We kick off today with the monthly Treasury Budget, looks like we'll have the cup out for $59Bn this month. While we have always depended on the kindness of strangers, we have to hope that our foreign investors have never heard of the Napoleonic code, because they "don't like to get swindled!"
Perhaps swindled is a strong word but Brando may have been right about not wanting to get cheated. The US isn't cheating per se, we're just no longer saying how many dollars we are printing up so foreign investors must buy dollars at their own risk. Last year, before they stopped reporting the M3 Money Supply, we printed up more than $1T in just 12 months
Pretty cool isn't it? In the past 10 years we've put more dollars into circulation than we did in the first 230! As long as people keep buying them, everything is fine but overproducing dollars is just as dangerous as overproducing any other commodity, excess supply can backwash and flood the market, causing demand to drop.
This becomes a bit of a problem when you have to sell $60Bn of them a month in order to pay your bills. The only variable in this equation is interest so watch out for a sharp rise in rates if the dollar does start to dive but I don't think anyone, not US, not the Chinese, not even OPEC, wants that to happen because we all have truckloads of dollars pilied up and no way to get rid of them (see the Roach Motel Theory).
Asia traded off lightly this morning. Don't let the Nikkei fool you, they were closed so you're still seeing Friday's print. I actually was encouraged by the way Asia held up and most of the selling came from the same tech fears that sparked our drop so they are reacting to old news at this point.
Paulson revealed an interesting agenda over at the G7 this weekend, he and other finance ministers in the Group of Seven leading industrial nations are exploring ways to reduce "duplicative" financial regulations and standards that burden companies doing business globally. Mr. Paulson said the aim is to "break down artificial barriers" and harmonize regulations and standards so costs and other constraints on multinational companies are reduced. This can only lead to one thing – ROLLERBALL!
Merger mania is back in full swing today with perhaps $100Bn in deals announced for this week, as we continue the long march towards a glorious corporate oligopoly. This is great for stocks though as they go into shorter supply, chased by ever expanding piles of money so, as long as we learn to play the game correctly, we can go with the flow and make a little money for ourselves!
SXR Uranium is buying UrAsia Energy which should revitalize CCJ, who just had a terrible quarter but I like them for a nice bounce so we'll keep our eyes open for a good entry, perhaps on the Jan $37.50s for $5.70.
VOD spent $11Bn for majority control of India's Hutchison, a move that should be taken well by VOD shareholders, despite the large price tag. We had a good play on VOD in the fall and I've been hoping for a pullback but this could be huge as just 15% of India's 1B+ population has a cell phone and new subscriptions are pouring in at a rate of 6M per month. VOD has a deal in Europe with GOOG to provide YouTube service on their phones.
Europe is choppy but holding up well and the EU approved sanctions against Iran, setting back the US warmongering effort slightly which, along with nice noises from a Saudi oil minister, has deflated oil prices over the weekend.
We'll see how our markets hold up but we really can't afford to go much lower without getting some really ugly chart action:
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Dow needs to stay positive – and get back over 12,600!
- Transports need to hold 2,850.
- S&P needs to retake 1,440.
- NYSE has the burden of leadership and needs to break out over 9,350 – not holding 9,300 is unacceptable!
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Nasdaq must hold 2,450.
- SOX 465 must hold – they are just killing us and may be retesting the 200 dma at 455 before we get a turn.
- Russell 805 needs to hold – 810 would be much better as we need co-leadership here.
We're still watching the $58.50 mark as a breakdown point for crude. It's getting harder and harder to game the NYMEX as they've got to get rid of those last 180M extra barrels with just 5 sessions left before the March contract closes. You would almost think that oil minister was shorting the market with the timing of his statement …
Bernanke speaks tomorrow and Wednesday so we'll have to wait until then to find out the fate of the dollar as it continues to push at the 85 level while gold continues to hold the high ground around $670. Double the weight of each word Ben utters as he pretty much hit the nail on the head with his last round of predictions and he's talking to a much more receptive audience this time.
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ADBE got a nice upgrade today with a $43 target and I like the Mar $37.50s for $1.75, selling the Feb $37.50s when the momentum trails off as they have a ridiculous premium (.60) for 5 days. Big resistance at $40 which should cap even the biggest rally this week but more likely they'll be held down at $37.50ish.
HOC will give us a good window into the energy sector. They had great earnings, solid growth and a pretty low p/e. If you believe in prolonged high prices, this is a great play! Let's see how many believers are out there.
KO has earnings on Wednesday so let's keep an eye out for a sale opportunity on the February calls but I'm tempted to take my chances on this one (see Long-Term Trade Watch).
LTR may be ready for take-off after these earnings! It's good when a $23Bn company makes $750M in a quarter… $45 is the 5% rule (and an ATH) plus we have expirations so let's just keep them on the watch list for now.
NILE may be getting ahead of itself with a p/e of 58. Earnings are tonight and the spread of the March/Feb $40 puts is just .40 ($1.55/$1.15) so I'll be picking up some of those!
STO is another oil company that is through the roof but not exciting investors. Production was down 10% for the quarter as they held their OPEC cuts better than most of the official members!
Our YUM play goes off tonight and they may raise their EPS but that will be mainly due to this year's stock buyback and I don't think investors will be as forgiving of them as they have been for XOM for this particular accounting trick. With a .15 cost of our spread, we really don't have much to worry about!
