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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