We had our usual Live Trading Webinar yesterday at 1pm and, when the replay is available, you can see our live analysis of the Fed Minutes as they were released which led us to conclude that the people rallying the Dow were idiots and that we should short the Dow Futures (/YM) at 18,100. As you can see on the chart, we blew tight though our primary target of 18,000 and almost hit 17,900 (a $1,000 gain) before bouncing back to 17,950 where we stopped out for a $750 per contract gain. Not bad for an overnight trade, right?
Of course, we already expected the Dow to fall hard and fast, which is why we featured the Ultra-Short Dow ETF (NYSEARCA:DXD) as a hedge in yesterday's morning post. We don't need to the Fed Minutes to tell us what the market is going to do but it was nice to have the confirmation so we could add some bonus money with our Futures trade. Now, the nice thing about the Futures is we can flip long on /YM at 17,500 (with tight stops below) and lock in the gains we made on DXD until the market opens. On the whole, however, we're expecting more downside than this but it will take a while for the dip buyers to realize they are tilting at windmills.
Click to enlargeSpeaking of Quixotic trades, those wacky oil bulls are at it again, driving oil back to $50.20 despite a build in the API report. They are all excited because we bombed Yemen this morning but all we did was knock out 3 rebel radar sites with a few dozen tomahawk missiles and the only person who'll make money on that is Lockheed Martin (NYSE:LMT) who charges $2M for each one of those bad boys (long LMT!).
Still the very mention of anything even vaguely Middle-Eastern-sounding and missiles is always good for a pop in oil and we're popping up to $50.40 per market on oil Futures (/CL), where we're happy to take the bulls' money and short them again with a stop at $50.55 ($150 per contract loss) and we'll do it again at $50.90 if they want to raise the bar but I think $50.40 is nuts and hopefully we'll be below $49 by the end of the day for a $1,400 per contract gain.
Speaking of commodity trades, we sent Coffee Futures (/KC) flying at the open this morning because we discussed Coffee as one of our finalists for the Trade of the Year for 2017 on Money Talk last night. We also had a nice discussion on the Macro Overview, where I reiterated my warning to short the markets and, in another segment, we talked about Apple (NASDAQ:AAPL) in context of Samsung's (OTC:OTC:SSNLF) recent troubles.
I also put my foot down on TV yesterday and said the S&P has no business being over 2,100 and apparently someone is listening as we're dropping towards 2,020 at the open. I can't take all the credit for that, China had some horrific export data this morning, with Imports down 1.9% and Exports down a shocking 10% from last September. China's exports had been expected to fall 3%, slightly worse than in August, as global demand for Asian goods remains stubbornly weak despite heading into what is usually the peak year-end shopping season.
This does not bode well for the upcoming Q3 GDP report and is a major problem as leading Economorons had been predicting China was coming back strong and had been steering their beautiful sheeple into long bets on emerging markets.
- China's Economy Seems to Be Recovering Faster - Bloomberg
- Chinese container port volume growth spurs recovery speculation
- Macao's game for recovery - China.org.cn
- Shanghai leads China's property market recovery | Overseas ...
- Is an Economic Recovery Underway in China? - Bloomberg
- Shopping China sees first recovery signs - Duty Free News International
Yum Brands (NYSE:YUM) just cut China loose by spinning off YUMC and they didn't do that because China's operations were expanding rapidly. The fact of the matter is, a taco is a taco and, for a Chinese worker, they are expensive - even at $1. The same goes for KFC or Pizza Hut - all luxury goods in China. Even in the US, these fast-food franchises are struggling as disposable income continues to shrink - what do you think the disposable income is for a Chinese worker with constantly rising housing prices and now rising fuel costs?
Would you work for 3 hours and 6 minutes to buy a Big Mac? Like many things in the world, the "China Miracle" for retailers and fast food franchises has been based on selling into China's Top 10% and, in China, 10% is 140M people, so that's a really good number of people and has allowed US companies to make exciting gains for the past decade. Unfortunately, like the US, income disparity in China is ridiculous and the bottom 90% can't possibly afford the goods and services the Top 10% do and that puts a very hard stop on growth in China.
Investors, however, continue to extrapolate future expectations for growth as if all 1.4Bn people in China are going to buy a Tesla (NASDAQ:TSLA) or an IPhone (AAPL) or eat a Big Mac (NYSE:MCD) and that is just stupid and reflects the lazy state of analysis and poor math skills that run rampant in the Financial Community.
Ignoring the massive scale of China's debt is another form of idiocy going on at the moment and if you think a 10% drop in exports is bad - you ain't heard nothin' yet. China's population is aging so rapidly that they will lose 90,000,000 workers (more than half of the entire US working population) by 2040. China already has 114M seniors over the age of 65 and they are on path to have 250M (80% of the US population) in less than 25 years. We currently have 42M seniors and our Government can't afford to support them (ie. give the seniors back the money they were holding for them) - imagine what's going on in China, a country that never even had a Social Security system so this is all a "shock" for them.
So, math time: 90M lost workers in 23 years is 4M less workers per year and let's assume 1/4 die young so adding 3M retirees per year + their wives is 6M more retirees supported by 4M less workers - EVERY YEAR, COMPOUNDED. Is that a formula for GDP growth? Even now, Chinese banks are repordedly short $2,000,000,000,000 and expanding the debt/GDP ratio will make that worse and 5% worse on $2Tn is another $100Bn thrown onto the fire (I know, no more math - I'll stop). Without 7% GDP growth, fake or otherwise, China will unravel at the seams.
I'm sorry, I don't like being Mr. Doom and Gloom and I know I've pointed this stuff out before but it's getting worse, not better and I really would hate to see people getting suckered into buying these minor dips when there is likely to be a major correction ahead.
Have I mentioned how much I like CASH!!! lately?
Disclosure: I am/we are long APPL, LMT, SQQQ, TZA, DXD, SDS, JO, FXP.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Positions as indicated but subject to RAPIDLY change (currently mainly cash and an otherwise bearish mix of long and short positions - see previous posts for other trade ideas). Positions mentioned here have been previously discussed at www.Philstockworld.com - a Membership site teaching winning stock, options & futures trading, portfolio management skills and income-producing strategies to investors like you.