After 48 hours of market euphoria last week have the markets already sobered up over the weekend and need another fix? We had a minor pullback (so far – see Dave Fry's chart) in the US and Europe but China's Shanghai Composite index has fallen 3% in the first two days of the week, giving up all of the gains of QE3 (not to mention China's own generous stimulus last week) and falling back to levels not seen since 2009.
Our own data continues to come in terribly, with yesterday's Empire State Manufacturing Survey a disaster at -10.41, putting us steeply into contraction with another round of Global PMI reading coming later in the week to possibly confirm the Global Recession.
Of course with no manufacturing activity it's the materials sector that's priced way too high. Gold and oil were two of our remaining short positions in the $25,000 Portfolio (see Friday's Post) and yesterday morning I mentioned how excited we were to short oil at $100. That worked out very well already as it plunged back to $95 yesterday afternoon – paying futures players (/CL contracts) $5,000 per contract in one fell swoop.
For all those "confused" analysts, we are happy to point out the only chart that matters and that's how many open October contracts remain on the NYMEX, which expire on Friday – forcing traders to accept delivery of barrels (1,000 per contract) that they have no actual use for, no authorization to buy and no intention of owning.
In fact, despite trading over 6Bn October contracts back and forth in the past month, in the end, traders will only accept delivery of about 30M barrels – reflecting the ACTUAL demand – the rest is just faked in order to drive up prices and the cost of each trade is, of course, passed on to the consumers and paid, as fees, to the NYMEX and their traders, who add a nickel here and a nickel there until they are rich and you are paying $60 for a fill-up.
Click for
Chart
Current Session
Prior Day
Open High Low Time Set Chg Vol Set Op Int
Oct'12
96.71
97.23
95.81
08:29
Sep 18
Nov'12
96.98
97.55
96.13
08:29
Sep 18
Dec'12
97.27
97.84
96.46
08:29
Sep 18
Jan'13
97.88
98.07
96.70
08:29
Sep 18
In three days, 2/3 of the October contracts will be cancelled. Forget the fact that these traders have firm orders for 98M barrels of crude that guarantee delivery in October and by cancelling those contracts they are jeopardizing America's energy security – that's a game they play with impunity every month. As you can see, they also have no room to roll the contracts. Usually, our front three months have 500-550,000 orders (90% fake) at the beginning of a cycle and the NYMEX crooks are very adept at rolling that fake demand along each month to keep you paying double the fair market rate for oil.
President Obama (and thank you Mitt for assuring us he will remain President, you elitist tool!) – now would be THE BEST time to release some oil out of the SPR because the traders at the NYMEX will choke on these open contracts and oil will drop over $10 almost instantly as there will be nowhere for them to hide their contracts anymore. Just a 15Mb release will do it, not even 2% of the total reserves. PLEASE!!!
As to the other scam that's running – QE3 should be good for a lot more than a 2-day pump job. The real wild-card for the week is what will the BOJ decide to do tomorrow about the strong Yen/weak Dollar. Should they approve another Yentervention (likely), the Dollar will pop back over 80 and materials will again plummet and we'll be testing a lot of significant lines on our Big Chart – which is good, as we do want to see what holds up under pressure.
As you can see from the chart on the left, expectations for Q3 could not be much lower but, just like 2007, despite deteriorating earnings quality people are BUYBUYBUYing stocks at record-high prices because we have faith that our Government and the beloved Fed will fix everything – so we will continue to ignore all those nasty facts and continue to party like it's 1999 – or 2007.
After all, the past has nothing to teach us – this time it's different, right?