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Non-Farm Friday – Is America Working?

209,000 jobs.

That's pretty good, only 183,000 new jobs were expected and June was revised up by 9,000 more jobs (231,000) with unemployment now down to 4.3%.  More importantly, the Civilian Labor Force is growing, now about 160,500,000 (of which, about 7M are unemployed).  Average weekly earnings are up to $909.42 from $884.42 last July so up $25 (2.8%) but let's call it $100 per month and $1,200 per year more times 153.5M workers is $184Bn more Dollars in the economy this year but last year we only had 151.5M workers so 2M workers making 52x $909.42 ($47,290) is $94.6Bn new Dollars so, overall, let's say the working economy is up about $300Bn or 1.5% of our GDP.

That's not hard math, any economist can do it.  Any analyst can do it but, where you do need some kind of Quantum Mechanics is to try to explain how $300Bn of new salary money (most of which went to the top 10%) translates into the kind of buying power that would send the US markets $10Tn higher – that's 30:1 leverage!  

Of course, that makes sense as the market multiples on earnings have gone up considerably along with expectations but where I feel we're running ahead of reality is by looking forward and even assuming we add $600Bn of wages in the next 12 months – we're still miles behind what would be needed to support this bullish premise.  Also, consider that $600Bn more wages would be a 5.6% increase, which would then put cost pressure on businesses (until the robots are ready) and that would drag the economy.

So it's hard to paint a more enthusiastic picture than the one that's already been painted because, as noted by Calvin, "Alexander contemplated his victories and he wept, because there were no more Worlds to conquer."  What will we do for an encore when we only have 7M people left who are unemployed?  At this pace, in 3 years, they will all have jobs and we will have 0% unemployment.  What is the World the market expects down the road to justify a 20% improvement in 9 months?

The market is still benefitting from a benificent Fed and a lack of alternatives to invest in but, eventually, the Fed will reverse their stance and get serious about raising rates and reducing their balance sheet and that will also CAUSE the alternatives (bonds, cash, debt) to become more attractive investment alternatives to the markets.  In our Long-Term Portfolio we have the bulk of our money at work in companies that have benefitted from the rally but it would be foolish to think we're never going to have another pullback – that's something we need to be prepared for.

In yesterday's post we discussed a new DXD hedge and today, in our Live Member Chat Room, we will go over our portfolio hedges in the Short-Term Portfolio as well as the Options Opportunity Portfolio, which has its 2-year anniversary on Tuesday (8th) and we should be hitting that mark with over 200% in gains to protect! 

Have a great weekend, 

- Phil


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  1. Good Morning!

  2. Hey, just buy the dip, been working for years, what could go wrong?

    /sarc off

  3. under 22 ..come on

  4. Phil STX does have a negative writeup under analysts, however does not look to bad for me for an armchair trade. (buy stock and sell Jan18 33 Straddle for 6.22). they pay a div. of 7.46%

  5. TEVA looks like Fitch downgraded to one step above junk now also.  Not sure what the covenants say, but split rating may be ok.  

  6. TEVA RSI 14.  Very low, yet I'm still not going to touch it yet (don't currently have a position in it).  Will wait till panic selling is done even if I pay higher than current price.

  7. when will the panic selling end in your opinion?

    under 21?

    is it killed again because of the downgrades?

  8. Good morning!  

    Dip/Mkucs – We don't even get dips big enough to buy.  

    TEVA/Pstas – Those suits happen all the time, often started by shorts funds looking to stir up trouble. 

    STX/Yodi – $10Bn is reasonable if they can stabilize.  They were making $1.5Bn on $13.7Bn in sales so better than 10% but last year earnings dropped to $11.2Bn and they only made 0.25Bn (SAD).  So, even if they only get back to 10% margins and keep sales over $10Bn then $10Bn is a good price for STX, so a lot of room for error.   Cash flow did not cover the dividend last Q so people are very nervous and a dividend cut could send them lower.  I'm also concerned about the future of hard drives as IBMs next gen memory cubes are likely to make them obsolete.  Hard drive revenue dropped 10% in the quarter and they are guiding for a 10% decline for the entire year as well.  

    There's money to be made in legacy stocks as they diminish over time (especially selling calls).  WDC bought SanDisk to get out of the hard-drive business but STX is stuck and needs to do SOMETHING about their situation or this is going to be one big, long, wind-down a la floppy disc makers in the 90s.

     TEVA – Wow!  Another 11% down.  At least it's decelerating…

    Downgrades/Jabob – I'd say so.  I'd say if they make a good CEO announcement, they could pop back to $25 very fast.

  9. Thanks Phil good analyses STX

  10. Boy, how many times can we make money shorting the 20,000 line?

    Not even a weak bounce on the RUT – done with those longs but a nice gain.

    Europe is happy today so don't give up hope on our indexes closing higher:

    Failure at $49.20:

    /RB also paying off like a broken stock machine:


    And this is why Europe is up 1%:

    If anything, the Nikkei should be happy with the Dollar so /NKD long above the 20,025 line with tight stops seems like a fun play.  It's only $5/point so below 20,000 costs $125 to stop out and that's a good line but notice the quick spike earlier and be careful.  As long as the Dollar stays over 93.25 and our indexes don't get worse, then /NKD should be good fro a nice 

    You're welcome Yodi.

  11. when do you start pounding the table on TEVA?

    20.50 has to be cheap, right?

    isn't this a crazy overreaction?

    was the news this bad?

  12. Phil,

    MDT @ 83 seems to be approaching an interesting level/fair value (1yr rge 70- 90) PE is 29, earnings have been seemingly healthy. Only recent negative is a spate of cl action law suits (perhaps opportunistic) over a computer system failure in June. Top/btm line numbers have increased steadily except for  inc dips in 2013 & 2014 followed by strong recovery. Hard for me to understand why that would cause a 10% drop. Any other negatives visible? Your thoughts about selling some Jan 75 puts if and when the market and MDT drop a bit. No rush, when time permits

    Thanks in advance

  13. My favorite silver miner is on sale today, 15% off on AG

    had a strike last quarter, messed with their numbers, reported this am.

  14. CBI taking a hit today

  15. TEVA/Jabob – Well we did just add a round to the OOP, so that's the start but I want to see them stabilize before throwing good money after bad.  That trade was 5 2019 $32.50/40 bull call spreads for $2.30 offset by 5 $30 puts sold for $4.20 so our net on the short side is $25.80, which I still think is a good target and those puts are now $10 so down 150% but we can roll them to 2x the $22.50 puts at $4.75 if we choose but why should we if we like the $25.80 target?  Not only that but, a year from now, there will be better prices on 2020 and 2021 rolls.  On the call side, NOW we have a good price to roll the $32.50s ($1.15 = $575) to 10 of the 20s at $4.70 ($4,700) and we can sell 10 of the $25s for $2.80 ($2,800) and buy back the $40s for 0.40 ($200) so it's net $2,100 + the original $2,100 we spent on the spread (not counting the short puts) is now net $3,625 on the $5,000 spread that's still in the money.

    So now, at $25, we make $1,375 (38%) vs the $2,100 we had before that hoped to get to $3,750 at $32.50 (78%).  Essentially, we'll still make most of the $1,650 we hoped to gain but now at just $25 (23% lower) – and that is just a first leg adjustment of our roll and we've still only deployed $3,625 in cash and very little margin.  If TEVA wants to drop another 35% on us and we are able to roll down to 20 of the $12.50/$17.50 bull call spread for net $6,000 with $10,000 upside potential ($4K profit), THEN I'd be likely to be banging the table on more of those spreads.  This is just the interim step and we can only HOPE they have many FUs ahead of them so we can make them a major position in our portfolio at a 50% discount.

    Speaking of FU stocks, PSO just cut dividends and laid off 3,000 people – down 2%.

    MDT/8800 – I love them but they got expensive and I'm not sure $83 is "cheap" when they were $68 to start the year.  Yes it's cheaper than $90 but $90 was a bit silly in June, just like it was last June (followed by a plunge to $68).  Somewhere between the two is the real value and let's say it's $80, not $83 and $80 happens to be the 200 dma – so many reasons to use that.  MDT is making about $5 per share so $80 is great (p/e 16).

    CBI/Batman – Cap Cube just put out a report saying they are undervalued. Looks like infrastructure spending is a non-starter with Congress not even making progress on budget or debt ceiling.  It's a $16 stock making $3/share – why would anyone want that? 

  16. Phil was there any news you saw to explain the pop in oil at 10:30? Just asking so I know if a short at $49.50 might be good or if I am fighting some news items I didn't see. 

  17. Phil,

    Thx for the MDT thoughts. 

  18. Phil / CBI – They are taking a Hit.  Earnings are next week and this will be the first time the new CEO puts his mark on the company.  I'm fully expecting the co. to take the outlook down for the year.  They need to take into account the lower sale price of the business, and also need to account for the ' un authorized' change orders ( i don't think most people understand these change orders are agreed to by customer both in scope and in 'range' pricing but are held as an exposure until the customer signs off on price and completion) this is really not a huge risk.  In any case even if they take down the delta in sales price and a large portion of the change orders, they are still looking at a 3.3 to 3.4 EPS this year.  at a terrible multiple of 6 they are an 18 dollar stock.  If they communicate a strategy around dept, and set more reasonable outlooks on earning ( ones they can meet / beat) this will turn the corner.  There is no reason why this stock is below 18 to 20 / share TODAY.  

  19. TEVA/Phil-not sure I have the cycle correct, but shouldn't  the 2020s be out Sept 11?

  20. TEVA think I got that wrong Oct11?

  21. TEVA- for the record, the recent trade was for 5 putters and 10 BCS's

    As a new play on TEVA, I would sell 5 2019 $30 puts for $4.20 ($2,100) and buy 10 of the 2019 $32.50 ($4.20)/$40 ($1.90) bull call spreads for $2.30 ($2,300) which would put you in the $7,500 spread for net $200 and worst case is you own 500 shares of TEVA for net $32.90 while best case is up $7,300 (3,650%) in 18 months.  

    Let's add that to the OOP.

    Regardless, can you clarify on the spread adjustment- are you liking that now or pointing out the option and waiting for things to settle?

  22. TOS- anyone else seeing this? When I right click on a position I no longer see the analyze rolling trade on the pop up menu?

  23. pstas – I see the "analyze rolling trade".  If you account has multiple accounts and you have not selected a single account it will not show the "analyze…" in the popup

  24. edro- strange- I see the analyze rolling trade for some positions but not for others. Sent an inquiry to tech support – no answer yet/

  25. FTR – shooting up – i don't see any news – article from Stone Fox Cap is positive but that was a while ago

  26. pstas – I just went through most of my positions, none of the 18Jan19 positions show the "analyze rolling…" popup but the 2018 positions do.

  27. Phil: Here are some stock ideas; these companies are in the fiberoptics field:  OCLR, FNSR (already noted, it's selling off today due to sector weakness – something to do with AAOI, which is plummeting), MTSI, ACIA. Any thoughts on these? Seems most stocks in this area are down along with AAOI.

  28. CL- found my answer, it is the threat of sanctions on Venezuela which are being considered apparently and could spike oil if it happens. I hate these guys.

  29. Sorry, I got caught on a long CC.

    OIl/Craigs – Just that it's Friday.  No reason I see but another nice pop on /RB

    Maybe this but it's just the normal BS spin:

    . survey: Compliance at 114% for 12 members with production caps. Read in full:

    July output hits 2017 high of 32.82 mil b/d on Libya recovery, survey shows. Latest:

    Podcast: Is this summer 's last & best chance to rebalance the market? , report

    Oil Rig count just declined.  That just happened so isn't why oil popped, unless they knew in advance.  Only down by 1 but any indication shale is slowing would be encouraging for OPEC and oil prices.

    CBI/Batman – I agree but they may want to kitchen sink this quarter while they can blame it on the old CEO.  It's always a good time to take the write-downs.

    2020/Seer – I never know those cycles, it's like having a baby – I prefer to be surprised!  That time-frame is probably right.

    TEVA/Pstas – Oddly, it somehow got changed to 5 and 5 at Seeking Alpha but 5 & 10 is what we first said.  That just means we do the roll without the DD though I haven't decided to do anything yet.

    Hurricane/Latch – /NG traders don't seem to think so.

    I am going to personally patrol the Caribbean next week and see what the Hurricane looks like.  That should give us an idea of what is to come and also make my vacation tax deductible! 

    Martin Shkreli guilty on 3 of 8 counts including conspiracy to commit securities fraud – not good for him.

    FTR/Batman – I don't know why they sold off again, this makes more sense.

    Fiber/Ilene – Thanks but remind me next week.  Today I have to run.

    Venezuela/Craigs – That's a constant outlier too, so is Qatar.

  30. Patrol/Phil – have you seen that photo comparing the Titanic and the latest biggest cruise ship?

  31. thanks Phil for the input on IMAX.  Enjoy your cruise and safe travels floating on a hunk of metal.

  32. Titanic/Snow – Yes, it's massive but not likely to be an iceberg where we're going though a hurricane is a possibility (thanks Joseph, that's right where we're going!).  

    Oil stuck right at $49.50, /RB failed $1.65 and back to $1.64 but we're done with them.  /NG way down at $2.78 and maybe low enough to play again next week.

    Dollar held its gains, we'll see what kind of follow-through next week.

    I'm off to meet the family, have a great weekend, folks!

    - Phil

  33. batman – CBI:  Once they take the kitchen sink next week at earnings, are you planning on any DD in case the price thanks to the low teens? Typically, for other companies, I have observed the price to go up after all the bad news is out.  your thoughts? 


  34. Phil – Calm sailing for the Titantic?

    Since 1990, there had been only 9 trading days when VIX closed below 10…

    and 18 trading days in history when the VIX was trading below 10 intraday.

    Previous record VIX streak closing under 10:  4 consecutive days in 1993.

    All-time lowest VIX close was 9.31 on 12/22/93.

    Previous all-time lowest VIX intraday value was 8.89 reached on 12/27/93.

    On 7/21/17 missed it by this much, closing at 9.36

    7/13/17 through 7/26/17 (new intraday low of 8.84) – 10 consecutive trading days closing under 10.

    Keep Calm and Buy More…. this has been your moment of Zen and Out.

  35. Was reading a Costco article over on SA. This comment caught my eye:

    I was in Iceland last week and came across a new Costco store opened in May. The person I was with said the store is so busy that neighbors complain that Costco customers clog up the streets, impeding egress and ingress from neighborhoods bordering the store. Here are two sentences from the local newspaper: "The wait in the queue into Costco has taken people between twenty minutes to an hour. Police has been monitoring traffic control in the area well as car traffic has been very heavy in the area around Costco."

  36. 2020 LEAPS will be rolled out over a three month period:

    Cycle 1: Monday, September 11th, 2017: January 2020 LEAPS® listed

    Cycle 2: Monday, October 16th, 2017: January 2020 LEAPS® listed

    Cycle 3: Monday, November 13th, 2017: January 2020 LEAPS® listed

    To find out which stock – which cycle use this Ticker Symbol list

    There is a downloadable file which aids the search: 

    Download the Equity Options & LEAPS® Symbol Directory in .CSV format

    I do not know whether stocks are moved from one cycle to another, but at least you get some idea how long you have to wait to implement your rolling strategies.

    AAPL is cycle 1, TEVA cycle 3.

    Download the Equity Options & LEAPS® Symbol Directory in .CSV format


  37. Phil

    I would like some steady low priced stocks that can achieve a 0.00 cost basis in about 4 years.

    Was looking at OHI, a health care REIT. Trading at 31 near the bottom of it's 5-year 30 – 35 range  

    Pays .64 quarterly dividend for 8.25% yield. Have raised dividend 20 consecutive quarters

    Options go out to March. 

    Buy stock at 31. Sell March 31P 2.90, Sell March 31C 1.95, 3 dividend cycles of 1.92 for a cost basis of 24.23. 23% return in 9 months if called away

    Make sense?

  38. Winston-thanks.  Found everything else, but could not find the ticker list.  Bookmarking this.

  39. seer – the link for the ticker list did not take on my post. But if you go to the link 'Ticker Symbol List' (which does work) you will see at the top of the linked page there is a link there to the symbol list which you download as a '.csv' file. Hope that's clear.

  40. Nat- I seem to recall that you were seeing signs that we would see trouble in August. Just wondering if you're still feeling like this is imminent or have you seen something to change that ?

  41. Phil or anyone, Do you have the link that shows the video that equates selling options on stocks to having many tables in a casino? Very powerful presentation. Hope I'm saying this right but was excellent. I want to show it to some people. Thanks

  42. bitcoin hit 3335 at coinbase and is nw ~3200. BCC (bitcoin cash) at 215 as well, so 3415 total! I guess the market lied how the fork went.

  43. Craigs – "Nat- I seem to recall that you were seeing signs that we would see trouble in August. Just wondering if you're still feeling like this is imminent or have you seen something to change that ?"

    Your lucky that was posted at the bottom of the string and I just happened to look.  When I am pressed for time, I do not scroll the whole daily post.  To see if any questions have been asked, I search for NAYBOB, NATTERING and TNN, not NAT or NN. The latter two having far too many occurrence's in normal words.  Moving West…

    Other than morning glory and a daily constitution, we feel nothing imminent.  Others had expressed August timelines for a correction, which we had commented on.  Given the VXX or VIX happiness mentioned here and here at length, keep calm and keep buying? or are too many too complacent?

    We had brought up 07/01 and 07/03 the /CL target of .763 potential retrace to $49.81. When asked what the "driver" would be, we commented 07/25

    The total solar eclipse on Aug 21st?  How about sheer numeric gravitas? Works for me. 

    And that it usually does, as on 07/28, we noted all the targets had been hit.  Since, /CL topping out at 50.31 on Aug 1st and magically gravitating back to and around the 49.80 level.  Up or Down cycle next?

    Could be down for the next 14 trading days?  Gravity takes its toll.  What's the weather gonna be like? Look out a window… viz.  heed the lines, watch the trends, big and small. 

    We still suspect the Sept FOMC meeting brings a raise and perhaps a definitive date for the start of balance sheet reduction. Dec FOMC another raise. As for any other exogenous factors, one could ask a weatherman.

    A reality check is long overdue, August? Perhaps.  September?  If the FOMC follows suit, perhaps the wheels get set in motion for October?  Then again, this market could just keep rising until early next year and Out.

  44. Winter in Cordóba, Argentina – 80F and sunny! It's only about 40F in the morning but I could get used to this winter weather!

  45. BRK/B

    At June 30, 2017, our book value had increased by 6.2% since yearend 2016 to $182,816 per Class A equivalent share. Insurance float (the net liabilities we assume under insurance contracts) at June 30, 2017 was approximately $107 billion, an increase of approximately $16 billion since yearend 2016.

    This puts the B share BV at $122. The putative floor price is now $146 (120% of BV)

    Shares were down a bit AH on Friday to $177 after the earnings release. 

    Price to BV is now 1.45X. This metric has historically ranged from 1.2 to 1.6. 

  46.  TEVA – the co is trying to divest certain assets and is said to have attracted interest from firms such as Fresenius, Mylan, Novartis, and PE companies – Bloomberg  

  47. quiet board todsy

  48. TEVA down again premarket. Unreal 

  49. Good morning!

    I don't know why people complain about global warming – I'm right in the middle of the ocean and there's no land anywhere and it's quite lovely…  cheeky

    Amazingly, I do have a perfectly good wifi connection too.

    On the whole, I like this ship (Harmony of the Seas), the restaurants are good (the upgrade ones), entertainment not bad and the ship is big enough that there are plenty of quiet places to go.

    I see the Futures were up but coming back down on Europe's open.

    RUT fell 50 points and is testing 1,400 so 10-point bounces to 1,410 and 1,420 so 1,420 is our goal for the week to confirm we're going higher though over 2,480 on /ES will demonstrate that on its own.

    Oil rejected at $50 and still early in the cycle but now that we're through the weekend, we can play it short again with tight stops.

    And, of course, I like /NG on the long side at $2.78.

    /SI is getting interesting too:

    The generic drug bloodbath continues for a second day, with Teva leading the way

    Teva's Trouble Was Predicted. Path to Recovery Not as Clear

    Thanks Winston, useful guide to Options Cycles.

    OHI/Kapella – That's one Yodi likes and, now that they've had a pullback, I like them better too.  Very exciting to play, I imagine as they seem to go up and down on the whims of Health Care proposals:

    Submitted on 2017/03/31 at 10:25 am

    OHI/Burr – Good steady health-care REIT with a 7.5% dividend.  Options are short-term (Sept) and widely spaced ($5), which is why we never play them though at $30 they'd be worth playing as then you could sell $30 puts and calls for decent money.  At $33, the problem is the Sept $35 puts are only 0.60 and the $30 puts are only $3.30, not enough to cover the dividend if called away (so you will be) and the short $30 puts are just $1 so it's a nice stock with lousy options.  

    Now that they have $1 option spacing, they are way better to play but I'd stay conservative, selling the March $29 puts for $1.95 and call that free money to buy the $28 ($3.80)/$32 ($1.45) bull call spread for $2.35 so net 0.40 on the $4 spread and your worst case is owning them for $29.40.  You could jump in and buy it but I'd rather keep making $3.60 on spreads until I get "unlucky" and buy into the stock for a discount.

    Bezos-like/Pstas – Yeah, sure, what we need is more retailers to suck up tens of Billions in losses selling things for a loss while they tweak their model for 20 years – that will fix everything!  I think we have that now – it's called deflation…

    Video/Jomp – I think if you just put in "Be the House – NOT the Gambler" into Google, we're in the top few results.  

    BitCoin/BDC – Amazing! 

    Fed/Naybob – Well we've been expecting the Fed to pull down the markets for ages, maybe 20th time's a charm?

  50. Teva Pharmaceutical Industries (NYSE:TEVA) downgraded to Underweight with a $16 (22% downside risk) price target by Morgan Stanley. Downgraded to Market Perform with a $26 (26% upside) price target by Bank of Jerusalem. Shares are down 5% premarket on robust volume.

  51. Phil are you still using 49.20 as a significant support resistance line for CL?