Daily Market Recap 06/30

---------- Foreword ----------

Thanks for cruising by to read. Posted daily, just after the close. If you appreciate the effort, don't forget to rec and bookmark the source; JoshSebastian.BlogSpot.com. Enjoi

I have heard people say, "only two things affect price; fear and greed. " Unfortunately, I have difficulty measuring fear and greed on the yahoo message boards (as if). Instead I prefer fundamentals and sentiment. If you can understand and accept that fundamentals and sentiment can sometimes be pitted directly against one another, you'll have a much easier time recognizing opportunity.

I think some buyers may come out of the woodwork for a short time (Blog Found on caps while writing - "Close to short term bottom? Ready for bottom fishing..."). See? When that second bear rally comes (today?) and runs out of steam...you may be sitting on the precipice of one of the next largest drops in stock market history. Sounds radical huh? Well, that's exactly what happened in June - worst June since depression.

---------- Important Crap ----------

We got a higher open then an immediate drop. (I hope you didn't short into the hole because you would have gotten smacked for 1.5% before leverage.) If we manage to close the day up, I'd look for firming support in the indices till more bad news drifts out.

Oil / Gold / Dollar / S&P - This love triangle got uglier (Chart Below) as the S&P started to trade in lock-step. This should show you that NO ONE knows what is going on and is watching everyone else. There are just more risky and less risky bets out there.



So, we can see that as the dollar gained strength (who knows from where) and oil and gold both came down. Actually though, there has been a lot of upward action in oil and gold. If you remember, on Friday I said

"If we have a post correction surge on Monday (maybe Tues), I pity the man caught short.

Gold responded appropriately and futures went through the roof (~$930). (I sold off my calls because the move was big and fast.)

Oil futures were rolling over today, then went nuts, now rolling over again? Time to get short oil for a few days? Maybe. We'll have inventory on Tues or Wed i think. "

All three happened today. I think gold is ahead of itself, but solid. I have no idea what oil is doing, but looks to be softening. Let's see what our Asian and European cousins think tomorrow at the open. The dollar may go up, but can't go far without news. I'm looking for the dollar to keep bottom fishing indefinitely.

As far as the future...I'm in a "hurry up and wait" mode here guys. We're on the edge of the void and not making any strong progress up. I think tomorrow is the last day to make a firm push up. After that, I say bright red falling candles without good news. Take a look at the chart below. See how big financials have become? We got that good at making money by moving money around? Well...mix inflation and inappropriate risk and I think we have quite a while to fall....just...how fast?



---------- Random Crap ----------

Gone Pro - Well, things finally came to a head with my employer. Not to get too into it, but I was denied a scheduled raise after the date it was supposed to begin. My boss' answer was "Let's talk next quarter." Well...that was today. He did not wish to make the situation right in any way shape or form, despite accepting my labor for the last quarter. So...I packed my desk and rode home. :D So let's watch to see which option would have been the more economically efficient choice for my former employer.

Unfortunately, I think I'm going to have to sue for breach of contract (bummer). Nevertheless, I had been cutting my bills, shifting funds and planning a vacation in preparation. Also because the company (not public) is starting to have cash flow troubles. Yikes!

So long story short, I'm going to try to go "semi-pro" trading and either travel or get a part time till school starts. However, if you know anyone that might be interested in spending some time at my beach apartment in San Diego this summer, talk to me...I'd rather travel.

The Inflation / Deflation discussion - is happening in many places at once. I'm going to add my comments and be done with it, for now.

What if there is a drought while it's raining?

Imagine a global slowdown where commodity prices are decreasing. Furthermore, imagine a country which manages to carve a niche, and keep thriving. Within that country, they decide to increase their monetary base. They decide to INFLATE despite prices falling around them.

The word for that would be....? Deflation by default? Hardly.

But, if inflation can be a global problem, I'd love to hear about how.

The U.S. is in a deflation (with global "price inflation")
This deflation is specific to the U.S.
This deflation is NEW. ("Credit Contraction", "Squeeze", "unwind" - Inflation?)
This U.S. deflation will not cause commodity prices to fall. Unless...
The world follows the U.S. into a slowdown.
Thus...this deflation may have compounding effects for the U.S.
The global slowdown scenario would cause commodity prices to fall.
We would then be in a GLOBAL deflation, but we aren't now.

SOLD TRA 55 CALLS (+~30%, Stopped out, Then TRA fell apart WTF? If no bad market news, this is GREAT buying op. IMHO.)

BOUGHT EWZ 90 CALLS (-9%)
BOUGHT USO 113 PUTS (+8%, Pray to allah for me.)
BOUGHT XLF 20 PUT 01/09 (-3%, OK, I paid for nothing but time here...6 months! Whooo!)

SPY 135 CALLS (-~50%)

I'm also screwing with some covered calls and puts. I'm just not getting into it until I quit experimenting.

Market Recap 06/25/08

---------- Foreword ----------

So, I really don't feel like writing much today. Today is basically like reading this week's posts; "New [Old] Crisis Threatens Healthy Banks", "I can't imagine what would lift the dollar, so I say we fall through 73 if we don't get news out of the fed soon.", "I'm guessing it will take that dollar drop I'm looking for to set gold in motion.", "USO (oil futures) have been building a base around $110....the futures guys, just aren't spooked....but if support doesn't deteriorate tomorrow, I'd get long."

As for me...I only trade macros, funds, indicies, etc. For those of you who feel that applying macros to individual equities is a good move...I hope you made some good moves. :D

---------- Important Crap ----------

You just read it. We'll have some great analysis and feedback tomorrow. Come on...after today...I promise!

Oh...Energy sold off hard today despite a rally in oil. So...wait...oil went up and the alternatives went down? So watch for big upside in energy perhaps tomorrow or first thing next week.

---------- Random Crap ----------

Uh...I've been making more trading than working...I'm thinking of going pro. I decided to buy a plane ticket home to Indiana for the 4th - you're allowed to have fireworks there - then look into taking the series 65 before school starts again in the fall.

Oh yeah...
SOLD - SPY 138 CALLS -20% (no apologies this was the hedge)
SOLD - SPY 126 PUTS +36%
BOUGHT - SPY 135 CALLS (What? They were on sale...and you know we're going back to S&P 1300 b/c of the non believers)
SOLD - USO 109 CALLS +~30% (could have been 60%, but let's not be piggy.)
BOUGHT - EWZ 95 CALLS

GLD 86 CALLS

Market Recap 06/25

---------- Foreword ----------
Busy day, a lot of news, long post. Especially Oil and a special section about Inflation / Delfation. No apologies though, I cover the macros. You can't game 'em and everything else is dependent upon them.

---------- Important Crap ----------

Interest Rates - The fed funds rate is at 2.00% and the discount rate is 2.25%. Fed says that downside risks to growth had diminished since its last meeting, but the upside risks to inflation have increased. Comments: I think the fed is high, but they might not get the next slap in the face till spring 2009. So...if nothing terrible happens...look for a rate hike..the correct choice regardless of the growth scenario.

Dollar - Opened slightly lower, but above 73. Still trading in range before the fed. Post Fed: The dollar didn't take off (and looks to be rolling over) despite the harsh language. The lesson I'm learning is talk didn't do anything. I still think - as more bad news trickles out - we'll fall through 73.

Oil - The Energy Dept stated Oil inventories up were up 800,000 brls. The first increase in 6 weeks. Comments: This news sent the USO off a cliff and the markets flying. (I'm still waiting for the fed at this time, but doubt a change, and doubt the impact of words.) All in all this is pretty funny. Marketwatch is reporting in big bold letters "Supplies Surprise Hit Crude." Was it really a surprise? Remember on the 06/18 Recap, we talked about how "Oil inventories are down again, but only by 1.2M brls. There is an emerging trend of smaller inventory drops." Where you at MarketWatch? Well, smaller still, so that there is now an increase in inventories. (Awesome graph at Bespoke) Keep in mind the increase is only 4% of a day's supply and supplies have dropped 25M brls in the last few weeks. I am a peak oil believer, but believe this may be a supply / demand "cusp." Watch for either an oil drawdown next week to signal continued demand or a second larger inventory increase to signal continued weakening U.S. demand. In disclosure I'm long oil now. I said I was staying out till after the Saudis and the inventory announcement. I picked up some USO $109 calls after the dash for the door this morning.

Durable Goods Orders - Excluding the 2.6% rise in transportation orders, orders for durable goods fell 0.9%, matching expectations in the market. Excluding the 10.9% rise in defense orders, total orders fell 0.6%.

Department of Commerce said May new home sales fell 2.5% month-over-month on a seasonally adjusted annualized basis, which follows the upwardly revised 4.8% gain in April. Comments: Falling prices and falling sales. I bet you didn't learn that in Econ 101. Hmmm? What do you mean there's no model for the market behavior or the largest personal asset class in America? LOLs

Monsanto profit up 42% to $811 million, or $1.45 a share, from $570 million, or $1.03 a share - Comments: Then the shares took a 5% swan dive. I'm not sure if the market is done punishing MON, but I think this is a hell of a deal.

Interest Rate Hike Chicken - Was today won by Poland, who's central bank hiked key rate by 25 bp to 6.0%. For those of you keeping score at home, that's Mexico, India and Poland all hiking in the last three business days.

Approval Is Near for Bill to Help U.S. Homeowners...... - Comments: I hoped this was a non-starter. "would allow qualified owners to refinance into more affordable, 30-year fixed-rate loans with a federal guarantee." Great, lock them into overpriced homes while Joes with cash get better deals next door. Maybe their neighbor will quit paying his mortgage too so he can get a great fixed rate government loan. Maybe they'll figure out they've been duped, they'll foreclose on their home and we - the tax payer - will pay off the "guaranteed" loan. Then, Wall St. still gets paid for their screw up, and the homeowner can go shopping for something new...maybe even his old house. However, he can't get a buyer's credit because he's not first time...bummer...even if he could, he can only use it on an unoccupied home. Great Idea! Now lets see how it works in action!

Warren Buffet Warns of Stagflation

EIA: World energy consumption may rise by 57% by 2030. - Comments: Golly, really? Don't tell the oil bears!

EIA: World oil prices may hit $186 a barrel in 2030. - Comments: Well, now that I know it's only gonna go up 50$ a barrel in 2 years.....I'm gonna buy that hummer after all. (Note: This is why you do NOT use economic models for 20 years out.

Countrywide / BOA - Attorneys general from two states filed separate lawsuits against Countrywide Financial Corp. and its chief executive on Wednesday, the same day the mortgage lender's shareholders approved the proposed takeover by Bank of America Corp.

AmEx: Lates rising faster than expected

---------- Random Crap ----------

Yesterday I mentioned I though the U.S. was now in a deflationary period. The comments touched off a discussion and some confusion. So, I'm going to try to summarize what I've seen and keep tackling this Inflation / Deflation issue. My deflation opinion has largely been formed by Mish (Inflation / Deflation).

I think in true Mish fashion we should understand the difference between inflation and price inflation. The difference between credit and money and decide if credit is included in our inflation count. I do count credit and will begin trying to use each of these terms appropriately. If credit is increasing people have more to spend and push prices up accordingly.

DemonDoug has said that when bank issue loan the money is "created out of thin air" and I agree that credit is created out of thin air. He goes on to say "When the borrower pays back the loan, that money that the loan created is now destroyed. When a loan is sent out, but then is not repaid, then that money that has been defaulted upon, but the money stays out there in the netherworld of the financial systems of this world."

Sorry D, I don't subscribe to that last part exactly. When the credit is FIRST created to issue the loan, THAT is the inflationary point, regardless of whether the loan is defaulted on. If the principal of the loan is paid down or paid off, that is the deflationary point. So in 2005 when banks created credit, flipped the loan and repeated the process, THAT was the inflation. The current defaults, by definition, cannot be inflationary, because the credit has already been created. It's not created again during a default. If anything I would say the created credit acts as a supporting base if anything.

Second, I believe everyone has to play along with the game for occasional "inflationary" defaults to work. Defaults should be low, risk/reward should be appropriate and assests should be fairly priced. Again, look at homes...that is the beginning of one movement (dropping prices) and the end of another (cheap money). Once everyone realizes the jig is up, they bail. The credit wealth is destroyed.

When a $100 loan is first going into default, yes the bank has $100 of illiquid assets created from thin air on it's books. Then at default that "$100" asset is sold off for...let's say $50 (but you know more like $10). So now the bank gets the $50 which goes on their balance sheet accordingly. That too is deflationary. The bank has revalued the asset and the new owner has revalued the new asset. Wealth was destroyed because the market has simply devalued your asset (the loan). Some other sucker now has some asset for which he paid $10, but I'm not going to say he's got $100 on his books, or in this economy. Period.

I realize your opinion may be that the "money" - created by overvaluing these homes and issuing mortgages - is still in the system. So I ask you...where is it? Whose is it? When will they get it? How will they get it?

Simple answer...because no one will pay those prices for homes...it's gone. Don't believe me? I don't blame you. I featured this on 06/05.

"WASHINGTON (MarketWatch) -- U.S. households lost $1.7 trillion in wealth during the first quarter, as the collapse in the housing market and a weak stock market took their toll, the Federal Reserve reported Thursday.

Net worth had grown by more than $20 trillion from 2002 through the end of 2007, as home values and the stock market boomed.

The net worth of U.S. households and nonprofits dropped at an annual rate of 11.3% in the quarter to $55.97 trillion. It was the biggest drop in wealth since late 2002."

Sorry, that just doesn't sound inflationary to me any longer. It's the difference between credit and money and credit is getting destroyed. I'll have to compare iTulip's perspective to Mish.

As for the commodity bubble, I believe it is a global market and the U.S. will have trouble fueling it. Unlike the housing bubble, a commodity bubble slows the economy. I just think demand is pushing commodities up...some too quickly.

abitarecatania, I see your mish post, and raise you a mish post - Now Presenting Deflation.

AnomaLee, "since the inception of the Federal Reserve." - Perhaps you missed where I said that I believed we entered deflation recently. When home values started dropping, everyone started reeling the money in. True, there is the fed and they're a pain in my side, but they're just loaning - indefinitely - for now. Say what you will about the treasury also...they're not writing the checks, just printing them.

Market Recap 06/24/08

Thanks for cruising by to read. Posted daily, just after the close. If you appreciate the effort, don't forget to rec. Also, the caps blogosphere is getting crowded and my posts are getting pushed down within an hour, so bookmark the source; JoshSebastian.BlogSpot.com. Enjoi

Foreword: I'm still tweaking the format so bear with me. I think I'm going to do a foreword, cite my sources & add in some commentary, then put off-topic and random crap on the bottom. Eat what you like, leave the rest. Also, since I officially got rejected by the Fools, I think I'm going to start discussing more specific trades and such. At this point...I don't really think anyone knows what the hell is going on in the market. So...anyone who has any short-term conviction is probably a fool. The reason I say this is the tug-of-war going on with oil. There is a HUGE bear camp and a HUGE bull camp, both of which are certain of their thesis. The only other sentiment gap this large, that I've witnessed, was housing. My point is that if there were ever a time that oil SHOULD have gone down...yesterday and today were that time. China fuel price increase, Saudi production increase, speculation crackdown chatter, futures traders cutting their longs, etc. Thus, I think the bulls may get proven correct, again (watch for action tomorrow on inventory news). USO (oil futures) have been building a base around $110....the futures guys, just aren't spooked....but if support doesn't deteriorate tomorrow, I'd get long.

Dollar - The dollar is banging around between 73 and 73.6 with nowhere to go. Watch for some action here soon...I can't imagine what would lift the dollar so I say we fall through 73 if we don't get news out of the fed soon.

Gold - Futures up slightly. Everyone seems to think the dollar is the ULTIMATE gold indicator...so I'm guessing it will take that dollar drop I'm looking for to set gold in motion. (Wait till they find out gold will keep going despite a low but firm dollar.) I'm still long gold via GLD $86 Calls. I rolled into the $86 yesterday and out of the $88 Today. Go me.

Oil - Futures down slightly. The USO is all over the place, but closing down with $110 being what I'd call a median price over the last couple weeks. Watch for big moves on inventory news tomorrow.

Inflation - I know everyone thinks we're headed for the worst inflation ever. In terms of price inflation...maybe...if the rest of the global economy keeps kicking our a$$. In terms of money inflation....no frickin' way. It's being called a credit "CONTRACTION" for a reason. Money is getting sucked OUT of the system. We've been inflating for a while, this is the great unwind. All of you who are shouting about M3...those are SIVs coming back on the books guys. Think about it...is credit cheap right now? No! But your dollar isn't worth crap either.

Consumer Confidence - Falls to lowest level since 1992 (Wait...wasn't that an election year too?) I really don't put much faith into these. This is the same consumer that started racking up debt on credit cards once the home equity lines closed. The same consumer that said they'd save their rebate check, but spent it at best buy.

Case-Shiller Index - Says home values fell 15.3% YOY, the most since the private group began keeping year-over-year records in 2001. Home prices losses have now wiped out 4 years of gains. Guys, if you've seen this graph and still think we're headed for a quick rebound...we need to have a talk. (Check out the whole series)

http://farm4.static.flickr.com/3175/2570213765_f0b0de60a5.jpg?v=0

Interest Rates - Are what some people are saying is pushing the market up. That the fed would have to be high to raise tomorrow....but I'm in cash on the S&P front. It's hard to say what might happen tomorrow. Perhaps S&P up on news of no rate hikes...but I thought that was a forgone conclusion. Maybe the case-shiller data sealed the no-rate-hike deal. My guess is a drop though 1,300 on the S&P soon, then back to speculating over rates....cause the news is just gonna get worse kids.

Interest Rate Chicken - Was won by India today, who raised interest rates "to 8.5 percent from 8 percent" and reserve requirements "to 8.75 percent from 8.25 percent" (reserve requirements, what's that?) So now we have Mexico and India who have hiked due to inflation worries...keep watching!

Dow Hikes Prices, again (25%)

UPS - Is Warning of "Anemic" U.S. economy.

Mish is reporting cases of non-paying home owners remaining in their homes more than a year late, yet banks will not foreclose. Also a homeowner begging for foreclosure on his condo. Great Stuff.

"There can only be one of two things happening here, neither of which is any good.

• Banks do not want those foreclosures on the books right now because they will have to report them. Better a delinquency than an REO?
• Banks are so backed up with foreclosures and REOs, and they are so understaffed in processing foreclosures and selling REOs, that they do not want to take on any more."
  

CFTC plans more oversight of foreign exchanges - (Yawn) Wake me at "cheap" oil, will you?

NYSE buys 25% of Qatar's Exchange Market - It's about time we started buying Arab assets. Someday soon people will realize how undervalued these exchanges are. Oh well.

Market Recap 06/23/08

Thanks for cruising by to read. Posted daily, just after the close. If you appreciate the effort, don't forget to rec. As always, crossposted on JoshSebastian.BlogSpot.com. Enjoi

I'm robbing a couple great Bloomberg articles for the energy segments below (Crude Oil Falls on Saudi Production Pledge, Saudi Arabia Boosts Oil Supply). I know it's a lot to read and I hope I don't get off on a useless tangent, because I'm taking the leash off today. If you're not into rants and energy just skip to the "Dollar" section now. Lastly I want to offer an un-apology for covering oil so hard. Energy and tension will unfortunately dominate the markets until writedowns and housing take over again. Sure I could talk about the coming writedowns, but then I'd be forecasting and you wouldn't believe me anyway. :-P

There has been a lot of chirping lately on the blogs about oil speculation and price. I'm simply not going into the logic of why this is absurd, again. I apologize if you bought this excuse from OPEC, the politicians, Ahmadinejad and the like. I'm not going to preach. I just want you to think about WHO is using this reason and WHY. If you are short oil and hanging your hopes on speculation alone, I would advise you to think. Otherwise high oil will most likely continue taking your money in the market and out as it has for the last 5 years. If you have the heart, go put a red thumb on USO and put a comment below stating as such and I'll see you in a few quarters. Wait...this just in...

Blame the Speculators! - "The number of outstanding crude futures contracts in New York fell to the lowest in almost 14 months last week as commercial traders and institutional investors exited the oil market." Comments: So...you spooked them out of the market. Where's my $100 oil beeeoooootch!?!? Oh...Oh wait...Oh...so sorry...there goes YOUR thesis. Maybe Ahmadinejad will come on CNBC and give you some new investment ideas.

"Analyts" say gas could drop $2 if congress acts - Well cool, I'll buy some $100 oil puts with the money I get from selling you a bridge.

Saudi Oil Production - Will be increased by 200K brls to 9.2M brls. per day. Saudis: "prepared and willing to produce additional barrels of crude above and beyond the 9.7 million" AND "The kingdom will also increase its daily production capacity to 12.5 million barrels by the end of next year. " Comments: As a believer of peak oil, I call B.S. on that last number, so mark your calendar. The better they get at pumping it, the quicker they'll drain it. Some say this increase will do nothing but create backlogs for the refiners. To put it in perspective. 1. If we (U.S.) consumed ALL of the Saudi's daily oil, it would only cover half of what we use. 2. The increase is only ~0.25% of daily global consumption. Expect an appropriate price drop. Get it?

OIL Dollars - Unfortunately many are also getting confused about oil trading in dollars. "Well, since oil has risen X and dollar has fallen Y then we're paying X+Y more. NO! Oil is priced in dollars, so the price is the price. If oil was priced in gold, this logic would start to work. Until then, STOP USING IT. The dollar is up today, oil is up today. There goes your thesis.

Will oil trade in inverse to supply as we all learned in 101? We'll see, but even the president of OPEC says "I don't think so." Ballsy huh? It's interesting that Saudi Arabia is going against what OPEC wants...and Libya is shooting off at the mouth about a decrease. Please...take it while you can get it boys. I'm not sure how much oil the Saudis have, but I think once they saw U.S. consumption decrease, they came to Jesus. I'm still long-term long on oil and energy and looking for chop soon.

Dollar - I think the dollar may become the hot issue again. The dollar index was still hovering around the 73 support level pre-market and seems to be bobbling between 73-74. This level is only ~2% off the historic lows. If the economic numbers keep turning up less rosy, foreign investors may begin to smell blood. I simply can't imagine what the feds next move could be, but if the dollar keeps moving up on talk, talk is all they have to do, for now.

Gold - Futures down 2% on no news (dollar up).

Solar - MIT prototype solar dish tested "inexpensive aluminum tubing and strips of mirror, concentrates sunlight by a factor of 1,000--creating heat so intense it could melt a bar of steel." Comments: Check out the videos and pics. Maybe I'm high, but commercialization of this simple concept could be a game changer for rural emerging economies.

Bond insurers seek to cut $125 billion in guarantees - Comments: Hmmm...I wonder if they're worried about their liability increasing? Nah, it must be something else. Like...

The Washington Post is reporting on a "New [Old] Crisis Threatens Healthy Banks" - It seems "Late payments on home-equity loans are at a record high. The delinquency rates on loans for cars, small businesses and construction are spiking to levels not seen in a decade or more." Comments: Yet we still spent our tax money on retail. So, you can either remember that adage about never going against the consumer, or bank on the irrationality of the consumer. The choice is yours.

Citi to cut up to 10% of Investment Banking Staff

Goldman may also cut up to 10% of Investment Banking Staff - Comments: Bad year for the bankers huh? Oh well, I'm looking for a sailboat on the cheap.

P.S. and Off Topic - The Fool asked me to apply to write for them a couple months ago. I applied and was officially denied today. I'm not upset, but a little disappointed. I may consider summarizing here and commercializing my personal blog. Also...Epic Weekend. Good Friends, Fried turkeys, Turkish women, BBQ, kegs, band, country women, beach, desert, pools, hot tubs, quads...wow! "Just another Sh$tty day in paradise"

Daily Market Recap 06/20

Options Expiration Day? Futures Expiration Day? - You bet, quadruple witching. Oil opened up 3% on no news. Markets opened down 1% and kept falling. Dow Under 12,000 and looking ugly. Dollar fell through support (73.4) pre-market, and is resting at a new support of 73. Gold up for now. (You hear me Cow?)

Oil - WTF?!?! Despite thinking oil prices would be calm until the 22nd, Oil futures were up 4% this morning on no news. I guess the 22nd is a Sunday...so maybe that was dumb, but...up 3% on the possibility the Saudis will raise supply...a day after china raises costs 17%? Something odd is going on with oil. I don't yet believe Goldman Sachs' greater price = more refiner demand theory and until I understand it I'm not playing it. There is simply a major tug-of-war going on between two sides of the same coin.

Fed leaves window wide open - (Via Bloomberg) "Funds provided through the discount window for commercial banks rose by $223 million to a daily average of $13.4 billion, still below the record $16 billion two weeks ago." While this isn't huge news one way or another, it's just obvious that the solvency problem remains. There is no exit plan by the banks or the fed. When this comes to a head it will probably be ugly in some way.

Interest Rate Hike Chicken - Was won by Mexico who raised key interest rate by 25 basis points to 7.75%. I must apologize I thought for sure it would be someone in Europe. LOL

Ford Rating Downgraded - Gee, thanks for the heads up Moodys! Where were you at $3 gas? Watch for more of these as the "wizards" and "analysts" catch on.

The case of fugitive fund manager Sam Israel takes another turn for the weird as his girlfriend is arrested. (Raise your hand if you didn't see that one coming.) Oh well, "Jail is Painless" Ha Ha Ha

I hope all of you had a successful week. Have a great weekend. I'll be frying a turkey for a friend's b-day. (You didn't know we rolled like that in SoCal huh?)

:P

Market Recap 06/19/08

Initial Unemployment Claims down by 5K - OK, a drop is a drop. However, to put this in perspective, it's a 1.4% drop. The 4 week moving average hovers around 370K. Today's number was 381K. Next week's number could potentially be important as it may indicate the beginning of a downward trend (doubtful).

Paulson Asks Congress a power grab - Finally says something semi intelligent to back himself. - "Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk but ... the Fed has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system," I agree, sorta. The administration seems to think overspending and expecting the reserve to clean up the mess is an acceptable "solution." Or, that no oversight then calling a bubble correction a crisis is acceptable. To be clear...congress doing anything - especially giving Paulson more power - will most likely just prolong this deflation and generally be a bad idea.

Citi announces it may make "substantial" future markdowns - Oh?

Oil - Falling (~3.3%) on China increasing fuel costs. "The increases represent a 17 percent gain for gasoline and 18 percent for diesel." Yesterday the U.S. pushed the market up and the world brought it back down. Today we got that drop in the USO I mentioned yesterday. Oil price volatility will probably remain subdued in the run up to the 06/22 Saudi announcement. A brave man might even think about buying an options position straddling oil...because I think we're in for some chop. Remember if the Saudis go big, they're shooting themselves in the foot because they'll get less $ per barrel.

The Dollar - Is going to be interesting soon. After testing support yesterday, it fell through after hours, was brought back to life pre-market, and is currently sitting on a short term support line (73.4).

Gold Up Slightly (~1%) - If the dollar breaks through lower support expect a surge in gold.

"Big Oil" returns to Iraq (Via NYT): "Exxon, Shell, Total and BP — the original partners in the Iraq Petroleum Company — along with Chevron and a number of smaller oil companies, are in talks with Iraq's Oil Ministry for no-bid contracts to service Iraq's largest fields" and "The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India." (closes his eyes and waits for backlash)

Cool new wind ETF (FAN) Launched yesterday. - "The index is a modified market capitalization weighted index of publicly traded companies throughout the world that are active in the wind energy industry based on analysis of the products and services offered by those companies."

Two former Bear Stearns fund managers arrested for fraud - Well...someone has to be the scapegoat. Because in that case, Mozilo is the first on my lynch list. The feds also charged about 400 people with mortgage fraud in "Operation Malicious Mortgage." I guess they've never heard the expression; Too Little Too Late.

Lastly, there were some major whipsaws in the market today. My S&P put options paid off then got stopped out (thankfully).

Market Recap 06/17/08

I'm going to try to keep up a daily recap for a few days and see how it goes. I'll be posting here and cross posting on JoshSebastian.BlogSpot.com. Just check my blog shortly after the market close and it should be waiting for you. Primarily I'll be concentrating on macro economic trends and providing commentary on news. If people like it, rec it, and I'll keep it up on caps. If not, I'll just post on my personal blog only and you can find it there.

May building permits fall 3.3% to 17 year low - Nothing to say there.

U.S. PPI up 7.2% in past year - Most of that hasn't been passed down the supply chain yet. Neither have the petro prices factored into good. So unless retailers and vendors can pass it on (very doubtful), look for some retailers to go under as they get squeezed. This news also pushed the dollar down. The effect was seen as a rise in gold, but not seen in oil (showing short-term weakness or consolidation perhaps?).

May industrial output down 0.2% - It's not much, but we were still contracting (read: receding (read: recession)) in May despite what spending may say. "Output at the nation's factories, mines and utilities fell in May for the third month out of the last four"

Goldman Sachs reports profit off by 10%, still beats expectations - Goldman could be the new Bear Stearns. No, not that Bear Stearns, the OLD Bear Stearns that kicked A$$ and took names. As many of it's peers crumble, GS is able to keep pulling it off. Watch for the others to report to see just how well GS is holding up comparatively. This may not be a hot bet though as goldman is staying alive, yet contracting.

Goldman - also made a point of saying that March was the low point thus far in the credit crunch. Thus, they and a lot of other people know something the equity market does not. Do you know what it is, I do.

Goldman - lastly said banks need to raise more cash. Gosh! Really? The govt. has reported we've lost $1.7T worth of wealth. However, the banking industry is still leveraged up and unwilling to report anything close to $1.7T in write-downs....as long as they have access to the fed window. As I've said before, Its about Solvency.

Paulson says U.S. & China face energy inflation challenges - Too bad no one told him China still subsidizes fuel...or that the Yuan is appreciating. Oh well.

Oil down slightly (on growth concerns?) - To be clear, reports are saying oil is falling on growth concerns, I'm not saying anything. Lately the U.S. investors have been pushing up the oil futures during the day while Asia and Europe bring them back down at night. Prices are starting to align today however..which could mean the beginning of a move either way. My guess would be up, but between the CFTC speculation report and June 22nd OPEC meeting, I'm holding cash.

Anoter OPEC country oil minister says oil price too high - Man...these guys talking about high oil problem is like the U.S. talking about a low dollar problem. Just talk. Until I see some production increases from the Saudi's or the Kuwaiti's (YAWN)

Things may be getting shakier for Europe & the Euro - Mish is reporting Support for euro in doubt as Germans reject Latin bloc notes. Not only are divisions growing in the EU, but the European Central Bank and the Fed are starting to diverge in their paths also. Bernanke is VERY low on options for an exit strategy. Keep an eye on this one! Again, Its about Solvency.

Evergreen Solar upped guidance by more than 10% - Solar provides just a tiny percentage of our energy, but is one of the only viable solutions. Though solar stocks are very volatile, I would expect this trend to continue long into the future. If so, expect exponential growth in solar for years to come.

Executives at U.S. commodities exchanges warn regulation may push investors to less regulated exchanges outside U.S. - Gee no one saw this coming; Lieberman's Speculation Regulation Farce...and they're correct. The U.S. cannot regulate a global market, but it may be fun to watch them try!

McCain: Drill Offshore - First, I'll say that I don't think it will do much good. Second, I couldn't care less, other than the potential effect on my trading.

Ford idling more plants longer, still paying employees under union agreement - Well...it's a step...I think.

Strong Dollar Jawbone

For as long as I've been watching the dollar slouch, I've never heard the Bush administration say peep. That is...until now. Today Mish wrote a great post "Paulson will not rule out stupidity" covering the AP article "Administration does not rule out currency intervention."

"As he left for Europe, the president said the U.S. is committed to keeping its currency strong, a point he clearly felt needed to be made after the dollar's long slide against the euro and other international currencies.

"A strong dollar is in our nation's interests. It is in the interests of the global economy," Bush said outside the White House."

Golly, that's not what Benny said under oath a while back (but has seen the light). Mish was quick to point out, and I agree, that goal would easily be met by balancing the budgets and bringing the military back to the U.S. Instead it has seemed the administration would rather Paulson and Bernanke try to fix our overspending problem with fancy math...until now.

"For seven years, the administration has refused to intervene in currency markets, even though the dollar has been sliding in value for most of the time Bush has been in office. The administration has insisted that currency levels should be set by free-market forces."

Why now though? Why after years of a falling dollar would Bush finally say something? Is this critical mass? Perhaps. Like I have said before Its about Solvency, not liquidity. So despite firing up the printing press, lowering to 0% and letting anyone pawn junk at the fed window...We're running out of options, Benny now knows and apparently so does Yahoo News.

"The government has limited options for propping up the greenback, especially in an election year with rising unemployment, slumping consumer confidence and the worst housing market in decades."

Paulson however has not caught George and Benny's reality bug yet because he's still acting like he has moves rather than just overtly jawboning.

"Paulson declined to rule out direct intervention — the buying by the government of dollars in currency markets — as a way to influence the currency's value."

HA HA HA HA HA HA BUY WITH WHAT YOU MORON! Borrowed Money? Gold? Petro reserves? Trade them for Goldman and Merrill? Sell out our children? Oooops. Check. The point is; Benny the academic now gets it. He was convinced he could turn on the monetary spigot and make magic...and it worked! What he didn't consider in his academia was an exit plan. So now here he is stuck still doling out cash - caught in Wall St's revolving door - because they refuse to acknowledge and write down their toxic pools. If you cut off their methadone, some will die and chaos may ensue. Think of the lengths we went to prevent that - (BSC). If we force their hand, some will die and chaos may ensue. However, you must consider that regulation forcing transparency is perhaps Benny's only move. Otherwise he'll be swatting flies from the window forever.

So let's review.

Goal:
To raise the value of the dollar.

Conditions:
1. Flat Economy
2. High Inflation
3. Falling Dollar
4. Raising unemployment
5. Low interest rates
6. Low consumer confidence
7. Low exports
8. High energy imports

Options:
1. Raise Rates
2. Borrow it from China
2. Print it

Here's to your "second half recovery" boys!

Crying to the CFTC over Oil Speculation

From the NYT: Commodity Policies Set for Revision

The chief regulator of the nation’s commodity markets will unveil early next week a set of policy changes to address public and political concerns that market malfunctions may be contributing to rising food and energy prices.

The agency has been wrestling ... over ... demands that it examine the role that new financial investors are having in the futures markets, especially those who are investing through commodity index funds.

Unlike traditional commodity investors ... these index funds do not both buy and sell commodity futures — they only buy, reflecting investors’ desire for a stake in a rising market.

That lopsided trading pattern has generated complaints

My comments: US leadership is obviously looking for a quick fix rather than examining and acknowledging the supply and demand concerns. After all, they wouldn't want anyone buying goods (on paper or not) and pushing the price up for the masses. That would disrupt their electability and their view of the delusional utopia.

As commodity prices have risen over the last several years, these funds have become an increasingly large player in the commodity futures markets, rising from a stake of roughly $13 billion in 2003 to an estimated $250 billion this year.

My comments: It would be nice if someone included what portion was devoted to oil. I've now seen these numbers in NYT, BusinessWeek and at least one other publication. The point is; as the world's consumption explodes are all these "speculators" wrong to chase rising oil? If there is an underlying asset with value, is it really speculating? When oil futures contracts are trading higher into the indefinite future (in contango), is buying oil speculating? I don't know, but here is something to consider....

The world consumes more than 80M barrels of oil per day. At the current price that is about $8B. Using the $250B figure above (which is obviously wrong) that yields 31 days of oil. The next best figure is in Michael Master's testimony to the senate. He says over the same period of time the demand for oil by speculators was 848M barrels. Enough to quench the world's thirst for a little over 10 days. OK, so let's stay on this road and blame the speculators...where did their oil go? They demanded the same increase in oil as China (according to Masters). Surely they must have it stored in tanks under Manhattan?

Of course not, their money is in money on paper. Since you can't write contracts on something that doesn't exist...the speculators are indefinitely "rolling over" their money into oil contracts for a future delivery - sometimes years into the future. A "virtual hoarding" of "future" oil perhaps, but based on the reality of today. At some point every "speculating" oil fund must either sell it's futures or take delivery of oil. As I have yet to hear stories of oil trucks unloading on Wall St., I must assume the "speculators" have had no trouble unloading their contracts to actual oil consumers, at actual oil prices...whatever that may be. The point is, if oil funds suddenly faced delivery of a few thousand barrels of oil, they would; 1. Cut the price in a hurry to unload the oil 2. Consider the wisdom of investments in new oil futures. Neither of those two things are happening or will happen till the global demand wanes.

Therefore, you'll have to excuse me for thinking speculation is not playing that large of a role in the world's oil price. This trivial witch-hunt - along with the "big oil" witch hunt - only underscores the fundamental problems that government has been unable to acknowledge. Simply, they are unwilling to acknowledge and deliver the bad news that the U.S. is addicted to cheap energy.