- Phil - January 28th, 2011 at 9:41 am |
Alert to premium, alert, and basic members sent at January 28, 2011 - 9:41am
I almost don’t know what to say. How is it possible that we’re sitting here this morning without a 100-point pullback? What possible logic can there be to this? The GDP just missed expectations by 10%, AMZN disappointed, I listed a half dozen other major companies above that had disappointing earnings yet the market is trading back at the p/e multiples it had just before the crash in 2008 (but not quite at the highs of 2007 so we could still go crazier – we’ve done it before!).
The head of OPEC was on CNBC this morning and he was frustrated with their dopey questions (as would anyone be). He pointed out that there is NO shortage of oil, that there is a record surplus of global storage (60-day supply he says) that they have 6Mb of excess capacity (and this is just OPEC, who supply 1/3 of the Worlds oil) and he points out that there is not a single person on earth who is unable to buy oil at the pumps (ie. no shortage of product anywhere). Basically, short of saying it outright – he is saying that the price of oil is entirely based on speculation and there’s nothing they can do about it other than keep selling the oil and collecting the cash. Even so, he said "OPEC will not hesitate to interfere if there is a physical problem in the markets, (I’m) talking about supply, demand, inventory and spec capacity…if there is imbalance in that aspect, OPEC will interfere." – Can the guy make it more clear? CNBC, of course, redacted the video from their site…
Now, let’s take a step back and consider this. We have a 60-day supply of oil. It used to be 20 days. Even if we "just" added 30 days to supply, that still indicates a 10% drop in real demand and that makes sense because 10% of the people on this planet are unemployed (more so than before) and that means that they sit at home and play with their Wii (not a euphemism, the actual Wii) and don’t drive as much or consume as much.
Since that makes sense and since the EU GDP was -0.5% and our GDP was -0.4% below expectations – Don’t you think it might make sense to assume that 10% of all of the market enthusiasm is BS? That’s the correction we’re looking for – 10%. That’s the last time we were happy to buy – 10% ago. This is not then, random or inconsistent thinking on our parts – it very well may be the rest of the market that is irrational.
We just need to make sure we stay solvent while we wait it out.
Dow 12,000, S&P 1,300, Nasdaq 2,750, NYSE 8,200 and Russell 800 – every one of those levels has been hit already so those are the lines we’ll be making bullis plays off of and those are the lines we will be taking protection under. Oil $87.50 would be healthy as would copper $3.40 but I don’t see a good reason for either of those to happen today.
If you didn’t get the TZA or QID spreads from Wednesday, now would be a good time if you don’t have a lot of downside protection. I’m bearish into the weekend for sure but also ready, willing and able to give it up next week because we have to go with the flow – no matter how wrong that flow may seem.
QID A - sorry, Members Only.
TZA A - sorry.
Most likely we flatline today.
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