Hey buddy - would you like to buy a rally?
For just $2 trillion I can give you a 2% pop on the S&P, what do you say? Am I talking about QE3? No, QE3 would be cheap compared to the beating up that the dollar is enduring this week at the hands of the Europeans, the Australians, Canadians, the Swiss (all-time high today) and the Japanese - who have been taking their turns pushing our beloved dollar down to the ground and having their way with it. Not a pretty picture? How about picturing the loss of 2% of your net worth in five days?
That's where we are this morning as $2Tn of U.S. wealth has been extracted this week (via political dithering over our debt ceiling) and shipped overseas in the form of relative buying power for or foreign friends while our stock indexes and commodities "rally" - which is to say they re-price higher to reflect the lower buying power of the currency they are priced in - the ever-declining green-back.
Click to enlarge
As you can see from the above charts, which are our major indexes and oil adjusted for the dollar - we're critically close to failing our 20-day moving averages for the first time since early June, when the markets went into free-fall - also on the heels of an end-of-month run-up that took the S&P from 1,311 to 1,345. 1,345 just so happens to be where we topped out last week and where we topped out yesterday and where we popped to on the futures early this morning (3 a.m., of course) as the dollar was shoved a full percent lower in overnight trading.
We were all over this, of course, and I sent out a 3:55 a.m. alert to members saying:
Dollar bottomed out at 73.69 and that should be it for our 3 a.m. "rally" with the RUT (/TF) at 835.6 and S&P (/ES) at 1,340, Dow (/YM) at 12,600 and Nas (/NQ) at 2,435 – all make good shorts here as long as the dollar goes no lower (and I’ve already started the morning post with a chart that shows how dangerous this is getting).
We rode that puppy hard - all the way down to RUT 830 at 5:30 (up $560 per contract), S&P 1,331 ($450 per contract), Dow 12,530 ($350 per contract) and Nasdaq 2,420 ($300 per contract). So, as usual, the winner is the Russell which is why JRW and I love to play them. We just (7:47) took the opportunity to go short again in member chat as we crept back near the same highs - WHEN WILL THOSE CRAZY COUNTER-PARTIES EVER LEARN?
Speaking of JRW - He nailed that downturn on the Russell yesterday at 1:39 in member chat calling 1/3 in TZA (we scale in and out, of course) at $32.73 and fully in just four minutes later as our signals improved and ALSO called a perfect exit at at $33.43 at 3:27 - up 2.1% in less than 90 minutes! Who says we don't trade stocks at PSW (or at least ETFs)?
Overall, we stayed slightly bearish yesterday, adding trade ideas like SQQQ spread in the morning alert, a Baidu (NASDAQ:BIDU) earnings spread that will be cutting it close (selling 5 Aug $170 calls for $4 against 3 Sept $175 calls at $5.10 and the move is to take the September calls off the table at the open and ride the short Aug $170 calls out naked), got bullish on FAS, shorted oil futures off the $99.50 line (out at $98.50), shorted Priceline.com (NASDAQ:PCLN) with a ratio backspread, went long on IMAX (NYSE:IMAX) at $25.50 with short puts, took a bear put spread on SPY, shorted Netflix (NASDAQ:NFLX) (HUGE winner!), long on Annaly (NYSE:NLY) (selling puts), long on Bank of America (NYSE:BAC) with a buy/write, long on HLS Systems (NASDAQ:HOLI) with short puts (China train thing knocked them down), short on oil with an SCO bull call spread short on QQQ with the Aug $58 puts at .63 and short on XRT ($54.60) with a very bearish spread that was our final trade idea on a very busy Monday.
Today we have a dollar starting the day at 73.80 (8:25) and our indexes are a bit above yesterday's open. Lots of earnings and lots of data (see early morning chat for many details as well as a nice QLD hedge) but it's all about the ridiculous drama of the debt ceiling. I'm getting sick and tired of Boehner and the other Economic Terrorists that call themselves Republicans as they lie themselves further and further into the corner to try to keep up the charade that this entire thing is about anything other than trying to make Obama look bad and score political points by sacrificing the middle class for the sake of their wealthy masters. You don't believe me? Here's Mitch McConnell laying it out for you:
Click to enlargeThis is nothing but total BS at this point. The Republicans have thrown all credibility out the window, now rejecting the Democrats proposal for $2.7Tn in reductions over 10 years with NO NEW TAXES and NO CLOSING OF LOOPHOLES. What else can they possibly do?
Notice, on the right side, under Boehner's "plan" that no actual cuts are identified to make up 60% of the $3Tn the Republicans claim their plan will save. Not only that, but the Republican plan sets a goal of keeping this impasse going through November and again in February as Congress will do nothing else but debate the "to be identified" $1.8Tn in cuts through the next election. Is this fiscal responsibility or holding the economy hostage to do some electioneering?
THIS is why people are losing faith in America. We look like circus freaks to the rest of the World - like children who are, unfortunately, very dangerous, nuclear-armed children who owe the adult countries $15Tn and are planning to borrow $2.5Tn more to see us through for the next 18 months. We have no job, we have no resources and we produce nothing of value and our plan to "fix" this is to cut back on spending by 10%, even though we are currently running $1.6Tn in debt out of $3.6Tn in spending (44%). Doesn't that just make you want to lend us money?
Click to enlargeI am also sick AND tired of hearing the Republicans blame this debt on Obama. At first it was so misguided that Democrats didn't take it seriously enough to refute but now the lie has been told so many times that people are actually starting to believe it. The fact of the matter is that Barack Obama has added a grand total of $187Bn to the defict that ALREADY EXISTED the day he was sworn in in January of 2009. This is a FACT and kudos to Teresa Tritch in the New York Times this weekend for laying it out so nicely in "How the Deficit Got This Big."
Please feel free to email this to your friends because I, for one, am sick of hearing the endless lies in the media as our nation hurls towards what may be the biggest financial crisis in global history based on the actions of a pack of lying weasels who wrap themselves in the flag and our constitution in order to turn America back into a slave state - only this time it's class slavery, so everyone seems OK with it!
The additional $9Tn in debt (oh sorry $8.813Tn as Obama added $187Bn) that Bush policies forced this nation into are a burden that this country will carry for decades. That's not even counting the LOSS of the surplus that had been built up under eight years of Clinton, who also took more than four years to turn around the disaster caused by the policies of Ronald Reagan and the first Bush Presidency.
Click to enlargeHere's another chart that lays out the cost of policy changes under Bush and Obama. Even laying the cost of TARP on Obama (approved under Bush) and the extension of the Bush Tax Cuts (big mistake as he threw the Republicans a bone they won't let go of) and even ignoring the fact that we have an actual economic crisis to deal with - the difference between the two administrations is STUNNING.
Every year starting in 2002, the budget fell into deficit. In January 2009, just before President Obama took office, the budget office projected a $1.2 trillion deficit for 2009 and deficits in subsequent years, based on continuing Bush’s policies and the effects of recession. Obama’s policies in 2009 and 2010, including the stimulus package, added to the deficits in those years but are largely temporary.
The second graph shows that under Mr. Bush, tax cuts and war spending were the biggest policy drivers of the swing from projected surpluses to deficits from 2002 to 2009. Budget estimates that didn’t foresee the recessions in 2001 and in 2008 and 2009 also contributed to deficits. Obama’s policies, taken out to 2017, add to deficits, but not by nearly as much.
A few lessons can be drawn from the numbers. First, the Bush tax cuts have had a HUGE, damaging effect. If all of them expired as scheduled at the end of 2012, future deficits would be cut by about half, to sustainable levels - if we re-elect a Republican House or, GOD FORBID, a Republican president - that is not going to happen and we shall be DOOMED! Second, a healthy budget requires a healthy economy. Recessions wreak havoc by reducing tax revenue. Government has to spur demand and create jobs in a deep downturn, even though doing so worsens the deficit in the short run. Third, spending cuts alone will not close the gap. The chronic revenue shortfalls from serial tax cuts are simply too deep to fill with spending cuts alone. Taxes have to go up.
Let's wake up America and smell reality. It's time to stop acting like children and start tackling our problems like responsible adults. We can start by not making fun of our president when he tells us "we have to take our medicine" because WE DO! Do you think voting out Obama or voting in political hacks who seek to undermine the people of this nation for the sake of their corporate masters is going to make things better? You are simply voting for the sleazebags who tell you what you want to hear - let's all grow up a little and listen to the people who propose real solutions and, as a hint - there is no real solution that does not involve increasing taxes - anyone who tells you otherwise is lying to you and counting on you being too scared to want to hear the truth or so bad at math that you will believe that less really is more.
It's not - it's time to get real!
Disclosure: I am short QQQ.
Additional disclosure: Positions as indicated but subject to change.