Tuesday, July 08, 2008

Fed Power Grab / Alt-A Repackage

Unfortunately Mish beat me to posting both of these, but here they are.

1. The fed is trying to make a huge power grab to "fix" the mess they helped create.
2. Toxic CDOs are finding a new home under a new name "re-remics." Beware.

Thursday, July 03, 2008

Daily Market Recap 07/03

Posted daily, just after the close. If you appreciate the effort, don't forget to rec or bookmark the source; JoshSebastian.BlogSpot.com. Enjoi

OK, so the market opened drunk today and stayed that way. People seemed to be selling anything with a bid. S&P down, gold down, oil down, alt energy down, financials up!?!? Who are these people? Basically everything was everywhere and I almost don't want to acknowledge the ignorance except to be aware of it. If we close up, look for buyers to be waiting with cash-in-hand on Monday (with the exception of terrible news or an attack on Iran).


Interest Rate Chicken was today won by the EU - who hiked from 4% to 4.25%. If you're keeping score at home; that's India, Taiwan, Mexico, Poland and the EU. Again, price inflation cannot be global. The U.S. interest rate is basically being lowered by default.

The U.S. led into the credit crunch. The EU then caught the flu. Now that the EU is leading the rate hike charge, it should be interesting to see what transpires. Will a rate(s) hike cripple EU growth? I seriously doubt it. Other than Spain and the UK, it seems that Europe missed this credit / housing mess. If you have rising prices and a decent economy, the proper move is to hike and defend your people from inflating prices - created by the global market. The EU cannot make gas cheaper globally...it can however make it cheaper for it's people. Which in turn makes it more expensive for others. Remember...The U.S. interest rate is now being lowered by default.


Unemployment - Payrolls fell by 62,000. Unemployment at 5.5% (only, really?). Somehow the futures jumped on this news. (Update: U.S. stock-index futures gained on speculation the Federal Reserve will hold off raising interest rates after a government report showed a decrease in jobs for a sixth straight month.) Again, there are fundamentals and there is sentiment. Notice the difference? How does more unemployment = equity growth? Ignorance.


The Dollar - Also spiked upwards (~72.4) on the jobs data. I'm not sure what the assumption is here, but it can only be temporary at best. The dollar also spike because the EU signaled it would not raise rates further. So make sure you understand this. There was already one EU rate hike baked into the dollar. So today when we got word of no future EU rate hikes the dollar spiked....even though the monetary effect has not yet hit the dollar. In relation to the EU hike, the correct direction for the dollar is down.


Hopefully no one got burnt on the falling knife that is Monsanto. I'm starting to salivate over MON, TRA and MOS. The market has made them whipping boys without cause. I think the same is true for alternative energy. So mark your shopping list, but don't be a hero. (Update: These all rolled over and headed upwards. Praise the man who caught MON from $116-121 within an hour.)


That's it! I'm going on vacation.

Tuesday, July 01, 2008

Daily Market Recap 07/02

Posted daily, just after the close. If you appreciate the effort, don't forget to rec or bookmark the source; JoshSebastian.BlogSpot.com. Enjoi

The other day I found myself typing "The S&P closed at" and thought; WTF are you doing? Only now have I realized the significance of a daily trading journal. However, if I merely regurgitate the numbers, I'm going to lose sight of the big picture. So I apologize in advance for only giving you my jaded perspective. :)


Waterboarding - I know the market has been torture and I normally don't cover politico on this blog. However, a Vanity Fair writer decided to be waterboarded in the name of journalism. I encourage you to watch the video.


Oil - Oil inventories down 2.1M brls. This appears to be a continuation of the drawdowns. If you remember last week was only a 800K increase. Therefore this drawdown leaves us with less inventory than two weeks ago. The USO opened at $114, spiked to $116 on the news then fell, then went nuts around 2:30.

Gasoline inventories were up and refinery capacity is about the same. So...we're importing less oil and we're using less gas...but the refineries are operating near capacity....that means the refineries must be purchasing the same volume...but the oil inventories are down....what does that mean?

1. There really is a supply issue
2. The importers are preparing for a demand decrease.
2. Oil is increasingly being used for other uses.


Dollar - Still diving. Looking for a home around 72. I say under it. Again, I see NO events that could potentially stem the dollar's slide. The market may not want to capitulate. However, by the time we raise rates, we'll be late to the party and Price Inflation Cannot Be Global! So we're screwed by default.

This helped gold raise a bit.


Credit / Debit - (Via Bloomberg) ABA says HELOCs are failing at highest rate since 1987. "Home-equity lines of credit at least 30 days past due rose 14 basis points to 1.1" Gee, 1.1% spooky! Now let's compare that to the housing or credit card default rates. More trouble coming ya think?


Jobs - Mish has a great article about a "Downward Spiral" in jobs. Again guys, I just can't see a second half correction here. Once that wage lag hits retail and defaults. WOW. So we may get a slow bear rally. If you get caught offsides and leveraged when we go over the falls, I feel for you.


Fed Gov. Mishkin tells it like it is. - Great Stuff

Mishkin characterized the likely pace of recovery in financial markets as 'slow.'

This 'suggests the U.S. economy will be subject to substantial headwinds for some time,' he said.

"Banks are tightening their lending standards, and conditions could worse again should the economic outlook deteriorate further," he said.

Moreover, it will "take a substantial amount of time to complete the cleanup of the financial mess and to get the financial system fully back on its feet," Mishkin said.

"With housing construction continuing to decline and energy prices continuing to rise, risks to growth still appear, to my eye, to be to the downside," he said.

"Households face significant headwinds, including falling house prices, tighter credit, a softer job market, and higher energy prices," he said.


Paulson Calls for Process to Liquidate Failing Firms - Why would you need this? After all, the worst is behind us. This should show you what a frickin' shill this guy is, despite his seemingly lacking yet verifiable intelligence. Basically now he and Benny need a plan to get their A$$es out of their "open window" jam. Apparently that plan includes taking some companies out back to shoot. Wait...so how do they chose WHICH companies to let fail?


Bush has a trading terminal? - He must, because today just at the dollar was trying to take out Monday's low, he comes out and says his administration is for a strong dollar. Word? That would have taken vetos, no?

We've seen this bluff before...and as Bush says "Fool me once, shame on — shame on you. Fool me — we can't get fooled again." I'm starting to believe that rate hikes wouldn't save the dollar anyway...I'm just not willing to bet against the sheeple.


Curiosity at Bespoke - A reader poll shows 60% of respondents predicting the S&P up at the end of the year, while 92% say home values will be lower. Hmmmm? I'd like to see that thesis.


The Sammy Israel "fugitive hedge fund manager" case ended anticlimactically today as Sam turned himself in to autorities in MA. Better than dude killing himself I guess.


The Oil "Bubble" - Even when I think oil is "overbought," I can't convince myself it's overpriced. The supply / demand gap isn't that big (yet), yet the U.S. is paying significantly more for oil. Therefore, so is some other consumer on the other side of the world....but again, they must be able to afford it because the supply / demand gap has held steady. Get it?

Given that general price inflation cannot be global (think about it) and considering the following; Europe set to raise rates to battle price inflation. The U.S. considering raising rates (2009?) to battle price inflation. Taiwan, Poland, Mexico, India have all hiked rates to battle inflation. How can oil be in a bubble? The only plausible theory for a bubble would be that the rate hikes or something kill global productivity driving down oil....but who the hell hikes on the verge of a downturn?

The problem is Oil has been lumped in with "commodities" for too long. Oil is energy. As such, oil is also the cheapest form of energy. In comparing gold to oil, one should first realize they are both finite, however gold is not
purchased to be destroyed. Because oil is the cheapest energy source and as it becomes more expensive, there are no compelling alternatives but to use less.

Thus, there are the haves and the have nots. As the have nots go without, the haves get less demand to contend with. This may not lead to lower oil prices, but certainly a plateau don't you think? Isn't it obvious that there are emerging market buyers that would love some of your oil...if only the price came down just a little bit.

Sure there are those who say high oil will cripple the markets. NO! High energy will cripple the markets. High oil will lead to a boon in other areas because even if the oil demand abates, the energy demand will not.

Lastly to prove the ignorance of the markets at this time...take a look at this chart...It compares Oil, Solar, Wind. Oil is up, yet solar and wind are down? Hmmmm....I must have been sleepy when we talked about alternatives in Econ 101. These funds MUST rise, otherwise the price and supply of oil will slowly strangle the economy...then they'll rise damnit.


Trading - I'm changing my "rules" a bit. First, no two same way bets (Long gold AND oil for instance as both trade off the $...either one of the other). Second, longer time frames and more patience with specific picks. Third, automatically sell any profitable option position that retraces more than 25%.

MON JUL 130 CALLS (+6%, stopped out. This may seem stupid, but I have a rule about letting a gain turn into a loss. Short-term, could have been more, could have also gotten my head taken off without stop!)

BOUGHT / SOLD KOL JUL 55 CALLS (+35%, This was purchased to hedge an existing loss on KOL...I got lucky quickly, sold it and kept my KOL.)


XLF 20 JAN PUT (-3% - Don't hold your breath)

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Daily Market Recap 07/01

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

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

There's nothing quite like waking up, on day one of your new venture, to find your trading account down 15%. I mean hell, if I was a hedge fund they may have shut me down already. Well, except for last month's profits. :-)

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

Oil - Apparently there was some sabre rattling concerning Iran and Israel that drove up the oil futures about 2%...then back to the flat line...then back up. LOL. I think oil is ahead of itself. I also don't think Israel can strike Iran in the manner they will need to and I don't think they will try until they can get some other folks on board. However, if you're interested in the prospect...go buy some calls a year out for $180 oil. You may just wake up one morning with a lot more money.

S&P - Is trading inverse oil and $ again (Bespoke spotted this too - It's all about Oil). There is no leader in this market. The futures opened lower then headed the other way. I thought this may be the spike, but no. Now that we're here, I'm calling for a gradual rise or more violent pain. Probably the later. I sold my S&P (hedge) calls. Just like I said...if we don't get a surge today, there will be blood. 100+ points on the dow bloody enough?

ISM - (Jacked from Michael Donnelly) "That sure sounds like good news, and many in the media (USA Today) (NY Times) will tell you it's good news. But unfortunately it isn't. " and "Orders were down from a month ago and are still in negative territory. This is now the 7th month in a row that orders have contracted. True, ISM said production was up this month, and that should be encouraging, but it all went into inventory."

There's a post over at The Big Picture,
with two important charts. Chart 1 shows commodities skyrocketing in a parabola. Chart 2 shows analysts flat expectations of inflation rates. The question is then posed, why the disconnect? There is no disconnect. Targeting inflation to a % leads to parabolic inflation.

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

The only game in town - I've noticed this jacked notion that whatever is happening in the U.S. economically, MUST be happening to the world at the exact same time.

This is fun to watch because these people obviously understand globalization and the information age. They just throw it out. People used to say...how can you be short the market and long oil...that doesn't make any sense (because if business sucks, they won't need oil). That is a great theory if you live in a bubble. So while it sounded stupid...it has obviously been very profitable for me.

Now, people are talking about an impending global slowdown as opposed to the "containment" of last fall. Hmmmm....that goes along well with my theory of the U.S. credit deflation spreading into a global deflation (EU to raise anyone?). Then again we all know "deflation" can't happen because commodity prices are still rising...which is great for business expansion and inflation (rolls eyes).

The point is...the U.S. aint the only game in town anymore. Plan accordingly.

(Trading was F$cked today. Only a narrow loss, but nerves, errors, Israelis...I had to go take a bike ride.)


SOLD EWZ 90 CALL (+10%)
SOLD EWZ 90 CALL (-30% - I fat fingered this and sold too many. Short term blessing, but I may wake up mad tomorrow.)
SOLD SPY 135 CALLS (-80% - Looks ugly huh? That's the point of an OTM hedge.)
USO 113 PUTS (+0% - Some how this managed to sell itself. Limit order from yesterday?)

XLF 20 PUT 01/09 (+10%, Golly! 6 months to go!)

So really I'm only holding some XLF puts and some (pending) cash right now.

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