Daily Market Recap 07/02

Posted daily, just after the close. If you appreciate the effort, don't forget to rec or bookmark the source; JoshSebastian.BlogSpot.com. Enjoi

The other day I found myself typing "The S&P closed at" and thought; WTF are you doing? Only now have I realized the significance of a daily trading journal. However, if I merely regurgitate the numbers, I'm going to lose sight of the big picture. So I apologize in advance for only giving you my jaded perspective. :)

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Waterboarding - I know the market has been torture and I normally don't cover politico on this blog. However, a Vanity Fair writer decided to be waterboarded in the name of journalism. I encourage you to watch the video.

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Oil - Oil inventories down 2.1M brls. This appears to be a continuation of the drawdowns. If you remember last week was only a 800K increase. Therefore this drawdown leaves us with less inventory than two weeks ago. The USO opened at $114, spiked to $116 on the news then fell, then went nuts around 2:30.

Gasoline inventories were up and refinery capacity is about the same. So...we're importing less oil and we're using less gas...but the refineries are operating near capacity....that means the refineries must be purchasing the same volume...but the oil inventories are down....what does that mean?

Either:
1. There really is a supply issue
2. The importers are preparing for a demand decrease.
2. Oil is increasingly being used for other uses.

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Dollar - Still diving. Looking for a home around 72. I say under it. Again, I see NO events that could potentially stem the dollar's slide. The market may not want to capitulate. However, by the time we raise rates, we'll be late to the party and Price Inflation Cannot Be Global! So we're screwed by default.

This helped gold raise a bit.

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Credit / Debit - (Via Bloomberg) ABA says HELOCs are failing at highest rate since 1987. "Home-equity lines of credit at least 30 days past due rose 14 basis points to 1.1" Gee, 1.1% spooky! Now let's compare that to the housing or credit card default rates. More trouble coming ya think?

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Jobs - Mish has a great article about a "Downward Spiral" in jobs. Again guys, I just can't see a second half correction here. Once that wage lag hits retail and defaults. WOW. So we may get a slow bear rally. If you get caught offsides and leveraged when we go over the falls, I feel for you.

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Fed Gov. Mishkin tells it like it is. - Great Stuff

Mishkin characterized the likely pace of recovery in financial markets as 'slow.'

This 'suggests the U.S. economy will be subject to substantial headwinds for some time,' he said.

"Banks are tightening their lending standards, and conditions could worse again should the economic outlook deteriorate further," he said.

Moreover, it will "take a substantial amount of time to complete the cleanup of the financial mess and to get the financial system fully back on its feet," Mishkin said.

"With housing construction continuing to decline and energy prices continuing to rise, risks to growth still appear, to my eye, to be to the downside," he said.

"Households face significant headwinds, including falling house prices, tighter credit, a softer job market, and higher energy prices," he said.

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Paulson Calls for Process to Liquidate Failing Firms - Why would you need this? After all, the worst is behind us. This should show you what a frickin' shill this guy is, despite his seemingly lacking yet verifiable intelligence. Basically now he and Benny need a plan to get their A$$es out of their "open window" jam. Apparently that plan includes taking some companies out back to shoot. Wait...so how do they chose WHICH companies to let fail?

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Bush has a trading terminal? - He must, because today just at the dollar was trying to take out Monday's low, he comes out and says his administration is for a strong dollar. Word? That would have taken vetos, no?

We've seen this bluff before...and as Bush says "Fool me once, shame on — shame on you. Fool me — we can't get fooled again." I'm starting to believe that rate hikes wouldn't save the dollar anyway...I'm just not willing to bet against the sheeple.

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Curiosity at Bespoke - A reader poll shows 60% of respondents predicting the S&P up at the end of the year, while 92% say home values will be lower. Hmmmm? I'd like to see that thesis.

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The Sammy Israel "fugitive hedge fund manager" case ended anticlimactically today as Sam turned himself in to autorities in MA. Better than dude killing himself I guess.

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The Oil "Bubble" - Even when I think oil is "overbought," I can't convince myself it's overpriced. The supply / demand gap isn't that big (yet), yet the U.S. is paying significantly more for oil. Therefore, so is some other consumer on the other side of the world....but again, they must be able to afford it because the supply / demand gap has held steady. Get it?

Given that general price inflation cannot be global (think about it) and considering the following; Europe set to raise rates to battle price inflation. The U.S. considering raising rates (2009?) to battle price inflation. Taiwan, Poland, Mexico, India have all hiked rates to battle inflation. How can oil be in a bubble? The only plausible theory for a bubble would be that the rate hikes or something kill global productivity driving down oil....but who the hell hikes on the verge of a downturn?

The problem is Oil has been lumped in with "commodities" for too long. Oil is energy. As such, oil is also the cheapest form of energy. In comparing gold to oil, one should first realize they are both finite, however gold is not purchased to be destroyed. Because oil is the cheapest energy source and as it becomes more expensive, there are no compelling alternatives but to use less.

Thus, there are the haves and the have nots. As the have nots go without, the haves get less demand to contend with. This may not lead to lower oil prices, but certainly a plateau don't you think? Isn't it obvious that there are emerging market buyers that would love some of your oil...if only the price came down just a little bit.

Sure there are those who say high oil will cripple the markets. NO! High energy will cripple the markets. High oil will lead to a boon in other areas because even if the oil demand abates, the energy demand will not.

Lastly to prove the ignorance of the markets at this time...take a look at this chart...It compares Oil, Solar, Wind. Oil is up, yet solar and wind are down? Hmmmm....I must have been sleepy when we talked about alternatives in Econ 101. These funds MUST rise, otherwise the price and supply of oil will slowly strangle the economy...then they'll rise damnit.

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Trading - I'm changing my "rules" a bit. First, no two same way bets (Long gold AND oil for instance as both trade off the $...either one of the other). Second, longer time frames and more patience with specific picks. Third, automatically sell any profitable option position that retraces more than 25%.

BOUGHT / SOLD MON JUL 130 CALLS (+6%, stopped out. This may seem stupid, but I have a rule about letting a gain turn into a loss. Short-term, could have been more, could have also gotten my head taken off without stop!)

BOUGHT / SOLD KOL JUL 55 CALLS (+35%, This was purchased to hedge an existing loss on KOL...I got lucky quickly, sold it and kept my KOL.)

BOUGHT GLD 92 AUG CALL (+8%)
BOUGHT PBW 19 SEP CALL (0%)

XLF 20 JAN PUT (-3% - Don't hold your breath)

Daily Market Recap 07/01

---------- Foreword ----------

Thanks for cruising by to read. Posted daily, just after the close. If you appreciate the effort, don't forget to rec or bookmark the source; JoshSebastian.BlogSpot.com. Enjoi

There's nothing quite like waking up, on day one of your new venture, to find your trading account down 15%. I mean hell, if I was a hedge fund they may have shut me down already. Well, except for last month's profits. :-)

---------- Important Crap ----------

Oil - Apparently there was some sabre rattling concerning Iran and Israel that drove up the oil futures about 2%...then back to the flat line...then back up. LOL. I think oil is ahead of itself. I also don't think Israel can strike Iran in the manner they will need to and I don't think they will try until they can get some other folks on board. However, if you're interested in the prospect...go buy some calls a year out for $180 oil. You may just wake up one morning with a lot more money.

S&P - Is trading inverse oil and $ again (Bespoke spotted this too - It's all about Oil). There is no leader in this market. The futures opened lower then headed the other way. I thought this may be the spike, but no. Now that we're here, I'm calling for a gradual rise or more violent pain. Probably the later. I sold my S&P (hedge) calls. Just like I said...if we don't get a surge today, there will be blood. 100+ points on the dow bloody enough?

ISM - (Jacked from Michael Donnelly) "That sure sounds like good news, and many in the media (USA Today) (NY Times) will tell you it's good news. But unfortunately it isn't. " and "Orders were down from a month ago and are still in negative territory. This is now the 7th month in a row that orders have contracted. True, ISM said production was up this month, and that should be encouraging, but it all went into inventory."

There's a post over at The Big Picture, with two important charts. Chart 1 shows commodities skyrocketing in a parabola. Chart 2 shows analysts flat expectations of inflation rates. The question is then posed, why the disconnect? There is no disconnect. Targeting inflation to a % leads to parabolic inflation.

---------- Random Crap ----------

The only game in town - I've noticed this jacked notion that whatever is happening in the U.S. economically, MUST be happening to the world at the exact same time.

This is fun to watch because these people obviously understand globalization and the information age. They just throw it out. People used to say...how can you be short the market and long oil...that doesn't make any sense (because if business sucks, they won't need oil). That is a great theory if you live in a bubble. So while it sounded stupid...it has obviously been very profitable for me.

Now, people are talking about an impending global slowdown as opposed to the "containment" of last fall. Hmmmm....that goes along well with my theory of the U.S. credit deflation spreading into a global deflation (EU to raise anyone?). Then again we all know "deflation" can't happen because commodity prices are still rising...which is great for business expansion and inflation (rolls eyes).

The point is...the U.S. aint the only game in town anymore. Plan accordingly.

(Trading was F$cked today. Only a narrow loss, but nerves, errors, Israelis...I had to go take a bike ride.)

BOUGHT EWZ 90 CALL

SOLD EWZ 90 CALL (+10%)
SOLD EWZ 90 CALL (-30% - I fat fingered this and sold too many. Short term blessing, but I may wake up mad tomorrow.)
SOLD SPY 135 CALLS (-80% - Looks ugly huh? That's the point of an OTM hedge.)
USO 113 PUTS (+0% - Some how this managed to sell itself. Limit order from yesterday?)

XLF 20 PUT 01/09 (+10%, Golly! 6 months to go!)

So really I'm only holding some XLF puts and some (pending) cash right now.

Daily Market Recap 06/30

---------- Foreword ----------

Thanks for cruising by to read. Posted daily, just after the close. If you appreciate the effort, don't forget to rec and bookmark the source; JoshSebastian.BlogSpot.com. Enjoi

I have heard people say, "only two things affect price; fear and greed. " Unfortunately, I have difficulty measuring fear and greed on the yahoo message boards (as if). Instead I prefer fundamentals and sentiment. If you can understand and accept that fundamentals and sentiment can sometimes be pitted directly against one another, you'll have a much easier time recognizing opportunity.

I think some buyers may come out of the woodwork for a short time (Blog Found on caps while writing - "Close to short term bottom? Ready for bottom fishing..."). See? When that second bear rally comes (today?) and runs out of steam...you may be sitting on the precipice of one of the next largest drops in stock market history. Sounds radical huh? Well, that's exactly what happened in June - worst June since depression.

---------- Important Crap ----------

We got a higher open then an immediate drop. (I hope you didn't short into the hole because you would have gotten smacked for 1.5% before leverage.) If we manage to close the day up, I'd look for firming support in the indices till more bad news drifts out.

Oil / Gold / Dollar / S&P - This love triangle got uglier (Chart Below) as the S&P started to trade in lock-step. This should show you that NO ONE knows what is going on and is watching everyone else. There are just more risky and less risky bets out there.



So, we can see that as the dollar gained strength (who knows from where) and oil and gold both came down. Actually though, there has been a lot of upward action in oil and gold. If you remember, on Friday I said

"If we have a post correction surge on Monday (maybe Tues), I pity the man caught short.

Gold responded appropriately and futures went through the roof (~$930). (I sold off my calls because the move was big and fast.)

Oil futures were rolling over today, then went nuts, now rolling over again? Time to get short oil for a few days? Maybe. We'll have inventory on Tues or Wed i think. "

All three happened today. I think gold is ahead of itself, but solid. I have no idea what oil is doing, but looks to be softening. Let's see what our Asian and European cousins think tomorrow at the open. The dollar may go up, but can't go far without news. I'm looking for the dollar to keep bottom fishing indefinitely.

As far as the future...I'm in a "hurry up and wait" mode here guys. We're on the edge of the void and not making any strong progress up. I think tomorrow is the last day to make a firm push up. After that, I say bright red falling candles without good news. Take a look at the chart below. See how big financials have become? We got that good at making money by moving money around? Well...mix inflation and inappropriate risk and I think we have quite a while to fall....just...how fast?



---------- Random Crap ----------

Gone Pro - Well, things finally came to a head with my employer. Not to get too into it, but I was denied a scheduled raise after the date it was supposed to begin. My boss' answer was "Let's talk next quarter." Well...that was today. He did not wish to make the situation right in any way shape or form, despite accepting my labor for the last quarter. So...I packed my desk and rode home. :D So let's watch to see which option would have been the more economically efficient choice for my former employer.

Unfortunately, I think I'm going to have to sue for breach of contract (bummer). Nevertheless, I had been cutting my bills, shifting funds and planning a vacation in preparation. Also because the company (not public) is starting to have cash flow troubles. Yikes!

So long story short, I'm going to try to go "semi-pro" trading and either travel or get a part time till school starts. However, if you know anyone that might be interested in spending some time at my beach apartment in San Diego this summer, talk to me...I'd rather travel.

The Inflation / Deflation discussion - is happening in many places at once. I'm going to add my comments and be done with it, for now.

What if there is a drought while it's raining?

Imagine a global slowdown where commodity prices are decreasing. Furthermore, imagine a country which manages to carve a niche, and keep thriving. Within that country, they decide to increase their monetary base. They decide to INFLATE despite prices falling around them.

The word for that would be....? Deflation by default? Hardly.

But, if inflation can be a global problem, I'd love to hear about how.

The U.S. is in a deflation (with global "price inflation")
This deflation is specific to the U.S.
This deflation is NEW. ("Credit Contraction", "Squeeze", "unwind" - Inflation?)
This U.S. deflation will not cause commodity prices to fall. Unless...
The world follows the U.S. into a slowdown.
Thus...this deflation may have compounding effects for the U.S.
The global slowdown scenario would cause commodity prices to fall.
We would then be in a GLOBAL deflation, but we aren't now.

SOLD TRA 55 CALLS (+~30%, Stopped out, Then TRA fell apart WTF? If no bad market news, this is GREAT buying op. IMHO.)

BOUGHT EWZ 90 CALLS (-9%)
BOUGHT USO 113 PUTS (+8%, Pray to allah for me.)
BOUGHT XLF 20 PUT 01/09 (-3%, OK, I paid for nothing but time here...6 months! Whooo!)

SPY 135 CALLS (-~50%)

I'm also screwing with some covered calls and puts. I'm just not getting into it until I quit experimenting.

Market Recap 06/25/08

---------- Foreword ----------

So, I really don't feel like writing much today. Today is basically like reading this week's posts; "New [Old] Crisis Threatens Healthy Banks", "I can't imagine what would lift the dollar, so I say we fall through 73 if we don't get news out of the fed soon.", "I'm guessing it will take that dollar drop I'm looking for to set gold in motion.", "USO (oil futures) have been building a base around $110....the futures guys, just aren't spooked....but if support doesn't deteriorate tomorrow, I'd get long."

As for me...I only trade macros, funds, indicies, etc. For those of you who feel that applying macros to individual equities is a good move...I hope you made some good moves. :D

---------- Important Crap ----------

You just read it. We'll have some great analysis and feedback tomorrow. Come on...after today...I promise!

Oh...Energy sold off hard today despite a rally in oil. So...wait...oil went up and the alternatives went down? So watch for big upside in energy perhaps tomorrow or first thing next week.

---------- Random Crap ----------

Uh...I've been making more trading than working...I'm thinking of going pro. I decided to buy a plane ticket home to Indiana for the 4th - you're allowed to have fireworks there - then look into taking the series 65 before school starts again in the fall.

Oh yeah...
SOLD - SPY 138 CALLS -20% (no apologies this was the hedge)
SOLD - SPY 126 PUTS +36%
BOUGHT - SPY 135 CALLS (What? They were on sale...and you know we're going back to S&P 1300 b/c of the non believers)
SOLD - USO 109 CALLS +~30% (could have been 60%, but let's not be piggy.)
BOUGHT - EWZ 95 CALLS

GLD 86 CALLS

Market Recap 06/25

---------- Foreword ----------
Busy day, a lot of news, long post. Especially Oil and a special section about Inflation / Delfation. No apologies though, I cover the macros. You can't game 'em and everything else is dependent upon them.

---------- Important Crap ----------

Interest Rates - The fed funds rate is at 2.00% and the discount rate is 2.25%. Fed says that downside risks to growth had diminished since its last meeting, but the upside risks to inflation have increased. Comments: I think the fed is high, but they might not get the next slap in the face till spring 2009. So...if nothing terrible happens...look for a rate hike..the correct choice regardless of the growth scenario.

Dollar - Opened slightly lower, but above 73. Still trading in range before the fed. Post Fed: The dollar didn't take off (and looks to be rolling over) despite the harsh language. The lesson I'm learning is talk didn't do anything. I still think - as more bad news trickles out - we'll fall through 73.

Oil - The Energy Dept stated Oil inventories up were up 800,000 brls. The first increase in 6 weeks. Comments: This news sent the USO off a cliff and the markets flying. (I'm still waiting for the fed at this time, but doubt a change, and doubt the impact of words.) All in all this is pretty funny. Marketwatch is reporting in big bold letters "Supplies Surprise Hit Crude." Was it really a surprise? Remember on the 06/18 Recap, we talked about how "Oil inventories are down again, but only by 1.2M brls. There is an emerging trend of smaller inventory drops." Where you at MarketWatch? Well, smaller still, so that there is now an increase in inventories. (Awesome graph at Bespoke) Keep in mind the increase is only 4% of a day's supply and supplies have dropped 25M brls in the last few weeks. I am a peak oil believer, but believe this may be a supply / demand "cusp." Watch for either an oil drawdown next week to signal continued demand or a second larger inventory increase to signal continued weakening U.S. demand. In disclosure I'm long oil now. I said I was staying out till after the Saudis and the inventory announcement. I picked up some USO $109 calls after the dash for the door this morning.

Durable Goods Orders - Excluding the 2.6% rise in transportation orders, orders for durable goods fell 0.9%, matching expectations in the market. Excluding the 10.9% rise in defense orders, total orders fell 0.6%.

Department of Commerce said May new home sales fell 2.5% month-over-month on a seasonally adjusted annualized basis, which follows the upwardly revised 4.8% gain in April. Comments: Falling prices and falling sales. I bet you didn't learn that in Econ 101. Hmmm? What do you mean there's no model for the market behavior or the largest personal asset class in America? LOLs

Monsanto profit up 42% to $811 million, or $1.45 a share, from $570 million, or $1.03 a share - Comments: Then the shares took a 5% swan dive. I'm not sure if the market is done punishing MON, but I think this is a hell of a deal.

Interest Rate Hike Chicken - Was today won by Poland, who's central bank hiked key rate by 25 bp to 6.0%. For those of you keeping score at home, that's Mexico, India and Poland all hiking in the last three business days.

Approval Is Near for Bill to Help U.S. Homeowners...... - Comments: I hoped this was a non-starter. "would allow qualified owners to refinance into more affordable, 30-year fixed-rate loans with a federal guarantee." Great, lock them into overpriced homes while Joes with cash get better deals next door. Maybe their neighbor will quit paying his mortgage too so he can get a great fixed rate government loan. Maybe they'll figure out they've been duped, they'll foreclose on their home and we - the tax payer - will pay off the "guaranteed" loan. Then, Wall St. still gets paid for their screw up, and the homeowner can go shopping for something new...maybe even his old house. However, he can't get a buyer's credit because he's not first time...bummer...even if he could, he can only use it on an unoccupied home. Great Idea! Now lets see how it works in action!

Warren Buffet Warns of Stagflation

EIA: World energy consumption may rise by 57% by 2030. - Comments: Golly, really? Don't tell the oil bears!

EIA: World oil prices may hit $186 a barrel in 2030. - Comments: Well, now that I know it's only gonna go up 50$ a barrel in 2 years.....I'm gonna buy that hummer after all. (Note: This is why you do NOT use economic models for 20 years out.

Countrywide / BOA - Attorneys general from two states filed separate lawsuits against Countrywide Financial Corp. and its chief executive on Wednesday, the same day the mortgage lender's shareholders approved the proposed takeover by Bank of America Corp.

AmEx: Lates rising faster than expected

---------- Random Crap ----------

Yesterday I mentioned I though the U.S. was now in a deflationary period. The comments touched off a discussion and some confusion. So, I'm going to try to summarize what I've seen and keep tackling this Inflation / Deflation issue. My deflation opinion has largely been formed by Mish (Inflation / Deflation).

I think in true Mish fashion we should understand the difference between inflation and price inflation. The difference between credit and money and decide if credit is included in our inflation count. I do count credit and will begin trying to use each of these terms appropriately. If credit is increasing people have more to spend and push prices up accordingly.

DemonDoug has said that when bank issue loan the money is "created out of thin air" and I agree that credit is created out of thin air. He goes on to say "When the borrower pays back the loan, that money that the loan created is now destroyed. When a loan is sent out, but then is not repaid, then that money that has been defaulted upon, but the money stays out there in the netherworld of the financial systems of this world."

Sorry D, I don't subscribe to that last part exactly. When the credit is FIRST created to issue the loan, THAT is the inflationary point, regardless of whether the loan is defaulted on. If the principal of the loan is paid down or paid off, that is the deflationary point. So in 2005 when banks created credit, flipped the loan and repeated the process, THAT was the inflation. The current defaults, by definition, cannot be inflationary, because the credit has already been created. It's not created again during a default. If anything I would say the created credit acts as a supporting base if anything.

Second, I believe everyone has to play along with the game for occasional "inflationary" defaults to work. Defaults should be low, risk/reward should be appropriate and assests should be fairly priced. Again, look at homes...that is the beginning of one movement (dropping prices) and the end of another (cheap money). Once everyone realizes the jig is up, they bail. The credit wealth is destroyed.

When a $100 loan is first going into default, yes the bank has $100 of illiquid assets created from thin air on it's books. Then at default that "$100" asset is sold off for...let's say $50 (but you know more like $10). So now the bank gets the $50 which goes on their balance sheet accordingly. That too is deflationary. The bank has revalued the asset and the new owner has revalued the new asset. Wealth was destroyed because the market has simply devalued your asset (the loan). Some other sucker now has some asset for which he paid $10, but I'm not going to say he's got $100 on his books, or in this economy. Period.

I realize your opinion may be that the "money" - created by overvaluing these homes and issuing mortgages - is still in the system. So I ask you...where is it? Whose is it? When will they get it? How will they get it?

Simple answer...because no one will pay those prices for homes...it's gone. Don't believe me? I don't blame you. I featured this on 06/05.

"WASHINGTON (MarketWatch) -- U.S. households lost $1.7 trillion in wealth during the first quarter, as the collapse in the housing market and a weak stock market took their toll, the Federal Reserve reported Thursday.

Net worth had grown by more than $20 trillion from 2002 through the end of 2007, as home values and the stock market boomed.

The net worth of U.S. households and nonprofits dropped at an annual rate of 11.3% in the quarter to $55.97 trillion. It was the biggest drop in wealth since late 2002."

Sorry, that just doesn't sound inflationary to me any longer. It's the difference between credit and money and credit is getting destroyed. I'll have to compare iTulip's perspective to Mish.

As for the commodity bubble, I believe it is a global market and the U.S. will have trouble fueling it. Unlike the housing bubble, a commodity bubble slows the economy. I just think demand is pushing commodities up...some too quickly.

abitarecatania, I see your mish post, and raise you a mish post - Now Presenting Deflation.

AnomaLee, "since the inception of the Federal Reserve." - Perhaps you missed where I said that I believed we entered deflation recently. When home values started dropping, everyone started reeling the money in. True, there is the fed and they're a pain in my side, but they're just loaning - indefinitely - for now. Say what you will about the treasury also...they're not writing the checks, just printing them.

Market Recap 06/24/08

Thanks for cruising by to read. Posted daily, just after the close. If you appreciate the effort, don't forget to rec. Also, the caps blogosphere is getting crowded and my posts are getting pushed down within an hour, so bookmark the source; JoshSebastian.BlogSpot.com. Enjoi

Foreword: I'm still tweaking the format so bear with me. I think I'm going to do a foreword, cite my sources & add in some commentary, then put off-topic and random crap on the bottom. Eat what you like, leave the rest. Also, since I officially got rejected by the Fools, I think I'm going to start discussing more specific trades and such. At this point...I don't really think anyone knows what the hell is going on in the market. So...anyone who has any short-term conviction is probably a fool. The reason I say this is the tug-of-war going on with oil. There is a HUGE bear camp and a HUGE bull camp, both of which are certain of their thesis. The only other sentiment gap this large, that I've witnessed, was housing. My point is that if there were ever a time that oil SHOULD have gone down...yesterday and today were that time. China fuel price increase, Saudi production increase, speculation crackdown chatter, futures traders cutting their longs, etc. Thus, I think the bulls may get proven correct, again (watch for action tomorrow on inventory news). USO (oil futures) have been building a base around $110....the futures guys, just aren't spooked....but if support doesn't deteriorate tomorrow, I'd get long.

Dollar - The dollar is banging around between 73 and 73.6 with nowhere to go. Watch for some action here soon...I can't imagine what would lift the dollar so I say we fall through 73 if we don't get news out of the fed soon.

Gold - Futures up slightly. Everyone seems to think the dollar is the ULTIMATE gold indicator...so I'm guessing it will take that dollar drop I'm looking for to set gold in motion. (Wait till they find out gold will keep going despite a low but firm dollar.) I'm still long gold via GLD $86 Calls. I rolled into the $86 yesterday and out of the $88 Today. Go me.

Oil - Futures down slightly. The USO is all over the place, but closing down with $110 being what I'd call a median price over the last couple weeks. Watch for big moves on inventory news tomorrow.

Inflation - I know everyone thinks we're headed for the worst inflation ever. In terms of price inflation...maybe...if the rest of the global economy keeps kicking our a$$. In terms of money inflation....no frickin' way. It's being called a credit "CONTRACTION" for a reason. Money is getting sucked OUT of the system. We've been inflating for a while, this is the great unwind. All of you who are shouting about M3...those are SIVs coming back on the books guys. Think about it...is credit cheap right now? No! But your dollar isn't worth crap either.

Consumer Confidence - Falls to lowest level since 1992 (Wait...wasn't that an election year too?) I really don't put much faith into these. This is the same consumer that started racking up debt on credit cards once the home equity lines closed. The same consumer that said they'd save their rebate check, but spent it at best buy.

Case-Shiller Index - Says home values fell 15.3% YOY, the most since the private group began keeping year-over-year records in 2001. Home prices losses have now wiped out 4 years of gains. Guys, if you've seen this graph and still think we're headed for a quick rebound...we need to have a talk. (Check out the whole series)

http://farm4.static.flickr.com/3175/2570213765_f0b0de60a5.jpg?v=0

Interest Rates - Are what some people are saying is pushing the market up. That the fed would have to be high to raise tomorrow....but I'm in cash on the S&P front. It's hard to say what might happen tomorrow. Perhaps S&P up on news of no rate hikes...but I thought that was a forgone conclusion. Maybe the case-shiller data sealed the no-rate-hike deal. My guess is a drop though 1,300 on the S&P soon, then back to speculating over rates....cause the news is just gonna get worse kids.

Interest Rate Chicken - Was won by India today, who raised interest rates "to 8.5 percent from 8 percent" and reserve requirements "to 8.75 percent from 8.25 percent" (reserve requirements, what's that?) So now we have Mexico and India who have hiked due to inflation worries...keep watching!

Dow Hikes Prices, again (25%)

UPS - Is Warning of "Anemic" U.S. economy.

Mish is reporting cases of non-paying home owners remaining in their homes more than a year late, yet banks will not foreclose. Also a homeowner begging for foreclosure on his condo. Great Stuff.

"There can only be one of two things happening here, neither of which is any good.

• Banks do not want those foreclosures on the books right now because they will have to report them. Better a delinquency than an REO?
• Banks are so backed up with foreclosures and REOs, and they are so understaffed in processing foreclosures and selling REOs, that they do not want to take on any more."
  

CFTC plans more oversight of foreign exchanges - (Yawn) Wake me at "cheap" oil, will you?

NYSE buys 25% of Qatar's Exchange Market - It's about time we started buying Arab assets. Someday soon people will realize how undervalued these exchanges are. Oh well.

Market Recap 06/23/08

Thanks for cruising by to read. Posted daily, just after the close. If you appreciate the effort, don't forget to rec. As always, crossposted on JoshSebastian.BlogSpot.com. Enjoi

I'm robbing a couple great Bloomberg articles for the energy segments below (Crude Oil Falls on Saudi Production Pledge, Saudi Arabia Boosts Oil Supply). I know it's a lot to read and I hope I don't get off on a useless tangent, because I'm taking the leash off today. If you're not into rants and energy just skip to the "Dollar" section now. Lastly I want to offer an un-apology for covering oil so hard. Energy and tension will unfortunately dominate the markets until writedowns and housing take over again. Sure I could talk about the coming writedowns, but then I'd be forecasting and you wouldn't believe me anyway. :-P

There has been a lot of chirping lately on the blogs about oil speculation and price. I'm simply not going into the logic of why this is absurd, again. I apologize if you bought this excuse from OPEC, the politicians, Ahmadinejad and the like. I'm not going to preach. I just want you to think about WHO is using this reason and WHY. If you are short oil and hanging your hopes on speculation alone, I would advise you to think. Otherwise high oil will most likely continue taking your money in the market and out as it has for the last 5 years. If you have the heart, go put a red thumb on USO and put a comment below stating as such and I'll see you in a few quarters. Wait...this just in...

Blame the Speculators! - "The number of outstanding crude futures contracts in New York fell to the lowest in almost 14 months last week as commercial traders and institutional investors exited the oil market." Comments: So...you spooked them out of the market. Where's my $100 oil beeeoooootch!?!? Oh...Oh wait...Oh...so sorry...there goes YOUR thesis. Maybe Ahmadinejad will come on CNBC and give you some new investment ideas.

"Analyts" say gas could drop $2 if congress acts - Well cool, I'll buy some $100 oil puts with the money I get from selling you a bridge.

Saudi Oil Production - Will be increased by 200K brls to 9.2M brls. per day. Saudis: "prepared and willing to produce additional barrels of crude above and beyond the 9.7 million" AND "The kingdom will also increase its daily production capacity to 12.5 million barrels by the end of next year. " Comments: As a believer of peak oil, I call B.S. on that last number, so mark your calendar. The better they get at pumping it, the quicker they'll drain it. Some say this increase will do nothing but create backlogs for the refiners. To put it in perspective. 1. If we (U.S.) consumed ALL of the Saudi's daily oil, it would only cover half of what we use. 2. The increase is only ~0.25% of daily global consumption. Expect an appropriate price drop. Get it?

OIL Dollars - Unfortunately many are also getting confused about oil trading in dollars. "Well, since oil has risen X and dollar has fallen Y then we're paying X+Y more. NO! Oil is priced in dollars, so the price is the price. If oil was priced in gold, this logic would start to work. Until then, STOP USING IT. The dollar is up today, oil is up today. There goes your thesis.

Will oil trade in inverse to supply as we all learned in 101? We'll see, but even the president of OPEC says "I don't think so." Ballsy huh? It's interesting that Saudi Arabia is going against what OPEC wants...and Libya is shooting off at the mouth about a decrease. Please...take it while you can get it boys. I'm not sure how much oil the Saudis have, but I think once they saw U.S. consumption decrease, they came to Jesus. I'm still long-term long on oil and energy and looking for chop soon.

Dollar - I think the dollar may become the hot issue again. The dollar index was still hovering around the 73 support level pre-market and seems to be bobbling between 73-74. This level is only ~2% off the historic lows. If the economic numbers keep turning up less rosy, foreign investors may begin to smell blood. I simply can't imagine what the feds next move could be, but if the dollar keeps moving up on talk, talk is all they have to do, for now.

Gold - Futures down 2% on no news (dollar up).

Solar - MIT prototype solar dish tested "inexpensive aluminum tubing and strips of mirror, concentrates sunlight by a factor of 1,000--creating heat so intense it could melt a bar of steel." Comments: Check out the videos and pics. Maybe I'm high, but commercialization of this simple concept could be a game changer for rural emerging economies.

Bond insurers seek to cut $125 billion in guarantees - Comments: Hmmm...I wonder if they're worried about their liability increasing? Nah, it must be something else. Like...

The Washington Post is reporting on a "New [Old] Crisis Threatens Healthy Banks" - It seems "Late payments on home-equity loans are at a record high. The delinquency rates on loans for cars, small businesses and construction are spiking to levels not seen in a decade or more." Comments: Yet we still spent our tax money on retail. So, you can either remember that adage about never going against the consumer, or bank on the irrationality of the consumer. The choice is yours.

Citi to cut up to 10% of Investment Banking Staff

Goldman may also cut up to 10% of Investment Banking Staff - Comments: Bad year for the bankers huh? Oh well, I'm looking for a sailboat on the cheap.

P.S. and Off Topic - The Fool asked me to apply to write for them a couple months ago. I applied and was officially denied today. I'm not upset, but a little disappointed. I may consider summarizing here and commercializing my personal blog. Also...Epic Weekend. Good Friends, Fried turkeys, Turkish women, BBQ, kegs, band, country women, beach, desert, pools, hot tubs, quads...wow! "Just another Sh$tty day in paradise"

Daily Market Recap 06/20

Options Expiration Day? Futures Expiration Day? - You bet, quadruple witching. Oil opened up 3% on no news. Markets opened down 1% and kept falling. Dow Under 12,000 and looking ugly. Dollar fell through support (73.4) pre-market, and is resting at a new support of 73. Gold up for now. (You hear me Cow?)

Oil - WTF?!?! Despite thinking oil prices would be calm until the 22nd, Oil futures were up 4% this morning on no news. I guess the 22nd is a Sunday...so maybe that was dumb, but...up 3% on the possibility the Saudis will raise supply...a day after china raises costs 17%? Something odd is going on with oil. I don't yet believe Goldman Sachs' greater price = more refiner demand theory and until I understand it I'm not playing it. There is simply a major tug-of-war going on between two sides of the same coin.

Fed leaves window wide open - (Via Bloomberg) "Funds provided through the discount window for commercial banks rose by $223 million to a daily average of $13.4 billion, still below the record $16 billion two weeks ago." While this isn't huge news one way or another, it's just obvious that the solvency problem remains. There is no exit plan by the banks or the fed. When this comes to a head it will probably be ugly in some way.

Interest Rate Hike Chicken - Was won by Mexico who raised key interest rate by 25 basis points to 7.75%. I must apologize I thought for sure it would be someone in Europe. LOL

Ford Rating Downgraded - Gee, thanks for the heads up Moodys! Where were you at $3 gas? Watch for more of these as the "wizards" and "analysts" catch on.

The case of fugitive fund manager Sam Israel takes another turn for the weird as his girlfriend is arrested. (Raise your hand if you didn't see that one coming.) Oh well, "Jail is Painless" Ha Ha Ha

I hope all of you had a successful week. Have a great weekend. I'll be frying a turkey for a friend's b-day. (You didn't know we rolled like that in SoCal huh?)

:P

Market Recap 06/19/08

Initial Unemployment Claims down by 5K - OK, a drop is a drop. However, to put this in perspective, it's a 1.4% drop. The 4 week moving average hovers around 370K. Today's number was 381K. Next week's number could potentially be important as it may indicate the beginning of a downward trend (doubtful).

Paulson Asks Congress a power grab - Finally says something semi intelligent to back himself. - "Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk but ... the Fed has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system," I agree, sorta. The administration seems to think overspending and expecting the reserve to clean up the mess is an acceptable "solution." Or, that no oversight then calling a bubble correction a crisis is acceptable. To be clear...congress doing anything - especially giving Paulson more power - will most likely just prolong this deflation and generally be a bad idea.

Citi announces it may make "substantial" future markdowns - Oh?

Oil - Falling (~3.3%) on China increasing fuel costs. "The increases represent a 17 percent gain for gasoline and 18 percent for diesel." Yesterday the U.S. pushed the market up and the world brought it back down. Today we got that drop in the USO I mentioned yesterday. Oil price volatility will probably remain subdued in the run up to the 06/22 Saudi announcement. A brave man might even think about buying an options position straddling oil...because I think we're in for some chop. Remember if the Saudis go big, they're shooting themselves in the foot because they'll get less $ per barrel.

The Dollar - Is going to be interesting soon. After testing support yesterday, it fell through after hours, was brought back to life pre-market, and is currently sitting on a short term support line (73.4).

Gold Up Slightly (~1%) - If the dollar breaks through lower support expect a surge in gold.

"Big Oil" returns to Iraq (Via NYT): "Exxon, Shell, Total and BP — the original partners in the Iraq Petroleum Company — along with Chevron and a number of smaller oil companies, are in talks with Iraq's Oil Ministry for no-bid contracts to service Iraq's largest fields" and "The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India." (closes his eyes and waits for backlash)

Cool new wind ETF (FAN) Launched yesterday. - "The index is a modified market capitalization weighted index of publicly traded companies throughout the world that are active in the wind energy industry based on analysis of the products and services offered by those companies."

Two former Bear Stearns fund managers arrested for fraud - Well...someone has to be the scapegoat. Because in that case, Mozilo is the first on my lynch list. The feds also charged about 400 people with mortgage fraud in "Operation Malicious Mortgage." I guess they've never heard the expression; Too Little Too Late.

Lastly, there were some major whipsaws in the market today. My S&P put options paid off then got stopped out (thankfully).

Market Recap 06/17/08

I'm going to try to keep up a daily recap for a few days and see how it goes. I'll be posting here and cross posting on JoshSebastian.BlogSpot.com. Just check my blog shortly after the market close and it should be waiting for you. Primarily I'll be concentrating on macro economic trends and providing commentary on news. If people like it, rec it, and I'll keep it up on caps. If not, I'll just post on my personal blog only and you can find it there.

May building permits fall 3.3% to 17 year low - Nothing to say there.

U.S. PPI up 7.2% in past year - Most of that hasn't been passed down the supply chain yet. Neither have the petro prices factored into good. So unless retailers and vendors can pass it on (very doubtful), look for some retailers to go under as they get squeezed. This news also pushed the dollar down. The effect was seen as a rise in gold, but not seen in oil (showing short-term weakness or consolidation perhaps?).

May industrial output down 0.2% - It's not much, but we were still contracting (read: receding (read: recession)) in May despite what spending may say. "Output at the nation's factories, mines and utilities fell in May for the third month out of the last four"

Goldman Sachs reports profit off by 10%, still beats expectations - Goldman could be the new Bear Stearns. No, not that Bear Stearns, the OLD Bear Stearns that kicked A$$ and took names. As many of it's peers crumble, GS is able to keep pulling it off. Watch for the others to report to see just how well GS is holding up comparatively. This may not be a hot bet though as goldman is staying alive, yet contracting.

Goldman - also made a point of saying that March was the low point thus far in the credit crunch. Thus, they and a lot of other people know something the equity market does not. Do you know what it is, I do.

Goldman - lastly said banks need to raise more cash. Gosh! Really? The govt. has reported we've lost $1.7T worth of wealth. However, the banking industry is still leveraged up and unwilling to report anything close to $1.7T in write-downs....as long as they have access to the fed window. As I've said before, Its about Solvency.

Paulson says U.S. & China face energy inflation challenges - Too bad no one told him China still subsidizes fuel...or that the Yuan is appreciating. Oh well.

Oil down slightly (on growth concerns?) - To be clear, reports are saying oil is falling on growth concerns, I'm not saying anything. Lately the U.S. investors have been pushing up the oil futures during the day while Asia and Europe bring them back down at night. Prices are starting to align today however..which could mean the beginning of a move either way. My guess would be up, but between the CFTC speculation report and June 22nd OPEC meeting, I'm holding cash.

Anoter OPEC country oil minister says oil price too high - Man...these guys talking about high oil problem is like the U.S. talking about a low dollar problem. Just talk. Until I see some production increases from the Saudi's or the Kuwaiti's (YAWN)

Things may be getting shakier for Europe & the Euro - Mish is reporting Support for euro in doubt as Germans reject Latin bloc notes. Not only are divisions growing in the EU, but the European Central Bank and the Fed are starting to diverge in their paths also. Bernanke is VERY low on options for an exit strategy. Keep an eye on this one! Again, Its about Solvency.

Evergreen Solar upped guidance by more than 10% - Solar provides just a tiny percentage of our energy, but is one of the only viable solutions. Though solar stocks are very volatile, I would expect this trend to continue long into the future. If so, expect exponential growth in solar for years to come.

Executives at U.S. commodities exchanges warn regulation may push investors to less regulated exchanges outside U.S. - Gee no one saw this coming; Lieberman's Speculation Regulation Farce...and they're correct. The U.S. cannot regulate a global market, but it may be fun to watch them try!

McCain: Drill Offshore - First, I'll say that I don't think it will do much good. Second, I couldn't care less, other than the potential effect on my trading.

Ford idling more plants longer, still paying employees under union agreement - Well...it's a step...I think.

...and I used to think Grandma was crazy

My grandma on my dad's side grew up in England during the war. We've never really seen a war on US soil, so it's hard to fathom what it would be like to live in a war zone. At night, Grandma used to have to keep all the lights out so the bombers couldn't see the town. There wasn't a whole lot of money and resources were scarce. then, during the day, she and her family would scavenge the streets looking for...well...anything. All of this eventually led to grandma being a quite the pack-rat, which I never really understood till today. But, we'll get to that.

When I was growing up and visiting grandma's house, I used to get into everything. I remember cupboards full of plastic bags, junk, trinkets, coins, everything. I mean stuffed to the brim. You couldn't even open the drawers and junk would come flying out at you when you tried to opened a cabinet.

There was one secret stash I'll never forget though. In the laundry room, there was a cabinet filled with glass coffee jars. Rows and rows of glass jars with red folgers lids. It wasn't the jars granny was keeping though...each one was filled with copper pennies. Not those crappy pennies like you get today, but real copper pennies, each one minted before 1983. You see, grandma realized that when the government starting taking copper out of the pennies, they were debasing the currency and trying to give her the shaft. So she kept the copper ones and spent the new ones like the fiat trash they were.

Being young and stupid, I couldn't figure out why grandma didn't just cash out. Well, that was before today. Nor did I know that the government would one day declare it illegal to ever use that copper for anything other than those very pennies.

Today, the government lowered the interest rate to the cheers of the misinformed. You see, lowering rates makes money "cheaper" to acquire and cheaper overall. If money is cheap, businesses can borrow more easily and grow more easily. So how could this be a bad thing right?

INFLATION!

If the US dollar gets "cheaper" it makes the money in your wallet and in your bank account worth less. There is also less incentive for foreign governments to hold investments based on that currency. Less incentive for governments to hold US dollars period. Therefore they may begin to sell those dollars making them...even cheaper. The only way to stop inflation is to slow flow of new money. To make it more scarce and more valuable. Today we did just the opposite. Which brings me back to grandma.

Grandma had seen this before. She had seen paper money become worthless before her eyes and knew how to "hedge" fiat currency with hard assets that were universally valuable. Today US is relearning that lesson. So now let me give you the facts.

As I write this, the dollar is sitting at a historic low (from 1992) and still dropping. Ordinarily inflation wouldn't be a big deal, and I wouldn't care. However, this year alone, the dollar has lost 10% of it's purchasing power compared to other currencies! Have you tried to take a trip to Europe lately? Filled up your car? Today, when those spineless pawns at the fed lowered rates...the dollar dropped another 3/4%. IN ONE DAY!

Now if you're china and you're sitting on a few trillion dollars worth of greenbacks and you're only makin' 4-5% interest and some government jerk strips 1% of that value in ONE DAY, you're not going to take it for very long. You're gonna get pissed, stop buying and maybe even start selling.

POOF! SUDDENLY ALL THAT CHEAP CRAP YOU BUY FROM CHINA IS 10, 20, 30% MORE EXPENSIVE. Could that really happen?

Dollar - 15 year low - http://www.sharelynx.com/chartstemp/free/chartindCRUvoi.php?ticker=FUTDX

Oil - all time high - http://www.sharelynx.com/chartstemp/free/cots/cots4cncnrcl.php

Gold - 26 year high - http://www.kitco.com/LFgif/au95-pres.gif

So either, I'm a tyrannical nut case lying to you, or the government is lying to you by telling you how they're helping you again. Don't take my word for it, go look at the charts. After all, I'm just an idiot with no mortgage, no car payment, cash in the bank and a big pile of copper pennies....

Zecco - Turning Heads and Looking Brighter

Almost immediately after my last post regarding Zecco, and my email to their customer service department, I received a call from CEO Stephen Oliviera. I was obviously surprised, but welcomed the call. We quickly chatted about the road ahead, and what it would take to get my account on that road... Basically it boiled down to "we're working on it" and "these things take time." For a new company with a big idea, I was willing to accept.

Not long after my paperwork got cleared up, I placed my first trade. Not exactly a monumental occasion, but hey, it was was free. The irony is that I quickly bought an ETF for the day and the market closed just under the previous day. Overall my free trade resulted in a net loss of $0.46. Not bad when you consider that included the commission. Perhaps the idea of an easy out will ease the pain some skittish traders face when eying a loss?

So far this has been my "toy" account, but it's getting better. I'm also seeing closer partnerships between Zecco and Motley Fool, which is always good. Keep an eye out for my next post regarding options trading with Zecco.

Zecco - Why it's (a) Free for All

If you've never heard of Zecco and you actively invest or trade, you should probably check it out. Zecco is like E*Trade or ShareBuilder, but Free. I know what you're thinking: "Free at what price?" My one word answer: Complexity. Despite my years of computer and technical training, the task of funding my account has been confusing and overly complicated, at best. I haven't even started trading yet! However, for 40 trades a month, I'll keep trying.