The new Beige Book is here, the new Beige Book is here!
I'm sorry but I get very excited about this kind of stuff. I love data, especially the kind of data our policy-makers rely on to make their future decisions. Although the BBook is a gathering of anecdotal evidence from the Fed's 12 regions, the data comes from businessmen that are respected by each Fed governor so THEY take it seriously and if they take it seriously, you'd better too.
We'll have to wait until 2 p.m. for today's main event but we get early sentiment readings out of New York with the ISM Report and at 9:45 we get the Chicago PMI. We already got a TERRIBLE number on Mortgage Applications (down 11.7%) but we'll call that a holiday thing (hopefully) and we'll see if that's confirmed or denied in the 10 a.m. Pending Home Sales Report.
We have Challenger Job Cuts and Productivity Numbers and Oil and OH MY GOD - SCREW THAT - MORE FREE MONEY IS HERE!
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.
These Central Banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank will continue to offer three-month tenders until further notice.
As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise. These swap lines are authorized through February 1, 2013.
Finally we are getting some rational stimulus but why do they have to drop a bombshell ahead of the U.S. open? This screws most retail investors (not us, we were very bullish - see our White Christmas Portfolio update, for example) who can't participate in the Futures (we coincidentally went long on the Futures this morning for other reasons) and didn't have me banging the bullish drum for them last week.
This is the move we expected and now we can sit back and see how much of a boost it gives us. It's hard to quantify the effect but what it's really doing is taking away about 30% of the reasons to be short and that should give us at least a 3% move up today since we're still 10% off our recent highs (see how logical that is). Unfortunately, it will pop oil and that was one of our downside hedges. I still think it's a good opportunity to press the shorts but we don't know where it will stop (now $101.10 in futures).
Those trade ideas from Monday Morning's post should be skyrocketing today. As with our virtual White Christmas Portfolio, which is now in overtime and up over 100% - if you did particularly well from my holiday picks, please take a moment to consider sharing your good fortune with those who are having a rough time this Christmas, thanks.
We also left ourselves very bullish in our FAS Money, Alcoa (NYSE:AA) Money and IWM Money trades, which StJeanLuc is tracking and those are going to be FANTASTIC today. In addition to last week's many bullish trade ideas, when I called the bottom, we added longs CenturyLink (NYSE:CTL) and ArcelorMittal (NYSE:MT) as they seemed oversold and, yesterday afternoon, my trade idea for the WCP was:
FAS weekly $51/52 bull call spread is .60 and makes .40 (66%) if FAS holds $52 (now $52.84) through Friday. If you stop at .30, you can be wrong twice and right once and still break even so let’s do 10 in the WCP and see how it goes.
So that's a nice 66% gain by Friday to look forward to! An interviewer asked me recently if options trading is too complicated for the average investor and I said, no, it's quite the opposite. As you can see from the above trade, we are able to manage risk and we know exactly what it will take to be successful.
If you have $100,000 that you can risk and you allocate $6,000 for a trade like this, risking a $3,000 loss - it's going to make a quick $4,000 in three days (assuming we don't crash back, of course). That's 4% in less than a week on the whole portfolio. Now, what's more complicated, making one trade like that based on current circumstances and keeping $94,000 safely in cash or having the whole $100,000 at risk on various stocks, hoping to scratch out 10% for the year?
Options get a bad rap because people use them incorrectly (for leverage instead of risk control), but they allow us to remain mainly in cash but still do very well. In our virtual White Christmas Portfolio, we started with $15,000 just a month ago, making small trades like this and we've more than doubled already.
As I cautioned members, luck has a lot to do with it but, as luck would have it, we were 8 for 8 in our picks this past week (until this morning, when our hedges are blown out)! Again, keep in mind that had France just defaulted on its debt, we'd be 1 for 8 now (oil was our bear bet), which is why limiting risk is the key to this model - having cash on the sidelines lets you take advantage of these opportunities - another reason it's good to have at least a small speculative account for options.
Despite going 8 for 8 in my WCP open positions, I was NOT the smartest guy in the room in yesterday's member chat. That honor goes to JRW, who gave us the following chart at 12:52 which is EXACTLY what is happening this morning - that's REALLY good. Overall, we were happy enough with our finish not to get bearish, despite not holding 11,590 on the Dow (11,556 was close) - mainly because there was so much negativity on the day and the dollar was strong and we were holding up pretty well considering. At 3:15, my comment to members was:
Wow, first El-Erian was the morning guest on CNBC and now Bill Gross is coming on. Do they own that station?
Also, Roubini weighed in so now we’re just waiting for Greenspan and Whitney to complete the Gloom Squad, which usually marks the last, desperate effort for these guys to keep the markets down (and money moving into the bonds they sell).
Click to enlarge
Understanding how people are trying to manipulate your investing decisions is something we talked in detail about this month and it's not just an academic discussion - we apply our skeptical outlook every day to the information that tends to overwhelm the average investor as we sift through a lot of BS before we find a flower. Congratulations to all the bulls today - it looks like we may get our Santa Clause rally after all.
Speaking of despicable media who use their influence to move the sheeple out of the way of their hedge fund buddies, here's a quote from my freind/buddy/pal Jim Cramer yesterday at 12:12:
12:12 PM Jim Cramer warns that Europe's credit crisis has pushed the global situation to "DEFCON three, two stages away from a financial collapse so huge it’s hard to get your mind around." At the least, it's time to sell companies that need credit: “Credit is so important that anyone who can’t get it will be overwhelmed ... which is why you need to start selling into this rally."
I can't wait to hear how he spins this into how he made a great call today!
And here's how his hedge fund budies get rich by trading on inside information while he chases the retailers out of their positions to drive down prices:
In case there wasn't enough anger already about cozy ties between Wall Street and Washington, new revelations suggest former Treasury Sec. Paulson gave hedge funds an inside scoop about the government's plans to seize Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC). Interesting that no one attending the meeting seems to remember anything. Mish Shedlock: "Anyone who says they do not remember a meeting like that is a liar.
Disclosure: I am long FAS, IWM, AA.
Additional disclosure: Positions as indicated but subject to change.