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Unemployment vs Stimulus - Who Will Get There First?
Posted On Thursday, February 5, 2009 at at 2:53 PM by Finance Fanatic
It looks as if Obama is planning and arsenal and doesn't want to tell anybody about it. There are numerous rumors going around right now of different potential plans and strategies he may be using soon to try and combat this financial crisis. In my opinion, I think he's holding his trump card for a time when he really needs it...and that time may be tomorrow.
My first suspicion is wondering what caused the huge reversal this morning (see below). The Dow jumped over 150 points in less than 20 minutes, just when it was looking like another day of selling. I personally believe PPT has a nice camp set up on Hogan's bottom waiting to push it back up. If indeed selling would have continued, it would have marked our first two day closing under 8000 in a long time as well as a possible sub 820 close for the S&P. Both of these could have spurred one heck of a selling day on Friday coming into unemployment numbers. However, has history has shown us, nature most like won't take it's course and once again the inevitable will probably be delayed for a bit longer. If we could just capitulate and get over it, I believe we would be better off.
So yes, unemployment is tomorrow. Part of me wants to get a big loan from these guys, and just put it all into FAZ. If only I was that compulsive. The market expects a 7.5% unemployment rate with an expectation of -540,000 loss of non-farm payroll jobs. I am sorry, but if the number is below this or even close to it, I am going to suspect the government of fudging numbers. January has been horrific with headline after headline preaching new job cuts. I think the number should be at least in the high 600,000's if not 700,000's. We'll see what is said, but at this current state, tomorrow is a critical day for the market. I wouldn't be surprised to see Obama have something up his sleeve.
I was pleased to see SRS hold up as good as it did for an up day like today. I was hoping to see us go back into the red, because SRS could have had a 10%+ day if that would have been the case. It almost hit $70 in the morning.
If indeed unemployment numbers do prove to be worse off, that doesn't mean we're on for a selling day. Obama may choose to unveil his great and mighty stimulus which has been brewing a lot of curiosity from investors. Talks of doing away with market to market (which I will give my opinion on that tomorrow!) accounting and extra funds for mortgage backed securities could quickly heal the pains of a bad unemployment number in turn Friday into a rally of epic proportions. I indeed do not hope for the latter, but I took some minor precautions, just in case.
First off, I did end up purchasing some FAZ (see market trend analysis below, get your own symbol analyzed for free, all you need is a name and email, Click Here) earlier in the day at $49. I thought whether or not we rally tomorrow, this is a low enough price, especially if we see a big sell off tomorrow. Towards the end of close, I felt the need to hedge myself to some degree, so I went in and bought some FAS at $8.95. I put stop losses of 5% for each of them as I believe whichever is up tomorrow, will most likely be up big. So hopefully the gains of the winner will outdo the losses of the loser. We'll see.
As I said in the chat, if for some reason indeed there is a vote on the bailout and it fails, watch out. We saw what happened last time the proposed bailout failed in voting. It tanked the market almost 400 points. With so much riding on this stimulus and in the current fragile market we are in, the result could be even more devastating. I believe there is a small chance for that happening, but there are senators out there who believe the Democrats do not have all the votes to pass it. Food for thought.
I also wanted to share a bit of this article I found on Harvard Business Review website talking about Lending Club, he said: "So what? A profound secondary effect of the down market will be an increase in the availability of peer-to-peer finance and its convergence with traditional lending. My bet is that mainstream investors and banks will cherry-pick the best investors in Lending Club and other systems – reducing risk by tapping their superior credit-assessment capabilities – and fund them to grant more and bigger loans. Moreover, within five years every major bank will probably have its own peer-to-peer lending network.
If innovative legislation were drafted to allow peer-to-peer risk coverage, similar transactions might begin to flourish in the insurance market. Precise knowledge of local conditions would allow individuals to band together in order to underwrite the cost of insuring properties in safe neighborhoods or to make insurance more widely available in higher-risk neighborhoods.
The current economic constraints will only accelerate the growth of these new entities. I predict that they will be among the most important financial-services innovations in the coming decade." You can read the full article here. I agree that investment vehicles like these will become more popular in the future. If you haven't checked it out, go to Lending Club for more.
Early morning for everyone tomorrow, I'm sure. Either way, I believe we're going to see a big trading day for whichever side it decides to go. We may see a bit of both green and red, but I see us trading big in one direction by close. So set your alarms, Happy Trading, and we'll see you tomorrow. I'll try to be on the chat later.
On a few occasions I've played both sides of the fence as you describe with FAS/FAZ. On my first attempt (UYG/SKF) I set 5% stops just like you did and stopped out of both positions on the same day. So one or the other was up over 5% but I was out 10%. I've since started using 10% stops on the 2X ETF's when I apply this strategy.
You might want to tweak your stops a bit since you're in 3X's.
Hi! Love your blog just started reading it.
Interesting strategy on FAZ/FAS, quick question, when you set a stop loss on it, do you put a "sell stop" order on it, or a "sell stop limit" order?
Thanks keep up the good work!
Anon here, I hope you didn't think the PPT is the cause of the rallies as I mentioned last few posts ago, since I noticed you started to mention the PPT after I made that suggestion.
Anyways, isn't it just because market movers trying to make more money? Short about 60% worth of profit, then pump and dump for another 60% profit and repeat till they completely exhaust the market. I mean you can only short so much till you completely scare away any and every investors, and besides there seems to be alot of profit taking on the short side too.
Hi everyone,
I Just wanted to give some key notes
if you understand TA,EWAVE,$CPC,$vix well.
You can see clearly we tested 8,000 mark on the dow30 about 13times from oct-feb time line. Just look at chart below.
TA masters say more times we test it more likely we break it to the downside or upside.
The case now is we are testing support line WAY to many times and all this pushs toward is A breakdown on the dow30: 6,000 and sp500: 600
forcast for tommarow
iam looking the $vix and $cpc. what I see we fall hard on RED Friday. vix and cpc are saying to me there are way to many bulls on broad and this is very bearish tone.
this is how it works for the $cpc the lowend of it tells
most are bullish and topend most are bearish.
now for the $vix it is looking to be forming a W bottom saying future market swings will get much bigger to the downside.
this post should be save this on cd,pc, for future use.
http://stockcharts.com/charts/gallery.html?indu
http://stockcharts.com/charts/gallery.html?%24vix
http://stockcharts.com/charts/gallery.html?%24cpc
save these chart in your favs cause it will come useful in the future.
I am fairly certain that the Senate will fail to compromise and this will lead to the economic 9/11. As the infamous Reinhardt says, "the primary function of the government is to pretend to fail." Pretending to fail on 9/11 lead to the war in Iraq. Watch the failure in Washington lead people to become furious with the resistant GOP Senators and make Obama and the Dems have free reign in the new "benevolent" dictatorship... maybe :)
anon,
if you like to know more of this stuff. I like very good book to buy and the book is called above top secret. get a copy before obama bans the book in bookstores. tells the tale of the POWERTOBE ,PPT, and how the FED is a BIG scam and central banks, the world bank, and many other banks. this book also has things that is Very hard to understand but facts are there to back it all. this is must read if have money in gold USD EURO YEN gold banks stocks bonds.
http://www.amazon.com/s/ref=nb_ss_gw_1_16?url=search-alias%3Dstripbooks&field-keywords=above+top+secret+uncover+the+mysteries+of+the+digital+age&sprefix=above+top+secret
Should be a doozy of a day tomorrow, that's for sure.
Julie,
I have learned (the hard way, of course) to use a "sell stop". The leveraged ETF's can move so quickly that the price can drop right through your limit before your order can be filled. You will get something less than your stop price, but you will be out.
Should also mention that if you enter and exit a position intra-day 4 times over 5 trading days the SEC considers you a "pattern day trader" which means (for one thing) that you are required to keep $25k equity in a margin account. I don't know the other rules - I've been careful to avoid this until I understand all the ramifications.
I think banks will offer P2P services eventually. They can do it today by using www.ZimpleMoney.com and its P2P loan platform.
The unemployment rate will stay high for a long time.
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