As you can see from David Fry's chart, yesterday was a wild day and we sold that pop and made a nice day's trading out of it but we got the hell out at the close because we know how this game is played and the gains they fail to take when the market is open - they are more than happy to manipulate after the market closes.
Aside from the 0.6% pop in the futures (8am), they slammed the Dollar down from 76.4 yesterday morning to 75.80 now and that's a 0.78% drop in the Dollar just to get the market back to where it was yesterday - that's pretty pathetic folks! Already this morning, in Member Chat, I reminded Members to play the oil futures (/QM) short off the $108.50 line and we got a nice drop back to the $108 line exactly before stopping out and now we're back to $108.50 where we can SHORT IT AGAIN!
See, it's fun to play with the manipulators... Also in chat this morning, I reminded our Members why today is "rollover day" for front-month options (the ones we own, not the ones we sold to suckers):
It’s not Wednesdays per se but the Wednesday before expiration day that we like to adjust. This is the day (10 days to go) when front-month premiums go into rapid decline so it’s madness to hold a long put or call – if a move goes against you, you have no time to adjust or recover. It’s a time when the next month is usually a reasonable price to roll and very often that roll can be still be paid for by selling those last 10 days of premium to some other sucker. As a rule of thumb, if you are in a front-month position on the Wednesday before expiration and you don’t like it enough to roll it to the next month – it’s time to cash it out.
To that end, I've already sent out a note this morning with adjustments to our $25,000 Portfolio, which has been getting battered by being too bearish on the Dow and oil as well as riding the bucking bronco that is FAS! We'll see if the S&P breaks our heart and finally holds 1,333 today. As you can see from our Level Chart - the RUT is near completing a 10% run off the nuclear lows of mid-March and the S&P did stop right on the 100% line yesterday so it's all about holding it today to prove this market is not just a creation of Goldman Sach's HFT machines and may actually have some legs.
We do believe in the long-term inflation premise that will drive the markets higher but we don't believe that the market is pricing in enough fear and we are worried that poor earnings reports will shock the market back to reality. Just yesterday, KB Homes (NYSE:KBH) reported that they lost $1.49 per $11.70 share last quarter so housing isn't just dead - it's still sucking up cash!
Monsansto (NYSE:MON) was in-line this morning and we hear from BBBY, BLUD, PBY, RT and WDFC tomorrow and then STZ, MOV, PIR, PSMT, RAD, BGP and NCTY tomorrow - a nice range of consumer stocks to watch ahead of the real start to earnings season next week. With the huge pop I see in the Nas this morning, today is a great day to buy the SQQQ May $23 calls for $3 or less - I'm excited about that one and you can probably sell the $23 puts for $1 and then, if we get a bounce, the $27 calls for $2 and then you have a free spread to protect the downside.
We went over the Fed minutes yesterday in Member Chat and I got a very different impression of what the Fed was saying than the one the markets are running with this morning. In the minutes, it said:
The Manager indicated that the greater depth and liquidity of the Treasury securities market suggested that it would not be necessary to taper purchases in this market. The Manager noted that market participants appeared to have reached the same conclusion, as they generally did not seem to expect the Federal Reserve to taper its purchases of Treasury securities. In light of the Manager’s report, almost all meeting participants indicated that they saw no need to taper the pace of the Committee’s purchases of Treasury securities when its current program of asset purchases approaches its end.
I suppose the Fed is being purposely obtuse but what does the word "taper" mean? At the beginning of the paragraph it says:
The Manager also discussed the possible benefits of gradually reducing the pace of the Federal Reserve’s purchases of Treasury securities when the current asset purchase program nears completion. As its earlier program of agency MBS purchases drew to a close, the Federal Reserve tapered its purchases during the first quarter of 2010 in order to avoid disruptions in the market for those securities.
In other words, when QE1 ended, the Fed gradually wound down the program because (as they ultimately decided with QE2) the need for additional stimulus was still there. Now they not only do not see the need for QE3 but they don't even see the need to gradually end QE2 - rather they intend to pull the plug and wrap it up as soon as the last of the remaining $300Bn is distributed. This is the clearest indication yet by the Fed that QE2 is the end and we're on our own in the second half of 2011 but their clever use of the word "taper," which means very little to foreign investors or, apparently, the MSM analysts in this country, has everyone acting as if the punch bowl isn't going away in 90 days.
Portugese bond purchasers get it. They asked for, and received, 5.1% for 6-month notes this morning, up 70% from the last sale at 3% just 45 days ago. A move like that in US paper would cost us $300Bn a year in interest alone! Amazingly, Scott Wapner on CNBC at 9:01 just said: "Portugal successfully auctioned off over $1Bn worth of bonds this morning and that's giving the markets a boost." Really Scott? I can't wait until the US is borrowing money at 15% - I'll bet that will be some real rally fuel for you to report on!
Speaking of rallies - Corn makes another new high which is pushing meat to all-time highs while our switch to ethanol (why eat what you can burn?) has dropped our stockpiles to the lowest level in 4 years. We are pretty much a drought away from The Grapes of Wrath in America at this point...
“Meat is at all-time highs, so obviously feed usage isn’t likely to be rationed,” said Frank Cholly Sr., a senior strategist at Lind-Waldock, a broker in Chicago. “The ethanol grind isn’t likely to slow down as long as they’re profitable, so corn prices have to go higher.”
Corn futures for May delivery rose 6.5 cents, or 0.9 percent, to settle at $7.6675 a bushel at 1:15 p.m. on the Chicago Board of Trade, the highest closing price on record for a contract closest to expiration. Earlier, the commodity reached $7.7075, the highest since July 3, 2008 (2 months before everything collapsed). Corn has more than doubled in the past year. U.S. supplies on Aug. 31 may drop to 589 million bushels, less than the USDA’s March estimate of 675 million, according to the average estimate of 30 analysts in a Bloomberg News survey. The government will update its projection for domestic and global stockpiles on April 8. The U.S. is the world’s largest producer, exporter and user.
Chinese beef consumption is driving Global corn demand as an entire United States' worth of Chinamen are now dining at McDonalds and having steaks for dinner instead of chicken or port. We have not only exported our jobs but our lifestyle and it's not something China is likely to be sending back! Of course, much of China's progress is the result of the country reinvesting 50% of its GDP into new capital stock and Nouriel Roubini predicts a very hard landing for China within 3 years. "China is rife with overinvestment in physical capital, infrastructure and property." Roubini says, "To a visitor, this is evident in brand-new empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, massive new government buildings, ghost towns and brand new aluminum smelters kept closed to prevent global prices from plunging."
It will take two decades of reforms to change the incentive to overinvest. Traditional explanations of the high savings rate (lack of a social safety net, limited public services, aging of the population, underdevelopment of consumer finance, etc.) are only part of the puzzle—the rest is the household sector’s sub-50% share of GDP. Several Chinese policies have led to a massive transfer of income from politically weak households to the politically powerful corporates: a weak currency makes imports expensive, low interest rates on deposits and low lending rates for corporates and developers amount to a tax on savings and labor repression has caused wages to grow much less than productivity.
Whoever said that China would never be able to practice Capitalism at the same level as America - it sounds like they have it down perfectly!