Hurricane Laura is coming.
It's a good excuse to get Oil (/CL) back to $43.50 but it makes a nice short there as nothing else is going on in the energy market to prop it up. We do have a holiday weekend approaching (next Friday) but driving is mostly off the table this year and, for oil, I'm a lot more concerned with the Dollar bouncing back from it's -10% position and kicking oil's ass after Powell's speech tomorrow at the Jackson Hole conference.
While the Dollar deserves to be weak, it's weak relative to what? All the other countries are printing money too – maybe not as fast as we are but the US Dollar is 60% of all the World's currency so, if we are debasing it, we'd have to debase it twice as hard as the Euro (30%) to fall as fast.
Europe has indeed spent about half of what we've spent on stimulus but they've spent it much more effictively and seem to be getting their virus under control. Japan has spent the most, by far and the Yen is another major currency the Dollar is measured against so why should the Yen be higher against the Dollar? It makes no sense, so the Dollar is probably too weak now and a move back up in the Dollar to 96 will likely knock commodities and stocks down about 5%.
While I prefer to short the Oil (/CL) Futures at $43.50 with very tight stops over that line, we can also make the simple bet that oil won't be over $50 in April by picking up the following bearish spread on USO:
- Buy 20 USO April $35 puts for $6 ($12,000)
- Sell 20 USO April $30 puts for $3.15 ($6,300)
- Sell 10 USO Sept $30 puts for 0.52 ($520)
If USO goes below $30, we need to take a loss on the short Sept $30 puts but, if not, we can sell those puts for 0.50 each month and collect $2,000 more through January. As it stands, the net of the spread is $5,180 and it's $8,000 in the money at $31 to start. If we drop our basis by $2,000 more, we should be in very good shape.
As to the Dollar itself, the UUP ETF that tracks it has pretty good support at $25 but it now a big mover but we can play for a simple bounce with the September $25 calls, which are just 0.30. If the Dollar goes up 2.5%, it will add 0.50 to UUP, which is now $25.13 so $25.63 would be a double on the calls so fun for a craps bet (the amount you'd be willing to lose at a craps table)
Another boost for the Dollar is a very strong durable goods report with a headline of +11.2%, though that's off a slump and, of course, it's all about Boeing delivering planes again as ex-aircraft, the gain was only 2.4%. Ex-Aircraft, we're in a long-term slump in Durable Goods as America still just doesn't make stuff anymore and all the tariffs in the World aren't going to fix that – it takes infrastructure investment, education and training to make US Factories competitive again. As much as I think they are over-hyped – look at Tesla – US factories, solid US jobs because they INVESTED in automation that makes the higher US wages a small factor compared to the benefits of not having to ship their goods in from overseas.
TSLA has 48,000 employees making $25Bn worth of cars so about $520,833 per employee. Honda (HMC) has 220,000 employees generating $150Bn so about $681,000 per employee – not that bad of a difference. Of course HMC makes $5Bn a year and TSLA makes $0 and HMC is valued at $43Bn but TLSA is valued at just under $400Bn – go figure…
Go figure can sum up this entire market. 3,450 is a good shorting line for /ES this morning and 11,800 is a good line to short the Nasdaq (/NQ) as I really don't think Powell is going to save us from an awful GDP report tomorow (-32.5% expected). The 2nd Q is a write-off, of course but keep an eye on the estimates for Q3, which we are now 2/3 through.
At the moment, the Atlanta Fed 's GDPNow is expecting a 25% comeback for the economy though those expectations are pulling back for the last two weeks. Even so, when you drop 33% you are at 66 (from 100) and then adding 25% to 66% is only 17.5, which brings you back to 83.5 – still WAY under where you started so there's 6 months of our year miles below the line.
What is our bullish premise again?
