Wheeeeee, what a ride!
We played oil short on the way up yesterda in our Member Chat and I know that sounds strange but oil was $97.50 in the morning, when we first shorted it and fluctuated around that line until the 10:30 inventories when, as expected, we got a nice $1 drop to $96.50, which was good for gains of $1,000 PER CONTRACT on the /CL Futures. My idea to put 10 of those contracts into the Long-Term Portfolio was good for $10,000 just 3 hours after I wrote the post – not bad for a day's work. Even better – this morning we're lined up to do it all again!
We had another nice drop from our $97.50 shorting line back to $97 for another $500 PER CONTRACT gain (x 10 = $5,000) and this morning we once again can do the same at $97.50 so please, don't say I didn't tell you so – because this is me telling your so! Of course, if you want to make REAL money, you've gotta be a Bankstser like Blackstone (BX), who made AT LEAST $15.6M by buying a Credit Default Swap against a loan made by GSO Capital Partners to Codere SA in Spain (a transaction BX had no interest in).
BX then arranged a $130M loan to Codere ON THE CONDITION THAT THEY DEFAULT ON THE GSO LOAN, which triggered the swaps and made BX instant profts of about 10% of their loan as a bonus. I know it sounds like insurance fraud but it's actually legal (maybe not moral, but who cares if it makes money, right?) and BX was not the only Codere lender to benefit. The company is complete junk (rated) and the more they borrow, the more the CDS's pay off!
So no reason to feel guilty about paricipating in the NYMEX scam – we're saints compared to the Big Boys! Don't forget, just like running up the price of oil and gasoline on weekends to screw US consumers out of Billions of Dollars each weekend at the pumps – it's all perfectly legal – we're partying just like it's 2006 again!
The legal status of BitCoin was called into question yesterday as Alan Greenspan called it a bubble, which didn't hurt it, but then the PBOC barred China's banks from offering any services in BitCoin and the virtual currency dropped a painfully real 25% in 3 hours but dip buyers were rewarded as the current-based currency is already back to $1,100 – up a more impressive 30% than the 25% it dropped.
I don't know about you but, when I'm looking for a currency to put my money into, I prefer one that doesn't lose 25% while I sleep – even if it makes most of it back the next morning! The same was probably true for all those merchants who accepted bitcoins at $1,100+ this weekend, only to see they suddenly had an unplanned sale last night…
Also perfectly legas was our short position on XRT from yesterday's post, which opened at $3.50 and closed at $4.35 for a lovely 24% gain on the day. And, by the way, for those of you who are new to reading our morning commentary or following our Member trades – when you make 20% or more in a day, it's always a good idea to take 1/2 or all of the table and set a stop on the rest at the entry so you lock in a 10% gain. Even if you "only" end up making 10% on a day-trade, that's an average of 3,650% a year and, as I'm sure you realize – that's not normal!
Speaking of not normal, check out this insane chart of wages vs profits and you'll understand what Obama and the Pope are so upset about:
Not since WWII and the Great Depression have workers gotten so little a share of the pie and THAT is why this recovery can't gain any traction – the bottom 80% are simply not participating in it at all. Labor Compensation has been NEGATIVE for the past 3 years when adjusted for inflation – and that number is spread across more workers so, individually, it's WORSE than it seems on this chart!
8:30 Update – GDP came in much stronger than exepected, at 3.6% vs 3% forecast by our leading Economorons, who miss it by 20% as a matter of course. Unemployment also slipped from 321,000 to 298,000 this week so more good news there, though I imagine the GDP numbers are good because of inventory builds, and not real transactions. I've already given the word to cut and run on oil on our LTP trade and we'll see about getting a re-entry back at $97.50 (I promise to tweet it). Fortunately, we were just discussing how to trade Futures with tight stops in our Member Chat this morning!
Of course all this good news is probably bad news for the markets, who do not want to see the Fed pulling back on the endless stimulus just because the economy is showing signs of life. As I said, don't be fooled by the headline number, though: Real Personal Consumption Expenditures increased 1.4% vs 1.8% in Q2, despite Prices Paid jumping 1.8% vs 0.2% in Q3 – there's your entire GDP increase right there – inflation. The same inflation the Fed stubbornly refuses to see.
Real Nonresidential Fixed Investment (durable goods) increased 3.5% vs 4.7% in Q2 and Nonresidential Fixed Investment (office equipment) increased 13.8%, way down from 17.6% in Q2. Real Residential Fixed Investment (homes) increased 13% vs 14.2% in Q2. Government spending was flat but NonDefense Spending was off a whopping 3.1% but State and Local Governments picked up some of the slack with a 1.7% increase.
So, as we expected, it was ALL due to a build in inventories, which added 1.68% to the GDP vs 0.41% in Q2, which was 2.5% so 1.26% of the 1.1% increase in GDP came from a build in inventories (unsold goods!) while another 1.8% came from inflation. Isn't that special? Oil just hit $97.50 with the Dollar testing 80.50 and we're back to shorting it, by the way!
Why is the Dollar dropping? Aside from the fact that our GDP is nothing but a math trick, our man (well, actually, Goldman's man) Draghi held ECB rates at 0.25% when there were rumors of negative rates (because he is just that MoFo crazy!). The lack of bat-shit insanity from Draghi spiked the Euro up 1% but still plenty of time for Draghi to say something uber-doveish in his press conference, which just began.
Even as I write this, oil is back to $97.20 already for another $3K gain on our 10 short contracts and we already banked $2K this morning so it's a nice little cash machine to help us catch up on misbehaving short positions in the virtual Long-Term Portfolio. The Indexes are crumbling too and the Russell (/TF) makes a ncie short below the 1,120 line (and a good long above it) as that's an excellent back-stop to place a stop on the other side of. We're still more short than long and still expecting a correction of 5-10% by January but maybe sooner so cash certainly remains KING this holiday season – even with the annoyingly declining Dollar.
I certainly don't see anything this morning that makes me think we're wrong to be bearish at what we already know are unsustainable highs. Watch that 10,000 line on the NYSE for signs of real trouble if it breaks and then it's a clear shot back to 15,600 on the Dow and 1,760 on the S&P (and we ignore the AAPLdaq, as usual).
Be careful out there!
