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Thursday, March 28, 2024

Watergate Wednesday – Trump Fires the Guy Investigating Him

Well this is interesting.

The markets are down a bit this morning as news came out last night that Trump has fired FBI director, James Comey, who was heading up the investigation into the administration's coercion with the Russians in stealing the election from Hillary Clinton. Although Attorney General, Jeff Sessions, was forced to recuse himself from the investigation due to his own Russian ties, he "recommended" that Trump fire Comey, who was being more aggressive than the White House wanted digging into Trump's ties with Russia.  

The Republicans were quick to point out the Bill Clinton also fired an FBI director but he fired William Sessons for ethical violations (padding expense reports, etc) and Bill Clinton was NOT being investigated at the time. Trump already fired the previous Attorney General, Sally Yates, along with nearly all the US Attorneys – leaving only Trump appointees to oversee the investigation of Donald Trump and his staff.  

I would say this is a crisis but the Trump's GOP controls both Houses of Congress and the Courts, giving them absolute, unchallenged power to do anything they want, with only the criticism of the press to put any restraints on them at all and, as noted on Monday, Trump's administration is already pulling strings to mop up all media opposition and put it in the hands of his Billionaire buddies – who see, speak and hear no evil when it comes from the White House.  

Even this article, like last Tuesday's, will not by published by most of my syndicators, who more and more hide behind the "controversial" excuse. After publishing 8 years of anti-Obama articles, suddenly they don't want to upset the readers by discussing politics in investment posts. They are hypocrites and cowards but, sadly, it doesn't take a journalism degree to run a media outlet these days – it's all about being a good web portal and maximizing your click rates and, if you stroke a Conservative's ego, you open their wallets as well – that's an Internet tenet!  

Anyway, as I said, it isn't a crisis because, like Climate Change, it's not a crisis if you pretend it isn't and boy oh boy are we pretending what Trump is doing is OK. Speaking of out-of-control authoritarian regimes – China's Shanghai Composite is back near the October, pre-election lows but the Internationally held MSCI China Index is up 18% for they year, despite $500Bn being wiped away from the mainland market.  

Just this morning, we got evidence of a slowdown in China's Factory Prices and China's crackdown on leverage has been triggering forced sales of commodities, with Iron Ore dropping 33% since March along with Copper, Steel, Rubber, Oil, etc. and there's not much sign of the selling abating as Chinese companies scramble to raise cash as the China Banking Regulatory Commission just released new guidlines that plainly state that collateral accepted by banks must actually exist (as noted in Chapter 3).  

Chapter 3 Risk Management

 

Article 15 The  collateral received by a commercial bank shall meet the following basic conditions:

(A) the collateral is real;

(2) the relationship between the collateral is clear, the mortgage (pledged) has the right to dispose of the collateral;

(3) the collateral conforms to the laws and regulations or the national policy requirements;

(D) the collateral has a good ability to achieve liquidity.

And no, I don't know why it goes A, 2, 3, D – but it's funny!  Humor is very important when you have $9.3 TRILLION in questionable Corporate Bonds outstanding.  Should the regulators decide to take this further and demand audits, it's been estimated the perhaps half of these loans would need to be recalled.  Already the rates on new bonds are back to the highest levels since 2015, when the Chinese market fell 40% from May to August.  Say, isn't it May right now? 

We saw this coming a month ago and added the China Ultra-Short (FXP) at $27.29 back on April 3rd.  FXP has gone nowhere (now $27.41) but, fortunately, we took a bull call spread in our Options Opportunity Portfolio (OOP) and our STP as follows:

  • Buy 10 FXP May $25 calls for $2.50 ($2,500)
  • Sell 10 FXP May $28 calls for $1 ($1,000)
  • Sell 3 CHL Sept $55 puts for $3 ($900)

That's net $600 on the $3,000 spread that's $2,000 in the money to start so not a tough bar set to make up to $2,400 (400%) in short order. China Mobile (NYSE:CHL) is my favorite Chinese stock and I would love to initiate a position on them so it's good cover in case Chinese stocks go higher and, if they don't, we can begin working on a position from there.

In the STP, we can make this same trade with 10 short CHL puts and we'll make it 25 of the bull call spreads.

By taking the conservative spread, we didn't need FXP to go up to make money and, even after turning down yesterday, we're still on track to get $3,000 back on the spread and CHL is up at $54.73, and we're on track for those as well,  I'm mentioning the trade as it's still good as a new one and FXP should dip today as those Hong Kong stocks were up half a point overnight but they finished at the lows and the Shanghai dropped 1% – so this may be the last chance to get into that spread for 20% of the payoff price. 

Meanwhile, as I've noted since last week, we're bullish on commodities as we think these downward pressures will ease.  We've been playing Coffee (/KC) like a broken slow machine and, in Friday Morning's PSW Report, we called for a long at $134.35 and yesterday we raced back to the top of our channel at $137 with coffee contracts paying $3.74 per penny for a lovely $991.10 per contract gain.  This morning we're testing $135 again and we're long again and we'll keep playing the channel until it breaks. 

Oil (/CL) is up $1,000 per contract from Friday's Report, Gasoline (/RB) is up $840 per contract but Silver (/SI) is down $1,250 per contract and gold is down $398.40 but we still like them and we took advantage in our Live Member Chat Room yesterday and added long plays on Barrick Gold (ABX), Harmony Gold (HMY) and Silver Wheaton (SLW) as well as longs on Valeant (VRX), Chicago Bridge and Iron (CBI), Express Scripts (ESRX), Gannet (GCI), Freddie Mac (FMCC) and Sealed Air (SEE) – executing our plan to add more long positions in our very well-hedged portfolios.  

Speaking of hedges, we of course doubled down on our Tesla (TSLA) shorts as enthusiastic buyers (it's not polite to call them idiots) took the stock back over $320/share and a $52Bn valuation for a company that is on track to lose $6 per share this year and, if all goes according to plan, will lose another $6 per share next year.  So exciting!

Unfortunately, now that Tesla has diluted their shareholders by 30% in the Solar City deal, there are 162,129,000 shares outstanding (not including warrants, of course) so $6 per share is $972M – but at least it's not a Billion and, fortunately, TSLA buyers are not known for their math skills or they would question how selling even 500,000 $35,000 cars – even if they made $7,000 per car (20%) in gross margins ($3.5Bn) less even the CURRENT Operating Budget of $2.2Bn would justify a $52Bn valuation on just $1.3Bn in earnings before taxes.  

Tesla already missed on earnings and that didn't deter investors and there are still 31M shares shorted (20%) so plenty of room to squeeze them higher and that number hasn't budged after earnings or on yesterday's move back up.  TSLA says they need to spend $2-2.5Bn to build the plant that will produce the Model 3 and they also say they will be delivering Model 3s this year so expensive and fast is the plan for the next 6 months of infrastructure – what can possibly go wrong?

 

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