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Terrific Tuesday – What Could Possibly Go Wrong?

I love market bubbles – people just lose their minds!  

On the right is a picture of Jeff Bezos' desk, according to the MSM, as they speculate about which company Amazon (AMZN) will buy next now that they have devoured Whole Foods (WFM).  This, in turn, drives the price of these stocks (and their sectors) higher on an endless wave of speculation which then forces companies that are looking to make acquisitions to overpay for their targets – before things get too expensive and pretty soon everyone is buying everyone else.

Exxon bought Mobile, Volkswagen bought Rolls Royce, Equitable Bank bought PCI bank, Bank of America bought Countrywide, Sears bought KMart, HP bought Autonomy, Mattel bought Kevin O'leary's Learning Company for $3.6Bn – and we're still suffering with the consequences of that guy being a Billionaire!    

Not all M&A is smart, Sprint spent $36Bn for Nextel and Sprint (S) is now valued at $31Bn total, Time Warner (TWX) bought AOL for $111Bn and TWX is now worth $77Bn total – the list goes on and on with massive M&A failures and they usually come in toppy markets where companies have no way to expand their natural business so they seek to mask that fact by buying other companies – the way Tesla (TSLA) just bought Solar City (SCTY) to help justify their 300x p/e ratio and the way Amazon is buying Whole Foods who's $500M in profits on $15Bn in sales with a $14Bn valuation gives them a p/e of 28, which is an incredible bargain compared to AMZN's $475Bn market cap on $136Bn in sales and just $2.4Bn in profits for a p/e of 198.  

Image result for amazon p/e ratioI'm not saying AMZN buying WFM is a mistake – it's a good move for AMZN as it drops their p/e from 198 to 163 so now it only takes 163 years for AMZN to make the $995 you pay for their stock – what a deal!  I'm just saying maybe the whole thing is silly and AMZN should be trading at, at most, 50 times earnings which, even if you assume that WFM is a brilliant acquisition and they double profits over the next 24 months to $6Bn, would be $300Bn or about $600 share.

That's all I can see for value on Amazon and that's true of many, many companies that are trading at ridiculous multiples of earnings.  How are they all going to grow and double up their business?  The US Economy is barely growing at 2% and the Global Economy is staggering along at 3.2% so what is the premise for what would literally have to be World-beating growth?  

Sure, Amazon has a catchy story – they are going to take over the World and be the only retailer on the planet and that's a $10Tn industry so why not value them at $1Tn now – to get ahead of the crowd?  Only, as with robots and AI, we don't take into account the flip side of that coin.  What happens to the tens of Millions of jobs that get displaced by these "disruptors"?  AMZN will shut down malls and throw all those people out of work, TSLA will shut down auto dealerships and gas stations,  NFLX will kill all the movie theaters and cable companies… 

Amazon has 341,000 employees generating $135Bn in revenues at $395,894 per employee.  Whole Foods has 87,000 employees generating $15.7Bn at $180,459 per employee – seems like cuts will be on the way as Amazon makes Whole Foods more efficient.  Wal-Mart is efficient but they have 2.3M employees to generate $485.9Bn in revenues – that's only $211,260 per Wal-Mart Employee.  What happens to 1.1M employees at Wal-Mart when AMZN "wins"?  What happens to 5M retail employees in the US?

Image result for jetson pushing button animated gifIf "winning" for AMZN leads to 20% unemployment – who will have money to shop?  The pie (GDP) isn't growing fast enough for millions of people to find other work, no matter how many coal jobs Team Trump claims (falsely, of course) they have created or saved.  I'm not a Luddite, I think automation is great but, when we get to the point in society where you only need one guy to turn the Ford machine on in the morning and cars begin popping out – what happens to everyone else?  

It's not being lazy when there are no jobs and even if the rest of retail simply has to cut back on staff to compete with AMZN, it's the humans that will ultimately be the losers and, so far, you can't grow the GDP without humans (they are working on it in Japan though).  That means all this "winning" will likely lead to another massive Recession – unless you want to start handing out money to the poor using a Universal Basic Income or something like that to enable the unemployed masses to keep consuming.  

While these are long-range problems, remember that it will take Amazon 198 years to make $995 at it's current rate.  Even if they speed up considerably, the jobs will be gone and the economy will collapse (due to the very success that is assumed in their stock price) long before you get your money back.

That's why we're short AMZN up here, as well as TSLA at $380 – also ridiculous but for other reasons as well.


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  1. Good mornin Sunshine.

  2. FU NAT!!!!

  3. Jabo – atta pepper, LU2 Sunshine.

  4. FU TSLA!!!!

  5. Have to add more lines!

  6. Good Morning.

  7. Good Morning

  8. I would be interested to hear some explanation from conservative members on what is going on in the Senate with the healthcare bill. There is that North Korean feel – vote on the bill, don't look at it you fools! I understand that Cuba will ban travel to the USA until we reestablish a democratic process.

    In some ways, it's so undemocratic – the Senate is not proportional to the population – small states are over-represented there. It would be OK if there were protections for the minority like hearings, amendments like the process we saw for the ACA (remember these times). But not this process. Oh well, we now have a precedent – don't complain if next time the Dems hold the senate we push through a single payer system with 50 votes and the VP. End of rant.

  9. Good morning

  10. Is $50 oil the new normal?

    Let’s talk about the oil crash. It began exactly three years ago today. Brent crude hit $115 a barrel and then, for no apparent reason at the time, it started a descent. This turned into a collapse. And then a crash. WTI West Texas Intermediate fell from $107 into the low 30’s. It is still 60% below its peak today. Two hundred oil company bankruptcies and thousands of layoffs later, and the industry has found a way to cope. I’m going for it anyway.

    Whereas $50 oil was once considered disastrous, now it’s the new status quo. Fields are being developed again – albeit cautiously. Production is expanding – also cautiously. Investors are being more deliberate about which projects they want to fund. Profits are now rising year over year and the majors and declared their dividends safe.

    Even better than merely surviving, producers and consumers have actually come around to the idea that current prices are better than the old highs. We have a habit of doing this sort of thing, it’s a genetic coping mechanism written into our DNA.

  11. TSLA close to agreeing to a production plant in China, hmm, seems I heard this story before, oh yeah, it was almost exactly a year ago on 6/24/16:

    and 5 days later, Musk denies it, took him 5 days to deny it:

    Maybe it's legit this time, but I'm a bit skeptical that the timing of it is days before a secondary could be announced.  Not to mention the following factors if it is done:

    -TSLA doesn't make money on their cars now that giving up 50% of that is not really a reason to be bullish on the company

    - F and GM are in China already with F selling over 1mm cars and GM over 3mm so not like TSLA is breaking down the barrier to China

    That being said, I wrote 390 call yesterday for this week when the stock was close to 376 and I will be flipping them to the put side today, probably 362.5 puts and hold my long covers.  Short interest is too big and TSLA investors are idiots.  Can't fight the squeeze.

  12. /KC-goes down crashing

  13. Anymore on /KC I take a point gain and then set a tight stop.  

    I gues Phil's /CL is now down somewhere around 24k?  I'm still looking for another leg down in /CL and then a bounce.  

    If /RB can get under 1.41 for 3min I'd expect to see 1.395  

  14. Every time I trade oil I promise myself I won't do it again….and here I am back in and hating it. I have 4 avg at 44 ish at the moment. 

  15. Ok, so at 43.25 I decided to stop out and wait for them to find a bottom. I'll put those 4 back on when I feel like that's happened. Possibly 5. 


  17. Getting efficient Jabo or maybe just trying to limit damages to the keyboard!

  18. stjean..hilarious

  19. FU keyboard!

  20. CL/Jeff - I am long 4 @ 44.15 and feeling the pain too.  Hanging in there like a hair in a biscuit.  

  21. Good morning!

    Oil is a catastrophe this morning.  Hopefully it's because of the rollover but painful to watch if you are long.  

    2,450 still a good short on /ES, of course and 5,780 on /NQ and we even hit 1,420 on /TF again.  Dow is unprecedented at 21,450+ but below that line will confirm a move lower for the day.

    Dollar still strong (ish) and that's keeping /NKD happy as well:

    Coffee also out of favor:

    Big Chart – Interesting if the Nas can't get over that 20 dma but the RUT has plowed higher so realy not the best environment to short into. 

    Senate/StJ – The election is still 1.5 years of rule changes and gerrymandering away – the Dems may never hold power again if this is what they are willing to do to shove an unpopular bill through.  Guaranteeing red states stay red will be very popular in the red states.  

    Profit chart/StJ – Interesting number of Chinese companies with good middles.  MO is a big winner (PM too), GILD also fills their circle almost completely.  V is stronger than I thought, TSM also surprisingly profitable.  

    TSLA/Rustle – On the other hand, they could partner with China and lose half as much!  cool

    /CL/Burr – Yep, back in coach at this point!  

  22. FTR JO WTF???

  23. Looking @ /KC on a weekly chart, we really are fighting the trend here.  It seems dumb to be a bull right now.  1.2385, over a 2% move down in a day.

  24. Jabo – Atta Pepper, had me worried for a moment, but all is as it was before.


    Thank you Jabo..had to say it!

  26. Sold 1/3 of my OMER.  Bot at 16.15ish two months ago.  Sold for 25.25

  27. I set up a small portfolio at Tastyworks to check the commissions on small positions. I put in all the above. Everyone is down today except ctsh which I want down!

  28. Phil / AI and employment ;

    Your question is the most important question since we decide how to chase and hunt mammoths…and we don´t have a Ricardo or Smith to answer it.

  29. Hanj – Very nice on OMER.  Wish I'd joined you.

  30. Latch, Craigs, StJL – OIL –  "If we follow last year's patter, we'll be at $40 before we see $50… inventory overhang, shale drillers and neutral demand all lead to lower rather than higher.  If the dollar was stronger, CL would be in a real bind."

    Glad to see cognizance. Been beating the drum on June – July patterns for oil, mid year contraction in monetary flows, the Hacienda, post July 2014 QE cessation collapsing oil,  and overall signs of economic contraction since late Q1.  As previously Nattered, the June FOMC minutia indicated who, what, where and how the current punch bowl of Fed roll overs and excess reserves would be gradually taken away.  Again, we suspect the final piece of critical information is coming July 5th in the release of the minutes. viz. like the Guardian, temporal proximity as in WHEN and Out.

  31. Buying TCEHY now.  And will add AMZN on a pullback and short WMT.

  32. Phil in Forbes…. Phil Davis, CEO, of PSW Investments and has several great market calls, told me, "We haven't had a proper pullback. All we have had are, minor intra-day corrections, that quickly reverse. I think if we had a real pullback, of 5-10% over several days, people would freak out."

  33. Nat – switching to the FED…..are you prepping for the market to finally understand what the implications of the Fed's QT plan in Q4 potentially mean for them (us)?  So the correlation (QEvsS&P), if correct, means a correction. The size of the correction may cause the FED to pause/reverse.  If they don't the dollar will become stronger, as liquidity tightens, but do you think gold will suffer? I tend to think the neg. impact to gold will not be so large, as folks begin to see the end game getting closer. What was your impression of the DX reaction to the FED last week?

  34. Bur – 2 long KCU7 at 124.5

  35. I mentioned earlier I signed up for Tidal (higher-quality streaming) and I'm pretty happy with it.  Working very well on my computer and a lot of albums I'm testing on the PC are way better than ITunes versions.

    FTR/Jabob – It's up 10% in the past month, what are you complaining about?  cheeky

    Trend/Burr – That's why I cashed in last week and I'm getting back in now.  Will cash in again next time we make a nickel.  

    Answer/Advill – I don't see an alternative to UBI but Conservatives will freak out and fight it to their last breath.  

    Forbes/Naybob – Funny what they use out of an interview.  

    XOM down 1.5%, they are taking the dip in oil seriously.  VLO down too.

  36. Maybe you can be long 2040 coffee futures:

    Coffee makes up around a quarter of Ethiopia’s exports by value. But the effects of climate change might knock out large swaths of the country’s farming area. A team of researchers from the United Kingdom and Ethiopia doesn’t think all hope is lost, but saving the country’s coffee market is going to take some careful planning.

  37. I am surprised that Putin is not playing more on that incident in Syria where the US shot down a Syrian plane. That would be the perfect opportunity for a manufactured crisis that could drive oil prices higher! And he needs higher oil prices.

    On the other hand, we might be in a situation where supply and storage just trump any possible crisis – who knows…

  38. FTR is down over 10% in the last 2 days…

    what a POS

  39. Not to self – do not use the verb trump in post mentioning Russia!

  40. Latch – I hope you meant 1.235, as that's where it is now.  I never buy in until the EOD as they tend to spike it down.  I have 1 @ 1.235 that I didn't stop out…trying to avh down here.

  41. Sorry, 1.2550 I have 1.

  42. Josh on retail vs. Amazon and in particulat Costco:

    Fundamental investors would point out that this premium multiple is still justified given that last quarter, Costco grew earnings by 28%, with Target and Walmart earnings growing 17% and 2% respectively. Kroger posted a negative 54% earnings decline in the most recent quarter. Additionally, Costco’s revenue growth of almost 8% last quarter stands out versus the group. Target and Walmart were flat year-over-year.

    Competitively, I would guess that the Costco membership model holds up and that its own ecommerce methods will enable it to continue to thrive. However, it may do so while having trouble hanging onto that high-twenties earnings multiple. This is the squishy part of stock selection where knowing what the earnings might be isn’t going to help.

  43. COST – looking at selling 5 Jan '18 145 puts for 3.35 - 

  44. tsla almost red…

  45. Oil/StJ – Well if they have a longer than daily view of the market, they know that below $45 cuts into US production as well as other higher-cost countries.  Losing the summer season will kill a lot of people who have been borrowing to stay afloat in anticipation of hitting $60 again this year.  

    Retail/StJ – They are all doomed is the current narrative.  I suppose our future is one where we never leave the house.  

    Image result for matrix pods

    • Stocks related to movie theaters are off to a rough start on a down day for retail in general.
    • On a broad look, the summer box office season has started off relatively disappointing in comparison to estimates, although the YTD box office total is still up 2.6% through June 18 over last year's pace.
    • Decliners: AMC Entertainment (NYSE:AMC-3.23%, Regal Entertainment (NYSE:RGC-1.12%, IMAX (NYSE:IMAX-1.20%, Cinemark (NYSE:CNK-1.48%, Reading International (NASDAQ:RDI-1.01%, Dolby Laboratories (NYSE:DLB-1.05%.

    RUT had a nice dip but not much action from the others before they got back on track.  

    Dollar plowing higher, testing 97.50.

    • Redbook Chain Store Sales+2.8% Y/Y as Father's Day promotions helped drive traffic.
    • Month-to-date sales are up 2.5% Y/Y.
    • Redbook expects Junes sales to increase 2.4% Y/Y.

    Boeing raises 20-year industry forecast

    • Boeing (NYSE:BA) has raised its 20-year industry forecast for plane deliveries to 41,030 jetliners, with their value topping $6T (at list prices) for the first time.
    • The planemaker predicts passenger traffic to grow 4.7% over the next two decades – a more bullish outlook than the one Airbus (OTCPK:EADSY) delivered this month, which projected 4.4% growth.
    • More than half the planes Boeing expects to deliver are intended to help airlines expand, while the rest, about 43%, will be used to replace less efficient planes.
    • Almost 40% of the airliners will go to customers in Asia, driven by an air traffic boom in China.

    Chipotle slumps after reaffirmed guidance fails to satisfy

    • Chipotle (NYSE:CMG) trades lower as more analysts take shots at the restaurant stock after the company only reaffirmed its full-year guidance in a SEC filing.
    • Same-store sales are still seen increasing at a high single-digit rate, but that pace misses the consensus analyst estimate for a 10.3% gain.
    • Chipotle expects food costs to be approximately 34.2% of sales and marketing/promotion costs to be up approximately 20 to 30 basis points on a year-over-year comparison. Operating costs as a percentage of sales are anticipated to be slightly higher than Q1.
    • SunTrust and Instinet are both out this morning with cautionary comments on Chipotle.
    • SEC Form 8-K
    • Previously: Instinet lowers targets on Chipotle (June 20)
    • CMG -3.68% premarket to $420.00.
    • The tradeoff between time and quality looms large for McDonald's (NYSE:MCD) as it begins to roll out its fresh burgers.
    • An on-demand Quarter Pounder takes about a minute longer to land in a customer's hands than does the original sandwich, according to restaurant managers and analysts, because grilling begins only after a patron orders.
    • Speed-minded drive-through patrons account for 70% of McDonald's U.S. revenue.

    Restoration Hardware seen as ideal target for Amazon

    • Loop Capital analyst Anthony Chukumba is convinced that Amazon (NASDAQ:AMZN) should acquire Restoration Hardware (NYSE:RH) to give it an immediate entry into furniture retailing business.
    • "We believe similar to groceries, furniture retailing is attractive to Amazon due to its large and growing size and highly fragmented nature, with few national competitors to speak of," observes Chukumba.
    • "And just like the lack of a "brick-and-mortar" presence greatly hindered Amazon's efforts to gain significant market share in groceries, we think not having physical stores will likely make it much more difficult for Amazon to make large inroads in the furniture business," he adds.
    • A takeover price of $70 on RH is suggsted.
    • Shares of Restoration Hardware are up 74% YTD, despite the company lowering full-year profit guidance earlier this month.

    UK regulator finishes report on Fox-Sky deal

    • The UK's telecom regulator has submitted its report to the government on Twenty-First Century Fox's (FOX -1.5%FOXA -1.4%) $14.5B proposal to buy the rest of Sky (SKYAY-0.3%), but everyone's mum for now.
    • The next step lies with UK Culture Secretary Karen Bradley, who's held her role in the country's new government.
    • The review by regulator Ofcom has focused on whether the deal would have harmful effects on the number of voices in the media landscape by concentrating too much power with Rupert Murdoch and family (which also controls News Corp. (NWS -0.4%NWSA -0.6%) and thus newspapers The Times and The Sun).
    • In a standard review, Ofcom's also looking at whether Sky would still be a "fit and proper" holder of a TV license under Fox's ownership in the wake of phone-hacking scandals at News Corp., and a legal quagmire around Fox News.

    Apple wants court to invalidate Qualcomm's business practice

    • Apple (NASDAQ:AAPL) wants a court to rule Qualcomm’s (NASDAQ:QCOM) royalty license agreements invalid, according to Reuters. If the court rules in Apple’s favor, Qualcomm’s business model will take a serious hit.
    • The claim comes as part of a lawsuit Apple filed alleging Qualcomm improperly kept back $1B of Apple’s rebates after the tech giant participated in a Korean investigation into Qualcomm. 
    • Qualcomm makes partners sign a royalty guaranteeing license agreements before the company provides the chips. Apple wants to buy the chips without signing away a cut.
    • Apple’s new filing claims Qualcomm doesn’t have the right to benefit from both the sale of the chip and the use of the chip, citing the recent Supreme Court decision ruling Lexmark can’t prohibit another company from reselling its used ink cartridges. 
    • Apple also asked the court to stop Qualcomm’s lawsuits against Apple supplier Foxconn and three other suppliers, the technical buyers of the chips Apple uses.   
    • Previously: Qualcomm advances lawsuit against Apple manufacturers (May 25)

    TSLA/Jabob – Reminds me of that old observation we used to make in 2007/8 when every CEO who needed a lift would say CHINA! and get a bump in their stock.  No reason to invent new tricks when the old tricks still work.

  46. Amazon – As the cloud goes, so goes Amazon – AWS (Cloud Services) hopped over IBM and Microsoft at $14B annual run rate.  With $926M in operating income for Q4, AWS accounted for more than 71% of Amazon’s $1.3B in operating income.  Q4 2016;  Q1 2017.  

    Isn't it rich, Isn't it queer…  following up on 40 years of history repeating as IBM the former leader, passed up by an online merchandiser and soon to be grocer.  I don't know what disturbs me more, Amazon as the leader or IBM losing their timing this late in my career… Send in the clouds, er clowns and out.

  47. I put my 4 long /CL back on at 43.10. I played 2 additional long for $100 moves a few times and took off some of the pain. Let's see how we do now. Over 44 and I'm good, I'll get back to 2 there and take the other two off above 44.5 or better I think….if we get there. I'll probably cut back to 2 before the end of the day regardless and see how API is as well. 

  48. Latch – "are you prepping for the market to finally understand what the implications of the Fed's QT plan in Q4 potentially mean for them (us)?  do you think gold will suffer? What was your impression of the DX reaction to the FED last week?"

    The players already know, they just don't know WHEN. At that time, they will put their plans into action. In 2014, $15B monthly off the table, this time starting at $10B then ramping up to a potential $50B.   For one possible future, look at a chart of oil from July 5th, 2014 on. Gold not so much as Crypto. King acted normal, when liquidity gets tight he takes a lickin and keeps on tickin and Out.

  49. CRSP/Burrben – I recall you following this space a bit. Do you like these guys and here? Phil? Pharm?

  50. OMER/Hanj – nice!

  51. Wow, bucking under pressure from Trump, Ford will scrap plans to build cars in Mexico:

    Ford Motor Co. will begin importing Focus compact cars from China in the second half of 2019, scrapping earlier plans to build the small-car model in Mexico amid a push by President Donald Trump to drastically alter the North American Free Trade Agreement. The company said Tuesday the Focus, which is now built at an assembly plant in Michigan, will also be imported from Europe, but most new models sold in North American will initially come from China.

    What, China… Great job Donald!

  52. WPM     1000 Aug $20 calls trade, yesterday 3000 Jan19 $25 calls were bought. Meanwhile a simple Jan18 $19 covered call pays nicely

  53. when will this huge seller be done w FTR???  DANGIT!!!!

  54. BBBY earnings on Thursday

  55. IBM/Naybob – Still a few tricks up their sleeves.

    CRSP/Scott – I like them long-term as an accumulate, they seem to be getting patents and their burn is low and just over $600M at $15 is worth a toss.  I haven't gone with them because I don't see a particular catalyst but they are back at the IPO price now and I think that's very fair.  They are mainly down due to a report in one of the journals saying using the tech on humans leads to mutations but many scientists are saying the study is flawed and slanted by religious scientists, who are angling to ban this whole line of research – those are the dangers and, with Trump in charge – you can't count on rational logic winning out over fake science and fearmongering. 

    CRISPR Therapeutics Announces Patent for CRISPR/Cas Genome Editing in China

    CRISPR Therapeutics to Present at the JMP Securities Life Sciences Conference

    China/StJ – Trump sees international relations as a game of favor-trading and, to some extent it is but making these rash moves have huge consequences, not all of which are going to be favorable to us.  Mexico, at $377Bn, is the 13th largest importer in the World and, being our neighbor, they import half that stuff from us.  They imported $10Bn worth of cars and $23Bn in parts last year.  Most of what they export in autos are things they build in US factories for the US market.  What Mexican car brand do you drive?  That's why this is idiotic but, then again, we all realized it was idiotic in the 30s, when global trade collapsed due to tariff wars.  Now we're starting it again as if we learned absolutely nothing from the last Depression.

    FTR/Jabob – Note from TheStreet on the preferred:

    FTRPR is trading at 32 cents on the dollar and yielding an almost unbelievable 34.8%. Why? Because of the mandatory nature of the conversion feature. On June 29, 2018, FTRPR will convert into 20 shares of Frontier Communications (FTR) (the ratio is lower if FTR shares trade above $5 then, extremely unlikely since they are trading at $1.34 today). So the market for this liquid security ($1.925 billion in face value) is incredibly skewed owing to the stock market's abject hatred for Frontier's common shares. 

    FTR shares have fallen 46%, 62% and 73% in the past three-, six- and 12-month periods, respectively. The market hates Frontier because it is experiencing — as are its incumbent local exchange carrier peers — declining numbers of subscribers due to cutting of cable and landline cords. Also, Frontier carries the baggage of an ill-timed, overpriced and poorly managed acquisition of Verizon's (VZ) assets in California, Texas and Florida. 

    I'm not arguing any of those points, but the stock market is pricing in a high chance of bankruptcy for Frontier, and that is wrong. Dead wrong. 

    Frontier is going to survive, and the company's strong margins — about 40% at the Ebitda level — will produce sufficient cash flow to service its debt. As the market realizes that the value accorded to FTR's equity will grow, the underlying value of FTRPR will increase. 

    Obviously, though, FTRPR is not yielding 35% for no reason, and to own any Frontier Communications security, one must gain comfort with Frontier's debt. 

    It is indeed a mountain, but it is serviceable. After the repayment of a bond that matured in April, Frontier has $17.9 billion in debt. That is versus an equity market capitalization of $1.65 billion. Don't be fooled by the absolute number, though. The key is the servicing cost. 

    Frontier's interest expense ran at a $1.55 billion annualized rate in the first quarter, but its Ebitda for the trailing four quarters was $3.92 billion. If one wanted to adopt a more conservative outlook, one could annualize FTR's first-quarter 2017 Ebitda and derive a figure of $3.69 billion. FTR is covering its interest expense and capital expenditures (budgeted at $1 billion to $1.25 billion for 2017) with, by my figuring, at least $800 million left over. Subtract the common dividend payout (which FTR's board wisely reduced in May to an annualized $0.16 per share) of $189 million and the preferred dividends of $216 million and FTR still generates $400 million annually. 

    That is excess cash flow — i.e., after all expenditures — not the more commonly referenced free cash flow. Companies that generate excess cash flow are not distressed and they typically do not have securities yielding 15%, let alone 35%. That is why I am buying FTRPR with both hands. 

    Oil failing at $43, so annoying.  

  56. StJ;  Trump and Mexico.

    DT has a personal problem with Mexicans, being there a few times trying to do some projects, one in Cancun and other in Baja, and Miss Universe in all of them he was in legal procedures which were perverted by the opponents paying  corrupt judges that  decided against him.

    Problem is with 1%  of the mexican society, specially politicians, 99% of the Mexicans are now paying for it.

  57. Jabo/Phil – FTR – "when will this huge seller be done w FTR???  DANGIT!!!!"  The analysis in that Street piece is compelling, what could go wrong?  The referenced abject hatred for the common shares is amply exemplified here and Out.

  58. thanks Nat!

    I am not sure which POS drives me crazier..FTR or GNC

    birds of a feather

  59. Scott – Yes, I bought them and continue buying on dips.  Long term hold.  In my daughters acct too.  

  60. Great write up on FTR. 

  61. Phil – Your intro today might rank in your top 10

  62. phil--i am w Nat.. great intro today!

  63. Meanwhile, Paul Ryan is laying the groundwork for robbing the country by "simplifying" the tax code to eliminate complicated things like "death taxes" – how many different ways can they pitch the same thing to people?  And he gets the crowd to applaud for it – even though maybe 1 in 10,000 will be affected.

    Well, actually they'll all be affected because 9,999 people will have to pay more so the 1 person can pay less.

    Oh no, now we must let companies repatriate their profits without taxing them so they can create jobs for us.  Wow, are Republican voters actually that stupid or are they in on the joke?

    The "defenders of the status quo" are waiting for us to falter so we MUST get this legislation through in 2017 as we have a once in a generation chance (to ram it through Congress, trampling all objections).  

    Wow, I guess I know how Germans felt when the Nazis began changing all the laws in order to build their 1,000-year Reich.  

    The Enabling Act (GermanErmächtigungsgesetz) was a 1933 Weimar Constitution amendment that gave the German Cabinet – in effect, Chancellor Adolf Hitler – the power to enact laws without the involvement of the Reichstag. It passed in both the Reichstag and Reichsrat on 24 March 1933,[1][2][3] and was signed by President Paul von Hindenburg later that day. The act stated that it was to last four years unless renewed by the Reichstag, which occurred twice. The Enabling Act gave Hitler plenary powers. It followed on the heels of the Reichstag Fire Decree, which abolished most civil liberties and transferred state powers to the Reich government. The combined effect of the two laws was to transform Hitler's government into a legal dictatorship.

    The formal name of the Enabling Act was Gesetz zur Behebung der Not von Volk und Reich ("Law to Remedy the Distress of People and Reich"). It was enacted by the Reichstag (meeting at the Kroll Opera House), where non-Nazi members were surrounded and threatened by members of SA and SS. The Communists had already been repressed and were not able to vote, and some Social Democrats were kept away as well. In the end, most of those present voted for the act, except for the Social Democrats, who voted against it.[4]

    secret meeting was held between Hitler and 20 to 25 industrialists at the official residence of Hermann Göring in the Reichstag Presidential Palace aimed at financing the election campaign of the Nazi Party.[5][6]

    No, that doesn't sound familiar at all, does it?  

    Trump to hold town hall meeting with about 50 business leaders

    FTR/Nabybob – They only have 1.2Bn shares, 278M short is 23%!  It's going to be interesting.

    Thanks Naybob, Jabob, Billybob…

  64. For you oil die-hards – don't forget to be out of /CLN7 by 2:35, /CLQ7 (Aug) is the new front-month. 

  65. Wow, it's so hot in Phoenix that American Airlines had to cancel flights.  

    Temperature forecasts of 120F (49C) are credited with the cancellations, exceeding the maximum operating temperature of 118F on the airlines smaller Bombardier CRJ airliners, used primarily for regional flights.

     airplane sweat sweating funny movie GIF

    Extreme heat can affect a plane’s take-off, with warmer air, less dense than cooler air, generating less lift. Planes require more speed to take off in these conditions, along with more fuel and longer runways to generate the lift.

    American Airlines’ fleet of Boeing and Airbus aircraft will not be affected by the heat in Phoenix, as they have maximum operating temperatures of 126F and 127F respectively. 

    So those should be good for another year or two at this pace…

  66. plane/Phil

    How would it affect the batteries on a TSLA electric plane

  67. Phil – "Oh no, now we must let companies repatriate their profits without taxing them so they can create jobs for us.  Wow, are Republican voters actually that stupid or are they in on the joke?"

    Google just settled in Italy for .33 cents on the dollar.  There are 27 EU countries and the EU lined up to gut FB, GOOG, MSFT, AMZN, et al for illegal tax evasion.  If those bilious bastards in Congress let twenty year plus of illegal tax evasion stand, the US tax payer would be subsidizing the EU.  Our elected turncoats, whores and Cook the Apple Tax Weasel, should be draw and quartered.

  68. Cook/Naybob

    Leave Cook out of this, go AAPL :-)

  69. AMZN;  Please help me out here. Amzn wants to kill all the retail bricks and mortar but is buying all the retail bricks and mortar, so they can boost their PE ratio because they make profits.  Won't they be effectively killing a piece of themselves? Nothing makes sense to me.

    TA is BS and fundamentals don't mean anything (TSLA, AMZN etc etc). The oil market is rigged. Nothing is real but the Bitcoin people want us to believe they are and why not since US currency is doomed.  

    So what is the best thing to invest in?


    CDN jay

  70. Rustle – FU Cook and I hope the EU hammers them all.  Our elected eunuch's will keep their lips firmly attached to the posterior of their pimp daddies, while at least the EU have tener cojones to stand up to these corporate Nazi bastards.  Kinda like this?

  71. Phil – "the list goes on and on with massive M&A failures and they usually come in toppy markets where companies have no way to expand their natural business so they seek to mask that fact by buying other companies – the way Tesla (TSLA) just bought Solar City (SCTY)… and the way Amazon is buying Whole Foods

    Along those lines, worst merger ever? Jan 10th, 2000 America Off Line acquired Time Warner for $164B, commencing a valuation epiphany, triggering the dot com bust. AOL's market cap went from $226B to $20B and the rest was history.

  72. CDNJay/TA  I would disagree that TA is BS.

  73. Phil – But remember it's a dry heat in Phoenix !

  74. CDNjay – GOLD!  (the physical only) All you can. it's "real."  ;-)

  75. Canadian Blue Jay – "So what is the best thing to invest in?"

    This and any company on this list,  and look at who is #1, no surprise there and Out.

  76. Phil are you comfortable holding oil long into API tonight? Seems like it could be another big drop if the numbers haven't been manipulated yet? While I get that you are playing long term , I can't stomach seeing a 5% drop on the day in oil. So, what's your advice on two long at 44ish, oh and RB at 1.4350 too!

  77. Well a bit of a recovery into the oil close, made up about half the losses and now I have to close /CLN1 and just pray the /CLNQs don't drop back.

    Uber wants tips now???

    AMZN/CDN – AMZN doesn't get rewarded for making money, they get rewarded for getting bigger in hopes that they MIGHT make money one day, which is how all these Retail Stores got big in the past.  AMZN can't get past that $200M mark in on-line sales and, if they didn't have 80M prime customers paying them $50/yr ($4Bn) and their AWS revenues – you'd see a Retail Operation that is simply hemorrhaging cash at an alarming rate.  

    That's why companies like AMZN and TSLA can't afford NOT to make a deal every year.  If they don't make large deals, then their books are static and people start to figure out their real operating financials. Also, the Government might actually notice that AMZN is illegally running a money-losing business to drive out healthy competition and then buying up the ailing businesses using inflated stock with heavily gamed financial statements.  That would not be good for them – although with Trump he'd probably get a pat on the back.  

    Best thing to invest in is boring companies (though now Elon Musk's "Boring Company") that actually make money because, 20 years from now, they'll still be there making money and your portfolio will grow with inflation and between options and dividends, you should do very well.  

    AOL/Naybob – Yep, I mentioned it but got it backwards.  

    Dry heat/Albo – Apparently not dry enough for air travel.  Lost in that story is the fact that it's 120 degrees in Arizona in June.  Let's hear it for the Global Warming Hoax!  

    Image result for us temperature history graph

    Invest in ice, CDN!  Air conditioning repair is another good one.  

  78. hanjongin   -  If you don't mind, what are some of your other favorite stocks here?  You have a great track record of picking stuff I've never heard of!

    I'm out of /CL @ 43.60 off a long @ 43.05.  

    Looking to sell /NQ here @ 5745

  79. API/Craigs – Comfortable?  Not at all but I really think this was a rollover issue.  At the moment, I have 15 long /CLQ7s and I'm down about $13K (had 40 and then sold 20 of the /CLN7s before the close at $43.50) so $1 up from here ($44.50) will get me even.  I don't want to have 20 again.  I'm hoping for a pop that lets me pull 5 back and I'll ride 10 into next week, hopefully.   On /RB, I have 4 at $1.42, happy to hold those.

    Good job with the quick profit, Burr.  

  80. RB seems particularly weak compared to oil. Oil climbs and gasoline moves nowhere

  81. AMZN  Here's why I like them – they are an incredibly disruptive company.  Their purchase of Whole Foods made me pull the trigger.  With the data they will collect on customers, they will be able to customize the products that a consumer "sees" as they walk through the store.  They did not buy Whole Foods for brick and mortar they bought it to expand their database of customer info and attack Walmart.

    Do I care if they get cut in half ala Apple when it was run from 100 down to the 50s? Nope, I will buy more.  The reach of AMZN's databases will allow them to dominate grocery bc look at their competition.  And millenials would much rather shop at Whole Foods than Walmart – so good luck Walmart with trying to compete in this space over the long term.  

    Fundamentals do matter but I am buying this based on my opinion that AMZN's data is where the value is.  Now that they have a beachhead in brick and mortar grocery, and with their recent try before you buy clothing program, AMZN is going after those industries where it believes its data mining will provide it with a superior edge.  Old grocery is dead – people want delivery, fresh sourced food, low prices (AMZN WILL lower the prices at WFM bc of their massive size driving purchasing power – just like Walmart does).  

    I suspect at some point AMZN might spin off shares into segmented business streams.  

    IS AMZN fundamentally a value? NO.  But I am buying them because they are a true disrupter and with that, I beleive further share appreciation over the long term – 3-5 years, will occur.

    Let the flaming begin – haha

  82. Phil – Global Warming – "Invest in ice, CDN!  Air conditioning repair is another good one."

    I love it, and this is our spokesman.

  83. burrbenn/stocks.  I am buying REI, TCEHY (I was introduced to this by someone here I think? I cannot recall), AMZN, and shorting WMT.  I would add to my OMER at $20 or better.

  84. Estate tax / Phil – GOP voters are being conned and asking for more. The stats are just incredible. Ryan talks about saving small businesses and people think it applies to them because they are ignorant:

    Ryan wrote in his op-ed that small businesses make up nearly 98 percent of all employers in Wisconsin. The vast majority file federal returns as individuals, at an income tax rate up to 44.6 percent, he wrote. Via estate taxes, he contended, heirs pay taxes a second time on the same assets.

    The current federal estate tax threshold is about $5.5 million for an individual and $11 million for a married couple. For 2015 — the last year for which statistics are available — the IRS said 61 estates in Wisconsin got hit with the tax. Is that a lot or a little? Here are some numbers for context.

    There are approximately 445,000 small businesses in Wisconsin, according to the U.S. Small Business Administration.

    And BTW, they have no problem with double taxation when I take my already taxed money to buy a car and the dealer has to pay taxes on these same assets I paid taxes on already. It's not double taxation when the assets go from one person to another for crying out loud!

  85. I'm back to 2 /CL now. Will see what API gives us. Since my avg on 4 was higher than 43.50, taking 2 off puts my avg on the remaining 2 higher but I'm still not in terrible shape. 

  86. TCEHY/Hanj – hey that was me! But you can forget that if it turns out to be a bust. ;-)

  87. ISCO/Pharm – speaking of busts… I have some post split shares still kicking around as not really worth anything. Are you aware of any hope for them on any horizon?

  88. scottmi/TCEHY  Thanks!  I see them as the Chinese version of AMZN.  They are well on their way in terms of market cap and growth.  Plus they are PHIL FRIENDLY with a low PE.  

  89. burrben/one more  Speculative buy so very small positioning: SRTS.

  90. ftr back to the low again..

    FU FTR GNC M F TGT JO TSLA amzn!!!!!

  91. Phil/USO

    good time to pick up those July strike 9 Calls now that the rollover is done?


  92. A bit of a sell-off into the close – very nice.  

    AMZN/Hanj – All perfectly logical, I'd just rather wait for the 40% sell-off before buying a bull call spread and MAYBE selling a put.  CRSP is great for the same logic – if they perfect that system, that is the future of medicine and, unlike AMZN, they have a patent!  

    Explosion at train station in Brussels.  This is getting to be a weekly thing now.

    Wow Naybob, that writing almost destroyed the Batman franchise!  

    Estates/StJ – 1 in 10,000, that's what I figured.  Really though, can people actually be that dumb?  How do they not laugh at him and tell him to focus on things that actually matter to the voters who sent him to the House?  

    Another thing about the Estate Tax (and a lot of us know this), the IRS doesn't realize your gains – especially your business and long-term stocks and your home, if you don't sell them so you have NEVER been taxed on those gains until they are valued at your death.  If PSW Investments goes up 20x in 10 years (nothing compared to companies these days) then $100,000 becomes $2M without a penny of taxes being paid.  You still get your distributions each quarter and that you pay tax on (dividends only under Trump's plan) but you have never been taxed on the gains in the underlying equity value.

    Think how easy it would be for rich people to hide all of their wealth in companies if there were no estate tax that valued their assets when they died.  It won't be just the Billions they pay now that the Government will lose in revenues but the TRILLIONS they will move into estate vehicles to hide all of their gains from the Government.

    [Estate taxes are] a certain corrective against the development of a race of idle rich – Winston Churchill

    Good adjustment Jeff. 

    USO/Pat – If you can't play the Futures then sure but it's a lot harder to make a quick exit on the options.

  93. Phil/AMZN comment  And that comment is why I love you – in a non-gay/scottmi way.

  94. LKSD/Phil – one of the parts spun out from RRD.. operating income of 175 million with a market cap of 697 million and 4.62% dividend. Seems like a bargain at this price..

  95. scottymi/LKSD  Whats the thesis on this one?  You expecting the binder business to explode?

  96. Covered /NQ @ 5730

  97. Non-Gay/Hanj – Is it the beard?  I can shave it…  broken heart

    LKSD/Scott – It is a great little business because no one does it anymore but the margins are lame (3%).  They have 2 brands (Cardinal and Oxford) just to make it look like there are choices in binders.  Trading at about 7x at $20.50 is a good deal and they pay a $1 (5%) dividend that seems serviceable.   You can sell Jan $20 puts for $3 to net in for $17 and that's way more than the dividend so that's the way I'd get started.  

    Looks like we're finishing at the lows for a change.  

  98. Phil/USO

    I was planning to catch the push up in the oil prices for the long weekend which will drive USO above 9.5 at least… this premise valid?


  99. LKSD/Hanj – no particular thesis. a leftover partial block that is in an account. Not sure if I wanted to keep it, round it up, or dump it.. at 5% it is better than just cash in the account, but on my 'source of funds" list.. Hmm. start CSPR or buy more FTRPR?

  100. Speaking of germans, if you haven't watched Genius.  You should.  It's about A.Einstein. 

  101. Non-Gay Grey Beard > Grey Beards are generally looked on as wise men, not to be confused with Grey Tigers who are generally considered toothless :)

  102. Oil/Pat – Premise is still valid but the action suggests it's more of a long-shot than we thought.

    Genius/Burr – Just saw the first one this weekend, does look good.  

    Grey beards/Aquila – That's why the Chinese TV people keep calling now – I look like a proper economist.

  103. CBI – I'm planning on buying 1K and selling the Aug 15 calls for 1.5   This is just too low….  if they get anywhere close to 3.7 EPS this year the PE is at 4.  If not I'll get my price down to 13.5 … and probably buy more share and sell more calls.

  104. Pharm / Phil – i have two IPO offers on the table.  Dova Pharmaceuticals (DOVA) and Aileron Theraputics (ARLN) both at between 15 and 17 / share.  Any thoughts on these?

  105. Anyone got API info

  106. Crude -2.72 Distillate +1.837 Gasoline +346 Cushing -1.269

  107. Thanks Burr. Would have loved to see more than a 2 second move.

  108. DOVA / this one looks a bit more mature - 

  109. Nat Bob/  Wow on the prison labour list.  Since America has more people in prison than anywhere in the free world this is a very lucrative practice. On some levels though, this may be wrong

  110. Phil..Thoughts on managing TZA hedges Jul 21 $19/21 Spread?

  111. Oil just spiked down to 43.05. I picked up one at 43.15. I don't see news yet, but will have a tight stop on the new one. 

  112. Good morning!  

    Futures were down a bit but all better now.  

    Oil narrative is changing towards additional production cuts, hopefully it picks up steam into next week – I'm still 15 long and need $44.50 to break even.  Also have 4 /RB longs just for kicks.

    CBI/Batman – So silly at $15.  They are international infrastructure players and yes, they had two down years but last Q they made $42M so on track for $200M with a $1.5Bn valuation, even if things don't improve (which they already said it would).  

    API/Craigs –  Net flattish is not worth panicking over.  

    Citi/Burr – Chasing all the sheeple out at the lows, methinks – then the Banksters can run in and BUYBUYBUY and take oil up $5 and make their quarter off of one trade.  Don't forget Aramco IPO is coming and every $5 is a $400Bn swing in their valuation.  Think the Saudis aren't motivated?  Let's say they currently sell 10M/day at $45 = $450M x 365 = $164Bn so it's worth it for them to cut 2 or 3Mb ($45Bn) if that's what it takes to get oil up 10%.

    That's a good point, I'm going to talk about that tonight on BNN.  

    TZA/Millard – Yikes, a little late for them.    The July $19s are 0.28 so not much to "manage" but hopefully it's insurance so think of the 0.28 as a rebate from your insurance company and you can roll that to the Sept $17s at $1.28 for $1 so you are buying 2 months in position (locking in gains, hopefully) and $2 in strike for $1.   When the short $21s expire then you can sell Sept calls (the $20s are 0.65) and net out to a cheap roll.  

     Oil/Jeff – Glad I slept through that!  

    I think that was the EU opening and people stopping out after our terrible drop yesterday. 

    TSLA/Jabob – Nothing stops it.  Bad news is good news for those guys. Reminds me of the days when endless analysts would go on TV to explain why Yahoo was really worth $100Bn+ and could easily hit $200Bn by 2001.  Turned out they were off by $195Bn.   Yahoo tried to buy GOOG for $3Bn in 2002 – imagine if they got that deal.  I wonder how much money it fell apart over…  They bought BABA for $1Bn (part) as a consolation prize a couple of years later.  If not for that move, YHOO would have ceased to exist ages ago. 

    Image result for yahoo valuation history

    Image result for tsla valuation history 2017


  113. great analogy .. i think (hope) :-)

  114. As to the engineer quitting.  He was VP of auto-pilot software and replaced with another top-notch guy the next day so no real harm to TSLA but you have to wonder why a guy who was enticed to leave a job at AAPL to head up a key division of a company that's growing like gangbusters would want to leave his "dream job" (better than AAPL!?!?) after just 6 months.  THAT is the $50Bn (valuation) question.  

    Also worth noting, they promoted the hardware guy, which makes no sense and:

    According to the same spokesperson, Latter’s responsibilities will be taken over by another Apple veteran, Jim Keller, who joined the company 18 months ago as head of hardware engineering for Autopilot.

    Keller will be assisted by new recruit Andrej Karpathy, who most recently worked as a researcher at OpenAI, the nonprofit firm that was founded by Tesla’s CEO Elon Musk and other Silicon Valley veterans.

    In a statement provided to TechCrunch, Tesla described Karpathy, who previously interned at Google’s (GOOGL Alphabet Inc GOOGL 968.99 -0.64% ) DeepMind and completed a PhD in deep vision at Stanford University, as “one of the world’s leading experts in computer vision and deep learning.”

    This kid was an intern in 2015, now essentially the head of software development for TSLA's auto-pilot?  Something is fishy here. 

  115. that is why i was surprised it was up pre market

  116. Thank you Iran for comments about further production cuts!