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Black Monday 30th Anniversary – Those Who Forget History…

It was 30 years ago today.

Well not today, it was the 19th but that's the closest Monday.  Anyway, it was a Monday (a day like any other day) when the Dow fell 22.6% in a single day.  That was only 508 points at the time (what inflation?) and it dropped to from 2,246 to 1,738.  That happened pretty close to the anniversary of the original Black Monday of October 28th, 1929, which kicked off the great market crash and the Great Depression.

I don't know if this time is different but it's certainly not the same.  The main difference here is that our market highs are not being caused by random market mania but by a fairly rational response to low interest rates and Trillions of Dollars worth of FREE MONEY being printed up and handed out to the Top 1% (Corporate Citizens included) in exchange for promising to trickle down on the poor – something, in fact, that the President himself supposedly was caught doing on a Russian video tape…

Trump, in fact, has more and more tied the "success" of his Presidency with the performance of the market, so there's another positive factor when the White House wakes up every day and says "How can we score more points on the Dow?"  "It would be really nice if the Fake News Media would report the virtually unprecedented stock market growth since the election," Trump tweeted Wednesday. It's a much different tone than a year ago, when Trump warned America to beware of a "big fat bubble" in stocks.  That was 4,000 Dow points ago!   Though very impressive, the "Trump Rally" ranks 7th in Presidential rallies, only slightly ahead of Obama and miles behinkd Clinton and Roosevelt.

Only about half of America has any money at all in the stock market (52% of Americans, according to the latest data from the Federal Reserve, which does a comprehensive survey of everyone who has money in brokerage accounts, mutual funds, 401(k) plans, pensions, etc.).  Most people with incomes below about $50,000 don't have money in stocks. They benefit little, if at all, from the market surge.

More apropos of comparison for Trump is Herbert Hoover, who, like Trump, famously promised "a chicken for every pot."  In other words, he promised all things to all people and it was ALL BS and none of it was deliverable and the market rallied from Hoover's Nov 1928 election until October of 1929 – when it all began to unreavel in a spectacular fashion.

Image result for hoover a chicken in every pot

The economy SEEMED great in 1928 too.  What people didn't realize was that it was only great for the Top 10% and tolerable for the next 10-20% but unbearable for the bottom 50% and, if course, none of US give a crap about THEM – until they stop shopping!  While we have been having decent growth in top-line Retail Sales numbers recently – like 1929, people fail to put things in historical perspective and we discussed this a little in Friday's PSW Report so let's continue:

Image result for retail sales us

A headline gain of 3.1% (and it was only 1.6% in Friday's update) may seem nice but let's say we started at 100% in 2006 and gained 3.3% in 2007.  That's 103.3 and then 0.6% in 2008 takes us to 103.92 and DOWN 3.6% in 2009 is back to 100.18 – no net progress at all in 3 years!  2010 was 3.1%, which took us back to 103.29 and 2011 (5%) gave us 108.45 and then (using the sequence you see above): 112.46, 116.06, 120.12, 123.85 and 127.68.  First of all – it's a great example of how compound interest works and 2nd of all, we're only up 27.68% in 10 years.  

The Dow, meanwhile, is up over 100% in the same period of time and one could possibly argue that companies have gotten more efficient but that's not enough to explain the difference.  Neither is the fact that close to 25% of the S&P 500 stock has been repurchased by the companies – which lowers the number of shares among which their profits are distributed – giving them higher earnings per share ratios than they had previously on the same profits.  

Source: FactSetLast year alone, the S&P 500 companies alone spent $780Bn on buybacks.  That's one thing that's very different between 1929 and today – in 1929, stock buybacks were illegal, because they were considered a form of stock market manipulation (they are).  They were only legalized by the SEC in 1982 and, as Reuters wrote recently, “Stock buybacks enrich the bosses even when business sags.”

Another factor that makes this time different is our weak Dollar.  The Dollar has fallen 10% since the start of the year, so there's your increase in Retail Sales as you simply need 10% more Dollars to buy the same thing you bought last year – including equities (see Friday's Report for charts and data on that subject).  We've lost 20% of the Dollar's buying power since the start of the century (2000) and in 1985, before the 1987 crash, the Dollar index was way up at 160, 60% higher than it is today.  

Image result for corporate profits wagesIn 2006, Corporate Profits (net of losses claimed by other corporations and massive deductions, so not the whole story at all) were $1.4Tn and this year, after all the Dollar deflation, stock buybacks and Retail Sales gains – we're at $1.8Tn, which is up 28%.  Assuming we have no missteps like we did in 2009, when Corporate Profits fell 50%, then we could justify a 28% increase in market prices but, unfortunately, even the 2007 market highs only took us to Dow 14,000 and 1,500 on the S&P and 2,800 on the Nasdaq.  28% more than those would be 17,920, 1,920 and 3,584.  

Needless to say, we are miles ahead of that at 22,900, 2,558 and 6,624 – and those are the HIGHS for the prior decade – we dropped more than 50% after that.  So now we are higher than high on so-so sales increases and decent profit increases, propped up by the illusions of a lower share base and a lower Dollar base – what could possibly go wrong?  

As you can see from the chart above, the profits the Corporations are now enjoying have come out of the pockets of the workers – how long can that keep up without the pendulum swinging the other way?   Meanwhile, we'll see if this season's earnings and data live up to the market's lofty expectations:

Be careful out there.  

 


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  1. Good Morning.



  2. M under 20 again .. dangit!


  3. Phil – love this AM's post, a high five.  For those who missed it over the weekend or at the bottom of the Friday forum, there is a $10 Million reward to dump on Trump.  Get to work and Out.


  4. I've been asked to give a talk on finance for our residents.  They're about late 20's to early 30's, work like animals right now and have no money, lots of debt. I have some very basic things I plan on sharing (power of compounding, start early, try to limit debt, etc.).  What would any of you share with that type of audience?  Any references (books, websites, etc.) that you've recommended that might be helpful?  Any advice you'd give someone like that if you were standing in front of them – keeping in mind they know nothing about money. 

    I realize its trading hours, but thought this might be interesting to ask. 

    Thanks All!!


  5. TEVA under 15 again. what a POS


  6. I'd recommend Kiplinger's to your audience Jeff. Good sound advice that most will ignore because at that age you're gonna live forever, right?


  7. Natter… for 10 million surely someone would be willing to take a shot… 


  8. Good morning! 

    I love this picture – makes you realize how fast electric or self-driving (or both) cars can replace our fleet:

    They said it was just a fad…

    Global pooping was wiped out too!   There was range anxiety as well – you could always get grass, but where would you find gas?  Also, horses rarely burst into flames while you were driving them…  Horses had pretty good auto-pilot features too.  

    Friggin' /TF popping yet again.  

    Well, we still like that short at 1,515 – scary though.

    Thanks Naybob.  $10M is good money but how do you Trust Larry Flint to pay you?

    Finance/Jeff – Well that's why I have my "evergreen" post on "How to Get Rich Slowly" and the video.  You are free to use either if you wish.

    TEVA/Jabob – It's a piece of crap because of the arbitrary price action?  I'm happy they are holding $15. 


  9. holding 15? arbitrary price action? i call them a POS because TEVA has gone almost straight down. It would have been a dream short that I am long. sort of like FTR. 


  10. Amazing how they are able to boost the market through the futures every morning… since it's obvious to someone like me must be a sure thing, easy money right? Sure seems to be pulling back quick, but buy the close, sell the open has been mighty profitable… until it's not.

    I watched the video The Man Who planted Trees" foe the first time a few weeks ago, I see why you use the reference so often… great piece.


  11. Phil – Yes, I was going to send the message from your Rich Slowly post. Thanks!


  12. Jeff,

    The compensation to hospitals and doctors will continue to be used as a tool to manage the poor outlook for the country’s healthcare financial outlook – so control your spending

    Build up a cash reserve in an online savings account, start with 3 months of expenses

    Enroll in 401k if available, otherwise IRA, they’re young invest in stocks

    Be wary of insurance salesman, commissions are high which is good for salesman not consumer

    View investing as an ongoing activity, compound interest, build wealth

    Seek out help if needed, it may cost something but better than not investing


  13. Jeff – First thing I told my kids when they got jobs – max out your 401k. It's not sexy, but even in a good old index fund, if you have matching contributions it's the easiest 100% you'll ever make. They just have to be careful with the fees and all, but you still come out way ahead. No need for advanced investing education or spend tons of time researching stocks. And index funds beat active investors more often than not. Once again, not sexy, but a start.


  14. 09:29

    SBH

    Sally Beauty upgraded to Buy at DA Davidson; tgt $21 — Believe SBH has support here with a free cash flow (FCF) yield of ~11.5%   (17.45)

     

     


  15. Phil,  Want to take a look at Sally Beauty?


  16. TEVA/Jabob – They haven't gone down much since Aug.  Hopefully forming a base and hopefully some upside after earnings (11/2).  They should earn $1/share ($900M) on $5.6Bn in revenues which puts them on pace to earn about $3.75 per "POS" $15 share.  FTR also finding its bottom at $12, where we thought it would find a bottom.  

    And there goes the /TF gains!  

    Obvious/Mkucs – Yes but I hate to bet on directions I don't believe in.  

    SBH/Baron – Good value but little growth.  No reason to own the stock but you can play it with the March $15 ($3.50)/$17.50 ($1.90) bull calls spread at net $1.60 and you can boost it further by selling the $15 puts for 0.70, which drops your net to 0.90 on the $2.50 spread so $1.60 upside is 177% and worst case is you own them for $15.90 (12% off).  


  17. Phil--I hope you are right about the upside after earnings. FTR reports a couple days before TEVA. Everyone is saying how stupid both of these companies were for their acquisitions. They did it by increasing their debt loads big time. I think/hope they are undervalued like you. Looking at their P/E hasn't been a good indicator. People are only focusing on their debt and deteriorating earnings. Hopefully, they both will recover soon because they both have ruined my 2017. I am not blaming you at all. Just incredibly frustrated owning these names. Having M, GE, JO, and LB and IMAX has only made matters worse. But I hope they will all recover, of course. 


  18. Phil--to be fair--you have made some great calls--RH, AAPL, WTW, LMT, BA, TGT, WMT..

    I just was unfortunate and took bigger positions in the dogs.. And seeing the market go straight up all year while the FU stocks have tanked is nauseating! 



  19. EWJ – short squeeze in the /NKD


  20. DDR – support failed…


  21. Phil,

    SBH.  If e get a pullback and that triple bottom holds the TA looks good.  I buy stuff from SBH.  My thesis is everyone is more conscious about how they look. Facetime, media, anti-aging, less invasive cosmetic surgery, blah, blah.  Some of this is new, some not.  But I find as I get older how I look is one of the few things I can control.  Whiten my teeth to remove coffee stains, dye my hair so I look more like my kids parents (we adopted later in life), back to the gym because I have a good body and might as well keep it, etc.  So unless Walmart and Amazon are going to put SBH out of business carrying higher end beauty stuff, I kind of like it.




  22. A new study shows that students learn way more effectively from print textbooks than screens


  23. Phil/FTR

    Since our initial position before the reverse split, I have been adding and DD at 11.80 and again at 11.70.

    I also sold some $13 puts for $6, resulting in a net of $7 if put to me. If not, it reduces my basis by at least $3.00 in the shares I do own now.

    Meanwhile, as long as the company does not go BK, I am happy to collect $2.40 in dividends per year

    The reason to share this information with you is not idle chat but to ask you 'what a back up to back up' plan would be if the stock falls to $8.00 on fear of BK…do you then take the loss and get out? I would be inclined to. What do you think?

    Maybe Jabo might be comforted somewhat also by your response.????




  24. The Deep Unfairness of America’s All-Volunteer Force



  25. Trump sells out your health insurance




  26. Phil/electric cars

    I leased a chevy volt in early 2011 for 42 months. Except for the 4 tire failures (for which the car had to be towed to the dealer, and left there for 2-3 days, while they ordered the non standard tires), I was overall happy with  the experience, even though I only got 36 miles from the electric charge. I drove perhaps 24-30 miles most days. I hade to put gas in the car for the back up engine maybe 3-4 times a year, 10 gals, each time!

    We have of course, come a long way since then with the technology. I am looking to lease a fuel cell car now, just for fun. There is a hydrogen fuel cell gas station 2 miles from me, so it's a matter of availability. The company provides (as of today) free hydrogen for the 3 year lease!


  27. I leased a Chevy Volt from 2012-2015, and I also loved the car.  I used an average of maybe 5 gallons of gas a month, and I live in Houston, so you have to drive everywhere here.  It was the best car I ever had. The only reason I didn't lease another one is because the redesigned model was not available in Texas when my lease was up.




  28. Trump tax plan paints pretty picture for art collectors


  29. Deficit hawks trampled in GOP tax cut stampede



  30. Las Vegas tourism sees changes in aftermath of shooting



  31. Latch – you've been quoted in Tight Oil: Deep Water Driver?


  32. Upside/Jabob – Yes but not RIGHT after earnings, these recoveries take time as they need to prove that the debt they took on is going to pay off.  Think about what is happening, the companies borrow money when money is cheap and, in less than a year, their acquisitions are considered failures and the stocks drop more than 50%.  The internet and the short-term nature of trading have made long-term value-building an obsolete model for companies these days.  All those stocks are solid but none of them are likely to "recover" quickly.  Not JO, we gave up on JO.  

    EWJ/Scott – Sure, /NKD popped 200 points since Friday alone.

    SBH/Baron – I agree, it's a good niche and the return on those options for 6 months is great.  

    FTR/Maya – Yes, if it gets hopeless, then it's a loss.  The trick with these stocks is that the winners become such massive cash machines, that they wash off a hell of a lot of losses.  As you note, having a boatload of FTR, even if you paid $25 on avg, allows you, right now at $12, to sell the 2020 $10 puts for $5 and the $10 calls for $3 and that drops your basis by $8 to $17 with a call-away at $10 for a loss or a DD at $13.50 (you get twice as many shares for about the same price you already paid) but, of course, as long as they don't go BK – you can do that every 2 years and it's not long before $8 and $8 and $8 and $8 begins to turn a profit and then, for the rest of your life, you're still collecting massive profits (and the dividends, of course).  

    If you only buy FTR to see the stock price go up and down – you are playing it wrong.  We like FTR (and TEVA and GE and IMAX) because they are great trading vehicles with great options prices that will make us money every single year.

    Let's say we had 1,000 shares of FTR at $25 ($25,000) and we double down at $12 ($12,000) so now 2,000 shares for $37,000 is $17.50/share.

    $25 is from last June, so we collected $1,200 in dividends.  

    Now we sell the 2020 $10 puts and calls for $8,000. 

    So now we have 2,000 shares at net $27,800 ($13.90/share) and an obligation to buy 2,000 more at $10 ($20,000), which would drop our net to $11.95/share.

    Meanwhile, we will collect 9 more dividends of 0.60/share while we wait x 2,000 = $10,800, which pays for 1/2 of what we might be assigned. 

    So, as of Jan 2020, we will have 2,000 shares with a net (less dividends) of $17,000 or $8.50/share and we will either get called away at $10 with a $3,000 profit (after starting at $25) or we'll HOPEFULLY be able to roll our short calls out and collect another $8 ($16,000) for the next two years. 

    If we're below $10, we are assigned and own 4,000 shares at an all-in cost of $37,000 or $9.25/share and again, collecting $8/share against that would be very, very nice!  

    There is, of course, an opportunity cost to what we would have done with $25,000 otherwise but, if you are saying that I've used $25,000 to secure 4,000 shares of FTR at $9.25 two years from now – there's not many things I can think of that would be better do do with money because – even if options calm down – as long as they don't go BK, we'll be able to make 20-30% a year on that money forever more.  

    It goes back to "The Man Who Planted Trees" – if you want to see immediate results, this is not the strategy for you but, if you want to benefit for the rest of your life on the work you are doing now to build a value portfolio – there is nothing better than scaling into good companies as they test their lows.  

    Not all of them recover and some do go BK but what's our list?  FTR, M, IMAX, GE, LB.  Are they all going BK?  As long as 2 or 3 stay around to pay us 20-30% dividends forever – the losses will not matter in 10 years.  Using the above as a guide, let's say we put $125,000 into those 5 and 3 go BK and 2 survive but the 2 that survive pay $15,000 on $50,000 forever more.  That's $300,000 back in 20 years and the $50,000 base asset of the non-BK companies is still there so $350,000 from $125,000 is not terrible – and it's not like all go to 0 immediately anyway.

    So forgive me, Jabob, if I tend not to take you seriously but we have had this conversation over and over again yet you seem to insist on investing into a long-term strategy and then decide to follow it like a day-trader instead.  These are decade-long investments, not week-long.  Looking at them every day is like looking at the trees you plan and complaining when they don't seem to grow from day to day.  It's pointless and no one is going to be able to "fix" it for you.  

    Fuel cell/Maya – That sounds cool, I'll be interested to see how it goes.  I'm also very interested in the weekend article on Turo this weekend – thinking of testing it out with a car over here. 

    Turo used by California couple to pay for Tesla buys – Business Insider

    Chad Hurin said they started renting out the Model S in February and the Model X in May. The couple has earned $25,000 through the service, but that doesn't account for fees Turo collects for setting up the rental. Still, it's been enough to pay off the Hurins' monthly car loan payments and insurance with some cash left to spare.

    I was just looking at a Model X, $1,100 a month could be paid for with 5 rentals but then Turo charges fees so call it 10-12 times a month I rent it.  That suits me and, more to the point, it sounds like I can build a little rental-car company and turn a nice profit if I focus on high-demand cars people like to rent.  I think it needs to be in a warm place – though, winter rentals may be dicey.  

    Electricity/Scott – That's crazy.


  33. Turo company gets very bad reviews online for customers. 


  34. Thanks Nat, I've just replied.


  35. I will say, for a market that has been flat, I have a lot of stuff getting hammered.  Anything I am adding to individual stocks I have skewing flat to slightly short.


  36. Turo/Tx – I can imagine why as it's too easy to become a seller/renter and I can imagine all the cars that aren't clean or need repairs, etc.  

    This is timely:

    • D.A. Davidson upgrades Sally Beauty Holdings (SBH +1.5%) to a Buy rating from Neutral.
    • Analyst Linda Bolton Weiser calls the retailer somewhat Amazon proof and points to the lush free cash flow yield of 11%.
    • The price target on SBH from Davidson rises to $21.

    At least /TF is falling for a change:

    Trump just basically said pharma companies are ripping people off.  

    • "Prescription drug prices are out of control. The drug prices have gone through the roof," Trump says at a Cabinet meeting.
    • He also says drug companies are "getting away with murder."
    • The iShares Nasdaq Biotech ETF erased its gains for the day after Trump's comments.

    "Prescription drug prices are out of control," Trump said in a Cabinet meeting on Monday. "The drug prices have gone through the roof."

    "You look at the same exact drug by the same exact company, made in the same exact box and sold some place else, sometimes it's a fraction of what we pay in this country. Meaning as usual the world is taking advantage of the United States."

    Trump said American consumers are paying multiples of what other countries are paying for the same drugs.

    "The drug companies frankly are getting away with murder. We want to bring our prices down to what other countries are paying," he added.

    I am working on a new system where there will be competition in the Drug Industry. Pricing for the American people will come way down!

     

    China’s Xi Approaches a New Term With a Souring Taste for Markets

    As a Communist Party congress opens, the pro-market talk from President Xi Jinping’s first term has faded as China’s priorities turn to economic intervention and supporting state companies.

    Flat/Baron – That happens a lot before a correction, "THEY" hold up the index leaders in order to hide the fact that they are selling off the bulk of the index.  For example, look at AAPL today, up 1.5% while the rest of the Nas is selling off (AAPL is 17% of the Nas so 0.3% of the Nas'  0.2% gain is from AAPL). 



  37. Phil,

      Is it ok to call you today after market close to talk about PSW Hedge Fund and PSWI?


  38. Phil, I understand.  But I do note that new highs continue to well outpace new lows.

    14:12

    SCANX

    Stocks/ETFs that traded to new 52 week highs/lows this session – New highs (192) outpacing new lows (31)


  39. Checking my comments not getting published


  40. yodi
    October 16th, 2017 at 3:29 pm | Permalink | Tweet thisIgnore this user

    Checking my comments not getting published

    Phil Following your comments on the above 5 shady stocks. I must admit I as well hold some of them.

    You talking about 20 years ahead, and I must asked you where do you see yourself in 20 years.

    So in a way I can feel for the member, looking at these losers day by day. I am happy to say that I still can afford some losers, so I do not look at them every day. But to tell you the truth If I look at a sick puppy to long I just cut the ropes and get read of it. If someone is not happy with the situation I can only say one thing cut it down and you got read of it. Full stop. If we all would have 100% winner in our ports, who would take up all the losers?

     


  41. Pharma prices / Phil – Not likely to go far once more reasonable (and highly paid lobbyist) are done with Trump. The GOP are the ones that opposed language that was added to allow Medicare Part D to negotiate prescription prices! His own party is opposed to any type of price negotiations so another idea that will go nowhere in Congress. Of course his base is now thinking that drug prices will go down and Congress will come up with some committees to study the problem. And nothing will happen….


  42. PSW/Japar – Yes but right after as I have a meeting.

    New highs/Baron – Well, when you have a sustained rally, those lows are far away but just keep track of the ratio between highs and lows, when that shifts, it may be closer to the end.

    Not that you can tell from today, with the Dow up 75.

    20 years/Yodi – Well I'll be just about 75 and probably still working a few days a week but mostly settled down for a retirement – still most likely on Jersey but, of course, geopolitics can change over that amount of time.  Oddly enough, I'm exactly where I expected to be 20 years ago (sold my then start-up for millions, retired to become a writer) with slight variations and 20 years before that, when I was 15, I expected to have my own company and be a millionaire by the time I was 35.  Not sure why people say it's hard to plan ahead, actually…  angel

    I totally agree with getting out, as you say.  That's a conversation Jabob and I have had many, many, many times but, for whatever reason, he sticks with them.  I stick with them because I have the long-range perspective.  

    Think of the FU stocks we had in Dec of 2014:

    • ABX 2017 $15 puts sold for $4.50
    • HOV 2016 $5 puts sold for 0.95 
    • IBM 2016 $160 puts sold for $9.30
    • RIG 2017 $27 puts sold for $8
    • BHI 2017 $57.50/70 bull call spread with short $55 puts for net $2
    • CLF 2017 $8 calls and $12 puts at net $2.75 credit
    • GTAT 2016 $12 calls at net $4 (they did go BK) 
    • SLW (WPM) 2016 $18/22 bull call spread and short $15 puts at net 0.80

    The point is, 2 years later, they mostly sorted themselves out.  BHI was mind-blowing that it was so low for so long.  IBM was runner up to Stock of the Year SLW and both took forever to get going. CLF had an epic turn-around.  If you want to own large amounts of a stock – when else do you buy but when it's on sale?

    Own party/StJ – While Trump was speaking, he turned to McConnell and said something like "your donors won't like this one".  Many things Trump does are to appease the base with words – they don't seem to follow up to see if he actually acted.  


  43. Hey, what ever happened to the idea of some of us buying some SolarCoin to start giving it some visibility? Did that ever happen? I got as far as buying some BitCoin (at $1400, thank you very much!) but never did the SolarCoin.


  44. Phil-- you are impossible to debate and are never wrong.

    Personally, I don't mind legging into positions and adding when good stocks get cheaper.

    Unfortunately, when they drop 50-80% in such a short time from your original "value/bargain" price it can cause a lot of damage.

    For example, when you say who wouldn't want to own TEVA at 40, or FTR at 3.50, or M at 35, or buy M at 29 and sell puts and calls, or LB at 58, or IMAX at 28.

    CLF worked out great for guys who bought it at 1 but I remember you being concerned that it might be a BK. And this was supposedly a bargain at 22.

    Now you seem to be concerned that FTR could be a possible BK?

    RIG was a bargain at 38.

    So yes, the market continues to hit new highs, you love CASH and think there could be a correction, and like to make fun of me because I am concerned that we will not have a repeat of when the old bargain stocks got slammed 3+ years ago. 

    I think the market will not have the same gains over the next 3 years so it concerns me when these FU stocks continue to hit new lows every week without anything that resembles a market correction (opposite of course).

    Now you could say I am impatient but I don't see anyone else posting here saying they made these fantastic gains on the FU stocks of the past. And there certainly isn't anyone on this board who is happy about these FU stocks getting clobbered all 2017 (unless they are being quiet about it).

    Of course, I hope you will prove me wrong in 6 or 12 months and say how these FU stocks were great opportunities. But I don't see you pounding the table on them now while they are at their all-time lows. And you have shown great ways to adjust some of these WAY too early picks (as long as there isn't a BK, of course).

    Again, I am not blaming you for me being too aggressive with TEVA and FTR. Just hate seeing them drop every week AFTER I added and added and added and added on the way down here.


  45. Jabo / Phil FU stocks -

    Jabo first i am right there with you with a large position in FTR and a sizable loss on the books ( negative 40%).  I did not go into this one with a year payback.  I went into it with a minimum of 18 months to see reasonable trends – specifically with FCF, customer retention, customer sat and debt management, and have them start looking more positive  in yr. 2 to 3.   They passed the short term restructuring on debt but have not turned the corner on customer loss, FCF looks ok, customer sat Ehh.   This could be a complete loss or it could be worth what i think is a conservative 25 to 35 / sh plus dividend.   On LL i was in with that one for over 2.5 years.  I thought worst case the stock was a 30 to 40 dollar stock and Tilson was full of shit.  I got in too early ( at 30) and rode down to 12 continuing to sell puts and calls  and BCS along with owning the stock.  The legal issues were crap, and the business model was in takt.  I started exiting the position at 22 and got completely out at 32 ( too early) my return was significant both from % as well as total $$ returned.  On this one too i showed significant losses on the books during the time i held.  But again that was a multi year play and i new it.  If your not looking at this from a long term perspective and truly understand what it takes the business to turn around and can gauge this intelligently then your going to get frustrated, writing about this on a daily basis is not helpful, unless you have new information to share – Customer retention, customer sat improvements debt info…. that is helpful.  The rest is just kinda of noisy.


  46. From Raymond James latest oil briefing..

    ~~Could the much anticipated field declines be finally happening?
    …….To be crystal-clear: a second  (cut) extension is not currently assumed in our oil supply/demand model, but it looks like an increasingly likely scenario…..and Saudi oil inventories have fallen even more steeply, while the rig count is up, suggesting field-level troubles.  While the Saudi production restraint is very meaningful, even more striking (and bullish) is the trajectory of Saudi oil inventories. As shown in the chart, Saudi inventories are down by nearly a quarter (or 73 MMBbls) since their peak in late 2015. That is a far steeper percentage drop than production! So, what does this mean? The short answer is, it eans that Saudi is currently exporting more than it is producing. While there is no way to know for sure, it seems reasonable to suspect that Saudi is having productivity issues at some of its fields, making it technically unrealistic to sustain higher production rates. In other words, Saudi’s production cuts seem to be a combination of two very different things: deliberate discipline, but also technical constraints that would have manifested themselves in any case.
    Saudi’s official line is that it has sustainable production capacity of 12.5 million bpd, which would imply current spare capacity around 2.5 million bpd. We have long been skeptical about the 12.5 number, and what’s been happening with Saudi inventories only raises our skepticism. Moreover, the jump in the Saudi rig count in recent years further suggests that Saudi is struggling with its fields.

    On EVs:
    In this context, one issue about which Saudi does not seem remotely concerned is electric vehicles. Keep in mind, the House of Saud is well-known for its long-term thinking, including the Vision 2030 agenda. If the leadership does not see EV-related oil demand displacement as a major competitive threat, that surely says something. For the record, we fully agree, having recently explained why even by 2025 we forecast EVs slowing growth in global oil demand by only one-third.

    Conclusion: Saudi needs higher oil prices, no matter what happens with the Aramco IPO.
    The backdrop is that Saudi has reduced oil production by 800,000 bpd since the peak in 2H16, and its oil inventories have fallen even more sharply year-to-date, a trend indicative of exports exceeding production. Combined with the rising Saudi rig count, and we have to at least ask the question: does it mean that Saudi is increasingly having trouble with the productivity of its fields? At a minimum, we are increasingly comfortable in concluding that Saudi lacks the 2.5 million bpd of excess capacity that it “officially” claims. Regardless of the answer to the field productivity question, and also regardless of when and how the Aramco IPO takes place, there is no escaping the fact that Saudi will need oil prices above the $50-60/Bbl range at least for the next two to three years. That range for the full fiscal break-even might be a realistic target beyond 2020, but for the time being, the Saudi economy is facing a structural deficit under current oil price conditions, resulting in a deteriorating balance sheet. In the meantime, ongoing tensions with Iran complicate the geopolitical situation, even setting aside the extreme (but not impossible) scenario of an outright war that would shut down the Strait of Hormuz.


  47. Maya

    Meanwhile, as long as the company does not go BK, I am happy to collect $2.40 in dividends per year

    The reason to share this information with you is not idle chat but to ask you 'what a back up to back up' plan would be if the stock falls to $8.00 on fear of BK…do you then take the loss and get out? I would be inclined to. What do you think?

    Maya, the question you didn't ask is what happens if they cut the dividend. Collecting 20% seems too good to be true for an extended period of time.


  48. Stock/FTR

    I am aware that the dividend will likely may be cut. Let's say that they half the dividend to $1.20/year.

    That's still a 10% return and if the stock gets off the $12 level upwards, then I plan to sell some calls.

    The one thing going potentially against the company is the landline business subs…that's where I worry the most. If they maintain their subscriber base, then I think they meet their debt obligations. So, I will keep looking for updates on subs going forward.


  49. Jabo, et al.  I feel your pain, but much of it was self-generated.  I've got big losses in FTR still, but have made up some of my GNC (remember them?) losses by getting more aggressive near the bottom. Now they are looking like making a double bottom, but I've lowered my basis selling calls.  I'm not too worried about that one. CBI is another one where I got a bit more aggressive near the bottom (not enough) and I could be halfway toward filling my losses by March.  I  am happy with M, LB, TEVA, IMAX and some others because I bought after PSW was showing losses on them. I did great with LL entering long after Phil recommended them.  For me the secret is trying to remember to keep a small initial position size and look for stuff that everyone has started hating (if I am not already hating them myself). 


  50.  FTR   If they cut the dividend, I think you're looking at a lot less than $11.70


  51.  GNC, CBI, TEVA all cut their dividend. 


  52. FTR – last time they cut their dividend they cut it again about a year later.  This time  i really thought they cut deep enough not to have to do it again.  


  53. FTR/ Batman

    I hope you are right…they already cut it but I suppose it can be cut again? And again?


  54. Maya, Jodi /FTR

    Price in 2015 was $ 125, now $12,  is really the loss of value there in the balance sheet? or perhaps is an attack of the barbarians to grab the company? 

    market is punishing companies with debt, FTR could be very sensitive to rate increases but how much can deteriorate the balance with a 50bpi  increase next year?….still I think this is a coordinated effort to reduce the price and grab the assets….a 90% reduction looks ilogic with the size and income  of FTR


  55. Good morning!  

    Flat again so far.  NFLX missed yesterday but is up anyway – not a good sign for the bears.  

    SONC hit their target but same-store sales were off but they blamed the hurricane, so no harm there.  

    I guess the hurricane will be a big excuse this Q.  

    A few biggies this morning and IBM tonight so we'll see how it goes.  

    Solar Coin/Jet – Do you mean GreenCoin?   You can see the spike in volume when we discussed it and it's been up and down since but still a double so far.  We are working on accepting them as payment at PSW and intend to do a push next Q when we're done with the Hedge Fund Project, as well as a Real Estate Data Project PSW Investments is launching this Q.  

    We came in at 0.00000012 and it's been as high as 0.00000158, which is a 10-bagger so I REALLY hope people took half off the table with at least a double so they have a free ride from here.  Even yesterday's settlement is still a double from where we started and that's the way you have to play these small coins – buy in a low channel and then sell half on a spike up so you no longer worry about the fluctuations.  

    Meanwhile, speaking of almost 10-baggers, my GRNBFs are at $1.24 – Congrats to all the players on that one!  AND – DO NOT FORGET TO TAKE SOME OFF THE TABLE – Greed Kills!  

    Speaking of penny stocks, the guys putting out GreenCoinX(sorry BDC) are actually listed as GRNBF, a penny stock trading at 0.184 at the moment (I have 20,000 – mentioned it a while ago).  The difference with GreenCoinX is that it's NOT anonymous and that means, MAYBE, they will have an easier time being accepted by Governments, which matters a lot in the 3rd World, where they are targeting their business as an on-line bank alternative.  Their limit is supposedly 200M coins and they are currently trading at $1.15 and GRNBF has 60M of them as an asset.  They charge no fees and don't make money on the use of the coin – just if the coin makes money. 

    I may interview these guys in a week or two and I'm not suggesting that this stock is anything more than a craps roll BUT I like the discount that owning GRNBF gives you to the currency as, in theory (if GreenCoinX were widely traded) they own $69M worth of coins yet 0.18 values the company at less than $3M so it's the 20:1 discount to THEORETICAL value that makes it interesting to me.  

    If these were BitCoin-like and took off to $10 each, then the company would get noticed and the value of their holding would be realized (at $600M) and the stock, IN THEORY, could hit $600M as well and that would be 200x on the investment so it pays better than roulette with a bit less odds of success.

    GreenBank Subsidiary GreenCoinX Enables XGC to Trade on 15 Crypto Currency Exchanges

    Isle of Man Welcomes GreenCoinX

    Submitted on 2016/04/22 at 1:41 pm

    GBTC/Hanj – GRNBF is not an ETF, it's an on-line bank that owns/controls GreenCoinX and simply has 60M of them as an asset so no friction cost of ownership is another nice feature but just silly speculation – the most interesting one out of dozens of them I wouldn't put a penny into.  Yes, mining is hard – it was hard in 1849 when tens of thousands of people headed west to mine for gold in the US and, you know what – none of them made any money either – but they did dig up a lot of ground and made the people selling the land and selling the mining equipment and maps very rich – so I prefer to stay on that side of the trade – the side that sells to the traders!  

    Submitted on 2016/06/08 at 3:10 pm

    GBTC/BDC – That's why I like GRNBF, they are undervalued to their coins but, of course, huge risk that they never catch on.  

    Submitted on 2016/08/11 at 6:47 am

    Cryptocurrency/Shash – Well there's always a new one and I don't see much difference from one to the other, quite frankly.  I think they are more like gambling on random events – certainly nothing to be taken seriously.  I did pick up some GRNBF who are running GreenCoinX, which differentiates itself by NOT being anonymous, which is much more appealing to governments but they are having trouble gaining traction.  Anyway, just some fun money and the whole thing is like the penny stock phase – thousands of companies and, a few years later – maybe two survivors.

    I feel the same way about our GreenCoin investment, we have a cryptocurrency with a difference that makes it stand out from the others.  Between that and our ability to create a transactional base and a platform to promote it – it's a fun pizza bet that can turn into millions of Dollars.  

    Wrong/Jabob – I'm wrong plenty of times but I don't like getting called wrong 6 months into a 2 year trade just because the stock didn't start off well, which is what we plan for when we're scaling in in the first place (see the strategy section or follow our actual moves in the LTP but don't blame me because you choose to go all in on the first round and don't diversify your strategies).  

    Again, you simply do not get the concept.  If I said, who wouldn't want to own TEVA at $40 – that was because we were taking a 1st round entry that caused us to be assigned at $40 after which, if it dropped to $24 (down 40% is our usual DD point) we would own 2x at $32 and then, 40% below that ($19.20) we look to DD again and that would give us 4x at an average of $25.60 but, of course, we use options so we have, in our LTP, 30 short 2019 $25 puts we sold for $9.50 and 30 long 2019 $17.50 calls we bought for $3.50.  At the moment, we have a paper loss off $43,230 in a $2M portfolio (2%) but, if the short puts end up expiring worthless, we get $32,325 back (the sale price and the current loss) and then we need to make $3.50 on the calls to be even.

    TEVA
    30 TEVA 2019 18-JAN 17.50 CALL LC $ 10,500.00 8/18/2017 $ 6,060.00   60
    $ -4,440.00 -42.3 %
    30 TEVA 2019 18-JAN 25.00 PUT SP $ 33,600.00 8/24/2017 $ 28,500.00   54
    $ -5,100.00 -17.9 %
    15 TEVA 2019 18-JAN 37.50 PUT SP $ 31,500.00 6/16/2017 $ 14,400.00 8/23/2017 68
    $ -17,100.00 -118.8 %
    10 TEVA 2019 18-JAN 35.00 CALL SC $ 2,890.00 2/2/2017 $ 5,200.00 6/16/2017 134
    $ 2,310.00 44.4 %
    10 TEVA 2019 18-JAN 25.00 CALL LC $ 10,300.00 2/2/2017 $ 1,400.00 8/18/2017 197
    $ -8,900.00 -86.4 %
    10 TEVA 2018 19-JAN 45.00 PUT SP $ 14,000.00 9/12/2016 $ 4,000.00 6/22/2017 283
    $ -10,000.00 -250.0 %
    Total Gain/Loss for TEVA
    $ -43,230.00 -42.1 %

    So, if TEVA is below $28.50 in Jan 2019, THEN it's a loss but, at the moment, it's a position that's off track.  I wish every single stock we picked was on track all the time.  I also wish Santa Clause would come down the chimney and put a Range Rover Autobiography under my tree but it doesn't work that way so we need to grow up and learn how to sensibly work to get what we want.  

    And yes, I'm concerned FTR may go BK and I was concerned CLF would go BK but that did not stop me from banging the table on them at $1 because – if they DIDN'T go BK, then they had a great chance of being a 10-bagger when all the idiots who believed the negative hype finally saw enough numbers to realize they were wrong. 

    Of course, its' very easy to shake people's confidence in these stocks and many people get out at the exact time they should be buying more so, to the extent your constant negativism drives people out of perfectly good positions and costs them huge opportunities – they can thank you for that as much as they can thank me for the ones that don't end up working out.  

    No matter what, the primary key is to NEVER have more than 5% of your portfolio invested in any stock which means you should be starting with 1-2% commitments at most so you can easily double down twice.  Seeing a 1% commitment drop 50% because we enter too early could be annoying – but not tragic and I am trying to teach people that these are often opportunities to bargain hunt – while you seem to do your best to hammer home the opposite view.  

    You say RIG was not a bargain at $38 but, even if I were a complete idiot and failed to add on the way to $7 (a drop that took 2 years, by the way) and now own my $38 stock at $11 – I can STILL sell 2020 $12 puts for $3.50 and the 2020 $15 calls for $2 and that's $5.50 back on $38 is 14.4% (and we're assuming that you didn't sell any puts and calls since it was $38 in 2014 because you only listen to my buy call and NOTHING else that we do).  That's a lot more than I'd get in the bank and that's only because I refuse to DD or make any other move to improve the position. 

    The reality is, we played RIG well and it was a winner – EVEN THOUGH it fell from $38 to $7 BECAUSE we followed through with our plan and we ditched the stock when it fell more than 20% and switched to options which we adjusted and rolled on the way down until it turned and then we got out and moved on.  Apparently you haven't.

    RIG
    50 RIG 2018 19-JAN 13.00 CALL SC $ 19,400.00 4/12/2016 $ 12,500.00 12/23/2016 255
    $ -6,900.00 -55.2 %
    50 RIG 2018 19-JAN 8.00 CALL LC $ 16,250.00 4/12/2016 $ 39,000.00 12/20/2016 252
    $ 22,750.00 140.0 %
    40 RIG 2018 19-JAN 15.00 PUT SP $ 12,200.00 12/14/2015 $ 27,200.00 12/27/2016 379
    $ 15,000.00 55.1 %
    50 RIG 2017 20-JAN 20.00 CALL SC $ 1,050.00 3/13/2015 $ 10,000.00 4/12/2016 396
    $ 8,950.00 89.5 %
    50 RIG 2017 20-JAN 13.00 CALL LC $ 21,250.00 3/13/2015 $ 5,000.00 4/12/2016 396
    $ -16,250.00 -76.5 %
    20 RIG 2017 20-JAN 15.00 PUT SP $ 10,400.00 2/26/2015 $ 9,900.00 12/16/2015 293
    $ -500.00 -5.1 %
    20 RIG 2017 20-JAN 18.00 CALL SC $ 4,200.00 12/5/2014 $ 9,800.00 9/4/2015 273
    $ 5,600.00 57.1 %
    2000 Transocean Offshore Inc. (RIG) LS $ 38,000.00 12/4/2014 $ 28,700.00 3/12/2015 98
    $ -9,300.00 -24.5 %
    5 RIG 2016 15-JAN 35.00 PUT SP $ 6,175.00 4/14/2014 $ 2,450.00 11/14/2014 214
    $ -3,725.00 -152.0 %
    10 RIG 2016 15-JAN 33.00 PUT SP $ 10,480.00 8/1/2014 $ 3,050.00 11/14/2014 105
    $ -7,430.00 -243.6 %
    10 RIG 2016 15-JAN 40.00 PUT SP $ 5,650.00 2/11/2014 $ 6,500.00 5/29/2014 107
    $ 850.00 13.1 %
    10 RIG 2016 15-JAN 50.00 CALL SC $ 1,450.00 2/12/2014 $ 3,000.00 4/17/2014 64
    $ 1,550.00 51.7 %
    10 RIG 2016 15-JAN 40.00 CALL LC $ 6,500.00 2/11/2014 $ 4,700.00 5/29/2014 107
    $ -1,800.00 -27.7 %
    Total Gain/Loss for RIG
    $ 8,795.00 5.7 %

    So, can you see my frustration with you?  You cherry pick small parts of a big picture (and really, RIG?  It's been closed since last year and THAT is one you bring up to prove a negative?) and bring them up over and over again but it's not the attacks on me that piss me off but the way you undermine the lessons I'm trying to teach – the same lessons you seem to completely ignore yourself.  I have these conversations with you because your apparently AWFUL trading is a great teaching example for others NOT to do what you seem to do, which is over-commit early on and then refuse to follow through with a trade and then obsess over it without taking positive action.  You are every possible trading mistake rolled into one.  Oh yes, and a seeming lack of diversification as well!  

    There will always be losing stocks in our portfolios because I go out of my way to find a wide variety of positions so that some will always do well in any kind of market.  That means some will always lose as well and you claim to have the uncanny ability to choose a portfolio for yourself that ONLY has the losing positions which are what, 8 out of 60?  If you think the market will crash and you think the stocks won't recover – why the F are you in them?  GET OUT!!!  

    I'm not pounding the table on them now because I do expect a correction and, if we have one, then our hedging money and our CASH!!! will pay for us to double down on them at even lower prices but, if I'm wrong and we don't crash and we're at Dow 30,000 in 2019, then these FU Stocks are my upside hedges against the losses of my downside hedges and all that CASH!!! we won't have a chance to deploy.

    And what Batman said! 

    Field declines/Latch – There's been a severe lack of E&P investment over the past few years and that's what's leading to declines, not "peak oil" finally showing up.  Speaking of which, it's crunch time on the contracts again.  

    Click for
    Chart
    Current Session Prior Day Opt's
    Open High Low Last Time Set Chg Vol Set Op Int
    Nov'17 51.93 52.25 51.67 52.06 07:37
    Oct 17


    -

    0.19 79262 51.87 171607 Call Put
    Dec'17 52.20 52.51 51.94 52.32 07:37
    Oct 17


    -

    0.18 77196 52.14 545285 Call Put
    Jan'18 52.40 52.69 52.14 52.51 07:37
    Oct 17


    -

    0.17 7134 52.34 292755 Call Put
    Feb'18 52.50 52.79 52.29 52.64 07:37
    Oct 17


    -

    0.15 2468 52.49 127257 Call Put
    Mar'18 52.58 52.88 52.38 52.71 07:37
    Oct 17


    -

    0.12 4532 52.59 240765 Call Put
    Apr'18 52.50 52.85 52.44 52.79 07:37
    Oct 17


    -

    0.16 1951 52.63 65028 Call Put
    May'18 52.49 52.87 52.43 52.68 07:37
    Oct 17


    -

    0.06 944 52.62 62097 Call Put
    Jun'18 52.45 52.82 52.32 52.62 07:37
    Oct 17


    -

    0.05 4572 52.57 197402 Call Put

    1.135Bn in the front 4 months is still bad but 171 is the key number with contracts closing on Friday so 4 days and more than 40,000 contracts a day to ditch means it's a good time to short /CL at $52 (with tight stops above – do I have to say that every time?).

    Dividend/Maya, Stock – If a company cuts the dividend and the stock drops in half, that's your opportunity to DD and the 20% dividend drops to 15% for you, not 10% but again, they have to be cutting for good reasons and not just to stave off BK another year.  Haven't Telcos been in decline for decades?  I would think it's a predictable drop-off at this point…

    And what Jet said!  

    FTR/Advill – Interest was $1.5Bn last year and $388,000 last Q on about $20Bn in debt so call it 4% on average.  So, if rates go up 1% then their payments go up 25% and call that a $500M hit to earnings.  So it's all going to be about what actual synergy they can get from the VZ deal and, of course, this Q has massive hurricane expenses, so we have to prepare for another dip before things turn around.