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Monday Market Meltdown – Oil Fears Spook Investors (again)

"We should all fear Oilmageddon!" 

That's the word from CitiBank, which is SUPPOSED to be the voice of reason in these markets. When Banksters tell us to get out of something – it's usually time to get in and, this morning, I put out a Trade Alert to our Members (and tweeted here) to take a long on Oil Futures (/CL) at the $30 line (with tight stops below) as well as lines on various indexes I detailed in the Alert.  

Of course, we warned you last week that the market would likely turn back down and I detailed our hedges on the Ultra-Short S&P ETF (SDS) at $22.50 and mentioned we were long on Gold (/YG Futures) at $1,155 and Silver (/SI Futures) at $14.90 and Natural Gas (/NGK6 May Futures) at $2.15 on Thursday. This morning they are at:

  • SDS $23.70 – up 5.3%
  • Gold $1,180 – up $8,000 per contract 
  • Silver $15 – up $1,250 per contract 
  • Natural Gas $2.27 - up $1,200 per contract

Our one loser (so far) was Copper (/HG Futures), which dropped from $2.12 to $2.075 for a loss of $1,125 per contract. Of course stopping out your losers is important with Futures and we'd be happy to get back in either over $2.10 or off the $2.05 line (with tight stops below).

In Friday morning's post we detailed two major hedges for the S&P (SDS) and the Nasdaq (SQQQ) using the Ultra-Shorts and, of course, those are both paying off like gangbusters as Friday was already a bad day and the markets are following through this morning.  We also detailed a trade idea for Barrick Gold (ABX) to leverage the run in gold – also doing fantastically, thank you!  We're hoping for a bounce but really we're using our bullish future bets, pre-market to lock in the tremendous gains of our index hedges at what we THINK might be the bottom again at 1,850 on the S&P.  

Nattering Naybob had a very good summary of the weeks events, reminding our Members yesterday afternoon of my Wednesday warning that we were simply in a "dead cat bounce" and likely to fall even further this morning, saying:

Some are connecting the dots so the 1859 to 1940 SP500 rally, could be the dead cat bounce we alluded to as the overall trend reasserts itself. I said ES could test 1930 and to wake me up when it got there, where it was rejected in a big way. I have a funny feeling this Super Bowl, Monday and week could all be ugly.

And ugly it is this morning but I'll be on Money Talk on BNN Wednesday night, explaining to Canada why the collapse of oil does NOT mean the Global Economy is collapsing and I'll write it down here so you can get ahead of the game and, as Buffett advises: "Be greedy while others are fearful."  

The big problem is that most "analysts" don't know anything more than they knew in college – especially the ones who wrote books and who, even if they now know better, almost never contradict what they have published – no matter how much evidence to the contrary has piled up against them.  Those who aren't slaves to the status quo are often paid by the-powers-that-be to steer the beautiful sheeple in and out of positions as needs dictate, and even the honest media loves a conflict – and they'll present both sides of an argument as valid – even when one side is clearly idiotic.  

So, getting back to oil – most people think oil pricing is a function of supply and demand and long-term it is, but short-term it's a function of sentiment and manipulation. We take full advantage of that at PSW and I could give you a dozen examples from every one of our 10 years in circulation but suffice it to say it's not that hard to spot those patterns. One great pattern we observe is the fake, Fake, FAKE!!! trading of oil contracts over at the NYMEX. 

As you can see from the 5-month strip at the NYMEX, there are 515,000 open contracts for March delivery and that's very high, which puts downward pressure on the price because the contracts close on the 22nd (10 trading days, we're closed next Monday) and, not only are the storage facilities at Cushing, OK (the point of delivery) full to the brim with unwanted oil, but Cushing can only handle about 40M actual barrels of oil per month so there is NO WAY ON EARTH that 515,000 contracts, representing 515 MILLION barrels of oil, can possibly be delivered.  

Of course the traders know this and they pull this scam off every month in order to create a false sense of demand for oil and, every month, they whittle their fake orders down to 15-25M actual barrels worth of contacts (15-25,000) and the rests are fake, Fake, FAKE!!! – ALL of the time.  

Yes, trading on the NYMEX is a complete and utter fraud BUT knowing it's a fraud helps up make a lot of money so, other than my occasional rants like this one – we could care less – certainly the regulators don't seem to…  This month, over 3M contracts will change hands at the NYMEX, representing 600M barrels of oil – all so just 20M can actually be delivered to the US consumers. The rest of the nonsense (99%) is just a game to move the prices around with the US consumers picking up the tab for all the fees that monthly churning generates.  

As you can see, there are 515,000 contracts worth of open orders for March delivery and, since only 25M barrels are likely to be delivered, they have 10 days to cancel or roll 490M barrels worth of crude orders to longer months.  Since most of those contracts are trading at a loss and since hope springs eternal and since humans and their corporate masters have a huge aversion to taking losses – we can expect those contracts to be rolled to longer months – only perpetuating the problem.

In addition, we know that "THEY" have trouble rolling more than 40,000 contracts in a single day – usually that causes downward price pressure and they have 10 days to roll 490,000 contracts – so oil will remain under pressure until 2/22, when we should get a nice pop into the end of that week. Meanwhile, rumors are accelerating regarding a possible OPEC production cutback and that's keeping oil off the $25 line – for now. As I said – we're playing for a bounce off $30 (with tight stops below) because we expect more rumors to lift oil into Wednesday's inventory report.

There are over 1 BILLION barrels worth of FAKE!!! orders for oil deliver at the NYMEX in the front 4 months – soon to be the front 3 months in 10 trading days.  The US currently imports just 5.7M barrels per day or 171M barrels per month (but not all to Cushing, of course) so the deliveries FALSELY scheduled for Cushing alone, in March, represent a 3-month supply for the entire US!  

There's problem number one – energy trading is a complete and utter scam (as if Enron didn't make that plainly obvious 15 years ago) and don't even get me started about the ICE (see: Goldman's Global Oil Scam Passes the 50 Madoff Mark).  Oil is not racing back to $50 because $50 is not the mid-point on oil – it's a top and oil should NEVER have been anywhere close to $100 per barrel and that bubble has long since burst.  

Again we have to think about the rigid and limited mind-set of the average analyst, who think that low oil prices mean a bad economy because, clearly, demand must be off.  That was a very solid assumption since the birth of the internal combustion engine but now that we have electric cars and solar and wind power – it's no longer such a direct correlation.  While we do have an oversupply of oil, to be sure – it's wrong to blame it on a slow economy.  

One solid example of this is auto demand.  You are probably aware of the fact that auto sales hit records in 2015, with 50M cares delivered globally.  While this is somewhat a bump in demand, it's mainly about replacement cars and what kind of cars are we replacing?  The average age of the US fleet is 11.5 years and we can safely assume that most cars being replaced fall on the longer end of the scale.  Well, the average car in 2005 got just 22 miles per gallon and we're replacing them with cars that get 35 miles per gallon (new car fleet average) thanks to Obama's CAFE standard rules.  And it's not just the US – the whole World is getting more efficient:

A car being driven 15,000 miles a year (average) that used to use 750 gallons at 20 miles per gallon is replaced by a car driven the same 15,000 miles a year that now gets 35 miles per gallon and used 428 gallons.  That's 42% LESS fuel than the previous car!  An oil barrel is 42 gallons and it's not all refined to gasoline but let's just say that each new car sold requires 10 less barrels per year than it's predecessor.  At 50M cars a year that's 500M less barrels per year required for our auto fleet – a 1.5Mb/day demand cut that becomes 3Mb/day in year 2 and 4.5Mb/day in year 3 and THAT is where our demand is going and it's NOT coming back!  

In fact, we also are getting more efficient trucks and more efficient planes and more efficient machines in our factories and a lot of equipment is using wave, wind and solar energy for power and not using any oil at all to run.  So our economy could be off to the races and oil consumption would still be going downhill and, ironically, the better our economy does the faster the old gas-guzzling machines get replaced and the faster the demand for oil declines but that's a GOOD THING, not a reason to panic.

Yes, there will be disruptions as we move into a post-oil economy – especially for economies that depend on oil.  Saudi Arabia alone has enough oil in the ground to supply the World for 40 years and, sadly, it's not likely they'll even use half of it before oil is a fuel of the past and THAT is why no one wants to cut production – despite this persistent glut that is without end – because they know they are playing a game of musical chairs with oil barrels and they are all going to be stuck with a worthless fuel of the past with a rapidly declining inventory value. 

This is also bad news for companies like Exxon (XOM), Chevron (CVX) which are, unfortunately, Dow Components.  It's bad news for the energy sector and the banks that lent them money so there WILL be disruption – but it's the good and healthy kind as our society moves on from using oil and it's NOT a sign of a slowing global economy – that's why we flipped long this morning!  


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  1. Gooood morning! 

  2. Phil in one of the oil meltdown arguments I have read it mentions the fact that with all of the governments that had so much of their economies based on oil revenue, we are seeing a loss of at least a trillion dollars in the global economy. With that much money evaporating and no longer being spent, it can only mean bad things ahead. While I am simplifying this, it does make some sense, doesn't it?

    I also was curious about how you advise us to trade futures. While I know you usually are talking about oil, it seems that you usually advise us not to leave futures trades open over a weekend for anything due to how things can happen and we are stuck until Sunday night. yet in your opening statement you often cite gains made in futures trades lasting through the weekend. Is there some way for us to know when you think a futures trade is good to hold through the weekend vs the risk of doing so? 

  3. Looks like this morning they will try to flush out the last longs…

  4. These guys seem incapable of telling the truth – or looking at facts straight:

    DONALD TRUMP: "Right now, we're the highest taxed country in the world."

    THE FACTS: Far from it. The U.S. tax burden pales in comparison with that of other industrialized countries.

    Taxes made up 26 percent of the total U.S. economy in 2014, according to the 34-nation Organization for Economic Cooperation and Development. That measure looks at the entire tax burden, which is different than tax rates that can be gamed through loopholes, deductions and credits.

    In Sweden, the tax burden is 42.7 percent of the economy. It's 33.6 percent in Slovenia (Trump's wife, Melania, was born in the part of Yugoslavia that became Slovenia). Britain clocks in at 32.6 percent, while Germany's burden is 36.1 percent.

    If we collected another 10% of GDP in taxes like in Germany and reduced defense spending to the level of Europe, we would have such a large surplus that we might actually be able to do good things for the middle-class!

  5. Good Morning!

  6. stjeanluc/taxes: I saw this on Sweden and Norway are similar.

    "The top marginal tax rate of 60 percent in Denmark applies to all income over 1.2 times the average income in Denmark. From the American perspective, this means that all income over $60,000 (1.2 times the average income of about $50,000 in the United States) would be taxed at 60 percent."

  7. Taxes / Tom – We are far from the most heavily taxed country in the world… Just look at gas prices! It's insane.

  8. Good morning! 

    Bucking like a bronco (Denver, hopefully) but holding our levels so still good bets using 15,900, 1,850, 3,950 and 970 along with 16,500 on /NKD, $30 on /CL and 9,000 on DAX to confirm we're not in big trouble.  

    Gold just topped out at 1,195 and I HOPE non-greedy exits have been taken as our target was 1,200 EVENTUALLY – so we're miles ahead of the curve!   Same on silver, of course, almost made $15.50 so $15.40 stopped.  

  9. With Google CEO voted by the board to receive $190 million in stock , they are arguing on Bloomberg he deserves it because he is creating "value" for everyday people, whatever the hell that means.

  10. Looks like today's stock being destroyed is Chesapeake

  11. Can't really blame the dollar for the oil and gasoline dips… 

  12. phil, morning

    im long 10 mar 23 sqqq @ 2.60  

    and was sht 20 mar 28 @ 1.40 (took some profits on some 18's in a bcs) 

    rolled 10 of the sht 28 to 31 for .70 last week as i expected more downside…am thinking of rolling other 10 out to 31 but was looking for your thoughts as to best play vs a mar/ jun bcs to cover the sht calls……tks

  13. FU oil!!!!!

  14. Dollar rejected at 97.50, which is a weak bounce so interesting there:

    That was $1.12 on the Euro so we'll see what happens.  

    Oil/Craigs – The thing about oil is that you need to imagine it's water in the ocean and you are saying that the people who were pumping water out of the ocean and making insane profits selling it to us for $100 a barrel are now "losing" $1Tn because it's only $30/barrel.  Who cares?   Only the people selling water to suckers.  Now the suckers will take that $1Tn and spend it on other things – hopefully things that employ more people and have an actual manufacturing process that creates jobs and hopefully things the consumers don't BURN on their way home – leaving no asset value at all at the end of the transaction.  

    When the US creates a Dollar through commerce and we circulate it through the economy, it multiplies about 3-5 times in GDP effect as it passes through various hands and the goods they create have value – even if it only ends up being 10 cents at a garage sale down the road.  When we take that same Dollar and send it overseas in exchange for oil that we light on fire – it does nothing at all for our economy and now we have to work hard to create another Dollar to replace it.  To some extent, the damage is mitigated at Petrodollars are used to buy US Bonds and bribe our politicians or using Fox news to send us into endless wars but, when the consumer is free to choose what to spend that Dollar on – they tend to spend it on other things and that money tends to remain in the US economy, passing from hand to hand and enriching many people.  That's not a bad thing at all.

    As to Futures trades – in a post I don't adjust anything since the previous post so, the next time I talk about it I simply report the change since the last time.  I also don't talk about scaling in and out of multiple contracts or hitting the same lines 5 times – way too complex for people I talk to once a day in the morning post, right?  In chat – you can play aggressively but, generally, I'm stressing how to trade PROPERLY – which means in and out with quick profits.  As you know, I often leave things on over the weekend but not many people have accounts where it's appropriate to take risks like that – so it's never going to be something I generally advise.  If you are the kind of trader who wants to take those kinds of risks – then you don't need me to tell you exits and entries.  

    Big Chart – Back to scratch, unfortunately.  

    Taxes/StJ – Absolutely right but good luck getting that passed.  Anyway, don't focus on income tax – that's not the issue, Corporate Taxes are the issue:

    Rates/Tom – Let's say you earn $60,000 and have a 35% rates – that's $21,000 in tax.  If you make $100,000, you pay the same 35% on the first $60,000 and 60% on the next $40,000 – which is $24,000 so now $41,000 of $100,000 is 41%, which is just $6,000 more than you would have paid with a flat 35%.  In exchange for that $6,000 though, you have no more health care insurance or expenses – how much does that save you?   Even a single person earning $100,000 would come out even or better on that transaction.  

    A person earning $160,000 would pay the same $21,000 on $60,000 and then $60,000 on the next $100,000 so 50% of their income goes to tax but they are left with $80,000 in a country where the Government puts 50% more tax revenues back to work on Social Spending programs than the US.  That's obviously a big boost to the economy (10% of GDP), a huge social benefit and, of course, their budget is balanced and your children and your grandchildren won't be born into debt to support your low-tax lifestyle.  Is that not a future you are willing to pay for?

    And don't forget, that $200,000 per kid you are saving up just for undergrad school for your kids – that doesn't happen to parents in Denmark.  All that money you paid for Day Care?  Not a thing in Denmark.  Having to pay your kids auto insurance and help them out because minimum wage doesn't cut it – not in Denmark. 

    We don't even make this list:

    Oh the horror of Socialism!  

    You can eat off those streets!  

    Nope, looks like we were bucking like the Panthers – rolling over and dying now.  

    GOOGL/Rperi – It means they are scrambling to justify his outrageous salary.  That's another thing that simply needs to stop – Corporations would be a lot more profitable (and pay a lot more taxes) if 30% of it wasn't drained away from investors by management.  

    CHK/Rustle – Strange on a big up day for /NG.  What a mess, they are hiring restructuring lawyers now.  

    Natgas giant Chesapeake sinks, hires lawyers: Report

    Here's their problem:

    And they bought all those oil reserves at the top of the market – after they kicked Aubrey out because they didn't like the way he was brilliantly handling the company for 20 years. 

    CHK/Albo – My issue with them remains I can't tell what assets they have left – that makes them way too dangerous to play.  

    Submitted on 2015/09/11 at 5:44 pm

    CHK/Gardling – The short story is that they've divested so much of the company that I don't have a good handle on what they are anymore. 

    Submitted on 2015/09/16 at 4:00 pm

    CHK/Albo – Yeah, I just don't like them anymore.

    Submitted on 2015/06/04 at 1:34 pm

    CHK/Albo – As I've been saying for months (same with CZR), when a company is shuffling assets around like that, it's very hard to tell what's real and what's not but, when things smell even a little bit fishy – it's best to stay away.  

    Submitted on 2015/06/04 at 1:19 pm


    IMF/Den – Not positive at all – it's an indication that the IMF thinks things could spin out of control if any of the G8 start hiking rates.  As I keep saying, we have maxed out QE and the damn is overflowing and soon to break – it's a matter of who flinches first.  

    /RB/Jeff – Well you can't really use hard stops on /RB but, then again, you certainly don't want to let it drop on you either.  As I noted earlier, last week was much lower so we only HOPED (not a valid investing strategy) that $2 would hold – once it didn't, we had to get out and wait for the next hopeful floor.  

    Oil barely holding $58 too but long again on /CL with conviction.  

    VIX back to 15!  

    Indexes breaking now as /NQ clearly fails 4,500 (now 4,490).  

    Silver/Craigs – Have you noticed how I have NOT traded silver lately?  People are just selling everything today to get more cash, you have to wait for things to calm down but silver was not low in the channel and shouldn't have been played in the first place so I don't have nice noises to make for you – it could go back to $15.50 before turning and gold may hit $1,150 but $25 out of $1,175 is 2.1% while 0.75 out of $16.25 is 4.6%, which is why it was a no-brainer to play gold rather than silver – it has less to fall before it gets to strong support!  

    You can't just randomly buy things – you have to have solid premises for making an entry and you have to have at least three strong supporting points and, when two of those points fail on you – you have to get out of the trade.  Use those guidelines and you won't get caught in bad trades but I'll also tell you I would NEVER trade futures on my phone BECAUSE I can't possibly watch all the things I need to to know when to get out.  I don't even trade futures when I'm on the road because I only have 3 screens and that's not enough to make me comfortable.  

    CHK/Albo – Don't confuse volume with VALUE.  

    As to debt:  

    Perhaps you consider it too conservative to consider all liabilities debt but I do when you are asking me to take my perfectly good CASH!!! and give it to a company with $20Bn of "liablilities."  More to the point, the company sold $6.6Bn in assets in 2014 and only dropped $3.2Bn in cash to the bottom line (bought back $1.2Bn in stock and paid $578M in dividends).  So that's $1.6Bn that went into a black hole last year and they sold another $1.5Bn in assets in Q1 and still dropped $1.2Bn in cash even though they only paid $131M in dividends and stopped buying back stock.  

    Also, the $1.25Bn of their own stock they bought last year averaged $22.50 and now their stock is at $13 so there's $500M wasted on that misadventure as well.  Now that I've taken a second look, I am 100% against buying any CHK!  

    Submitted on 2015/06/04 at 11:49 am

    CHK/Albo – I do like that idea but I still haven't gotten my hands around what CHK is these days.  In their new mix, they are 60% oil and 40% nat gas and those oil positions were bought at a premium though they did a kitchen-sink write-off last Q (-$3.7Bn) which lowers their basis going forward but not their $20Bn debt, which is more than double their market cap and probably double their sales but who can tell as they just spun off massive assets?  That's what's kept me out of them.

    Submitted on 2015/02/26 at 12:38 pm

    CHK/Jmd – As I've noted before, they have spun off assets and now they are 60% oil and only 40% Nat Gas.  Neither of those are poised to have a very good year and CHK just gave crap outlook.  This is one of those cases where you look at a chart and think the company is low in the channel but this isn't the same company it was a year ago.  They have spun off assets that aren't in a slump – they're GONE!  That means there's nothing there to bounce back to the old earnings.  

    They are cutting 2015 CapEx by 37%, so that's either going to hurt them this year or next year, which scratches them off the list for a long-term investment and they've dropped their active rigs by 38% – that will certainly impact them this year.  Very likely, with current debt and lower revenues that they will go cash-flow negative this year.  


    Don't forget they got rid of Aubrey, who was the main reason I liked the company.  They got rid of him for constructing beneficial deals in which he made money by putting together outside investor groups to share risk with CHK and in no way was he self-dealing (investigation showed) so CHK got rid of their best guy for nothing.  New CEO, Lawler is an accountant who reduces costs by cutting back while Aubrey was a risk-taker who constantly pushed for growth.  

    CHK sold about $10Bn worth of assets since Lawler took over and wasted $1Bn of it buying back their own stock at more than it is now.  Nonetheless, they still have $12Bn in debt against about $500M in cash (so again, WTF with buying back stock?) and they sold productive wells in favor of keeping E&P assets but then they cut back their E&P budget.  Nope, not something I can get excited about. 

    And that's a company I used to love!  

    SQQQ/Mill – I'm inclined to look to take profits down here, not spend more.  If you are talking about turning it into a bear call spread – that's not a bad plan as it limits losses if we go lower.  I already got burned on one aggressive SQQQ uncover so not anxious to do it again – certainly not in the OOP but I'll review them as we see how real today's dip is (not very, I assume).

    P/Es/StJ – Good, healthy, p/e compression is bringing value back to the market – albeit very slowly. 

  15. Phil – You were so right on CHK !

  16. Hoffman and Parker and the gold rush crew must be licking there chops – the gold mining season starts in 2 months and oil is half price and gold up 15% since last year.

  17. I think we can dispel of the "oil consumption is going down" myth once and for all.

  18. Runaway hedges – holding fast premium: Phil/ I can't complain about having the Jan 18 SQQQ 13/23 BCS (paid $2.50, paid for by AAPL sold puts)- but a mild peeve is the fact that it can only be sold today for $4.50 if I am lucky. However, in terms of profit vs. time to expiry it is way ahead of 'being on track' – so I guess I should sell and look to add additional hedges – but at what strikes and am I trying to be too smart for my own good??????

  19. looking doomed?!?!?!?

  20. or an opportunity?!?!?!

  21. doomed. I hate rooting for the bears, but it helps being 3x short the s&p… doubled down last thurs, can't seem to get this smile off my face!

  22. CHK/Albo – It's that basic thing of don't play what you don't understand.  I used to understand them but then they changed and I never felt comfortable with the changes they made.  

    Consumption/BDC – Well there is underlying global growth despite the efficiency gains but this is interesting:

    Hedges/Winston – Well Jan is a long time-frame but, then again, you only get paid if the Nas STAYS down for two years - THEN you get CASH!!!  That's why I layer our hedges time, usually beginning with 45-day hedges and then 3-months and then 6 months and rarely a year – for exactly that reason.  However the SQQQ 2018 $13 calls are now $16+ and that's net $29 and the short $23s are $11+ and that's net $34.  The spreads are stupid-wide but you could treat it like a butterfly and sell March $23 puts for $1 and the March $30 calls for $3 so you collect $4 on the $2.50 you paid and you have $10 of upside protection that's in the money.  If you can just sell $4 each Q, you'll end up with $32, which is a lot more than you could have made on the spread or, after just one sale, it's a free hedge and you can start another one.  

    Finally those awful Europeans are going home.  Let's see if we can rally off this mess:  15,800, 1,830, 3,900 and 955 – very sad numbers by any means.  /NKD down at 16,300, DAX 8,960 (down 3.3% for the day along with the rest of Europe).  Dollar trying to help at 96.77 but not enough.  

  23. Not touching TSLA before earnings, think they will disappoint and obviously market does to.  The 100 puts are over $1 and that's over a 30% decline from here and they just fell 60 points.

  24. BDC – I agree.  According to EIA (so take it with salt) global oil (they use the term loosely) production grew steadily from 2010-2014 by an average of 759,000 b/day.  Over the same period global demand grew from  88M b/day to 92.42M b/day,  or roughly 1.1M b/day and to 93.77M b/day in 2015.  I am not seeing the demand destruction Phil talks about in any of the data I look at.  The current glut is due to supply exceeding demand because the growth in demand has softened (rate of demand growth dropping from 7.4% in 2010 to 2.8% in 2015) while supply has spiked.  BP has a short video confirming this.

  25. Destruction/Sibe – I'm talking about demand in the developed World – it doesn't mitigate the demand increase in developing nations – yet, but it's a huge difference in what we're actually consuming vs the consumption the producers had planned for and my point is that extrapolating that into thinking the Global economy is in a recession is a big mistake.   They do just need to stop over-producing crude and everyone will be happy.  

    Back to $30.50 anyway on /CL.  

  26. thankfully Phil posted the most important graph, that renewables do NOT replace oil, they produce electricity, which oil is NOT used for. Thank you for posting that so people will stop making this idiotic association.

  27. I like the oil theory that the price was fake, and by fake aI think we mean heavily manipulated, but this has unintended consequences. What really happened is QE/ZIRP fueled junk bonds that came in financed harder-to-extract oil (US fracking) and that industry just went nuts. Global demand is up, but production was wayyy up, and something had to give. Now we'll bail out the junk bonds (held by TBTF banks), except DB is screwed; sorry guys as Michael Lewis pointed out in 2009 the German people hold you responsible for your actions. We don't do that here in the US however.

    DB puts doing better than I could've imagined in one business day. Look at that, make solid predictions and stick to them when you know you're right.

  28. I think that oil is used for about 5% of electricity generation worldwide so not a huge factor…

  29. Now that the US middle class is all but destroyed, "investing" is simply a game of predicting what the top 0.01% (sorry "top 1%," nobody really cares about you, it's just easier to say) is going to do. For example, they fueled the US oil boom, as I explained above, but obviously that scam died and the entire energy scam died with it. They can't put money into the stock market, the middle class is dead, so S&P500 doesn't have anyone to sell their products to. So it's looking Doom, Gloom and Boom-ish and that means back to gold (miners already taking off), and of course the big hope is global strife produced by massive government cuts in the 50+ countries that depended on oil for most of their revenue produces a bunch of wars. This is where Prescott Bush et. al. really get chugging — financing both sides of armed conflicts. That's how you make money the old fashioned way!

    It's one way to look at the world. Or maybe I'm just grouchy when I'm staring down a 13 mile run….

  30. Oil/Phil, I see what you are saying.  I agree equating low the drop in oil with evidence of a global recession is a mistake.  

  31. If anything, oil at this price will probably mean more electrical production. Diesel makes 13 kWh per gallon. If your current electrical source is running $0.15 per kWh you need to purchase diesel <$1.95 for it to make sense. This doesn't really matter though because when oil goes back up all of this production gets shut off as soon as the economics doesn't work any more. It might make a difference in Japan, where after the March 2011 they turned a lot of their nuclear off, so big policy decisions need to be made and these wheels spin much more slowly than small companies and individuals making decisions. I would assume Japan is purchasing large future contracts in diesel right now.

  32. SQQQ – thanks – good thinking. But of course the MM's are just teasing me with those ridiculous bid prices – standing firm in this current market means giving up many a trade. I guess that's better than being burned.

  33. With those oil producing countries having a trillion or so less to spend and the savings from lower oil prices for the consumer does not seem to be in the same ballpark, I would think that there is considerably less being spent worldwide due to the lower oil price. So I don't see how this is not a contributor to a global slowdown? I am sure I am missing something in my over simplified understanding of the equation and those of you much smarter than me have it right. 

  34. Aloha Phil,  Is now a good time to establish some short ETF's?  I know you have been talking right along about this but I structured my strikes low at approximately 20 to 30 % the then current pricing. Thinking this would suffice.   I have naked puts on numerous underlying stocks (30) and my margin bounces up and down but currently not at my comfort level of reserving the 1/3 capacity for the exceptional good trade (s). Mahalo in advance.

  35. TLT / Phil – over $130 today, is it time to double down on the OOP Mar 122 puts @ .30 now?

  36. Good morning Phil

    Great call on markets all year, this year!

  37. I can't believe I didn't own long put on TSLA after saying time and time again how ridiculous the valuation of that company is.

  38. Stupid but fun. For play money only, buy VLO Jan 18 45/60 BCS for $6.59 with VLO trading @$53.50 – so the trade already $8.50 ITM. Sit back and do nothing until VLO crashes through the floor (let's say $30 in this crazy market) and then sell whatever puts covers the cost of the trade. Then lots of possibilities for new trades and adjusting the original BCS. 

  39. I think I want to introduce Musk to John DeLorean and Preston Tucker.

  40. Phil/TLT,

    above 130 now. you take on it?


  41. DB/BDC – Very nice!  Very grouchy on the Doom and Gloom front.  

    Just go with the flow and finance anyone working on prolonging life – there's no limit to what some rich people will pay for another year!  Check out BTX ($2.10) or NUS ($32.68) - both fun plays.

    $1Tn/Craigs – It's nearly a zero sum game because the oil itself is a necessity so the CONSUMPTION of oil is not really changing (92 or 93 or 91 Mbd) so the same jobs are there for people working to extract oil and bring it to market and put it in your tank, etc.  The difference is how much wealth is being transferred from global consumers to oil producers.  The same $1Tn is in the pocket of consumers and now it is simply not going to be spent on oil (but all the benefits of oil are still there for the consumer – just at $1Tn less) and then will be spent on other things – ESPECIALLY as this is not a disproportionate benefit to the top 1% unless they use 100x more oil than the poor folks do.  So it's a very democratic redistribution of funds away from the Princes of Saudi Arabia and XOM back into the hands of every person who drives a car or uses oil-based products (XOM's Chemical Division for one).  

    ETFs/Newt – Do you mean like the ones I outlined in Friday's post?  Yes, that was an excellent time to add hedges but today a bit less so since we're back at 1,850 (lower even) and maybe now chasing.  The VIX spiked and blew up the short puts we sold but what matters is whether the strikes are in danger, not what the premium on the puts has gone up to.

    TLT/Airvine – I don't know why people hate to wait for something to stop going up every day before making bets.  As I said last week – it would be silly to catch a falling knife or a rising rocket up the ass or whatever it's called when a thing goes up against you because all that would do is increase the amount of money we can lose as we are clearly wrong so far and we need to let TLT SHOW US how high it can go – we can't force it to stop going up.  

    TLT/Palotay – With the panic in the air, I didn't want to spend money to roll to another position that would lose ground but next week we'll certainly need to adjust.

    This was a $775 trade in the OOP and now 0.30 is $150 so down about $600 with 39 days to go.  "Doubling down" would add $1.55 and the $129 puts are $1.95 but is that enough time for TLT to drop from $131.17 back to $126, which is about our break-even?  That's the bet we make with a March roll that costs $800 more(ish).  

    The last big run on TLT was last Jan, when the World was also coming to an end because of China liquidity issues into their New Year (which happens every year as 1Bn people withdraw cash to spend over a week-long bank holiday and the US Corporate Media us it to panic the sheeple every year with their doom and gloom prognostications).  At the time, we were short TLT too and it topped out at nearly $135 and I said at the time:

    Submitted on 2015/01/14 at 2:33 pm

    TLT/Esco – Good point.  This is about as high as I thought we'd get but a tough trade with Draghi at bat next week.  I think waiting is smart here but the June $120 puts are only $1.25 and the $110 puts are 0.25 so figure if you buy the $120 puts, even if TLT spikes up $10, then you make that roll up for $1 and you're in the $130 puts for net $2.25ish (now $4.50) so it's a great way to initiate a position.   In fact, let's get 10 of those for the STP.  If they do badly, THEN we'll want to add some to the $25KP while we roll the STP.  As noted above – top of the range is when we get in.

    Good example of patience.  The old trap-door spider play.  

    TLT was $133.72 at the time and it peaked at $138.50 on the 30th and hit $122 on March 6th, on the way, eventually, to well below our target to $113 in June.  We had been watching it since November and put our foot down as we neared $135 but we didn't change the position just because it went a few bucks against us a couple of weeks after we made the bet.   This is barely a week after we made the trade!  

    Thanks Maya. 

    TSLA/Rustle – We made our money and moved on.  

    VLO/Winston – I like it.  Refining will find a way.  

    TLT/Pat – See above. 

  42. Phil thanks for the clarification. I did not realize that it was a 1:1 correlation.

  43. In the OOP, let's roll our 30 short SQQQ March $20 calls ($8.80 = $26,400) to 40 short SQQQ June $27 calls ($6.20 = $24,800).  

    The cost of a straight roll would have been $2.60 and we have 30 of the March $23/28 bull call spreads that we'll make $3.87 on if SQQQ stays over $28 into March – that would then be plenty to pay for a roll to the Sept $35s, which are now $5.50 and 22% higher than where SQQQ is now $28.70.  

    So that would be 7% lower on the Nas, down to 3,600, which is the -10% line.  That's where we're putting our foot down into the Summer.  

  44. Another chance to take those profits on Gold (/YG – $1,200) and Silver (/SI – $15.50) for your futures players.  

    In the OOP, I'm comfy with our June $100/106 spread on GLD but it looks like we can get $5.10 for them now so why not?  

  45. Phil

    One hour and no comments on the page??? is there any issue?


  46. No comment(s) – a bottle of Johnny Walker tends to have that effect :)

  47. So, what are our damages at this point?  

    17,600 was must hold and 15,840 is -5% and we're close enough to still watch that line but it needs to be taken back quickly or we'll have to consider -10% a looming possibility.  Obviously, 1% weak and 2% strong bounced over 15,840 are what we need for the week but, since it's a long fall – not at all impressive until we're up 2% from here (16,150).

    1,850 is our Must Hold line and the S&P is our most important index so BIG TROUBLE if we can't get right back over there.  Down from 2,035 (and we were higher) is a 10% drop so just a weak bounce would have to be 2% over 1,850 at 1,887 and, of course only 4% will impress and that's 1,925 by Friday or we should spend more time looking down than up.

    4,600 was + 15% and we were +17.5% at 4,700.  Now it's 800 points down so 150 for a bounce is 4,050, not 4,000 – even though that's the Must Hold and 4,200 is the + 5% line and that's how far we have to go just to stop worrying about Nasdaq weakness.  

    1,200 was only the Must Hold line and that and the NYSE failed and we should have gotten more bearish instead of "just not bullish".  Still, we'd been burned by the Fed so many times on the bear side – it's nice just not to lose!  Anyway, 1,020 was – 15% and 960 is the -20% line – hard to believe we can't bounce there and the bounce should be huge.  +4% is weak, back to 1,000 and then 1,040 would be strong.

    20,000 to 16,000 is 20% so same story as the RUT and Nas – we need a huge 4% move up just to have a weak bounce – 16,640 and 17,280 for a strong one but I see that 18,000 line and won't be happy until we're back over that and under 16,000 is DISASTER!  

    11,000 is the same line as the NYSE and the NYSE is at 9,155 so a bit less dire than the DAX so far.  We'll see which one catches up to which.  8,800 is the -20% line on the DAX/NYSE and that makes 9,152 (where the NYSE is now) the weak bounce line and 9,500 would be strong.  

    1 hour/Pat, Winston – Geeze, try to take the time to do a little research and people lose their minds!  cheeky

  48. Phil

    In the OOP we sold March 100 DIS calls offsetting July 95 long calls.  Any chance you would buy those back at .87 ? (Sold them for 4.30)

  49. Phil/1 – hour

    :-) Actually it was for all the members of PSW.  Someone or the other puts in a comment. I guess everyone is calm in this market fall…reflects your teachings.


  50. Not much data this week but Yellen talks to Congress on Weds/Thurs.

    So it's all about earnings and we're into smaller companies now:

    DIS/OOP, DC – Well that would make sense if either we fear DIS going back over $100 by March (nope) or we wanted to cover with $90 or $95 calls (nope).  So, since I don't have any premium sales to replace it with, best to just let the extra 0.87 expire while we wait and see.  

    I know Pat.  Monday's are often dull (and meaningless) and one of these days I'll stop working on Mondays and take more long weekends.   Then Fridays…

    Stick time – let's see what can be salvaged from the wreckage.  

  51. Phil/SQQQ,

    Above trade in OOP, do you recommend that as a new entry for hedge


  52. NO!  That is a bullish adjustment.  We got burned in Dec unwinding a previous SQQQ bull spread way too early, selling the longs and leaving the short calls.  Since then, we've had to roll them along with a huge loss and we're just trying to make sure they EVENTUALLY expire worthless – and we need an up (or at least flat) Nasdaq to do that.  

  53. Good volume today and bad numbers:

  54. Phil/SQQQ,

    Thanks Phil.

  55. Phil/TF – is the futures long recommendation above 970 still valid after the downward spiral today?

  56. The Stick save…like the good old days

  57. Puerto Rico's debt drama continues

    • If Congress does not act soon, major defaults are likely this spring, Puerto Rican officialsproclaimed in Washington on Friday, making their case for a law that would allow a broad restructuring of the territory's multibillion-dollar debt.
    • The officials also said they knew that any legislative help would come at a stiff price: Puerto Rico would have to submit to a federal control board, something viewed by some on the island as colonialist-style interference.

    Deutsche Bank at record low as fear over European banks grows

    • It is the European banks and contagion concerns that are freaking out the markets today- not just the Fed, China and crude oil – according to David Rosenberg, noting that some of the European banks are trading at 2008 crisis levels after the group has tumbled 18% YTD vs. 11% for the STOXX 600 index.
    • European financial firms are taking a beating amid fears of "a chronic profitability crisis that makes it impossible for banks to build up barely-adequate capital bases," WSJreports.
    • Deutsche Bank (DB -9.8%) is down another ~10%, bringing its YTD loss to nearly 40% while its valuation has fallen to ~30% of book value, and its credit default swaps spiked to their highest levels since 2012.
    • News of major withdrawals out of Credit Suisse (CS -4.2%) caused its shares to sink 11% last week, hitting a 24-year low, and Santander (SAN -6.2%), BBVA (BBVA -5.4%), and UniCredit (OTCPK:UNCFF -5.5%) are down to lows seen during the last eurozone financial crisis.
    • "Oil and the flatter yield curve alone do not explain the 12% plunge we have seen in S&P Financials so far this year," Rosenberg says, adding that BofA (BAC -6.1%), Citigroup (C-6.2%) and Wells Fargo (WFC -3.5%) all briefly touched 52-week lows last week – "an ominous signpost."

    Commodity crisis may get worse before it gets better, Anglo CEO says

    • "Things may still get worse before they get better" in the mining industry, Anglo American (OTCPK:AAUKFOTCPK:AAUKY) CEO Mark Cutifani says, in keeping with the generally gloomy assessment from mining execs at an industry conference in Cape Town, South Africa.
    • Commodity prices may not have bottomed yet, so 2016 could be even more difficult for mining companies and commodity markets than 2015, Cutifani says; to put that thought in perspective, copper and iron ore prices fell a respective 25% and 40% in 2015, and Anglo’s share price plunged 75%.
    • The CEO says the slump in prices has deprived the company of ~$350M/month in revenue; the depth of the problems facing Anglo were highlighted again today as its Amplats (OTCPK:AGPPY) unit reported a 12.12B rand ($760M) net loss for FY 2015 vs. a profit of 624M rand a year earlier.
    • Iran plans to sell 300K bbl/day of crude oil to European customers now that Western sanctions have been lifted, Iran’s oil minister said over the weekend, the first time the country's top oil official has said how much of its new exports would be headed for Europe.
    • The comments came amid signs that European oil tanker companies were finding ways to ship Iranian oil despite remaining U.S. sanctions on Iran.
    • Glencore (OTCPK:GLCNFOTCPK:GLNCY) on Friday became the first Western company to load Iranian oil, the first in a wave of European purchases of Iranian oil, although the others have yet to be loaded.
    • Iranian officials also said Total (NYSE:TOT) will start importing 160K bbl/day of oil starting on Feb. 16; shipping officials say the company has chartered a 2M-barrel tanker to load crude next week.
    • Total (TOT -2%) says it has started production from the Laggan and Tormore gas and condensate fields, located west of the Shetland Islands, highlighting an unexpected boom in U.K. energy production that analysts say is unsustainable.
    • TOT, which has labeled the project as a "key component” of its future production growth, says the deepwater fields will produce 90K boe/day.
    • A project led by TOT committed to invest $5B in Laggan Tormore in 2010, when oil prices were $80/bbl and rising.; few projects of its size, scope and technical difficulty would be launched at current ~$30 oil prices, analysts say.
    • Transocean (RIG -8.1%) is tumbling after Murphy Oil (MUR -2.1%) terminated its contract for the Discoverer Deep Seas in exchange for a lump-sum payment, the latest of the company's rigs to have a contract cancelled after two other rigs were terminated by customers in December.
    • The 15-year-old drillship was contracted from October 2013 through November 2016 at a $604K dayrate.
    • Citigroup's Scott Gruber says the issue is that the idling of the Deep Seas is likely to reduce its ability to secure a new contract through the downturn, meaning there is an increased likelihood that the rig is cold stacked, which in turn increases the likelihood that it never returns to service.
    • MUR also “exercised its option to revert the term” on a contract with Diamond Offshore (DO -1.2%).


    • Diamond Offshore (NYSE:DO) says it is discontinuing its dividend after reporting Q4 earnings of $0.89/share, excluding a $499M non-cash charge related to the impairment of nine drilling units.
    • DO has paid a regular dividend of $0.125/share every quarter since mid-2005; suspending it will save ~$69M annually.
    • DO says Q4 drilling revenue totaled $544M, 19% lower than the $674M in the prior-year quarter, while related expenses fell 29% Y/Y to $256M from $359 a year ago.
    • Q4 dayrates on its ultra-deepwater floating rigs rose to $531K from $493K in the year-ago quarter, and the utilization rate rose to 70% from 66% a year ago.
    • DO also says it is transferring the maintenance and service of well control equipment to General Electric's (NYSE:GE) oil and gas unit, in an attempt to simplify operations and reduce downtime.
    • Under the 10-year service agreement, GE will buy the blowout preventer systems on four of DO's rigs located in the U.S. Gulf of Mexico for $210M.

    • Chesapeake Energy (CHK -50.6%) is halted as the company says it "has no plans to pursue bankruptcy and is aggressively seeking to maximize value for all shareholders."
    • Responding to an earlier report that has cut the share price in half today, CHK says Kirkland & Ellis has served as one of its counsel since 2010 and continues to advise the company as it seeks to further strengthen its balance sheet following its recent debt exchange.
    • Hertz Global (HTZ -12.1%) and Avis Budget Group (CAR -6.9%) are sharply lower on the day. Both stocks are now at 52-week lows
    • Macroeconomic factors are still the dominant story on the two, although there's also been an increase in buzz this month that the impact of Uber on business rentals may be larger than anticipated.
    • Activist investors at both companies are likely to be heard from soon.

    Old school consumer staples names hold up

    • Investors are taking refuge in some weathered stocks in the consumer goods sector.
    • Procter & Gamble (PG +0.9%), Hershey (HSY +2.2%), Altria (MO +0.3%), Hormel (HRL+1.9%), Clorox (CLX +1.8%), and Post Holdings (POST +0.4%) are all making gains despite the 375-point slide in the Dow Jones Industrial Average.
    • The Consumer Staples Select ETF (NYSEARCA:XLP) is down 1%, compared to the much steeper losses in the tech and financials sectors.
    • Crocs (CROX +5.9%) is shooting higher on strong volume in an against-the-market momentum move.
    • The company is on the radar of some investors with cost-cutting expected to boost results this year.
    • FQ4 earnings aren't due to be reported by Crocs until February 25. Analysts expect revenue of $202.8M and EPS of -$0.35.
    • Results from a Phase 1b trial (Study 006) assessing the combination of AstraZeneca's (AZN -5.1%) monoclonal antibodies, durvalumab and tremelimumab, in patients with locally advanced or metastatic non-small lung cancer (NSCLC) irrespective of PD-L1 status, showed encouraging antitumor activity. The data were published in The Lancet Oncology.
    • In a cohort of 26 subjects treated with the combination and followed for ~24 weeks, the overall objective response rate (ORR) was 23%. The ORR in PD-L1-positive patients was 22% and 29% in PD-L1-negative patients.
    • PD-L1-negative NSCLC patients represent a significant unmet medical need. Some leading monoclonals, such as Merck's KEYTRUDA (pembrolizumab), are targeted specifically to PD-L1-positives, less than half of cases.
    • Durvalumab is a PD-L1 inhibitor and tremelimumab is a CTLA-4 (cytotoxic T-lymphocyte-associated antigen-4) inhibitor. Preclinical data suggest an additive or synergistic effect from targeting both.
    • Treatment with the antibodies was no walk in the park, though. 30% experienced Grade 3 (severe) or Grade 4 (disabling or life-threatening) adverse events while 16% discontinued treatment due to an adverse event.
    • The combination is being evaluated in ongoing Phase 3 studies.

    European tech stocks see big losses as continental markets fall sharply

    • Chipmakers NXP (NXPI -9.3%) and STMicroelectronics (STM -5.6%), CPU/GPU core developer ARM (ARMH -5.5%), and ad tech firm Criteo (CRTO -9%) are down sharply after European indices closed with big losses. France's CAC-40 fell 3.4%, Germany's DAX 3.3%, and the Euro Stoxx 50 3.3%. The Nasdaq is down 2.1%, and the S&P 1.8%.
    • NXP has more than given back the Thursday gains seen after the company posted a Q4 beat and issued in-line Q1 guidance. Today's losses come in spite of an OTR Global notestating NXP could gain NFC chip share with Samsung's Galaxy S7 relative to the S6; the S6 heavily relied on Samsung NFC radios.
    • STMicro is two weeks removed from announcing (with its Q4 report) job cuts and plans to discontinue set-top/home gateway chip R&D. ARM and Criteo report on Wednesday morning.
    • Many tech stocks are seeing 6%+ losses as investors flee to safety yet again. The Nasdaq is down 3.4%, and the S&P 2.7%.
    • As was the case on Friday following Tableau and LinkedIn's disappointing guidance, a slew of enterprise tech stocks are seeing big losses, with cloud software and security tech names well-represented on the casualty list.
    • Also: Solar stocks are having another brutal day (TAN -6.7%) as energy stocks get routed amid fears Chesapeake Energy is close to bankruptcy. WTI crude oil is once more near $30/barrel.
    • Enterprise software decliners: Adobe (ADBE -9.6%), Paylocity (PCTY -19.1%), Salesforce (CRM -9.9%), Workday (WDAY -12%), Guidewire (GWRE -12.5%), ServiceNow (NOW -11.5%), Zendesk (ZEN -13.8%), Paycom (PAYC -13.4%), Marin Software (MRIN -10.3%), Castlight (CSLT -8.4%), Cornerstone OnDemand (CSOD-12.1%), Atlassian (TEAM -13.2%), inContact (SAAS -9.6%), and Bazaarvoice (BV-14.5%).
    • Enterprise security decliners: Palo Alto Networks (PANW -12.2%), FireEye (FEYE-9.8%), CyberArk (CYBR -11.5%), Proofpoint (PFPT -12.7%), Qualys (QLYS -8.9%), Imperva (IMPV -9.7%), Rapid7 (RPD -9.4%), and Barracuda (CUDA -8.4%).
    • Solar decliners: SunEdison (SUNE -11.3%), SunPower (SPWR -8.8%), JinkoSolar (JKS-7.6%), SolarEdge (SEDG -7.9%), Yingli (YGE -7.1%), TerraForm Power (TERP -10.7%), and TerraForm Global (GLBL -9.2%).
    • Other major decliners: Micron (MU -9.1%), Western Digital (WDC -10.5%), Arista (ANET-10.9%), Universal Display (OLED -10.6%), Rackspace (RAX -11.3%), Fitbit (FIT -8.7%), Nimble Storage (NMBL -11.3%), Sierra Wireless (SWIR -9.9%), Rocket Fuel (FUEL-9.8%), Knowles (KN -9%), Mitel (MITL -8.9%), and (ALRM -8.9%).
    • Previously covered: YelpCognizantTableauGlobantAmbarellaEuropean tech stocks
    • Following months of contentious local debate, India's telecom regulator (TRAI) has imposed net neutrality rules that prohibit carriers from charging different prices for data services based on content. The ruling serves to ban Facebook's (FB -3.7%) Free Basics/ service, which aims to boost mobile Web adoption in emerging markets by providing free access to Facebook and a limited number of other sites.
    • Free Basics has launched in more than 35 countries. However, the program faced a backlash in India from critics arguing it creates an uneven playing field for Internet service providers unable to join. Facebook reportedly spent INR3B ($44M) on a PR campaign supportingFree Basics.
    • Even without Free Basics, Facebook had 132M Indian monthly active users as of last August; WhatsApp had 70M Indian active users as of late 2014. However, only 252M of the India's 1.3B people are currently believed to have Internet access.
    • Facebook is seeing steep losses on a day the Nasdaq is down 2.8%.
    • After coming off a halt following the premature release of its Q4 report, Yelp YELP is down sharply, as it was prior to the report. The Nasdaq is down 3.2%.
    • In addition to forecasting ~26% Y/Y 2016 sales growth, Yelp is guiding for adjusted EBITDA to rise to $90M-$105M from 2015's $69.1M; markets may have been hoping for stronger EBITDA growth guidance. Q4 adjusted EBITDA was $17.5M (below guidance of $20M-$24M), and Q1 guidance is at $10M-$12M.
    • Q4 metrics: Cumulative reviews +34% Y/Y to 95M, after growing 35% in Q3. Local ad accounts +32% to 111K vs. +37% in Q3. App unique devices (i.e. the # of unique mobile devices accessing Yelp's apps) +38% to 20M vs. +39% in Q3. Yelp claims app users "were more than 10 times as engaged as website users based on number of pages viewed." Diners seated via restaurant reservation platform SeatMe rose 120% Y/Y.
    • Top-line performance: Local ad revenue +35% Y/Y to $125.9M. Brand ad revenue -18% to $7.1M; Yelp has finished phasing out brand ad sales, and won't record any in 2016. Transaction revenue up 10x Y/Y to $14M thanks to the Eat24 acquisition; Eat24's sales were up 80%. Other revenue flat at $6.8M.
    • Financials: GAAP costs/expenses +57% Y/Y (exceeding revenue growth of 40%) to $160.1M, with sales/marketing spend rising 63% to $87.5M. Cost of revenue totaled $15M, R&D spend $29M, G&A $20.7M, and depreciation/amortization $8M. Yelp ended 2015 with $371M in cash, $16M in restricted cash, and no debt.
    • For those wondering, Yelp says its earnings were released early due to "a vendor error by PR Newswire."
    • Yelp's results/guidanceearnings release

    Apple on track for approval to open India outlets

    • Apple (NASDAQ:AAPL) is on course to win clearance to open its first retail stores in India, as the tech giant seeks fresh sources of growth following last month's forecast of a sales decline for the first time in more than a decade.
    • Apple should also qualify as a provider of cutting-edge technology, sources told Bloomberg, exempting the company from a rule forcing foreign businesses that retail a single brand in India to procure 30% of a product's inputs locally. Apple makes most of its devices in China.

  58. That's funny because, in reviewing the news, I saw no good reason we should be down so much – and now we aren't…

  59. /TF/Raviis – Sure, same lines hold – much better to play when crossing up.  

    Got a nice 2nd chance to go long on oil at $30 too!  

  60. It's very sneaky how they arrange it so we're down 1% for the day and we think it's a good day!  

  61. Any thought on WMB here? Sounds as though they took a beating on the CHK story.

  62. geez—--up $1000 then down $1000 and thankfully ended up $1000 on /TF

  63. hmm, HTZ can only be down so much if we are in a global downtown. Otherwise, this is just simply oversold.

  64. WMB/Ging – That whole sector is now toxic but that doesn't mean there are not bargains to be had.  I'd have to check into WMB, not one I pay attention to but does seem a bit unfair. 

    /TF/Savi – Nice job, really crazy day.  

    HTZ/BDC – I think Uber is killing them. 

  65. HTZ – I wish I had thought to short them after I started preferring to just use Uber when I traveled for work, instead of renting a car.  I travel about a week per month for work, and haven't rented a car for over a  year.  Grrr!

  66. When housing prices stalled in 2006 and then collapsed over the next three years, the subprime lending schemes quickly became exposed.

    Mortgage defaults led to a banking crisis. Due to the highly interconnectedness of banks globally, the problems quickly spread to banks around the world. A banking …

  67. This is when the dollar will fall

    January’s market turmoil has very little to do with China but a lot to do with the U.S. The trigger? U.S. interest rates. The dollar is considered a safe haven and is widely expected to rise further.

    Yet the currency is in a bubble and may soon fall. The signal of when dollar weakness will start …

  68. This ‘Chart of Doom’ explains when a global recession will begin

    Few question the importance of private credit in the global economy. When households and businesses are borrowing to expand production and buy homes, vehicles, etc., the economy expands smartly.

    When private credit shrinks — that is, as businesses and households stop borrowing more and start paying …

  69. Last Thursday when we recounted the story of how Venezuela is now literally flying in paper money (using three dozen cargo Boeing 747s), we wrote …

  70. A Texas legal panel voted on Monday to disbar a former prosecutor for sending an innocent man to death row by presenting tainted testimony and making false statements that undermined the defendant’s alibi.

    The Board of Disciplinary Appeals appointed by the Texas Supreme Court upheld a state …

  71. The Pirate Bay, one of the largest and best-known torrent trackers in the world, has implemented a new Torrents Time feature that allows users to stream content directly without requiring any other downloads.

    While you won’t need a torrent or P2P application, you will need Torrents Time’s desktop …

  72. The echoes of both Bear and Lehman are growing louder with every passing day.

    Just hours after Deutsche Bank stock crashed by 10% to levels not seen …

  73. The experiment could provide clean power for up to 8% of the country’s population.

    France is joining the Netherlands and Korea in the solar road club. The French government plans 620 miles of energy-generating pavement, which will be able to provide power for up to 8% of the country’s …

  74. The Insider Picks team writes about stuff we think you’ll like. Business Insider has affiliate partnerships so we may get a share of the revenue from your purchase.

    There’s a lot to learn before you’re ready to break out in the business world; you need to be knowledgeable in everything from …

  75. America is turning into Japan

    I firmly believed that the Bank of Japan would augment its quantitative easing stance sometime this spring. Inflation has not come close to its target, and the country’s growth is dismal, to say the least. So the fact that the Bank of Japan “did something” was not a surprise.

    I will, however, admit …

  76. Long before Alec Ross logged half a million miles visiting 41 countries as Secretary of State Hillary Clinton’s senior adviser for innovation, he found himself in a concert hall in Charleston, West Virginia, swabbing up puke after a country music concert.

    Ross was 19 and had just finished his …

  77. It could eliminate a $12 billion IRS bill.

    It’s no secret that Yahoo’s biggest asset—its stake in Chinese company Alibaba—has also been its biggest albatross, saddling the Silicon Valley firm with a potentially massive tax payment. But reports that Verizon is interested in buying Yahoo show a way …

  78. As markets reporters, our most important responsibility is to provide readers with some helpful context for what’s going on. This is particularly important during periods of heightened volatility like what we’ve been experiencing for the past few months.

    For this post, we’re going to skip the …

  79. The Time-Loop Party

    By now everyone who follows politics knows about Marco Rubio’s software-glitch performance in Saturday’s Republican debate. (I’d say broken-record performance, but that would be showing my age.) Not only did he respond to a challenge from Chris Christie about his lack of achievements by repeating, …

  80. NEW YORK (Reuters) – Fund managers who relied on the so-called FANG stocks – Facebook,, Netflix, and Google – to boost their performance numbers in 2015 are cutting ties as the global economy looks weaker than many expected, leaving last year’s outperformers in the midst of a deep …

  81. Even with a big chunk of stocks in bear market, it is too soon to get tempted back into this market, says analysts at J.P. Morgan.

    A buying opportunity is tough to see right now

    It is too soon to look for a bottom for stocks, at least over the medium term, Mislav Matejka, equity strategist at J.P. …

  82. Putting a price on nature may seem like an impossible task, but economists believe that finding a way to calculate the value of natural resources is crucial when it comes to deciding whether our use of a resource is sustainable. Natural resources are capital assets, economists have argued, in the …

  83. Sen. Marco Rubio had to fend off an assault from the Garden State bully. Instead, he nearly self-destructed

    The moment when Saturday night’s Republican presidential primary debate was effectively over came long before the seven candidates left the stage at the St. Anselm’s College Institute of …

  84. Mong Kok in chaos following clearance of unlicensed food hawkers

    HONG KONG—Hong Kong’s Lunar New Year celebration descended into chaos as protesters and police clashed in a street market selling fish balls and other holiday delicacies.

    The violence is the worst in Hong Kong since pro-democracy …

  85. While it’s done little for its stock market nor the Japanese yen, the Bank of Japan’s (BOJ) decision to introduce a negative interest rate policy has certainly had an impact on Japanese government bond (JGB) market.

    Today, for the first time ever, the benchmark 10-year JGB yield has fallen below …

  86. Even though MSCI India’s 2016 consensus earnings got trimmed by another 1% last week, analysts at Goldman Sachs remained OW on India, pegging their …

  87. $100 Trillion Up in Smoke

    “We aren’t addicted to oil, but our cars are.”
    – James Woolsey

    “The greatest asset, even in this country, is not oil and gas. It’s integrity.”
    – George …

  88. WESTPAC: Don’t write off the US economy just yet

    US economic data – with the exception of January jobs report released last Friday – has been hardly stellar of late.

    Measures on activity levels across the nation’s services and manufacturing sectors have disappointed, labour productivity has fallen while household consumption growth has stalled, …

  89. Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before …

  90. With more states likely to vote on legalization this year, Colorado & Washington can provide some good insights

    Colorado and Washington legalized marijuana in 2012, and Alaska, Oregon and Washington, D.C., came on board in 2014. Voters in a half-dozen states are likely to vote on legalization this …

  91. No state has done more in the post-Jim Crow era to restrict voting rights than North Carolina. Just weeks after the Supreme Court gutted a key …

  92. This won’t be your average day care facility.The post Texas Officials Want Controversial Family Detention Centers To Be Labeled As ‘Child Care’ …

  93. Millions of religious progressives are pretty sure he’s wrong.The post Ted Cruz’s Misguided Beliefs About ‘Lefties’ And Faith appeared first on …

  94. Being “paid to wait” in high-yielding stocks last year was a death by 394 cuts. As Bloomberg reports, the number of dividend reductions far surpassed

  95. Bush would permit a level of corruption that even the Roberts Court views as intolerable.The post Jeb Bush Unveils Sneaky New Plan To Make Citizens …

  96. Five Truths about Terrorism

    Terrorism is a serious problem, but it has been blown out of proportion by political opportunism and a sensationalist news media. Managing terrorism …

  97. Everyone has heard that eating fish is good for the brain. This notion goes back at least a century; the famous humorist and novelist P.G. Wodehouse often mentioned it in his books. In one scene, after Jeeves (the butler) describes a clever scheme to escape a ticklish problem, Bertie Wooster reacts:

  98. With Deutsche Bank forced to issue a statement defending its liquidity today after its stock crashed 10% to financial crisis lows, implying that a

  99. The Day America Can’t Store Another Barrel of Oil is Damn Close

    What happens to the price of anything if you run out of room to store it?

    You know…it drops . . .a lot.

    Even ice in the desert or wood in winter loses …

  100. And you thought Greece was “fixed”…

    The last 3 days have seen Greek bank stocks cut in half…

    Which has slammed Greek stocks to their lowest since …

  101. *and some footnotes

    “ When the children of majority­-black Flint, Michigan, have been drinking and bathing in lead­ poisoned water for more than a …

  102. The robots are coming—to save your life.

    Last summer, the Pentagon’s research division, DARPA, hosted a competition aiming to prove that robots could help save us in even the most dire of disaster situations. The robots fell over more often than European soccer players, but Gill Pratt, the man …

  103. Good morning!  

    We're kind of flat to the close after being lower overnight.  Europe is just now turning green so we'll see what sticks.  China was closed and Japan officially fell 5% to 16,000 but /NKD is already back to 16,300 (+2%) this morning.


    Global Bond Rally Near `Panic' Levels With Japan Yield at ZeroThe yield on benchmark 10-year Japanese government bonds dropped to zero for the first time as a flight to haven assets drove a measure of global yields to the lowest in more than a decade.Treasury yields dropped to a one-year low as investors sought refuge from a continued slump in stock markets worldwide. Traders pared the odds that the Federal Reserve will raise interest rates this year to 30 percent, before Chair Janet Yellen begins her two-day semiannual testimony to Congress on Wednesday. The yield on the Bank of America Merrill Lynch World Sovereign Bond Index slid to 1.29 percent, the least in data to 2005. “It’s almost like a panic,” said Hideo Shimomura, the chief fund investor in Tokyo at Mitsubishi UFJ Kokusai Asset Management. “The flight to quality is exaggerated.”The yield on Japan’s 10-year notes was at 0.005 percent at 11:35 a.m. in Tokyo after earlier dipping to zero, a first for a Group-of-Seven economy.

    Global Stock Rout Extends in Japan; Credit Risk Climbs With YenAnxiety over the global economy intensified, with equities in Tokyo sliding the most since August and index futures indicating U.S. stocks will add to declines that sent the Standard & Poor’s 500 Index to a 22-month low. The yen reached its strongest since 2014 and corporate bond risk climbed. Stock gauges in Japan and Australia slumped and U.S. index futures slid at least 0.9 percent. Markets from China to South Korea remained closed for Lunar New Year holidays. Evidence of mounting distress in global credit markets boosted government debt, with yields on New Zealand notes sliding to a record, while 10-year Japanese bond rates shed as much as four basis points to zero. Gold was on track for its longest rally since 2011 as the yen extended gains to surpass 115 per dollar for the first time since 2014, strengthening with the euro. U.S. oil traded above $30 a barrel. “We had a bubble in people’s expectations of the power of central banks,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd. “And now we’re seeing that bubble burst.” Japan’s Topix index tumbled 5 percent in Tokyo, falling the most since Aug. 24 as banks and financial shares led losses. The Nikkei 225 Stock Average dropped 4.9 percent, on course for its biggest decline since June 2013The yen strengthened past 115 per dollar for the first time in more than a year and climbed against all its major peers. Global currency volatility rose to 11.77 percent, according to a JPMorgan Chase & Co. gauge. 

    German industrial production falls in December

    • German industrial production unexpectedly fell for a second month in December, in a sign that Europe's largest economy ended 2015 on weaker footing.
    • Output, adjusted for seasonal swings and inflation, fell 1.2% from November, when it declined by a revised 0.1%.
    • The pullback comes at a time when record-low unemployment and low fuel costs bolster consumer spending, but a slowdown in major export markets counteract these positive trends to rein in production.

    Genworth slides for second day after restructuring

    Diamond Offshore CEO: Oil industry in a "severe and prolonged down cycle"

    • The oil industry nightmare will not end anytime soon, and "it seems clear that the oversupply of drilling capacity may persist well into 2017 and possibly beyond," Diamond Offshore (NYSE:DO) CEO Marc Edwards said in today's earnings conference call.
    • "Deepwater drilling will recover… What I can't tell you is when," the CEO said; in the meantime, DO is not only eliminating its dividend, but also considering mergers and/or acquisitions, buying distressed assets, and other crisis measures.
    • Analysts like DO's new service agreement with GE, which is expected to help lower idle time for rigs on hire - crucial for drillers struggling to lease out offshore rigs and cut costs as oil and gas producers scale back spending.
    • DO loses up to $500K of revenue each day a rig is down, while the oil and gas producing customer also loses as much money, Edwards says, calling downtime the industry's "Achilles' heel."
    • Evercore ISI analyst James West says the service model will create a much more visible stream of cash flow for equipment providers compared with the cash flow from selling equipment, "which is very cyclical and very lumpy."
    • Among companies that could adopt a similar model are offshore rig providers such as Noble Corp. (NYSE:NE), which could tie up with oilfield equipment manufacturers such as National Oilwell Varco (NYSE:NOV) and Cameron (NYSE:CAM), analysts say.
    • The MLP sector needs to "absorb more pain" before it can represent a "compelling investment," Hedgeye's Kevin Kaiser said in a Barron's weekend profile of the controversial analyst, adding that the "pain" can come in but one form: a reduction in distributions that investors cherish.
    • The longtime MLP bear disagrees with the analysts and MLP investors who think the sector is deeply undervalued now that the benchmark Alerian MLP index is down 45%, countering that “we’re in the early innings of the MLP down-cycle. We had a 15-year up-cycle, and now we’re a year and a half into the downturn.”
    • Kaiser first gained Wall Street attention as the only bear among more than 20 analysts that covered Kinder Morgan (NYSE:KMI); while most of the damage has been done, Kaiser thinks KMI could fall further, to below $10, as he sees KMI still overleveraged with $41M of net debt, more than 5x annual cash flow.
    • On Linn Energy (LINELNCO) and Chesapeake Energy (NYSE:CHK), "we said those stocks could be going to zero, and I think we’re going to be right," Kaiser adds
    • Exxon Mobil (NYSE:XOM) climbed 1.4% in today's trade despite broader equity market losses, and shaking off an analysis from Bespoke that its payment ratio just moved past 100%.
    • Analysts are forecasting XOM's 2016 net income to drop 35% to $10.5B; for the sake of comparison, total dividends paid for 2015 will total $12.1B – at that level, even if the company only keeps its dividend level this year, XOM's 2016 payout ratio would spike above 100% for the first time in at least 32 years, Bespoke says.
    • The firm views a dividend cut at XOM as unlikely in the near term, but notes that if even such a relatively conservative company is in a situation where dividends paid are now forecast to exceed earnings, "one can only imagine the nightmare this bust has been for less established players in the sector."
    • Chesapeake Energy (NYSE:CHK) is in survival mode, but investors have reacted with undue alarm to steps it has taken to stay afloat, writes Heard On The Street's Spencer Jakab.
    • Shares closed one-third lower today on reports that CHK had hired a restructuring adviser, setting bankruptcy alarm bells ringing, before the company denied it was preparing a filing; shares also sank last month when it suspended preferred dividends, and the previous month when it issued second-lien notes to redeem some debt at a discount.
    • Each of these cash-preserving moves was predictable, Jakab argues, and despite a mountain of debt, CHK is "likely to hang on while many smaller companies fail this year," although "between now and then, brace for more bouts of panic selling."
    • Baker Hughes (BHI -4.3%) is downgraded to Equal Weight from Overweight with a $47 price target at Morgan Stanley, which notes that the North American rig count is entering a free fall phase with further contractions expected in the near future.
    • The firm points to growing risks related to the pending deal between BHI and Halliburton (HAL -1.1%), and believes the market is not pricing in the necessary risk associated with a potential failed deal.
    • BHI's weak 4Q results raise concern around the company’s ability to execute as a standalone company, Morgan Stanley says.

    More on Chipotle's all-employee meeting

    • Co-Chief Executives Steve Ells and Montgomery Moran laid out plans to improve restaurant safety, such as central processing and increased testing of ingredients, while discouraging sick workers from coming to the restaurant by offering paid sick leave.
    • Chipotle (NYSE:CMG) also said it would spend about $10M to help local suppliers adhere to the company's new safety measures.
    • CMG shares have lost nearly a third of their value and sales have plunged about 30%since November, following reports of E. Coli sickness and two separate norovirus outbreaks.
    • Previously: Highlights from Chipotle's all-employee meeting (Feb. 08 2016)

    GoPro delivers 10.1% gain after Microsoft deal, less bearish Barron's column

    • Though the Nasdaq closed down 1.8%, beaten-up and heavily-shorted GoPro (NASDAQ:GPRO) rallied today on volume of 15.1M shares, well above a 3-month daily average of 8.4M.
    • The gains followed news of a Microsoft patent licensing deal on Friday afternoon. They also came after Barron's, which has been issuing bearish columns on the action camera maker since 2014, published a somewhat less downbeat piece over the weekend. The paper once more highlights GoPro's sales pressures and voices skepticism about Apple M&A speculation, but also declares the company's $474M cash balance gives it "some financial cushion to regain its footing," and suggests Sony or Under Armour could make a bid.
    • Shares are now slightly above where they traded before GoPro provided light guidancelast Wednesday. They're still down 39% YTD and 83% from the start of 2015.

    Applies to DIS too:  Comcast gets upgrade from Argus; cord-cutter fears 'overblown'

    • Comcast (NASDAQ:CMCSA) shares pulled off a good Monday, finishing just a penny down from yesterday while the broader market slipped 1.4%.
    • Argus upgraded the company to Buy after saying cord-cutting worries seem "overblown" with a look at the metrics. The firm's analyst Joseph Bonner set a price target of $72, 21% upside from today's close of $59.40.
    • Comcast added 89,000 net video subscribers, its best result in that metric in nine years. Combined with braodband strength and rising ARPU, it's an indicator of the health of the company's cable business, Bonner says.
    • "Comcast has been in the cross-hairs of investors concerned about the secular strength of the 'cord-cutter/cord-never' phenomenon among millennials; however, based on the company’s recent subscriber metrics, we believe that these concerns are overblown," he writes.
    • NBCUniversal has changed into a growth engine, he says, and shareholder returns are in focus with a dividend CAGR of 21.5% over the past two years and strong buybacks.
    • Twenty-First Century Fox (FOXFOXA) A shares have slid 5.4% after hours after it provided some dimmer overall earnings guidance due to film shortfalls and forex following its Q2 report.
    • The company met profit expectations for fiscal Q2, but a decline in its movie business led to a revenue miss.
    • Revenue by segment: Cable Network Programming, $3.7B (up 9.4%); Television, $1.7B (up 5.7%); Filmed Entertainment, $2.36B (down 14.2%); Other, corporate, eliminations -$405M. Comps are also affected by the discontinued Direct Broadcast Satellite business ($663M in 2014).
    • In OIBDA: Cable Network Programming, $1.25B (up 7.9%); Television, $279M (down 3.8%); Filmed Entertainment, $302M (down 10.1%).
    • Press Release

    Obama targets funding to combat Zika virus

    • Seeking to head off the spread of the Zika virus, President Obama is planning to askCongress for $1.8B in emergency funding to combat the disease associated with birth defects in Latin America.
    • "We have to take this very seriously," Obama said during an interview with CBS. "We're going to be putting up a legislative proposal to Congress to resource both the research on vaccines and diagnostics but also helping in terms of public health systems."

  104. Same as yesterday but now we can used 970 on /TF:

    Back over 1,850 on /ES, 16,000 on /YM and 3,950 on /NQ, 975 on /TF, we can go long the laggard with tight stops if ANY of them fail to hold those lines along with DAX 9,000 (where it just bounced) – that's a good long line too if you can play it.  

    Of course DAX is below 9,000 (8,954) so generally we should be very cautious and not really inclined to go long unless at least they go green for the day (8,975).  /NKD 16,250 is the real laggard at the moment!  

  105. Copper off a cliff on poor German numbers – that's not going to be good:

  106. Phil – Your Welcome – Thanks for the kudos.  This whole DB thing, they were one of my dead pool candidates in mid 07. And we took no quantum of solace in that by mid 08.  It's a mine field out there and we haven't even gotten to major defaults or a negative US GDP YET…

    IMHO, I still think the potential for 1250 SP500 exists. TBD.  Must hold at ES 1850, 1825 was touched, hovering at 1835, failure to hold… June 2014 low of 1811 is next support down, failure there, Jan 2014 low of 1775 awaits and Aug 2013 1630 is the next stop below that.  TBD.

    Uber defensive notes or HEDGES schemes might be the order of the day. It's Fat Tuesday, Ash Wend is tomorrow and StJL knows where I am at and what I am doing.  Perhaps some Natterings on oil for Tues forum later. Out.


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