Hi! I know its been a while again but here I am.
So I’ve been telling people lately they should be buying puts on the SPY and the past few days are why. The broad market is well overbought and were seeing a turning point as all the bears and bulls are now starting to turn. It could get awfully bumpy. The global market is still fragile and it has been living on QE candy. (I’m on a strict diet so I can’t help but compare the market to a malnourished body).
So, here’s what to do. Obviously the thing to do would have been to load up on SPY puts, but I have not been diligent about posting or you may have known! The other part is whether or not you would have taken action. Most likely not. Most people won’t take action until its too late. Whether you’re protecting or investing here are the puts you want:
SPY: 145 puts for march expiration. These are gonna be crazy but that’s what you want. I had my eye on the 140s before but these will do. They are higher volume and OI so you shouldnt get trapped in em. I might wait until we get a bounce before jumping into these. I don’t expect to hold these until expiration nor for them to get into the money. They will be a good lever for the coming volatility. You should see some nice gains if you stay agile and get out before the decay gets ya.
I’m back! My last position prohibited me from having a public voice so I had to set it on the shelf for a little while. Now I am free to blog (within reason) and plan on resuming the rant. The first order of business:
I am fed up with the amateur tax specialists out there telling people they can deduct everything. Yes, it is theoretically possible that you could deduct it. There is much more to the process than most people want to admit. Many people like to claim that just about anything is deductible and a lot of things may be. If someone owns their home this opens them up to a world of possible deductions as long as their mortgage interest, property taxes, and potential deductions combined are more than their standard deduction and they can justify itemizing. This is easy to accomplish if someone is single. If someone is married and lives in a modest home it can be more difficult especially considering the low cost of mortgages right now.
The biggest amateur culprit is the “work expenses” deduction. Unless you are an independent contractor or run your own business you are very unlikely to be able to deduct these considering you have to first have enough deductions to justify itemizing and then additionally there is a minimum of 2% of your Adjusted Gross Income (AGI). For someone making $50k this would be $1000. For a couple making $100k this would be $2k. Most people don’t spend this much for legitimate unreimbursed expenses. Additionally this area makes you a bulls-eye to be audited. Good luck with that!
Then there’s the medical expenses line which is 7.5% of your AGI and good luck getting to this ($7500 for a couple making $100k)! There is a class of people that would typically make this and this would be those who have had a really bad year with medical expenses and have put out a boatload out of pocket or individuals who have to spend a ton per month for insurance or have regular expenses that are very high. If this is the case the best thing to do would be to try and participate in some form of HSA of FSA program.
Some fun summer reading: The instructions for Schedule A published by the IRS. Happy reading
I called this bull market in oil. Heres my post when oil was at $35/barrel. I am not as bullish on it now because of the massive run up we have seen. I still see it going up in the long run but there has got to be a correction because the supply funadmentals still don’t support the bullish action. There is still way too much oil sitting around for it to be at these levels. I wouldn’t necessarily short oil but I would wait for a bit to buy more of it and you can do this with USO.
I am short the dow through DXD because like our friend Paul Krugman at the New York Times said the other day about falling wages, I just don’t believe that the fundamental promlem underlying our economy has changed. I noticed the falling wages problem but Paul Krugman summarized it nicely.
I also called the new housing bubble, stating that through low interest rates and the new homebuyer tax credit, there will be a short term bubble in housing. And look at what came out this week: Housing is starting to stabilize. Don’t worry it will pop like the last one did.
I’ve said it before and I’ll say it again. The decline still isn’t over and heres why I’m short the DJIA.
Take a look at the following charts. The first chart is one of the market crash of 1929 and the following recovery.
The next chart is the market crash of 2008 and the recovery up until now.
And here is a chart through 1932, showing that the recover of early 1930 was just a head fake for a coming disaster much worse than the initial decline of the 1929 crash.
Why would this be the case when we’ve had so many ‘recessions’ since the great depression that weren’t like this? One reason iss the massive deflation we have experienced, with the shrinking of available credit and the 30:1 leveraging of the bank balance sheets which flooded capital markets with money. Securitization of mortgages helpes with this too. During the 2000′s there has been no real income growth, just debt expansion.
This is the reason we will not see a recovery for years in the United States. The savings rate is skyrocketing which will further drive home the depression of 2009. There will, however, be bubbles in certain sectors due to government interaction. There will be another smaller housing bubble driven by the astronomically low interest rates and the $8000 tax credit as I have said before. There will also be bubbles in renewable energy and government subsidized programs. The recent uptick in consumer spending is likely linked to consumer receipts of tax refunds which is very short term. The unemployment rate is still increasing and is maintaining a very high rate.
Although there has been attemps by the FED and the goverment to artificially stimulate the economy all this is doing is creating another bubble like the one that just exploded. Take a look at the effect of the 2008 stimulus that Bush enacted. This had a sugar high effect which was very short lived. There is just no fundamental reason to be buying into US equities. Any recent upticks in economic data are likely head fakes which will later decline more like we saw in the early 1930′s. Additionally, the recent market is very overbought (meaning it has run up too much too fast).
The company that hires slave workers from other countries, ruined whole ecological systems through deforestation and oil spills, laid you off right in the middle of a depression, raised interest rates on your credit card and cut your credit line when you most needed it after you were laid off while interest rates were actually going down, hired and paid the CEO a $200 million bonus to ruin the company, conned you into your Adjustable Rate Mortgage when mortgage rates were at all time lows with clearly astronomically low chances of interest rate benefit but almost guaranteed loss, drove the price of gas past $4 a gallon, ruined your retirement account……
Yeah thats you. Through managed retirement accounts and 401k’s the money in your retirement account flows through mutual funds to fund equity interest in your favorite companies and institutions like AIG, Citigroup, General Motors, Bear Stearns, Bank of America, Morgan Stanley, Goldman Sachs, JP Morgan, and Exxon Mobile. This is just a few. So the next time you want to get angry at these companies take a look at where your money is invested. These companies are you.
So now companies have the same assets, but they will look different on the balance sheets of companies like banks with ‘distessed’ assets. The stock market has already discounted for these assets with their own valuation models so the fact that these changes will now be reflected on the actual balance sheets will not really change anything although it is good for a ‘pop’ today in the market. This change was expected to happen so this is not exactly a shock and might have a limited effect on the market considering how much time the market had to rally before this announcement.
The moral of the story is that the banks had capital to lend before this change, the government gave it to them. Ken Lewis said this morning that the lack of lending is directly related to the quality of lenders and not the capital, due to the fact that there is now a ‘smaller pie’ of quality lenders now, due to the current depression. So when will banks start lending? When the lenders are worth borrowing to. Will will that happen? When the depression is over. So….maybe we’ve been taking the wrong approach by giving the banks money and maybe other actions should have been taken instead?
It seems like giving the banks money expecting them to lend was not only irresponsable from the standpoint that the government expected them to lend at the rate that they were lending at before, which drove us into the current depression, but it was like the goverment reassuring the banks that they were not in the wrong and actually had the power to cure this debt funded shadow economy. We’re still throwing band aids on the gaping wound instead of treating the real problems of the economic disease. These are all short term fixes just like the economic stimulus payments of 2008.
Massive government interaction is definitely the most inefficient way to run a market. Instead of just detaching capital requirements from mark to market and allowing the banks to use mark to model for regulatory reasons and maintain mark to market for reporting, as mentioned by Karen Finerman on CNBC’s Fast Money mentioned as I had been wondering myself even before I heard from Karen the seemingly obvious alternative to the capital requirements problem.If the reason the assets need to be bought by the PIPP program is because the banks need more capital in order to lend, then change the system for capital requirements.