Why do we scream at each other
This is what it sounds like
When doves cry – Prince
It's no coincidence that this week we will be hearing from Fed Governors Kocherllakota (1pm Tues), Hoenig (12:30 Weds), Plosser (1:30 Weds), and Bullard (9:15 Thurs) ahead of our 2-Year Note Auction (1pm Tues), 5-Year Note Auction (1pm Weds) and 7-Year Note Auction (1pm Thursday) as the Fed needs to bring out 4 of it's 5 most hawkish members to talk up the Dollar (by talking down QE3) to keep those rates paid as low as possible for Treasury.
Once the Hawks drive the rates down and the notes are sold, the Doves will once again be released to talk them back up by extolling the glories of QE3 – completely reversing whatever was said before just as the Hawks will once again be called upon to reverse what the Doves say at a later date – when they need rates to come back down. The joke of it all is that traders will react to each statement, every time, as if it's a "game changer" and adjust their positions to reflect the new reality of the moment. It reminds me of a quote from Orwell's 1984:
As soon as all the corrections which happened to be necessary in any particular number of The Times had been assembled and collated, that number would be reprinted, the original copy destroyed, and the corrected copy placed on the files in its stead. This process of continuous alteration was applied not only to newspapers, but to books, periodicals, pamphlets, posters, leaflets, films, sound-tracks, cartoons, photographs – to every kind of literature or documentation which might conceivably hold any political or ideological significance.
Day by day and almost minute by minute the past was brought up to date. In this way every prediction made by the Party could be shown by documentary evidence to have been correct, nor was any item of news, or any expression of opinion, which conflicted with the needs of the moment, ever allowed to remain on record. All history was a palimpsest, scraped clean and reinscribed exactly as often as was necessary. In no case would it have been possible, once the deed was done, to prove that any falsification had taken place.
December industrial output dropped 1.1 percent on the month and 2.0 percent on the year. Capital goods production was down 0.8 percent while intermediates slid 0.7 percent. Durable consumer goods (0.2 percent) managed a small gain but nondurables were just flat and energy contracted 2.0 percent. Regionally, much of the damage was caused by Germany where output slumped 2.7 percent, but France (down 1.3 percent) also struggled badly. Italy saw a much needed 1.4 percent gain but its second successive increase still failed to make up for a near-5 percent plunge in September. Spain advanced 0.9 percent, only its first positive reading in four months. Among the smaller member states, Greece witnessed a 2.4 percent monthly decline while Portugal was down 1.6 percent.
The Times of the nineteenth of December had published the official forecasts of the output of various classes of consumption goods in the fourth quarter of 1983, which was also the sixth quarter of the Ninth Three-Year Plan. Today's issue contained a statement of the actual output, from which it appeared that the forecasts were in every instance grossly wrong. Winston's job was to rectify the original figures by making them agree with the later ones.
As for the third message, it referred to a very simple error which could be set right in a couple of minutes. As short a time ago as February, the Ministry of Plenty had issued a promise (a "categorical pledge" were the official words) that there would be no reduction of the chocolate ration during 1984. Actually, as Winston was aware, the chocolate ration was to be reduced from thirty grams to twenty at the end of the present week. All that was needed was to substitute for the original promise a warning that it would probably be necessary to reduce the ration at some time in April.
Fourth quarter gross domestic product in Asia/Pacific dropped 0.6 percent and was down 1.0 percent when compared with the same quarter a year ago. On an annualized basis, GDP contracted 2.3 percent. For the year 2011, GDP dropped 0.9 percent after expanding 4.4 percent in 2010. Yes, there was Fukushima but wasn't that supposed to come back at some point? At the moment, the Asian economy looks like it's been sealed in concrete as well.
"Who controls the past," ran the Party slogan, "controls the future: who controls the present controls the past." And yet the past, though of its nature alterable, never had been altered. Whatever was true now was true from everlasting to everlasting. It was quite simple. All that was needed was an unending series of victories over your own memory. "Reality control," they called it: in Newspeak, "doublethink."
Well, that's enough bearishness from me! How about that Economy, huh – gooooooooooooooo OIL!!!! I see the Dollar plunging to 78.95 this morning, down from 79.60 on Friday (1%) and the Futures are up almost 1% and oil is up another 2%, almost at $106 and gold is $1,735 so all must be well in the World – bless Big Brother…
"Don't you see that the whole aim of Newspeak is to narrow the range of thought? In the end we shall make thoughtcrime literally impossible, because there will be no words in which to express it. Every concept that can ever be needed will be expressed by exactly one word, with its meaning rigidly defined and all its subsidiary meanings rubbed out and forgotten."
Despite our EXTREME skepticism regarding this rally, TECHNICALLY it IS a rally and we continue with our February strategy of adding one more bullish position for each day the Dow holds 12,750 (now 13,000) that we initiated back on the 2nd, where our initial plays were the very aggressive FAS spreads – one of which expired Friday (Feb $77/80 bull call spread at $2, selling $75 puts for $1.50 for net .50) up 500% and the other (March $75/80 bull call spread at $3.05, selling $70 puts for $3 for net .05) is well on-track for the full 9,900% potential gain on cash with FAS currently at $91.86.
Both of those trades make 50% if you did the bull call spread without the offset and that's not so bad if you don't have margin – that's the kind of trades we like to get into when we're forced to take positions we don't really believe in. Another trick I mentioned that day was offsetting the same plays with stocks that you REALLY want to own if the market does do what you think and drops 20%, instead of rising 5% as it has SO FAR this month. Our offsetting short puts were:
- CHK Jan $17.50 puts sold for $2.05, now $1.20 – up 41%
- GE 2014 $17.50 puts sold for $2.50, now $1.44 – up 42%
- GOOG June $450 puts sold for $4, now $2.85 – up 28%
- ISRG Jan $310 puts sold for $10, now $8.80 – up 12%
- KO Jan $62.50 puts sold for $3, now $2.60 – up 13%
- MO 2014 $23 puts sold for $2.15, now $1.85 – up 14%
- PFE 2014 $20 puts sold for $2.65, now $2.75 – down 2%
- XOM Jan $65 puts sold for $2.50, now $2.30 – up 8%
- CHK 2014 $15/20 bull call spread at $2.65, selling $15 puts for $2.35 for net .30, now $1.35 – up 450%
- AA July $8/10 bull call spread at $1.40, selling 2014 $10 puts for $2.10 for net .70 credit, still .70 credit – even
- AMZN Jan $170/180 bull call spread at $5.20, selling Jan $110 puts for $4.15 for net $1.05, still $1.05 – even
So we have two that are still playable and one that is up 450% already – there's always a fresh horse to move to, right? On Friday, the 3rd, I ran short on time in the morning and was only able to put up the first 3 bullish trade ideas in the main post, adding the rest in our morning Alert to Members. Those were:
- BA 2014 $60/80 bull call spread at $11, selling 2014 $65 puts for $8 for net $3, now $3.35 – up 11%
- F 2014 $8/12 bull call spread at $2.40, selling $10 puts for $1.50 for net .90, now $1.40 – up 55%
- GS 2014 $80/110 bull call spread at $20, selling $90 puts for $12.50 for net $7.50, now $6.75 – down 10%
- SVU at $7.10, selling 2014 $7 puts and calls for $3.70 for net $3.40/5.20 (2nd number being your average on 2x if put to you below $7), now net $3.26 – on track (within 20%)
- HPQ 2014 $20/30 bull call spread at $5.60, selling $23 puts for $3 for net $2.60, now $3.26 – up 25%
- SKX July $11/13 bull call spread at $1.20, selling $11 puts for .90 for net .30, now .40 – up 33%
- 2 BTU 2014 $30 puts sold for $5.40 ($10.80), buying 1 Jan $40/50 bull call spread at $3.20 for net credit of $7.60, now $8.60 to buy back – down 13%
On Tuesday, the 7th, the Dollar was also back down at the 79 line and, in that morning's post, I discussed our trade idea for CSTR from the previous Member Chat, which was the Jan $45/60 bull call spread at $6, selling the Jan $42.50 puts for the same. That net $0 trade did very well as CSTR rocketed on earnings with the bull spread now netting $8 and the short $42.50 puts down to $4 for net $4 of profit (so far). What's the theme of these plays? We identify companies with strong fundamentals that we DO want to own, even if the market turns down and we construct trade ideas to give us entries at or below the current prices.
Could we have done better by being more aggressively bullish? Of course we could – but we sleep a lot better this way and the returns are just fine as they are. On Wednesday, the 8th, I was unable to find anymore bullish plays I liked but I reviewed the ones above in the morning post saying:
So let's not fear the rally. Of course we balance out our winners with a few bear hedges (see yesterday's Member Chat for TZA spread) to lock in some of our quick gains. Also, there's nothing wrong with taking some cash back off the table here as this "rally" is just ridiculous and, if the tide comes in this week or next, we'll be thrilled to get back to cash but, if we're going to head up forever – we can do this week after week so we're not going to miss much by sitting out a few!
We don't like to be bullish into the weekends – although Black Monday never does come – and that Monday I found nothing to be bullish about but last Tuesday (14th), on Valentine's day, we liked EXC and got back on our bullish horse (partying like it's 1929) on Wednesday morning with the following:
- ABX Jan $43/52.50 bull call spread at $4.40, selling $40 puts for $3.05 for net $1.35, Still $1.35 – even
- SPY Jan $115/125 bull call spread at $7.25, selling $120 puts for $6.85 for net .40, now $1 up 150%
- BAC Jan $5/7.50 bull call spread at $1.75, selling $7.50 puts for $1.20 for net .55, now .53, down 4%
- FAS March $70/75 bull call spread at $4.20, selling March $75 puts for $2.60 for net $1.60, now $3.20 – up 100%
- FAS March $80/85 bull call spread at $3.30, selling $71 puts for $4.10 for net $1, now $2.85 up 185
- FAS April $85/95 bull call spread at $5.10, selling $71 puts for $4.10 for net $1, now 4.85 – up 385%
- GS Jan $80 puts sold for $5.10, now $4.70 – up 8%
- GS Apr $100 puts sold for $2.35, now $1.65 – up 30%
- EDC March $125 calls sold for $3.20, now $3.70 – down 16%
- XOM Jan $70 puts sold for $3.30, now $3 – up 10%
- DMND March $22.50 puts sold for $2.30, now $1.45 – up 37%
That was bullish enough to last us another 10 days so, in Thursday morning's post, we looked at two short trade ideas we had picked up after the Fed Minutes on Wednesday (see Stock World Weekly) gave us no clear indication of QE3 and our new disaster hedges were:
- SQQQ March $12/14 bull call spread at $1, selling TZA March $18 puts for $1.03 for a .03 credit, now .35 credit – down 1,100%
- TZA March $19/23 bull call spread at $1.05, selling TZA March $18 puts for $1.03 for .02, now .52 credit – down 2,500%
Boy, when these spreads go bad, they REALLY go bad. Of course, as long as we only sell short puts on positions we REALLY want to own as a long-term hedge, no big deal and TZA is actually at $18.34 so it's all premium with the Russess testing our 835 line and still well below it's breakout at 851 – at which point we probably would no longer REALLY want to be ultra-short on that index!
There was just no way I was able to come up with another bullish play last Friday, into the long weekend and we pressed our oil puts in Member chat and then could only sit back in horror as oil was jammed up from $103 to $105.50 in after-hours trading. Today, all we can do is watch and wait on our option positions as the US markets are closed but Europe is up about a point as we wait for the announcement that Greece is fixed…. again.
I promise to be nice and bullish tomorrow if our levels hold – but I can't promise I'll like it!
The voice from the telescreen was still pouring forth its tale of prisoners and booty and slaughter, but the shouting outside had died down a little. The waiters were turning back to their work. One of them approached with the gin bottle. Winston, sitting in a blissful dream, paid no attention as his glass was filled up. He was not running or cheering any longer. He was back in the Ministry of Love, with everything forgiven, his soul white as snow. He was in the public dock, confessing everything, implicating everybody. He was walking down the white-tiled corridor, with the feeling of walking in sunlight, and an armed guard at his back. The longhoped-for bullet was entering his brain.
He gazed up at the enormous face. Forty years it had taken him to learn what kind of smile was hidden beneath the dark moustache. O cruel, needless misunderstanding! O stubborn, self-willed exile from the loving breast! Two gin-scented tears trickled down the sides of his nose. But it was all right, everything was all right, the struggle was finished. He had won the victory over himself. He loved Big Brother. - 1984 by George Orwell