemployment is still a rounding error off of 10%, wages are falling, defaults on credit cards and mortgages are rising, commercial rents are going uncollected and CRE values are declining rapidly, but those declines are being covered up by banks using accounting tricks to hide their losses. All forgotten about as this Friday opens almost exactly where we were last Friday.

Something DID happen happen this week. The SEC made some noise and Obama made a speech and Goldman (NYSE:GS) fell from $185 a share to $160 a share (down 13%) and isn’t that punishment enough for putting together deals that led to the loss of $15Tn of household wealth in America? Of course Goldman wasn’t out to get us - they were simply structuring deals that would greatly reward their high net worth clients based on the irresponsible buying patterns of our neighbors while their analysts were upgrading the housing sector to keep the suckers pouring into the other side of the bet.

Sure it’s evil and sure it led to a crisis that crippled our country and cost millions of people their jobs and homes, but — oh Goldman, we can’t stay mad at you! Just give us a little stock market rally and all is forgiven but do we have to bend all the way over for you tomorrow? We’re still a little sore from last time…

Speaking of being sore, we can add Amazon (NASDAQ:AMZN) and Ericsson (NASDAQ:ERIC) to the list of companies that are being spanked by Apple (NASDAQ:AAPL) as Apple’s gains continue to be losses for their competition (AAPL now has 72% of Japan’s smart-phone market!). Still, the MSM confuses gains in market share for one company with signals of an economic recovery, just as they count the fact that 10% of retail stores were shut down as a 10% increase in retail sales for the survivors. But Fuhgeddaboudit! We’re not going to complain - we nailed the turn in yesterday’s Chat when I sent out a 10:22 Alert to Members saying:

The same skepticism we have on the way up is needed on the way down and, so far, the volume is very weak (22M at 9:47 on the Dow) so we will be looking for support at 11,000 and 714 but if those go, we can fall hard. Since we expect 11K to hold on the Dow, now is a good time to sell 1/2 the DIA $111 puts ($2.22) to cover our June $114 puts (now $5) and we can ask for an even roll to the July $113 puts for now. I also think oil futures are worth the risk above $82 (NOW!)

Those short $111 puts finished the day at $1.60, which is up 28% in a day, and the Oil Futures hit our goal of $84 (where we flipped short) and those contracts pay $10 per penny per contract - how can you not love this game? The big boys make their money yanking the markets around and the administration allows it to continue, so who are we to complain? Yesterday was just an early flip of our "buy at 2pm" default strategy. We also went bullish on TBT (have I mentioned them lately?), UNG, Devon Energy (NYSE:DVN), FAS and Home Depot (NYSE:HD), but by the afternoon we were back to shorting the ridiculous rally with QID, a sale of TNA calls and a couple of short earnings plays that should do quite nicely this morning:

  • Buying Microsoft (NASDAQ:MSFT) Oct $35 calls at .72
  • Selling MSFT May $33 calls for .75
  • Buying 4 Amazon (AMZN) July $160 calls at $7.10 ($2,840)
  • Selling 5 AMZN May $150 calls at $8.10 ($4,050)

That AMZN trade was our second round prior to the close, our first round came at 1:29 when the credit was only $980 on the spread. We’ll see how these hold up today, but it’s looking very good in pre-market as both of our targets disappointed, as we expected. We’ll review all the week’s earnings plays on the weekend. even the rarely mentioned TBT, which should be coming nicely off our $46.50 buy spot this morning now that Greece is "solved" once again…

Durable Goods orders dropped sharply in March and Capital Spending slipped as well and I had to turn the volume off on CNBC to stop my brain from frying as they were practically having a party looking at these numbers. Manufacturers’ orders for goods designed to last at least three years decreased 1.3%, to a seasonally adjusted $176.7 billion, the Commerce Department said Friday. Transportation-related goods fell 12.9%, the largest drag on the data. All other durable goods orders, excluding transportation, climbed 2.8%. Orders for nondefense capital goods decreased by 7.5% last month. The orders are seen as a barometer of capital spending by businesses. Capital goods orders dropped 7.0% in February. Defense-related capital goods orders fell 4.0%. Excluding defense, all other durables goods decreased 1.2% in March, after climbing a revised 2.4% during January. Really, CNBC? REALLY???

Asia sold off this morning on worries Greece was not solved (silly Asia!) with the Hang Seng giving up 210 points (1%), the Shanghai dropping half a point and significantly failing to hold 3,000 while the Nikkei fell just 34 points (0.3%) but under 11,000 at 10,914. If we have a green day today, Monday may get a nice pop in Asia. Japan’s Exports fell at a record pace over the past 12 months, down 17.1% for the year ending March 31st. The decline was led by a record 27.5% drop in exports to Europe to 7.042 trillion yen, while exports to the U.S. declined 22.7% to 9.349 trillion yen. Fitch warns Japan its sovereign debt rating will be at risk unless it sees a sustained economic recovery and fiscal consolidation. This is the second time in six months that Fitch has voiced concerns about Japan’s fiscal position. Exports are up for the past 4 months, though, especially to other Asian countries, and we’ll keep a close eye on the Baltic Dry Index to see which way things break in May.

Europe is up about a point this morning, with the FTSE looking to test the 5,750 mark, the DAX right on the 6,250 line and the CAC just under the 4,000 mark, so we are heading straight for a massive global breakout or a massive global rejection, and Asia is showing us rejection so far, so they’d better be REALLY happy about Greece on Monday… The UK is heading into May elections and it turns out their economic growth slowed 50% in the first quarter, up just 0.2% from 0.4% in Q4 but at least it’s better than -0.3% in Q1 of 2009, so CNBC Europe is having a party over that number! Am I the only one seeing a pattern here?

Jonathan Loynes, chief European economist at Capital Economics, said the figures underline the fragility of the economic outlook. "With a big fiscal squeeze coming under any form of government, monetary policy needs to remain extremely supportive," he said. You know what that means, don’t you? More FREE MONEY!!! The markets love free money, which is why bad news is such good news for the markets. In fact, I was pointing out to an interviewer yesterday that all you need to do is look up the "Major Holders" section on Yahoo Finance for just about any company and what do you see? Banks! So the banks run their little machines and buy up the market, and the market rises and the banks declare gains on their investments and use the assets to leverage - MORE FREE MONEY - which they use to buy more stock and pump up the market so they can declare gains on their investments and use the assets to leverage - MORE FREE MONEY!!! You get the idea - this party never has to stop as long as they keep getting free money and no one notices the average P/E on a stock is now pushing 23 with pretty much zero risk factored in and not a penny of rate discounting priced in because rates are zero so there’s nothing to discount. It’s BRILLIANT - what can possibly go wrong?

Have a great weekend,

- Phil