Who'd have thought Europe's problems could be over just like that? Certainly not us, as I was quite skeptical Friday Morning (see yesterday's Stock World Weekly for the executive summary of the week's events). As I noted in Friday morning's post, we had ended the day on Thursday very bullish - too bullish I decided on Friday morning and I called for cashing out into the weekend at the end of the morning post. In the morning alert to members, I repeated:
When in doubt, sell half and, in this case, I want to get back to more cash by the day’s end in the White Christmas Portfolio as the WCP is too bullish and I’m just not in the mood to risk it so we’re not going to be too brave if the "rally" stops or even slows down.
The markets were very kind to us, heading higher all day long and giving us great exits. Heading into the close, we got a bit more bearish and, aside from existing hedges like our EDZ spread (mentioned as our key hedge in last week's Stock World Weekly), we added DXD (ultra-short Dow) Jan $15 calls at $1.25 but we offset those with short FCX Feb $33 puts at $1.25 in our virtual White Christmas Portfolio, with 10 of those contracts on each side netting a free spread with unlimited upside (with the downside being owning FCX cheaply). As I pointed out to Members, DXD was $18.50 just three weeks ago.
At 3:26, just before the close, we added the SQQQ (ultra-short Nasdaq) Jan $16/19 bull call spread for $1.50, which I pointed out had a nice 100% potential upside all by itself but you could also, for example, offset it with things you REALLY want to own if they get cheap - like shorting a Google (NASDAQ:GOOG) Jan $500 put ($1.20) or an Apple (NASDAQ:AAPL) Jan $320 put ($1.25) or a Microsoft (NASDAQ:MSFT) 2013 $20 put ($1.10) - the idea is to just think of what stock you REALLY want to be jumping in and buying if the market throws a 20% off sale. If there's nothing, then you should be thrilled with the 100% potential gain on the raw spread.
Click to enlargeBut THAT wasn't the easy money (I'm not so egotistical that I would guarantee we open lower when it's only 7:30 as I write this). In fact, I was at the Jets game with a bunch of financial guys (thanks Rustle!) who were asking me what the markets would do tomorrow and I said at the time (early afternoon) that Monday was a wildcard but it was Tuesday we were playing bearish for.
The EASY money came at 11:54 last night, after I got home and went over the news and, as I commented to members: "Markets opened at 6 with the Dollar way up at 79.34. So far, we haven’t seen a big sell-off but I do like shorting the S&P futures (/ES) below the 1,250 line (now 1,250.50) or, of course, the RUT (/TF) below 740." The Russell Futures already fell to 733 before turning around (weak bounce) at 4:30 a.m. - up $700 per contract and the S&P fell back to 1,240 at the same time, up $250 per contract and, as we like to say - the Egg McMuffins are paid for!
We're not ready to hit the panic button just yet - that likely comes tomorrow when Treasury has to hawk off $177 BILLION ($177,000,000,000 - a new record for a month, or $77Bn more than $100 billion dollars - muhahaha) in funny money over the next two weeks, beginning with this afternoon's (1 p.m.) auction of $32Bn worth of three-year notes, then $21Bn of 10-year notes on Tuesday (with an FOMC announcement at 2:15, where it's QE3 or bust anyway) and then $13Bn in 30-year paper on Wednesday.
So, on the off chance we can't find enough
suckers investors to purchase record amounts of low-interest paper this week - I thought it would be prudent to hedge for a possible catastrophe.
Looking ahead, we have the longer-term catastrophe of OECD Nations needing to borrow $10.5 TRILLION - $10,500,000,000,000 - (that's muhahaha TIMES 105 - REALLY) or 20% of the global GDP next year - in order to keep the lights on. Now, since the OECD nations are 80% of the global GDP, they are probably not going to be able to borrow the ENTIRE GDP of the other nations and we've canceled our Moon and Mars programs - so no loans from there are likely. That's OK though - because they will borrow the money from EACH OTHER!
That's right, the OECD nations will borrow roughly 25% of their combined GDPs from each other next year. This is nothing new, of course - that's how we do things in the modern world. Feel free to try this at home - if you owe, say 700% of your salary in debt (don't let this debt to GDP fool you - it's debt to tax revenues that should be examined!), like the United States, and your German Aunt is "only" 500% of her salary in debt - then she can lend you 100% of your salary to help you cover your shortfall next year and you can lever that money 10:1 and lend her a year's salary, no problem and then she can lever it up and lend it out to that French guy she's having an affair with and he can turn around and pay off his Italian Mistress, etc. - until everyone has a lot of money to spend and a little more debt.
After all, we're "only" expanding our debt by 14% next year and, if we borrow another $2Tn in 2013 - that will be added to $17Tn we owe and just 11.7% more added to the pile. So you see, the bigger the pile of debt we have - the less of a difference each round of new debt makes - BRILLIANT!
As I said to members during weekend chat, my real concern in Lee Adler's article ("Unreported Bedlam in Treasuries Signal Massive Panic") this weekend isn't the fact that there are no real people who want to hold U.S. paper at sub 3% interest (Duh!), but that WEAK WITHHOLDING TAX COLLECTIONS forced Uncle Sam to borrow $9Bn (11%) more than forecast last week and $13Bn (17%) more than forecast this week. That's that "salary" I was talking about above. Like the bottom 90%, the salary of poor old Uncle Sam is steadily dropping and, unfortunately for the bottom 90% - he's the rich Uncle that not only is supposed to lend them a hand when times are tough (and he didn't) but is also the Uncle that got rich because they LOANED him 12% of their annual salaries for the past FOREVER in the form of FICA payments, which he counted as income on his budget returns.
Oh Uncle Sam - how could you? Americans are now, as Economists like to say, Funded Under Current Kapital Equity Distribution - and, if you can't figure out why Kapital is spelled with a "K," then we know how it happened to you! Now it's after 8:30 and I can say with quite a degree of confidence that we WILL, in fact, open lower as the dollar is now at 79.97 so congratulations to all who heeded my cash call as we are now 1% richer in buying power than we were on Friday in our cash position.
Speaking of being 1% richer: News from the Wonderful World of the Top 1% (many of whom were in Sky Boxes with me yesterday) - it only takes six of them, if they are the Walton (Wal-Mart (NYSE:WMT)) family to equal the combined net worth of the bottom 30% of our citizens (93,000,000).
That's right, the six Walton kids, who earned their money the old-fashioned way (inheritance), are now worth a combined $93,000,000,000 while the bottom 30% of the people in our country are worth less than $1,000 so EACH Walton has 15.5 MILLION times more money than the average person who works in their store (now THAT deserves a muhahaha!). Kind of makes you wonder why they sell guns there but, then again, I very much doubt you ever see a Walton in a Wal-Mart store.
The "average" top 1%'er (as if there's no difference between you and the Waltons) is 225 TIMES richer than the the "average" American, which means those "average" Americans are about 100 times richer than the bottom 30% but Conservatives think that THOSE PEOPLE need to pay more taxes because it's "so unfair." Now, I am not saying we need to hunt down the Waltons to fix the economy, but I am going to point out that WMT earns $16Bn a year in net profits and their 2M employees could use another $1,000 a year A LOT MORE than the Waltons could use another 2% more money added to their wealth pile.
Giving 2M WMT employees $1,000 more to spend doesn't seem like a lot but they will, in turn, go out and spend that in local economies (the ones WMT sucked jobs out of) which will, in turn, generate more jobs and more tax revenues etc for the government while giving it to the Waltons will generate one more super-yacht or whatever. That Waltons should learn the lesson of Henry Ford, who realized that paying his employees enough money to be able to afford a car would greatly increase his car sales which, in turn, made him richer than he would have been squeezing the life our of his workers. Too bad almost no one in America seems to remember how capitalism actually works.
Meanwhile, down and down the markets go - where she stops - we'll have to wait and see but Timmy's got a lot of notes to peddle this week and nothing sells TBills like a panic out of equities - funny how conveniently that works out (for the fourth consecutive month).
Be careful out there.
Disclosure: I am long EDZ, SQQQ, DXD, FCX.
Additional disclosure: Positions as indicated but subject to change.