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Thursday Thrust – Russell Small Cap Index Rockets Away from Reality


The Russell 2,000 Index is often disconnected from the other indexes but lately it's become disconnected from the economic data, which has turned substantially lower in Q2 while the index has rocketed from 1,500 on April 1st to 1,620 yesterday – not quite 10% in not quite 2 months.

As you can see from Zero Hedge's chart, this is the widest disconnect between the Russell and the Economic Surprise Index (data better or worse than expected) since last October, when the Russell topped out at 1,520 and then corrected 50 points to 1,470 but it only stopped when the Data turned more positive.  What's propelling the Russell to unreality this week is the suddenly strong Dollar, which is great for small cap companies who do the vast majority of their business locally, in US Dollars.  

But the Dollar can't keep up this pace and, in fact, just yesterday, the Hong Kong Monetary Authority stepped in to put a floor on their currency's slide and we can expect the PBOC and other Central Banks to follow as the Dollar hits the 5% Rule™ at  93.45.

Given the 4.45 run from 89, we can expect a weak retrace of 20% of that run (0.89) so call it 0.9 and that takes us back to 92.55 and a stronger retrace would be 91.65 – so that's what we'll look for to see if the Central Bank Interventions are enough to stop people from running to the relative safety of the Dollar while the World is in turmoil (see yesteday's Morning Report).  

Speaking of turmoil, team Putin Trump are hard at work destroying America's credibility around the World, first making demands that caused Kim Jong Un to re-think making a deal on nukes and then Treasury Secretary Steve Mnuchin and White Hose Economic Adviser Peter Navaro end up cursing each other out at the China Trade Talks with Mnuchin holding side meetings with Chinese officials that Navaro was not invited to.  Just imagine negotiating with guys who act like that!  

Image result for trump putin puppet gifMeanwhile, Japan is fed up with us and is planning retaliatory trade strikes on the US while simulataneously working closely with China (the enemy of your enemy is your friend) to establish trade ties that bypass the US.  This means our parners in Japan and Europe may join the Trans Pacific Partnership Trump walked away from, making it the ENTIRE WORLD TRADE PARTNERSHIP (except the US).  Vladimir Putin could not have done more to destroy the Unitied States' standing in the World if he had personally put his own puppet in the White House to undermine every alliance the US has built since World War II.  

Maybe there was no collusion and Trump is just an innocent dupe who is destroying America simply because he's a clueless idiot.  Let's hope…

Details of the Trump investigation are very disturbing but only if you read the "Fake" News outlets like the NY Times, which has been dilligently reporting things in a no-frills manner.  There's the very serious possiblity of a massive upheaval in the US Government over the next 6 months, whether through indictments or elections turning over the entire Government by November yet the markets seem to be oblivious to the risk – as well as oblivious to the gathering signs of economic weakness that put forward earnings into question.

Needless to say we're shorting the Russell Futures (/RTY) at 1,620!  


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  1. Getting scandal fatigue… can't wait to turn the Trump page and get back to a normal democracy.

  2. Good morning, All!

    The webinar replay is now available!

  3. Good morning! 

    We're drifting lower in the Futures but nothing drastic yet.  /NQ below 6,900 is playable with tight stops above and it's lined up with /YM 24,700 – also playable and 2,715 on /ES and 1,615 on /TF so long or short the laggard (last one to cross in either direction) this morning but I still get a down vibe. 

    SQQQ/Felt – Ah, thank you for asking at the right time so I can give our Members a GOOD example of rolling a hedge!  wink  Because you asked in time, you can still salvage the $1.60 CASH!!! you put into the spread by selling the calls but now we have to worry about covering the naked short Sept $23 calls (the short puts seem fine) so step one is to consider how realistic it is that SQQQ gets to $23 from $15 (50%) by Sept.  That would take an over 15% drop in the Nas, which is possible but not too likely (because why would AAPL drop 15%?).

    So, we're more worried about a short-term correction than a long-term one and Sept expiration is 127 days away and July is 64 days and the short $23s are 0.70 and they should be 0.35 by July.  


    While I might consider the July spreads to cover, I don't like the risk/rewards in July and the hedge is more protection for a bad correction, not a little one so I'd go with the Jan $15 ($2.80)/25 ($1.20) bull call spreads at $1.60 and those pay $8 (up 400%) at $23 and up to $10 and you can put a stop on 1/2 the short $23s at $1 to make is safer (would add 0.50 to the net of the longs, still less than the calls).

    You might want to consider adding some July $13 ($2.45)/$16 ($1) bull call spreads for $1.45 which pay $3 and are $2.20 in the money (up 50% to start) that will pay you back all you've spent on the hedges if the Nasdaq simply fails to be higher in July, that would make your longer hedge free (more free counting the short put) but only makes sense if you have longs that make $1,400 if the Nasdaq stays high between now and July (the short AAPL $140 puts at $5 will gain 0.50 – that's a start!).

    See how easy and flexible it is to adjust if you roll at the right time!  

    NK/Snow – Trump is walking into a huge trap in which the rest of the World accepts a deal with NK and the US doesn't, forcing our former allies to ignore our sanctions and completely de-fanging US foreign policy.  A huge win for team Putin!  

    CLF/Ravi – Generally it's on track, so I'm not sure what needs adjusting.  If you want you can roll the 40 Jan $5s ($15,720) to 2020 $7 ($3.15)/12 ($1.25) bull call spreads at $1.90 ($7,600) taking $8,120 off the table and you can put a stop on 20 of the short Jan $10s at $1.50, which would be putting $3,000 back in but only if CLF is over $10 and you're on track for another $20,000 on the long end with easily rollable half-covers.  

    AGNC/Yodi – I like those guys.  

    GOOGL/Yodi – Well, that's kind of a butterfly play on a volatile stock.  At $1,084, you have $65 of safety on the spread so how often does GOOGL move more than $65 in 30 days?  Sadly, it went from $1,000 to $1,200 in Dec-Jan and $1,200 to $1,000 in Feb and then back to $1,144 ($150) and then down $100 in early March and up $130 in mid-march and down $200 by the end of March and up $100 by mid April and down $100 in early May and up $100 mid-may.  

    So really it's more like, when DOESN'T GOOGL blow through your strangle?  Not a bet I'd make.   I would, however I wouldn't mind having 10 2020 $1,000 ($210)/$1,150 ($132) bull call spread at $78 ($78,000) and selling (since we're near the top of the channel), 4 short July $1,140 calls for $16 ($6,400) and then, when we are down around $1,020, I'd sell 4 puts that are $60 or so out of the money so hopefully the July $960s, now $5 for $10 ($4,000) or better.  

    If you can sell $10,000 of puts and calls every two months (and you can buy back at the top and bottoms of the channel to play more than once per cycle), you'll pull in $100,000 while you wait for your $150,000 spread to pay off.  

    Because of the possibility of catastrophic failure – it's not a play I'd put in our too-small portfolio nor would I take the risk in the Hedge Fund until we're over $5M (despite the fact that it's no margin issue at all).

  4. Oops, those answers were from yesterday's post-market questions! 

  5. Good Morning.

  6. Phil/Clf- thanks 

  7. Nice move in /KC and we don't look gift horses in mouths so 1/2 out at $121! 

    There's no point in scaling in if you're not going to scale out!  As we discussed in the Webinar, the point of the coffee trade is to be there when the big one hits so, if we can keep low-cost longs in play, we might be there when we get a $30 ($11,250/contract) move back to $150!  

    Meanwhile, we take $500-$1,000 off the table when we can so we don't miss out on the short-term spikes.  

    Dollar right at our 93.45 line (5%).

    Big Chart – Targeting those 50 dmas.

    /RTY off in the opposite direction so far but our premise is this will be the top for the Dollar so a pullback soon and then it will be hard for the RUT to ignore the drag of the other indexes.  

    Scandal fatigue/StJ – I don't think you've seen nothing yet.  Read that times article from the post – this thing is wide and deep and we're only just now starting to get revelations from early in the investigation.

    Just like during Watergate, there are very few papers or news organizations willing to say "The President is a Crook" for fear of retribution.  Without a truly free press – Democracy dies quietly.  

    In Rebuke of Trump, Tillerson Says Lies Threaten Democracy

    Former Secretary of State Rex W. Tillerson warned that American democracy was threatened by a “growing crisis in ethics and integrity.”

  8. SEC having some fun. Too bad they didn't launch a coin. I'd have bought some.

  9. Scandal / Phil – I don't see an outcome where someone named Trump or Kuchner doesn't end in jail somewhat. It's just getting completely ridiculous and you imagine that if we had some oversight from Congress it would be done already and Trump would be out of office by now.

  10. RB – run up is ridiculous. 

  11. Phil/RGS

    Wondering if you had a chance to look at RGS ? What is your take on Regis. PE is 6.15 and EPS 2.65.


  12. Big move up so far – we'll see if it sticks but can't be short if /ES is over 2,728.

    24,850 is the next logical short on /YM and, if you were long from before – a good place to think about taking profits!  

    • April Leading Indicators+0.4% to 109.4 in-line with consensus, 0.4% prior (revised).
    • Coincident Economic Index +0.3% to 103.5.
    • Lagging Economic Index +0.3% to 104.7.
    • Initial Jobless Claims +11K at 222K vs. 215K consensus, 211K prior (unrevised).
    • Continuous Claims: -87K to 1.707M vs. 1.780M consensus, 1.794M (revised)
    • For years David Einhorn's Greenlight Capital (NASDAQ:GLRE) thrived on buying beaten-down stocks of companies on the brink of turnarounds and selling those of overvalued companies
    • Now his investment approach looks less robust--Greenlight has slid 25% since the end of 2014 and clients have pulled $3B during the last two years, Bloomberg reports.
    • Einhorn isn't changing his tack: He's long on General Motors (NYSE:GM) and short on a "bubble basket," which includes Netflix (NASDAQ:NFLX) and (NASDAQ:AMZN).
    • Some critics say Einhorn let the fund get too big, which forced it into larger cap companies like GM and away from smaller- and mid-cap stocks, which brought him his original success.
    • Einhorn and his supporters, though, are betting the re-emergence of value stocks is due soon.
    • Previously: Greenlight added IAC/InterActiveCorp, exited Chemours in Q1 (May 15)
    • Brent crude prices top $80/bbl for the first time since November 2014, as the U.S. decision to renew sanctions against Iran continues to fuel a rally.
    • Brent currently +0.5% at $79.70/bbl; U.S. WTI +0.5% at $71.83/bbl.
    • "The geopolitical noise and escalation fears are here to stay," says Norbert Rücker, Head of Macro and Commodity Research at Swiss bank Julius Baer. "Supply concerns are top of mind" following the U.S. withdrawal from the Iran nuclear deal.
    • Global inventories of crude oil and refined products have dropped sharply in recent months and expected to drop further as peak summer driving season nears, offsetting increases in U.S. shale output, Bernstein analysts say.
    • "While the sharp rise in U.S. production and rig count has raised questions on the sustainability of inventory draws through 2018, we believe that inventories will continue to draw as we enter the summer driving season in 2018," the firm says.

    EIA Natural Gas Inventory

    • Valero Energy (VLO +4.9%) surges to a 52-week high Morgan Stanley upgrades shares to Overweight from Equal Weight with a $140 price target, raised from $110, as the shift in global oil supply towards light oil and regulations to control pollution should drive strong returns for complex refiners.
    • Stanley analyst Benny Wong says recent underinvestment in refining, reductions in capacity additions and overstated concerns about long-term demand have set the stage for refining to enter a "golden age" through 2020.
    • Demand for jet fuel, mining, chemicals and heavy transport are "here to stay" while the world is falling short by about one refinery annually until 2020, Wong says.
    • Stanley considers VLO and Marathon Petroleum (MPC +4.4%) its top U.S. picks in the refining space; the firm raises its price target on MPC to $100 from $90.
    • Cheniere Energy (NYSEMKT:LNGproposes buying all outstanding shares of Cheniere Energy Partners LP Holdings (NYSEMKT:CQH) it does not already own in a stock-for-stock exchange that would value CQH at ~$6.54B.
    • Cheniere offers to exchange 0.45 of its shares for each outstanding CQH share in a deal that would value CQH at $28.24/share, a 1% premium vs. yesterday's closing price.
    • LNG currently owns 91.9% of CQH outstanding shares.
    • New York state would gain $435.7M annually in tax revenue for legalized weed, while New York City would get about $336M, according to NYC Comptroller Scott Stringer.
    • "This is a new revenue stream… This is going to impact the kinds of resources we'll have to invest in education, to invest in healthcare."
    • Currently, legislation to legalize marijuana use throughout New York is pending in Albany.
    • Goldman Sachs estimates that Tesla (TSLA +0.6%) will need $10B in fresh capital by 2020 to fund operations.
    • "We believe this level of capital transactions may be funded through multiple avenues, including new bond issuance, convertible notes, and equity," says GS analyst David Tamberrino.
    • "We see several options available to the company to refinance maturing debt and raise incremental funds, which should allow Tesla to fund its growth targets," he adds.
    • Tamberrino is firmly in the Tesla bear camp, with a Sell rating and price target of $195 on the EV automaker, although he was not one of the analysts shut down by Elon Musk during Tesla's Q1 earnings call. He was three for three in asking questions and getting answers (transcript).

    Restaurant chains battle through traffic loss

    • Restaurant same-store sales were up 1.5% in April, according to data from TDn2K. The mark is the highest since September of 2015 and follows the 0.8% increase in March..
    • Comparable traffic was down 1.4% during the month, a deceleration from the 2.1% drop in the prior month. Guest spending has been up about 3% in March and April to offset the drop in restaurant guests.
    • "In April, to-go, delivery, catering and banquet sales each outperformed sales growth for dine-in sales. Across industry segments, the percentage of total restaurant sales represented by these off-premise food categories has been growing. Consumers behavior is shifting and 'on-the-go' has become an extremely important component of restaurant demand," reports TDn2K.
    • Despite the positive signs for the industry in April, TDn2K issues some caution. "Stronger economic conditions and high consumer confidence are certainly factors. However, this performance has to be considered against last year’s soft sales. A longer view suggests there are still significant challenges for the industry," warns the research firm.
    • J.C. Penney (NYSE:JCP): Q1 EPS of -$0.22 misses by $0.02.
    • Revenue of $2.67B (-4.0% Y/Y) beats by $40M.
    • Shares -11.73% PM.
    • Press Release
    • J.C. Penney (NYSE:JCP) reports comparable sales increased 0.2% in Q1 to trail the consensus estimate for a 2.1% rise. The top performing categories during the quarter were jewelry, Sephora, Men's and Salon.
    • The company generated adjusted EBITDA of $151M to beat the consensus mark of $142M.
    • CEO update: "Overall, we believe that our strategies are beginning to take hold, as we are seeing improvement in a number of areas. Apparel categories performed well during seasonable weather periods, and our beauty and home refresh initiatives performed well above our total comp sales performance for the quarter. The strength in sales performance early in the quarter, our investments in enhancing our apparel categories, continued strength in our beauty and home refresh initiatives and a focus on taking market share from ailing retailers all give us confidence in our annual comp sales guidance of flat to up 2%."
    • J.C. Penney sees full-year EPS of -$0.07 to $0.13 vs. prior guidance of $0.05 to $0.25 and $0.17 consensus.
    • Shares of JCP are up 0.98% in premarket trading to $3.10 vs. a 52-week trading range of $2.35 to $5.63.
    • Walmart (NYSE:WMT): Q1 EPS of $1.14 beats by $0.01.
    • Revenue of $122.7B (+4.4% Y/Y) beats by $2.19B.
    • Shares +0.72% PM.
    • Press Release
    • Walmart (NYSE:WMT) reports e-commerce sales rose 33% in Q1 to accelerate from the +23% pace of Q4 and top analyst estimates for ~30%.
    • Comparable sales rose 2.3% in the U.S. vs. +2.1% consensus estimate, consisting of a 2.1% comp at Walmart stores and 3.8% comp at Sam's Club. U.S. traffic was positive at both the Walmart and Sam's Club chains.
    • International sales were up 12% to $30.3B on broad strength across key markets.
    • The company says it generated $5.2B in operating cash flow during Q1 and $3.3B in free cash flow.
    • "We are changing from within to be faster and more digital, while shaping our portfolio of businesses for the future," says CEO Doug McMillon.
    • WMT +1.36% premarket to $87.30 vs. a 52-week trading range of $73.13 to $109.98.
    • Previously: Walmart beats by $0.01, beats on revenue (May 17)

    • Valeant Pharmaceuticals (NYSE:VRXannounces that VPI has launched an offering of $750M aggregate amount of unsecured senior notes due 2027.
    • The Notes will be guaranteed by the Company and each of its subsidiaries that are guarantors under the New Credit Agreement.
    • Previously: Valeant to refinance existing credit deal (May 10)

    WWE +12.7% to all-time high as Guggenheim sees TV gold

    • World Wrestling Entertainment (NYSE:WWE) has jumped 12.7% and hit an all-time high after a note from Guggenheim suggests the company's TV rights renewals values are looking pretty conservative in the wake of reports of a new UFC deal.
    • The ultimate-fighting league reportedly has a deal with ESPN Plus for some $350M annual value on average.
    • That's a "baseline minimum achievable target" for WWE, says Guggenheim's Curry Baker, who points to the company's higher and more stable ratings than UFC along with a surplus of content hours. It means the renewal cycle could push WWE's annual average value above Guggenheim's estimate of $294M (and well above the company's current $145M). (h/t Bloomberg)
    • WWE is up 42.5% YTD and up 123.5% over the past 12 months.

    Big self-driving car deal for Mobileye

    • Intel's (NASDAQ:INTC) $15.3B deal for Mobileye is bearing big fruit. The company has signed a contract to supply 8M cars at a European automaker with its advanced self-driving systems.
    • The deal will begin in 2021, when Intel's EyeQ5 chip, which is designed for fully autonomous driving, is launched as an upgrade to the EyeQ4 that will be rolled out in the coming weeks.

    U.S. births sink to lowest number in 30 years, CDC says

    • The number of babies born last year fell to 3.85M last year, down 2% from 2016, and the lowest number since 1987, according to the Center for Disease Control and Prevention's National Center for Health Statistics.
    • While the number of births nudged up in 2014, it's fallen for three consecutive years.
    • General fertility rate for women age 15 to 44 was 60.2 births per 1,000 women--the lowest rate since the government started keeping records over 100 years ago.
    • One explanation for the decline in births: More women are going to college and may be focusing on their careers and paying off college debt before starting a family, says the Wall Street Journal.
    • As birth rates decline and a larger segment of the population nears retirement, a smaller segment of workers are paying into Social Security and Medicare, putting stress on the programs that help support older Americans.
    • Previously: U.S. birth rate falls, death rate rises (June 2, 2016)

  13. SPWR having a nice run… Sold 1/2 a cover already but it has run into resistance around $9.5 so feeling good about that. 

  14. RGS/Pat – It's a nice, boring business but they don't make any money so I don't understand where you see a p/e of 6.15.

    Year End 30th Jun 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 2,122 2,019 1,892 1,837 1,791 1,692 1,343 1,234 1,224 -4.4%
    Operating Profit $m -2.17 13.4 -35.0 3.53 17.6 -1.20 -10.0      
    Net Profit $m -114.1 30.5 -138.5 -33.8 -11.3 -16.1 5.19 -10.1 21.6  
    EPS Reported $ -0.91 0.096 -2.48 -0.60 -0.23 -0.35 2.65      
    EPS Normalised $ -0.14 0.096 -2.07 -0.60 -0.23 -0.35 2.88 -0.21 0.46  
    EPS Growth %                    
    PE Ratio x           n/a 5.68 n/a 35.6  
    PEG x           n/a n/a n/a 1.02

    Their revenues are in steady decline, which is not surprising with SuperCuts (their brand) killing the margins and the other big money-maker in this space is products but AMZN and TGT are killing on those (my kids always go to TGT with their friends for products).  

    Think about their business, they have 9,000 locations and are only pulling in $1.5Bn in revenues so $166,000 average per location.  Have 4 employees and pay rent and utilities and where's the profit going to come from?  Meanwhile, now that the recession is over, any top-producing hair cutter who has a client base will walk away from their low-paying shop with the customers to any of 100 other places in the town that would be happy to give them a chair.  

    SPWR/StJ – I can't believe they sold off like that in the first place.

  15. Phil--what is your opinion on the semiconductors ( INTC, TXN, NVDA, QCOM, ADI, LRCX, MU, etc..)???

    Are they ever going to pull back?

  16. Meanwhile, VLO what a chart! up 5% today to $120+ on MS upgrade and PT of $140.  

    Somehow feels like 2007…  I am closing my $80/$90 2019 BCS for a tidy profit and moving to the sidelines. This was an earlier butterfly that I converted to BCS. 

    Oil is starting to hit $80 -might even go to $100, and VLO might go to $150, but demand destruction at these levels might be imminent and we have seen this story before.  The risk-reward at this point is not worth it for me.   Moving on. LB seems much better at this point. 

  17. Semis/Jabob – Well I'm certainly not going to bet against Team Overlords!

    Image result for robots playing poker

    Consider that these companies were built because, between 1985 and 2010 (25 years), every house in America and every desk in every office got a chip (1Bn, ballpark) and then 200M cars got chips and, of course, there's a 3-5 year replacement cycle that keeps things going.

    Now, every TV (500M) gets a chip and they have DVRS (500M) with chips and everyone has a phone (300M) and IPads (100M) and laptops (100M) but now you doorbell gets a chip (100M) and your doorknob gets a chip (100M), your alarm clock (100M) and your refrigerator gets a chip (100M) and you get a FitBit (and watches and glasses) and more chips in your cars for all sorts of things (200M) and the cash registers and auto mechanics and cameras, cameras everywhere and solar panels (30-40 per roof!) and the batteries that store the energy….  We're in pretty early stages of the IOT, this can go on for a while…

    Image result for sneakers with chips

    Great article, Tangled.

    Over all, 76 percent of the companies that went public last year were unprofitable on a per-share basis in the year leading up to their initial offerings, according to data compiled by Jay Ritter, a professor at the University of Florida’s Warrington College of Business. That was the largest number since the peak of the dot-com boom in 2000, when 81 percent of newly public companies were unprofitable. Of the 15 technology companies that have gone public so far in 2018, only three had positive earnings per share in the preceding year, according to Mr. Ritter.

    MoviePass’s business model — which Slate described as “creatively lighting money aflame in order to subsidize the movie-going habits of some 3 million customers” — has turbocharged its growth. And the company maintains that it can make money by striking revenue-sharing deals with theater chains, or charging movie studios to advertise inside its app.

    VLO/Learner – No surprise with high gas prices. 

    /ES back under 2,728 and I have my /RTY shorts at just under 1,625 avg still.  6,950 on /NQ still a good shorting line.  

  18. Butterfly Portfolio Review:  We still have just 2 positions but those 2 positions have made $13,702 (13.7%) in 4 months for our entire portfolio with $87,030 on the side.  OIH is just a long so only DIS is a real butterfly but I think we can sell some calls on OIH and get back to business there.  

    As I noted to Yodi re. GOOGL this morning, I want to pick stocks that stay in their channel and they are few and far between in this market so I have not been enthusiastic about adding Butterfly Positions but I don't think making 40% annual returns while we "wait" is being negligent, right?  

    DIS – The May short puts will expire worthless and, fortunately, we didn't sell short-term calls this cycle but now we can take advantage of no earnings until Aug 6th (that week) and sell 5 (1/3) the July $105 calls for $2.90 ($1,950) along with 5 July $100 puts at $1.60 ($800) to pick up another $2,750 over 60 days against our net $7,100 long position so that's about 20% a month we're pulling in on our DIS allocation!  

    OIH – While our bullish position is fantastic and now up $8,000, that's not why we put things in the Butterfly Portfolio (we prefer to make 20% a month like we're doing with DIS).  We can now sell 10 (2/3) of the 2020 $30 calls for $4.25 ($4,250) and that means we can fearlessly sell 5 July $29s for $1.78 ($890) but no short-term puts from this height and, in fact, let's put a $1.75 stop on the short 2020 $23 puts to lock in those gains

    I think AAPL is going to enter into a sellable range as $1Tn ($205) should be a short-term top we can rely on and $170 should hold as a floor so let's begin working into a new position on AAPL by picking up 10 2020 $180 ($28.30)/$220 ($12) bull call spreads for $16.30 ($16,300) and selling 5 2020 $165 puts for $11 ($5,500), with the intent of selling 5 more when AAPL bottoms again.  The $185 puts are $19, so that's around our goal for the next 5.  We won't sell short-term puts but we can sell 5 (1/2) of the July $190 calls for $4.80 ($2,400) as earnings won't be until the first week of Aug so we're counting on the usual nonsense taking AAPL lower into earnings.  

  19. Money Talk Portfolio Review:  Not much change here at $86,717 but we only started with $50,000, so up 73.4% is pretty good for 8 months.  We can't make changes to this portfolio unless I'm on the Money Talk Show and I haven't been on since Feb so we're stuck with what we have.  

    Fortunately, the portfolio was designed to be a quarterly no-touch and is self-balancing with the Sept SQQQ hedges but the calls are near the net of the spread so we will need to do something about them soon.

  20. You couldn't find fear in this market even if you unleashed a lion into the stock exchange.

  21. Short-Term Portfolio Review (STP):  $175,267 is down $5,220 since our 4/19 review but a very small price to pay on our hedges for MASSIVE gains in our LTP (which we'll get to later).   The only change we made last month was buying back the DXD covers and that's not working out so far but it does make it a better hedge and we made 0.32 on the short $10s so our net/net on the $8s is 0.78 – not too far out of the money.  

    With the market still strong, I don't want to throw good money after bad on DXD so we'll just wait and see if the rest of May leads to a pullback and, if not, THEN we'll salvage what we can and set up a longer-term DXD spread.  

    Always keep in mind the STP is a $100,000 hedging portfolio paired with the longs in our $500,000 LTP and we do not expect to make money in this portfolio.  Ideally, we make 30% in the LTP ($150,000) and lose less than $50,000 in the STP to have a well-balanced, 20% gain for the year but sometimes we have good timing with our hedges and sometimes we make smart short-term bets and we outperform in the STP.  This is one of those times!  

    • DXD – As noted above, we bought back the short $10s so we could take advantage of a spike down.  5% down in the Dow would pop DXD 10% to $9.20 and the calls back over $1, which would make us happy.
    • Short Puts – These are just offsets we used to pay for the hedges and, if they go in the money, we'll probably just move them to the LTP, where they become cheap entries to long-term positions (assuming we still like them).  
    • SQQQ – The 50 short May $20s are covered by the 80/40 Sept $15/20 spread so it's at least 80 x $5 protection for $40,000 here and currently worth $14,400 so $25,600 worth of protection if the Nas tanks.  
    • TZA – As $25,600 on SQQQ and $20,000 on DXD didn't seem like enough, we just added 50 of the SQQQ July $10s, which are at the money so, if the Nas falls 10% then SQQQ hits $13 and we're $15,000 in the money on these.  

    On the whole, it's not a lot of protection but it's enough to ride out a 5% dip and hopefully, before it gets worse, we can add more hedges.  Keep in mind the $75,000 we made this year is also a hedge for the LTP – we can always transfer that so there's no reason to over-hedge when the market has not shown much sign of fading recently (though I still think a 10% correction is way overdue).

    The cool thing about this portfolio is that, generally, these are all bets that we had no expectation of winning when we made them.   We simply press our bets when they are down and cash in when the cycle goes our way and, so far this year, we haven't been burned by the market blowing through our predicted channel.  

  22. Image result for danger will robinson gif

    • 30-year fixed mortgage rate rose to 4.61% this week, matching the highest level since May 19, 2011, says Freddie Mac (OTCQB:FMCC) Chief Economist Sam Khater.
    • "While this year's higher mortgage rates have not caused much of a ripple in the strong demand levels for buying a home seen in most markets, inflationary pressures and the prospect of rates approaching 5 percent could begin to hit the psyche of some prospective buyers," Khater says.
    • 30-year fixed-rate mortgage compares with average 4.55% last week.
    • 15-year FRM averaged 4.08% vs. 4.01% last week.
    • 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.82%, up from 3.77% last week.
    • Source: Press Release
    • Previously: 'Storm clouds' for mortgages prompt worry for Ellie Mae and Flagstar (April 12)

  23. thx phil

  24. Well, Trump's Peace Prize is going right out the window.  Now China negotiations have officially broken down and Trump just said Kim may no longer want a meeting either.  

    Nice wheeee on the shorts but bouncing off 6,875 on /NQ and 1,620 on /RTY so far.  Lined up with 2,710 and 24,650 at the moment.  

    Trump says: "Whatever happens happens, either way we'll be in great shape" – those are the words of the guy who's got his finger on the button!  

  25. VLO is the poster child for the insanity of this market. Look at a 10 year chart. Mid 2012 a $20 stock. An industrial staple. Now a $120 stock. I once tried to sell conservative short covers on BCS. Gave up. Anyone who managed to do this successfully please write…… PO BOX wtf001

  26. Phil just came in. Thanks for the comments on AGNC and GOOGL. Agree the GOOGL play is not for every one and the ups and downs are considerable. Possible your BCS idea is the better one for strong nerves.

  27. Trump / Phil – Everybody is going to take turns rebuffing him now because we have no friends left besides Putin, Bibi and Erdogan. And these guys are not friends, they are simply milking the relationship for everything they can. We are going to end up in a much weaker position than we have been in 50 years. We might have to ban the GOP from running for president for 20 years to fix the mess that we are in right now.

  28. Winston VLO I gave up at 65

  29. Yodi – pushed it until $90. I'm hoping your WSM play will recover my sanity (losses)!

  30. Of course, the elephant in the room is that since the financial crisis of 2008/2009 simply buying and holding stocks has been a more than viable alternative to playing the casino of the options market (including being the owner of whichever particular casino). The only caveat is that momentum stocks have probably outperformed value stocks over that period.

  31. Long-Term Portfolio Review (LTP) Part 1:  $598,509 is up 19.7% for the year already and, as I said last week – when I'm up 20% in 4 months I'd rather go back to CASH!!! and take a nice vacation than sit around trying to protect my gains in 40+ positions by spending money on hedges in a market I think is very over-priced.  

    Does this kind of logic prevent me from making 50% in years the market goes up 30% or more?  Sure it dos – but it also prevents me from losing 20-40% when the market drops and I'd rather "only" make 20% consistently than having down years that undo my previous gains.  It's also MUCH more relaxing – and there's a value to that as well!  

    Nonetheless, it's my job to have a portfolio for you guys and, though my gut says sell (and our hedge fund is more than 90% cash and my kids college funds are 100% cash so that's my REAL attitude for money on the table), so we'll "play through" for the summer but only under my protests that I don't consider it a good idea…

    We were at $575,343 on our April 20th review, so up $23,166 is 4.6% for the month and that's a good pace – especially considering how burned we were on a couple of positions (HMY, CMG).  That's the good thing about having a lot of positions when you are BEING THE HOUSE – no matter how stupid your mistakes are – those premiums keep rolling in!  

    • FMCC – Brand new and they don't have options so strange for us but up 2.2% so why not?  I went in now because I think the Government may finally unwind them and, if so, it should be an easy triple.  
    • Short Puts – We're just bookmarking positions that we'd like to buy if they get cheap and, if they don't, then we keep the money we collect.  Ideally, we sell $4-5,000/month in puts so the short puts drop $50-60,000 a year into our pockets in a bull market.  That's 10% of the portfolio right there!  IBM is at a point where we want to turn it into a position and CM as well.  CBT is, as I said last month, very speculative  (lithium) but it has already made a huge recovery.

    • FTR – Doing very well now.  
    • NRZ – Newish and still good for a new trade. 
    • SKT – Good for a new trade.  I'm amazed they are so undervalued here.  Meanwhile, they just paid us an 0.35 ($700) dividend on 4/27.

    • AAPL – Recent addition, good for a new trade. 
    • ABX – Ridiculously undervalued, good for a new trade.  
    • ALB – Hoping for $110 before selling 10 more short calls.

    • ALK – Big pullback but still on track.
    • AMGN – Another new one already doing well.
    • ARR – On track
    • BBBY – We adjusted last time and still good as a new trade.  

    • C – We're back to where we came in in early Feb.  I'm still good with these targets.  
    • CDE – Doing much better than ABX.  
    • CHK – Finally turning up.  Net $3,750 credit can become an $18,750 gain at $5!  
    • CHL – On track.  
    • CMG – This one screwed us as we rolled 3 short April $300 calls at $33.50 ($10,050) to 4 short June $325 calls at $23.40 (9,360) so we spent $690 to buy $25 in strike and that didn't help as CMG blasted up over $400.  Not a tragedy as our longs are going to pay us $50,000 and we've got $4,400 more coming from the short puts but we need to adjust this one. 
    • The 4 short June $325 calls at $115 ($46,000) can be rolled to 6 Jan $420 calls at $58 ($34,800) and we're going to cash out our 2020 $300 ($169)/350 ($132.50) bull call spread at $36.50 ($36,500) and pick up 15 of the 2020 $400 ($100)/$480 ($62) bull call spreads at $38 ($57,000).  
    • We started the spread with a net $10,460 credit (and we already had a profitable cash-out in Feb) and now we're spending net $31,700 so we're now in for net $21,240 on the $120,000 $400/480 bull call spread that is about 1/3 covered with short $420 calls so we're hoping for a bit of a pullback, but not too much!  

    The same way a stock can be too low – it can be too high and it's good to know the VALUE of the stocks you are playing with.  In CMG's case, we jumped on the dip in Feb and bought 10 of the 2020 $260 calls on 2/9 for $57 and we sold them on the 27th for $105.50 and then we established our current position.  This time, instead of going too low, CMG has gone too high, so we're now playing it a bit bearish and we may even sell more calls if it breaks down below $420.  

  32. Winston WSM is doing well with me in general. Remember the stock in the armchair is always the back bone and will rise or fall during your plays. As long as you stick to the stock the worse is you have a paper loss, but always ready to enter a new play.

  33. "Finger on the button" ….more like thumb up his azz…. ;)

  34. 1020, we need good trade ideas no thumbs up it's ass, they do not pay the bills on this side!!! Possible only stink!!!!

  35. M/Phil – thanks for calling out the value of M back last year. Looking over my position, rolled out of JWN into M in June 2017. Since the trade, M up 50% (with a 6.7% div on cost at time), vs. JWN up 12% and a 3% div at time). 

    Last week, rolled other half of JWN into LB. Look forward to what a year will bring to that trade.

  36. Wow, where did this day go?

    Yet another disappointing finish.

    VLO/Winston – LOL, they are a monster but at least they have earnings to justify it – unlike many others.  

    GOOGL/Yodi – You need nerves of steel and deep pockets. 

    20-year ban/StJ – They did that after Hoover – worked out great!  

    Buy and hold/Winston – I think our portfolios have consistently outperformed the market for the last 10 years.  Being the house makes it very hard to lose to Buy and Hold strategies.  I think we did the math last year and just playing our Trade of the Year each year (compounding) was like a 40x return.  Anyway, that free money train is ending and now our strategies will begin to kick the crap out of the indexes.  

    M/Scott – I thought JWN was too Top 1% focused and that was playing out.  M was priced like going BK for a while, as LB is now.

    It just shows you that analysts – even at the big houses – don't really have a clue at how to value a business.  Otherwise how could M have gotten to $17.50 without being snapped up since clearly they now look cheap at $30 ($9Bn).  

    Year End 03rd Feb 2013 2014 2015 2016 2017 2018 2019E 2020E CAGR / Avg
    Revenue $m 27,686 27,931 28,105 27,079 25,778 24,837 24,654 24,549 -2.1%
    Operating Profit $m 2,524 2,678 2,783 2,039 1,315 1,817     -6.4%
    Net Profit $m 1,335 1,486 1,526 1,072 619 1,547 1,112 1,003 +3.0%
    EPS Reported $ 3.24 3.86 4.22 3.22 1.99 3.18     -0.4%
    EPS Normalised $ 3.46 4.01 4.40 3.77 3.18 2.63 3.63 3.22 -5.3%
    EPS Growth % +20.0 +16.0 +9.8 -14.4 -15.6 -17.3 +37.7 -11.3  
    PE Ratio x           12.6 9.15 10.3  
    PEG x           0.33 n/a n/a

    They had two bad quarters BECAUSE they were making adjustments that would make them more profitable long-term but the "analysts" only see a stock going down and then look for reasons to justify a downgrade and I'll be not one of them every actually went to a storage room to get something for a customer in their lives!  WTF do they know about retail operations?  

    HBI is still going strong, also got stupidly cheap.

  37. Good morning! 

    Markets are up as China offers to move on trade:

    China Offered Trump $200 Billion Cut in U.S. Trade Deficit, Official Says. (videoChina has offered President Donald Trump a $200 billion reduction in its annual trade surplus with the U.S. by increasing imports of American products and other steps, said a Trump administration official. China made the offer during talks in Washington this week as Chinese Vice Premier Liu He visited to try to resolve a trade dispute, the official said, speaking on condition of anonymity. Liu met with Trump Thursday afternoon at the White House. The official didn’t describe the U.S. response. Trump expressed doubt ahead of his meeting with Liu that China and the U.S. would come to an agreement to avoid a damaging trade war

    It's not clear when that was but yesterday afternoon, Trump kept saying "$800Bn", which is a nonsense number for China Trade Deficit ($200Bn of it is IPhones they make for us, for example) so hard to say if he was negotiating or making an excuse for killing a substantial offer.  

    Trump: I 'doubt' China trade negotiations will succeed.  

    As I've been saying, a Putin Puppet wouldn't want an actual deal – just a reason to put the US and China at odds.  


    Nafta Countries ‘Nowhere Near Close to a Deal,’ Trump’s Negotiator Says.

    Legislation to Curb Chinese Deals Moves Through Congress.

    North Korea Doubles Down on Criticism of Seoul, U.S.

    • North Korea has suspended talks with the South over joint military exercises with the U.S. as the rhetoric between the nations ratchets up once again.
    • Speaking in the Oval Office, President Trump said Kim Jong-un could remain in power if the two sides reached a deal to rid the North of nuclear weapons. Otherwise, the country should expect "total decimation."

    Bonds Battered, Submerging Markets Slump, & Small Caps Hit Record High. 

    • Hawaii's Kilauea volcano has erupted from its summit, shooting a dusty plume of ash about 30K feet into the sky.
    • Additional eruptions could not only shroud large areas of the Big Island in volcanic ash and smog, according to the US Geological Survey, but also other Hawaiian Islands and potentially distant areas if the plume reaches up into the stratosphere and ash is carried by winds.

    Reasons Why Global Growth Is Speeding Up, Not Slowing Down.

    • The Vatican has released a 10,000-word bulletin on global economics and finance, warning against "unstable" products like derivatives and credit default swaps, and classifying them as "unethical."
    • Calling on Wall Street, Pope Francis in the past has suggested regulating speculative financial practices and reining in the "absolute power" of the financial system, which he said would bring more crises.

    Japan’s Inflation Slows Amid Rising Calls for Delay in BOJ Exit.

    PIIGS Credit Risk Jumps Amid Italy's Five Star-League 'Agreement' Confusion .

    El-Erian’s Emerging Market Warning – Debt levels that quadrupled in a decade have made emerging markets vulnerable to tightening financial conditions in the era of rising U.S. interest rates, Fitch Ratings said. Outstanding debt securities from developing nations have ballooned to $19 trillion from $5 trillion a decade earlier, the credit-rating company said in a report. Despite the development of local-currency bond markets, borrowers will be hobbled by higher external borrowing costs, a stronger dollar and slowdown of capital inflows, the report said. It follows comments from Mohamed El-Erian, who warned of the “trifecta” of higher oil prices, rising interest rates and an appreciating dollar.


    Bitcoin may fall below $8,000 as crypto confab fails to stoke buying, analyst says.

    Buyer Beware: Hundreds of New Cryptocurrencies Show Hallmarks of Fraud.

    Here are the 20 stocks that the biggest hedge funds love most

    Wells Fargo Caught Altering Information on Business Customers Documents 

    • The crude rally towards $80 a barrel is being seen as a short-term spike driven by geopolitics rather than any supply shortage, according to four OPEC delegates, a sign the group is not rushing yet to rethink its output cut agreement.
    • Saudi Arabia is meanwhile discussing concerns over volatile oil prices with other OPEC members and Russia amid supply worries following the U.S. withdrawal from the 2015 Iran nuclear deal.

    Oil Is Above $70, but Frackers Still Struggle to Make Money.

    Tesla Will Need Over $10 BIllion In New Capital By 2020: Goldman.

    Amgen(AMGN) Says Just-Approved Migraine Drug Will Cost $6,900 a Year.

  38. Dollar hitting $93.55 this morning. Any break in sight?

  39. 93.45 is the 5% line so still likely to be rejected there but, if it's hugging that line (we only had a weak retrace so far), then very likely we break higher for another 5% run.  

  40. From 102 to 89 was 13 points so bounces are 2.5 and 5 points from there so back to 94 as a significant spot so if 94 (strong bounce) is now the floor, the next goal is 50% (95.50) but, if the strong bounce becomes a floor, then you figure it's back towards the highs and the two retraces off 102 then (99.5 and 97) become the next significant goals.  

  41. thanks Phil.

  42. ~~ Morning Brief: China denies offering to cut US trade gap by $200B.

    Yahoo Finance

  43. Phil,

    Why is dollar going up when Trump has destroyed our standing in the world? Anticipated increase in rates driving up the dollar?

  44. Now I'm back to 2 @ 1,625 with $500 profit locked in!