I got my political outrage out of the way in my earlier post: "Thanks for the Gas Money, Mr. President," so we don’t need to talk about that again. Ireland, as of 7:45, has not actually voted to accept the EU’s deal, which will pull $20,000 per Irish family directly from national pension funds to pay for the speculative mistakes of Irish Banks. Additionally, the Irish people are being asked to borrow another $75,000 per family from the EU at about 6% interest, also to pay for the speculative mistakes made by the Irish Banks. While this may seem insane – it’s only a drop in the bucket compared to what Americans are spending to bail out our own speculators so why shouldn’t they join the club?
At least Ireland gets to vote for their obligations; we have a Federal Reserve System where a single man, known as "The Bernank," is able to spend what is now heading towards $3.5Tn of OUR MONEY to bail out his banking buddies. That’s $31,818 per American family spent over two years IN ADDITION to the stuff I complained about Obama and our spineless Government spending in the last post.
As I said, things are pissing me off today! I should be in a better mood – we had a fabulous day trading in Member Chat yesterday. In yesterday’s post, I closed with "One last stab at making some bearish profits for us (see Morning Alert)" and you can click on that Alert, which was posted on Seeking Alpha and check out our trade ideas for the $10,000 to $50,000 Portfolio which included (at 7:22 am yesterday) QID Jan $10 calls, which opened at $1.80 and finished at $2 (up 11%), DIA Dec $114 puts, which opened at .80 and finished at $1.33 (up 66%), XRT Jan $44 puts, which opened at .35 and finished at .55 (up 57%), USO Jan $36 puts, which opened at .66 and finished at .90 (up 36%), Priceline (NASDAQ:PCLN) weekly $400 puts, which opened at $50 and finished at $1.40 (up 180%) and Netflix (NASDAQ:NFLX) Jan $155 puts, which opened at $1.70 and finished at $2.30 (up 35%) but should look much better this morning, where we will exit.
Of course I featured the idea to short NFLX last Thursday in the Morning Post (which you would get at 8:30 every morning in progress if you subscribed!) and we talked about shorting oil in the Weekend Post and I mentioned XRT last week as well so it’s not like these are even our "super-secret" trade ideas – this is just the stuff that looked obvious enough to risk our small portfolio plays on (as you don’t want to take too much risk in a small portfolio, even when it is aggressive like our virtual $10,000 Portfolio). Once we got into Member Chat for the morning we went with more aggressive trade ideas like PCLN weekly $410 puts at $1.60, which finished the day at $4.20 (up 162%) and 6 other plays that we’re not done with yet plus shorts on the oil futures at $90 that worked out very well.
So why am I angry? You can’t really have a better day than we had yesterday. Yesterday is the reason we have sat patiently (well kind of patiently) in cash for a month as we finally got an opportunity to commit to a whole bunch of very obvious trades, the most trade ideas I’ve had in a single day since early September, when we jumped on Uncle Ben’s bullish bandwagon. Sure we find things to trade every day but these are the opportunities we wait for. I guess I’m pissed because we had to pull our December short plays off the table because the cartoon bears have warned us that they will be "Buying the F’ing Dips" and we know better than to argue with cartoon bears because it’s simplistic little BS premises like that that rule this market. Ah, that’s why I’m angry!
As I keep saying, I don’t enjoy day trading – it’s not satisfying but it’s what we do while we wait for real investment opportunities to come along. While it may be exciting to make 100% on a trade in a single day – it’s small money and a tedious (and stressful) way to build up a portfolio. I suppose at heart, I’m a long-term investing coupon-clipper but those kind of investors are being chewed up and spit out in this market and, while we found many, many things to buy earlier in the year, now we’re down to one or two long-term opportunities a day while most of the rest of the market looks better as a short.
But you can’t even stay short past the closing bell. Even as I write this post our paranoia in taking the money and running (our usual strategy) on our quick gains is looking justified as the dollar is, as usual, being shoved off its overnight highs (used to prop up the Nikkei in our famous "3 am Trade") during the slower EU lunch break in order to now goose the US futures to give US markets the best possible open on the least possible amount of volume (ergo cost to the Gang of 12). Despite debasement efforts by Obama and The Bernank yesterday, the dollar still rose back to 80.81 in overnight trading and that sent the Dow futures all the way down to 11,285 but don’t despair – they’ve already been goosed back to 11,350 – just 5 points shy of yesterday’s weak close.
Click to enlargeSee, in a "normal" market we would have simply stayed short because clearly the momentum was down and the fundamentals indicate that all the efforts of Obama, The Bernank, the BOJ, the BOC, the ECB… are "too little, too late" to put the Humpty Dumpty global economy back together again. Some of the fundamentals we’re watching:
- German exports declined in October
- Machinery orders fell in Japan for October.
- Speculators are holding the largest commodity positions on record, up 13% from 2008 highs.
- Oil is in a GLUT, with demand off a cliff.
- Mortgage Applications are falling again.
- 15 US States face a $26.7Bn mid-year budget gap.
- The EU is passing tough banking regulations.
- Our Government is expanding the insider trading investigation.
- China is likely to hike interest rates.
- Mortgage Bond yields have leaped to 6-month highs.
- Italy’s budget plan is forcing a "no-confidence" vote for Berlusconi.
- US Retailers are cutting earnings forecasts and sitting on big inventories.
These are just TODAY’S headlines and they all add up to RISK. Lack of risk recognition by the markets was the primary reason I called for cash in early November. We are approaching 2008 pre-crash market highs with many stock trading higher than they were then on LESS revenues than they had at the time. Meanwhile, 10% of our population is unemployed, consumer credit is down by over $1,000,000,000 (15%), household wealth is down 20% and income is down while the CPI, even by BS Government measures, is up 5% since then, effectively giving those people who still have jobs 5% less to spend anyway.
And when you consider that discretionary income is just 20% of income – if they 80% they HAVE to spend went up 5%, then that’s 4% of discretionary income gone, which is 20% of discretionary income out the window – FOR THE PEOPLE WHO ARE STILL WORKING. The other 10% have ZERO to spend and that’s not good either. All of this is being ignored as "investors" buy stocks on the hopes that they will expand sales internationally and keep cutting costs despite the same inflations the speculators are using to justify their very high valuations. We’re effectively writing off the US economy and placing all of our bullish eggs in the global basked – even though they have 20% unemployment "over there." – that’s kind of nuts, don’t you think?
I’m not even going to ask if the above chart disturbs you. Clearly, from the results of the last election, it does not. We are over 6M jobs away from recovery and we added less than 40,000 last month. At least in Ireland, their population is shrinking, with 65,500 people (1.5%) abandoning the sinking ship as of April of this year. That’s less likely to happen in America as Mexico is not that attractive and Canada doesn’t want us and most people can’t afford to move anyway as they are upside down on their mortgages so we, as a people, sit and wait. We sit and wait for something good to happen. Any minute now… Something good is bound to happen… NOW! OK, maybe not now but really soon – something good has got to happen, right?
Click to enlargeThat pretty much sums up our national policy – we don’t actually do anything to create jobs but if we sprinkle enough magical fairy money on the rich, we’re sure they’ll start hiring people real soon! Maybe as soon as they are done merging and acquiring smaller companies with all that money where they then create efficiencies by laying off 50,000 people a month (Challenger Job Cut Report) while more and more jobs are outsourced every day ($6Tn worth of jobs are currently outsourced). And why not? There are huge tax advantages to outsourcing US jobs – tax advantages that our President is perpetuating as he bends over and accepts the massive Republican tax cuts for the wealthy on behalf of the American people.
Did I mention I was pissed? Good, then moving along…
So we kept our Jan. shorts and didn’t add any longs because we expect a bounce on the usual opening nonsense, but I don’t see enough dry powder left for the bulls to take us over that critical Dow 11,500 mark. Meanwhile, Caterpillar (NYSE:CAT) is way too high and they are a Dow component, as are Exxon (NYSE:XOM), Chevron (NYSE:CVX), IBM (NYSE:IBM) and McDonald's (NYSE:MCD) – all stocks that are major components in the price-weighted Dow and are more likely to pull back than move higher.
EU money printing will not inflate our stocks – it may even boost the Buck and that would be bad for commodities, which had a pretty rough day yesterday (and we shorted a few). I wish it were easier and I wish we could just say "CAT is overbought so we’re going short" but the fundamentals of the stock are trumped by rumors of infinite Chinese demand and inflation expectations that somehow ignore the negative impact of rising steel prices and increasing borrowing costs on the company. Of course the weak-dollar expectations have everyone moving into stocks, which are just another form of commodity to trade and, even as I write this, the dollar is being jammed back below 80.50 to goose the US open.
At least we know how this game is rigged and we can have lots of fun betting the suckers never do find that red queen but what a shame that this is what the global economy has been reduced to – a shell game – and it’s an empty shell at that!