Technical Tuesday – Charting our Future
by Phil - February 1st, 2011 6:58 am
Fundamentals don’t matter so let’s look at the technicals.
As you can see from David Fry’s chart, there’s a good reason that XLF was my Trade of the Year in December 25th’s "Secret Santa’s Inflation Hedges." The full force of the US Government is backstopping this play, in which we took the Jan $12/13 bull call spread at .80 and sold the Jan $11 puts for .40 for net .40 on the $1 spread. I said, just 37 days ago, that this could be the easiest 150% you ever make.
Just 5 weeks later, the bull call spread is .90 and the short puts are .30 for a net .60 – up 50% in 5 weeks. That SHOULD help keep us ahead of inflation, right? Keep in mind this was a trade, among others, that I published for free to the General Public on both our subscription site as well as Seeking Alpha and then it was syndicated on Yahoo Finance, Google Finance, MarketWatch, AOL, etc. I’m told that about 250,000 people read my free public posts when I make them available, so it’s not like these trades were so secret.
Yet, however many people decided these were good trade ideas and followed them – it didn’t matter because our counter-party wants to lose! Yes, that’s right, we are riding on the coat-tails of the Banksters, who are taking our future tax dollars from the Federal Reserve and betting them on rising commodity prices and monetary inflation. In order for us to bet on that, we need some idiotic counter-party to take the other side of that bet – one that assumes falling commodity prices and no inflation.
Even in under-educated America, who would be foolish enough to take such a bet? Why it’s us, of course! Well, it’s the Federal Reserve Bank of the United States of America who are spending $100Bn a month buying Treasury Bills at the lowest rates every (assuming no inflation) while trying to justify their misuse of our money with BS statistics that we’ve stripped away in "How the US Government Manipulates Inflation Data" along with this helpful video:
The Fed is using YOUR money, through debt, taxation and devaluation, to buy notes that a rational investor wouldn’t touch with a 10-foot pole and the ONLY way you can prevent yourself from getting screwed…
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DiggWE ARE NOT REPEATING THE MISTAKES OF JAPAN….YET
by ilene - December 21st, 2010 2:44 pm
Pragcap explains why "WE ARE NOT REPEATING THE MISTAKES OF JAPAN….YET".
Courtesy of The Pragmatic Capitalist
When confronted with a balance sheet recession the math regarding economic growth gets relatively simple – either the government spends in times of below trend private sector spending or the economy contracts. For several years now I have maintained that we are in a balance sheet recession – an unusual recession caused by excessive private sector debt. Although this balance sheet recession created the risk of prolonged weakness I have been quick to dismiss the persistent discussions that compare this to anything close to a second great depression - as I showed in 2009 the comparisons were always ridiculous. The much closer precedent was
Over the last year I have consistently expressed concerns that the USA was going to suffer the same fate as Japan, which consistently scared itself into recession due to austerity measures. At the time, most pundits were comparing us to Greece and attempting to scare us into thinking that the USA was bankrupt, on the verge of hyperinflation and general doom. I wrote several negative articles in 2009 & 2010 berating public officials who said the USA was going bankrupt and that the deficit was at risk of quickly turning us into Greece, Weimar or Zimbabwe. Nothing could have been farther from the truth. The inflationists, defaultistas and other fear mongerers have been wrong in nearly every aspect of their arguments about the US economy.
US government default was never on the table, the bond vigilantes were not just taking a nap and now, with the passage of the most recent stimulus bill it’s likely that we’ve (at least temporarily) sidestepped the economic decline that was likely to accompany a decline in government spending. Richard Koo, however, believes we are repeating the mistakes of our past. In a recent strategy note he said:
“The situation in Europe is no different from that in the US. I therefore have to conclude that the western nations have learned nothing from Japan’s lessons and are likely to repeat its mistakes.”
I have to disagree here. The most important factor impacting economic growth in the prior year…
Fiscally Irresponsible Friday – Proles Swallow $858Bn in Debt for $ 613 and Some Magic Beans
by Phil - December 17th, 2010 8:18 am
Good job Congress!
Way to bend of and take it from your new Republican Masters! Not since Jack sold his cow for some magic beans has a deal like this been made by our "leadership" where families earning between $35,000 and $64,000 go $7,800 further into debt to get a $613 tax break while families earning between $5M and $10M get $38,590 and families earning $50M to $100M get $380,590 and families (or Corporations, of course) earning $500M to $1Bn get $3,859,000 or about 12,590 times more than the average middle class family but, then again, they deserve it because – they are that much better than you are!
Face it, unless you are in an income category where your tax benefit has 5 digits, you are what George Orwell (who worked in England’s Ministry of Propaganda) called a "Prole." In "1984" the Proles (proletariat) were the vast majority of the populace, the working class of Oceana. Though the proles are the majority, they are unimportant. The Party explicitly teaches that the Proles are "natural inferiors who must be kept in subjection, like animals". As one of the Party Leaders observes: "the relative freedom of working-class people is merely a symptom of the contempt in which they are held".
It is not only the Party which regards the Proles as unimportant: the arch-enemy, Goldstein, dismisses them too, referring to the divisions of High, Middle and Low people, in which the Low are essentially destined to remain powerless. This attitude has much in common with the one Huxley shows in Brave New World—the lower castes are mindless enough to be satisfied with little, and can be relied on not to be troublesome.
You’re not going to be any trouble are you? Enjoy your $613, little people. That’s what, about a month’s worth of gasoline and cable TV? Congratulations on your voting acumen – you certainly have gotten the Government that you deserve! I apologize because I had mischaracterized the tax cuts as being fairer to the Middle Class last week, when I said it was only an outrage. I thought that families earning $50,000 would be getting $900, not $613, but it turns out that 12,590 times $287 is another $3,613,330 that could be given to a Billionaire and they NEED that money to buy stuff that might create a job while you would only…
Friday Fizzle – Week Ends with a Whimper
by Phil - December 10th, 2010 7:07 am
"Woke up this morning, what did i see
A big black cloud hanging over me
I switched on the radio and nearly dropped dead
The news was so bad that i fell out of bed
There was a gas strike, oil strike, lorry strike, bread strike
Got to be a superman to survive
Gas bills, rent bills, tax bills, phone bills
I’m such a wreck but i’m staying alive" – Kinks
I thought some uplifting music might help today as the markets have not been turning in a super performance this week despite a $1Tn tax cut/stimulus package pumped into it just 3 days ago. That morning, I posted Chris Kimble’s charts from our Chart School and we were looking at key resistance at S&P 1,224, Nasdaq 2,600 (NDX 2,191), NYSE 7,751 and Russell 756. We’re above all those this morning but what we’re not above is my 11,500 level on the Dow. In fact, if you look at the Dow over the past 6 sessions, you’ll notice we hit quite a wall at about 11,375.
What’s it going to take to punch through that wall and get us up over our 11,500 breakout target? We had this same problem in early November, when the Dow just couldn’t close the deal over 11,450 and fell sharply after 3 days of trying despite the fact that the Dow Transports are up significantly (but also flatlining) since then (how now Dow theory?).
I had said we would wait PATIENTLY for confirmation at 11,500 but it’s already getting tedious. Our picks from Tuesday’s post were C at $4.56 and BAC at $11.79, with BAC outpacing C but both positions much more exciting with option plays than straight stock picks, of course. By Wednesday morning I had done the math on the Obama Tax Cut and concluded that, for 95% of America, all we could say was "Thanks for the Gas Money, Mr. President" and I’m not even sure we’ll get that as oil once again tests $89 this morning, which is fine for us as that’s our shorting spot on the Futures and has paid us for many, many tanks of gas this week.
It is, of course, all about the Dollar and our poor currency has been brutalized in the past 24-hours, with…
Adam Smith critiques the Deficit Reduction Commission
by ilene - December 7th, 2010 3:55 am
Courtesy of Michael Hudson
What would Adam Smith have said about the Bowles-Simpson economic report last week?
What a pity the great free marketer was not around to serve on the Deficit Reduction Commission. He not only would have rolled over in his grave, he would have risen up wielding an ax to the fiscal proposals that are diametrically opposite to the fiscal principles that he and his original free market contemporaries urged.
Writing in the wake of the French Physiocrats with their Impôt Unique to collect the revenues that France’s landed aristocracy drained from the countryside and towns, Smith endorsed the idea that the least burdensome tax was one that fell on land rent:
A more equal land-tax, a more equal tax upon the rent of houses, and such alterations in the present system of customs and excise as those which have been mentioned in the foregoing chapter might, perhaps, without increasing the burden of the greater part of the people, but only distributing the weight of it more equally upon the whole, produce a considerable augmentation of revenue.
(Wealth of Nations, Book V.3.68)
If Britain were to become a dominant economic power, Smith argued, its industrial capitalism would have to shed the vestiges of feudalism. Groundrent charged by its landed aristocracy should be taxed away, on the logic that it was the prototypical “free lunch” revenue with no counterpart cost of production. He noted at the outset (Book I, ch. xi) that there were “some parts of the produce of land for which the demand must always be such as to afford a greater price than what is sufficient to bring them to market.”
In 1814, David Buchanan published an edition of The Wealth of Nations with a volume of his own notes and commentary, attributing rent to monopoly (III:272n), and concluding that it represented a mere transfer payment, not actually reimbursing the production of value. High rents enriched landlords at the expense of food consumers – what economists call a zero-sum game at another’s expense.
The 19th century elaborated the concept of economic rent as that element of price which found no counterpart in actual cost of production. and hence was “unearned.” It was a form of economic overhead that added unnecessarily to prices. In 1817, David Ricardo’s Principles of Political Economy and Taxation elaborated the concept of economic rent. Under conditions of
…
Food Stamp Friday – Newt Shows America His True Colors
by Phil - October 8th, 2010 8:36 am
I try to keep politics out of the weekly posts but screw that!
That disgusting, vile, son-of-a-bitch (just my opinion, we report – you decide!) Newt Gingrich is on a 12-city pre-election tour where he is advising Republican candidates to frame the choice for voters between Democrats as "the party of food stamps" while selling the GOP as "the party of paychecks."
With a truly shocking 42M Americans in such dire straits that they need food stamps to make ends meet (and our study of the shopping habits of the poor last week clearly illustrated that this aid is the only way they can eat as they shop the same day the checks come every month), Gingrich this week distributed a memo to Republican hopefuls saying they should use the final month to stress tax and spending cuts as a way to spur job growth while attacking Democratic policies as detrimental that effort.
"It’s perfectly fair to say they are earning the title of the party of food stamps," he said. "By contrast, we have historically since Ronald Reagan of 1980 been the party of job creation."
The party of job creation??? Ha! Ha, ha, ha, ha, ha, ha – ha! Ha, ha, ha. Ha! OK, I think I’m done now. Ha! OK, now I can go on (but I’m still giggling). I will sum up the very cogent point I made to Members early this morning by simply saying: Is this out of touch elitist wealth-sucking windbag totally insane or just a big, fat liar? Let’s look at a chart:
What? Don’t like this one? Do you think it’s unfair to keep picking on poor W? I hear this all the time, Obama’s been in office 21 months, he needs to OWN this recession now and we need to stop looking at the idiot who caused it and pretend it was all Obama’s fault since he took office in the month that job losses maxed out at 850,000.
As logical as that line of reasoning may be, I do like to try to keep a historical perspective on things. We republished a full set of charts that illustrate my points from Member Chat over at Seeking Alpha, so you can view them here, but let me share just two that I find relevant. For the first chart, let’s take a look…
11 Long-Term Trends That Are Absolutely Destroying The U.S. Economy
by ilene - October 7th, 2010 5:52 pm
11 Long-Term Trends That Are Absolutely Destroying The U.S. Economy
Courtesy of Michael Snyder at Economic Collapse
The U.S. economy is being slowly but surely destroyed and many Americans have no idea that it is happening. That is at least partially due to the fact that most financial news is entirely focused on the short-term. Whenever a key economic statistic goes up the financial markets surge and analysts rejoice. Whenever a key economic statistic goes down the financial markets decline and analysts speak of the potential for a "double-dip" recession. You could literally get whiplash as you watch the financial ping pong ball bounce back and forth between good news and bad news. But focusing on short-term statistics is not the correct way to analyze the U.S. economy. It is the long-term trends that reveal the truth. The reality is that there are certain underlying foundational problems that are destroying the U.S. economy a little bit more every single day.
11 of those foundational problems are discussed below. They are undeniable and they are constantly getting worse. If they are not corrected (and there is no indication that they will be) they will destroy not only our economy but also our entire way of life. The sad truth is that it would be hard to understate just how desperate the situation is for the U.S. economy.
Long-Term Trend #1: The Deindustrialization Of America
The United States is being deindustrialized at a pace that is almost impossible to believe. But now that millions upon millions of people have lost their jobs, more Americans than ever are starting to wake up and believe it.
A recent NBC News/Wall Street Journal poll found that 69 percent of Americans now believe that free trade agreements have cost America jobs. Ten years ago the majority of Americans had great faith in the new "global economy" that we were all being merged into, but now the tide has turned.…
Monday Market Movement – Mind the (Wealth) Gap!
by Phil - September 20th, 2010 7:55 am
Congratulations to 440,000 of us!
That’s how many people became Millionaires in the past 12 months (ending in June). According to a new survey from Phoenix Marketing International’s Affluent Market Practice, the number of American households with investible assets of $1 million or more rose 8% in the 12 months ended in June. The survey says there now are 5.55 million U.S. households with investible assets of $1 million or more. That follows two years of declines and brings the Millionaire count back to 2006 levels. Of course, that is still below the peak of 5.97 million in 2007 and the current growth rate is well below pre-financial crisis levels, when the Millionaire population increased as much as 35% a year.
Still, the numbers offer further evidence that the wealthy may have decoupled from the rest of the economy, as we expected would happen in "A Tale of Two Economies," my 2010 outlook. The study’s authors say high salary growth, rather than investments, are the main drivers of the Millionaire expansion. As we who play the markets are painfully aware, $1M in assets doesn’t leave a lot of room for investments. The very wealthy, on the other hand, had a much better year than the mere Millionaires. The population of American households with $5 million or more in investible assets surged 16%. The population of those with $10 million to invest increased 17%. The rich have never been getting richer than they have been in 2010!
Of course, in order for someone to get rich, someone has to get poor and, this year it took 4M Americans falling below the poverty line ($22,000 for a family of 4) to provide the cash for our 440,000 winners. That’s pretty much right in line with the numbers I’ve been citing over and over again – it takes 1,000 poor people to make one rich one!
The Census Bureau found that the fraction of Americans living in poverty rose sharply to 14.3% in 2009, up from 13.2% previously. This is the highest level since 1994. In total, 43.6 million Americans were living in poverty last year. Even the median family is getting the shaft in America with 2010 inflation-adjusted salaries barely keeping pace with 1980 inflation-adjusted salaries – making 3 full decades without improvement for the average American family. According to the WSJ, the bottom 40% (120M people) have dropped from having 14.5% of the nation’s income in 1980 to having 12% in…
The Last Half
by ilene - September 11th, 2010 11:37 pm
The Last Half
Courtesy of John Mauldin at Thoughts from the Frontline
The Last Half
But It’s More Than the Deficit
Not Everyone Can Run a Surplus
Pity the Greeks
The Competitive Currency Devaluation Raceway
Amsterdam, Malta, Zurich, Mallorca, Denmark, and London
There are a number of economic forces in play in today’s world, not all of them working in the same direction, which makes choosing policies particularly difficult. Today we finish what we started last week, the last half of the last chapter I have to write to get a rough draft of my forthcoming book, The End Game. (Right now, though, it appears this will actually be the third chapter.) We will start with a few paragraphs to help you remember where we were (or you can go to www.investorsinsight.com to read the first part of the chapter).
But first, I recorded two Conversations yesterday, with the CEOs of two biotech firms that are working on some of the most exciting new technologies I have come across. I found them very informative, and we will post them as soon as we get them transcribed.
For new readers, Conversations with John Mauldin is my one subscription service. While this letter will always be free, we have created a way for you to "listen in" on my conversations (or read the transcripts) with some of my friends, many of whom you will recognize and some whom you will want to know after you hear our conversations. Basically, I call one or two friends every now and then; and just as we do at dinner or at meetings, we talk about the issues of the day, back and forth, with give and take and friendly debate. I think you will find it enlightening and thought-provoking and a real contribution to your education as an investor. Plus, we throw in a series I do with Pat Cox of Breakthrough Technology Alert, where we interview some of the leading up-and-coming biotech companies; and I also do a Conversation with George Friedman of Stratfor 3-4 times a year. Quite a lot for the low price.
I recently recorded a Conversation with Mohamed El-Erian, CEO and co-CIO of PIMCO, who is one of the smartest human beings I know, as well as one of the nicest. As you can see,…
Death By Globalism
by ilene - September 1st, 2010 5:48 pm
Interesting article discussing the failings of economists on both sides of the "Great Stimulus Debate," who a stimulus will really benefit (not us), inflation and deflation, and how globalization has proven ruinous for the U.S. – Ilene
Death By Globalism
By PAUL CRAIG ROBERTS writing at CounterPunch
Have economists made themselves irrelevant? If you have any doubts, have a look at the current issue of the magazine, International Economy, a slick publication endorsed by former Federal Reserve chairmen Paul Volcker and Alan Greenspan, by Jean-Claude Trichet, president of the European Central Bank, by former Secretary of State George Shultz, and by the New York Times and Washington Post, both of which declare the magazine to be “ahead of the curve.”
The main feature of the current issue is “The Great Stimulus Debate.” Is the Obama fiscal stimulus helping the economy or hindering it?
Princeton economics professor and New York Times columnist Paul Krugman and Moody’s Analytics chief economist Mark Zandi represent the Keynesian view that government deficit spending is needed to lift the economy out of recession. Zandi declares that thanks to the fiscal stimulus, “The economy has made enormous progress since early 2009,” an opinion shared by the President’s Council of Economic Advisors and the Congressional Budget Office.
The opposite view, associated with Harvard economics professor Robert Barro and with European economists, such as Francesco Giavazzi and Marco Pagano and the European Central Bank, is that government budget surpluses achieved by cutting government spending spur the economy by reducing the ratio of debt to Gross Domestic Product. This is the “let them eat cake school of economics.”
Barro says that fiscal stimulus has no effect, because people anticipate the future tax increases implied by government deficits and increase their personal savings to offset the added government debt. Giavazzi and Pagano reason that since fiscal stimulus does not expand the economy, fiscal austerity consisting of higher taxes and reduced government spending could be the cure for unemployment.
If one overlooks the real world and the need of life for sustenance, one can become engrossed in this debate. However, the minute one looks out the window upon the world, one realizes that cutting Social Security, Medicare, Medicaid, food stamps, and housing subsidies when 15 million Americans have lost jobs, medical coverage, and homes is a certain path to death by starvation, curable diseases, and…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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