by phil - February 23rd, 2017 8:30 am
Our Tesla (TSLA) short is looking good!
Despite releasing an earnings report that looks more like a sales brochure (and the CFO promptly quit, so he won't have to justify these numbers) it's pretty clear to investors that all is not well under the hood of the auto hobby shop. You have to make much more than 8,000 vehicles a month to be considered an actual "manufacturer" – in 1914, with 13,000 employees, Ford (F) produced 300,000 Model Ts while TSLA's 13,058 employees have only managed to produce 75,000 cars (mostly the Model S) in their "amazingly automated" plant.
You would think, 103 years after Ford invented the assembly line, that Tesla could do a little better but hey, give them a couple of more years and they might give the 1914 Model T a run for its money! Given the shortfall in production (90,000 cars were promised for 2016) and the rapidly bleeding cash position, the departure of the CFO and the massive dilution of the shareholders (SCTY was given stock), we're very confident the $2,163 short we gave you yesterday will return the full $7,500 on March 17th (up 246% in less than 30 days) so you're welcome for that and happy St. Patrick's Day!
Other than warning you not to buy the dip in TSLA, I've lost interest and am moving on. Paulo Santos wrote a great article analyzing their earnings if you are interested, but we have bigger fish to fry now that we're done with Tesla – no sense beating a dead horse, even an electric one. Just be aware that there are only 790 Super Charger sites in the US and that's 36% growth from last year – how do they get to 300,000 sales with that slow growth (and there are 114,533 gas stations)?
So, what else is going on in the World? Well, we scored a nice win on Natural Gas Futures (/NGV7) from yesterday's live Trading Webinar with a nice $1,190 per contract gain for our Members – not bad for a half day's work, right?
by phil - February 22nd, 2017 8:28 am
"The 7% Solution" was the "lost" manuscript of Dr. John Watson recounting his famous patient's recovery from cocaine addiction. In a similar manner, we have a market that is clearly on crack and, coincidentally, the Nasdaq Composite is up exactly 7% (5,350) from it's 5,000 line since Jan 1st – time for a bit of reflection indeed!
The real story to the Nasdaq is, of course, Apple (AAPL), which is up 19% at $137 from $115 at the start of the year. AAPL is about 15% of the Nasdaq so it's responsible for 2.85% of the 7% gain in the Nasdaq, which is 40% of 7% – that's quite a burden for one company to carry. However, we feel the move in AAPL is justified so it's not AAPL's value we're questioning but whether or not AAPL should have dragged his 99 brother and sister stocks up the hill with him or are they all irresponsibly flying too close to the sun and investors are about to get burned?
There are a lot of overpriced (by normal standards) stocks on the Nasdaq but I think Tesla (TSLA) can serve as a good proxy this evening when they report Q4 results (or lack thereof) after running up 53% since Dec 2nd, when they were at $181.50 (now $277). That's a market cap of $44.6Bn, just shy of Ford (F) at $49Bn and GM (GM) at $56Bn – even though TSLA produces just 50,000 cars a year and lost approximately $2Bn doing it. That's a loss of $40,000 per car people! How on Earth are they going to sell $35,000 cars if they are losing $40,000 per $90,000 car they sell now?
We're short on TSLA in our Short-Term Portfolio as this Q should include the "earnings" of SolarCity, Musk's solar venture which had been bleeding cash before TSLA acquired it. Musk has to check a lot of boxes and explain how he's going to sell over 100,000 Model 3s in 2017 when there isn't even an actual car yet. Our short play is this:
by phil - February 21st, 2017 8:38 am
Up, up and away!
The markets are looking well-rested after a long weekend and US Futures are once again off to the races – for no particular reason, of course. Who needs a reason when things are going to be so great – again? Things in Europe are pretty great, despite the rampant Socialism and, ew, immigrants – as Eurozone Business Activity jumped from 54.4 to 56 in February – the best reading in 6 years.
Those fools are still following those failed Obama-style policies the Trump team has vowed to reverse as quickly as possible so let's hope the President will be able to save us from impending prosperity or, even worse, successful diversity and that disgusting goodwill towards refugees and don't even get me started on free trade, free medicine and housing for the poor – it's a sick, depraved state and they're not going to fool us with all their "success" – we know a Socialist plot when we see one, right?
Fortunately, our Top Trade Ideas (see review here) since the election have been 95% bullish with 11 of our 14 November/December picks already making money (they are generally long-term trade ideas). The 3 "losers" (so far) are certainly worth a look, especially our lone bearish hedge using the Dow Ultra-Short ETF (DXD), offset with a short put on Bed, Bath and Beyond (BBBY), though the original trade is down so the new set-up would be:
- Sell 10 BBBY 2019 $35 puts for $3.45 ($3,450)
- Buy 40 DXD July $12 calls at $1.30 ($5,200)
- Sell 40 DXD July 16 calls at 0.35 ($1,400)
The net of that spread is $350 and it gives you $12,000 of upside protection if DXD goes from $13 to $15, which is up 15% and DXD is a 2x short so the Dow would have to fall 7.5% to collect in full but, at $13, the spread is $1 in the money and pays $4,000 (a $3,650, 1,042% return on cash) if the Dow simply doesn't go higher than 20,600. That makes it an excellent hedge.
by phil - February 20th, 2017 7:45 am
The pressure is on!
Top Trades has become one of Philstockworld's most popular Memberships and that's a shame because I actually hate trading services that just give out trade ideas. Unfortunately, that's what the market demands and, though Top Trade Members miss out on the trading education and deep discussions we have in our Live Member Chat Room, they usually do get a lot of great trades.
That is, until September they did! In our first year of Top Trades, beginning in August of 2015, 96 out of 119 Trade Ideas (80.6%) were immediate winners and half of the initial losers turned around over time and became winners as well. Perhaps it was shooting fish in a barrel in a bull market. Unfortunately, our second year got off to a rough start, with just 7 of our 16 ideas in September and October winning by Dec 10th (we have to give them some time before reviewing). Of those 9 losing trades:
- ERIC is improved but still red
- TEVA has not improved
- MON is now a winner
- CMG is a home run
- SGYP is a huge winner
- LL got worse
- TASR is now a winner
- TWTR still in the red
- JO was a winner but now a loser again (wild swings)
So 4 of our 5 losers are now winners and these are long-term trades, for the most part – it's not like we can expect every one to win immediately. The point is that these reviews are simply initial snapshots to see how we're doing – in case our trade need adjustments in their early stages – they are far from the final word on these trades. In this month's review, we will pick up in November and review the next two months.
The secret to our success in Top Trades is PATIENCE!!! Patience is the hardest thing we try to teach our Members at Philstockworld as it tends to take years of practice and the nice thing about the Top Trades Membership is that you don't have a choice – we make…
by phil - February 17th, 2017 8:42 am
2,002 trading days.
That's how long this bull market has been going on. That is also exactly how long the 1920s bull market lasted so today is the great Crashiversary of that historic event – happy Black Friday to you all!
There is, of course, no reason to expect a significant correction today – we are simply passing a milestone that makes this the longest bull rally in history (assuming we survive the day). Of course, like many pre-crash markets, the volume sucks:
"For decades rising volumes have preceded a rise in prices in the stock market. Likewise, declining volume leads to a decline in prices,"Michael Paulenoff of Pattern Analytics said.
"Right now volumes are 50% lower in the S&P than they were in the weeks leading up to the November election when the markets saw a streak of declines," he added. "The VIX is all messed up, we are somewhere around 11 and 12 when we should be at 8."
Using Fibonacci levels, a technical analysis tool used by traders 'to identify strategic places for transactions to be placed, target prices or stop losses,' Raymond James identified the resistance point for traders to exit the market the S&P 500 at around 2,335, right above the current level of 2,349.
For me, I don't buy into that technical mumbo-jumbo. I think the market is going to pull back simply because it's ridiculously overvalued and is not taking into account all the potential negatives that lie ahead including Trade Wars, Currency Wars and Rate Hikes – among the things most likely to happen before Q1 ends in 45 more days. At which time we will have to face the reality of Q1 earnings – the ones that are supposed to be flying higher to justify these ridiculous valuations.
By the way, you are welcome on oil – down another $500 per contract on /CL Futures and that's $2,000 worth of winning oil plays alone that we've given you this week so don't tell me you can't afford to subscribe you cheap bastard! More to the point – can you afford not to in this trading environment?
by phil - February 16th, 2017 8:04 am
How many ways can they tell you?
Every Fed speaker this week has indicated that rates will be going up sooner than later and CPI and PPI coming in at DOUBLE expectations yesterday indicated the Fed is already behind the curve on raising rates and Yellen, yesterday and Tuesday said to Congress "if we do not raise rates we run the risk of causing a Recession" – seems pretty clear to me. Still the markets are only pricing in a 41% chance of a hike at the March 15th meeting – beware the ides of March indeed!
The Fed needs 3 hikes in 2017 and if not March, we're left with May 3rd, June 14th, July 26th, Sept 20th, Nov 1st and Dec 13th. They won't want to raise two meetings in a row so, if not March, then May is a must and every other after that but May is a long time to wait when inflation is double your expectations on Feb 15th. So, unless CPI and PPI have substantially calmed down over the next 30 days – expect a rate hike at the March meeting.
Another thing that's gotten ridiculously inflated is the S&P's Price to Book Value Ratio, now back over 3 for the first time since the catastrophic top of 2007. Ah, good times…
The Book Value of equity is an accounting measure that is based on the historic cost principle, and reflects past issuances of equity, augmented by any profits or losses, and reduced by dividends and share buybacks. Essentially, it's the price a buyer would be expected to pay for the company, as is, in a takeover or liquidation. The Price of an equity is nothing more than speculation on the future value of the company so a PBV of 3 indicates you are paying 3 times more than the stocks are actually worth.
Now, the average company is not going bankrupt, so it's normal to pay something for the operation of the company and your expected future income but 2-2.4 is a more normal PBV, not 3 – 3 is simply about 30% too expensive.
Of course, President Trump promises to lower those nasty taxes but, as…
by phil - February 15th, 2017 8:26 am
We're back from Las Vegas!
As you can see, the trip was easily paid for with an instant $5,000 winner on our Natural Gas (/NG) Futures trade and you didn't even have to be in Vegas to play as I put a note out to all our Members in the live Member Chat Room saying:
/NG round tripped, chance to load up again at $2.90.
This morning we took the money and ran at $2.97 along with $500 per contract on oil at $52.80 but we're still long on coffee (/KCN7, now $147.50) and short on the Russell (/TF, now 1,395) – there's always something fun to play in the Futures! In fact, there seems to be a lot of demand for an all-day Futures Trading Workshop so let us know if you are interested and we'll see if we can find a date to hold one of those and, of course, we often find good Futures to trade in our weekly Live Trading Webinars – and we have one today at 1pm, EST.
As I noted in yesterday's post, we found some stocks to trade during our weekend seminar and so did Warren Buffett, who followed us into Monsanto (MON) as well as Apple (AAPL), with Berkshire adding 42M shares at about $5Bn – a LOT more than we paid but still a lot less than it is now.
Of course, if you still want to buy AAPL for $120 or less, you can – just use our very simple system for buying stocks at a discount, which will be featured at the NY Money Show on Feb 27th, when I teach a 1:30 class on the subject that will apparently be live-cast (so I guess I'd better work on some slides!).
Anyway, without all that tedious actually LEARNING how to give yourself a discount on almost any stock you want, the way I would trade AAPL at the moment is — WAITING FOR IT TO PULL BACK!!! What, you think I'm some kind of TV huckster who tells…
by phil - February 14th, 2017 8:30 am
That's a lot of money. They claim the forward p/e of the 500 companies that make up the S&P 500 is only 20 – based on growth expectations, tax breaks, etc. That would be $1 TRILLION in earnings for just 500 companies and the S&P 500 is about 1/3 of the total US Markets so $60Tn and $3Tn in earnings for our mighty US stocks is very nice.
Why then, do these companies pay just $341Bn in taxes? That's only 11%. Why is it the top priority of the Trump Administration to LOWER Corporate Tax Rates so they can pay less and you can pay more. Why are we providing stimulus to Corporations, why are we taking away their regulations when they are underpaying their taxes by 66%?
So congratulations to the S&P 500 at 2,300, crossing the $20Tn threshold – I guess the average American would be doing very well too – if they only paid an 11% tax break, got massive stimulus packages, 0% interest loans and were bailed out by the Government whenever they screwed up. Big Government is a bad, bad thing – unless it's your Sugar Daddy. Sorry kids, Uncle Sam already has 500 dependent children he's taking good care of, he can't be bothered with 320M of you!
Well, you can't fight the tide (believe me, we've tried) so you may as well join the party and BUYBUYBUY the companies that benefit from our Nation's Generosity and, best of all, if we hold them for a year – we only get taxed 20% on those gains (soon to be 15% again – thanks Uncle Donald).
What? You are not rich enough to invest in equities? Well, go away then – didn't you hear, we won the election – the country decided and now it's PARTY TIME for the Top 1%! Soon the Trump administration will begin selling roads and bridges and water systems to private companies who will "tax" the living crap out of you with tolls and fees so they can "recover their investment" in the roads…
by phil - February 13th, 2017 7:00 am
The Oroville Dam, in northern Californa is in "imminent" danger of fialing, forcing the evacuation of several towns along the Feather River. If the dam actually breaks, prepare for a very real break of confidence in the markets because the elephant that sits in the room of the US economy is more and more our crumbling infrastructure and a serious incident like this will bring it right to the foreground and the situation is dire indeed.
For one thing, our disaster response capabilities are woefully inadequate. As we saw in New Orleans years go, we simply don't have enough National Guardsmen to deal with real disasters and the State of Califonia has put their ENTIRE force on alert for this potential catastrophe – all 26,000 of them.
That's right, just 26,000 National Guardsmen in a state with 39 Million people facing a castastrophe that is putting 70,000 homes in immediate danger of Katrina-like damage. Things can get ugly very fast if the shit hits the dam….
But the real disaster will hit the markets because it's very abstract that the US has a grade of D+ according to the 2013 infrastructure Report Card and, at the time, we needed $3,600,000,000,000 ($3.6Tn) to make necessary repairs. President Obama repeatedly was blocked by the Republican Congress from making improvements of any kind, with last year's $478Bn request dying 52 to 45 along party lines. The Oroville Dam was one of the emergeny projects that would have been fixed – thanks GOP!
“It is disgraceful,” Senator Sanders said. “No one denies our roads, bridges, waste water plants, water systems and rail are in a state of collapse. We used to lead the world in infrastructure, but now we’re in 12place.”
He added, “This amendment proposed $478 billion over a six-year period, which would not only rebuild our crumbling infrastructure but would put some nine million people back to work for the creation of new jobs."
by phil - February 10th, 2017 8:39 am
That's right, nothing gets the market going better than promising a chicken for every pot and yesterday we had the President promising a "phenomenal" tax cut package in 2-3 weeks, as well as reiterating his pledge to "roll back burdensome regulations." Meanwhile, the St. Louis Fed President Jim Bullard said rates can remain low through all of 2017, saying the Fed may only raise rates once this year - two less than expected!
This is nothing more than the classic 1920s Republican Playbook with Trade Tariffs, Deregulation of Industry, Lack of Financial Controls, etc. aimed at creating a false sense of prosperity while money is "hoovered" up by the rich until the economy collapses only this time they have to dismantle that pesky social safety net that was put in place after the last time they destroyed the lives of tens of Millions of families. Go GOP, go!
Meanwhile, as we expected, oil is being talked up into the weekend and we are very close to that $54 line again, boosted by the IEA report which says OPEC's cuts are 90% effective with production down 1Mb/d in January at 32.06Mb/d. PLEASE forget the fact that production was 31.5Mb/d before OPEC ramped up production ahead of the "cuts". Yes, I know, you already forgot, didn't you?
Remember, their original plan was to ramp up production and drive US shale producers out of business. That plan failed so their new plan is to stop producing all that oil nobody wanted anyway and call it a "production cut" and spin it as a reason to drive oil prices higher, which is working great so far as last February oil was $30/barrel and now $54 is up 80%, even though the US just had a 13.8Mb build and we are swimming in oil.
It's all done in the name of screwing over the consumers. Gasoline has jumped 10% from $1.46 on Tuesday to $1.60+ this morning (and a great short into the weekend at that price on /RB), which will cost US drivers about 0.20/gallon at the pump so about $3 per tank/per driver is a nice $150M bonus for "THEM" over the weekend (see this week's posts for more on…