Just buy the effing dip.
That’s the great advice we had back on December 2nd, as it was pointed out by Captain Broccoli that we should just ignore all the so-called "facts" of the economy and "just borrow money at this ridiculous low interest rate and just buy the f’ing dip." "It’s not a pyramid scheme, you idiot," says the Captain – "It’s a dip buying scheme!" So far, on every little dip we have had since December 2nd – the Captain has had the winning strategy – do we dare ignore his sage advice today?
Yesterday we had the biggest pullback since November 23rd with the Russell and the SOX, two of our most over-extended indexes, falling 2.5% in a single day. The Russell essentially gave up an entire month’s worth of gains in a single day because, as I have warned you over and over and over until I myself was bored hearing it, it has been a low-volume rally and the pure physics of the situation means that, when people finally want to sell stocks, there aren’t enough buyers in the world to support the prices they have run up to.
The Shanghai, which we’ve been watching closely, dropped another 3% today to 4-month lows this morning. We did the chart of the Shanghai vs the Hang Seng on Friday, when I was droning on about how weak the real Global economy is and how dangerous inflation was looking and how the government was papering it all over, etc. Even so, I reminded Members in Chat that none of that reality mattered and we still had to buy the dips until it stopped working. Is today the day or have we finally reached the end of the gravy train?
We did some hedged buying on Friday with new long-term bullish trade ideas on Apple (AAPL), Aetna (AET), BofA (BAC), Genzyme (GENZ) and Intel (INTC) (2) as well as shorter-term bullish trade ideas on Coinstar (CSTR) (April) and Barrick Gold (ABX) (quick 50% profit and done). We also had a short play on Patriot Coal (PCX )(up huge already) and hedged with RKH Feb $85 puts at $1.15 (now $1.80, up 56%) and rolled our losing QID position in the $10,000 Portfolio to the Feb $10 calls at an average of $1.15 (now .90, down 22%). This is how we can be long-term bullish and short-term bearish. Buying the effing dips includes taking the money and running on our short-term short hedges, we can always take new ones the next day – especially when they make 56% in 2 days like the RKHs!
In yesterday’s session, as we were generally pretty bearish in our short-term positions, we took a stab at covering our gains with some IWM calls but lost a quick 10% on them and gave up. We were not moved to cover our short positions into the close and, in fact, added DXD Feb $20 calls at .55 and took a slightly bearish earnings spread on Google (GOOG) into the close but we also grabbed a long-term JPM bullish play in the afternoon as they were looking oversold on their dip.
We like JPM as an evil, souless, top 1% play. Aside from being an evil IBank that takes our tax money and uses it to run up the price of commodities so they hit our wallets from two directions at once, JP Morgan also makes money for each American family their speculating actions thrust into poverty, as they are the provider of Food Stamp Cards in 26 states as well as the District of Columbia and business is BOOMING in the poverty segment as JPM’s impoverished customer base has grown from 26M in 2007 to 43M today. Morgan’s Chris Paton says he sees further growth ahead in that segment – isn’t that just fantastic?!?
Well, unlike the original JP Morgan, who used to literally beat poor people with a stick, we can’t beat ‘em so we join ‘em although it seems Morgan Stanley (MS) had a better report this morning and is also worth a look at $28. That’s the beauty of our RKH hedge, it protects our long-term Financial plays and, when we get a nice pop on our hedge and we’re ready to take it off the table, we can then use that money to buy even more financials while they are cheap. Using our short-term bearish profits to establish long-term bullish positions – BRILLIANT!
The Hang Seng joined the Shanghai by falling 1.7% (415 points) to 24,003 but made a small statement holding that line into the close. The Nikkei dropped to 10,437 (down 1.1%) and that’s now 1,700 points behind the Dow, which is historically wide and why we looked to short the Dow – just in case it decides to catch up. There’s a nice article by Steven Pearlstein in the Washington Post, following up on my outrage last month over GE’s treasonous transfer of America’s avionics technology to China. Thanks to all who forwarded that article to Washington where at least it’s getting a little traction now!
The Bombay Sensex, amazingly, did not fall this morning, with a 250-point stick save into the close as the RBI moved to bail out micro-lenders (in an economy where people earn $2,000 a year, all lenders are micro-lenders) as well as an announcement that there were no plans to end fuel subsidies.
Food inflation pulled back 1.2% for the week as the RBI indicates they will be raising interest rates, so just up 15.52% for the year now but at least it’s the first decline in food inflation in months. Rising global commodity prices, particularly of crude oil – India’s largest import item – on top of intense domestic demand pressures could keep inflation at elevated levels through 2011. Most economists predict inflation in the 6.5%-7.5% range by the end of the current financial year in March, far higher than the 5.5% RBI estimates.
Brazil is also raising interest rates in an attempt to slam the brakes on runaway inflation and we expect Hu Jintao to take similar action shortly as Hong Kong’s CPI hit a 2-year high of 3.1% this week and the Mainland posted a 4.6% rise in December. So Brazil raising rates, Australia raising rates, China raising rates, Europe paying record rates as both Moody’s and S&P look to push them into junk status….
Can we guess what effect all this will have on the dollar? That’s right, down we go – or down we have already gone this month with a 3% drop in the past two weeks and thank the good Lloyd for that or commodities and the markets would have fallen off a cliff ahead of schedule! Speaking of bond risk – Vallejo, California, has taken the early lead in the "I told you so" sweepstakes as they are looking to offer creditors 5 to 20 cents on the dollar under the protection of the Bankruptcy Court. “While the city regrets that it cannot pay a higher percentage, the fact is that the city lacks the revenues to do so while maintaining an adequate level of municipal services such as the provision of fire and police protection and the repairing of the city’s streets,” Vallejo said in the filing.
No city or county has used federal bankruptcy laws to force creditors to take less than they are owed, according to Bruce Bennett, the lead lawyer for Orange County, California, when it filed the biggest municipal bankruptcy in the U.S. in 1994. Vallejo’s plan assumes the city can’t provide essential services, like police and fire protection, while also paying its debts, he said. Should the city succeed, the case “may become an important precedent,” Bennett said in an interview. Lenders getting a haircut include Union Bank NA, a unit of San Francisco-based UnionBanCal Corp., part of Mitsubishi UFJ Financial Group Inc. (MTU), Japan’s largest publicly traded bank.
If you didn’t take my advice yesterday and read Mike Snyder’s "Austerity in America: 22 Signs that it is Already Here and is Going to be Very Painful," now would be a good time. It will help you to understand why we are 75% in cash and very well-hedged for a downside move in the markets!
Let’s finish up the day by accentuating the positive. China’s GDP was up 9.8% in Q4. Clearly that porridge is "too hot" and it’s contributing to their runaway inflation but – WOW! Spain is taking on more debt to bail out their banks but why the hell not when they know that China, Japan, the ECB and the IMF are all standing ready to bail them out. The ECB has bigger fish to fry or, perhaps, fewer fish as they are now worried about price dislocations leading to food shortages in poorer parts of the EU. German Producer Prices are rising back at the pace they were hitting in 2008 – before the global economy blew up – and Switzerland’s biggest problem is the relative strength of the Franc is hurting their margins so they will be raising the price of watches next month.
Hopefully, we’ll have a reason to buy this effing dip. I have already tee’d up 2 long-term trade ideas for Members on Hudson City Bancorp (HCBK) ($11.75) and GE ($18.30) from last night’s Chat – the rest we’ll have to play by ear but the oil shorts are looking VERY good today!