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Fully Stuffed Friday – Markets Feast on New Highs

Another day, another record high.

We''ve had 54 record closes in 220 market days so barely a week has gone by this year without a fresh record high but don't call it a bubble – because this is how the market will just go from now on and we'll all be Billionaires when we retire and the Fed is worried that inflation will be TOO LOW.

The key to what went wrong for the forecasters this year was the lack of inflation, something Federal Reserve Chairwoman Janet Yellen has described as a “mystery.” As the year went on, investors became increasingly convinced that inflation would stay dormant, bringing down long-term bond yields and the dollar even as decent economic growth boosted profits and stock prices.

Sure, something in this narrative doesn't add up but that's why Greenspan called it "irrational exuberance" last time something like this happened but he called it way too early and the market went on to add another 100% after that.  Perhaps that's why forecasters are now very gun-shy about calling a market top here – they could be 100% wrong by the end of next year, when we're at S&P 5,000.

As noted earlier in the week, we got a bit more bullish in November as there doesn't seem to be any way this market is going down at the moment.  We still have our hedges and we still have plenty of CASH!!! (have I mentioned how much I like CASH!!! lately?) but we are quick to pick up bargains when they present themselves – just in case this party never stops and we need some fresh horses to run with.

This morning, in our Live Member Chat Room, we took a long poke on the Dolar (/DX) at 93 and we'll see how that goes.  We're hearing chatter about strong Black Friday Retail Sales numbers and, if true, that would indicate more demand for Dollars than is being priced in.  The Dollar is often artificially pushed down in order to boost things that are priced in Dollars like oil and stocks and it's much easier to manipulate the currency on slow holidays – when most of the honest traders are off-duty.  We're hoping for a nice little bonus next week if things reverse back to "normal."  

Normal will have to include China's CSI 300 Index plunging 3% yesterday (0.5% weak bounce today) on news of tightening standards for the Financial Sector, who are heavily leveraged.  In fact, the  10-year yield on China Development Bank debt this week exceeded 5% for the first time since 2014, while that on similar maturity government notes topped 4%.  4% or 5% yields on the US's $20Tn in debt would be as high as $1Tn per year and would add $700Bn to our annual deficit but don't worry – it's China, right?

Perhaps it is time to start worrying about Chinese bonds. Tightening regulation has provoked a sharp selloff in the $9 trillion fixed-income market, with collateral damage to share. If stress is sustained, it could infect China’s giant pile of foreign-currency debt.  

Anxiety has been increasing all year, as President Xi Jinping takes a tougher line on financial risk. Regulators have suppressed techniques abused by speculators, such as short-term borrowings using bond-repurchase agreements and so-called negotiable certificates of deposit. This crackdown, combined with expectations of higher rates, had pushed up benchmark yields without much panic until this week, when Central Bank Guidelines targeted excesses in the $15Tn asset management industry.

Nonetheless, Chinese companies, who are already swimming in debt, sold 24% more bonds this year than last year and outstanding debt is now about $2Tn.  This is the same kind of crisis situation we had in 2015 – except with more than twice as much debt as there was then and much more of it priced in Euros, Yen and Dollars, which means the impact will be felt more internationally and, if the Yaun loses value on this issue – even worse for Chinese at home as well.  

Interestingly, in fact, 5% of the US stock market's gains since Trump was elected have been from the $250Bn gain in China's Ali Baba, whose symbol is (BABA) on the Nasdaq.  That's 1/3 of an Apple (AAPL) they have gained in a year while, as a group, Chinese companies listed in the US are now over $2Tn, 4x bigger than they were when we supposedly learned our lesson in 2015.  

I've already cried BS that BABA claimed $25Bn in sales on the "Singles Day" last week while the US HOPES to do $3.5Bn on Black Friday – something there doesn't add up and, if BABA is faking their numbers to that extent – how can we trust any of these Chinese valuations?  The nominal market capitalization of China-listed companies is about $7.7Tn, or 8.3% of the global total, Bloomberg data shows.

That's enough of a red flag to keep us in our hedges and we also like the S&P Futures (/ES) short at 2,600 and the Nasdaq Futures (/NQ) short at 6,400 and we already have Russell (/TF) shorts at 1,520 so plenty of fun things to play with on what's likely to be a very slow trading day (US markets close at 1pm).

Have a great weekend, 

- Phil


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  1. Walt Disney: Domestic ESPN subs fell to 88 mln in October, the lowest level since 2003  (102.74)

    11/24/2017, 8:21:38 AM ET

    On Wednesday afternoon, Disney (DIS) disclosed in its 10-K that it lost another 2 million domestic ESPN subscribers in FY17 (October).

    Total ESPN subscribers fell to 88 mln — the lowest level since 2003. ESPN had 90 mln subs at the end of FY16, down from 92 mln in FY15 and down from 95 mln at the end of FY14.

    Domestic ESPN subscribers peaked at 100 mln in 2010.

    The Worldwide Leader in Sports continues to lose subscribers as consumers 'cut the cord' — opting to stream content online instead of paying for an expensive cable bundle. Social media has also cut into traditional TV viewership.

    Less subscribers means lower ratings and lower ad sales. Meanwhile, ESPN has signed longer term contracts for sporting rights, which are going up.

    Earlier this month, Disney reported FY17 cable networks revenue down 1% to $16.5 bln with operating income down 10% to $5.4 bln.

    To combat all of this, Disney is launching its own over-the-top (OTT) ESPN offering 'ESPN Plus' in the Spring of next year. Disney also plans to launch a streaming service for its other Disney content, including legacy animated franchises, Marvel and Lucas Films in early 2019.

    M&A has picked up in the media sector in the face of these secular headwinds. Disney and Comcast (CMCSA) are reportedly in talks with 21st Century Fox (FOXA) for some cable and movie production assets.


  2. Anybody here?  And why is DIS up on this?

  3. Good morning! 

    I'm here until 10:30 and then I have to go to a meeting but will be back when that's done.  I'm meeting with Bob, the CEO of FUNN Networks on a PSW Investments project.  

    Indexes have given back a bit of the rally but still strong so far.

    DIS/Baron – I think it was assumed there would be more attrition than that.  ESPN was a much smaller part of the profit picture in the last earnings report and DIS is moving to shrink them away as fast as possible.  There's only so many times the same bad news can tank a blue-chip stock.

    Bitcoin Mining Now Consuming More Electricity Than 159 Countries Including Ireland & Most Countries In Africa

    How many years have I been saying that's what they needed to do?

    The carnage in China.

  4. FTR WTF?

  5. Confirmed: Donald Trump did nothing to get LaVar Ball’s son released from China

    Mind the ever-growing gap! While German Ifo business climate has jumped to an all-time high, 's 10y yields remain depressed at ultra-low levels pointing to biggest bond bubble in history.

    FTR/Jabob – Looks like someone put out a negative report and, with no volume, down they go.

    Kellyanne Conway appeared Tuesday morning on Fox & Friends in her capacity as a White House official, but weighed in on the Alabama special election. Doing so appears to violate federal law, according to several legal experts and former ethics officials who served in previous administrations.

    Conway’s endorsement looks like it violated the Hatch Act, a regulations that limits federal employees’ involvement in partisan politics. The rule specifies that an official may not “use his official authority or influence for the purpose of interfering with or affecting the result of an election.”

    Of course, for it to matter – someone has to prosecute her and, since Trump controls the courts – nothing will happen.

    There are pockets of forced selling taking place in the global markets, and I find it curious that these different asset classes are politely ‘taking turns’.

  6. 24-Nov-17 10:01 ET


    Frontier Communications: Checking around on decline; Stock fell from $8 to $6.10 at the open but has recovered approx 1/2 of its losses  (6.86 -1.04)

    There is the possibility that this was a fat finger as the light volume trade would potentially allow for stops to be triggered.

    There is little volume overall so a bounce back would be a little more difficult as there would be a lack of buyers.

    We are checking around to see if there is any news that may be the catalyst for the decline but so far our searches have turned up empty.

  7. That's Briefing .com on FTR.  I went to town.  Unloading old calls, buying shares and selling new calls.

  8. TEVA tease.. DANGIT!

  9. Phil, on FTR, I'm guessing no action on 2020 puts because people expect them to get more expensive after div cut or at least after div payment in Dec. (I've been holding off on selling them too)

  10. Most cities could more than double their investments without having to raise taxes or cut spending elsewhere. The key is unlocking the value of poorly managed real estate and other public assets

    A Power Plant Is Burning H&M Clothes Instead of Coal – Bloomberg –

    At least 184 killed in attack at mosque in Egypt

    This wasn't a given: HealthCare dot gov enrollment is up in every single state

  11. Good job taking advantage Baron.  2020s are very slow to adjust but make an offer. 

    Back later.

  12. SVU/phil, lost track of these--do we still have uncovered long calls? or did we sell covers?   i have jan 19 calls, in at $6.6, now $7.95. TIA

  13. Phil/NG – dod you add to your position?

  14. what a crazy swing for FTR today.

  15. I'm back.

    Nasdaq be crazy!

    SVU/Lunar – We didn't change the LTP but we got more aggressive in the OOP:

    • SVU – Way too cheap down here but there are no 2020s so we're just going to double down on the 2019 $13 calls at $5 (20 more for $10,000) and wait for a bounce to sell some calls

    /NG/Ravi – No, I haven't even been looking.

    FTR/Jabob – Someone is trying hard to flush the weak hands.  

    Wow, there's not even much news today.  What a silly day to have the markets open.

  16. Have a good weekend,

    - Phil

  17. Bezos net worth is now above 100 billion.  Unreal !

  18. Shoppers snag Black Friday deals amid sparse mall crowds

  19. Donald Trump appears in Panama Papers for first time

  20. US cutting off its supply of arms to Kurds fighting in Syria

  21. The 13 most bizarre lines in Donald Trump’s Thanksgiving speech

  22. EPA scientific integrity in the balance: what’s at stake

  23. S&P downgrades South Africa’s local currency debt to ‘junk’ status

  24. Nasdaq crazy, dow crazy, spy and iwm cray cray. Crypto crazy.

    Maybe my money theory is right?

  25. Mueller opens probe of Kushner

  26. Is The Debt Market Tightening Up On Tesla?

  27. New York woman killed by hunter while walking dogs

  28. The Bonfire Burns On

  29. The Republican Tax on the Future

  30. Why Your Brain Feels So Foggy From Sleep Deprivation

  31. Meredith to buy U.S. publisher Time in Koch-backed deal

  32. 5 facts about government debt around the world

  33. Good morning! 

    I hope everyone had a nice vacation.  

    We had a good time with the family down in Florida.