And here we are, yet again.
2,399.50 was the top for the S&P Futures (/ES) yesterday at noon so it’s game on for our shorts as well as Russell (/TF) 1,380 and both are still hanging around those levels this morning. As I said yesterday (and the 4 Tuesdays before that), we’ll keep shorting at the top until it stops working. Seems like a sensible plan, right?
We’re even more excited about our China Ultra-Shorts (FXP), which we’ve been tracking since April 3rd and currently, in our Options Opportunity Portfolio, we have 10 June $24 calls we paid $2 ($2,000) for on 5/15 after netting a $650 loss on our original spread so we’re in for net $2,650 but FINALLY someone besides me has noticed how out of control China’s debt situation is becoming as Moody’s hits the Middle Kingdom with its first credit rating cut since 1989, saying that the outlook for the country’s financial strength will worsen, with debt rising and economic growth slowing.
“The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows. While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government.
“More broadly, we forecast that economy-wide debt of the government, households and non-financial corporates will continue to rise, from 256% of GDP at the end of last year according to the Institute of International Finance. This is consistent with the gradual approach to deleveraging being taken by the Chinese authorities and will happen because economic activity is largely financed by debt in the absence of a sizeable equity market and sufficiently large surpluses in the corporate and government sectors. While such debt levels are not uncommon in highly-rated countries, they tend to be seen in countries which have much higher per capita incomes, deeper financial markets and stronger institutions than China’s, features which enhance debt-servicing capacity and reduce the risk of contagion in the event of a negative shock.“