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Thursday Thoughts – ECB Ends QE, Fed Tightens – Now What?

It doesn't seem to matter.

Sure we had a small sell-off yesterday after the Fed (and we made over $4,000 just on our Nasdaq (/NQ) shorts during our Live Trading Webinar!), as we expected but this morning the markets are back to their usual pre-market pumping with /NQ right back to 7,250, which is right where we began shorting the Nasdaq in yesterday morning's Report.

Along with riding the Nasdaq to 7,210 for an $800 per contract gain, the S&P (/ES) Futures fell from our 2,790 shorting line back to 2,775 and that was good for $750 per contract gains while the Russell (/TF) fell from 1,685 back to 1,677 and that was good for gains of $400 per contract so, all in all – it was a fun day trading the futures and contratulations to all our Webinar participants.  

We can't short this morning, even tough we're back to the same(ish) levels as we don't have that downside catalyst from the Fed though I am very surprised the market is just shaking off the FACT of a rising rate environment. What will it take to get this market to correct?  Robert Mueller filed a request yesterday for 150 subpeonas – I know we're supposed to pretend politics have nothing to do with investing but don't you think that might be a little disruptive?

If indicting half the Government doesn't bother you, how about China missing the mark on both Industrial Output and Retail Sales?  Fixed Asset Investment Growth was also lite at 6.1% vs 7% expected.  Chinese Auto Sales posted the first negative change since March of 2015 and their market corrected 20% into 2016 after that.  Maybe this time is different – I sure hope it isn't the same.

The Hang Seng was down 1% this morning, as was the Nikkei but our markets don't seem to care – that's stuff that's happening in other countries we either hate or won't let into our country, so who cares?  LMC Automotive forecasts that, in addition to falling demand for cars in China, Japan and Europe, Trump's tariffs are also likely to knock out 10% of US Auto Sales – and that's before any retaliation from the G6.  While selling less cars, the aluminum and steel tariffs are going to increase costs to auto makers substantially yet, so far, investors are ignoring these headwinds

Our own Retail Sales blasted higher in May, up 0.8% vs 0.4% expected at $502Bn but it was mostly gasoline, which was up 12.4% and makes up 10% of Retail Sales so + 1.2% from gasoline and all other retail sales subtracted 0.4% so yay, I guess, for the people who don't know how to parse a report which is, unfortunately, pretty much everybody! 

In fact, Cramer is squeaking over how great the Retail Sales number and telling the CNBC viewers they should run out and overpay for bubble stocks because this time is truly different.  Actually, this report is a great example of how damaging high gas prices are as consumers are simply paying more money to get the same output from their vehicles and that, in turn, forces them not to spend money on other things.  0.8% of $502Bn is $4.016Bn and last month Gasoline sales were $41.979Bn and this month they are $46.387Bn – up $4,408Bn – that's the entire month/month gain as well!  

Overall, wages are getting lower under Trump, dropping dramatically since the GOP Tax Cuts were passed in December and down 0.18% for the year – the second consecutive down year for wages after 4 years of recovery under Obama. I'm not allowed to have an opinion on that if I want to see this article published at Seeking Alpha so you'll have to draw your own conclusions – probably just a coincidence or perhaps even "fake news".  

Lower wages are great for Corporations but they suck for humans and a study by the National Low Income Housing Coalition just found that there is NO affordable housing in the United States (defined s requiring less than 30% of your income) for median-income workers (the bottom 50%).  In New York, California and Washington DC – you have to earn over $30 an hour to afford a 2-bedroom rental. 

From the report (emphasis added):

A full-time worker earning the federal minimum wage of $7.25 needs to work approximately 122 hours per week for all 52 weeks of the year, or approximately three full-time jobs, to afford a two-bedroom rental home at the national average fair market rent. The same worker needs to work 99 hours per week for all 52 weeks of the year, or approximately two and a half full-time jobs, to afford a one-bedroom home at the national average fair market rent.

In no state, metropolitan area, or county can a worker earning the federal minimum wage or prevailing state minimum wage afford a two-bedroom rental home at fair market rent by working a standard 40-hour week. In only 22 counties out of more than 3,000 counties nationwide can a full-time minimum wage worker afford a one-bedroom rental home at fair market rent. These 22 counties are all located in states with a minimum wage higher than $7.25. Higher minimum wages are important, but they are not the silver-bullet solution for housing affordability.

Bernie Sanders wrote a preface to the report saying "It is unconscionable that in the richest country in the world, workers cannot find an affordable place for their families to live."

At least someone cares…

 


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  1. Good morning, All!

    The webinar replay is now available!

    https://youtu.be/2c6MLyVNX_o


  2. And even the Fed chief doesn't understand why they are not rising:

    https://talkingpointsmemo.com/news/fed-chief-puzzled-that-good-economy-few-workers-raises

    Powell acknowledged that he couldn’t say for sure why wage growth remains generally tepid. He said he “certainly would have expected pay raises to react more” to falling unemployment.

    Echoing what other economists, including his predecessors and colleagues at the Fed, have suggested, Powell offered up one likely factor: the economy’s relatively low productivity growth. Put simply, American workers aren’t generating enough additional value for each hour on the job.

    Some economists say companies have invested too little in capital equipment that would accelerate worker productivity. Others say earlier technological breakthroughs that did speed productivity have yet to be duplicated. But no one is sure.

    But shareholders are doing great, no worries!


  3. nasdaq dangit!!!!!!!!!!!


  4. I know what would do it. Indicting our "toddler in chief!"


  5. Good Morning.


  6. Good morning!  

    Unfortunately, NYSE dipped back under the Must Hold line and now we have to reset the skepticism clock back to 90.  

    Salaries, StJ – Thanks.  As I mentioned in the Webinar yesterday, wages aren't rising because companies can globalize costs so they outsource whatever they aren't mandated to make here.  There's some ridiculous fallacy that the free market will boost wages but the markets couldn't have been freer than they were in the early 1900s and workers got paid squat until they unionized and forced the issue. 

    You don't have to open a factory in Bangladesh to get cheap labor as a company, you can simply choose not to manufacture labor-intensive items and buy them from someone with a factory in Bangladesh so you can have a clear conscience that you are not the evil outsourcer – you just use them to eliminate your need to hire Americans.  

    Also, the McDonald's kiosks are exactly what I've been warning about since Watson won jeopardy, automation doesn't make workers more productive – it replaces them.  

    There's also the psychological factor we discussed in the Webinar – people simply aren't trained to ask for raises – it's not something that happens anymore unless you are promoted.  


  7. Raises / Phil – I see it with my kids now, the company that they work with basically train people to not ask for raises by imposing rules that raises are given only once a year after your annual review. The only alternative is to look for another job which they have quite successfully and increased their salary by more than 50% in 5 years. But that makes no sense for employers who lose trained employees that they could afford to pay because clearly others in the same business can!


  8. FU NFLX!!!

    FU TSLA!!!


  9. "There's some ridiculous fallacy that the free market will boost wages"

    You just have to be in a strongly impacted industry to see the other side of that one and how it relates to the global marketplace.  A couple years ago my (small) company was approached by a Chinese organization with a project that we seriously considered taking on. Budgets in our field have withered to the point that it is actually possible for the Chinese to consider outsourcing to the USA. Total race to the bottom.


  10. So its basically sales and services where you can possibly make better money and your own business of course.


  11. Raises/StJ – I just think it's a whole thing where everyone has forgotten how to handle a cycle of rising wages.  Back in the 70s, companies had to learn the hard way you had to pay employees to keep them or the company ultimately suffered.  After decades of stagnant wages, neither the employees or the employers know what to do…

    TSLA/Jabob – Please don't tell me you jumped on those shorts?  

    Race to the bottom/Atitlan – Well on a cost of living to wages ratio – I don't think anyone is more underpaid than American workers.  Not to mention the total lack of social safety net, lack of retirement funding and very low amount of vacation time.  

    Money/Pirate – I've had many companies in my life and I've always found that paying good people good wages makes them productive.  It's a lot easier to focus on work when you don't have to worry about paying the rent.  


  12. i am short tsla 


  13. short jan 420s and 430s 


  14. That's not going to create more jobs:

    https://arstechnica.com/gadgets/2018/06/microsoft-tech-may-help-walmart-get-rid-of-cashiers-and-checkout-lines/

    A report from Reuters suggests that Microsoft is looking to take on Amazon in the retail store space. Microsoft is reportedly working on technology that removes the need for cashiers and checkout lines in stores, similar to Amazon's technology already implemented in its Amazon Go brick-and-mortar store.

    According to the report, Microsoft's technology tracks which items customers put into their carts. While it's unclear how far along Microsoft is in developing this technology, the company has reportedly shown sample tech to potential partners and has even talked to Walmart about implementing it.


  15. What is up with GE? Keeps getting weaker almost every day, right?


  16. Going to be rough for Tesla:

    https://www.engadget.com/2018/06/14/2019-jaguar-ipace-review/#/

    I prefer the I-Pace over the Model X, and I really like the Model X. The I-Pace is less expensive (comparing the baseline S model to the 75D there's a $10,000 price difference) and feels more like a luxury car. But Jaguar and Tesla won't be the only worthy contenders for the title of best luxury EV SUV for long. We have the Audi E-Tron and the BMW iX3 coming. But for now, the I-Pace is the big cat in town and if you have a chance to get behind the wheel, do it.


  17. /RB shorts paying off nicely!  

    I love it when we have a productive Webinar! 

    Nice dip in the Dow too but /NQ still 7,290 so I'm taking a couple of shorts with a stop over 7,300 ($200 loss).

    TSLA/Jabob – Well if you can gut it out, it should be good but I'm waiting for $380 though Doug sold some $400s for the Hedge Fund already.

    GE/Jabob – Completely out of favor and likely to remain that way until they make headway on their pension issues so several quarters from now.  


  18. thanks phil


  19. Phil/Wages-an increase in wages is going to require a reallocation of pay from the c-suite to rank and file.  Good luck with that.  Unfortunately, these guys are not as forward looking as you and more entitled than any welfare queen or millenial I've ever heard about or seen.  Most are happy to lower the quality of work done to keep wages down.  Consolidation in many industries and collusion in one form or another has helped to restrain wages also.  Unions and government regulations have also been crushed so no pressure there either. Most professionals I talk to tell me their companies are having trouble recruiting people, but they have not increased compensation yet.  It seems more of the long term unemployed or underemployed are getting hired and almost every company now has a program for mothers returning to the workforce after taking a break to raise kids.  Until these pockets of slack labor are exhausted it's not likely we will see any appreciable increase in wages.  Even then, they will use every means available to continue to suppress wages.  It really has become a regulatory issue as the market is broken.


  20. I’m short a couple /NQ at 7300 as well


  21. Phil

     Did you answer Maya1  question from yesterday on T ?

    I have the same question

     Maya1

    “What is your take on buying T at these levels?”

     Thanks


  22. IQ is a rocket ship !


  23. IQ/Phil- missed out on the first trade, should I still go for 50 of the 2020 25/40 BCS?


  24. /NQ burns me again.  So ridiculous.  I will go back in below 7,300.  One of these days…

    Image result for one of these days animated gif

    You're welcome Jabob.

    Broken/Seer – I agree.  As Jefferson said, what we need is a good revolution to refresh the old Democracy from time to time.

    Maya/QC – No, I apologize, had a meeting this morning and got a late start.

    IQ/Albo – I need that rocket to stop at some point.  

    IQ/Dave – I think they have legs but make sure you sell a few calls if they ever calm down (not too many!).


  25. ;-)

     

    DJ Tesla Price Target Cut to $93.00/Share From $99.00 by Vertical Group 

    Jun 14, 2018 06:56:00 


  26. /NQ testing 7300 from above


  27. GE- they are just in the wrong business. They need to leverage up the balance sheet; buy back stock; announce new ventures in blockchain; AI; scooters; self driving cars; streaming crap video; tunnels; etc. Take your pick. 

    Almost forgot, they also need to start to lose money. :)


  28. good one pstas!


  29. Butterfly Portfolio Review:  As is often the case, the slow, steady Butterfly Portfolio continues to grind higher and is now up 15.5% at $115,545. That's up about $2,000 from last month but very good since we added AAPL and, as usual, the bid/ask spreads tend to reflect poorly on new positions.

    This is our easiest portfolio to manage as we pretty much only touch it once a month and requires very little margin (virtually none if you have a PM account) and it's the least volatile of all our portfolios, since we're generally agnostic as to direction (we purposely pick stocks that we think will NOT move much).  

    Keep in mind we're very slow to build this one too as it's generally a retirement portfolio and has very little risk tolerance so we add one position each quarter and make sure that's working well before adding another.  While it's tedious to start, just 3 positions have been cranking out almost 3% per month and, if we do it right, 6 will return 6% and 9 will return 9% – that's when it gets interesting!  

    • AAPL – Brand new and on track.  Good for a new trade.
    • DIS – On track.
    • OIH – Good thing we covered and sold calls.  The short puts just stopped out as the crossed $1.75 (we sold them for $3.05).

    Well, that was easy.  Now go back on your yacht and we'll see you next month! cool


  30. /DX up, /KC dropped --  Is it time to buy??  


  31. GrassHopper67 – thanks for the reminder on KC.  Just bought at 1.1560


  32. /KC/Grass – It's trending down so let's let it.  Dollar way up as Europe won't start easing until Sept and we'll have at least another raise by then.

    That means stocks are holding up well, considering. 

    /YG doing well

    /SI still flying;


  33. Webinar – Phil, I learn a lot from the webinar — you sure cover a lot of ground in a couple hours.  I am 12 hours ahead, but always behind watching it, but always do, sometimes twice.

    Coffee – tshroyer, the least i can do, I get so much help from you guys.  if you purchased @ $115.60 – be careful in /KCN8, it expires next Wednesday, June 20th.  I think.    I am in /KCU8.  


  34. What a puppet:

    https://www.buzzfeed.com/albertonardelli/trump-russia-crimea

    President Donald Trump told G7 leaders that Crimea is Russian because everyone who lives there speaks Russian, according to two diplomatic sources.

    By the same logic, we are all British and 2/3 of S. America and Central America is Spanish!


  35. Money Talk Portfolio Review:  I won't be doing the show again until July so we haven't touched a thing in it since Feb 1st. Nonetheless, a well-balanced portfolio is it's own reward and we're up another $6,010 from our 5/17 Review, which is very impressive as it's just a $50,000 Portfolio.  Well, it's $92,727 now as we're up 85.5%!  

    The funny thing is, this portfolio is full of FU positions that we simply left alone!  It doesn't get much more low-touch than this, the only adjustment we ever made was to get more aggressive on IMAX…

    • ALK – Good for a new trade and I want to add a bull call spread.
    • IMAX – Well-behaved now.
    • SQQQ – Notice how this simple hedge as covered us up to $28,0000 for $3,000 since Feb and is good until Sept and, in all that time, we're only down $1,280?  That's the total cost of our insurance in this portfolio – insurance that would have paid us back $28,000 out of our initial $50,000 principle of the markets had gone horribly wrong.  Hedging does not have to be complicated, or expensive!  

    • AAPL – Accounting for a lot of our profits.
    • ABX – A late starter but I like them with gold coming back.
    • GE – Not as devastating as you'd think considering we went in in Feb.  
    • LB – Back on track but only have until Jan to get to $40 so no more missteps.  

    • WPM – Gosh I love this company!  

    Well that was easy.  It''s a near perfect portfolio and you can see why I started a hedge fund because ordinary investors like the people who watch Money Talk up in Canada are like "WOW!" and you guys are like "Yawn – only 85%?"  


  36. I'll take 85%…. :)


  37. Back to testing 7,300 on /NQ.  I have 5 short here. 

    T/Maya (from last night) – I always like them when they get cheap.  $30 is a definite buy for me and $32.50 not too bad either.  Though there will be integration pains – the merger with TWX is a good thing over the long run, though now T is bigger than the time they were broken up.  

    As to TSLA, have to be patient, I'd rather see them back at $380 before we start shorting again.


  38. Phil, or others who may know…

    I was recently putting in some info on HBI to a basic excel model I've got. (exporting the Income statement / balance sheet / cash flow statement from morning star and pasting it into the model). 

    Now my question is, why don't most of the income statements I'm looking at online include "interest expense"? for instance, morningstar shows:

    Operating income: 751

    Other income (expense): -214

    and then EBT: 537

    this adds up so that makes sense, but shouldn't EBT also subtract interest expense  (which i found by looking around other sources to be $174 for 2017)???

    The way morningstar has it laid out, without an interest expense listed, adds up to show an EPS of .17 for 2017, which is correct with what was reported, where as my model (when i include the 174 interest expense) shows EPS of -.30 (if i remove the interest expense my model matches up with the .17). 

    Anybody know why the official income statement / EPS numbers dont seem to take the interest expense into account? is it some kind of accounting quirk? I suppose for my model I'll just leave the interest expense out so it matches with what is being officially reported. 

    any help/guidance appreciated.

    Thanks!


  39. This might help (or make things worse):

    Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company's operating performance. Essentially, it's a way to evaluate a company's performance without having to factor in financing decisions, accounting decisions or tax environments.

    EBITDA is calculated by adding back the non-cash expenses of depreciation and amortization to a firm's operating income.

    Alternatively, you can also calculate EBITDA by taking a company's net income and adding back interest, taxes, depreciation, and amortization.

    HOW IT WORKS (EXAMPLE):

    To calculate EBITDA, start by reviewing a company’s income statement.  EBITDA is not included as a line item on the income statement, but you can calculate it easily by using other items reported on every income statement.

    The formula for EBITDA is:

    EBITDA = EBIT + Depreciation + Amortization

    Let's take a look at a hypothetical income statement for Company XYZ:
     

    Company XYZ's Annual Income Statement
       
    Revenue        $2,000,000
    Operating Expenses:  
    Salaries   (1,000,000)
    Rent (500,000)
    Amortization (25,000)
    Depreciation (75,000)
    Earnings Before Interest and Taxes (EBIT) $400,000
    Interest Expense (50,000)
    Operating Income (Earnings Before Taxes, or EBT) $350,000
    Taxes (100,000)
    Net Income         $250,000

    To calculate EBITDA, we find the line items for Operating Income, or EBT ($350,000), Interest Expense ($50,000), Depreciation ($75,000) and Amortization ($25,000) and then use the formula above:

    EBITDA =  $350,000 + $50,000 + $75,000 + $25,000 = $500,000

    In this example, the firm's EBITDA (i.e. earnings before subtracting non-cash depreciation and amortization expenses, as well as interest expenses and taxes) comes out to $500,000. 


  40. Nice little gain on /NQ, finally. 


  41. Hmm, more wondering why the income statements dont list "interest expense" for HBI, when they clearly do have an interest expense…

     

    http://financials.morningstar.com/income-statement/is.html?t=HBI&region=usa&culture=en-US&platform=sal

     

    what's typically included in "other income (expense)" ??? any chance the interest expense is being lumped in here on these statements? I always thought it would be shown on a seperate line?


  42. NQ/Phil- feel safe to hold overnight?


  43. HBI/crs, check out filings with SEC, they have financial statements.  latest 10q   https://www.sec.gov/Archives/edgar/data/1359841/000135984118000032/hbi-20180331x10q.htm#s5755140143104991C3BEBA49B11EA0CB   Also can look at annual reports on hanes investor web pages (also filed with sec)


  44. Phil, what do you think of the following trade idea: KMB, buying the '20 95/110 BCS, selling the 95 put, for a credit of .85, and also selling half the Aug 105 calls, for another 1.20?


  45. FNSR reports after the close.


  46. Other/CRS – Like the oil report, it's kind of a catch-all for anything that can't (or creatively, won't) be classified under the other categories.  These things are always subject to interpretation – as any Web search trying to get a straight answer will indicate.  There are "single" and "multi" step statements that make different use of those items.  Also, with interest, it's possible they are using net interest – so any interest income is being used to offset it.

    /NQ/Dave – This must be some use of the word "safe" which I am not familiar with.  I took the money (about $1,000) and ran on that dip – plenty for me to make in a day.  We'll see what tomorrow brings.

    KMB/Deano – 16x earnings is a fair price for them at $102 but the spread is a bit aggressive.  You can sell the 2020 $90 puts for $5.40 and pick up the $85 ($20)/110 ($7) bull call spread for $13 and that's still net $7.60 but, because you are so in the money, you can sell 1/2 the July $105 calls for $1.20 so 0.60 per long back means you can drop the basis to the same $0 over time.  Nothing wrong with your spread – it's well-constructed – just a big more aggressive than I feel for KMB.  

    FNSR/Albo – That should be interesting.


  47. Phil – thanks for the input!


  48. FNSR looks OK but I guess we still have to be patient… Might add tomorrow.


  49. Phil is it really as simple as this that one day the banks collectively have billions more than they had the day before?  This would show up on their P&L?


  50. HealthCare Coin idea:

    You don't need health care if you don't have health problems (the actual care, you still do need disaster insurance). Perhaps any incentive-based focus should be rewarding prevention activities.


  51. Now FNSR looking weak… Maybe more patience needed.


  52. Phil/T/TSLA

    THANKS.

    Agree on both.

    Please bang on the table when ready to short TSLA….I want to follow you on that…am willing to bet big too (carefully, of course)




  53. Americans Undeterred on Spending




  54. /KC – Phil, Nice call on holding off on KC, caught with a couple, will have to work my average down now.  




  55. China promises fast response as Trump readies tariffs







  56. Good morning! 

    FNSR actually disappointed on several fronts and the fact that they didn't tank means all that bad news is priced in but it will be a couple of quarters before they turn up.

    Futures down a bit but against a hyped-up Dollar, so take it with a grain of salt (like the tequila shots I'm looking forward to later!):

    Also, it's OpEx day and EOQ so not worth betting on – especially if you've had a huge week like I have – why risk it?

    I'm liking /RB long at $2.07 into the weekend with tight stops below.  I would think we can get at least a penny out of this one ($420/contract).

    Honey badger may be making a move over $3 with supply shortages in Asia:

    /KCU8 holding up well against strong Dollar but often down into Monday.  Still, I'll take 2 and happy to DD now if they go lower.

    /YG still very laggy to /SI and I still like it long down here ($1,303) and it's a $300 loss at $1,300 but that's the stop if you want to play.  If /SI breaks over $17.30, we're golden! 

    I'm thinking the Dollar calms down and boosts the metals.

    Banks/Tangled – Yep, that's how easy it is to create more money.   On earnings, all the banks have to do is reduce their own reserve requirements against loan losses (simply change the assumption) and they can add Billions to their bottom line whenever they feel like it.  In this particular case, if I were a bank I would INCREASE my loan loss reserves to offset the gain from the Fed so I'll have more firepower to lower the reserves when I need to down the road.

    Health coin/BDC – It's a good idea, could be distributed by your insurance company to reward good behavior.

    FNSR/StJ – Yes patience.  Remember when we played LU – that took years!  Very profitable in the end though.

    TSLA/Maya – I can't wait but didn't you hear – Musk is going to build a tunnel to the airport in Chicago – that fixes everything!!!  It's so completely insane, Musk claims he'll build a 16-mile tunnel through the middle of Chicago for $1Bn.  As a New Yorker, who knows what subways cost, I'm laughing my ass off!   I can't believe people are even taking this bid seriously.  Boston had a Big Dig project and that was just to install car tunnels for 1.5 miles in the city and that was first estimated at $2.8Bn and ended up costing $23.5Bn (and many years of delays).  Musk is just using this as a way to scam raising $1Bn which he'll burn in 6 months, when he'll find a new way to scam more money from idiots.