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Note: all straddles are computed with our StraddlesCalc tool.
UCO June Straddles Update, from prior posts
Update 10:35AM. After oil inventory reports, UCO is now trading at $10.90. UCO 12 calls are bid $2.15 ask $2.20, ROI of the strangle is +257% (3.5X).
Here is a 14-14 straddle for next week. Move required is 10.1%:
And a 14-13 strangle, move required is 11.0% (very high risk):
Here are the cheapest and most expensive ETFs in Canada by MER:
Cheapest:
Equity:
- BCA, BMO Canadians Titans 60, MER: 0.158%
- XIU, iShares Large Cap 60: 0.17%
Bonds:
- XSB: iShares Canadian Short Bonds: 0.25%
- XBB, iShares Canadian Bonds: 0.30%
Sector ETFs:
- XEG, iShares TSX Energy: 0.55%
- CLO, Claymore OilSands: 0.6%
Most expensive ETFs:
- Horizon BetaPro Bull+ and Bear+ ETFs: 1.15%
There it is, one more reason to stay away from those ETFs!
Here is a list of currency ETFs on the market, as well as their performance, year-to-date (YTD), and for the last 3-months:
(please click to enlarge)
The biggest gainer YTD is clearly the Brazilian real, +22.74%.
The biggest 3-month gainers are the South African Rand (+42.67%), Australian dollar (+25.39%), Brazilian Real (+25.37%) and the New Zealand dollar (+26.94%).
The biggest losers on this list are the Japanese Yen, the Swedish Krona, and the US dollar.
3- month chart of the FXA, FXC, and BXF:
ETF list:
CurrencyShares Australian Dollar Trust ETF (FXA)
CurrencyShares British Pound Sterling Trust ETF (FXB)
CurrencyShares Canadian Dollar Trust ETF (FXC)
CurrencyShares Euro Trust ETF (FXE)
CurrencyShares Japanese Yen Trust ETF (FXY)
CurrencyShares Mexican Peso Trust ETF (FXM)
CurrencyShares Swedish Krona Trust ETF (FXS)
CurrencyShares Swiss Franc Trust ETF (FXF)
ELEMENTS Australian Dollar/U.S. Dollar Exchange Rate ETN (ADE)
ELEMENTS British Pound/U.S. Dollar Exchange Rate ETN (EGB)
ELEMENTS Euro/U.S. Dollar Exchange Rate ETN (ERE)
ELEMENTS U.S. Dollar/Canadian Dollar Exchange Rate ETN (CUD)
ELEMENTS U.S. Dollar/Swiss Franc Exchange Rate ETN (SZE)
EUR/USD Exchange Rate ETN (ERO)
GBP/USD Exchange Rate ETN (GBB)
iPath Optimized Currency Carry ETN (ICI)
JPY/USD Exchange Rate ETN (JYN)
Market Vectors Chinese Renminbi/USD ETN (CNY)
Market Vectors Double Long Euro ETN (URR)
Market Vectors Double Short Euro ETN (DRR)
Market Vectors Indian Rupee/USD ETN (INR)
PowerShares DB G10 Currency Harvest Fund (DBV)
PowerShares DB US Dollar Index Bearish Fund (UDN)
PowerShares DB US Dollar Index Bullish Fund (UUP)
ProShares Ultra Euro ETF (ULE)
ProShares Ultra Yen ETF (YCL)
ProShares UltraShort Euro ETF (EUO)
ProShares UltraShort Yen ETF (YCS)
WisdomTree Dreyfus Brazilian Real Fund (BZF)
WisdomTree Dreyfus Chinese Yuan Fund (CYB)
WisdomTree Dreyfus Emerging Currency Fund - Active (CEW)
WisdomTree Dreyfus Euro Fund (EU)
WisdomTree Dreyfus Indian Rupee Fund (ICN)
WisdomTree Dreyfus Japanese Yen Fund (JYF)
WisdomTree Dreyfus New Zealand Dollar Fund (BNZ)
WisdomTree Dreyfus South African Rand Fund (SZR)
WisdomTree U.S. Current Income Fund (USY)
Martin Weiss was on BNN today discussing the $68B TARP Repayment. Some of his points:
- Government made a mistake in giving TARP money in the first place
- Banks are now making mistake in repaying the money
- We are just in the eye of the financial storm, this is what this rally is about
- Next phase in this hurricane: surge in interest rate, specially long term bonds. US Treasury has assumed responsibility of all these toxic assets. Bad news for banks and insurers.
- 82% of the derivatives markets are interest rate derivatives: banks will need TARP monye again.
His advice to investors: take advantage of this government induced rally and SELL.
Mr. Weiss' point is that the banks should never have received the money. He contends that they were about to go over the edge of the cliff, or some were already over the brink. Banks should not go into rehab.
Speaking of the $0.68T TARP repayments. It is very difficult to keep track of where past TARP money and spending went, but here is a rough estimate:
$0.5T in FRE/FNM
$180B in AIG ( repassed free to GS, which repays TARP!)
$0.7T agency and government securities,
$100B into C and BAC
$30B into GM, Chrysler
$2T in deficit spending
The Economist says that governments own roughly $450 billion in banks.:
"More than 600 banks across the country have participated in the CPP, representing $199 billion in investments...
In addition to Treasury’s potential income from sale of the warrants, these 10 institutions have already paid dividends on the preferred stock totaling approximately $1.8 billion over the last seven months. Dividend payments received for all CPP participants are approximately $4.5 billion to date."
The Economist then concurs with Mr. Weiss:
"That's lovely and all, but most financial observers were never as worried about getting paid back as they were about whether or not the whole plan was a good idea in the first place—whether the TARP was sufficient to stabilise the banking system. For the moment, the answer appears to have been yes, but that doesn't mean that banks need to run off and pay back TARP as fast as they can."
"If markets or the economy slump again, investors’ appetite for new shares will evaporate. Of the ten banks, eight had been pressed by the government to take funds in October, amid efforts to shore up the banking system. Although some individual institutions may try to claim that they took the money unwillingly, government intervention was necessary to prevent the entire system from collapsing as banks were found to own hundreds of billions of dollars of hard-to-value assets.Even today all banks remain plugged into government life support systems. Central banks provide generous collateral rules for borrowing, in an effort to provide banks with liquidity. Some banks have managed to issue debt without government guarantees, but the system needs to refinance some $25.6 trillion of wholesale funding by 2011: without an implicit state back stop this would be impossible. And the value of banks’ assets is being sheltered by central banks’ asset purchasing programmes and in some cases flattered by more generous accounting rules. The truth is that the West has a thinly capitalised banking system that is being allowed to earn its way back to health. Save for defence and space exploration it is hard to think of a privately-run industry more dependent on the state."
Please remember that USO rollover started yesterday and extends for another 2 days. We have published here on several occasions what happens with USO and UCO during rollover.
Rollover calendar:
Historical Effects:
May:
April:
At the end of February, we posted a note about buying UGA instead of USO. His is what happened since then:
(please click to enlarge)
We said:
"U.S. unleaded gasoline prices has usually seasonal strength from January to the end of April. During this time refiners tend to convert from heating oil used in winter to gasoline used during the summer. Refiners also use this period to perform annual maintenance programs. Gasoline consumption goes up while inventories usually go down. This is why gasoline prices rise during this period, typically this trend lasts until May for retail prices."
This trade is complete.
Nortel is in the news today:
"Nortel Networks Corp.'s U.S. operations say cash is piling up in bankruptcy, and they're ready to set $30 million aside to anchor performance bonds to keep customers comfortable.The troubled telecommunications-equipment maker had $781 million in cash or the equivalent this week, up from $599 million in January when it filed for Chapter 11 protection, according to a filing with the U.S. Bankruptcy Court in Wilmington, Del." (by Peg Brickley, Dow Jones Daily Bankruptcy Review).
With the company under bankruptcy protection, it does not need to pay its debts, thus cash would go up as long as sales keep coming and are higher than expenses. Therefore, the good news is that this seems to be indeed happening. The company is paying its salaries on time, and is earning revenues. Stock went up 25% today, which does not mean that much as it had gone down 25-30% in the past 2 weeks. Still, there is value here. How it will be materialized is the question.
Here are the highest and lowest P/Es of the S&P500 companies, as of 10:30AM:
Highest:
(please click to enlarge)
Only companies with positive P/Es are considered, P/Es reported by Google Finance.
Lowest P/Es:
FAS and FAZ have lost whoever buys them a total combined $4.2B. They last had an "eclipse", i.e., the same nominal value, at $8.32. The constant losses since then have continued. The next theoretical meet at this point can be computed by the equation below:
10.43/X = 4.42*X
X = SQRT(2.359) = 1.53
Where 10.43 and 4.42 are the current values. In other words, a 53.6% move will make them meet, or a 17.8% move in the underlying (since these are 3X ETFs).
Next "eclipse" = $6.79
That would be another drop of 18%, and a loss for investors (track it here) of $4.6B!
20-Day Charts:
Petrobras (PBR no the BYSE) announced today that the drilling of another well in the Tupi area reinforced the estimates of 5 to 8 billion barrels of recoverable light oil and natural gas in the pre-salt reservoirs of that area. The well is still being drilled in search of deeper objectives.
Located 33 km northeast of the pioneering I-RJS-628 drilling, the new well confirmed the presence of good quality reservoirs and of oil similar to that found in the Tupi pioneering well. Informally known as Iracema, this third well is located in the Tupi Assessment Plan area, in waters where the depth is 2,210 meters from the water line, some 250 km off the coast of Rio de Janeiro.
The discovery was proved via light oil (approximately 30º API) samplings from reservoirs located at a depth of 5,000 meters. After completing the drilling, the Consortium, formed by Petrobras (65% - Operator), BG Group (25%) and Galp (10%), to explore block BM-S-11, where Tupi is located, will carry on with the activities and investments called for in the Assessment Plan which foresees the drilling of other wells in the area.
Natural gas inventories were reported today, showing a buildup of 124Bcf.
(please click on images to enlarge)
The stocks are now 2,337Bcf, an astounding 30.5% higher than last year. Moreover, the storage curve has breached the top of the 5-year average channel:
At this pace, there will be no where to store the gas by mid/late summer. What will happen to the price of natural gas is easy to conclude.
Given that the North American maximum storage is around 3.6Tcf, and we are adding 124Bcf per week, another 10.2 weeks should do it. Unless more storage is created, this is a disaster in the making, and a potentially extremely lucrative opportunity.
We can only hope that natural gas utilities are making wise purchases this year so what consumers pay very little in the next heating season.
Yesterday we posted a performance analysis of the most overbought companies in the S&P500, most overbought defined by their computed by RSI7 value. We showed that indeed, the higher the RSI, the higger the loss in down days. Given that the SPX continues at stratospheric overbought levels, here are the top 20 companies to short, by RSI7:
Yesterday's analysis:
rsi>80 -2.89%
rsi>70 -3.08%
80>rsi>70 -3.15%
70>rsi>60 -2.18%
60>rsi>50 -1.56%
50>rsi>40 -1.62%
rsi<40 -1.96%
Overall S&P500 average was -2.44%.
We post these numbers regularly.
In an interview today, Brazilian Central Bank President Henrique Meirelles said that some Brazilian macroeconomic indicators have returned to levels prior to financial crisis. He noted that Brazilian international reserves were $205 billion in August 2008, at the peak of the turmoil. Now, on June 1 2009, reserves were U.S. $205.4 billion. "In summary, Brazil is one of the few countries whoe volume of reserves is back to those at start of the crisis," he said during a public hearing on the joint committee of the House on the crisis.
He also compared the level of net public sector debt relative to Gross Domestic Product (GDP). According to him, the rate was 40.5% when the crisis was worsening, and now is at 38.4%. "The crisis here reached smaller proportions compared with other countries," he said, adding that the regulation of financial institutions was essential to minimize the effects of turbulence.
During the hearing, Meirelles cited steps taken by the CB against the crisis, as sales of U.S. dollars in the market and the reduction of compulsory deposits to encourage the credit, among others. "Some of these measures are considered as a model in many global forums and are being studied," he emphasized. According to the president of CB, these measures were possible because the institution had sufficient reserves to operate in the foreign exchange market.
Meirelles said that Brazil is in a very different situation than the United States and therefore it is not implementing the same level of monetary and fiscal policy to tackle the crisis there. He explained that the crisis started in the United States and its impact on the soundness of the financial system and the North American economic activity required a profound reduction of interest rates in the U.S. and an aggressive fiscal policy that is significantly increasing its debt. Although necessary, these actions are generating concerns about the future. These concerns relate to a possible increase in inflation in terms of monetary and fiscal expansion in progress.
In the case of Brazil, according to Meirelles, is a positive fact that the economy has not demanded such aggressive actions as those performed in the United States. "Brazil is at an advantage for not having to do this, so Brazil is now well-seen by investors and will leave the crisis very strong".
What differentiates the country in this crisis in relation to earlier is that this time consumption and investment were high at the time the crisis started. Thus, despite the impact of international credit contraction in the country, Brazil was in a better position to tackle the crisis.
Meirelles also noted that the growth of investment has enabled the country entered the crisis with the modern industrial park, ready to grow. He also said that another positive difference is that Brazilian inflation is under control.
Meirelles said that the total losses generated by the international financial crisis are around U.S. $ 4.1 trillion. Of this total, he said, $2.7 trillion losses were registered in the United States, U.S. $1.2 trillion in Europe and U.S. $0.1 trillion in Japan based on these numbers, Meirelles said the current crisis is greater than those previously recorded in recent history and said that the world's GDP should fall by 1.3% this year with world trade and a decline of 11%. This framework tends to generate an impact on Brazilian exports.
The president of CB also noted that markets have recently shown a perception that the worst of the crisis has passed. He said he hopes that this is confirmed, but stressed that it is premature to reach conclusions as the U.S. economy apparently will have a slow recovery.
Following our post from yesterday with the most overbought companies in the S&P500 by RSI7, here are the daily changes today. These are the averages of companies grouped by yesterday's RSIs:
rsi>80 -2.89%
rsi>70 -3.08%
80>rsi>70 -3.15%
70>rsi>60 -2.18%
60>rsi>50 -1.56%
50>rsi>40 -1.62%
rsi<40 -1.96%
Overall S&P500 average was -2.44%.
Clearly, the stocks with the highest RSI7s were the best to short. Interestingly, companies with RSIs between 70 and 80 performed worse than those with RSIs above 80 (perhaps those were solid companies with valid high prices?)
You can view final numbers live here.
Can he teach the old dog new tricks?
Meanwhile, Robert Schoenberger reports on the Cleveland.com site that GM sent ultimatums to all of its 6,000 U.S. dealers on Tuesday: "follow our new rules or face almost immediate franchise cancellations in court." "For the 2,000 dealerships targeted to lose their franchises, GM said it would soften the blow if those retailers don't oppose the automaker's restructuring plan. "
"Buy when it snows, sell when it goes". Mr. Don Vialoux was on BNN yesterday. He also has an impressive record. His past picks were up +33%. He is really calling for profit taking now.
Some recommendations:
- Oil: Sell in May
- Gold: Buy in July, trade approaching
- Mining sector from May to October period is random (no seasonality) Top period is end of October to end of May, with a sweet spot of mid January to mid May
- Agrium, Potash: Buy end of June (may have started earlier this year, but he is looking for a pullback in June), sell in December
- Oracle: seasonality positive from October to January
- Consumer staples: October to mid April
- Retail sector: Strong December to April. Sector has already hit its seasonal peak.
- Oil: strength is from end of November to the 2nd week in June:
- Energy sweet spot: Mid January to end of May
- UNG: Works end of July to end of October, has worked 8 out of 10 years.
- Emerging market: October to end of May
Top picks: CASH! Market is simply overbought.
Watch
Here are the 100 most overbought companies in the S&P500, ordered by RSI7:
(please click to enlarge)
Note that there are 205 companies whose RSI7 is over 70!
View the complete list here: http://spreadsheets.google.com/pub?key=rClFvt0UXLP2MRAZ4KQtl_w&single=true&gid=0&output=html
Paul Van Eeden, President of Cranberry Capital, was on BNN Friday. Mr. Van Eeden, is the absolutely brilliant man who about a year ago showed on Howard Green's show and, to the host's shock, correctly called the financial crisis that was about to occur, every bit of it. His top picks at the time were cash and gold. He is, in my opinion, by far the person who made the best call on BNN - all year long.
Mr. van Eeden says that cash and gold are still his top picks, and that the current rally is a sucker's rally. He does not believe in green shoots, there is far more downside to come. He predicts high inflation to come, no deflation. However he says gold is currently $150 too high! However, the conditions today (inflation coming) are perfect for gold to repeat 1970. Wonderful speculation.
Watch the show.
Other points:
- Invest in gold, not in silver. Silver consistently lags.
- The debt being created cannot be repaid. We are years away.
- We have never in history had the perfect conditions for gold that we have today.
- $150 gold too high call is based on a model he has of gold inflation vs USD inflation.
- USD to go down.
- zero risk of monetary deflation (some prices can go down, but that is not deflation)
- very high risk of high inflation to come. However in 2010, 2011, still dealing with inventory destruction.
- no risk of hyperinflation in the USD (50%/mo), but 10-20%/year is quite possible.
With the S&P500 very overextended into overbought territory, here are the most overbought companies in the entire S&P500, by RSI7 and RSI14:
(please click to enlarge)
The RSI7 and RSI14 averages of all companies are 57.95 and 55.98 respectively. The SPY itself is at 63.91. Other indeces, including XLF and IWM:
Prices as of EOD Friday May 29.
Here is an update on the UCO 12-9 strangle, with prices as of 11AM:
Here is a new strangle with today's prices. UCO is trading around 12.50, so it's perfect for a 12-13 strangle
