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Monday, February 6, 2023

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Monday Morning – Getting Set for Earnings Season

OK, so where are we? 

As noted on the chart on the right from Josh Brown, the chief selling point to investing in the US is we don't suck as much as the rest of the World.  This is a very compelling argument for people who are forced to live in the rest of the World – as you generally don't have to draw them a map for them to understand how much the economy sucks "over there."

The US is hardly performing it's historic role as the engine of Global Growth.  In fact, that's a role we ceded to Japan in the 70s and China in the 90s and they've both blown up and you might think it's up to us to take the lead but, before we drove the World's economic growth, there was a land called Europe – and they used to own the whole thing (or at least acted like they did).  

Europe made an attempt to reclaim their old glory by unionizing back in 1993 and, since then, they've slapped together 28 countries with 500M people and have gotten their GDP to a bit higher than the US, at $16.5Tn.  Global GDP is $60Tn so the US (310M people) and Europe (500M people) have more than half while the rest of the World (6,190M people) get to "share" the remaining $27.5Tn, which works out to a per capita of $4,442 each for THEM and $40,123 for US.  Yay Us!!!!

If you pull Japan ($6Tn, 127M people) out of them, it gets a lot uglier for the remaining THEM but, as Pink Floyd said:  

Us and Them

And after all we're only ordinary men

Down and Out

It can't be helped but there's a lot of it about

With, without

And who'll deny that's what the fightings all about

As we head into earnings season, perhaps it's a good time to reflect on what this all means in the bigger picture.  How do Corporations make money?  They sell stuff, right?  But that's only part of it – they sell something to someone else for more than they spent to produce it – that's where the profits come in.  So, if I'm AAPL and I want to make money selling IPads (ignoring Apps and peripherals), then I want to charge the consumer as much as possible for as many units as possible (the old Econ 101 demand curve).  

Once you find the optimal price and set your supply and sales targets, the next thing a good Capitalist has to do is try to produce the item for as little as possible (while maintaining a minimum level of quality so as not to harm demand).  With an IPad, as with most consumer goods, you have raw materials costs, parts costs, transportation costs and, of course, labor costs and it's the manufacturer's job to minimize all of these costs as much as possible. 

To a certain extent, this creates an efficient marketplace and the undeniable success of Capitalism has shown that it's the best at creating a ruthlessly efficient marketplace that excels at bringing goods and services to market.  

But, UNFORTUNATELY, that model has never been truly tested in a static growth environment.  For the past 100,000 years, we have had nothing but rampant global population and economic growth – with the exception of the Black Death in Europe in 1350, that wiped out about 1/3 of their population and caused a 100-year depression.

In the two decades since the EU was formed, roughly 1990-2008 (last available data) the US grew from 270M to 300M (11%), Europe from 460M to 500M (8%), Asia from 1.6Bn to 2.2Bn (37%), the Middle East from 132M to 199M (50%), South America 282M to 370M (31%) and Africa from 634M to 984M (55%).  That's much more of THEM and about the same number of US.  

Capitalism has shifted from a model of GROWING the US and EU economies (since our populations have become static) to manufacturing more goods cheaper to suit the Global economy.  This is how our standard of living can consistently decrease for the past two decades without showing up because our consumers simply stop buying at the local botique and switch to Wal-Mart, where you can buy dress shirts on sale for $6.99 – the price we paid in 1980 for a tee-shirt! 

This is how the Government gets to say there's no inflation.  Forget the fact that all the stuff you buy is a generally cheap imitation of the stuff you used to buy – it's cheaper PER ITEM and we now accept the fact that clothes and couches and washing machines and refrigerators are disposable – and we buy them over and over again as the decades pass.  On the whole, this is much more expensive for the consumer than, say, our parents generation, who generally had all of their parents and grandparent's old dishes and furniture – since it lasted so long.  

At a certain point, GE can't come up with yet another reason for Mom to get a new oven.  In fact, it was a running joke on 30-Rock that Alec Baldwin was in charge of Television Programing and Microwave Ovens at GE and he had to keep coming up with crazy ideas to excite people about them both.  It is, on the whole, so much easier for Capitalists to sell you a new thing if your old thing breaks.  So the general deterioration of merchandise quality is very much a benefit to our Corporate Masters.  

Does this boost the economy?  No, not really.  Because (and here's where the whole thing falls apart), the money doesn't magically appear.  GE sells you a new microwave every 5 years because your old one blows up and you don't think twice about it.  So, rather than buying one good microwave (assuming such a thing is possible) for $500 and keeping it for 20 years or so, you buy 4 microwaves for $250 each.   

The margin GE used to make on one good microwave was 20% on $500 because they had to have the best parts (less fault tolerance) and the most skilled labor to assemble them but now they need any Chinese housewife with a soldering iron.  The mark-up is 100% on a $250 oven and if it breaks in the first year (25% chance), they just give you another one and still make 60% overall.  Between that and selling 2x the Dollar volume of ovens, GE is very, very happy. 

Making more crappy products uses more resorces, which is bad for the environment and creates more landfill, which is bad for the environmnet and uses more shipping, which is bad for the environment and the cost of buying the same things over and over and over is bad for your retirement (it's $500 worth of microwaves less you get to save) – as is outsourcing your job overseas and not paying taxes in the US (because the Cororations transfer the bulk of the profits to overseas tax havens) and all that money leaving the country and not circulating locally is bad for the US and EU economies.  

This is where Capitalism is failing US.  And by US, I'm talking about US economically in the First World as the economic engine that built us has now been thrown into reverse and is sucking all the jobs and all the local away and feeding them to the multinational 1%.  If that money were going overseas and boosting the Global GDP, it wouldn't be so bad because, after a while – a rising economic tide should lift all ships.  

That's not what's happening.  What's happening is the Corporations have gotten ruthlessly efficient at scooping up the profits as they move operations to countries where they can pay the least and pollute the most – shifting those costs to future generations while the American sheeple head off to Wal-Mart and buy items that ultimately cost them more jobs and even more money over the long-haul.

But who looks that far ahead?  

 

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morning,

a couple of folks were either invested in or thinking about linn energy.  might want to read this prior to any activity.

http://seekingalpha.com/article/1535352-linn-energy-many-ponzi-like-mlp-blow-ups-to-follow

Pretty much took the weekend off from the site. Catching up now… Here are the lines from Friday:

Cracked the 50 DMA on Friday… And looking OK this morning.

Good morning Phil,

Looks like this guy's been reading your commentaries:

http://www.huffingtonpost.com/raymond-j-learsey/the-price-of-oil-speculat_b_3559398.html

FU MS!!!!

Shares of Priceline (PCLN) gain 2.2% premarket after Morgan Stanley upgrades the company to…

Monday, July 8, 9:11 AM ET

Shares of Priceline (PCLN) gain 2.2% premarket after Morgan Stanley upgrades the company to Overweight from Neutral on easing margin pressures.

STJ/Economic Calender~ Hi, could you post this week'e economic calender when you get a chance? I perfer your version that includes international events. Thanks!

Calendar / Invest – I actually didn't put one together this weekend! Too lazy… Sorry. I'll have one next weekend.

In that case, I think this link might be helpfull for anyone who needs international economic events: http://online.wsj.com/mdc/public/page/2_3063-globalEconomicCalendar.html

The bright side is gold… The rest is struggling. 

I moved CLF and BTU to the LTP, however, on the STP spreadsheet I am tracking what we are moving there below the current positions.

Phil – Speaking of the LTP, we have GOOG July 890 short calls that looked OK up to the end of last week, but that we might need to worry about if this continues. I'll post an update later.

Good Morning!

Gold up $19 and GDX up 1c?

FU GDX!!!!

Phil, I'm back from a along vacay out of the country. Right before I left you were having some fallout over SA and their eternal shittiness and were thinking about a similar sight that didn't censor every oil-scam related conmment or post. I just wanted to check in where you were with that and if something was going forward. I woukd like to help. -BDC

Back to earning plays… I'll put together a calendar of the interesting stock over the next 4 weeks.

millcreek – I have been long LINE since 2009 in my LTP at $13.  Am currently getting more than 20% dividend on that stock.  I also put on a spread last week which is solidly profitable.  Have relied on Cooperman to stay in the stock, as his analysis is usually superior to anything that appears on SA.  Thanks for the article, decided to take the spread off the table and keep the long term position.

BDC/ Phil: Site– I'll help out if you need it.

Phil–when does PCLN become a short?

I know it isn't a momo but shouldn't Europe hurt them?

The majority of their revenues are outside the US.

$1010 price target by MS

Coal stocks catching a bid.

Is there a reason why GDX is so weak compared what gold is doing today?

Even ABX is up iover 2.5% now?

Phil – Anyone sitting with big losses on ABX, rather than sitting and waiting for the stocks to come back, might want to move to AU for 31 days.  Check out the correlation between the two stocks:

http://finance.yahoo.com/q/bc?t=1y&s=ABX&l=on&z=l&q=l&c=au&ql=1

phil/golden corral  Just share that video with the kids, that'll fix 'em….. 😉

Phil,

As an exercise in damage control, would you suggest possible actions to address a long position in Line (Linn Energy). Long stock @ $28, short puts (1/14 strikes: $ 30 .75 now 7.55 and $35 @3.60 now $11 strike; 1/15: $30 @3.80, now $10? Thinking about selling $33 1/14 calls (1.45 now) to cover the long stk position; seemingly resistance 33- 35?

My confidence in the company has weakened given the revelations about their financial strength, the SEC inquiry into their hedging practices aside. Barron's articles seemed to have been digested/discounted before the SEC news which dropped Line from 33 to 22 in 3 days. Are panic (and/ short selling) moves like these usually reversed?  Your thoughts appreciated.

Thanks

VIX is rising, TRIN is rising….they are selling this rally.

Oh, GM.

LQMT just popped – dont know why ===

STP / Phil – Yup, that TSLA roll cost us close to $3K.

As far as the LTP is concerned, I have not moved the closed positions on CLF and BTU there so the losses are not counted twice. I think that it's going to be confusing no matter what we do because the LTP has already opened positions from 2 previous portfolios! At the same time, I think that it's fair to track these losses somewhere to reconciliate what we make on the STP against the losses we carry to the LTP! 

My plan now is to track the gains from the LTP on the positions we carried from the STP back to the STP under the closed positions with the original positions. This way, it should be more accurate. And not much more work anyway!

TSLA – downgraded by Bofa analysts who must have been reading PSW because they raise the same points as Phil. It's in TOS. I am on the phone hence can't post the link. 

PETX and INO….go go go

Here is the latest LTP update.

Phil – We have also in addition to the short July GOOG calls and short July NFLX call deep ITM now!

I am game for the new SA type site….

STP / Phil – Actually, the losses won't appear in the STP. But since we have all these old positions in there I wanted to start fresh with the stuff from the STP while keeping the LTP as is.

Pharm

PETX  Good  call Thanks

Phil,

Thanks for the detailed LINE guidance which I am digesting. I've been in the stock since 2010 (sold the puts to incr inc this year) on fundies, which have gradually deteriorated this year. Initiated as a long term holding; given tax status not a stock one can trade. However, as Keynes suggested, when the facts change one needs to change one's opinion – may be time to at least lighten up.Thanks again.

Phil–break out of your slump and call a bottom on the miners, please!!  😉

Phil – do you want to go off line? We need to decide how we want the content to work.

Krugman points out again that we are all Keynesians, even the GOP except when a Democrat is president:

http://krugman.blogs.nytimes.com/2013/07/08/political-inflationistas/

So what is it that makes these guys — whose analytical framework, when you come down to it, doesn’t seem very different from Bernanke’s, or mine — so hostile to expansionary monetary policy? What do they have in common? The obvious answer is that they’re all very committed Republicans. And it’s hard to escape the suspicion that what’s really going on is that they’re bitterly opposed to expansionary policy when a Democrat is in the White House.

We could have tested that proposition if Mitt Romney had won. But doing that test would have been a clear case of unethical human experimentation.

Phil/BDC -i'm in for alternate to SA

LTP / Phil – The AAPL Jan 14 calls are from the 25KP. The other AAPL positions are from the AAPL Money portfolio. 

TSLA also was not a big problem in the 25KP. The Income Portfolio is more an issue at this point and I will update that AH today as it takes time to reconciliate all the moves from the last 2 weeks!

Could they be more hated??

They say ABX $1600?? Huh?

http://finance.yahoo.com/news/forecasts-uglier-gold-miners-174513062.html

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