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World War Wednesday – Trump’s “Fire and Fury” Spooks Markets

Well this is fun!

We went over our 2,480 line yesterday morning on news of tax cuts coming out of DC (conveniently timed for the market open) but then the tweeter-in-chief took time off the golf course to say that North Korea will be met with "fire and fury, the likes of which this World has never seen before."  Keep in mind that's a statement coming from the head of the only state that has ever actually used nuclear weapons on another country

That took the S&P right back to 2,460 for a gain of $1,000 per contract per our call in the PSW Morning Report, which you could have delivered to you every morning for just $3 a day.  That call paid for 3 years' worth of subscriptions so, you're welcome.

Our other shorting lines were good for $250 on Dow Futures (/YM), $1,400 on the Nasdaq Futures (/NQ) and a fat $1,500 per contract gain on the Russell Futures (/TF), which took a 30-point plunge from our 1,430 goal – not bad for a morning's work, right?

This morning, we're letting the indexes tell us what to do by watching our levels.  My not to our Members earlier this morning was:

/TF 1,400 is a good place to play for a long bounce if we get our usual pre-market run-up.  We're lined up right with /YM 22,000 (also a good long with tight stops below) and 2,460 on /ES and 5,880 on /NQ and if ANY of those lines fail then it's time to use them as bearish marks and short the laggard.

So we are waiting and seeing but European stocks are down more than 1% so it's looking like the advantage is going to the shorts, especially since the unrepentant Trump JUST re-tweeted the following:

President Trump vows America will respond to North Korean threats with "fire & fury" in a warning to the rogue nation

That's right, he's actually PROUD of the chaos he's caused, despite the fact that even Republican lawmakers criticized his dangerous commentary.  Clearly not only can they or Trump's generals control him but the new Chief of Staff can't stop Trump from tweeting whatever pops into his head at any given moment.  Perhaps Trump can't control himself because he believes his own BS, which is understandable as twice a day his staff delivers a folder full of "positive news about the President."  That's real news, of course, not the rest of the World's news, which is fake, which means Trump doesn't agree with it.

Image result for kim jong un nuclear weaponUnfortunately, Kim Jong Un believes that when the President of the United States makes a statement, he actually means what he says and North Korea has now warned that it was considering a strike that would create “an enveloping fire” around Guam, the western Pacific island where the United States operates a critical Air Force base. In recent months, American strategic bombers from Guam’s Andersen Air Force Base have flown over the Korean Peninsula in a show of force.

“Will only the U.S. have option called ‘preventive war’ as is claimed by it?” the Strategic Force of the North’s Korean People’s Army, or K.P.A., said in a statement. “It is a daydream for the U.S. to think that its mainland is an invulnerable Heavenly kingdom.”  

President Trump is not helping the situation with his bombastic comments,” Senator Feinstein said in a statement that the President's actions were counterproductive. Senator John McCain, Republican of Arizona and chairman of the Armed Services Committee, also took exception. “All it’s going to do is bring us closer to some kind of serious confrontation,” he told KTAR News radio.

We're very happy with our LMT and RTN stocks at the moment, of course, but it will be quite a trick if the whole market can shrug of the thread of nuclear anhilation being dialed up to 11.   Europe is taking it seriously, down 1.5% into lunch but, so far, our indexes are only down a bit more than they were yesterday and we have learned not to underestimate the ability of this market to ignore even the most blatant problems.

Speaking of blatant problems, Autonomous Research, the research firm focused on the financial sector, is warning of a ticking time bomb in China's shadow financial system.  By the end of 2016, shadow banking vehicles had become 51% of China's entire GDP – that would be $10Tn in the US!   Here's a video explaining the issue:

"About 44,000 [WMPs] were outstanding at the end of 2016. This is nearly six times the number of outstanding mortgage-backed securities at western banks at the heart of the 2008 financial crisis."About 44,000 [WMPs] were outstanding at the end of 2016. This is nearly six times the number of outstanding mortgage-backed securities at western banks at the heart of the 2008 financial crisis.  This is a number that needs to be taken seriously as any small shock can lead to a rapid crisis that NO country, not China, not even the US, would have the finanical firepower to stop, without completely debasing their currency. 

Meanwhile, let he who is without mountains of highly leveraged debt cast the first stone as US companies are now more indebted, more leveraged, less profitable and more richly valued than ever – according to Mauldin Economics.  Sooner or later, the pressures of too much government debt and too many government promises, plus growth that is continually grinding slower, will break out into a recession, according to their analysis.  They cite Mike Lebowitz's "22 Troublesome Facts", amoung which are:

  • The S&P 500 cyclically adjusted price-to-earnings (CAPE) valuation has only been higher on one occasion, in the late 1990s. It is currently on par with levels preceding the Great Depression.
  • Total domestic corporate profits (w/o IVA/CCAdj) have grown at an annualized rate of just .097% over the last five years. Prior to this period and since 2000, five-year annualized profit growth was 7.95%. (Note: Period included two recessions.)
  • Over the last 10 years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned.
  • At $8.6 trillion, corporate debt levels are 30% higher today than at their prior peak in September 2008.
  • At 45.3%, the ratio of corporate debt to GDP is at historical highs, having recently surpassed levels preceding the last two recessions.

In short, US corporations are simultaneously more indebted, less profitable, and more highly valued than they have been in a long time.  Plus, they are intentionally making themselves more leveraged by distributing cash as dividends and buying back shares instead of saving or investing that cash.

In other words, 

Be careful out there!  

- Phil

 


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  1. TEVA up pre-market. Asset sales projected to be higher than originally forecast.  Could be instrumental in helping retain the IG rating.

    ~~MYL (Baa3/BBB-/BBB-; S/S/S; Overweight Cash) reported 2Q’17 EPS of $1.10, missing estimates by 6 cents. The company lowered its 2017 EPS guidance to $4.30-$4.70 ($5.15-$5.55). MYL posted revenues of $3.0 bn, up 15.7% y/y and Adj EBITDA* of $730 mn up 0.4% y/y. MYL lowered 2017 revenue guidance to $11.5-$12.5 bn from $12.25-$13.75 bn.

    “Given the region's ongoing challenges and the uncertain U.S. regulatory environment, we have elected to defer all major U.S. launches from our full year 2017 financial guidance to 2018, including generic Advair(R) and generic Copaxone(R).”

    “We also continue to navigate a challenging competitive and pricing environment and expect generic price erosion for the year of mid-single digits globally, with high-single-digit erosion expected in North America.”

    MYL stock is down 7.52% post-market.

                              2Q’17           2Q’16     % Change    
    Sales                    $2,962          $2,561        15.7%    
    R&D                        $181            $180         0.9%    
    Adj EBITDA*                $730            $726         0.4%    
    Earnings from operations   $473            $410      
    EPS                       $1.10           $1.16

                        LTM 6/30/17     LTM 6/30/16     % Change    
    Sales                   $12,007          $9,938        20.8%    
    Adj EBITDA*              $3,194          $2,659        20.1%    

    * D&A for 2Q’17 from 2Q’16

    INCOME STATEMENT
    * MYL posted revenues of $3.0 bn, up 15.7% y/y and Adj EBITDA* of $730
      mn up 0.4% y/y.
    * North American sales decreased 9% y/y to $1.28 bn. Net sales from the
      acquisitions of Meda and the Topicals Business totaled approximately
      $150.7 million in the current quarter. Net sales were negatively
      impacted in the current quarter due to a decline in sales of existing
      products as a result of lower volume and pricing. As anticipated, the
      U.S. generics products experienced price erosion in the mid-single
      digits. Sales of the EpiPen® Auto-Injector declined in the current
      quarter as a result of increased competition, the impact of the
      launch of the authorized generic and higher accrued governmental
      rebates. The impact of foreign currency translation on current period
      third party net sales was less than 1% within North America.
    * Europe sales increased 59% y/y to $954 mn. The increase was primarily
      the result of net sales from the acquisition of Meda which totaled
      approximately $378.2 million. This increase was partially offset by
      lower volume on existing products. The unfavorable impact of foreign
      currency translation on current period third party net sales was
      $18.8 million, or 3% within Europe.
    * Rest of world sales increased 29% y/y to $693 mn. This increase was
      primarily driven by the acquisition of Meda which contributed net
      sales of approximately $104.2 million. In addition, net sales from
      existing products increased principally as a result of higher sales
      from our anti-retroviral ("ARV") franchise, including active
      pharmaceutical ingredients, and increased sales in emerging markets.
      Sales from new products, primarily in Australia, also had a favorable
      impact. Throughout the segment, sales from new products and higher
      volumes on existing products more than offset lower pricing. Third
      party net sales from Rest of World were favorably impacted by the
      effect of foreign currency translation by approximately $8 million,
      or 2% during the three months ended June 30, 2017.

    ~~MYL reported 2Q’17 EPS of $1.10, missing estimates by 6 cents. The company lowered its 2017 EPS guidance to $4.30-$4.70 ($5.15-$5.55). MYL posted revenues of $3.0 bn, up 15.7% y/y and Adj EBITDA* of $730 mn up 0.4% y/y. MYL lowered 2017 revenue guidance to $11.5-$12.5 bn from $12.25-$13.75 bn.

    “Given the region's ongoing challenges and the uncertain U.S. regulatory environment, we have elected to defer all major U.S. launches from our full year 2017 financial guidance to 2018, including generic Advair(R) and generic Copaxone(R).”

    “We also continue to navigate a challenging competitive and pricing environment and expect generic price erosion for the year of mid-single digits globally, with high-single-digit erosion expected in North America.”

    MYL stock is down 7.52% post-market.

                              2Q’17           2Q’16     % Change    
    Sales                    $2,962          $2,561        15.7%    
    R&D                        $181            $180         0.9%    
    Adj EBITDA*                $730            $726         0.4%    
    Earnings from operations   $473            $410      
    EPS                       $1.10           $1.16

                        LTM 6/30/17     LTM 6/30/16     % Change    
    Sales                   $12,007          $9,938        20.8%    
    Adj EBITDA*              $3,194          $2,659        20.1%    

    * D&A for 2Q’17 from 2Q’16

    INCOME STATEMENT
    * MYL posted revenues of $3.0 bn, up 15.7% y/y and Adj EBITDA* of $730
      mn up 0.4% y/y.
    * North American sales decreased 9% y/y to $1.28 bn. Net sales from the
      acquisitions of Meda and the Topicals Business totaled approximately
      $150.7 million in the current quarter. Net sales were negatively
      impacted in the current quarter due to a decline in sales of existing
      products as a result of lower volume and pricing. As anticipated, the
      U.S. generics products experienced price erosion in the mid-single
      digits. Sales of the EpiPen® Auto-Injector declined in the current
      quarter as a result of increased competition, the impact of the
      launch of the authorized generic and higher accrued governmental
      rebates. The impact of foreign currency translation on current period
      third party net sales was less than 1% within North America.
    * Europe sales increased 59% y/y to $954 mn. The increase was primarily
      the result of net sales from the acquisition of Meda which totaled
      approximately $378.2 million. This increase was partially offset by
      lower volume on existing products. The unfavorable impact of foreign
      currency translation on current period third party net sales was
      $18.8 million, or 3% within Europe.
    * Rest of world sales increased 29% y/y to $693 mn. This increase was
      primarily driven by the acquisition of Meda which contributed net
      sales of approximately $104.2 million. In addition, net sales from
      existing products increased principally as a result of higher sales
      from our anti-retroviral ("ARV") franchise, including active
      pharmaceutical ingredients, and increased sales in emerging markets.
      Sales from new products, primarily in Australia, also had a favorable
      impact. Throughout the segment, sales from new products and higher
      volumes on existing products more than offset lower pricing. Third
      party net sales from Rest of World were favorably impacted by the
      effect of foreign currency translation by approximately $8 million,
      or 2% during the three months ended June 30, 2017.


  2. Good morning… TEVA fans – some minor respite here…

    Teva Pharmaceutical Industries Ltd. (TEVA) shares surged 2.2% in premarket trade Wednesday after Mylan NV (MYL) said it plans to defer its generic Copaxone launch (http://www.marketwatch.com/story/mylan-stock-plummets-9-after-q2-profit-revenue-misses-and-cuts-to-


  3. seer…where is this?

    TEVA up pre-market. Asset sales projected to be higher than originally forecast.  Could be instrumental in helping retain the IG rating.


  4. Interesting take on FTR. I especially like this:

    "The investment thesis is simple: FTR will not go bankrupt"

     

    Is Frontier Communications Still On Schedule for a Turnaround?http://seekingalpha.com/article/4096314?source=ansh $FTR


  5. Morning all,

    There will not be a webinar today. We'll be back on schedule next week!


  6. Jabo/TEVA-this is a story on Bloomberg which comes from the company.  The IG commentary is my own.  To be balanced, the MYL results do show the pressure in the industry. 

    ~~Teva Pharmaceutical Industries Ltd. is ramping up asset sales as the troubled Israeli drug maker works to preserve its credit rating and cut debt, people familiar with the matter said. Story link: {NSN OUF16S6K50XS <GO>}

    * The company is considering a disposal of Medis, an Icelandic unit that
      develops generics for other companies, as well as its respiratory treatment
      assets, the people said, asking not to be identified because the
      deliberations are private. Teva hasn’t made a final decision about the asset
      sales and considerations are at an early stage, they said.
    * Medis, which draws on Teva’s development and manufacturing capabilities to
      offer a portfolio of products and intellectual property to other drug makers,
      could be valued at $500 million to $1 billion, depending on which assets are
      included, the people said. The respiratory business could fetch anywhere
      between $500 million and $2 billion, depending on the treatments included and
      the value given to drugs still in development, they said.
    * The assets could attract bidders in the pharmaceutical industry as well as
      private equity firms, the people said. A representative for Teva didn’t have
      an immediate comment.
    * Teva, working to pare about $35 billion in debt after an ill-timed
      acquisition of Allergan Plc’s generics division, is selling off assets. Plans
      to divest Medis and its respiratory products would follow other pending
      disposals including its women’s health business and European oncology and
      pain treatments. The cancer and pain treatments have drawn interest from
      drugmakers such as Fresenius SE, Mylan NV, Novartis AG, people familiar with
      the matter have said. Women’s health has also attracted drugmakers and
      private equity firms, the people said.
    * Asset sales will help generate at least $2 billion, exceeding Teva’s initial
      target of $1 billion, interim Chief Executive Officer Yitzhak Peterburg said
      on Aug. 3 after the company pared its profit forecast for the year and
      slashed its dividend by 75 percent. The asset sales are likely to be
      completed by the end of the year, and the company is also looking at other
      “non-core” operations, he said at the time.


  7. thanks seer!

    I wonder if they could end their streak of daily losses today?


  8. Jabo-we hope!  If not today, then eventually anyway.  They are still a leader in an industry that may be under pressure, but has a demographic tailwind.  A patience play as Phil says, but still a good value.


  9. seer--i hear. i hope. but TEVA keeps hitting new lows every day.

    wondering what will make it reverse.


  10. Good morning!  

    Markets opening with more of whimper than a bang but we'll see what happens this morning but it looks weak so I'd favor the short side of the index plays for now. 

    • MBA Mortgage Applications
    • Composite Index: +3.0% vs. -2.8% last week.
    • Purchase Index: +1.0% vs. -2.0%.
    • Refinance Index: +5.0% vs. -4.0%
    • 30 year mortgage rate at 4.14% vs. 4.17% last week.
    • Q2 Productivity and Costs: +0.6% vs. +0.8% expected, 0.0% previous (revised).
    • Unit labor costs +0.6% vs. +2.5% expected, +3% previous.

    TEVA's pop didn't last long.   When you sell off assets, you also sell off their earning ability so all that has to be taken into account – as well as the benefit from lowering debt.  On the whole though, it's a good positive and should put in a floor at $18.

    FTR/Jet – Hey, that's my theory!  


  11. Hey Hey, another C.R.A.P. pick from PSW!

    PETX down 20% from where I bought it @ 7.40

    Should I be shocked?  NOPE.

    (shhhh…it's a value)


  12. ok, so for the record — Trump is now officially unbalanced IMHO.


  13.  Luckily, I sold my PETX for a tiny profit.

    jetluck  FTR   the last five articles written by that author have been about FTR. I bet he's underwater like the rest of us.


  14. TWTR    today someone bought a 2019 $20/$25 BCS today 2060 contracts


  15. Burr, Just looked up a bit the records on PETX, Just about all are in RED, like to learn what made you buy this stock, it does not even pay a div. ?????


  16. i hope 18 holds.. unreal


  17. Think GS is selling CDO's against TSLA's bond deal?


  18. a gambler buys 70,000 sept VIX $24 calls for .55


  19. Phil/BDC/VXX

    You guys were discussing about VXX 13 Calls for Dec I guess.  is it still a good trade?

    regards


  20. EIA Petroleum Inventories

    EIA Petroleum Inventories: Crude -6.5M barrels vs. -2.7M consensus, -1.5M last week.

    Gasoline +3.4M barrels vs. -1.5M consensus, -2.5M last week.

    Distillates -1.7M vs. -0.1M consensus, -0.2M last week.

    Futures +0.65% to $49.49.


  21. Yodi, from what I remember Pharmboy liked it and I believe it went into one of the tracking portfolios.  

    In other words, I was a sheep and I deserve to get sheared.  


  22. PETX….long term play for a pet biotech that has one approved drug and several more in the pipeline that are very promising.  Like all biotech, they are a roll of the dice, but the premise is that ZTS or WOOF or another larger play buys them.  I have been selling calls against the position but I am down a bit as well.  Time will tell.


  23. EIA -looks like gasoline inventory build and lower YoY gasoline product supplied (demand decline?) is the negative.  CL is down post this report.  Phil – thoughts? 


  24. Phil, speaking of LMT, I hold:  5 Jan19 220/260 BCS (basis 21.50); short 5 Jan19 200 puts  (13.30); short 5 Sept 290 puts (4.40).  290 short puts are running away from me.  Roll them?  Any suggested changes?  Thanks.


  25. Phil/TEVA,

    Sorry if I missed but have we initiated a position in TEVA in any of the portfolios. Maybe 2019 options would be a safer bet.

    regards


  26. Taih LMT Have similar positions but I think you are talking about Sept 290 Calls. They still do have some premium but I did hold the 250 caller and rolled the same to Mar 305 for starters, at the same time cut the pain a bit by selling Mar 275 puts for 6.45

    The problem is if the clown carries on talking about war and attacking, these type of stocks, sky is the limit!


  27. FU TEVA!!!!


  28. Burr, PETX I did not like what I saw,  got out of them 7/10 with a small credit of 165 big $


  29. Yodi, correct, it was the 290 caller, not put.  Good advice, appreciate it.


  30. Phil/COMP  If the market closes below 6315ish this week, then my conviction on the NasComp leading us lower, just as it has lead us higher, will be even more strengthened.  Oh, and OMER!


  31. Phil / Hedge – I'm looking to short the S/P to guard against a 10% drop between now and end of year….  I was looking at SDS or the SPXU but the decay is pretty large for that length of time…. any suggestions on how to approach this?


  32. CBI / Earnings today – they delayed the earnings release and conceal from Monday to today after closing.  This does not give me a warm fuzzy …. 


  33. Bat If you sure of the dip how about buying a Dec 47 put @ 1.60  and sell a 54 call for 1.64


  34. Bat possible I have got it wrong and the play is in reverse


  35. Phil,

    How does the contract pressure look to you on /CL? I saw 400k open contracts with 13d to roll which seems very doable


  36. Pharmboy – BLCM – what price level will you get back in?  decent sell off post earnings. 


  37. On the whole, the oil report is a bit disappointing compared to API – I don't see $49.50 holding on this:

    • EIA Petroleum Inventories: Crude -6.5M barrels vs. -2.7M consensus, -1.5M last week.
    • Gasoline +3.4M barrels vs. -1.5M consensus, -2.5M last week.
    • Distillates -1.7M vs. -0.1M consensus, -0.2M last week.
    • Futures +0.65% to $49.49

    PETX/Burr – You mean this one?

    Submitted on 2017/02/06 at 2:41 pm

    PETX/Pharm – Thanks.  No need to own the stock since you can buy the Aug $5s for $2.40 and sell the Aug $10s for 0.80 for net $1.60 on the $5 spread that's $1.60 in the money to start.  If you want to be more aggressive than that, you can sell 1/2 the $7.50 puts ($2) and then you have net 0.60 per long so, risk buying 1,000 shares of PETX by:

    • Sell 10 PETX Aug $7.50 puts at $2 ($2,000) 
    • Buy 20 PETX Aug $5 calls for $2.40 ($4,800) 
    • Sell 20 PETX Aug $10 calls for 0.80 ($1,600) 

    That brings you into the spread for net $1,200 cash on the potential $10,000 spread – not too shabby if they shape up by then but it seems to me they won't run back to $10 until they clear the regs so I would plan on having to roll the short puts and the long calls when Jans come out.  

    So let's see, PETX is at $6.05 and the Aug $7.50 puts are $1.55 and the Aug $5/10 spread is $1, so $2,000 there to recover and the short puts can be rolled.  While it didn't work out – I'm not sure how it was crap.  Nothing here happened that I didn't warn about in Feb, did it?  Not that it was a portfolio play but stocks do go up and down you know and now would be the time to roll the $5s ($1.05) to the Feb $5 $5 ($1.80)/$7.50 (0.70) bull call spread at $1.10 and that leaves the potential to get $5,000 back, now at just $7.50.

    Trump/Latch – Getting scary.

    TSLA/Rustle – I can't believe how little interest people are willing to take for junk bonds. 

    VXX/Pat – Well I think they are fun for a gamble but they are gambles that have consistently failed all year. 

    LMT/Taihu – Not sure how short puts can run away from you.  As to the spread, 2019 $220/260 looks like $35 out of $40, maybe done with that as it's not worth waiting 16 months for $5.  I don't get the puts, the $290 puts are $22 and are you saying you sold them for $13.  How did that happen?

    TEVA/Pat – It's been in the LTP all year and in the OOP we just added it in aug but it turns out that wasn't the bottom – but only 5 contracts to start.

    LMT/Yodi – We picked them up when Trump was elected – that was a pretty obvious trade! 

    COMP/Hanj – If it falls, it will fall hard but, for the most part, tech earnings have been developing.  

    SDS/Batman – Didn't we just do a nice SPY hedge yesterday?  For SDS, I'd go for:

    The Sept $48 calls have little premium at $1.55 and you can wipe that out by selling the $51 calls for 0.70 and then that's 0.85 on the $3 spread that's 0.80 in the money.  That covers you nicely.

    A cheaper hedge would be the $50 (0.85)/$53 (0.40) bull call spread for 0.45 and that won't pay you unless we get a 5%+ drop but it's very cheap event insurance for the short-term.

    CBI/Batman – Will be interesting to see how "one-time" last Qs events were. 

    /CL/Japar – Only 850,000 in the front 3 months but, as we close in on Dec, we're at 1.05Bn – and that's a lot.  411Mb to roll by 22nd is 10 days so 40K a day is a lot but not horrific pressure yet.  

    Click for
    Chart
    Current Session Prior Day Opt's
    Open High Low Last Time Set Chg Vol Set Op Int
    Sep'17 49.00 49.65 48.90 49.12 11:32
    Aug 09


    -

    -0.05 512062 49.17 411744 Call Put
    Oct'17 49.12 49.81 49.06 49.28 11:32
    Aug 09


    -

    -0.07 80623 49.35 286421 Call Put
    Nov'17 49.33 49.96 49.23 49.45 11:32
    Aug 09


    -

    -0.07 33738 49.52 152094 Call Put
    Dec'17 49.43 50.09 49.39 49.61 11:32
    Aug 09


    -

    -0.07 48378 49.68 308419 Call Put
    Jan'18 49.67 50.22 49.55 49.73 11:32
    Aug 09


    -

    -0.11 16457 49.84 128721 Call Put

    Heading down, as expected.


  38. Japan- the 400k is doable but remember it is 8 trading days, so 50,000/day and they have over 300k already stuffed Into December. Probably will cause a sell off or two next Friday, Monday, but if inventories keep dropping the impact will be muted and unless the demand numbers start to really be bad, well I have seen this enough times to know that it won't be much of a factor unless there are other factors in play.


  39. Phil, mistake, they are LMT 290 short calls.


  40. Joseph – I took my NG profit at 3.14 


  41. Looks like Teva just turned around. Is this a reversal move ? Only time will tell I guess.


  42. Phil – "Speaking of blatant problems, Autonomous Research, the research firm focused on the financial sector, is warning of a ticking time bomb in China's shadow financial system. "

    Great morning missive. Good to hear somebody else is picking at the scabs on those Chinese WMP's (Weapons of Mass Ponzi).  We Nattered about this on June 5th in Big Trouble in Little China? 

    That article mentioned some of the underlying shadow structure but comes up short on the mechanics.  I'll do sum splainin Lucy…  

    Bottom line, through regulatory arbitrage, we are witnessing bank credit circulating back into the banking system as non deposit liabilities. Those liabilities are off and on book, neither of which are subject to reserve requirements, and receive favorable lower capital requirements.

    It's not the amount or quality (NPL) that can cause trouble for a bank.  The shit hits the fan when the bank cannot fund itself through deposits or wholesale funding (interbank lending).  

    With the shadow SPV's and trust company or NDFI (non deposit financial institution) there is no legal recourse or backstops. Without a backstop, what happens if and when the margin calls come on those WMP's?  

    Can you say cascade where interbank lending seizes due to lack of trust and or liquidity? That's when the contagion triggers a hit on the liability side of the bank balance sheet.  Who owns the Chinese banks? The PBOC, and how far they will or can extend bail out, would determine the extent of any crisis.

    The irony of all this? Banks all over the world utilize SPV/SPE's for "BK remote" and WMP's with debt (ABS, CDO) and derivatives everyday, and so does the Fed when it wants to act outside of its charter, and Out.


  43. 8/9/2017

    Deutsche Bank AG

    Reiterated Rating

    Buy

    $43.00 -> $28.00

    N/A

    8/9/2017

    Jefferies Group LLC

    Reiterated Rating

    Hold

    $33.00 -> $26.00

    Low

    8/9/2017

    Cantor Fitzgerald

    Reiterated Rating

    Neutral

    $31.00 -> $27.00

    Medium

    8/9/2017

    Credit Suisse Group

    Reiterated Rating

    Outperform

    $39.00

    Medium

    8/7/2017

    Barclays PLC

    Lower Price Target

    Equal Weight

    $38.00 -> $23.00

    High

    8/4/2017

    Piper Jaffray Companies

    Reiterated Rating

    Neutral

    $28.00 -> $23.00

    High

    8/4/2017

    Sanford C. Bernstein

    Downgrade

    Outperform -> Market Perform

    $42.00 -> $28.00

    High

    8/4/2017

    Maxim Group

    Reiterated Rating

    Hold

    $35.00

    High

    8/4/2017

    Cowen and Company

    Downgrade

    Outperform -> Market Perform

    $50.00 -> $30.00

    High

    8/4/2017

    Royal Bank Of Canada

    Downgrade

    Outperform -> Underperform

    $37.00 -> $21.00

    N/A

    8/3/2017

    CIBC

    Reiterated Rating

    Outperform -> Market Perform

     

    High

    8/3/2017

    Oppenheimer Holdings, Inc.

    Downgrade

    Outperform -> Market Perform

    $41.00

    High

    8/2/2017

    Mizuho

    Reiterated Rating

    Hold

    $30.00

    High


  44.  

    [Your comment is awaiting moderation.]

     

    ????


  45. Phil / SDS – thanks – I missed that


  46. Latch – "ok, so for the record — Trump is now officially unbalanced IMHO."

    Phil let you off WAY too easy…. must be his latitude at the moment ;-)  

    NOW is 274 days too late and we are only 201 days, 0 hours and 4 minutes into the unnecessary suffering. Better late than never I guess, this seems apropos and Out.


  47. /CL/Craigs – Overall though, I'm leaning short (ie. not looking for long plays).

    Speaking of longs, /NG is flying.

    Short calls/Taihu – Ah, that would be different then.  OK then, you have 5 2019 $220/260 bull call spreads and 5 short 2019 $200 puts at net $8.20 and those are in the money and good for $35 now or $40 later.  Then you sold Sept $290 puts for $4.40, now $16 but only $10 in the money and you are down $5.60 so, if you cash it all in now, you net $29.40 with the 2019 short puts waiting to expire – not awful.

    To some extent, the short puts are protecting your $35 value on the 2019 bull spread and now you just have sellers remorse but the Sept $290s can be rolled to the Jan $310s ($9.50) as the premium wears down and, ultimately, the 2019 $340s are $10 so, unless you think you way undershot the mark – that can be the plan.  

    I think $300 is fair and, as I said, the net $35 bcs is done so maybe cash those and get 10 2019 $270 ($44.50)/$300 ($26.50) bull call spreads for $18 and that gives you $60 back on $36 if all goes well and then you don't have to worry about the 5 short calls as they can be 2x rolled to Jan $320s ($5.50) when their premium wears out….

    /NG/Latch – Wise move, we don't get pops like that very often.

    Banks/Naybob – The question is how far are they willing to go to save the system.  They PBOC has already done a lot of heavy lifting which, in retrospect, allowed all these BS loans to flourish.  Of course, as I noted above, our Fed did the same and our corporations are also leveraged to the hilt.  The only real difference is that most of our debt is on the books – so you can easily see how messed up our system is. 

    TEVA/Jabob – No one under $20, that's good.

    Speaking of bad loans, think about how these two relate to each other.  

    Uber to end car-leasing business in U.S. after massive losses

    Risk Premiums on Subprime Auto Debt Are Sinking Near Record Lows

     

    U.S. Shrimp Imports Jump to Record as Asian Supply Swells

    Who Ultimately Pays for Corporate Taxes

    In a Job Market This Good, Who Needs to Work in the Gig Economy

    It Was a Great Year for America’s Pensions, but Many Are Still in Crisis

    Trump has sent messages 'back and forth' with Mueller, attorney says

    Disney(DIS) says ESPN contributed to 23% drop in cable operating income

    Disney(DIS) will pull its movies from Netflix and start its own streaming services

    Fed Abandons "Yellen's Favorite" Labor Market Conditions Index

    WTI Algos Confused On Crude Draw And Surprise Gasoline Inventory Build

    Doctors who attend lower-tier medical schools prescribe far more opioids, according to a new study


  48. Latch, I am out of both my /NG contracts too.  NICE PROFIT.  Still trying to recover from my horrible play on CL last week.  I played it like a donkey and got spanked.  


  49. MYL barely down.

    TEVA can't stay above 18

    WTF???


  50. Petroleum Status Report:  Well, not much here that looks odd other than they produced an extra 500,000 barrels a day for some reason.  Refinery capacity is up to 95% – I don't think they can keep that up (last year was 92.8% at this time).   Oil is trading 20% higher than it was this time last year – hard to see why that would be sustained with only 18M (5%) less oil in commercial inventories – after all those cutbacks.


  51. Trump’s Threat to North Korea Was Improvised


  52. Are there any companies public that make nuclear bunkers or fall out shelters?


  53. Send ambassador Rodman over to cool things off.


  54. Rustle – "Are there any companies public that make nuclear bunkers or fall out shelters?"

    Reminds me of this.





  55. AAXN  - 11%  !!

     

    As jabob says….FU !  AAXN


  56. TEVA, FTR, IMAX, M, F, TSLA, LB, GE,, GNC, TGT

     

    FU ME!!!!


  57. Just looked at WTW, holy crap, can't believe how fast that shot up.  Wasn't following it for a couple months.


  58. Valeant, 9 Months Later: The Countdown Continues


  59. Hi Phil – Here's a few to take a look at, ACIA, MTSI, FNSR (already in portfolio), and OCLR. They were up yesterday (so I didn't remind you), but back down again today. 



  60. My gut reaction on why any institution would buy a TSLA bond at an under 5% interest rate when the company definitely has a chance to go bankrupt by 2025 is the fact that stock can be wiped out but bondholders will get paid first and I have to think no matter what, if TSLA had major financial troubles, someone will buy the line for at least 1.5b which is a far cry from the market cap now.  So bonds should be safe and they might like the name itself in their portfolio.  This is also the reason people were trying to buy VRX bonds a year ago when they were spinning out of control and bonds were selling for .60 on the dollar.


  61. market keeps getting weaker… volatility might finally increase … famous last words. 


  62. Just had a really great burger in Jamie Oliver's restaurant.  

    Markets turning ugly, as expected.  Nas (/NQ) is the laggard, just failing 5,900 now and that's a good shorting line.  

    LOL Rustle.  Don't forget iodine pills.  

    This would be a great time to remake Dr. Strangelove.  Alec Baldwin could play Trump playing the role of President.  They pretty much wouldn't have to change a word of the script.

    Image result for trump nuclear weapon

    AAXN – Wow, WTF?

    Axon Reports 2017 Second Quarter Results

    Axon Enterprise (AAXN) Meets Q2 Earnings, Beats Revenues

    That must have been one bad conference call! 

    WTW/Rustle – That's one we double dipped on.  

    Looks/Ilene – I'll try to get to them later.

    Bonds/Rustle – Good theory! 

    /NQ dropping fast, S1 support at 5,892.50.  /TF support at 1,392.50, /ES 2,464, /YM already failed 21,980.  


  63. Gold blasting up to 1,283, no more FU ABX at least.  Still a great buy below $17.

    WPM still cheap too:

    TGT/Jabob – Wow, now you're really stretching to find things to curse out, aren't you?  

    We bought TGT on the dip on June 16th – if you lost money on that trade, you do need to quit this game! 

    Same for GNC – does nothing make you happy?


  64. Not much selling pressure… yet. Surprised they closed the gap this morning on NDX and S&P but small caps are leading us down, happily holding my shorts


  65. up on tgt

    out of gnc fortunately 

    POS FTR and TEVA ruining all 2017 gains..

    position size — i was stupid.

    didn't think teva or ftr would drop this hard. 


  66. Hey Hey Hey.  Another PSW winner!  AXXN.  -12% today

    " However, this Scottsdale, AZ-based company’s earnings declined 42.9% year over year. The decrease was mainly due to lower gross profit and operating income"

     

    but guys really.  It's a bargain.  It's a value!   Let's DD and roll and DD and roll and like magic and in 5 years we're back to $0 made.


  67. so why are you still here, Burrben?


  68. Burrben needs a bourbon… Phil isn't perfect, man. Nobody is. I feel your pain, but don't blame him for trades you decided to make.


  69. iodine pills/phil

    Which company is public that manufactures those too?  I'm just looking out curiosity recently but I have no doubt that sales will be going up in the next year.


  70. Meant sales of nuclear bunkers.  It reminds me of a Twilight Zone episode.


  71. batman – CBI – you have done a lot of work on this name.  Are you buying any puts into earnings today for some short term protection/gains?  As you said, the delayed earnings is rarely a good thing, so expecting a big bath today… thanks


  72. There sure is a lot of whining on here lately. The LTP/STP continue to print new highs, so his picks in the aggregate are clearly good. I'm not tracking that performance exactly, mainly because of my own position sizing errors (and other dumb non-portfolio trades), but I'm certainly not blaming Phil for this. He never said he would call the bottoms perfectly every time, and an initial entry is just that, an initial entry. I for one view my education here as invaluable, and really appreciate everything Phil puts into this site. 


  73. ME too-Thanks Phil for the exciting ride!


  74. Big squeeze today in HTZ.  About 63% of float was short.

    Watching SHLD with the same thought in mind.  About 68% of float is short.  A strong move above the 200dMA could set if off.


  75. Burr, AAXN OK I am sure you do not feel to good. Many times I have said take option plays in small steps so one can take the fall.

    Look at it this way, I entered this play as well. If I had followed Phil's advice " I LIKE CASH" I would have been better off 1,400$ yesterday, by closing the AAXN play. However I did not close BUT if I would, and I don'T close this play today I would still be better off by 650$. Now can I say this is a bad play. I was the one taking the final decision to enter. So my advice let it rest for a day and you will find the stock will take a breather again. Remenber the final call is always yours, no matter how hottttt the tip will be.


  76. I think we all appreciate Phil and the work he does.

    Unfortunately, in 2017 there have been some horrific long and short calls. 

    I don't think the LTP/STP  portfolio returns are even close to anything that people on this board have achieved. They might help for learning purposes but most of us would prefer to be in longs that go higher and shorts that go lower. Piecing in is great when it is an AAPL. But these names are much more risky imo.

    I AM NOT SAYING that they shouldn't be bought at these levels. Maybe, they are great buys now.

    Having longs drop 50-75% and hoping they recover by 2020 is not what most people want ( iThink).

    Nobody is blaming Phil. 

    Phil is a genius.

    But is there ever a stock that just might be a bad call? 

    I don't know.

    I don't want to piss Phil off again. 

    So I am sorry to complain and whine so much.


  77. indices rallying into the close…


  78. Learner must be the Clown tweeting!!!!


  79. Phil – seems like a good time for a discussion on position sizing. AAXN – looks like any other growing company, sales increasing, margins vary a bit, and they get aggressive spending their would be profits in some quarter. WS was looking for more, but based on my read they are executing. Burr – you had no callers or Cherry Calls as Yodi calls them. Cleaned mine out today, will sell more later. 


  80. Rallying… hard to believe, I'm not buying it.


  81. Deano Hey you taking my line, the cherry calls saved my AAAAAss


  82. yodi, mkuc..I am not buying this rally either,  hope this reverses…

    talking about clowns… 

    GDPNow Q3 growth forecast slips to 3.5%

    The Atlanta Fed tracker sees Q3 GDP growth at 3.5% vs. 3.7% at last check. This morning's wholesale trade report is responsible for the decline.

    The Blue Chip consensus forecast remains at about 2.4%.


  83. AAXN – bouncing already, 


  84. Yodi – I take your plays sometimes too!


  85. Thanks deano from 650 up to 1K already


  86. They sure tried to turn S&P green… fail. SAD. Tweet away Mr Trump.


  87. Looks like a push into the close.

    GNC/Jabob – You got out?  Damn.  We were only playing them to hold $7.50 in the first place – I never did understand what your problem was with them as they are exactly the kind of DD opportunity we hope for in the LTP.  At this point, we paid net $16,200 for 6,000 shares that will get called away at $5 for a $13,800 (85%) profit over 2 years.  You want these things to fail so badly you can't stand to stay in the successful ones…

    FTR is the same thing, only it hasn't come back yet but if you don't give it time – it never will for you.  TEVA's a little more iffy but I think it will stablize down here ($18ish).  

    Teva Ramping Up Asset Sales to Preserve Credit Rating

    It's very likely TEVA is purposely letting the worst-case be painted so the new CEO can come in and "save" the company.  In Dec, generic viagra goes on sale – maybe sales will be limp but they are hoping to hit harder targets.  

    TASR/Burr – You mean this position in the LTP?

    Long Call 2019 18-JAN 20.00 CALL [AAXN @ $22.06 $-3.25] 20 12/19/2016 (527) $16,300 $8.15 $-2.70 n/a     $5.45 $-2.47 $-5,400 -33.1% $10,900
    Short Call 2019 18-JAN 30.00 CALL [AAXN @ $22.06 $-3.25] -20 12/21/2016 (527) $-8,200 $4.10 $-2.30     $1.80 - $4,600 56.1% $-3,600
    Short Put 2019 18-JAN 20.00 PUT [AAXN @ $22.06 $-3.25] -20 12/19/2016 (527) $-6,820 $3.41 $-0.81     $2.60 - $1,620 23.8% $-5,200

    II don't recall doubling down and clearly it's not a loss and the position has 16 months to run so what exactly is your problem?

    The value we saw was when the stock was down around $20, we didn't buy any at $25+.  

    Iodine/Rustle – Oh I haven't got a clue.

    Thanks Palotay, Pirate.   If the whole portfolio is up at the same time – you are doing something wrong with our system.  The idea of diversifying isn't to have all stocks that go up or down at the same time.  If that were the case – you could just bet it all on SPY.

    HTZ/Albo – I'm doubtful of their business model going forward, long-term.

    Wow, blasting back into the close now but still red for the day (so far).

    Sizing/Deano – Not sure what to say about that.  The net cost of AAXN is net nothing in the LTP and has the potential to make over $18,000.  Most of our positions are like that, with huge rewards when they work out and, of course, sometimes they don't work out and we lose money but, when they rewards are $18,000 and we rarely lose even a single $12,500 initial allocation block – we don't have to be right more than half the time to make good money.

    As it is, there are about 10 FU stocks vs 50 that are doing well – that's a pretty good ratio!  And, of course, I have said over and over and over again that, if I were not running these portfolios for PSW purposes – I would have cashed out in May and skipped all of this silly summer trading and the reason we are staying in the LTP positions is to teach people to manage their downturns.  Saying FU to them isn't really the right approach.

    GDP/Learner – 3.5% still pretty good if we hit it.

    Nas got green but fail on the rest – off to the pool!


  88. Being a member for less than 6 months, is like a cat looking into a fish bowl.  But, before stumbling across this site from a dear friend. I didn't know what an Option was, nor Futures.  So for me, the site is priceless, along with all the commentary.  

    I must confess, the first few positions that were added to my portfolio are looking pretty dim.  But, I purchased these positions before reading about scaling, portfolio sizing, etc…   And, now… the last several positions added to the growing portfolio, I followed everything that I have learned from this site and those positions are looking much better.  My ONLY wish – I should have been more patient before dipping my toes into the water.  Anyway, if it wasn't for the PSW group and Phil's guidance, I surely would not be Selling Premiums and learning to Be The House.   I am excited to be part of such a powerful brain trust.  

    I enjoy the FU's when they are used in moderation, as it ends up providing me more information into the company.  And, if I am in a position where I need someone to go short when I am long.  I'll be asking Jabob for some help. =)  And, Craig's questions to Phil have made me a butt load of money in Futures.  And Nattering Nat, well.. I usually need a stiff cocktail after reading some of his posts.  So, keep up the good work.  As I am talking, I just lost a couple hundred shorting /NQ.  Of course, it is all Phil's fault. 

    And.. FU VRX,  Man, that felt good.  


  89. That stick save reminded me of years ago when we played one every day on this board in the last hour like clockwork.  Dip buyers are not shaken out yet…


  90. LOL Joseph :)


  91. Cashing out- would you have made different purchases if you were planning to cash out in May?  I ask because many short positions would be losers if cashed out early but winners (at current stock price) if left to run to expiration.


  92. CB&I Announces Intent to Sell Technology Business

    Font size: A | A | A

     

    4:15 PM ET 8/9/17 | PR Newswire

    CB&I (NYSE:CBI) today announced its intent to sell the company's Technology business. CB&I is targeting to close the transaction by the end of the 2017 calendar year.

    CBI – need to re evaluate what this means


  93. CBI – earnings are not good,  major kitchen sink – curing dividend, eps loss ( though I'm not sure how this could happen) and contract signing are down…  terrible


  94. Hey Hey Hey.  Let's all pat ourselves for holding onto CBI.  Breaking 14 as I write this.

    But guys, we can adjust and double down.  We see value here!

    I won't even post the earnings report as it's akin to stepping in dog sh*t. 

     

     


  95. CBI – need to listen to conference call – this is classic CEO clearing the decks….   there may be something interesting in the call.


  96. CBI 2H eps guidance was $1.00-$1.25 with all the decks cleared, so assuming flat growth, the annual run rate is ~ $2.00 per share.  that is still a PE of 7.0-8.0 … After the downgrade police, it will be time to DD on this one. 


  97. Wow, CBI offered at 13.25… I had sold puts last time it tanked but took profits on the rally thank goodness. Might sell some again soon!


  98. now 12.80… just wow.


  99. CBI – I'm tempted to pick some up, but this will get some major downgrades in the next few days….  I'm waiting….  I hate to say. it but it may go lower…   I really need to understand the impact of the technology business and model this… and see what they say on con call.


  100. me2 mkucs, batman – lets see where this settles,  selling puts and will cash in my long Aug 18 straddle.   I did not know which way CBI was going to go except that it was going to be big, so put a long straddle into earnings. Eases the pain on the longer term BCS. 


  101. Jabo – "I don't want to piss Phil off again. So I am sorry to complain and whine so much."

    Shut the FUp Dathan.


  102. Joe - And Nattering Nat, well.. I usually need a stiff cocktail after reading some of his posts.  So, keep up the good work.

    Your gonna need a stiff one and and FU after this next post.


  103. Cashing/Tangled – As you may know from previous cash-outs, we take winners off the table (like AAXN) and let losers play out (as long as we still have faith).  The LTP has $1.2M out of $1.6M cash already, there''s no sense in taking a loss if we think we can work a position – that's why we have a $1.1M profit in the first place – sticking to the system over the LONG-TERM.  

    FU CBI!  Wow, people really get killed for missing these days.  Won't be pretty if it spreads.  Now we're back to test the lows:

     And Burr is right, if we do hold the June lows, now would be a great time to establish a more aggressive bull call spread.  Not hurrying into it though, I don't actually like the sound of the noises management is making.  As I said earlier, if those Q1 issues are not "one time" (and they aren't) – we need to take a much closer look at these guys before committing more cash.  Also, it's forgotten that we closed profitable calls on CBI when they ran up last fall – this 2019 position is what's left.

    "Although our second quarter results are disappointing, we are taking decisive actions to improve our operating performance and strengthen the company's financial position," said Patrick K. Mullen, President and Chief Executive Officer of CB&I. "We have initiated a comprehensive cost reduction program and suspended our dividend. We are injecting additional rigor and discipline into our execution and risk management processes, further strengthening the integration between our E&C and Fabrication Services operating groups, and accelerating the implementation of innovative practices and technologies. We remain committed to our integrated self-perform model, which we believe will enable us to generate attractive earnings and cash flows over time.

    "Additionally, we announced today that we are pursuing a sale of our Technology business, which we believe will unlock significant value for stakeholders. We plan to use the proceeds from the sale to significantly enhance CB&I's financial strength and flexibility by eliminating the majority of our debt and reinvesting in our E&C and Fabrication Services businesses. We envision a bright future for CB&I as a highly focused company with tightly integrated EPC and fabrication capabilities serving the LNG, petrochemical, refining and gas power generation markets." 

    Technology Operating Group 
    Technology operating group revenue was $72.8 million, an increase of 13 percent from the year-ago quarter due to increased petrochemical licensing. The Technology group reported operating income of $21.5 million compared to $23.1 million in second quarter of 2016. Operating income margin was 29.5 percent, down from 35.7 percent in the year-ago quarter, due largely to mix. The Technology group's new awards in the second quarter were $148.5 million, up 38 percent from the year-ago quarter. Backlog as of June 30, 2017, was $1.2 billion.

    So a non-issue to revenues if they let Tech Group go but how much would they get for it with just $300M in annual revenues and $80M in profit.  I guess if it were TSLA, the answer would be $4Bn but, sadly, it's not so they'll be lucky to get $1Bn.

    CBI/Learner – I'll want to go over this one very carefully as these numbers are much uglier than we thought.  Remember, this was not totally unexpected:

    http://www.philstockworld.com/2017/06/18/philstockworld-may-portfolio-review-members-only/

    • CBI – Is $15 finally the floor or are they teasing?  Let's roll the 2019 $27.50 calls ($1.50) to the $15 calls ($4.45) for $3(ish) and buy back the short $37.50s (0.70) and see what happens.

     

    CBI/DC – If they are right then CBI will be an $8 stock in short order and it will take several years to work off the debt.  We started with CBI on 9/22/16 by selling $25 puts for $5 so net $20, call that our entry on 1,500 shares and add the $4,500 loss on the spread so net $23 is our entry on 1,500 shares ($34,500).  

    At the moment, CBI is $13.15 and we can sell 15 of the 2019 $12.50 puts for $3.60 so that's our DD and we can sell 15 of the $17.50 calls for $2.60 and now our net drops to $16.80/17.15 and it's 3,000 shares if assigned at $51,450.

    So assuming CBI goes to $8, we DD again by selling $8 puts for $2 (guessing) and $12.50 calls for $2.50 and then our net would be $12.65/12.58 on 6,000 shares (if assigned) for $75,480.  With the stock at $8 we'd have a $25,000 loss, which is one allocation block and by now it's 2023 and we'd want to sell 60 2025 $12.50 calls again (no puts) and, even if we only get $1.50, that's still $9,000 back on our $75,000 (12%), which is a pretty good dividend while we wait for the stock to rebound.  

    So, unless CBI actually goes BK (even $4 is recoverable), as long as they are around until 2035 we have an excellent chance of recovering all of our cash and whatever our 6,000 shares of stock are worth at the time would be a bonus.

    And that's on a stock that dropped 66% on us!  That's the key to long-term value investing – if you start at a good price with stocks that will ultimately stay in business (and the ones making actual money tend to do that), then you'll eventually get your money back – even on the dogs.  

    Submitted on 2017/08/04 at 2:45 pm

    CBI/Batman – I agree but they may want to kitchen sink this quarter while they can blame it on the old CEO.  It's always a good time to take the write-downs.

    So good example of a play that's in progress during a down quarter.  We have a plan to roll with it but FIRST we verify whether or not our original investing premise is still intact.  That will not be until next week, when we see what else happens to them.


  104. Phil – "Off to the pool"  Your welcome. Snuffing M. Clark's fire can be fun. If you think he's twisted… here's your ZEN for the day, 43 years ago today.

    August 9, 1974. I first lay eyes on Mimsy.  Bonus points for anyone who knows where that reference came from.  And the rest would follow… all down hill from there Amigo.  Enjoy your vacation and Out.

    https://youtu.be/ZEOGJJ7UKFM

    https://youtu.be/WBAXPomW-cg

    https://youtu.be/_qC2b6ibOK0


  105. CBI – base on first blush – they took most os the rev and earnings Construction – the Tech is only about 80M profit annually….  the market is over reacting I think…


  106. listening to the call..,  Phil, if they sell the technology biz for $1.0 bln..ish, they will be able to eliminate their remaining $1.0 bln of debt. no ? 


  107. Learner – they think they can get 2B for this – I think this is high ….  200M run rate ebitda?


  108. Batman – y, I heard them say $2.0 bln,  too optimistic, but they have $2.4 bln in ST + LT debt… even if they get $1.0 bln, they will eliminate the ST part of their debt. 


  109. Naybob, enjoyed the history, remember it well. I was 13 at the time, guess we all lost some innocence back then. A shame, once lost it can never be recovered.


  110. CBI Not sure why they did not split the business / IPO the Tech group….  


  111. Correction – CBI – latest financials show -  ST debt is $1.8 bln, so they do need a decent price for their technology unit sale, but the CFO mentioned they will always have some debt given the size of the company. 


  112. Phil--my problem with GNC was when you initially recommended it it was around 17.50. Then it dropped under 7. I did piece in and when it recovered again I was happy to say good bye. Actually, made a little $ even though it was not how I enjoy trading. I am not as confident in the company so I would rather get out and look for something else. 

    FTR — I am giving it time. Again, I started buying when you liked it at 4. Now it is ~~ 1. I did buy it as it kept dropping. Now I own a lot of it and need it to go up 100% just to get even. Seems like it could but FTR is kind of scary. Yeah, it might work eventually but that doesn't mean it automatically will. I sure hope it does.

    TEVA-- this was a buy above 40. then above 30. then above 20. Seeing it drop 10 days in a row makes me question if I am insane for owning it. Unfortunately, like I said, I have way too big of a position in this POS.

    Obviously, I value your opinions and rely on your abilities to see value in stocks (options). I am trying to be more long term thinking but your strategy of wanting stocks to drop after initiating positions has always been difficult for me (and probably others). I guess I am used to my old ways of enjoying seeing my longs go higher and shorts go lower.

    Having the FTRs and TEVAs drop sooo hard has been terrible for me. I own too much . I am not blaming you. Maybe, they are great buys now. But personally, I do not ever want to start a position and have it drop like these two have done (and some of the others too). I still am concerned that the doubling down and adding could look even worse if the market ever does come down. These dogs have not been able to recover even in the strongest market ever.

    Also, I am somewhat relying on your calls and value estimates. Unfortunately, 2017 has been pretty awful with the initial  FU stock calls. Some have recovered a little (TGT,GILD) but most are down 25-75% from when I got in. So it has been frustrating. No blame. Just frustrating. The bargain/FU stocks (2017s) dropped so hard it has cost me a lot of money this year. Hopefully, they will recover and I will gladly eat crow. 

    And Nat… FU Aviram!!!!

      


  113.   Mimsy sounds like Jabberwocky to me..


  114. The strategy for the FU stocks requires a cast iron set, patience and lots of dry powder.  Adaptation can be painful, but is necessary.  


  115. Joseph I wish my questions had made me a butt load. Can you give me the last one that helped you, just out of curiosity? Thanks


  116. Guys, Stop loss orders avoid all the FU positions.   Take a small loss and come back later, or not.  Value is only what the market says it is.


  117.  Questions / Craigs –  I should clarify… a 'butt load' of money is relative to our bank rolls and mine would likely be peanuts for most.  But, as for the questions… you ask a lot of great questions, even when Phil squawks at you for asking again and again, cos it is helping me learn.  And, frankly, I don't have the ability to ask these type of questions, yet.  Most of what I read is still a bit confusing right now.  so, thank you!

    I concur albo! 


  118. Phil / I've got a butterfly position on WMT which I got lazy on and got assigned on short calls today given the ex-dividend date.  I'm long the Jan 2019 $60 strike puts and $80 stike calls.  Had been selling the short term puts and calls, but given the huge run up in WMT over the last month or so my Sept $70 strike short calls went deep in the money and were assigned today.  Any thoughts on what to do with this one?  I haven't actually been assigned on one of these butterfly positions previously.  I'm inclined to cash in my Jan 2019 $80 strike calls and hang on to the short position in the stock.


  119. Fair enough Joseph. I appreciate that someone finds my repetitive questions helpful. 


  120. craigs / you know what they say -'ask a better question and you get a better answer' and if we add to that there are 'no stupid questions' then this board becomes a more valuable resource as we keep on asking questions and improving the questions as we get more input from Phil and the members. I rarely trade futures, but I know your questions certainly flushed out a lot of good stuff from Phil which will be very helpful when I do start trading futures. 

    Look at the discussion on CBI – I think it's fantastic that we get different views on how to analyze the company, the estimates of valuations and risks and how that translates and relates to managing existing positions and ideas for new trades. 

    So, keep the questions coming.


  121. Obviously managing losing positions is stressful and frustrating and personally however much I try to rise above the emotional attachment to daily changes in P&L it is hard. But I also know that if I let it get to me too much and it starts to affect my self confidence then it is something I need to snap out of fast. And start to learn to get better.


  122. I kinda march to my own drummer. I like to check in with the others to read up on new ideas, and re-visit old ones to see how they did, but when you have your own strategy it really clicks better. And when stuff goes against you it's your own fault.


  123. Muck – "Naybob, enjoyed the history, remember it well. I was 13 at the time, guess we all lost some innocence back then. A shame, once lost it can never be recovered."

    Never my friend. And this is what we have become, hello is there anybody in there?


  124. Randers: Mimsy sounds like Jabberwocky to me..

    Not good, but excellent. For definition you are correct: Mimsy whence mimserable and miserable. Unhappy, flimsy and miserable. You have deciphered the phrase: Nixon's resignation, witness he and the state of the union: unhappy, flimsy and miserable.

    The origin of the reference is more obscure yet and remains a mystery to many: "August 9, 1974. I first lay eyes on Mimsy."   Google it.


  125. Good morning!

    Futures down a bit, this is reversing a long-standing trend of positive futures. 

    Oil blasted back up to $50 with /RB $1.64, /SI is over $17, /YG $1,285 – people are sure nervous and the Dollar is 93.66, so it's not weakness there that's an issue.  

    CBI/Batman, Learner – It seems to me that their biggest problem is the cutback in oil investment and that's out of their control.   They seem to think it will come back and have already pivoted to more LNG projects, which they see as a large growth area.   The bulk of their problems have been underestimating costs to complete new LNG facilities and, though that sucks, it's not abnormal in their 10,000-hour process of becoming experts in the field for the next decade.  

    Earnings History for Chicago Bridge & Iron Company N.V. (NYSE:CBI)

    We are not satisfied with our second quarter results, which include a net loss from continuing operations of $304 million or $3.02 per share. This net loss is entirely due to charges we recorded in relation to four Engineering projects. As you will hear in more detail, the remainder of our backlog of projects across the company, including in our E&C operating group, continue to perform well at or above as-sold profit margins.

     

    As Pat stated, we reported a net loss of $304 million or $3.02 per share for the second quarter of 2017. The loss was due to the charges on four projects that amounted to $548 million on a pre-tax basis.

    Revenues came in at $1.3 billion, which is below the year-ago quarter, due primarily to the sharp decline in our E&C group. The decline reflects the fact that a portion of our overall project charges was the recognition as a reversal of $367 million of previously recorded revenues on our two U.S. LNG projects. Also contributing to the revenue decline relative to the year-ago period was the wind-down of our large cost-reimbursable LNG project in the Asia-Pacific region.

    Of the charges recorded, $181 million was related to the two gas turbine power projects that we discussed to some extent on last quarter's call. One is the IPL Eagle Valley project in Martinsville, Indiana, and the other is a project for Calpine in York, Pennsylvania. I'm sure you're as frustrated as we are to see additional charges on these projects.

    We also recorded $367 million in charges on two U.S. LNG projects; our project in Hackberry, Louisiana, for Cameron LNG, which we are executing in a JV with Chiyoda; and our project for Freeport LNG in Freeport, Texas, which we are executing in JVs with both Zachry and Chiyoda. The majority of the charges we took in Q2 on these two jobs are related to the Cameron LNG project, where we are working with the owner to finalize an updated schedule.

    As mentioned by Sempra on their earnings call last Friday, we expect the first train to complete in early 2019, with the remaining two trains following throughout that same year. The charges represent CB&I's share of forecasted cost increases and were necessary because of lower-than-expected labor productivity, weather-related delays, increased costs for fabrication, and craft labor, subcontractor and indirect costs associated with extensions of schedule. Some of these factors are within our control and some are not.

    As is typical for CB&I, we are executing hundreds of contracts across our businesses, the vast majority of which are completed successfully at attractive margins. We recognize, though, that it only takes a few contracts to result the material charges that negatively impact the business significantly, and we are working very hard to eliminate these kinds of situations.

    I will provide some more specifics in a bit on the types of initiatives we are undertaking to capitalize on our expensive lessons learned on these LNG and power jobs, and using those to drive confidence and reliability on other ongoing projects and upcoming projects.

    In the weeks leading up to my assumption of the CEO role on July 1, I worked closely with the leadership team here to take a hard look at our operations in order to determine the best path forward to position CB&I for long-term growth and success.

    Notice new CEO takes charge the day AFTER the quarter ends.  By tanking Q2, he starts with a clean slate and has easy comps to beat for his entire first year – locking in any bonuses he has in his contract.

    One final item I'd like to mention before turning the call over to Mike is a favorable decision in CB&I's litigation against Westinghouse that occurred at the end of June. We're very pleased with the Delaware Supreme Court's reversal of a previous decision in the Court of Chancery. Ruling in our favor, the Delaware Supreme Court decided that nearly all of Westinghouse's claim will not be presented to the independent auditor.

    The court decision vindicates our position that the Westinghouse claim was without merit, and we look forward to resolving any remaining disputes between the parties. While we still need to resolve the issue of a working capital true-up, we believe the pool of items subject to discussion is now approximately $70 million, and we now see this as a more routine commercial dispute that will be resolved in due course.

    Our total debt at the end of Q1 was $1.8 billion, which is down sequentially from $2.4 billion at the end of Q1. We achieved this by applying all of the net proceeds from the Capital Services sale, roughly $646 million towards debt reduction, but was partially offset by current quarter borrowings under the revolver.

    The combination of Technology and Engineered Product is a business that has had recent annual revenue run rate of roughly $700 million and more than $200 million in EBITDA. We believe the sale will generate proceeds in excess of $2 billion and we expect the transaction to generate a very sizeable gain for both book and tax purposes.

    However, we also expect to use NOLs and tax credit to offset most of the cash tax impact. Said another way, we expect most of the proceeds will stay with CB&I, allowing us to virtually eliminate our total debt once the transaction is completed and provide flexibility to invest in the business.

    As of June 30, 2017, our outstanding indebtedness was approximately $1.8 billion. As a result of these amendments and our intention to sell our Technology business and apply the net proceeds towards debt reductions, we have reclassified all of our long-term debt as current.

    The reclassification of the debt to current does not mean our debt is callable by the banks. As we previously stated, the company continues to have access to available sources of liquidity as in the past, with borrowing capacity of approximately $1.4 billion at the end of the second quarter.

    Another reason they wanted to write off as much as possible, they are about to get $2Bn (possible if the EBITDA works out) and this will lower the tax blow.

    We expect the second half revenue to be between $3.7 billion and $4 billion, and diluted earnings per share in the range of $1 to $1.25. CB&I's guidance does not include any benefit from the cost reduction program, which are likely to be realized in 2018.

    Looking forward, we continue to see strength in refining and petrochemical prospects in the U.S. and Middle East, with LNG beginning to move more aggressively in 2018 and beyond.

    Following the planned divestiture of our Technology business, CB&I will be a global company with an estimated $6.5 billion to $7.5 billion in annual revenue and a rejuvenated balance sheet. Our global footprint, our integrated business model of E&C and Fabrication capabilities, the unmatched experience of these businesses in our key product markets, and most importantly, the capabilities of our outstanding employees will sustainably position CB&I well.

    Right. Mike, the process that we've started is a process for the sale of the full business. As Mike and I both alluded to, the annual run rate EBITDA for that business has been in excess of $200 million over the last several years. And with some of the recent uptick in new awards both in technology license and in the heaters side, we expect that outlook going into the future to be even better. So we expect a evaluation in excess of $2 billion roughly is what we're looking for.

    I think, prospectively, when you think about E&C margins, not necessarily to the back half of the year, but really on a go-forward basis, I think with the headwinds in margins you have related to the remaining backlog associated with some of the LNG projects and all, you'd see that margin kind of dip down to the lower end of the range, that 4% to 7% range, on a prospective basis.

    Yeah. Well, that's basically what it was at the end of the quarter, when you look at our total debt. And if you look at the borrowings, I think we had about $374 million of borrowings on the revolver at the end of the quarter. So our total revolver capacity is about $1.9 billion. So, if you take that amount, less that $1.9 billion, less the LCs outstanding on those facilities, that left about $1.4 billion of capacity into those facilities at the end of the quarter.

    As we look at the back half, we've got about $4.5 billion of specifically identified prospects in our plan that we believe have a good probability of being booked this year. As I said in my prepared remarks, I think confidence level in our new awards in Technology is very high, because of continued strength in petrochemical licensing all over the world, and also some really good indicators about strength and catalyst bookings in the back half of the year.

    And then I think going into 2018, I would expect similar fundamentals. But more towards the latter half of 2018, I think some of our bigger LNG prospects in East Africa and the U.S., I think those will start to accelerate and that will allow us to really start more meaningfully building our backlog again.

    And then I think, on the storage part of that business, we are definitely seeing a good uptick, as I mentioned in my prepared remarks, especially in the U.S. and the Middle East. And it's all just good, solid flat-bottom tank LNG, high-tech cryogenic type stores, just a good variety of work. And that's just, again, good, solid, bread-and-butter type work for us that we estimate well, we execute well, and deliver strong profitability on.

    Well, it's hard to be enthusiastic after a Q like that but I'm going to stick with the plan and improve the position as it bottoms and hope we stay in the teens while we wait for a turnaround in profits.

    GNC/Jabob – We initially sold 15 Jan $17.50 puts for $4,950 ($3.30) back on 8/26/16 and we bought 30 of the 2019 $12.50 calls on 12/21 for about $3 and rolled the short puts at $6.15 ($9,225) to 30 of the 2019 $12.50 puts at $4.14 ($12,420) so that was +$3,195 on the roll plus the $4,960 we originally collected is net $8,155 or $2.72 per $12.50 put so our net entry on 3,000 shares is $9.78 and GNC is now $9.60.  We ended up buying those puts back for $17,310 and then sold 60 of the 2019 $7.50 puts for $20,400 – taking advantage of the 4/7 collapse so another $3,090 in our pocket is now $11,245 net collected on 60 2019 $7.50 short puts is $1.87/share and a net entry on 6,000 at $5.63.  Anything over $7.50 makes an $11,245 profit.  I don't really feel that's a problem and our worst case is owning 6,000 shares of GNC for $33,780 in a $1.6M portfolio (2%).

    Once we had the established puts, we also sold ($5) calls for $3.70 (not including the $5,250 we made on short $12.50 calls we closed) and then we bought stock twice to average $9.50 so $9.50 – $3.70 for the short calls and – $1.87 for the puts is $3.93 on 6,000 shares and it will be net $5.71 if we are assigned another $6,000 at $7.50.

    At each stage of the process, BEFORE we lose more than 20%, we have to decide if we want to take the loss (very little at the time) or if we REALLY want to own 2x GNC at the roll price.  In this case, we made that decision twice – as we got new information along the way (a full year now) – and decided we REALLY want to own 12,000 shares of GNC for $68,580 (if it goes lower) and, in fact, we'll be DISAPPOINTED if all that happens is we get called away at $5 with a $6,420 profit.

    Of course, that's not our plan, we plan on rolling up the short calls and selling more puts in 2019 but, at the moment, GNC is really high at $9.50 so it may be one of those positions that are so deep in the money that we have to let it go.  

    The main point is that, yes, GNC was at $17.50 when we started but BECAUSE we take conservative entries and sell puts with the INTENTION of buying the stock at a lower price, we will end up making more than the $4,950 we originally sold the puts for – even if we ultimately get called away at just $5.  

    THAT is the system we use and THAT is what you should be discussing and learning from and learning how to size and manage things over the long-term, rather than screaming about things from the sidelines.  This is the most productive discussion on a position we've had in years and I'll be happy to fill in the blanks on the others when I have time but the key is you have to make the effort to LEARN what we're doing here – which is mainly to make sure we don't lose money – even on "failures" – so that the ones that the "winners" can drop straight to our bottom line (giving us more money to put into the failures).  

    Since starting the LTP in Nov 2013, the only really significant losses we've had are on companies that actually went BK on us – almost everything else is recoverable if you stick with it.

    Allocations are key though, always go into a position assuming you will end up owning 4x what you are committing to with your initial put sale (or stock entry).  If you are not comfortable with that amount – scale back the trade to fit.  

    As I've often said, this started as a $500,000 portfolio and my goal is to find a $4,000 short put to sell every month so we are getting 10% annual returns on our money from premium sales alone.  All of those put sales are for companies we REALLY want to own if they get cheaper and the ONLY ones we end up owning are the ones that have TROUBLE and GET CHEAPER – that is the entire system so OF COURSE we have stocks that are going down – WE WOULDN'T OWN THEM OTHERWISE.  

    Once we "own" them (including having short puts that are losers), we re-evaluate the positions and, if we think the market is overreacting and we still like the long-term prospects THEN we make our 2nd round investment – with the goal of buying another round EVEN CHEAPER THAN THE FIRST.  If we get to the point of "having" to commit to the next round (the FU zone), then we look at the stock again and evaluate whether or not we still believe in it enough to commit a full allocation block to what is likely to be a very long-term hold.

    THOSE ARE THE STOCKS WE REALLY LOVE – those are the stocks Warren Buffett really loves.  We are doing the same thing he's been doing for 60 years, we buy a small stake, watch the company and, when we feel it's unjustly beaten down, we buy more.  Our biggest holdings (PSW and Buffett) are the stocks we were able to pick up when they ran into real trouble but we still had long-term faith in.  

    As it is, our LTP is outperforming Berkshire's portfolio in their first 5 years by a wide margin.  

    I can teach you how to play for a long-term investment but I can't teach you the patience it takes to be a long-term investor – that's up to you.


  126. WMT/JJ – It's no big deal, you simply took an $11.61 loss on the short calls (less whatever on the short puts that expired worthless) so you sell the stock, which fortunately has gone higher for you and you then get on with selling the next round of puts and calls.  I'd go with the Oct $77.50s at $5.30 + $1, expecting a pullback.  Meanwhile, your 2019 $60s are well in the money, you may want to consider cashing in ($22.50) and picking up the $80 ($7.50)/$90 ($3.40) bull call spread for $4.10 so that's $18.40 in your pocket and still $10 of upside protection on the short calls.  

    $10 is a huge and unlikely move in WMT in any quarter. 


  127. M up

    please no tease!!!

    thanks Phil

    please make TEVA go to 25


  128. m down now.. 

    wow — guess that 24++ was a tease ;-(


  129. Phil, in big trouble with CMG:  5 2019 380/440 BCS (basis 29.60);  5 2019 350 short put (33.20).  Already took a big loss on short 400 put, couldn't stand the pain.  News no better, sellers in control. Advice please.