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Sunday, January 29, 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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USO Aug  35 puts down even though USO down 17 cents?

Phil – I am a longer term investor doing mainly LT buy writes. It seems that the site's emphasis has changed to shorter term trading and then rolling these into a LT portfolio if they go bad. I am wondering if there is going to be a portfolio for us LT types? I have some losing positions which the LT salvage techniques certainly help with, but I don't get into many of the ST positions because so many stocks near highs. I have done trades in the basic materials and miners because they seemed at the time to fit the criteria, so I am working salvage on them.

 I try to be patient and wait for my target prices which are related to either long term lows or LT areas of support. What are your suggestions for followers like me who are looking for more LT plays? 

Butterfly on ABX Jul 19 2013 14/15/16 for 20c.

Gold prices / Jabo – These costs don't match what ABX mentioned in their last conference calls. Either the chart is wrong or the ABX CEO and CFO lied which I doubt they would in an earnings CC. And I don't see them losing $300/oz on production. It would be suicidal I think, especially with their debt load!

But at $1235, they are clearly not making any money! And extraction costs will keep on getting higher and higher as the "easy" gold has been mined already. I would think that it's bullish for gold prices. The correlation with miners performance unfortunately is not that strong.

Hi Phil.  "Salve" from.  Positano, summer vacation for nearly 30 years. Been following the discussion  at a distance last  few  weeks, not much new.  Thinking that "sell in May and go away"  has been upgraded to "hold."  Many Americans here, can't be all bad. English same as always, more Kiwis, Aussies, Russians, Koreans and Chinese than in the past.  You are VERY quiet on oil .  Losing conviction?

All of the plays I do in the IRA Portfolio are intended to be long term plays.  If your timeline is longer than mine, instead of selling a put spread one month out, just sell a naked put 1 year out.  As long as you keep track of what your initiating trade was, I can help you should the position get into trouble.  Something along the lines of "Back in june I sold a PUT in ABX and hell has brocken loose, what do I do?" I can answer just fine.

Phil your r Earnings are the 24th, after expiration so no reason not to roll the 4 short $195 calls ($34 = $27,200) to 10 short $225 calls ($7.40 = $7,400) as  that's half premium at $229 and then we'll roll to 10 short Aug whatevers give us $20,000 ahead of earnings (currently the $230s). olls on NFLX some riddle to me.

You roll 4 195c to where to 225 callers do you roll 4 and sell six more to which month I take it Jul??? lots of pieces.

More low volume BS.

Greetings,Am a new immigrent to Phils Country ( World ). 60-70% homework done, ( need to watch Back to the Future 2 again ) Starting with 5K – Anyone have advice on how & where to best use talents & opportunity here ? Thanx

Craig – thanks I have been doing some of your trades and have studied your comments and IRA port in WIKI. Very good guidance and explanations. I plan on following more of IRA trades. 

Thanks Phil. Always glad to have your input on my plays. I'll just track myself and ask when I need help. 

Starting with 5k is going to be a little tough.  But a good way to start would be doing the following trades,

1.  Pick a stock which is on support and sell a 1 strike out of the money 1 strike wide PUT vertical.

2.  Pick a stock which is up against resistance and sell a 1 strike out of the money 1 strike wide call vertical.

3.  Pick a stock which has been range bound and buy 1 calendar spread.

4.  Pick a stock which has been range bound and sell a 1 month 1 strike wide iron condor.

In total you shouldn't risk more than $300.  After watching these for a month you will get a sense of how the different option plays respond to different market conditions.  Then next month you can get a little more creative and ratchet your risk up a little bit.  After 6 months of doing this you understand how just about all possible option plays will respond to various market conditions because every option play is just a combination of one of those 4.  Unfortunately, you need a bit more capital before you can begin to do some naked option plays as you might wake up one morning and find that margin on a naked put you sold has gone from $200 to $1000 and you ran out of buying power.

Agregator / Phil – Well count me in… This should be fun!

Phil NFLX thks very clear now

Anyone find TUR ETF tempting?

May US consumer credit +$19.6B vs +$12.5B expected

April consumer credit revised to $10.9B from $11.05B

Revolving credit +$6.6B

Non-revolving credit +$13.0B

Phil

 

I would be interested in joining the Content Aggregator Project:

Stjeanluc

What portfolio is ABX trade in?

Thanks

ABX / qcmike – We are in a Jan 15 18/33  call spread in the Income portfolio with a short 25 put as well.

FU GDX!!!

FU ABX!!!

Aggregator/Phil – count me in as well.  Starting the busy season at the job through November, but would be happy to be a part of the team and I have an overabundance of time come January for the first half of the year each year.

New Post….finally.  Sheesh what took so damn long.

BTU – nice bump for the day! I'll take it!

Aggregator – OK, I'm in, but how serious are we? Could it be a BBW project? 

Bubbles / Phil – What could make it worse for China is that it's not a consumer based economy. If bursting their bubble also hurts their customers (i.e. the rest of the world) who will be left to pick up the pieces. How many rounds of 30% of GDP stimulus can they have left in the bank? It could be argued that Japan in the late 80's also an export economy, but they had a robust consumer base already so a different case. Same for Korea.

zeiklegg:  Welcome aboard.  In terms of asset allocation on $5k, I would put aside $20 for a bottle of Xanax.  Or you could papertrade, as Phil suggests.

zeillegg

Frist thing you must do is find out what your broker allows. My understanding is to sell options you must have $25,000 in the account. Not the end as covered and an occasional buy for very short term, like USO puts.

Phil aggregator

I'm in on that. Love to write when I spend time to proof and correct. Chat I tend to let all go for speed.

Germany / Phil – The difference might be that Germany doesn't build empty cities! I guess it's all in what is actually being built. As we all know, we could use a couple of $Tn of infrastructure spending in this country!

Speaking of Germany, I have read that they will stop subsidizing solar energy in 2018. Of course, all the programs there are so successful that in some cases they don't know what to do with all the energy being produced by households solar panels! I read that in France the excess production was actually detrimental to the grid. But then again, who is responsible – in France, the national utility was buying solar energy for something like 4 times what they sell it for!

Phil – not looking for profits, just looking to make sure its worth everyone's time. To put in a bunch of work and just get an aggregator doesn't sound like success. If we're going to do it, maybe we design a real business plan, with how it should be done, raise a little of our own cash, have a regular commitment on the part of our team for articles to get us going, add a business plan, and then go to the kickstarter community. As you have noted many times we don't have much of a press anymore, and this might be (long term) our contribution to battle this. If we're going to take it on though, I want to do it!

Phil- Looking to get some advise on a roll. I hold the following position in ISRG

short 490/Long 485 this weekly calls. They pre-announced and the stock is in the crapper, down 60+. I believe the open would hove around the 440/450 range unless there are downgrades with PT below the 440 level. Any suggestions on how I can redeem my sins with this one?? Thanks

Thought this was interesting: 

Intraday put volume on Barrick Gold Corporation (USA) (NYSE:ABX) is about 67% higher than usual and 50% higher than call volume. One of the more active strikes is the weekly 7/12 13-strike put, where greater than 3,100 contracts have traded — 90% of them at the ask price, suggesting the puts were purchased. Because open interest at the strike is just over 700 contracts and implied volatility has skyrocketed by roughly 22 percentage points, we can say more specifically that the puts were bought to open.

Apparently, today's bears are betting on additional downside for ABX, which has already shed about 60% year-to-date to land at $14.05. In order for the wager to pay off, the traders need the underlying to sink to $12.87 — the strike price, less the volume-weighted average price of $0.13 — by this Friday's closing bell, when the weekly options expire. If the move doesn't materialize, however, the most they can lose is the initial premium paid.

Today's pessimism toward ABX is just more of the same for the gold producer. In the last 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's put/call volume ratio is 0.55. The figure ranks in the 76th percentile of its annual range, confirming that puts are being bought over calls at a faster-than-usual clip.

As a result, the stock's Schaeffer's put/call open interest ratio (SOIR) stands at 0.67. The reading is higher than 73% of comparable readings taken in the last year, which means short-term put open interest is elevated — today's activity being just the latest example.

As alluded to earlier, Barrick Gold Corporation (USA) (NYSE:ABX) is a technical laggard. Beyond the raw number cited above (i.e., the year-to-date loss), the mining issue is struggling on a relative-strength basis, as well. In the last three months, it has trailed the broader S&P 500 Index (SPX) by a whopping 45-plus percentage points.

NYSE seems to be lagging badly now and hitting its 50 DMA. That line is also flattening now. Russell hitting all time highs though! And room to run for the Dow and S&P!

The gold future is just up 1.17%. I thought it was donw! 😉

http://www.cnbc.com/id/15839171

Phil/Pump & Dump writers: 

How would you stop them on your own site?  It is getting kind of ridiculous!

Good morning!

ABX: Barrick Gold trims covenant cushion: Bloomberg writes that planned asset writedowns are cutting ABX’s net-worth by ~40%. This leaves the company with a cushion of as little as $4.1 billion before it breaches the “consolidated tangible net worth” of at least $3B. Bloomberg

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