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Tuesday, November 5, 2024

Wild Wednesday Wrap-Up

That wasn't so bad was it?

You know the markets have clearly left orbit when a $20Bn hedge fund blowing up barely causes it to pause.  While he didn't hurt the market, I wouldn't say Bernanke helped the market, as he flat out stated the housing slump had deepened and "Upside risks to inflation are [the Fed’s] predominant policy concern."  Woo hoo – party on Ben!

Here's some of the great things Ben said that don't seem to matter to investors:

  • Mr. Bernanke added a new inflation risk to the ones he has cited in the past: Productivity growth has "slowed somewhat," he said.
  • "Month-to-month movements in inflation are subject to considerable noise, and some of the recent improvement could also be the result of transitory influences."
  • "Sizable increases in food and energy prices have boosted overall inflation and eroded real incomes in recent months… PCE inflation ran at an annual rate of 4.4 percent over the first five months of this year to a level that would clearly be inconsistent with the objective of price stability."
  • "Yet another risk is that energy and commodity prices could continue to rise sharply, leading to further increases in headline inflation and, if those costs passed through to the prices of non-energy goods and services, to higher core inflation as well."
    • Nonetheless, the Fed lowered their official 2008 core forecast to between 1.75 and 2%.
  • "Declines in residential construction will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time."
  • "Nevertheless rising delinquencies and foreclosures are creating personal, economic, and social distress for many homeowners and communities–problems that likely will get worse before they get better." 
  • Fed officials lowered their forecasts for economic growth both this year and next by a quarter percentage point from their February view.

Ian Shepherdson of High Frequency Economics is quoted by the journal saying: "To us, Mr. Bernanke has a pair of rose-tinted spectacles clamped firmly to his face, not least when he said that the housing drag will “diminish over time” and that the inventory problem has been “substantially eliminated”. The housing drag is in fact re-accelerating – look at building permits – and the slowing in core retail sales will trigger a substantial further inventory correction in the second half."

Despite the drop in the market in the morning my VIX theory has been holding up and I said at 10:03: "I’ve got to tell you – every time the market goes down the VIX shoots up. Think of the VIX as a rubber band that gives you a tightness reading. When the VIX is low, you have slack, when the VIX is high, it is harder and harder to keep going. The VIX shot up 5% this morning on a 100-point drop (from yesterday’s high) in the Dow. This keeps happening and makes me think downside resistance is WAY higher than upside resistance. Conclusion – crazy as it seems, keep short index positions covered with DIA Aug $140s, now $2.08 or Sept $142s, now $2.40 against which you can sell the July 140s for .40.  I’m scaling into the DIA buys VERY slowly, they are easy to grab fast if the market jumps but no sense in buying when the market is on the way down."  That was, of course, a huge winning play!

Since I was on a roll and had already read Ben's full speech I made my bottom call at 10:23, 2 hours ahead of the actual bottom: "The gist of this speech is we need to pull out all the stops to boost the economy or we are screwed but he wants the government to do it while he maintains a tight bias to control inflation. With 2 days of Q&A, the marked can go up and down 100 points several times so lots of half outs and DDs on the index puts as we may get a nice channel between 13,850 and 14,000 but a break below 13,900 and then 13,850 will begin to concern me…"

Calling a 100 point drop (we went heavy on the puts yesterday) and a 100 point gain on the button led to our best single day gain to date with the Short-Term Virtual Portfolio, where we make our index trades, rising 11% on the day – which is very, very impressive as we were 60% in cash!  Despite the very fun day we cashed out a lot of positions as I thought Bernanke's comments were kind of scary but we DO NOT fight the market – so we continue to go with the flow!

The 10-year note slipped below 5% and the dollar continued to march towards 80, touching a new low of 80.23 before bouncing back to 80.43 and we might be finding some support here.  As I said last week, this is now or never for the World banks to step in, but now I'm becoming concerned that we may be establishing a sort of dollar carry trade – where investors borrow dollars at 5%, which devalue at a rate of more than 5% a year, making them effectively better instruments than the yen for international investors.  You engage in this carry trade every time you dip into your margin account to buy stocks, which are themselves a commodity along with gold, which jumped $8 to finish at $673 or oil, which ran up over $75.

Why did Japan become the lender to the world?  They had a strong but stagnant economy that was being held aloft by ultra-low Central Bank rates while their currency languished.  Does that sound like any countries you know?

So, like I said, we cashed out a bunch of positions but ended up with a still bullish overall posture but are fairly well covered with a brand new set of mattress plays:

 

Description

 Basis

Open

 Sale Price

Close

 Gain/Loss $

%

10 OCT 125.00 AAPL CALL (APVJE)  $    2,410 5/25  $  19,490 7/18  $  17,080 709%
20 OCT 125.00 AAPL CALL (APVJE)  $    4,810 5/25  $  39,990 7/18  $  35,180 731%
40 OCT 30.00 ABX CALL (ABXJF)  $    5,820 5/18  $  18,390 7/18  $  12,570 216%
40 AUG 45.00 BTU PUT (BTUTI)  $    3,610 6/28  $   6,590 7/18  $   2,980 83%
40 AUG 45.00 BTU PUT (BTUTI)  $    3,610 6/28  $   5,390 7/17  $   1,780 49%
10 JUL 85.00 CAT CALL (CATGQ)  $    1,910 7/13  $   1,990 7/18  $        80 4%
20 JUL 85.00 CLF CALL (CLFGQ)  $    2,610 7/6  $   5,490 7/18  $   2,880 110%
400 AUG 140.00 DIA PUT (DAZTJ)  $122,010 6/25  $119,990 7/18  $  (2,020) -2%
100 AUG 139.00 DIA CALL (DAZHI)  $  16,510 7/12  $  30,990 7/17  $  14,480 88%
75 AUG 138.00 DIA CALL (DAZHH)    $       385 6/8  $  26,240 7/16  $  25,855 6716%
50 JUL 75.00 DNA CALL (DWNGO)  $    1,510 7/12  $   1,740 7/18  $      230 15%
30 JUL 75.00 DNA CALL (DWNGO)  $    1,210 7/11  $   5,690 7/18  $   4,480 370%
15 AUG 100.00 DO PUT (DOTT)  $    5,035 7/2  $   5,165 7/17  $      130 3%
25 OCT 35.00 EBAY CALL (XBAJG)  $    1,635 5/16  $   5,615 7/18  $   3,980 243%
10 AUG 60.00 ECA PUT (ECATL)  $       960 7/12  $   1,090 7/18  $      130 14%
40 AUG 45.00 FTO PUT (FTOTI)  $    3,810 7/11  $   7,990 7/18  $   4,180 110%
5 JUL 25.00 GLW CALL (GLWGE)  $       810 6/20  $      790 7/18  $       (20) -3%
15 SEP 550.00 GOOG CALL (GOPIY)  $  16,510 6/20  $  44,915 7/18  $  28,405 172%
5 AUG 500.00 GOOG PUT (GOPTO)  $    5,910 6/22  $   2,990 7/18  $  (2,920) -49%
5 JUL 510.00 GOOG PUT (GOPSU)  $    1,210 6/22  $   6,490 7/18  $   5,280 436%
5 JUL 520.00 GOOG CALL (GOPGV)  $  16,010 6/22  $   8,240 7/18  $  (7,770) -49%
5 AUG 530.00 GOOG CALL (GOPHW)  $    7,660 6/22  $  16,490 7/18  $   8,830 115%
10 JUL 540.00 GOOG CALL (GOPGX)  $  17,510 7/13  $  13,990 7/18  $  (3,520) -20%
4 JUL 550.00 GOOG CALL (GOPGY)  $    5,610 7/13  $   5,390 7/16  $     (220) -4%
4 AUG 530.00 GOOG CALL (GOPHW)  $    6,810 6/30  $  14,990 7/16  $   8,180 120%
7 JUL 560.00 GOOG CALL (GOPGZ)  $    6,310 7/13  $   6,150 7/16  $     (160) -3%
10 AUG 75.00 HOC PUT (HOCTO)  $    1,910 7/13  $   3,090 7/18  $   1,180 62%
12 JUL 110.00 IBM PUT (IBMSB)  $    2,170 7/16  $   1,850 7/18  $     (320) -15%
5 JUL 110.00 IBM CALL (IBMGB)  $       760 7/18  $   1,365 7/16  $      605 80%
30 JUL 80.00 LVS PUT (LVSSP)  $       310 6/20  $   8,990 7/18  $   8,680 2800%
30 AUG 52.50 MCD CALL (MCDHX)  $    2,860 6/28  $   4,340 7/18  $   1,480 52%
120 JUL 30.00 MSFT CALL (MSQGK)  $    8,050 7/10  $   6,230 7/17  $  (1,820) -23%
20 JUL 180.00 OIH CALL (ODLGP)  $    1,510 7/17  $   3,890 7/18  $   2,380 158%
20 JUL 175.00 OIH CALL (ODLGO)  $    6,010 6/22  $   6,990 7/18  $      980 16%
20 AUG 150.00 PTR PUT (PTRTJ)  $    5,810 7/5  $   7,190 7/18  $   1,380 24%
45 AUG 100.00 RIG PUT (RIGTT)  $    9,325 6/27  $   8,990 7/18  $     (335) -4%
10 JUL 230.00 RIMM CALL (RFYGF)  $    2,510 7/13  $   4,740 7/18  $   2,230 89%
70 JUL 27.50 SBUX CALL (SQXGY)  $       360 6/7  $   4,190 7/18  $   3,830 1064%
40 JUL 25.00 SBUX CALL (SQXGE)  $    4,410 6/7  $   4,390 7/18  $       (20) -1%
40 AUG 85.00 SLB PUT (SLBTQ)  $    5,450 7/13  $   8,390 7/18  $   2,940 54%
30 AUG 22.50 STX CALL (STXHX)  $    3,010 7/2  $   4,490 7/18  $   1,480 49%
20 JUL 125.00 TM CALL (TMGE)  $       210 6/22  $      790 7/18  $      580 276%
30 JUL 125.00 TM CALL (TMGE)  $       310 6/15  $      590 7/18  $      280 90%
20 AUG 57.50 TSO PUT (TSOTZ)  $    3,910 5/2  $   7,390 7/18  $   3,480 89%
50 AUG 75.00 VLO PUT (ZPYTO)  $    8,010 7/10  $  13,990 7/18  $   5,980 75%
50 AUG 75.00 VLO PUT (ZPYTO)  $    8,010 7/10  $  12,990 7/17  $   4,980 62%
10 SEP 55.00 WNR PUT (WNRUK)  $    1,910 7/13  $   3,090 7/17  $   1,180 62%
10 AUG 115.00 X CALL (XHC)  $    4,810 7/9  $   5,690 7/16  $      880 18%
10 AUG 72.00 XLE CALL (XBTHT)  $    2,110 7/9  $   3,090 7/16  $      980 46%
100 JUL 85.00 XOM PUT (XOMSQ)  $       510 7/5  $   3,990 7/17  $   3,480 682%

 

 

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