The way to make money is to buy when blood is running in the streets, even if the blood is your own. – Baron Rothschild
What a tragic event.
In a very odd coincidence, the above quote was discussed yesterday morning in our Member Chat, well before the attack in Boston turned it literal. We were discussing our strategy for the day's anticipated sell-off but, to be honest, when there was actual blood in the streets of Boston, we kind of lost our appetite for buying in the afternoon.
We did cash in some of our shorts and got more aggressive on some longs but that was at what we thought should have been the bottom around 2pm. As it turns out from the Futures, that was the right call and the markets are back around there in the Futures (8am) and we were fortunate enough to call longs on /ES this morning at 1,550 and the S&P Futures are already up over 1,557 – good for $50 per point per contract but up a whopping 20 points from yesterday's low ($1,000 per contract).
It's one thing to say we should buy when there's blood on the streets but an entirely different thing to actually do it. As you can see from Dave Fry's S&P charts, despite all the excitement, not a lot of technical damage has been done yet and a strong bounce off the 1,550 line after failing 1,600 would be 40% of the 50-point drop or 1,570 and a weak bounce to 1,560 is what we bet we'd get with this morning's Futures play.
A weak bounce doesn't mean anything and even a strong bounce isn't a recovery until it breaks so, with similar logic on the other indexes, we'll be looking at the following levels today:
- Dow 14,660 (weak), 14,700 (strong)
- S&P 1,560 & 1,570
- Nasdaq 3,220 & 3,240
- NYSE 9,010 & 9,070
- Russell 915 & 930
- Transports 5,960 & 6,120
- SOX 425 & 428
Anything less than strong bounces on the day will keep us on the bear side although, as I said, we lightened up to a more neutral stance on yesterday's violent pullback. The VIX ran up form 12.50 on Friday to 17.50 yesterday, up 40% in just one day! That one will bear (oops, don't say bear!) watching as will TLT, which zoomed from 120 to 123 as people panicked back to bonds in all the uncertainty.
Not to belittle what happened in Boston but, as I pointed out to Members, there were 25 bombings in Iraq yesterday leaving 61 people dead in what the Iraqis call "Monday". That's why we didn't expect too much of a global sell-off on news of US terrorism, the rest of the World is, sadly, used to this sort of thing and, to some extent, since it happened during the night for Europe and Asia, they got all the news this morning and many assume that the US markets were down yesterday MAINLY because of a terror attack – so they think it's a buying opportunity and so we have a pre-market bounce.
Whether or not it holds up once the markets open in the US is the real question.
We've got DEflationary CPI numbers this morning (-0.2%) and March Housing Starts are now trending us over 1M homes for the year, up 10% from estimates. 100,000 more homes is $25Bn more Dollars providing 10% more jobs for builders, realtors, roofers, electricians, appliance sales, etc – figure a 5-man crew spends 2 months building a home and we're putting about 80,000 builders directly to work. BUT – keep in mind that even 1M homes is still miles shy of the 1.4-1.6M homes we build annually in a healthier economy.
If we're going to have a real, sustainable, economic recovery – this is where it needs to start. Hopefully our "leaders" will wake up and find some way to encourage home ownership without simply blowing up bubbles as rich people flip condos with cheap Government money. Very simply, the Government can arrange for a $50,000 deposit loan at 3% for first-time home buyers that's subordinated to the primary loan and PRESTO! – another 2-3M families will be able to afford homes and another 2M jobs will be created building them. That is what the Government is SUPPOSED to do to stimulate an economy.
Gold is struggling to get back to $1,400 so that's two alternate currencies (BitCoin) that have been destroyed in the past two weeks (and silver and copper and oil, etc) and Chris Matenson agrees with me that the whole thing seems very suspicious (thanks Wombat) and designed to chase retailers out of their gold and commodity holdings and back to our beloved fiat currencies.
Chris points out how this is part of the grand scheme of transferring wealth from the bottom 99% to the top 1% while Joe Stiglitz also had a great article in the NYTimes, detailing how the rest of your wealth is being transferred to the top with the ridiculously unfair (to the bottom 99%) tax code. Stiglitz makes an excellent point, saying:
One of the reasons for our poor economic performance is the large distortion in our economy caused by the tax system. The one thing economists agree on is that incentives matter — if you lower taxes on speculation, say, you will get more speculation. We’ve drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into “rent-seeking” — getting a larger slice of the country’s economic pie — than into enlarging the size of the pie.
When will we ever learn? Judging by the last 500 years of human history – the answer, unfortunately, seems to be: Never.
