Where's the volume?
We can't keep running up on no volume and not expect to have a nasty sell-off – that just isn't the way things work. In yesterday's Live Trading Webinar, we discussed our aggressive hedge adjustments even as the market drove on to even higher highs. Of course, that's when buying protection is the cheapest but most traders are reactive and not proactive – so we get to bargain shop by acting a bit ahead of the curve.
Yellen didn't do too much to boost the markets yesterday, but she gets another crack at Congress this morning to refine her statements. On the whole, she certainly put off expectations of the Fed raising rates until about September and, even then, only if the economy continues to improve – which is a questionable notion at this point (see last week's posts on the economy).
Still, we've been threading the needle and playing both sides of the market. At the beginning of the month, for example, while we were still giving out free trade ideas – we gave you a combo play on oil, which was one of our Top Trade Alerts (Members Only) using 10 long USO 2016 12 calls for $5.75 ($5,750) and selling 10 of the 2016 $22 puts for $5.65 ($5,650) for net $100 out of pocket. Yesterday USO closed at $18.04 and the combo closed at net $2,260 – up $2,160 (2,160%) in less than 3 weeks – you're welcome.
Of course, that's nothing compared to our more aggressive call to go long on Natural Gas Futures (/NG) at $2.69. Natural Gas finished the day at $2.90 and, at $100 per penny, per contract, that's a nice $3,100 gain on each contract. We're done with Natural Gas longs but we still have a substantial interest on USO longs in 3 of our 4 Member Portfolios, though we did just stop out of longs on the Oil Futures (/CL) at $49.50 in this morning's chat ahead of inventories.
Chinese stocks came back from a week-long holiday (New Year's) and fell off into the close, led lower by a nasty drop in the Macau Casinos, which are looking at a 50% drop in revenues compared to last year as China cracks down on the corruption that made Macau the World's best place to launder money. Real Estate, Banking and Consumer Stocks also fared poorly in China but their PMI came in at 50.1, which is 0.2 better than contracting – so that's all you'll hear about today from the MSM, which is pushing Retail Investors to BUYBUYBUY all the crap stocks the Banksters are trying to unload.
“The PMI number was slightly better than expected but investors are still nervous that the economy is not strong enough to generate topline growth,” said Khiem Do, who helps oversee about $60 billion as Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd. “There’s a gap of perceptions between investors and the government. The economy needs more monetary easing measures.”
Seriously – that's what he said! More free money, please… That's all they ever say, that's the only way the Global Economy works at the moment, more free money. As noted yesterday, since Lehman went bust, a Central Bankster has robbed their country by lowering rates or adding stimulus, giving bailouts to the rich on an average of once every three days! In doing so, we have – so far – run up $57,000,000,000,000 in additional debt, with the AVERAGE country on this planet now two years of their GDP in debt.
As noted by Jim Grant yesterday, in the end, the consequences of the central bank's "distortion" of interest rates "will not be wholesome. This virus of radical monetary policy is now coursing through the political bloodstream. There's no going back, at least not for the medium term. The world has come to expect that central banks will be there in force in unprecedented ways with the greatest improvisations come times of trouble… At some point there will be trouble in the form of a bear market or a recession."
Grant, as usual, likes his gold. I think Yellen has made it clear enough our day of reckoning is still a couple of quarters away so, meanwhile, we'll continue to go with the flow – but we're building up our hedges – just in case.
