Archive for April, 2008

Inflation – It’s a Pleasure to Meet You!

So Ben and the Fed gang just got out of their Rate setting meeting. And as everyone expected, the rates were cut by a quarter point.

Now, I had these delusions of Ben actually making it a point to say that inflation is getting out of control, and that the risk of inflation is too high.

Of course, he didn’t do that at all. In fact, from this meeting I got only the slightest idea that rates might not get cut again. But there were no hints whatsoever of rates going up in the next few months.

So long as rates don’t go up, then inflation isn’t being battled to the death.

In other words, the commodities bull is alive and well. And don’t be shocked if the market retraces for a few days and then goes on to rally big.

It won’t last long though. So don’t get caught up in it.

Oh, and I placed a call option today – the one I referred to yesterday. The stock itself was up over one percent all day. Then when the rate announcement came out it went up another half percent. But as soon as it started coming back down, I sent out the trade alert.

This should be a nice one

What Made Microsoft Big?

Windows made MSFT big.

What limits Apple? The fact that you can’t buy their operating system (which is better then windows) and install it on a regular PC.

But now one company is making regular PCs and preloading it with the mackintosh OS.

Sure, Apple might do something about it (after all, it’s against their terms and conditions). But what if Apple doesnt stop them?

You have a new frontier for Apple to make a killing off of. Be sure i’m watching this story very carefully.

What Can I Say About the Market Today?

I start off this post not knowing what the heck to talk about.

What can I tell you that you don’t already know, ever-evolving super-intelligent blog-reader?

It’s tough to say. I can’t even give you banterings of me making tons of money or losing money. The truth is right now I’m playing a pharmaceutical company. So far it’s doing good, rising six percent in six days.

I wish I could have played the option, though. But sadly there wasn’t enough open interest on the damn thing (only 3o contracts volume and 30 contracts in open interest. You can’t recommend that to over 400 people!)

And now I have another good stock on my radar screen. Thankfully, I’ll be able to play a freaking option on it. Shockingly enough ,it’s another call.

I already have a stock shorted and another that does well when stocks fall. So I’ve got my downside covered but my upside – until just a few days ago – wasn’t.

In this market, I’m looking to stay balanced. I think the fed is going to signal an end to rate cuts tomorrow. And that should spook the market a bit. But then again who knows.

Either way, if the market does start pushing down this week, then I’ll be able to see how my call candidate performs. If it does well, I’ll probably jump in feet first.

It’s a tough market, that’s for sure.

I’ve found at times like these the best coarse of action is to not get caught up in the ever-evolving schizophrenic emotions the markets can put people through.

In fact, I’ve started listening to more and more music lately. You see, I’ve been in music since i was in 4th grade. I LOVE MUSIC. Not only that, but it helps me keep my emotions under control. If the song is calm, i stay calm. So the trick is, listening to calm music between 8:30AM to 5:30PM.

With that said… I know you all love music. So tell me what you like or love. Tell me what inspires you to play the markets or songs you love for good days and bad ones.

I’ll make it a point to post those songs up in this here blog, when the moment suites it.

Have a good one!

Dancing with Myself

God I love Billy Idol.

And as I write this, you should be able to guess which song I’m listening to right now. It’s giving me some good market-beating analysis, I must say.

I’ve determined that I’m staying invested in all the big bull runs. You know commodities, ag, video games, and now I’m adding health care to the list.

Baby boomers. What a freaking trend, right?

I’m also looking at some refiners. Reason being, once oil prices come back to earth, refiners are going to mint some coin.

This is going to be a freaky week. We have the Feds rate announcement right around the corner. Looks like the markets expect a quarter point cut. I personally think that Bernanke should put an altar of Paul Volcker up inside his room.

Maybe then he’ll get the massive cohones needed to actually fight inflation.

But there’s something I realize. It’s about stagflation.

Last time we had it, it wasn’t only the U.S. fault that prices skyrocketed here. The truth is, growth all over the world was ticking higher.

Today we’re in the same situation. If the U.S. kills demand, it won’t matter so long as emerging economies continue to, erm, emerge.

As long as demand continues to grow there, it will be more than enough to offset any decline in U.S. demand. All of this means that if the U.S. is truly serious about fighting inflation, it has to completely destroy economic growth.

Let me explain by use of circular logic.

Today’s inflation is driven mainly by food and energy. Granted, there are some contributing factors, but the main reason why prices are inflation have to do with growing global demand thanks to emerging economies.

Considering global economies are still ‘baby’s‘ and have to grow, expecting a slowdown in demand would be like wishing for the winning lotto tickets to be found under your pillow tonight.

So, the number one reason for inflation – commodities due to global demand – isn’t set to slow down anytime soon.

It doesn’t matter if the U.S. raises interest rates a little. Not at all. All that matters is that so long as global demand keeps growing the way it is, inflation will persist.

Follow me so far? OK good.

As it appears, the cure to solving inflation would be to slow down global demand.

So how do you slow down global demand? Obviously, if the U.S. economy contracts one or two quarters, it won’t have too bad of an affect on the global economy. After all, China’s economy still grew by nearly 10% last quarter, U.S. slowdown and all.

But what happens if the U.S. goes all ‘Volcker’ on the worlds A$$e$ and instead raises interest rates to over ten percent? you’d see a huge contraction in U.S. demand for foreign goods. The dollar would rocket higher, spurring more investment in dollars.

Wait, that’s not all…

As U.S. demand shrinks, emerging economies take a huge hit. China takes the biggest hit since they are a huge exporter. As emerging economies take the hits, you see demand for commodities start to taper off or even shrink.

As that happens commodity prices fall and the world begins to see deflation.

Oh yeah, and as these emerging economies start taking the hits, you see money flow out of emerging currencies and back into the dollar. Foreign investors get spooked and foreign investments drop dramatically.

Suddenly the dollar is on top, commodity prices are back to normal, and inflation is no longer a threat.

Is this a dream? Well considering Bernanke is no Volcker, yes it is a dream. A scary dream, but a dream nonetheless.

With that said, I’m a commodities bull. And that’s a big reason why.

Check out the Dollar

Showing some surprising resiliency lately. I have this feeling that after the Fed announcement next week, the dollar may firm up and go back up to the 73-74 level.

Honestly, i’m starting to mentally prepare myself for a dollar bull run. Not a long-term one. But a bull run non the less.

Reason being, if the Fed only cuts by a quarter percent and shows signs of not wanting to cut anymore, traders will buy dollars in droves.

What i’m looking for is a break above the 20-day average. Not just a little ‘baby-break’. I want a manly ’slap-you-in-the-face’ kind of break.

Then, my friends, i’ll be back in the FOREX markets, dipping my feet in slowly to see if i’m right (this time) on this.

Now, the Market Decides to go South…

No, the Dow Jones couldn’t start falling when I had a put on the DIA open.

Instead, my put had to expire before the market started moving down. Argh!

But all is good. I’ve got a few good calls on tap. So we’ll see how the market reacts today. My thinking is that even if the market drops, the stock i’m looking at should rise.

It’s all about patience here. I’m in no rush to grab gobs of money from unsuspecting market participants. And neither should you.

There is one big risk looming. And that’s the FOMC meeting next week. Most people think the fed will drop rates by a quarter point. But everyone will be paying attention to the comments. Will the fed look to stop dropping rates? I think they just might. And that could prove either disastrous or a boon for the market. I’m not quite sure yet.

With that being said, it’s hard to try and predict how the market would react. So that’s why it’s good to stay balanced.

Late Day Post…

As I promised last week, over the weekend I thought about the things I can do in the market that expose me (and you) to less risk. Here is what I came up with (Which I sent to my paid subscribers):

This week we’ve begun looking for more opportunities.

We’ve pinpointed a few areas which are extremely interesting.

First, we’re looking at some companies that are rapidly expanding thanks to the upgrade cycle in video game consoles. We have to wait before sending an alert though, because the companies we like the most are overbought right now.

Second, we’re looking into companies that should do well as the dollar drops. On the radar we have Coca Cola (KO), International Business Machines (IBM), and even McDonalds (MCD).

Third, we feel consumer spending will ratchet down. And thanks to the credit crunch, retailers that are underperforming will have a hard time getting credit. So we’re looking to short some weak retailers.

Lastly, we still feel very strong about the commodities and agriculture bull run. Once prices fall back to earth, we’ll look to get back into these sectors.

Because of the volatility we’ve seen in the markets lately, we’re also going to recommend options which provide more time before expiration. This should reduce our risk substantially.

All of these actions should help us make some substantial gains in the months ahead. And the next trading alert could come as soon as this week, so stay tuned.

In the end, i’m absolutely fed up with how the market has been reacting as of late. Honestly, it feels almost like late 2006, when the market did nothing but hit new highs regardless of how bad news was.

I don’t think we’re anywhere near that type of market, alls considering the economy is in a completely different place. But i’m staying wary of upside risk in this market.

That’s why I want to recommend those destined to lose and go long those not. And I also want more time on my options because quite frankly, this market is much too spastic to expect significant moves to happen rapidly.

My aim is to in the next two to three weeks, be able to take my well-deserved profits back from the markets and then pimp-slap it for acting wrong.

That’s right – we should pimp-slap the market when it acts a fool.

Expectations Suck

I hate analyst expectations.

It’s the reason why the market decided to rally this week – because earnings came in better than expected.

Sure the economy slowed down. Sure the Fed indicators pointed to a huge contraction in March. Yeah, inflation is kickin and we’re loosing jobs.

But you know what?!? Google is still making money!!!!! (they beat by 32 cents, I guess paid click didn’t slow much. But, I’ll wait to see what happens next quarter).

And up the market goes…

I had to get out of my TRA call at a very slight loss. And my DIA puts are underwater right now. Here’s to hoping that tomorrow sees some selling early on.

So what will I do next?

Honestly, I’m going to get prepared for a speech I’m giving out in Orlando, Florida with three of my colleagues.

Then after that, I’m going to socialize, drink a little, and ponder the market a little bit. Then on Monday, I’ll have a nice little plan of action.

Being Back-Handed by a Bull

My face is a little sore…

It seems a few bulls took me to an alleyway and back-handed the crap out of me.

Instead of dropping to the 12,000 level like I wanted, the Bulls are taking the dow nearly 200-points higher.

And on what? News that wasn’t as bad as expected, that’s what.

I guess the bulls are really looking forward to a recovery in the second-half. But let me ask you, when lending is being crippled, how can a recovery even come in the second-half?

I doubt it will.

So here’s what I see…

Manufacturing won’t do as bad since exports are rising by about 3-4% every quarter. Services may suffer, but there is a lot of job creation going on in the healthcare industry. In fact, in the past year, there have been more medical jobs added then manufacturing jobs lost.

All that will do is help the consumer from defaulting as much.

But there are still a slew of foreclosures hitting the markets. As these foreclosures hit, people will move into apartments. As demand for apartments increase, so too will prices.

So not only will we experience food and energy inflation. But we will also see rentals increase in the next two years as well. And as we all know, inflation hurts purchasing power.

And then, let’s not forget that the credit crunch basically killed the municipal bond market, forcing cities to look elsewhere for funding. In some cases, interest rates went up so high that cities will have a hard time keeping up.

As cities are squeezed of funding, jobs and spending takes a hit.

Ahhh, but let’s not forget how hard its becoming for less-than-stellar companies to acquire funding. Just last wekk two airliners went out of business. But there are hundreds of other companies getting close to doing the same.

As these businesses go bankrupt, people will lose their jobs and spending takes another hit.

So, I predict this ‘recovery’ everyone expects simply won’t happen. The economy might not contract horridly, but it won’t really grow either. It will be stagnant. And if inflation keeps moving higher, then we’ll have stagflation.

In the meantime, I have this feeling the Dow will re-test 12,800. If tomorrow it goes higher, i’m getting out of my puts and looking into some calls.

Again, i’m not calling the end of the bear market. Far from it. But I recognize when a rally is in the works. And it looks like that might just be the case.

We’ll see in the next few days.

PPI has Punched Bernanke in the Eye

March Producer Price report came in and (drum roll please) it showed a 1.1% jump in producer prices!

Is this a shock to you? It really isn’t to me. The only thing shocking is to see that year over year, producer prices are up 6.9%!!!!!!!!!!!

Man, every month looks more and more like the 70’s. Gold is soaring. People are worried about gas. Stagflation is a threat. And inflation is soaring.

While producer prices are up 6.9% for the year, import prices are up nearly 15% for the past year! The only thing that hasn’t gone up this far is consumer prices. This means that margins are shrinking for producers, since they aren’t passing on the price increases.

That won’t go on forever.

Of course, this did nothing to do the Dow Jones, which is looking to open higher on the day. Not that it’s open means much, but it still shows some optimism on behalf of the market. I just don’t get what the heck they are being optimistic about.