Now we need follow-through.
I think we've already blown the opportunity. In Stock World Weekly we discussed the stealth bailouts jammed into the Transportation bill on Friday which rightly sent the markets flying higher into the close of the quarter (I know quelle suprise!). As noted by David Fry, GS was working hard behind the scenes to make sure that, in the end, Germany toe'd the line.
For the year so far, the Dow is up 3.89%, S&P is up 6.66% (so you KNOW Goldman is involved), the Nasdaq is up 10.81%, NYSE 2.33% (all of it gained on Friday) and the Russell 6.15%. See how great everything is?
We took the money and ran, again, as we hit some clear resistance lines (see SWW) on our Big Chart and there was no sense risking a 10% gain in our first week in our new $25,000 Portfolio with the July 4th holiday coming up (we have a half-day tomorrow and we're closed on Wednesday).
The only trades we left active in the $25KP was 5 OIH July $35 calls at $1.25 (still $1.25), 10 DIA July $129 calls at $1.10 (now $1.35) and 10 SQQQ July $49/53 bull call spreads at $1 (now .75) we added later in the day to protect them in case we had a big dip this week. If we make it through Friday above the lines on our Big Chart – then we will continue to be "constructively bullish" and we'll be happy to deploy more cash but, into 2 days off – NO THANKS!
In fact, as we're already up 22% on the DIA calls – if we get another pop this morning, those are likely to come off the table as well. After all, how much money should you expect to make in 48 hours? This is a very unnatural and manipulated market and it's great to play it – as long as you keep that in mind! The danger comes when you delude yourself that this is some kind of "investing" environment when it's actually just gambling ahead of Q2 earnings reports – that could send us right back into a tail-spin.
Or, maybe not – as a key amendment to the Transportation Bill will add Billions of Dollars in profits to the S&P 500 by allowing Corporate Pension Plans to use the average interest rate over the past 25 years (high) as opposed to the last 2 years (low) towards calculating future returns. This not only boosts Corporate profits and distorts the reality of earnings but also distorts our picture of how underfunded these pension plans are like GM ($25Bn under-funded) or F ($15.4Bn under-funded). Not only does it change the reporting, but it allows our Corporate Citizens to LOWER their forward contributions to the plans – after all, it doesn't look like they'll need the money according to these new figures!
Goldman Sachs economist Alec Phillips writes in a research report that pension fund contribution requirements could be reduced by $35 billion in 2012 and between $60 billion and $70 billion in 2013 and 2014, according to estimates by the Society of Actuaries. And you thought they couldn't possibly screw the workers over any more than they already have? Don't be silly – remember what President Bush said about being 'innovative and resourceful" – what could be more forward-thinking than wiping out what's left of pension plans today in order to create the indentured servants of tomorrow?
Here's how it would work: Corporate defined-benefit plans — the traditional pension plans that provide an assured retirement payment –have to calculate the present value of their future liabilities to retirees.
The present value is calculated by applying a "discount rate," which reflects what prevailing interest rates. Back in the 1980s, when government bonds yielded in the double-digits, the discount rate would be high, which would reduce the present value of those liabilities. Sounds complicated, but it makes intuitive sense to anybody saving for retirement. If you can earn a lot on your investments, you can sock away less today to provide for your retirement.
Conversely, today's ultra-low interest rates mean you have to save a lot more to meet your retirement goals. Similarly, the present values of corporations' pension funds' future liabilities are higher at today's record-low bond rates. So, companies have to contribute more to their pension plans, since those contributions reduce earnings, and thus their tax liabilities.But if companies contribute less, their profits and thus taxes would be higher, which would increase the federal government's revenues to pay for these goodies.
It's a "win-win" for Big Business and Big Government and the only person who gets screwed is you, when you retire – but only if you are in the bottom 90% – and those people don't read stock newsletters anyway so f*ck them and let's look at the list above for some cool investing opportunities:
We already have AA, GT, SVU and X on our "Twice in a Lifetime" list (with GT added the day of my BNN interview). WHR is interesting and F we like to play when they are low. TXT is nice and we just picked up BA last week and DOW and ED are both stalwarts that are worth a look in any long-term portfolio. That's plenty of good ideas and we'll take a closer look at each one in Member Chat to see if they are good enough to officially add to our Income Portfolio – which is also 90% in cash at the moment and looking for some nice opportunities.
Overall, the markets are still very weak – as evidenced by this morning's quick pullback in oil to $83.50. Copper is also lame at $3.47 and natural gas isn't very exciting at $2.76 and gasoline has, so far, failed to hold $2.60 into the busiest driving week of the year.
Korea's Manufacturing PMI fell into contraction this morning at 49.4, down from 51 in May. Finland says they will block any effort to have the ESM buy sovereign debt on the open market (what, no GS employees in the Finnish Government?) and the vote does have to be unanimous to be approved but, so far, Europe doesn't care too much and is up 1% for the morning despite EuroZone unemployment rising to a record 11.1%, including Spain's astonishing 24.6%.
Speaking of rapid contraction – EuroZone PMI for June came in at 45.1 – almost 5 points into contraction with Ireland and Austria the only nations showing any growth at all. This is the worst quarter since 2009, when the market collapsed and was about 50% lower than it is now but why should that lead anyone on TV to be concerned about earnings – that would be way too logical for the MSM…
BCS Chairman and Roman Emperor-sounding Margus Agius resigned saying "the buck stops with me." It was, in fact, $350 TRILLION bucks worth of instruments that BCS and other banks were manipulating – making a total joke out of the Global Financial Markets as well as Bank regulation in general. It will be interesting to hear what our own Fed's Williams has to say this afternoon as he gives a speech on "Monetary Policy Since the Financial Crisis."
Please hold your jeers until the end of the speech. .
