We have every sovereign nation that can muster enough credibility to devalue its currency on a very direct path to do so. I call it "rolling QE". Much like the adage: "The Sun Never Sets On the English Empire" now it's "The Sun Never Sets On QE". Japan, Eurozone, US…. lather, rinse, repeat. This has been a very ingenious (I am being kind) period in Central Banking. Never before have we seen more forces at work trying to game the system out of it's own house of cards. Then why is nothing working? The whole point of QE is to stimulate the economy and then let human forces take hold and magically pull us out. I love breaking seemingly complex problems down to the nuts and bolts. Let's just say QE in one way or another is printing money. So, a big pile of money is created. Now let's stimulate the economy. We will do infrastructure improvements, invest in small business, give those same businesses tax breaks so they have an incentive to hire long-term workers, etc. Nah, instead let's buy stocks and bonds where only the very elite can benefit and will only float those dollars back into the economy when the value of them goes up significantly.
Nouriel Roubini, Economics Professor at NYU said in an op-ed for Project Syndicate:
"Rising income inequality, by redistributing income from those who spend more to those who save more, has exacerbated the demand shortfall." He continues: "This adds up to a recipe for continued slow growth, secular stagnation, disinflation, and even deflation,"
Trade well and follow the trend, not the perma-bull OR perma-bear "experts."
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.
The markets rallied higher today, as the major averages responded to the strong rebound in Crude. The well known correlation was a tad off lately, but there was no mistake about the correlation yesterday. The DJI rallied for 300 points and closed off at the highs of the day. While we could see momentum carry us higher today, it wouldn't surprise me to see a respite and to slide a bit. Lately with the volatility in play, we can easily swing in either direction. Watch for the push to 2064 in the SPX this week. As I have stated, that is our short term ceiling. That can be our make or break moment right there. Look for choppy action, and watch what Crude does during the session. That can be your guiding light for now.
We have discussed lately how trading options in your IRA with "limited" margin can give you greater flexibility. Today let's examine a vertical bull put spread (selling a put spread) to see the advantage when you obtain the higher trading authority "limited" margining affords you. This strategy consists of selling a put at one strike and buying a protective put at a lower strike (both with same expiration). An example would be a stock XYZ trading at $25. You could sell 10 OTM puts with a strike price of $24 and buy 10 protective OTM puts with a strike of $20. If you did not have the higher trading authority it would break down as two separate transactions each requiring margin or outright cash. First, a cash secured put requiring $24,000 in reserve ($24 times 1000 shares) plus a second transaction involving a cash buy of the lower strike put (10*100*cost of the put). With the higher authority the margin requirement is simply the difference in strikes ($4) times the number of shares (10*100 or 1000) or $4,000. Same risk, 6 times the available capital.
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