Business Magazine

Easy Money Monday – Robbing Peter to Pay Portugal

Posted on the 12 December 2011 by Phil's Stock World @philstockworld

Who’d have thought Europe’s problems could be over just like that?  Certainly not us, as I was quite skeptical Friday Morning (see yesterday’s Stock World Weekly for the Executive Summary of the Week’s Events).  As I noted in Friday morning’s post, we had ended the day on Thursday very bullish – too bullish I decided on Friday morning and I called for cashing out into the weekend at the end of the morning post.  In the morning Alert to Members, I repeated:  

When in doubt, sell half and, in this case, I want to get back to more cash by the day’s end in the White Christmas Portfolio as the WCP is too bullish and I’m just not in the mood to risk it so we’re not going to be too brave if the "rally" stops or even slows down.

Easy Money Monday – Robbing Peter to Pay PortugalThe markets were very kind to us, heading higher all day long and giving us great exits.  Heading into the close, we got a bit more bearish and, aside from existing hedges like our EDZ spread (mentioned as our key hedge in last week’s Stock World Weekly), we added DXD (ultra-short Dow) Jan $15 calls at $1.25 but we offset those with short FCX Feb $33 puts at $1.25 in our virtual White Christmas Portfolio, with 10 of those contracts on each side netting a free spread with unlimited upside (with the downside being owning FCX cheaply).  As I pointed out to Members, DXD was $18.50 just 3 weeks ago.  

At 3:26, just before the close, we added the SQQQ (ultra-short Nasdaq) Jan $16/19 bull call spread for $1.50, which I pointed out had a nice 100% potential upside all by itself but you could also, ofr example, offset it with things you REALLY want to own if they get cheap like shorting a GOOG Jan $500 put ($1.20) or an AAPL Jan $320 put ($1.25) or a MSFT 2013 $20 put ($1.10) – the idea is to just thing of what stock you REALLY want to be jumping in and buying if the market throws a 20% off sale.  If there’s nothing, then you should be thrilled with the 100% potential gain on the raw spread.  

Easy Money Monday – Robbing Peter to Pay PortugalBut THAT wasn’t the easy money (I’m not so egotistical that I would guarantee we open lower when it’s only 7:30 as I write this).  In fact, I was at the Jet game with a bunch of Financial guys (thanks Rustle!) who were asking me what the markets would do tomorrow and I said at the time (early afternoon) that Monday was a wildcard but it was Tuesday we were playing for.  The EASY money came at 11:54 last night, after I got home and went over the news and, as I commented to Members: "Markets opened at 6 with the Dollar way up at 79.34. So far, we haven’t seen a big sell-off but I do like shorting the S&P futures (/ES) below the 1,250 line (now 1,250.50) or, of course, the RUT (/TF) below 740."  The Russell Futures fell to 733 before turning around at 4:30 am – up $700 per contract and the S&P fell back to 1,240 at the same time, up $250 per contract and, as we like to say – the Egg McMuffins are paid for!  

We’re not ready to hit the panic button just yet – that likely comes tomorrow when Treasury has to hawk off $177 BILLION ($177,000,000,000 – a new record for a month, or $77Bn more than $100 Billion Dollars – muhahaha) in funny money over the next two weeks, beginning with this afternoon’s (1pm) auction of $32Bn worth of 3-year notes, then $21Bn of 10-year notes on Tuesday (with an FOMC announcement at 2:15, where it’s QE3 or bust anyway) and then $13Bn in 30-year paper on Wednesday.  

So, on the off chance we can’t find enough suckers investors to purchase record amounts of low-interest paper this week – I thought it would be prudent to hedge for a possible catastrophe.  

Easy Money Monday – Robbing Peter to Pay PortugalLooking ahead, we have the longer-term catastrophe of OECD Nations needing to borrow $10.5 TRILLION $10,500,000,000,000 – (that’s muhahaha TIMES 105 – REALLY) or 20% of the Global GDP next year – in order to keep the lights on.  Now, since the OECD nations are 80% of the Global GDP, they are probably not going to be able to borrow the ENTIRE GDP of the other nations and we’ve canceled our Moon and Mars programs – so no loans from there are likely.  That’s OK though – because they will borrow the money from EACH OTHER!

That’s right, the OECD nations will borrow roughly 25% of their combined GDPs from each other next year.  This is nothing new, of course – that’s how we do things in the modern world.  Feel free to try this at home – if you owe, say 700% of your salary in debt (don’t let this debt to GDP fool you – it’s debt to tax revenues that should be examined!), like the United States, and your German Aunt is "only" 500% of her salary in debt – then she can lend you 100% of your salary to help you cover your shortfall next year and you can lever that money 10:1 and lend her a year’s salary, no problem and then she can lever it up and lend it out to that French guy she’s having an affair with and he can turn around and pay off his Italian Mistress, etc. – until everyone has a lot of money to spend and a little more debt.

After all, we’re "only" expanding our debt by 14% next year and, if we borrow another $2Tn in 2013 – that will be added to $17Tn we owe and just 11.7% more added to the pile.  So you see, the bigger the pile of debt we have – the less of a difference each round of new debt makes – BRILLIANT!  


Back to Featured Articles on Logo Paperblog