Dave Fry sums things up nicely:
"Earnings and economic data don’t seem as important now. Reasonable PE ratios and dividend yields are passé. Savings will only be achieved through increased speculation in stock markets since that’s all the markets will give you. Traditional savings or other conservative and traditional savings methodologies are not attractive. Liquidity is still all that matters and with Fed Chair Yellen coming in QE and low interest rates should be with us for a long time. The character and demographics of the country will continue to change until it all blows up when the dollar and even its reserve currency status disappears."
There won’t be any debt ceiling battles since they’ll be banned. Government budgets will continue to expand beyond $17 trillion and beyond as long as buyers like the Fed buy what the Treasury must sell.
Dave also says "I’m just talking to myself it appears. But we need to remember our role, which is to make subscribers good rates of return even while raging at the machine." I suppose we're in the same boat there (see my own weekend commentary in our Member Chat).
Not only does a rush back to bonds signal a weak economy but oil is down to $100 (as we expected) and gasoline is down to $2.66, which is 15% LOWER than it was in July yet, for example, VLO, who sell refined gasoline products, is UP 20% since July earnings. OIH (Oil Service ETF, who we are long on), are up 12% despite oil the 10% decline in the price of oil. COP, who are rumored to sell a few barrels of oil in the average day, are up 15% since July earnings.
How much sense does this make to you? When things do not make sense, we prefer to get to CASH and cash, by the way, is a pretty good investment with the Dollar at the bargain-basement price of 79.77, down from 84.96 (6%) since July and this is what professionals do, you buy cheap stocks with expensive Dollars and then you SELL expensive stocks for cheap Dollars so that, when the stocks get cheap again and the Dollars get expensive, you can cycle around. Unfortunately, people tend to get confused and forget to do their part at either the top or bottom of the cycle – this is what makes a market.
My chief concerns regarding the macros are echo'd by John Mauldin this week, who writes:
That privilege allows US citizens to purchase goods and services at prices somewhat lower than those people in the rest of the world must pay. We can produce electronic fiat dollars, and the rest of the world accepts them because they need them to in order to trade with each other. And they do so because they trust the dollar more than they do any other currency that is readily available. You can take those dollars and come to the United States and purchase all manner of goods, including real estate and stocks. Just this week a Chinese company spent $600 million to buy a building in New York City. Such transactions happen all the time.
While this is a huge concern, we have to be careful of our timing. An asteriod is going to wipe the Earth out in 2036 (1/6,250 chance, actually) and I'm 50 years old and I'll be 73 then so should I cash in my IRA now and invest in SpaceX to get me off this doomed Planet? The Sun will definitely expand and vaporize the surface of the Earth entirely in 4Bn years, that one is 1/1 (if you believe in Science, that is), how will that affect my TSLA short? Obviously it won't and neither will the shorter-term worry of an asteriod strike (a small one hit Russia last year and no one cared much in the US) and neither will the indetermined worry about the collapse of the Dollar – for now.
Knowing when to worry is as important as knowing what to worry about.
We were not worried about oil going higher on Friday because the economy is, in fact, weak and we shorted it as our first trade of the day at $101.50 (/CL Futures) and, of course we kept our USO puts (Nov $38 puts at $1.47, $1.75) and SCO longs (Nov spread, still a good entry at Friday's close) as short-term bets that oil will still hit our $98.50 target or lower. We knew WHAT was going to happen, we just weren't sure WHEN.
The same goes for the markets, GOOG surged to $1,011 on Friday and our #1 Rule (there's only 2) at Philstockworld is ALWAYS sell into the initial excitement. Sure GOOG can go higher but we'd feel really stupid if we held it over the weekend and it gave back half of Friday's $122 gain. So we sold our 2015 $800 calls that we bought ages ago for $115 when they hit $235 in our Long-Term Porfolio, pocketing a virtual $399,500 but none of it will be profit until we dispose of our short 2015 $920 calls ($300,000) and the short 2015 $850 puts ($46,000). If we thread the needle on that spread into next year – THEN we get to keep an unencumbered $399,500. Until then, we'll be watching for asteriods!
We're waiting to see if earnings can confirm these market tops. As you can see from Dave Fry's McClellan Oscillator, we've zoomed right back to overbought but not quite as overbought as we were at the Sept peak, when the NYSE topped out at 9,906. Today we're testing 1,000 and it will be very impressive if that line is crossed AND held. You would think it would take some spectacular earnings to justify this kind of move.
You would think…
