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Tuesday, February 7, 2023

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Flip Flop Friday – Dollar Rallies Briefly on Trump Statement

What a wild ride the Dollar is having!  

Technically, so far, it's just a weak bounce off the (hopefully) floor at 88 but it's been a week of wild trading in US Dollars as first Treasury Secretary Steve Mnuchin talks the Dollar down (see "Record High Wednesday – Diving Dollar Boosts Equity Markets") and then his boss, Trump, completely negates what he says and promises a stronger Dollar. 

You can see the very quick reaction we got yesterday but then traders remembered it was Donald Trump who promised a stronger Dollar – and it began to sell off again.  Meanwhile, we're long on the Dollar (/DX) here as we think the Fed will indicate they are on a path to tighten further while Draghi and Abe continue to prevaricate.  That's what currency values are all about – your currency relative to someone elses.  The Dollar index itself is measured against a basket of other major currencies – there's no absolute value to the Dollar at all (kind of like BitCoin!).  

We'll see what happens this morning as Trump is giving his Davos speech (8am, EST) and the theme is "America is Open For Business" touting our resurgent economy and, of course, low taxes and lack of regulations.  In fact, just this morning, Trump named BPs lawyer and noted climate foe, Jeffery Clark to head up the DOJ's Environmental Unit and, as the linked article has to note – "No, this is not a headline from The Onion").  At least Clark has experience (though it's in destroying the environment, not protecting it). 

To show how serious he is about trade, Trump's appointment for Deputy Chief of US Trade, G. Payne Griffin, just graduated American University in 2014 with a Bachelors Degree in Economics but, don't worry folks – he was an Eagle Scout, so things should be great.  Hopefully he'll work out better than 24 year-old Drug Czar, Taylor Weyeneth, who just had to resign because he lied on his resume. 

Speaking of the envrionment (enjoy it while it lasts!), Weather.com put together a fantastic article on climate change called "50 States, 50 Stories" which should be read by everyone in America (don't worry, it's has lots of pictures).  It's not all depressing – some of the stories are about what people are doing to fix the environment but it's a nice, deep dive into the issue around the country.

Meanwhile, the President can talk up our economy all he wants to but those pesky facts are still out there.  This morning we just got the Q4 GDP report and it missed by 13% at 2.6% vs 3% expected and that means Trump is certainly missing his 3% GDP claim for the year.  In fact, the average for Trump's first year in office is now 2.52%, so I guess he can still round it up to 3%.  It's certainly not good that GDP has fallen off almost 20% from Q3's high of 3.2% – that's contrary to the economic narrative for sure and really not too supportive of record high markets.  

That means our index shorts (see yesterday's Morning Report) are back on in the Futures and we do have S&P (/ES) 2,850 this morning and Nasdaq (/NQ) 7,000 along with Dow (26,425) and Russell (/TF) 1,610 but, as with yesterday, we favor shorting the S&P and the Nasdaq as they cross below with very tight stops over the lines.  The once-again weak Dollar is supporting the indexes for now but it's not likely to last (China and Japan won't put up with it past this level).  

We're not shy about going back to the well and this is just another one of those ways the rich get richer in ways the poor don't even have access to (Futures accounts).  We discussed our hedges earlier in the week and I would strongly suggest not going into the weekend without any as it may occur to some people that a declining GDP might not support a 12.5% rise in the S&P since the beginning of Q4.

Keep in mind that Q4's GDP was actually BOOSTED by the euphoria over the tax cuts and consumers went out and borrowed their asses off in Q4, raising debt levels to record highs.  Now they are sitting down with their accountants and finding out just how little they are saving in taxes (unless they are in the Top 1%, in which case things are fantastic).  Q4 spending was also boosted by $500Bn worth of huricane repairs and Trump can't warm the Earth fast enough to repeat that stimulus in Q1.  

Image result for us consumer debt 2017Consumer spending jumped 3.8% in Q4, the most in 4 years but again, a lot of it was durable goods – replacing storm-damaged items and the consumers did that on credit-cards, which means they'll have less money to spend in 2018.  PCE Inflation hit 2.8%, and the Core Inflation is at the Fed's 2% target with record low unemployment so, despite the disappointing performance – the Fed has no reason not to go ahead and tighten as planned.

With household debt topping $13Tn (65% of our GDP), we're past the point that collapsed the economy in 2008 with roughly the same Mortgage Debt ($10Tn) and most notably a massive $1Tn increase in Student Loan Debt as college costs have spiraled completely out of control.  Bernie was going to make it free but Trump has let it ride with the average cost of a 4-year college in the US now over $25,000 per year – just the tuition!  

Consumers with a lot of debt and rising interest tend to cut back on spending at some point, so we'll have to take some of these Q4 earnings reports with a grain of salt as far as extrapolating too far into the future that this stimulated spending will continue.  

Have a great weekend, 

– Phil

 

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Albo – "Bought some WYNN at 181"

So did his wife Elaine. In 2000, when Wynn sold Mirage/Bellagio, Kerkorian stipulated a no compete clause in the sale. Wynn could not open or own another casino for 10 years or 2010.  That's why Elaine was on all the paperwork for the Wynn and Encore. They divorced in 2010 and he remarried in 2011, invoke Gibbs rule 39 and 39A. Funny thing is, the RNC funding chairman used to be no friend of the Donald.

Heaven has no rage like love to hatred turned. Nor hell a fury like a woman scorned.

– William Congreve – The Mourning Bride

With all that Wynn-ing, Steve should know the above, and as my late Uncle would say,  "Remember, you put yourself there!"

Some nice guy Phil:

….Beyond this incident, dozens of people The Wall Street Journal interviewed who have worked at Mr. Wynn’s casinos told of behavior that cumulatively would amount to a decades-long pattern of sexual misconduct by Mr. Wynn….Some said that feeling was heightened at times by the presence in a confined office space of one or more of his German shepherds, trained to respond to commands in German.

Phil – Savings/Den – That's not a good gap.  People are spending more than 2x what they are gaining in wages – irrational exuberance.  

Anyone think its the days of wine and roses? Next time somebody says look at all the credit debt, house hold ratios look good, that's a confident consumer.  Ask what about wages and the savings rate? and how will that debt be serviced in a rising rate environment? 

Moment of Zen… all the ass clowns whose credit ratings just passed the seven year reset, are already back to their old bad habits, racking it up for another go round. All those zero rate balance transfer teasers have a term date. Reflect upon that for a moment. 

POTUS says by 2020 we will be living in a country with full employment and an expanding economy.  Sounds great, I wonder which country he's talking about?  

News of the Future: By the time POTUS is done, deficits balloon, rates and debt service increase, markets and the dollar collapse? Mexico and Canada both pay to build walls, to keep fleeing Americans out. As Dan Rowan said, that's news of the future, and I didn't promise you a rose garden, and Out.

GE

EARNINGS MAY NOT HAVE BOTTOMED!

What was a conglomerate, has become a notch potch.

I could be persuaded to buy around $12-13….I base that not on current PE, but more so on a slow turnaround, if at all.

Phil/ALK

GREAT CALL!

will these markets ever go down? WTF!!!!!

@ Maya, GE – I am with you there.   

Somehow feels there will be a better opportunity/lower price ahead with GE.  

I will start selling puts at $12-$13 and leg into a BCS then.   

Next 6 months – 1 year might be volatile.

For once, Citron is actually praising a stock – glad its Twitter! 

Citron on Twitter train amid deal chatter; shares up 9.3%

Already up strong on the day, Twitter (NYSE:TWTR) shares are up 9.3% and re-nearing a 52-week high hit two weeks ago with deal rumors circulating, and noted short seller Citron Research issuing praise.

Unsupported chatter about a potential buyout by Salesforce.com (CRM +1.3%) is fueling some of the buying, Bloomberg notes. Call volume on TWTR is outpacing put volume by a factor of eight today.

Meanwhile, Citron says it gets a lot of emails about what it might be buying in this market. "Have been long $TWTR and agree with Hedgeye and Greenlight that 2018 is the year for $TWTR," the firm tweets.

"Target $35 Think Tencent buys," Citron continues. "Now go bash Citron on $TWTR." A $35 target implies another 44% upside from today's sharply higher price.

GE / Lerner / Also – Reading the different posts….. I tend to agree on this one with you guys.  While I think the market is mis-pricing this, history has taught me that on these it's best to wait for a clear turning point when you either see negative news dwindle or look for some clear support.  At this point it could be the SEC probe goes in a positive manner, or it could be they start to see traction on their key initiatives which the CEO sounded like a complete novice on the earnings call.  They had a slide on key initiatives, and eluded to them during an answer, but then didn't want to talk about it cause it hasn't been rolled out.   Just kind of silly,  I'm not convinced we are done with executive departures, or more bad news.  A few months ago I thought 15 would be a good floor and sold some puts.   I exited them right at announce ( just lucky) made a small amount.   Now I'm sort of waiting….  if this gets to 15 or 14 and the negative news dissipates I'm in on this.  For now i'll wait.

Phil / GE – LOL –   I just noticed I had an open order that I had forgotten about and it executed …. so I accidentally sold some Jan '20 puts at 3.65 today…..  Will help me keep an eye on it I guess….  

GE – Phil, you are right to make it one of your 'back up the truck' stocks. There's insanity on the upside and the downside – we should focus on the downside list. Maybe the time for value stocks is not far away.

GE = Jan '20  $18 puts that is

I can hardly wait for John Hussman's commentary which he should post late Sunday – I think he may be lost for words and analysis on how totally disconnected the business related to stocks has become to the price related to stocks. The current market is like a giant billboard for Buy & Hold – or as some wags are calling it, FOMO (Fear of Missing Out). The only question is how long before 'they' decide that all the retail investors are fully invested in the market, and then hey presto the oxygen is sucked out of the market. Ray Dalio's commentary noted this week (which I thought was rather cavalier). I haven't heard what Buffet has to say on the current dynamics of the market, but one would think this price action is more typical to the end of a bull cycle. 

In this current market, the idea of selling short calls to cover or buy some caution against stock or spreads is DEAD! Too many stocks are advancing too far, too fast to be handled by the classic ABW with partial short covers once the short calls of a spread go ITM. The sweetness of any cherry calls turned sour a long time ago (too many examples to mention). It's horses for course, and recognizing what are the appropriate strategies for the prevailing market conditions is paramount. While I find it disappointing when Phil cashes out portfolios, because I really want to learn how he adjusts not only winning but losing positions – he was absolutely right to do that back in December. A period of reflection to take stock of how previous plans have worked and what adjustments to ideas and implementation are needed is paramount. The litmus test of the collective wisdom on this board can only be measured when we have been through periods of both strong upward and strong downward momentum. 

tPhil/AAPL

If you get a chance to look this weekend, I have (after various rolls over time, and selling covered calls etc), the following spread:40  Jan 130’s at $33.79 and short $150’s at $19.59. (Now $45.35/30.35)

So, spent $14 to make $20…

Do you see any way to improve this, perhaps AFTER they report earnings next week as we know more on

 

their last quarter performance?

How about cash out with the $60,000 and buy the Jan $150/180 spread for $15 to make another $60,000i nstead of the upside of $20K with the current spread? Yeas, it’s riskier and that’s why I would wait till after earnings.

Phil/GE

No disrespect as I value your analysis and your r3commendations.

But GE, just doesn’t FEEL like it’s done going down…that’s all. 

If you keep beating the drum however, I will pay more attention.

What is trade of the year for 2018?

Bad news for NAK.

The Wall Street Journal.: EPA Chief Reverses Course On Pebble Mine in Alaska. http://google.com/newsstand/s/CBIwt-e4vTM

Phil – Presidents and the Dollar, not on it that is…  A look at Presidential cycles tracked by dollar value vs the major currencies used to arb, transact or facilitate $ carry trades. Excepting Uncle Ron's 1st term, there are two distinct patterns:

1. The dollar has declined in value since 1985. 

2. Republican administrations preside over the majority of declines, with Democrats over the gains.  

Fodder for coffee talk, discuss amongst yourselves, I'm verklempt.  From the Trade Weighted US Dollar – Major Currencies chart: 

Reagan 1st term optimism, voodoo trickle down economics, financial dereg

Jan 80 (95) – Mar 85 (146) Change: +50 = 1984 the peak of our civilization, its all downhill from there.

Reagan 2nd term – Bush Sr, more financial dereg, pendulum swings from labor to capital

Mar 85 (146) – May 95 (80) Change -65 = the great deficit decline

 

Clinton – crazy financial dereg, bad foreign policy and Wall Street greed

May 95 (80) – Feb 02 (112) Change +30 = 1st serial bubble forms and pops, high tech

Shrub – "its the terrorists" neocon decline, derivatives gone wild, cheap eurodollar floods global markets

Feb 02 (112) – Jan 08 (69) Change -40 = 2nd serial bubble (reflation) forms and pops, MBS, RE

Obama – more dereg, WS insanity, eurodollar market contraction begets dollar melt up

Jan 08 (69) – Jan 17 (97) Change +30 = 3rd serial bubble forms, everything and its mother

Trump – populist and WS insanity, eurodollar market decay

Jan 17 (97) – Jan 18 (87) Change -10 = bubble goes parabolic, this is just starting and Out.

The truth, the whole truth and nothing but the truth…

We are now counting on the repatriation of Trillions of overseas Dollars to boost the markets into 2018… the repatriated cash is not "new money" – it's already on their books and has already been earned – it's just being moved around.

This Dollar weakness is out of control.  Hopefully that was a blow-off bottom but clearly the Administration thinks our monetary policy is a tool they can use to goose the markets.

The problem with that is currently the indexes are not pricing in any losers at all – so the valuations are stretched across the board… way out of control and saying "it's not as bad as 1929 or 1999 really doesn't make it OK."   

It's a joke to talk about the markets doing so well when you tank the currency by 20%. What the Dow's performance in euros for example. Or gold for that matter…

This is the same kind of denial we had in the Financial press when Bush II was clearly destroying this country and its reputation yet the markets kept acting like all was well and there would never be any consequences.  

"What about" refers to the Conservative mental Jiu Jitsu that immediately seeks to distract gullible voters by taking every obvious sin committed by Trump and his team and steering it to "what about" something [else]

The truth is now a matter of opinion and we really are living in Orwellian times, which is joyous for those who accept the party dogma and a complete nightmare for those who like to think critically.

This is what happens when you spend 40 years defunding education and creating an entire population that "thinks with their gut" rather than their brains.  

What we have here is the Oligopolists consolidating their power… [they] learned their lesson from Nixon – you want to keep the lying, cheating bastard in power – you can't just replace him with anyone.  Trump is their guy and life has never been better for the 1% – they don't want justice – even for the sake of maintaining the facade of Democracy.

Nattering…  You mean the facade of democracy like this?  Bravo Brother Phil, the root of all evil is ignorance. Sheep are easier to lead to slaughter.

 From a theoretical physicist:

"Divorcing public policy from empirical reality endangers us all. What we need is evidence-based policy making, not policy-based evidence making."  – Lawrence Krauss

What happens when some teen takes this to school and cooks some other kid that he doesn’t like?? That won’t be good publicity. Why does anyone need one of these? 

https://www.yahoo.com/tech/elon-musk-apos-boring-company-023500497.html

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