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Tempting Tuesday – Greecing the Wheels for an Uphill Climb?

Posted on the 21 June 2011 by Phil's Stock World @philstockworld

U.S. Crude Oil Stocks Graph.The Dollar is at 75.24 at 7am

That’s because the Euro is back to $1.436, the Pound is $1.619 and it’s 80.16 Yen to the Dollar.   The weaker Dollar is pushing the futures up another half a point this morning and oil has flown back to the $95 line, where were shorting it again so thank you NYMEX crooks for another crack at a Billion-Dollar winner this week.  Our trade ideas on the oil futures racked up several Billion in profits in the past couple of weeks and you can read all about that strategy in June 11th’s Weekly Wrap-Up so I won’t get into that here.  I already called a futures short in early morning Member Chat and we caught a quick ride down to $94.40 but now we’re back at $95 as the Dollar gets back to 75.20 and we’re going to go short again for the same reason.  

What is that reason?  GREECE IS NOT REALLY FIXED!  

There, that’s not a complicated premise, is it?  If Greece is not fixed then the Dollar should get stronger and if the Dollar gets stronger then oil heads lower (read all about that relationship in Stock World Weekly) because it’s priced in Dollars.  Aside from being priced in Dollars that are priced too low – there is simply WAY too much oil floating around the World.  Although the NYMEX crooks have gotten rid of all but 65 Million barrels of oil that they pretenedted they wanted for July delivery (down from 425M barrels of fake demand at the peak), they have done so by pretending to want 519Mb in the next 3 months.  So, like Greece, the NYMEX crooks have simply extended their problem (ordering barrels they don’t REALLY want delivered) and they are pretending the demand is still there.  

Unfortunately for them, the clock is ticking as they have already stuffed 188M barrels worth of contracts (188,000) into December and, as you can see from July as we tick down to the last day – they don’t really want even 1/3 of that amount to be delivered (more like 35Mb tops) so there is going to be hell to pay at the end of the year, no matter how successful they are at kicking the contracts down the road for the next couple of months:  

Click for chart Session   Pr.Day   Options

Open High Low Last Time Sett Chg Vol   Sett OpInt  

Jul 11

99.01 Jun 20, 20:10 93.26 0.25 98356   93.01 65994   Call Put 

Aug 11

100.86 Jun 20, 20:10 93.63 0.23 261068   93.40 295536   Call Put 

Sep 11

100.14 Jun 20, 20:10 94.07 0.23 32888   93.84 155921   Call Put 

Oct 11

96.89 Jun 20, 20:10 94.46 0.23 16417   94.23 69175   Call Put 

Nov 11

78.01 Jun 20, 20:10 94.85 0.22 9306   94.63 58136   Call Put 

Dec 11

101.31 Jun 20, 20:10 95.19 0.21 30889   94.98 188553   Call Put 

Normally, the 3rd month out looks like October – with about 50,000 contracts open (50Mb).  That’s because 50Mb is about the upper limit of real demand and those people (airlines, truckers, chemical plants) hedge their consumption for a year or so at a time to lock in steady prices.  That is the LEGITIMATE use of futures hedging.  Then come the speculators, who pile onto that 50Mb of real demand and they PRETEND to want another 250-400Mb in a single month.  That drive prices sky-high and forces US consumers to pay almost twice as much as they should for the 600 Million Barrels a month that they actually consume, all so a bunch of crooks at the NYMEX can rake in fees as they trade over 400 Million Barrels PER DAY!  

U.S. Crude Oil Imports Graph.Back and forth, back and forth, back and forth they trade – churning and churning the contracts and racking up fees that are passed to the US consumers.  Globally, it’s $2.5 TRILLION in excess fees and costs all so GS, for example, can make their magic $100M a day of trading profits.  That August contract started the day yesterday at $91.51 but, 261,068 contract churns later and they had it up to $93.63 at the close but then they took it all the way to $95 in overnight trading.  US consumers use 17Mbd so that $3.50 costs us $59.5M per day and that’s $1.8Bn a month that’s taken out of our disposable income and sent overseas where it helps pay for roadside bombs that blow up our troops.  Yes our "leaders" do nothing about this blatant crime!

Notice in the chart on the left, they are also shipping us 1 Million barrels a day LESS than they did last year – that’s been going on since April so figure 60 days or 60M barrels less oil shipped than last year yet, looking at the chart above, our crude stockpiles are much higher.  Now, I’m not an "expert economist" (or "Economoron" as we now call them) but it seems to me that if supply is down 10% and inventory is up 10% then DEMAND must be LOWER than last year.  Sure it seems obvious but why then do you hear nothing from the Corporate Media but the EXACT OPPOSITE?  

Tempting Tuesday – Greecing the Wheels for an Uphill Climb?What about China?  Yes, they love to shout China as if it solves all bullish arguments but China "only" consumes 9 Million barrels a day and 5Mb of that is produced domestically so their total imports are just 4Mbd so it would take a 25% jump in Chinese imports to offset a 10% drop in US imports and that is certainly not happening.  In fact, China’s copper imports are off 32% this year already and it’s accelerating, with May down 47% from a year ago at 149,235 metric tons – off another 6.9% from April.  “The London price ($4.10 per pound) is still too high for any restocking plan,” said Zhao Kai, an analyst Jinrui Futures Co., a subsidiary of China’s largest refined copper producer Jiangxi Copper Co. “As the June-to-August period is the usual slack season, we probably won’t see a strong rebound in imports, despite the significant decline of domestic stocks,” he said.  

China stocks are likely to post a record stretch of monthly declines after government measures to fight inflation pushed down financial companies on the benchmark index to an all-time low relative to earnings. Banks and developers slid to a record 8.8 times estimated earnings in the week ended June 3, and were at 9.14 on June 17, Bloomberg data show. Non-financials are valued at 19.2 times estimated earnings, compared with a record low of 14.8 reached in October 2008. "When you rule out financial companies, Chinese stocks are actually not cheap and most of them are still way above their valuation bottoms," siad Li Jun, a strategist at Central China Securities Co. in Shanghai. "On the back drop of the government tightening liquidity, it’s hard for valuations to expand so high-valuation stocks risk converging with low-valuation ones."

Speaking of BS Chinese stocks, John Paulson Just Dumped All His Sino-Forest After Taking a Gigantic Bath.  Paulson, the billionaire hedge fund manager, has sold all his shares of Sino-Forest, the Chinese timber company whose shares have collapsed in the wake of fraud allegations, according to Bloomberg.  Paulson had a huge holding that has scorched his returns for June — he’s reportedly down 13% this month alone (also in part due to wrong way bets on financials).  Originally, Paulson defended the stock in the wake of allegations from short-selling research firm Muddy Waters, but the negatives keep piling up.  This weekend a Canadian newspaper basically corroborated the claims against Sino-Forest.

Tempting Tuesday – Greecing the Wheels for an Uphill Climb?If China bubble talk sounds familiar to you, perhaps this is why.  The Financial Times has a great article comparing the state of the economy in pre-crash 2007 to (probably pre-crash) 2011 in which they say: "Current market conditions are, in many ways, reminiscent of the benign market conditions of 2007. Volatility and cost of debt are low, highly-levered buyout deals have returned and the credit market penalty for being more levered is once again minuscule."  

This is not complicated people – look at the chart!  What happened in 2008?  Are we better off or worse than we were in 2007?  OK then – LOGICALLY, what would be the proper course of action in 2011?  Forget Greece, forget Japan, forget Riots in the Middle East, forget the US Budget Crisis that didn’t exist (to this extent) in 2007.  Based on the data alone – is it time for risk or a time for caution?  I am appealing to your rational sensibilities here – I don’t have sound bites, I won’t repeat it 500 times between commercial breaks and I don’t have a sponsor but, if I did, my sponsor would be CASH!  Cash is good, cash is smart – cash will let us buy things if the market collapses – again – because all the same mistakes are being made – again – only this time we don’t have any room for error, do we?  

Tempting Tuesday – Greecing the Wheels for an Uphill Climb?Our plan last week was to ride the "Greece is fixed" rally into the close of the Quarter and get to cash but I’m not sure we have that long.  The last crash was "fixed" by throwing Trillions of Dollars into a black hole that apparently opened on the other end at Goldman Sach’s Prop Desk, which then used all that free money to pump up commodities despite an overall lack of demand.  

That then began a process that siphoned Trillions of Dollar of cash away from the global consumers by force and that forced spending gave energy and commodity sectors a lift and before you knew it we had a market rally.  Unfortunately, we bled those consumers dry and now they are rioting in the streets and there is no longer enough of a tax base for countries to repay their debts so the International Banksters have sent out foreclosure notices on Greece, Ireland and Portugal and they have their eye on Italy and Spain next.  

To "celebrate" Greece being fixed if they manage to hold onto their Government this afternoon and then manage to make a deal that assures a decade of immeasurable suffering for their people that is almost certain to end in default anyway is not smart.  Who will bail out the next PIIG?  Who will bail out the UK, with their 83% debt to GDP ratio?  Who will bail out the US with our 99.5% ratio (and we need to raise that limit or we go BK first!) and our 10.8% of GDP deficit.  10.8% means our deficit doubles in less than 7 years to over 200% of our GDP and we’d STILL be better off than Japan is today.  

As Bill Clinton tells us – It’s Still the Economy, Stupid – and the President has 14 ways to fix it and none of them involve giving another Trillion Dollars to Investment Banks.  As Clinton points out – this country can be fixed and our unemployed people could be put back to work if only our current "leaders" would show a little political backbone.  Sadly, that’s just not likely to happen so it’s back to cash as we wait for the crash (oh good, we found a catchy phrase!).

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