The Dollar is down a bit this morning.
That’s giving the Futures a bit of a lift as the Bank of England raises their overnight rates by 0.50, but that’s only to 1.75% while our Fed is now at 2.5% so they are still way behind and the British Pound is still down 15% against the Dollar from back at the end of 2020. That’s because money moves to whichever country is paying the most interest (credit ratings being equal(ish)), causing demand for their currency.
Lower currency values exacerbate inflation and stronger currencies mitigate it and keep that in mind as our strong Dollar (caused by the Fed being more aggressive than other Central Banks) is keeping Inflation from being much worse than what we’re already experiencing in the US.
Europe pays $7.50 per gallon for gasoline, $8.50 in the UK (no wonder Johnson was fired) and $11.27 in Hong Kong (which is why they all have bikes). As noted in yesterday’s Webinar, we are exporting 4M barrels of gasoline per day to countries who pay a lot more for it than we do. No wonder the refiners are making such insane amounts of money…
Meanwhile, just imagine it cost you $200 to fill up your tank? Then imagine having to do that once a week so you could report to your $15/hour ($600/week) job. You can see why so many people have simply given up working – it’s pointless.
We’ll get more on the Labor Situation in the US tomorrow with the Nonfarm Payroll Report at 8:30. 372,000 new jobs were created last month and Hourly Earnings were up 0.3% with Unemployment at 3.6%. We also get Consumer Credit at the end of the day and if that’s up another $20Bn for June, it will be a little concerning.
Revolving Credit is the main concern at $1.11Tn. As the Fed raises rates from 1.75 to 3.75% another $22Bn is drained from consumer pockets just to pay the interest – that is as much as the $35,000 take-home pay of 628,000 $50,000 jobs. Non-Revolving Credit is $3.46Tn and is slower to react to rate hikes but, when it dos, say goodbye to another $70Bn of spending power.
Americans are still shopping but, unfortunately, it’s all on credit.
Speaking of interest, the 10-Year Notes are now paying 2.67% but the 2-Year Notes are at 3.05% and that’s what they call “inverted” – when long-term rates are lower then short-term rates and it indicates a slowdown lies ahead but I would argue that this is not a normal inversion as it reflects the short-term aggressive Fed and the long-term rates simply haven’t accepted the reality that we’re not going back to ZIRP.
Still, A LOT of people believe that an inverted yield curve is a fairly sure sign of Recession and, as you can see from the chart above, it has been 7 out of the last 8 time’s it’s happened and here we are again – there will be a lot of hand-wringing about this over the weekend.
Phil / PARA earnings today thoughts?
Paramount Global Non-GAAP EPS of $0.64 beats by $0.02, revenue of $7.78B beats by $230M
Paramount Global (PARA),
Good Morning.
Good morning here are the links to the last 2 PSW webinars
7/27 – https://www.youtube.com/watch?v=8v5HDS_28VY
8/03 – https://www.youtube.com/watch?v=I1kYp3oPoYE
YETI is getting kicked in the cooler….
Talking to various contractors, consultants, labs, etc. – we are seeing a ton of running about regarding inflation and a complete failure in figuring out how to address this. It is worse than 3 months ago, and I don’t see anyone who knows what to do.
Phil – I have no broad short positions or hedges right now, I got out of stuff when we were about 10% lower. The only “hedge” would be calls sold against long positions. I always find closing a 3X hedge successfully difficult. I am thinking of the Dec 16 2022 $185-170 IWM put spread for <$4.5. Dec 16 so it is before the Santa Claus rally. Does this sound reasonable?
Good morning!
Oil is really falling apart now ($88.95), we’ll see what happens.
/RB $2.80 is nice too. /NG still over $8.
Indexes can be forgiven for pulling back a bit after yesterday but Dollar is down 0.5% – so not too much forgiveness.
Coper seems happy too.
PARA/Batman – 10% growth in subscribers despite removing 1.2M Russian Subscribers and still gets no respect! F other people, they made 0.64 per $25 share so trading around 10x for the year – as expected. Top Gun helped a lot though, we’ll see how they do without them for the rest of the year. Certainly not a stock I’d throw away.
YETI/1020 – Sounds like they are getting pushback on pricing. Still projecting $2.40 vs $2.60 prior so the drop to $45 is more reflective of a multiple contraction from nervous traders rather than the lowered guidance. Interesting that International grew 35% from Q1 with Europe having such a hard time – they need to bring that team to the US!
Also not metrics you want to abandon.
Inflation/Rn – It’s been a very long time since people have had to deal with inflation. I was explaining it to Jackie, who’s Advanced Econon teacher at Stevens is only 34 so he’s never actually seen inflation either. Think how many people at companies have no idea what they are dealing with and, these days – everybody has an opinion rather than there being actual conventional wisdom to turn to. That’s why some companies (with old people) are handling this well and others are freaking out.
We had liquidity (stimulus) driven inflation which came right on top of a wage inflation cycle ($15 minimums) that was just getting started and that all ran headlong into a demand-based inflation which is not very much growth but more of a scarcity of goods (supply chain issues) – ALL AT ONCE!
As to hedging, keep in mind that CASH!!! is a hedge if you have lots of it as KO, for example, is $63 and let’s say I have 20 2024 $55 ($11.75)/70 ($3.75) bull call spreads at $8 ($16,000) and 10 short 2024 $60 puts at $5 ($5,000) for net $11,000 so my upside potential is $30,000 and we’re about $15,000 in the money and my worst case is owning 1,000 shares of KO for net $71 (more than it is now).
So my hedge let’s say should mitigate the damage of KO falling to $45 – about 30% off and that would be about a $200Bn market cap and KO makes $10Bn a year – so a reasonable place to take a stand.
At $45, we’d be down $16,000 so we’d like to get an $8,000 hedge and you want to use IWM but only going out to December is a BET, not a hedge as you are making a short-term bet that IWM will be below $170 by mid-December or you lose. Also, going for December is going for much less-traded options than the Jans – something you were trying to avoid, I thought? The Dec $185 ($10.30)/170 ($5.80) bear put spread is $4.50 on the $15 spread so pays $10.50 if the market pulls back 10%. For $8,000 you need 7 contracts for $3,150 but that’s 1/3 of what you HOPE to make on KO so probably you are better off simply taking a more conservative spread you don’t have to protect so much, right?
SQQQ, on the other hand, is at $37 and a 20% drop in the market would pop it 60% to $60 and the SQQQ 2024 $40 ($15)/$60 ($12) bull call spread is $3 and pays $20 so $17 upside there and you only need 5 contracts for $1,500 to protect your worst-case for the entire 18 months.
It doesn’t need to be liquid because you are supposed to leave them in place – just like your long-term life insurance is not “liquid” either. But, in early 2024, if the $40s are still more than $3, you can roll them along to a 2025 or 2026 $3 spread (if you can afford to leave the naked short 2025 $60s) and then you have 2 more years of coverage for free.
That’s why we didn’t close the last round of portfolios after two years – it gives people a chance to see how we manage these long-term cycles and how powerful it becomes when you are able to reinvest for more time at much lower prices – you need to think of hedging as an investment – NOT an expense…
bloomberg just did a scary russia – ukraine possible nuclear war news release due to some situation i believe to try and stop oil going down market came back abit during same time.
LOL, those bastards!
What’s really a concern is Russia has occupied a reactor and any mistake there (poorly trained operators) could cause a major melt-down. The UN has been freaking out but Putin won’t let inspectors in.
CIM taking a hit:
The Western Union Company shares down after cutting FY2022 revenue outlook despite Q2 beat
WU -5.64%
Aug. 04, 2022 11:28 AM ET
https://charts2.finviz.com/chart.ashx?t=coin%20&ty=c&ta=1&p=d&s=l
See – people are freaking out already:
US natural gas inventory builds higher than expected
NG1:COM -1.28%
Aug. 04, 2022 10:30 AM ET
8 Comments
Mortgage rates retreat below 5%, first time after 5 months
HOMZ +0.68%
Aug. 04, 2022 10:19 AM ET
3 Comments
Rolls-Royce Non-GAAP EPS of -£2.24, revenue of £5.6B
RYCEY -9.96%
Aug. 04, 2022 10:09 AM ET
Europe probing Google Play Store for antitrust – report
GOOG -0.08%
Aug. 04, 2022 9:58 AM ET
1 Comment
Toyota Motor reports FQ1 earnings; raises FY23 guidance
TM -3.76%
Aug. 04, 2022 5:01 AM ET
Phil / MO holding some jan 2023 45 long calls (paid 4.58) from an old bcs(bought the shorts back). would like to roll to a 40/60 2024 spread. Still in learning mode for adjusting positions, I am familiar with just rolling down in price ie. pay $2.50 to roll down $5 but not sure of how to adjust when rolling both down to a lower price and for time? appreciate your thoughts.
Phil – any new estimate on an update and K-1 for PSW Investments?
Yes, that will be noted in general mailing.
MO/Boomer – They had quite a pullback. Rather than roll, I’d jut add a 2024 spread and give the Jan $45s (now $2.40) a chance to come back. For me, as it’s so cheap, I’d pick up the 2024 $40s at $6.45 and sell half the $47.50s at $3 for net $3.45 on the $7.50 spread. If MO goes lower, then you can roll down to the $35s ($10) or the $30s ($14.50) and help pay for that by selling 1/2 the $45s (now $4). That’s also when I’d sell short puts – the $40 puts are now $4.50 and the $35 puts are $2.85 so, when the $35s are $4.50 – that’s a good deal.
https://charts2.finviz.com/chart.ashx?t=mo%20&ty=c&ta=1&p=d&s=l
MO Boomer, Phil really sugests a new play.
I look at it a bit different. At present both longs are cheap. I roll the Jan 23 45 to Jan 24 40. Cost about 4.10. To ease the cost you can sell half the Jan24 40 put for 4.40. That is if you do not want to enter a compleat new play. Obviously the incomming tide lifts all boats. So I would hold back on the short call sale as they will go against you, if sold to early.
thx yodi, that was my initial thought as i felt i was running out of time to recover fully on the jan 23 call. That is what i will probably do, although i like phil’s idea for a new play on MO as well.
Kind of a blah day but pretty normal ahead of NFP.
Oil stayed dead ($88.39) and Nasdaq stayed strong so we’ll see what tomorrow brings.
Re. STP – I think we’re as hedged as we need to be for now.
I just said that: