Timmothy Posey

Q3 Earnings Season: Not the Time to Get Short

Excellent points well made. I want to short this market but my origination for this article was to stay long during the Q3 earnings season (mostly through the end of October) and resist the temptation to get short. Notice I am not outright buying calls, I'm selling October puts which allows me a bullish-to-neutral stance on the market.

I'm mostly selling the SPY $100 puts, which collect a nice premium now, yet I think there is enough support for the market above 1000 on the S&P to support me doing so. Even if the market does nothing for the next two weeks I still come out a winner.

Q3 Earnings Season: Not the Time to Get Short

True, operational earnings should be the MacDaddy over reported earnings, but it's hard to ignore CNBC doing a 24/7 scrolling ticker of "Goldman Sachs reports best quarterly earnings ever due to trading and derivatives activity".

I included the insurers especially because often times their operations (selling insurance) isn't that great, but they make tons of RIGL (realized investment gains/losses); one could make the argument that investing/trading is part of their core business since that's what they do with the premium they collect.

As for shorting, I think a lot of folks jumped on the short bus last week. We went from the highs of 1080 to about 1020 in a matter of days. Or perhaps its just the low volume of buyers that were present for those days...

Steer Clear of Treasury Auctions

I say #1 is more likely. It is easier for the Federal Reserve to pull the plug on all the recent "green shoots" media play and allow the market to correct itself back down. That will lead the flight to quality into 10-year Treasuries and bring down the mortgage rates to ~4.5%. Let it sit there for about a year and it is the equivalent of a multi-hundred billion dollar tax break on the consumers from refi's and lending companies re-hiring mortgage brokers to handle the extra demand. It will also allow the banks to profit from origination fees to help balance out the losses from their non-performing assets.

4 Possible Market Scenarios

Sounds like it to me!


On Apr 04 06:59 AM Alan von Altendorf wrote:

> Brad Setser reports that foreign central banks are out of tradable
> reserves, which calls into question the ability of the US Treasury
> to roll its existing and sell $5 trillion new debt this year and
> next, not counting Social Security and Medicare deficits that no
> one expected before 2040, but are going to bite us in 2010 on falling
> employment tax revenue. Employment and real wages matter more than
> government spending or make-work socialism. Okay, free market is
> dead? Then war it is.

Why Are Investors Swallowing the Deflation Myth?

To be fair, the Fed also has the tool of purchasing Treasuries themselves (monetizing the debt), and have signaled their intentions to do so. This could keep the Treasury Bubble going much longer than we expect.

8 Important Facts About the Federal Reserve

I have a question about items #4 and 5.

#4. Can you quote us the exact clause that changed reserve requirements to 0%? If this was the case, then ALL banks are instantly well-capitalized since the reserve requirements have effectively been removed. Thus there is no need for the FDIC to even exist.

#5. The blowout of credit spreads happened prior to October 1st (when the Fed started paying interest on deposits). Don't you think the downfall of LEH, AIG, FNM, FRE, WB, WM in one month could have done something to this? The Fed is STILL paying interest on deposits, yet the credit spreads have narrowed to pre-Lehman levels. The flight away from risky assets is very predictable in a volatile market because, well, they are indeed risky. I believe your cause-and-effect hypothesis is very wrong. The current 1-year LIBOR rate is the lowest since May 2004. See: www.moneycafe.com/libr...

November Lows: Back So Soon?

We hit 7995 (effectively 8000) and rallied off of it. I consider this a very strong base of support for us to rally off of and go back up into the 8500's.

What Will Happen If America Returns to an Historical Savings Rate?

Very good article, however the only problem is that in our 21st century banking system (PayPal, high-yield online savings accounts, fractional reserves) the more that we save, the more banks will be flush with deposits. What do they do with this? They turn right around and force it back down on people, with easy money loans, 0% financing, and "No Interest, No Payment until 2020" furniture sales.

There is no longer any sort of safe spread to make money on. Treasuries are at 0% effectively, so once this cash comes back off the sidelines, it will either have to go back into equities (too risky for many banks) or consumer loans (and we saw where that got us). It is a vicious cycle, and just like the article said, it is a symbiotic relationship. We need easy money, as much as easy money needs consumers.

Lastly, I'd like to point out that interest rates were much higher back then than it is now. Granted, consumerism and materialism wasn't like it is now, however putting your money in a 30-yr Treasury @ 9% back in 1990 was probably a good idea, as you'd only get 2% for it now. Does anyone else notice a correlation as those yields came down, our savings rates dropped?

Oversold and Melting Up

Today has been light volume, so I wouldn't read too much into things. But I agree that we have a long way back up to revert back to the mean 20-day moving average.

I do expect a retest of the Dow 7800 that was hit intraday on Friday. Until then, I am still mostly in cash.

Confusing Volatility With Risk - A Costly Investment Mistake

I disagree on Small-Cap Growth versus Small-Cap value. Compare VBR (Value ETF) versus VBK (Growth). VBK outperforms.

finance.google.com/fin...;

Spend Your Dollars Quickly before They Print More

Inflation is typically a lagging indicator. I believe the "recession" will dampen demand, especially international demand for commodities.

If not, oh well. Contrary to popular belief, the world will NOT come to and end just because oil stays above $100 a barrel.

Spend Your Dollars Quickly before They Print More

Sad to see all the MarketWatch.com Chicken Littles and inflation-kiddies start to take over here.