Testy Tuesday – Drop ‘Till They Prop

How low can we go?

I'm feeling pretty good about this drop because I was feeling pretty bad about leaving ourselves so bearish in the $25K Virtual Portfolio (updated to a virtual $26,434 at the end of week 3) but we should be back in business this morning, especially on our key EDZ hedge, which is also one of our primary overall disaster hedges because, well because it does seem very possible that emerging markets can become a disaster, doesn't it?  

Actually, I'm feeling double plus super good about this particular drop as yesterday's Member Alert had the very well-timed pick to play the Dow futures short on the 12,350 line.  We already got a nice, fat 100-point drop below 12,250 this morning and, at $5 per point per contract – that's a nice cushion!  Futures are very useful on holidays when not everyone is closed and it was very obvious yesterday that we were going to be sitting through a Global sell-off and, without POMO and the US pump crew to prop it up – it was very likely we'd have a tough morning – at least until our local pre-market trading kicked in at 6am.  

That's right, our cynical premise is still that the US markets are not allowed to go down – not even to correct so we just buy the F'ing dips – which is a strategy that has served us very well since early December.  Interestingly, at the time, we were shorting XRT as one of our safety plays and they got a nice rejection off $50 that gave us a quick win in our then $10,000 Virtual Portfolio and we just took XRT as a short play off the $50 line last week, a trade idea I still like for our Members.  As Doug Short points out this morning: "In light of the unemployment rate and the ongoing demographic shift, the surge in commodity prices probably poses more risk of margin squeeze" – something that can quickly become very troubling in the retail sector, many of whom still have to report earnings, as well as outlook:

Thank goodness the Government's CPI figure is so low or I would be worried!  As noted in Stock World Weekly, it was inflation that gave us good numbers in last week's Empire State Manufacturing Index as well as the Philly Fed Report because those reports aren't measuring profits, just sales and sales are booming on a price basis – even if they are kind of lame on a unit basis.  Speaking of lame units – it turns out that it seems that the National Association of Realtors has been lying to us (imagine our shock, Realtors lying!) about the number of homes being sold in America.  

I know, you would think it's like a fact or something but, no – like many bits of economic data on which we make multi-Trillion Dollar policy decisions – it's pretty much just an opinion based on thin data that is subjectively interpreted using poor methodology.  You would think that, in this age of mighty computers, that we could gather fast and accurate information and you would be right.  Only the Government does not want fast and accurate information – slow and inaccurate plays right into their wheelhouse and that is another factor behind many of those idiotic cut-back proposals we looked at in yesterday's "Equities Rising on a River of Blood" post.  

As we know, when the facts present "an inconvenient truth," then you can either A) Ignore the facts, B) Make up your own facts or C) Discredit the people presenting the facts.  All of these are excellent ways of pushing the truth under the rug until after the next few elections or until a total disaster strikes so you can then say "why didn't THEY know this was going to happen."  No matter what happens, there is never a way YOU could have known – it's always THEY who fail to warn you, right?  

The fact that the National Association of Realtors has been overstating home sales by 35-45% in the past two years isn't that (shocking) Realtors might stretch the truth on occasion to drum up a market.  What is shocking is how seriously the punditocracy takes these BS numbers despite all evidence to the contrary.  Maybe it's because I am on-line all day talking to my Members that I don't have blinders on when it comes to what's going on in the real world – I don't know, I'm just trying to imagine a good reason why otherwise intelligent writers have to be hit in the face with a chart like this to realize that things are not quite as bright as they seem to be.  

We discussed the Global situation in great deal yesterday and, on Saturday, we reviewed the current situation, along with our current chart ranges, so this is going to be a forward-looking week.  Oil flew all the way to $98.40 on the futures yesterday but they are back to $96.07 at 8am as reality begins to set in.  There was quite a log-jam of March barrels at the NYMEX and we're still waiting to see how that situation resolves itself but that's nothing compared to Brent Crude, which came close to the $110 mark yesterday as those "rivers of blood" began to flow on the Tigris with the Libyan military turning on their own people – including air strikes on neighborhoods where "sedition was originating."  

Wow, you would think that would be a big headline, right?  Well no, as it's an inconvenient truth that is being swept under the rug by the MSM as US big-money oil interests are closely tied to the Gaddafi regime.  Perhaps you remember last year when the US issued a formal apology to Colonel Gaddafi after one of our State Department spokesmen had the poor taste to criticize the Colonel for calling for a Jihad against Switzerland?  It's not just the US that bends over backwards to appease the man who ordered the bombing of Pan Am 103 over Lockerbie in 1988 – the British just released the actual bomber to Gaddafi's son Saif last year, after the Libyan leader threatened British trade interests.  

But, no.  We are all slaves to oil and, as I mentioned yesterday, there are those in our government who are working as hard as they can to keep us that way as the following attempts at energy independence are slated for elimination under the Republican's spending cut program, which doesn't eliminate one penny of military funding – with two wars that are burning of 1 Million barrels a day of oil.  Under the knife are programs like:

• Amtrak Subsidies – $1.565 billion annual savings.
• Applied Research at Department of Energy – $1.27 billion annual savings.
• Department of Energy Grants to States for Weatherization – $530 million annual savings.
• Energy Star Program – $52 million annual savings.
• Federal Vehicle Budget cut by 20% – $600 million annual savings (money to buy more fuel-efficient vehicles).
• FreedomCAR and Fuel Partnership – $200 million annual savings.
• Intercity and High Speed Rail Grants – $2.5 billion annual savings.
• New Starts Transit – $2 billion annual savings.
• Subsidy for Washington Metropolitan Area Transit Authority – $150 million annual savings.
• Technology Innovation Program – $70 million annual savings.

Don't worry, I don't expect you to write to your Congresspeople, or even change your mind when you vote – I gave up on that when oil went over $60 again and nobody cared.  It's just good to know that the evil empire is back on the march and the same people who wrote the laws that deregulated the energy industry in 2001 and defunded the regulators that oversaw commodity trading and financial regulation that led to the last round of sky-high prices, record corporate profits and, ultimately, a catastrophic implosion of the US equity and housing markets, are back in business! 

Don't forget we're still 40% BELOW the highs in oil that they jacked us up to in 2008 but that was made possible by the Government handing out $168Bn in tax rebates which immediately went to pay for $4+ gasoline (remember $100 a tank?) and, when that ran out, everyone was able to tap those home equity loans as well because, according to the NAR at the time, 5M homes were still being sold with no problem.  Of course, the reality was it was about 3.7M homes but what's 35% between friends, right?  Thank goodness no poor policy decisions were made based no faulty data….

Speaking of housing data – it's Case-Shiller day and the December Home Price Index shows another 1% monthly decline in the value of your home and that is GREAT NEWS because that means that the heavily weighted (24%) Owner's Equivalent Rent component of the CPI will be way down and that means The Bernank will be able to tell us how inflation is still under control (because your wages/benefits and the value of your home are dropping much faster than your grocery bill is going up) and that is GOOD NEWS for Corporate America as the charade continues!  See, there IS an investing premise in all this…

Timmy Geithner told the BBC this morning that there "absolutely no risk" Congress won't raise the U.S. debt limit, downplaying the possibility temporary measures will be allowed to lapse March 4 amid a political showdown over entitlements. Geithner also said the White House's economic forecasts – viewed by some as overly optimistic – were "pretty conservative…"  See – inflation is our FRIEND!

Consumers will let us know how confident they are at 10am and tomorrow the NAR will give us their latest Existing Home Sales report which is expected to show (and I wish I were joking) 5.4 Million home sales or 1.9M more than CoreLogic was tracking for 2010.  The reaction to this will be interesting as the foreign press isn't as stupid/complicit as the American MSM in misrepresenting the data as the headline in Canada's Globe and Mail reads: "US Home Prices Hit Post-Bust Lows in Most Cities" while the WSJ doesn't seem to know the data came out at all, even 30 minutes later.  That pretty much sums it up! 

Let's be careful out there, 

– Phil