Another day, another attempt at 9,000.
We had our usual Obama rally yesterday and the mixed signals we got out of OPEC coupled with the Obama appointments to Interior and Energy had me saying to members at 10:49: "Solar stocks are good plays here, that sector should come back fast. LDK we talked about as a buy/write yesterday and they are still just $13.35. SPWRA is my favorite and FSLR Jan $110 puts can be sold naked for $5, which seems fairly safe." While I have been saying all week that there is nothing OPEC can do to save oil from testing $40, there is much Obama can do to insure the future of the solar industry and yesterdays' conference sealed that deal. LDK finished at $14.79, SPWRA gained an additional 5% and FSLR "only" gained a few dollars but is a solid $30 away from those Jan puts, which are still a good sell for $5.
As we look for both puts and calls to balance things out, at 11:05 I called the XOM $85 puts at $2.60 at almost exactly the high of the day and those made our target $1 gain before the close. Despite our love of gold I called an end to our month-old SLW play at 11:37 as they were clearly over-reacting and it was not a hedge. You must take doubles off the table in this market, not matter how much you love your position – at least lighten up… This is why our Rule #2 is: "When in doubt, sell half."
The rest of the day we just watched our levels and waited to see what would hold ahead of today's now announced 554,000 jobs loss – which indicates that Obama's plan to create 2.5M jobs in 2009 will only serve to reemploy the people who lost jobs since the election. Can Obama get on TV and promise to replace all 5M jobs that have been flushed down the toilet in the past 18 months? Of course not, no one would believe him but that is what he needs to do in order to get this economy moving again.
5M people making $40,000 a year make only $200Bn – this is pocket change compared to what the government has been doling out and I think we've already seen the rolling economic costs of 5M people who lose their jobs and can't pay their mortgage or credit card bills while falling off the consumer treadmill. The money can be spent and it MUST BE SPENT – you have not seen anything yet in terms of stimulus if the government truly intends to avoid a long-term recession.
I ran a Big Chart Review in last night's post and clearly we have nothing to celebrate so far, just 2 days after the Fed's dramatic move. Already the word Trillion is being thrown around in connection with Obama's next stimulus package – this is ON TOP OF our $700Bn TARP program and we're simply ignoring whatever providing a 0% discount rate is going to cost the Fed over time and I don't even know how to quantify the 10% drop in the dollar since last week – a phantom tax on everything you own and everything you plan to earn. That's right, when the government hands out $8Tn in various bailout schemes, it's not free to you – EVERYTHING you own, the entire $100Tn asset base of the US has been devalued by 10% – THAT'S where the $8Tn came from. No wealth has been created, it's just been dilluted away from you and handed to others. It is very likely that another 10% of your dollar's value will be flying out the door before we find a floor. Have I mentioned I like gold lately?
So we pity the fools who think they will be saved by putting their money into 10-year notes at 2.2% (soon to be 2.1%) and the people who think it will be good to buy oil for $40 today and sell if for $45 in June – IT'S NOT GOING TO BE ENOUGH! Your government is now in a full-court press to try to convince you they are fighting deflation but the deflation we are seeing is nothing more than the bursting commodity bubble. Things that have real value will keep going higher, especially relative to the dollar and stocks (at least the stocks of some companies) are one of those things. We will continue to be value investors, not expecting any great gains but working to make great returns from our positions through dividends and the sale of options against our positions as we MUST find a way to stay ahead of inflation. If it turns out that there is no inflation – then we will have increased our cash in a deflationary environment but making the defensive play here, putting money into T-Bills and hoping 2% covers your nut is not a good strategy!
The Shanghai gained 2% and held up the otherwise flat Asian markets today on expectations of drastic measures to be taken by the Chinese government to boost the economy, likely also with more rate cuts as they also need to get the Yuan lower to the dollar before exports grind to a halt. The BOJ has a rate decision tomorrow and they will have to figure out where you go from 0.3% and we'd better pay attention because that will be the topic of our own Fed's next meeting. It took Japan 10 years to get to this level but we hit rock bottom in just 18 months! Japan's Chief Cabinet Secretary Takeo Kawamura said during today's trading session that the government "will take appropriate steps as needed," including intervention, to respond to the yen's sharp rise. So we can expect a dollar bounce at 77 – not because we are recovering but because we have pushed the rest of the World Banks to their pain threshold. If CB action can't get us back over 80 next week, we are very likely to retest our lows at 70 into the new year.
Will this help oil? No, nothing will help oil because there is still no demand and there won't be demand until people go back to work. Chrysler just shut down US manufacturing for "at least a month", costing 300,000 workers 8.5% of their jobs. By OPEC's logic, that should make the price of Chrysler cars go up in value right? Oil's inability to hold $40 this morning should send XOM et al even lower and that will be a drag on the market but we got solid leadership from the Transports yesterday and if we can add some Nasdaq movement we may be able to get out of this rut and finally get a good test of our 40% levels. I have said for weeks that we need oil to be well and truly dead so people stop diverting money into that very dead cat and direct it to more productive things that stand a chance of creating jobs over the next few years.
Europe is flat and being held down by the demise of the evil commodity pushers but both the DAX and the CAC are firming up above our "must hold" levels so we can remain hopeful as long as we still see some rotation in our markets but hopeful is currently defined as remaining 50:50 in our virtual portfolios despite the shockingly bad news we are constantly being hit on the head with. It is literally 9,100 or bust this week and already some of our favorite short-side plays are getting attractive again like the SKF Jan $105s at $16.50, which can be covered for 48 hours with the Dec $105s at $6 leaving us with a cheap, protective spread over the holidays. A stop at $9 on the Decembers should keep us relatively safe there while allowing us to do a little upside speculation under cover.
We're certainly not going to be excited today by a retest of yesterday's highs so it will be another day of watching and waiting but lot's of opportunities for some fun day trading this close to expiration so – let's have some fun!
