The Fix Is In!

The Fix Is In!

By Phil of Phil's Stock World 

What a friggin' joke!  

In Monday's Member Chat I put up the chart below and said that we are likely to flatline for 3 days as we were repeating the patten, in reverse, by which we fell during the quake. We weren't sure whether that would lead to another drop, like it did on the 15th but, lacking another earthquake, we could climb back our wall of worry (because "it just doesn't matter" does it?) back to test our Major Breakout levels.  

This isn't sour grapes - it's what we expected to happen because we know the market is a manipulated joke so we play it that way. We picked up long plays (hedged, of course) Monday on CCJ, CSCO and GLW. Tuesday we added SDS hedges and that gave us cover to go with long ideas on AA, AGNC, AAPL, CHK, GE, JRCC, KO, MCD, UNG, WMT - some of which were offsetting short puts against the SDS hedge to make it free if the market heads up.

Wednesday we had that TERRIBLE New Home Sales number (worst since the 1950s, when the population was 1/2 of what it is now) so we calmed down and just went with long ideas on KO (again) and SHAW while now taking a couple of shorts on GMCR and NFLX and a bullish spread on the VIX, which is technically bearish.  So you can see how we begin to balance back to neutral as we begin to move higher.  

Yesterday the market ignored the TERRIBLE Durable Goods Report and we began taking last week's bullish trades off the table as we had plenty of fresh horses to ride from this week's picks.  We were all short yesterday with ZSL (an aggressive short on silver as they touched $38) QQQ puts for next Friday and another short on GMCR as they rallied back at the day's end. The only long I liked yesterday was the one I always like when it's down - XLF.  That was all our non day-trades, not $25KP adjustments for the week and you can see how we play as we take LESS long trades as the market goes higher - not more as we are not momentum traders.  We prefer to buy when it's low and sell when it's high - perhaps a radical concept but it does seem to work pretty well.  

 

As you can see from the 6-month Dow chart, we're in a major trading range between the Breakout 2 and Major Breakout Levels that we've been tracking since last year. That 100% level on the Dow, 12,938 is miles away (6.3%), enough so that we have stopped shorting the Dow other than our Mattress Play and have focused on the Nasdaq, who are over their 100% line at 2,530 and the S&P, who are very close to theirs at 1,332.  Notice the Dow's MACD lines LOOK like they are signaling a huge move with a very positive technical cross. I say "LOOK" because what's happened since the tip that looked technically ugly has been fake, Fake, FAKE and nothing suckers in the retail bag-holders like an "obvious" bullish chart pattern along with the non-stop cheerleading in the MSM, who have actually started saying "it just doesn't matter" to explain how we can rally on such poor fundamentals.  

The Dow was our only index to hold our Breakout 2 Levels during the quake excitement and just barely too (we don't count one-day spikes).  We wanted to test those lines so we could get more bullish and, as I noted yesterday - we did get a lot more bullish in the past two weeks but the ease in which we fell 5% during the crisis should be a concern to any trader, as the volume wasn't even particularly heavy in our 3-day dip.   A very good trading rule to remember is: "What is easily won can just as easily be lost."  

Certainly Lloyd and Co. want to end the Quarter (next Thurs) at least at the 12,200 line as that will be a 5% move up from the 11,600 start to the year and GS has already predicted 1,500 on the S&P, which is up 20% for the year so they NEED 5% for the quarter to prove their omniscience.  While Uncle Lloyd may believe that hitting his price targets on the nose proves he's talking to God - I believe that hitting targets like that on low-volume rallies that make no sense proves that he's a manipulative crook who is (allegedly) illegally working with other investment houses (the Gang of 12) and their pet Central Banks to rig the system to funnel as much wealth as possible out of the hands of the bottom 99% and transfer it to the top 1%.  

So thanks, I guess, for making such a despicably evil system that we get to play along with the big boys. Yesterday JRW played the Russell like a fiddle and even Matt (our resident bear) made money on a bullish Russell play this week - BECAUSE IT'S SO FRIGGIN' OBVIOUS! Perhaps I should just shut up and enjoy the ride but I'm a macro guy and it just seems to me that this will all end very, VERY badly...

I am not alone in that outlook, three of our favorite financial authors voiced their concern about the Fed today - all on the main page but the teasers are:  

Crony Capitalism Strikes Again - by David Stockman

Someone has to stop the Fed before it crushes what remains of America’s main street economy. Last Friday morning alone it launched two more financial sector pumping operations which will harm the real economy, even as these actions juice Wall Street’s speculative humors.

Adjusted Monetary Base Rises by $500Bn - by Tyler Durden:

As of today the Treasury had a total of $12.24 trillion in debt, just $70 billion below the ceiling, and $14.172 of debt subject to the limit. Which is not good because as per today’s refunding announcement there is $99 billion in 2, 5 and & 7 year debt coming down the line next week. Which means that while the formal debt ceiling will not be breached, the total amount of debt including the fluff not counted, will surpass $12.4 trillion by next Friday.

Fed's Objective Spells Doom for the Bond Market - by Jim Grant

Inflation usually proceeds by stealth — in the 1950s and 1960s, "creeping inflation" was the phrase. There is, however, nothing stealthy about Chairman Bernanke. He could not be more forthright. Inflation is his policy, and money printing, a.k.a. quantitative easing, is his method. Gold is one refuge from this design, though there is safe harbor in cheap stocks and undervalued real estate, too. As for bonds, they are promises to pay dollars, the definition of which the bondholder entrusts to the man who intends to cheapen them. 

That chart from Tyler's article is reason enough by itself to get back to our BBB strategy (bullets, beans and bullion) and head for the fallout shelter - even without the fact that there is ACTUAL FALLOUT spreading across the globe from the STILL NOT FIXED nuclear reactor in Japan.  I mean SERIOUSLY - the VIX is at 18 while there is still even the tiniest possibility that sometime over the weekend we could have a full-blown nuclear accident???  You know, there is "just doesn't matter" and then there is being completely oblivious to potential danger... 

We took our money and ran on EWJ on Tuesday and we have not looked back.  We bet it wasn't that bad but that doesn't mean we fool ourselves into thinking it's GOOD - Good is not the same as "not that bad" - Good is a whole different thing that does not apply to Japan, Europe, the Middle East or America, for that matter where we have been getting TERRIBLE economic news and oh, by the way, we're broke.  

Here's what Lisbon looks like.  Do these people look happy? With 20% of the population unemployed and youth unemployment in the 30s, Portugal rejected SOCIALIST Prime Minister Jose Socrates' plan for spending cuts and tax increases, forcing the PM to hand in his resignation and leaving the Portugal without clear leadership until a new Government can be formed.  

Without the budget cuts, Portugal is almost certain to need an international bailout. It will run out of money this year without fresh cash, and markets are charging punitive rates for borrowing. Two firms downgraded Portugal's credit rating Thursday.  Its dire situation thrust a possible Portuguese rescue onto the agenda of European Union leaders who gathered in Brussels Thursday for a previously scheduled meeting, where they were agreeing on a new bailout fund. Portugal would be the third country in the euro zone to require a bailout, after Greece and Ireland.

Ironically, decades of underfunded education are to blame for Portugal's crisis - the same thing that is supposed to be the "cure" for ours!  Before his failure this week, Prime Minister Sócrates had pushed some budget cuts through parliament under pressure from other euro-zone countries. But in an interview before Wednesday's political crisis, Mr. Sócrates made clear that investment in education was a priority, despite the costs. Appeasing financial markets was important, he said, but the country shouldn't "lose the strategy and vision."

There is substantial evidence from elsewhere that education confers broad economic benefits. Ireland was one of the EU's poorest countries a generation ago. But it threw EU subsidy money into technical education and remade itself as a destination for high-tech labor, made doubly attractive by low corporate taxes. Ireland is now, even after a brutal banking crisis, among the richest nations in Europe.  "They had an educated-enough work force that they could move into a technology industry, and they rose out of nowhere," says Eric Hanushek, a Stanford University professor.  

Note on the chart of US Education and Training Outlays that I (about to be 48 next week) was one lucky bastard as I graduated high school in 1981 - just as the funding was being yanked out of the system by Reagan-Bush1.  I do remember going back to the school for a 5-year something and thinking things had really gone to hell in 5 years and I guess it wasn't my imagination with 60% of the funding removed in that short amount of time.  Now we reap what those paltry savings have sown as our workforce is ill-prepared to shift gears with the changing global markets and, rather than pushing for more education and more retraining to catch us up this decade - our "leaders" think less and less is the cure for what ails us.  That is just insane.  

Have a nice weekend,

- Phil

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Comments

[OutLookingIn]

Depends on what 'camp' your'e in.

1/ Are things worse or better?

Top 1% - Better

The rest - Worse

2/ Hows everything in general?

Top 1% - Just peachy keen!

The rest - Blow it out your a**!

[Diamond Jim]

granted..getting a "good" education is an important pathway...but the emphasis is on "good". I do not know what planet Mr. Phil is on, but we have been pouring beaucoup buckos into the cesspool of "education" and teacher salaries for decades and standardized tests show us what we have as results of this. It is not about more money. The kids just don't give a crap, they would rather be listening to their Ipods, twitching their thumbs on their cell phones, or planning on ways to get that little honey down the street on ecstacy.

As for the market...people have no place to put their $$$ (bonds at 3 % ???), remember the old stock traders axiom...one does not stand in front of a freight train. this goes for PMs as well. Portugal, nukes, syria, Euroids, the market may dip (BTD) for a few days. Until Uncle Bernie wakes up, acknowledges that the CPI is 40+% housing  (which is dead), goes out and actually buys gasoline himself for that black monstrous SUV, or buys some groceries he has no idea that inflation is here. So until   interest rates start up, the dollar firms, and the Chairman backs off any QE3...the trade is still on...fuggit about your charts and graphs....

[max2205]

I am on it

[Ruffcut]

More like the fix continues.

They can't fix housing, can't fix consumer debt levels, can't increase taxes to fix gubbermint budgets, they let all the multinationals go offshore thus paying little or no tax,

So, they try to fix the financial markets, until they break them, too. GOING FOR BROKE!

[AR15AU]

Phil - if you think that education money has been "yanked out" you are either lying or completely incapable of basic math.

The chart you provided is in percentages, not dollars. Don't be a douche.

[MisterMousePotato]

Anyone who thinks that the cure to our problems is to spend more money on education, or that we don't spend enough money on education, is, well, I don't know what.  I was going to say crazy, or maybe delusional, but that would be unfair to crazy people.  The last time I spent a little time looking into the subject, which was actually about three or four years ago now, this nation spent eyepopping amounts of money on education.  The figures then were about $8,000 per pupil in Nebraska, $10,000 per pupil in California, and about $12,000 in Washington, D.C.  How many kids in a classroom? 20? 30?  You're trying to tell me that spending a quarter of a million f*********g dollars per classroom ain't enough?  Are you kidding me?!?

Moreover, from subsequent education, I am led to believe that the actual amounts spent are quite a bit higher than what is reported, approaching $20,000 per pupil in Washington, D.C., and something similar in California if one takes into account also, e.g., the billion dollars spent by LAUSD on just two (!) high schools. And, finally, this was a few years ago, so these numbers without doubt went up for a few more years.

What a colossal waste of money.  And you know what?  The states that spent the least amount of money on education per pupil had the best educated students.  To be sure, uh ... demographics probably plays a part in this, but still.

For what it's worth, other nations spend far, far less, but their students do far, far better.  Again, demographics (tiger moms) probably comes into play here, too.

"Need to spend more on education."  Pah.  We need to spend less.  Money.  Far, far less.  Money.  The only thing we need to spend more on for education is thought, time, and attention to how we allocate education resources, and stop trying to kid? Who? Ourselves?  You aren't fooling me.

Seriously, all children are capable of a career as a theoretical physicist, if we just give more money to Head Start?  Or smaller class sizes?  Give me a break.  Maybe Johnnie is just plain dumb as a rock.  And maybe Jose and young LaTaKeisha and his family don't value education quite as highly as do the Steinbergs and the Lees.

And finally, the amounts we spend on teachers is grotesque.  There's a teacher in Illinois - a high school teacher - making $650,000 a year.  And a list of other Illinois teachers several hundred pages long all pulling six-figure salaries.  Did you see those clowns on the television recently?  (Okay, they were their Wisconsin counterparts, but they're all the same everywhere).

You know ... $650,000 here and $650,000 there, and pretty soon you're talking about real money.

Every one of these jobs could be filled with far better people for $50,000 a year, and they would be happy to pay their own healthcare, pension, and benefits, especially in this economy.  Actually, with the results the public schools are achieving, we don't need 'far better people', 'cause anyone could do as well or as badly.  But the taxpayers (homeowners - property taxes) would find life a lot easier.

[Calmyourself]

"Ironically, decades of underfunded education are to blame for Portugal's crisis - the same thing that is supposed to be the "cure" for ours"

Really Phil, why don't you show us where less money for EDUCATION is proposed and by whom as a cure for anything..  Lets see you do that Phil.. Of course you meant public unions having the right to rape taxpayers with no complaint didn't you Phil.

[Quinvarius]

Anyone who goes long a double short ETF is a retard.  I suppose we are all supposed to believe you aren't sitting 10x more ZSL than you admit to, and which will never break even even if silver does drop?  You should try some mathematical forecasting on double short ETFs.  You can't make make your money back.  If you are recommending that garbage, even as a hedge...PASS.

[SwingForce]

Did you hear the one about the constipated mathematician? He worked it out with a pencil!  Ha ha, badum- pishhh....But seriously folks.

Thank you for mentioning the quantum mechanics of these -2x & -3x "WFDs". Its not hard to understand the slippage factor, but there is one scenario that rockets these beaten down inverse etfs past old highs. That would be a constant pounding of the underlying (index/commodity), day after day, in the same direction- it COMPOUNDS the previous days' gains, like compound interest used to do for actuaries back in the 80's. (Bruce?) By the 7th or 8th day, its sick especially in a 3x (which is actually 4x because it is double the leverage component, 1x is the actual "portfolio". 2x is 100% margin, 3x is 200% margin)(I think, but not that well).

Anyway, when the Black Boxes figure this out, mathematically that the only thing that matters is the 4pm closing price because that resets the multiplier for the next day. You can believe this is their next game! And also because its the shortest line at the window, as you attest. Backtest to the Flash Crash, levered etfs did not go gangbusters, they need many days of smaller moves, but all in the same direction, to blast off. Look at AGQ. which is the alter-ego of ZSL.

Mr. Quinvarius, I understand you are mathematically proficient, but with all due respect to Phil, I believe he said he SHORTED ZSL, not long. That is the way to take advantage of the slippage, but only on a 1 day infinitesmal basis, because the inverse of compouding occurs on Day 2 and beyond ( 2 days in a row of 10% declines, the second day is 10% less than 10%) but there is a possibility that Phil used puts instead of shorting. Lots less premium than AGQ calls (even on expiration Friday last week, premiums were so inflated).

Which points to ANOTHER quandry- How are Call Options on inverse etf's counted for VIX purposes? A: On the wrong side. Granted, there can't be many of these, not enuf to skew the #'s but I'm juss sayin'. Its UNDER THE RADAR, perfect fodder for SquidVicious.

When TSHTF this is where the action will be, and it won't matter what BS goes on intraday, the only thing that matters is the close- Stairstep, everyday, lower, whichs compounds tomorrow's multiplier.

Thanks for getting me started! Did you ever see Steve Martin & Eddie Murphy in Bowfinger? Remember the Buick Riviera they drove backwards with tin foil on the windows? That's my vision of an inverse etf, and if you looked under the hood? Instead of a hamster in a cage chasing a carrot, there would be springs and bungee cords connected to the Turbo unit, which in turn would be connected to the Brake Pedal. Funny shit, eh? (Come to South Florida, that's how cars work here...).

Please consider my comments not as a fight, but a challenge to think further. Please return the gesture, as you see fit. Thanks.

Anybody else got an opinion? Lets get smarter together.

[HungrySeagull]

I have been working for damn near 3 years getting ready and we aint near done yet.

As I type this, I just rotated the ammuntion and am building a .45 to Super to take Deer or Bear if necessary. Shipments of that type of ammunition is inbound as I type this for that work.

[Antarctico]

You must be hella fun to go plinking with. :D

[spartan117]

Bear?  You must be one big seagull.

[Hugh G Rection]

Dont eat bear unless you want trichinellosis.

[TradingJoe]

Hah! Crapped your pants Phil?!

[JW n FL]

QE-3 over powers the VIX!