Surviving the First Week of 2012

ilene's picture

Surviving the First Week of 2012

Courtesy of Phil of Phil's Stock World

SPY DAILYYay, we made it!

Last Friday the Dow closed at 12,200 and Monday we started the new year at 12,450 and yesterday we closed at 12,415 so all the people who caught that move in the futures between 6am Tuesday morning and 10:05 Tuesday morning had a great week and the rest of you can go suck eggs.  

What an appropriate way to start 2012 - screwing the Retail Investors over as the Big Boys jack up the futures and then spend the rest of the week unloading their stocks on the suckers who run in to chase the gains they never had a prayer of catching.  

Some people are confused as to why we keep making bullish plays when I think the rally is BS and the reason is that we don't fight the Fed.  

Yesterday, we were down and then suddenly there was a rumor (unsubstantiated) about Obama announcing a $1Tn mortgage refinancing program and it wasn't long before it was $3.6Tn and, while it is something I myself have proposed to the Administration, it was hard to see how anything that actually helped the average American Citizen would ever be passed by the House.  Nonetheless, the market did a 2% flip-flop and finished the day slightly higher - painting a much prettier technical picture than it would have if we has remained at our gap-down open.  

SPY 5 MINUTEFortunately, we followed through with our plan to take the money and run on the morning dip as we didn't know what BS was going to move the markets higher but we were pretty sure that there WOULD be some BS to move the markets higher. My morning Alert to Members left our $25,000 Portfolio 100% bullish at 10:11 and I don't want to sprain my arm patting myself on the back but just look at David Fry's chart (right) - that says it all, doesn't it? (Charts by David Fry)

We went officially bullish on BKS, as planned, at 10:19, selling the Feb $10 puts for $1.20 - another bullish play for the $25KP (5 contracts) -  and they recovered so quickly that the Feb puts are already down to .95, gaining $125 in a day on that one trade! That's pretty good for a small portfolio, right?  

More importantly, it demonstrates our core concept - which is what these virtual portfolios are all about:  ALWAYS sell into the initial excitement! Not BUY, but SELL - we sell premium and the drop in BKS for reasons we felt were fundamentally overdone so we took advantage of the pumped up premiums on the puts and sold them to retail suckers who were panicking. Our other trade idea for a larger portfolio was to just buy the stock for $10.50 and sell the 2013 $10 puts for a whopping $3 (net $7 entry on the put side).  The stock finished at $11.25 (up 7%) and the short puts fell to $2.70 (up 10%) - not bad for a day's work...

THIS IS WHY WE LIKE CASH! There are always opportunities like this but they are only opportunities if you are ready, willing AND ABLE to take advantage of them. If you have your money tied up in positions that are just treading water for them and your daily purpose in following the markets is trying not to lose any money - then opportunities will pass you buy right and left.  

One of the things traders need to unlearn is the idea that it's good to be fully invested - that's just BS fed to you by Banksters, who make more money when you are more invested.  

Who are the richest people in the World? Banksters? Do Banksters take money out of their own pockets or do they ask you to put yours in so they can "help" you?  Why does Warren Buffett have $20Bn in cash and never likes to be below $10Bn?  Why is AAPL sitting on $60Bn in cash? MSFT $41Bn  CSCO - $40Bn...  In fact, the top 20 companies have $488Bn in cash on the books, AVERAGING $24Bn EACH!  Does Apple have $60Bn worth of gold? Does CSCO have $40Bn worth of oil?  No, they are not idiots - they are staying in cash because NOTHING is more valuable than cash in uncertain economic times. 

According to Moody's, US Corporate debt to cash ratio is at a 5-year low, at 3.06.  The Fed keeps pumping money into the economy but the "job creators" aren't passing it along - they are just sitting on their piles and watching the World burn.  $1.2Tn is held in non-financials alone (half of that overseas, where they are waiting for a Republican President to forgive them the $200Bn in taxes they owe on the money).  

Don't be fooled by the ridiculous right-wing spin that says companies are worried they won't be able to borrow (which is the logic for the Fed putting you in more and more debt in order to give sweetheart 0.25% loans to their pals) - Do you think Apple can't get a loan?  Cisco?  Microsoft, IBM? It's nonsense - its a good sound-byte on Fox unless you actually THINK about what they are saying.  

Never in human history has so much been held by so few and withheld from so many who are in need.  Capitalism is broken, and don't let this morning's 200,000 job gain in the Non-Farm Payroll fool you - 50,000 people were dropped from the work-force after 350,000 people were dropped last month and last month's 120,000 was revised DOWN by 20,000 but hey, what's 20% between friends, right?  Just wait until next month, when they switch to base data from the 2010 census (yes, it takes them a whole year) - that should give us a totally random number.  

Teenage unemployment is still 23.1% and, if you are Black (15.8%) or Hispanic (11%), you may have a slightly different view of the economy than White People (7.5%) but Asians laugh at all of us with a 6.8% unemployment rate.  13.1M people are officially unemployed but another 8.1M people are "employed part-time for economic reasons" - in other words, a guy who lost his $40,000 job and is now delivering newspapers (taking away a teenager's job) for $7.50 an hour 25 hours a week ($9,750 a year) is not considered unemployed in the official Government gobbledygook (yes, it's a word!).  

Even more telling, in December, the Average Hourly Earnings rose by 0.04 to $23.24 - but that's for ALL employees. The AHE for "private-sector production and nonsupervisory employees" was flat as $19.54.  ALL of the money goes to the top while the bottom 99% - that's right, you guessed it - suck eggs.  Even as I write this, idiot Cramer is on CNBC (9am) telling the sheeple NOT to listen to people like me who "drill into the numbers" and distract you from a "terrific jobs report."

Pumpmaster General Cramer wants you to BUYBUYBUY because his Hedge Fund buddies need to SELLSELLSELL and, as we all know - the entire purpose of CNBC is to act as a propaganda vehicle for the top 1% - chasing the masses out of stocks when the Funds want in and chasing them into stocks when the funds want out.  If you want to see correlation - chart the rise in market volatility with the rise of the Financial "News" Networks and see how it culminates in the Foxification of the Wall Street Journal - which went from in-depth analysis to headline fear-mongering faster than you can say "Rupert Murdoch's a crook."

The bottom line on Unemployment Data (see Table A) is that there were 14.393M "Unemployed" people in America in December 2010 and 13.097M Unemployed in December 2011.  BUT - in December 2010 there were 85.276M "Not in the Labor Force" and that number jumped to 86.697 in December 2011.  So, of the 1.296M people who went off unemployment in 2011, 1.421M of them left the labor force (whatever that really means).  

From an investing perspective - what it means is that people (bottom 99% people) don't have more money and won't be buying more stuff in 2012 because THEY DIDN'T GET ANY JOBS!  In Table B we see that those poor non-supervisory workers earned 1.6% more than in 2010 per hour and worked 0.6% more hours so, overall, 130M workers have about $50 a month more to spend than they did in 2010 - that's $6.5Bn a month (before taxes) and $78Bn a year in a $16,000,000,000,000 economy or 0.4%.

Let's keep that in mind as we watch the Dow with half of it's components at all-time highs and Europe, Japan and China all sliding into recession. If the pundits are counting on the US to be the engine that drives Global growth - it's going to be a very slow year indeed!  

We're still short the Dow Futures (/YM) below that 12,350 line but too dangerous to short oil into the weekend. I still like the QQQ puts (next week $58 puts, at about $1) as I'm still concerned that Europe can melt down over the weekend but, then again, it can also be "fixed" so - CASH!

Cash is good, cash is king!  

Have a great weekend, 

- Phil


Check out Stock World Weekly here. For examples of Pharmboy's trade ideas, including new ones from last week's newsletter, click here.

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toadold's picture

Well I'm going to buy stocks after I make the proper preperations. First I'm going to strip down to a loin cloth and sandals. paint myself blute, kiss both elbows and under the light of a full moon run counter clockwise around the gargage dump, yelling "I believe."  Then I'll overthrow the govenment, dictate massive construction of nuclear power plants, burn all the lawyers in wicker cages,  and do a bunch of other naughty things. And for next Christmas I want a puppy, a bicycle, and a sleezy blonde around 40 years old.  

blindman's picture

criminal psychopaths seek a unifying principle and/or/and
"person"; name, to shed their shame and anchor their crime.
Charles Manson Superstar
warning. disturbing presentation at link, perhaps not appropriate
material for children or other psychopaths.
here, some other fascinating links from here and there.
the american empire
by garet garrett
Part 1 - A Tale of Two Cities by Charles Dickens (Book 01, Chs 01-06)
The Iliad - Book I - Homer (Alexander Pope translation)

SystemsGuy's picture

Let's keep that in mind as we watch the Dow with half of it's components at all-time highs and Europe, Japan and China all sliding into recession. If the pundits are counting on the US to be the engine that drives Global growth - it's going to be a very slow year indeed!  

Remember that the DOW is regularly pruned in order to reflect the best performing stocks, not simply a representative sample. Even given that, the DOW is still well below its 2000 high water mark in nominal terms, and in inflation adjusted terms is far below where it was - and this represents the "best" stocks. Is it any wonder that retail is becoming a ghost town?

SystemsGuy's picture

Why is it no one ever takes into account automation in these numbers? Yes, jobs are being exported overseas, but for every job lost to it being sent overseas, it's more likely that 4-5 jobs are lost due to automation. When companies cut back on their headcount, the mantra of leaner and faster often translates into either asking IT to replace the work done by those whose jobs were lost with automated services, or increasingly even to outsource IT itself to cloud-based systems. Some of that translates back to IT jobs at the cloud level, but typically far fewer than if each company managed even these functions itself.

I've often suspected that a big part of the reason that we're now seeing (and have seen for the better part of a decade) job creation numbers well below the minimum "break-even" point of population growth is because many of these jobs are now automated. Manufacturing felt the brunt first, and in many cases most manufacturing jobs that exist nowadays are in fact in the realm of robotics development, installation and repair. In many companies, there'd often be one section for accounts receivable, another for accounts payable. Much of both have now been consolidated into a much smaller accounting group, and this is increasingly being outsourced. and similar services handle a large amount of the sales support services, and as more and more of the economy moves to the web the number of sales staff that's needed drops dramatically as well. Traditional retail - from stockers to store managers, is also going the way of the dodo. Even IT, which has so far weathered the Greater Recession pretty well, is facing additional cutbacks as the need for in-house programmers decreases in favor of consolidated cloud systems.

There are of course many jobs that still cannot be handled by a computer system, but those are subject to slow economic growth from the outsourcing side as well. You still need barbers, but it's worth noting that longer hair is "in" - simply because the sixty+ dollars necessary to get haircuts for a family of four is competing against the needs for food, gas and housing, and people who were used to going to the barber once every 2-3 weeks are now going every 4-6. People have less discretionary income, so they are going out to eat less often, and are eating downscale more often as well - ergo, fewer cooks and wait staff. A distrust of markets, online automation of trading accounts and far less discretionary income is mowing down many financial services "advisors", "brokers" and "market managers".

Even traditionally "safe" professions such as security are fairly heavily hit. Surveillance cameras, motion detection, facial recognition, even Segways have meant that companies could reduce the number of security guards they have to hire, and as more malls and office parks become ghost towns, the need even for the security forces that remain drop dramatically.

There are too many professions like this, and while there are new jobs being created for supporting these technologies, the number of such jobs is definitely not matching the jobs lost. (For every ten jobs lost to automation, only 2-3 new jobs supporting that automation are created, and these require considerably higher skill sets).

The irony of all of this is that this definitely benefited senior management and senior shareholders far and above everyone else. The gains made from automation did not go to the workers who were displaced but to the managers who brought the automation in, both directly in stock prices and bonuses and indirectly in consolidation of power. Even the engineers and programmers who developed the automation typically did not share in the benefits - most larger organizations employed such people in either a fixed wage or contracting basis, and only about one startup in ten generally reached a stage where options paid in lieu of salary were actually worth more than the salary would have been.

The jobs being lost are not coming back. The jobs being created require specialized skill and knowledge, which in turn means that a few specialists are well rewarded but many entry level people can't find jobs to gain that knowledge, and universities are often woefully behind the times in teaching these skills. The reality for a lot of people is that there is no way for them to get back into the workforce once they fall out, because many such jobs require too large a leap in terms of skill and experience (especially the latter) to achieve. Consequently, we may be looking at chronic unemployment for a LONG time to come.

cherry picker's picture

I've brought this topic up a few times in different comment sections and have been "junked" or basically ignored.  I am a programmer, albiet an aged one.  Due to my age, I've been around many different types of industries and I have seen what robotics and technologies have done to the workplace.  How often do you hear a live receptionist's voice on the telephone as compared to 20 years ago,  Typesetters are gone, mom and pop printing shops, film developers and so much more.

A Wal Mart of 50 years ago would have difficulty growing to its present size without technology, the inventory and pricing logistics would require an army of clerks.

The family farm is becoming obsolete as to maintain productivity and earnings a large tract of land is needed and the tractors and combines with supporting equipment, much of it automated, costs a fortune.

The younger generation hasn't seen the employment destruction and therefore it is foreign to them.  In China they prefer automation to cheap labor as there are less labor-management headaches.

The human as worker is becoming obsolete.  We are only good foor servicing and consuming, those who have money to spend that is.

Ghordius's picture

so much I agree with, and this is just the cherry on the top -> "Rupert Murdoch's a crook."

apberusdisvet's picture

Unbelievable how the local "captured" media is promoting the jobs number; with headlines like "the recovery is finally here".

What unmitigated BS.

jimmyjames's picture

Don't be fooled by the ridiculous right-wing spin that says companies are worried they won't be able to borrow (which is the logic for the Fed putting you in more and more debt in order to give sweetheart 0.25% loans to their pals) - Do you think Apple can't get a loan?  Cisco?  Microsoft, IBM? It's nonsense - its a good sound-byte on Fox unless you actually THINK about what they are saying. 


Don't be fooled by debt masquerading as cash on balance-

LowProfile's picture

"Capitalism is broken"

Congratulations on the observation!  Too bad you're about 98 years late.

prains's picture

pimping numbers for the phloobs. Burgers, Bombs, Boobs & Beer does not make an empire just perpetuates one.

ebworthen's picture

Unemployment figures are complete B.S.

Even if they aren't making a pound of fudge; jobs were seasonal.

Real unemployment is over 15%.

The Ministry of Truth is working overtime.

Goebbels is rattling his cage in Hell wishing he were part of the BLS.

sgt_doom's picture

Yeah, I find it both silly and nonconstructive when anybody mentions the unemployment figures anymore, simply because they use false indicators, neglect other indicators, and spew forth fabricated data.

For example, that mythical number whereby they claim unemployment has shrunk due to fewer people actually looking for employment, and vice-versa when they claim the number has risen because they've appeared out of the woodwork to look for employment.

Next, they primarily track through the unemployment benefits claims number, and since many have since used those up --- and aren't counted, and many don't qualify --- and aren't counted, that's another huge number which goes missing.

Plus, they actually have been shrinking the number of available adult working population number over the past ten years, while it has actually been growing, another falsification!

When correlating to the numbers in poverty and homelessness and on food stamps, one comes much closer to 28% to 36% actual unemployment.

A conservative, lowball number I've seen several times over the past year: for ever 1 job created in the USA, the American-based multinationals and corporations have created 6 jobs overseas.

Actually, I believe that to be a more realistic 1:20 ratio, and that's probably a lowball number as well.

LowProfile's picture

Working poor can use food stamps TTBOMK, so Shadowstat's 23% is probably accurate