A Santa Claus rally or just a move up to resistances before we head back down? It’s hard to say – but we did get too or through some of those resistance levels yesterday, INDU 8934 (9000), NDX 1225 (1200), SPX 909 (900), RUT 481 (500). I was a little concern that the RUT did not make it too the resistance and the NDX was overzealous through the resistance - I think a continuing momentum will be difficult – simply because people are looking to get out and may see this as an opportunity, but I could be wrong.
I saw a very good video (satire) that pretty much sums up the economy, how we got here, and how we are (currently) trying to solve it. I am a huge fan of satire (and witty sarcasm) – for those old school comedy fans, I am more of a Marx Brothers fan, rather than Three Stooges. Fred Thompson (actor, Senator, and recent presidential candidate) – whether you like him or hate him, his video hits the nail squarely on the head (without siding with either party). If you want to know how we got here and where we are going to solve it – then just watch this video (I hope you enjoy satire) http://www.youtube.com/watch?v=RKc4XFK0iVY&feature=relate
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FedEX – flying low
FDX stock was hit in after hours trading as they have lowered their forecast for their net annual earnings to $4.75. While they have seen a drop in first class services, fuel prices in the short-term have helped increase margins. An economist this morning said that FedEx maybe aiming a little too conservative in their investments if fuel prices remain at these levels, he believes that FDX has a net higher mean fuel cost in their projections. The other side of the coin is that if businesses slow down (which they are) then fewer FedEx packages will be sent. The stock is seeing some pressure in the pre-market, which is creating some downward pressure in the futures.
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Dollar and Commodities
The hyper volatility action we have seen in the Dollar vs. other currencies is a game between the collapse of the carry trade, combined with the race to safe havens. The moves we are seeing in the currency markets are unprecedented and the “blip” of a Icelandic Krona collapse was a wake-up call as to the dangerous third-rail we tend to ignore.
On the Gold/Silver side we are seeing Silver sit in the 9-10 range and Gold in the 750ish range. However, that is if you want to measure spot prices (or paper prices). I have never meet or even heard of anyone taking actual physical delivery of Gold or Silver futures (5,000oz Silver Bar is over 400lbs – so it is not easy to just walk down and pick up – literally). However, there is a story I read that a Saudi had bought a huge amount of Gold futures contracts and wants to take delivery after expiration (which is coming up). It will be interesting to see the results of that story. On the other hand – the physical prices of Silver and Gold are trading much higher (5-50%) for anyone wishing to actually HOLD the metal. I am still buying – more silver than gold – I really don’t mind paying a premium over spot, because spot seems to be just that undeliverable paper. So holding a mix of physical and paper silver/gold is probably the way to go. Side note: SLV (Silver’s ETF, just like GLD is to Gold) just listed options!
OIL – well here was the shocker to me, I talked to an oil futures investor and while they did sell between 120-130 (out of most their position) – they started repurchasing in the 75-80 range (OUCH – I hope not too much). The interesting thing is that oil consumption in several parts of the world have not fallen off and our friends in the middle east are not too happy about the current situation. I personally (right or wrong) think we may see oil prices volatile at these levels 40-50, but it will be a basing area before they start to rise again (predicated on if or should I say WHEN the dollar starts backing off).
Other commodities – building materials have fallen off in this country and some others – but are still in demand. Food on the other hand is seeing shorter supplies (which is a lagging indicator) as farmers are producing less – so we could see a pop in agriculture and similar commodities in the 6-9 month window.
This all boils down to the dollar – I was forwarded an interesting article about the velocity of money, which I will write about later. I fully understand and agree with the velocity of money, however what it leaves OUT of the equation is debt levels and how money is generated to be put in the system. Sure the turnover of money into the system is important and I believe that the money is currently just covering the leveraged losses, and while velocity is down there is no doubt that printing presses are running full steam. The velocity of money, while very important – is not addressing my concern about inflation. Remember – there is many ways to skin a cat. Inflation can come from a weak dollar vs. foreign currencies, to many dollars, default on debt, even something as simple as a loss of faith (we don’t want dollars we want to be paid in something else). There is no single math equation to determine HOW inflation can occur, since it can occur in many different ways. My suggestions – keep it simple. Regardless of all the smart people telling me this or that, this formula or that formula, this model or that model, the data or that data – the simple fact is we are printing (creating) a massive ton of money and we don’t have the ability to finance it (not enough treasuries to cover the nut or assets to sell like gold or silver). The smartest people in the room have been wrong – about the Dot.com market, housing market, credit markets, etc. You REALLY think there magic formula is going to say everything is ok because X crosses Y at this point. Just like in the real world and pricing options – no model can predict – Take-over, CEO running away with the Secretary, or stupidity. The theoretical world is import to gauge information – but the real world is just too complex for us to fully grasp. Just ask the Nobel Prize winning economist that lost 1 trillion dollars – TAKE OFF THOSE THEORETICAL BLINDERS!
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Futures Pre-market
The futures are getting hit in the pre-market after the good run yesterday. FedEx news, along with layoffs at Sony is bring reality back into play. The spreads are volatile this morning – expect some Arb trading action – but a mixed opening without too much pressure.
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Support / Resistance
We got a good rally – and yes I even heard a dolt on TV say “It looks like the worst is behind us!” – If I had a nickel for every time some knuckle head said that – I could start another fund. Shut-up already!
INDU 8000 (8500) 9000 (We are up in the resistance part of the range – it looks like we could be backing off – but we could still test it. Watch the close.)
NDX 1000 (1100) 1200 (We are at 1225 – but we gapped pretty hard. A revisit to 1200 is in the cards. The question is do we close above or below.)
SPX 800 (850) 900 (We are just above it – but futures are showing a opening just below it. Do we continue higher or back off?)
RUT 400 (450) 500 (We never made it to 500 and the broadest market was rather weaker on the move up. Not a good sign)
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Conclusion
I think Fred Thompson sum it up – and we should start getting out our shovels. To quote one of my favorite films, “Digging a hole, boss!” However, there is still opportunity. It is these markets where traders understanding pricing, probabilities, hedging, risk – are able to carve out a healthy profits. Traditional – buy and hold, based on bottom picking is a sure fire way to see big negatives on your sheets. If you are a value buyer – looking for opportunity – please utilize options (collars, married puts, etc.) to hedge any downside risk. Additionally spreads are a cheaper way to take delta bets. There are also some great ETFs (optionable) to add diversity to the portfolio. For those more in the know – there is some great opportunities in this market. The Germans have a great word for this type of investing – “schedenfreud” investing. Remember – don’t vote or be patriotic with your investments – you invest to make money – not a statement or political support!
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