Hey today went pretty well!
I missed a really good article in Barron’s that may have cheered up investors. It’s neatly summarized by Eli Hoffmann of Seeking Alpha but the original is worth reading too.
The premise is that US stocks are, in fact, underpriced while our trade and debt woes are highly overstated. It is similar to many articles I wrote about outsourcing earlier in the year. I got bored talking about how outsourcing is good back in August but it’s nice to know Barron’s is catching on in December!
Since the Barron’s guys stole my premise (and took all the fun out of it by making it sound all academic), I beg your indulgence as I reprint my original (8/30) take here:
GDP day! Is the economy in a hard landing, a soft landing or is it in my patent pending Bumpy Landing ™? A bumpy landing means that we have flown too close to the sun on inflated housing and speculative commodity prices which are now losing their lift and we need our other engines to kick in before we lose too much altitude.
The other engines are strong: We deliver the world’s goods with our transports, dominate the Internet, have 95 of the world’s top 100 brand names, supply most of the planet’s junk food (sorry), and even Arabian MTC carries a version of The Simpsons (Al Shamsoon’s, where "Omar" avoids beer and hot dogs (banned) and eats cookies instead of donuts but he still yells at "Badr" and tries to strangle him (what no stoning?)).
It is the flexibility of our culture (otherwise known as lack of artistic integrity) that allows us to export it around the world. We export $1.5T in goods and services around the world. The much publicized trade deficit of $700Bn is currently close to 50% oil and no one should be surprised that the richest country in the world (by a factor of 4) spends an extra 4% of their GDP on imports!
When you are the richest person in a bar (say with your college friends) do you worry about the drink deficit if you buy an extra round or two? Can you reasonably expect that you should benefit from a drink surplus as poorer friends struggle to keep you in Martinis? Of course not, the error should always be slightly against you or it is patently unfair.
Our trade imbalance with China of $200Bn a year is primarily made up of American goods that are produced in China for American companies who maintain high paying sales, management and distribution infrastructure here while "outsourcing" (boo!) low paying factory work (and the pollution that goes along with it).
Rather than paying 50,000,000 American workers (as if you could find them) minimum wage to sew dresses for Barbie, we pay Chinese workers half of that amount and our friends at Mattel can sell your kid a doll with 2 outfits, a brush, a purse and 3 pairs of shoes all for $9.99 delivered to your local store all the way from Taishan. I don’t care how many machines you have to help you, let me see you assemble one Barbie in America sell it in Taishan for less than $19.95 and I will embrace tariffs!
We don’t just export the $17,000 job, we export the crowded housing, the social security obligation and health care, the social and government services, the pollution and the environmental drain that 50,000,000 low wage workers and their families require from the places they live.
So I’m not worried about the trade deficit nor am I worried about the GDP which takes none of the above benefits of outsourcing into consideration. As long as American workers are still getting jobs, we can be reasonably certain they are better jobs than the ones misguided Congressmen are trying to get back from overseas and, as we approach (or may be past) full employment, we may finally shake loose the corporate purse strings and get some of that "trickle down" money into our paychecks – just in time to get another Barbie for Christmas!
So there Barron’s – been there done that! As to their other point about the housing landing being fairly soft – did that one too!
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OK, I got that out of my system – now back to what happened today:
- Dow – 12,407 – back barely over our critical bull line
- Transports had a nice 1% gain to 2,571
- S&P – 1,416 – nice bounce of 1,410!
- NYSE – 9,102 – leading us to the promised land.
- Nasdaq – 2,413 – got back above the 50 dma.
- SOX – 467 – up a point but still trapped in a wedge.
- Russell – 788 – strong 1% bounce off the 50 dma.
The markets were good! We gained a lot of breathing room and the dollar held firm (thanks to my article, I’m sure!) and gold once again failed to break $630.
Oil was the story of the day with a 2% drop, along with a 7% drop in natural gas. It bounced off our $60.80 target and was just barely pumped over $61 to close at $61.10 for the day.
We made a few small day trades but the drop reversed mid-day and we decided to take our small profits and run, reducing the basis on our existing XOM and XLE puts nicely – allowing us to relax through inventory shenanigans.
All in all, a nice relaxing day to return to work!
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We made a few moves, but not many during the day:
AAPL (finally!) Feb $85s for $4, selling (not yet) the Jan $85s for no less than $2.40. It’s currently at $2.70 so we have a .30 trailing stop on the sell and, no matter what, we sell before earnings (1/17).
CHL Mar $45s were taken 1/2 off the table at $2.30 (up 100%).
DD Jan $50 puts were stopped out at $1.50 (up 88%).
DOW Feb $40s were picked up at $1.20 but we dump this if oil starts heading back over our $62.40 mark.
We added MSFT July $32.50s for $1.05 with the intent of paying for them by selling the Feb $30s against them for .95 IF there is a pullback. " I’ll be setting a kind of .10 trailing stop that I will increase by a nickle for each dime it goes up as I’d rather not sell them unless I have to."
PTR Feb $130 puts came in at $2.80 as I don’t see how they are immune from falling oil prices.
QQQQ Jan $43.63s were picked up for .50.
SNDK, took round 2, but this tiime took the same Jan ’08 $40s and sold the Feb $45s for $2.75 against them.
