What a World, what a World!
Sometimes, all it takes to end a wicked bull run in the markets is a nice, cold splash of reality and what can be more real than the idiocy of the US Government? This is a country where almost 25% of the World's GDP takes place! When you are pushing historically high forward market multiples, like our current indexes are – you have to BELIEVE things are going to go smoothly in the future – or, in the very least – not get worse.
Clearly we are already worse and getting "worser" as the the GOP dug in this weekend and came up with a new set of demands with House Speaker John Boehner saying he wouldn't bring up bills to fully reopen the government or raise the debt limit unless Democrats agree to broader talks aimed at trimming the deficit. "And your little dog too!" said Boehner as he cackled and flew away on his broomstick, leaving 800,000 Emerald City employees without pay for another week (but NOT, technically, unemployed) while millions people in the land of Oz suffer as vital Government Services contine to be withheld.
Isn't that some fantastic doublespeak? Stephanopoulos (2:34) says to Bohener that Harry Reid is happy to sit down and have a discussion, but not under the threat of a Government shut-down and Boehner (and you can see how excited he gets to have an opening to jam in his zinger) goes: "So, it's my way or the highway, that's what he's saying." Said the man who is holding the United States hostage for not meeting his party's extra-legal demands. WHAT A JOKE! WHAT A JOKER!!! HOW FRIGGIN' SAD…
Unfortunately for the GOP, Ronald Reagan taught us how to deal with hostage takers – and they aren't going to like the end game one bit. Sure, we can expect to have 40 years of bitterness and hatred and certainly there will be many more acts of economic terrorism to come from the GOP, but clearly they cannot be reasoned with and they must be stopped now – none of this wishy, washy negotiating and placating that Carter is so reviled for (by the GOP, in fact).
While the GOP was on the air throwing media tantrums 24/7 this weekend, the Democrats did what any wise adult knows to do – they ignored them. President Obama spent four hours on the golf course Saturday and Senate Majority Leader Harry Reid told his colleagues to take the weekend off, while House Minority Leader Nancy Pelosi left town to celebrate her 50th wedding anniversary. Why show up for work? The Democrats are following Napoleon’s old adage: Never interfere when your enemy is in the process of destroying himself.
As noted by WaPo's Marc Thiessen: "One of the first things they teach you in Hostage Taking 101 is that you have to choose a hostage the other side cares about saving. Obama and the Democrats don’t care about stopping a government shutdown. With a shutdown, Republicans are essentially putting a gun to their own heads and threatening to pull the trigger if the Democrats don’t capitulate. Not surprisingly, it’s not working." You can hear the desperation in Boehner's voice – he knows he's on a suicide mission…
Just like any child having a temper tantrum, all the GOP has is the ILLUSION of control. They are causing a temporary problem that can be fixed. At Philstockworld, we have "told you so" for weeks that this would happen and we fully expect it to continue, right up to default day. The only thing the Dems can do (other than give up the Constitutional Process to appease a disgruntled minority) is to let the Reps cry it out in their room (halls of Congress and the MSM) and wait until they calm down enought to come back to the table WITHOUT giving in to their demands.
Meanwhile, there's plenty of technical damage being done to the markets and, as you can see from our big chart, we didn't make enough progress on our bounce lines (see Friday's post) to get more bullish but we're also not more bearish until we break below our recent lows of Dow 14,950, S&P 1,670, Nasdaq 3,740, NYSE 9,500 and Russell 1,068.
Today we may get to test those levels as the Futures are already down almost 1% (7:30). which is about what Asia lost on the day (Shanghai still on vacation) and what Europe is down after lunch. Oil is back under $103 but gold is $1,316 with the Dollar hugging the 80 line. This is just the sell-off we predicted, nothing more – a little bit of reality for a market that has gotten ahead of itself. As I said to our Members this weekend about a bearish article:
Of course I see downside risks and yes, he hits on some of the same but this is a biased viewpoint that only sees the downside and I simply don't think it's a good time to make heavy bearish bets – especially before we begin to see some earnings reports. Sensible hedges will do for now and, of course, CASH IS KING!
Those hedges were (and still are) very simple ones like the FAS short Oct $80 calls I suggested selling back on 9/20 for $1.55, which are already .18 (up 88%) and, while we already cashed those in on the earlier dips, along with IWM shorts and TZA spreads, just last Friday morning I pointed out the TZA Nov $22/25 bull call spread at $1 and, of course, shorting oil futures (/CL) at $104 – now $102.48 and up $1,500 per contract (again).
We still found a few longs we liked in Member Chat, like IMAX, AB (Long-Term Portfolio play!) and even TSLA, who's PR departement spun their battery fire issue so well, we were forced to go long for the bounce off the $180 line. We'll certainly short them again – that's the plan – but no reason not to make a quick buck as the sheeple run back in this morning.
As usual, Mondays are not very meaningful – we'll see how the day's action goes and, most importantly, how those recent lows stand up.
Don't forget, tomorrow (6pm EST) is our FREE on-line seminar with CNBC's Dr Jon Najarian, which should be both fun and profitable – hope you can attend!
