Much like CSI, it's pretty obvious who committed this crime!
A 0.8% rise in the CPI blows away estimates of 0.4% and, as I've already said this week, it's time to get some new economists if they can be this clueless! The CPI was 1.1% last month and oil started the month of July at $145 a barrel. Hello, Mcfly – did these guys really think that the relentless drive to $145 in June wouldn't be passed through in consumer costs that started showing up in July as well. Did they think that the $25 drop in oil towards the end of the month would magically bring the CPI back down 72% (that's what 0.8 less than 1.1 is!). Really, that is what economists expected!
I didn't even think this would be a market moving number because I can walk AND chew gum at the same time and it did not occur to me anyone in his right mind would have thought that inflation would drop 72% in one month, as if wholesalers and retailers just sit, glued to their TVs, waiting to knock 20% off everything as soon as Bernanke says he feels inflation is contained. It's like Alice in Wonderland in these markets – everything is so silly the best thing to do is just go about your business and ignore the nonsense…
We're really through the looking glass when you see investors stampede right back into oil and other commodity stocks at the first sign of a bounce off a 20% drop. I guess they've never seen a pullback off 20% before so it makes sense that Cramer would hit the BUYBUYBUY button on anything that smells like crude. I wish I had access to the tapes of all these same idiots telling you to BUYBUYBUY housing stocks and mortgage companies when they made their first bounce on the way to 80% losses.
It's not just oil that is expensive, now it has to compete for consumer dollars with food and airline fares and tobacco prices and consumer goods etc. Oil was able to bubble up because people were enjoying a robust economy and it was the ONLY thing that was rising out of control. Metals began to follow it as that didn't affect the average person but then companies had to start passing on the increased costs and the banks stopped lending money and the consumers were forced to stop using their home's equity (if there was any left) like a piggy bank and *poof,* suddenly there isn't enough money for oil. This isn't going to change because there' s a hurricane or a shut down pipeline or anything else.
I wrote about all this on March 11th and here are commodities bouncing off the low we made money on last time and very likely to retest a 10% bounce off yesterday's low (CRB 420, Crude $130) and THEN we can start a real correction. Adding insult to injury on what is, so far a 5.6% inflation rate for the year (the highest since 1991, when Daddy was in office), the average weekly earnings of US workers (adjusted for inflation) FELL 0.8%. Usually we expect + 0.2% to 0.3% but this is an indication that consumers may have as much as 9.2% less spending power than last year. Since consumers make up 2/3 of the GDP – that IS something to be concerned about.
Unemployment remains at a recessionary 450,000 for the week ending Aug 9th but they've been messing around with those figures as we've noted before and they may be inflated. According to the WSJ: "The recent emergency extension of jobless benefits remains a factor. Some applicants for the new 13-week extension actually found that they were eligible for new jobless benefits, pushing those figures higher. The government has said this effect will lead to higher-than-expected claims for several weeks." Either way, it is hard to get a job, hard to keep a job and, when you do get one the pay sucks – Mission Accomplished!
Asia was mixed and Europe is mixed as everyone is waiting to see what we will do. We get a chance to retest yesterday's lows and we were actually quite pleased to hold them yesterday and we took out a lot of our callers and put our rally caps on at yesterday's bottom and there is nothing in the CPI data that changes my mind. We expected a dip into expirations, we cashed out our oil and gold calls and now we wait and see before deciding how to play the September option period.
It's going to be crazy out there (as usual) but let's follow the White Rabbit (oil), watch our Big Chart levels and everything will be fine(ish).
We're going back to the well on WM today. JPM was going to buy them at $8 before the BSC thing hit the fan and diverted them so I like the risk/reward of WM at $4.15, which has been our buy point 2 other times with outs at $5ish. Buying the stock for $4 and selling the Sept $4 call for .71 is also very attractive and you can add a sale of the Sept $4 put at .60 which gives you a $2.69 basis if you get called away at $4 on Sept 19th or forces you to buy another round at $4 for an average purchase price of $3.35 – that's my kind of play!
