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Whipsaw Wednesday – Futures Collapse as Turkey Strikes Back With Tariffs – What Will Happen When China Does?

Image result for turkey tariffsDoes our economy have a glass jaw?  

We like to punch others but it doesn't look like we can take one as the Futures where KO'd with one punch as Turkey announced they would raise tariffs on US goods and boycott other goods like, gasp, iPhones which are, I think, 90% of the US economy.  “For the sake of a pastor, they have come to the point of breaking relations with Turkey,” Erdogan’s spokesman Ibrahim Kalin told reporters in Ankara on Wednesday.  It's not so much Turkey as the realization that ALL the other countries we are in a Trade War with (ie. ALL the other countries) may stop rolling over and start going on the attack against Trump and his bullying tactics.  

Turkey is already benefiting from standing up to Trump with a 7% pop in the Lira this morning but it's still down over 30% against the Dollar this year, so nothing for them to celebrate over at the moment.  The decree signed by Erdogan doubled Turkish tariffs on passenger cars to 120%, on alcoholic drinks to 140% and on tobacco to 60%. Tariffs were also doubled on goods such as cosmetics, rice and coal.  

The United States was the fourth largest source of imports to Turkey last year, accounting for $12Bn of imports and, as noted yesterday, Turkey's GDP is $850Bn – so they really don't have that much to lose cutting off relations with the US while we desperately need their strategic location for NATO defense.  In other words, it's another victory Trump has handed to Putin and Russia as we push Turkey out of NATO's arms and back to Russia – something that was competely unthinkable before Trump got "elected".  

Image result for trump tweetHey, but at least there are no tapes (remaining) of Trump saying the "N" word over and over again on his Apprentice set because THAT would be bad, right?  Not that it would matter, Trump would just spin it the way he's spinning the Russia investigation – relentlessly until people aren't sure what to believe anymore.  Trump comes down on Omarosa for "changing her tune" about him after he's no longer paying her to say nice things, saying she has "zero credibility" because she used to say good things about Trump and now she is revealing dirt on him.

Here’s what he said about Omorosa at a September 2016 rally in Ohio:  "She’s a wonderful woman. She has done so much for me with the African American community, with communities generally. And she’s another one — she is such a fine person, and nobody knows it. And I just blew her income for the next 20 years. You are amazing, okay, and I just want to thank you very much for everything you’ve done. She works so hard, she feels so strongly. Thank you. Omarosa."  

Related imageSo, by the President's own logic, he has "ZERO CREDIBILITY" yet even an example as blatantly obvious as that won't make a difference to Trump and his followers (you can't call them voters anymore as they clearly would never vote for a better-qualitifed candidate – they are simply Trump loyalists who have swallowed the Kool-Aid and are going to go down with the ship as he steers it into iceberg after iceberg until only Russia is left standing on the World stage).  

Nonetheless, that's the reality we have to deal with so, this morning, in our Live Member Chat Room, I said:

I'm picking up some /NQ longs at 7,400 but tight stops below and other lines are /ES 2,825, /YM 25,125 and /RTY 1,685.  If ANY of them fail – don't be long (and /RTY is the lagger to the downside) but, otherwise, I like /NQ and /ES best for longs (and of course /SI ($14.80) and GLD ($1,192), but those can be painful).

Commodities are down because the Dollar is up, and the Dollar is also exaggerating the Futures sell-off so it's a great time to play the counter-trend for at least a weak bounce – per our fabulous 5% Rule™.  We don't even need to calculate the index more as the Dollar is up from 96 to 97 (not there yet) so rejection is at 96.80 (weak) and 96.60 (strong) so that's the line we'll watch for a pullback on the Dollar and a bounce from the indexes and metals but, if 96.60 holds up – we should take quick profits on the bounce plays.

Oil (/CL) and Gasoline (/RB) should be interesting to play around 10:30, when they release the EIA report.  Last night's API Report showed a huge 3.66M barrel increase in oil inventories but, nonetheless, we are heading into a holiday weekend and $65 should be bouncy ($2 on /RB again) and that's off a fall from $75 so, per the 5% Rule™, we're looking for $2 bounces to $67 and $69 so not much fear picking up some longs as we test the $66 line two weeks before Labor Day weekend

Crude oil price chart - daily

Oil trading is not that complicated – go long into Memorial day (up $10,000 per contract from the April lows), go long into July 4th (up $10,000 per contract from the June lows) and go long into Labor Day (now available for $66.35 and I'll tell you how much we made in 3 weeks).  It has basically no Fundamental reason for doing this but oil trading is not based on Fundamentals – it's based on creating the APPEARANCE of a shortage or short supply so "THEY" (the US energy cartel) can screw you over at the pumps (see "Goldman's Global Oil Scam Passes the 50 Madoff Mark").

You can't beat these guys – I've been trying for over a decade to make people in Congress aware of this scam so they are very aware at this point – they are simply choosing not to act.  Since we can't beat them we can at least get our cut by picking up our $10,000 gains into the holidays and another $10,000 (per contract) on the way back down once the holidays are over.  You have to know how to pick your spots, of course, but the general trend is pretty simply to predict – within the context of the broader, more fundamental trends that do actually matter in the longer run.

 


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  1. Turkey

    These items may also impact Lira trading—

    Turkey does away with mark to market for banks

    https://www.bloomberg.com/news/articles/2018-08-14/turkey-eases-capital-rules-on-banks-suspending-mark-to-market

    “Then on Wednesday, it limited the amount of currency swap transactions banks can participate in by half to 25 percent of shareholder equity, after imposing a 50 percent limit on Monday from none earlier. What this does is prevent investors, like hedge funds, from accessing lira liquidity in the offshore swap market. This drives up short-term borrowing costs and makes it less appealing to borrow liras from local lenders to bet against, or short, it.”

    https://www.bloomberg.com/news/articles/2018-08-15/turkey-limits-banks-ability-to-short-lira-in-latest-crisis-move


  2. Morning, All!

    Just a quick reminder. There will be no webinar today.


  3. Good Morning,

    Phil – Assuming all the other indexes get above their lines again.  Is the /NQ long trade good for the day?  I was in earlier but stopped out.  Thanks 



  4. We are living in an insane world now where matters that would have been settled quietly between competent diplomats are escalated to trade wars by egotistic sociopaths! And matters that would have required a strong response are described as fake news! Most incompetent administration in the history of this country. I would say the world, but Caligula had worse cabinet members…


  5. WH next move – cancel Thanksgiving to retaliate against Turkey


  6. Will GE stay above 12?

    ABX above 10?


  7. guess not…dangit!


  8. Phil/OOP

    What is the hedge we have it in there SQQQ/TZA/DXD? I had DXD which I came out of.

    WPM getting smacked…

    regards


  9. LOL Rexx!


  10. Phil/ABX

    Wait for 2021's to come out before we roll 2020 $10 calls lower?  


  11. The VXX Dec 90 calls are over $1 now… Getting interesting. VXX moves at about 1/2 the speed of VIX because it's based on VIX futures, not the actual VIX. For example, the spot VIX is up about 19% now and and VXX is up about 10%. VXX trades at 33 – it needs to almost triple to get to 90 and that would be with a VIX at over 75 or so. In the meantime, you are getting $1 for $5 of margin or 20% for 4 months or 60% annualized.


  12. On the last VIX spike I sold September 100 calls for $1 and they now trade for $0.27. That's 73% in 48 days. Close to 600% annualized. Not bad…


  13. I would rather sell October calls as I have been selling 60 days ahead but they only go to $63 with a delta of 17 and I want close to 10 and roll up when we hit 20. Maybe they'll add more strikes eventually.


  14. VXX – how far out do you usually sell those calls? 


  15. But VIX still climbing so no rush!


  16. Phil/GE,

    I am stuck in a couple of short GE 2020 $20 put (price 3.75, currently 8.00). How to get out of this mess. Buy them back and sell double the 2020 $15 to book some loss and lower the margin required?

    regards


  17. Disregard — I was typing and didn't see the latest post.   Thanks


  18. VXX / Grasshoper – My goal is 60 days ahead (or so) and with a delta of 10. Not getting that anywhere now, but 90 is a safe goal as far as I am concerned. Last February, the VIX spiked to 50 and VXX hit 56 starting from around the same level.


  19. STJ – Nice work in VXX !


  20. Good morning!

    Very slow internet today but I'll make the most of it.

    Indexes getting worse, not even going to attempt to go long again.  Gold and silver way off too.  /SI at $14.50, WPM getting killed so good time to sell the 2020 $20 puts for $3+. 

    /NQ/Grass – If we fall more than 1.25% (-100 on /NQ, -250 on /YM) then there's no telling where this will end.  We SHOULD bounce off that by 0.25% (weak) but tough to play as it's all very fast. 

    Of all the things that could have pushed us over the edge – it's Turkey?

    /SI $14.40?  Wow!  /NQ just hit 7,340, that's down 120 for the day, about 1.5% so look for 25-point bounces to 7,365 (weak) and 7,405 (strong) but OUCH!

    Will they/Jabob – Not in this deluge.  

    OOP/Pat – See above on WPM, just an opportunity to buy more.  In the review, we got more aggressive and bought back the short Jan $25 covers on SQQQ, leaving us with just 40 long Jan $10s and TZA we left alone with the Jan $7/12 bull call spreads (50).  As to DXD, I don't think that was an OOP play, but maybe I forgot one.  

    ABX/DC – Yes, may as well wait rather than pay 2 spreads.  

    VIX/StJ – Took off nicely.

    GE/Pat – You own GE for net $16.25 and it's at $12 – that's the only real problem you have.  You can sell 2020 $12 calls for $3 to cover and that drops your basis to $13.25 if you think they will never come back but, if they were the Jan $20s, they would be $8 and the 2020 $15s are $3.75 so a 2x roll these would cost you 0.50 per current long which means you will have sold your 2020 $15s for net $1.62 so net net $13.38 is not terrible for a $12 stock but should be a better roll if you wait for 2021 to come out.


  21. Phil,

    I assume you’re out of /SI from your 15.30 entry. Getting back in here? Also, what’s the play on /RB?


  22. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.8 million barrels from the previous week. At 414.2 million barrels, U.S. crude oil inventories are about 1% above the five year average for this time of year. Total motor gasoline inventories decreased by 0.7 million barrels last week and are about 5% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 3.6 million barrels last week and are about 8% below the five year average for this time of year. Propane/propylene inventories increased by 3.4 million barrels last week and are about 10% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 17.4 million barrels last week.


  23. Phil/GE,

    Sorry but I am not able to see 2020 $12 Calls. Am I missing something.

    I have to following trade in my portfolio.

    Long 4 GE $13 2020 Calls for $3.69

    Short 2 GE $20 2020 Puts for $3.75

    regards


  24. Is it crazy to add more GE 2020 $15 calls for .80 here?


  25. /SI/Phil- let us know if you are bailing on your futures long or holding for DX to come down.  Thx


  26. FU TURKEY!!!!!!!!!!!!!!!!!


  27. Phil – Any thoughts on Coffee?  I got caught with too many contracts during this surge lower, and need a dose of confidence to not panic out.  :)


  28. /SI/Japar – Yes, those were painful but back long now with 4 at about $14.75 avg – couldn't resist.  

    Oil/Bert – Sorry, forgot all about that.  Trying to do the portfolio updates while I have good wifi.  

    • EIA Petroleum Inventories: Crude +6.8M barrels vs. -2.5M consensus, -1.4M last week.
    • Gasoline -0.7M barrels vs. -0.6M consensus, +2.9M last week.
    • Distillates +3.6M barrels vs. +1.0M consensus, +1.2M last week.

    Huge 10MB build is very, very bad but note /RB had a draw so best bet to play at $1.99 but VERY DANGEROUS TRADE as the market is crazy at the moment and it's still more than two weeks to the holiday and we have a rollover in between. 

    We really want to play /RBV8, long which is Oct at $1.884 at the moment! 


  29. I have 10 BJO Sep 21 2018 48 Put

    what should I roll to?


  30. Phil/ETF

    Are there any ETF like SCO which we can use for gold and silver. this if we cannot trade futures.

    regards


  31. pat_swap – GLD & SLV


  32. GE/Pat – Oops, I was looking at the $10s but, since I was looking down from the $13s, I assumed they were the $12s.  I really wouldn't do anything until 2021 comes out.  

    GE/Coulter – They are going to take years to turn things around so probably those go worthless.  They sold off too many divisions to make a fast turn – unless they are getting ready to roll out fusion reactors, which would explain all the stripping and focusing…  It's going to happen one of these days, some company (likely LMT) will announce practical fusion and will become worth a lot more than $1Tn.

    /SI/Rexx = I doubt I can be forced out of /SI at this leve though we did get to $13 in 2015 and $10 in 2008 so nothing is impossible:

    When a lot of the reason it's down is simply because the Dollar's up – we can assume it will pass.  

    /KC/Palotay – Ugh, I forgot I have 3 long /KCN9 that are getting clobbered.  Same as /SI though – great chance to get in at a cheap price ($114), if you can stand the pain.

    BJO/Coulter – Same deal, they are at a historic low so you can roll them along to the March $44s at $5.20 (you'd need to do 15 to make it an even roll) or just wait and see if you get a good bounce.  If you sold them for $3 you are in for net $45 and BJO is at $40 and the March $40s can be sold for $3, which would drop your basis to $42 if you get assigned and want to work it off.  If you went to 15 of the March $45s and got assigned, your net would be $42 and selling longer $40s for $3 would put you below $40 yourself.  Hopefully it turns around at some point.

    ETFs/Pat – There's SLV for Silver and GLD for gold but I prefer to buy WPM or ABX as there's an underlying business there for your money.


  33. Should we buy back some/all CDE 2020 10 calls here?


  34. SCO is up and my short put position is way down! Anyone else seeing this? What the hell is that all about? The guy at the desk is telling me that there have only been 10 contracts traded today so the liquidity is low. I understand that there may not be a buyer if I want to sell, but WHY would the position be showing a loss when it should be showing a gain


  35. CDE/Coulter – I like that idea.

    Why/Soma – Because if there is a wide bid/ask spread on your contracts the broker shows you the "value" of whatever you want to sell at the bid and whatever you want to buy at the ask – it can play havok with your portfolio balance as well as margins.  That's why we keep PLENTY of cash on the sidelines for these options portfolios.  And today is only a 1% move – imagine a day when an event happens and the market drops 5-10% and some of the exchanges and brokers go down due to selling  volume! 

    That's why you always need positions on both sides – if you are 70% long and 30% short and the market goes up 20%, you have 84/24, which is 108 so up 8% for you.  If it goes down 20%, you have 56/36 – which is 92, so down just 8%.   If you improve upon that by shorting or longing things you can stick with – you can end up doing very well – even if you don't always get the direction right.


  36. SCO/Soma – what is your the put you sold?
    Today volatily went up. It hikes all our option values…


  37. Thx Phil – lionel – it's the Sept 16's. With SCO above $18 the puts will hopefully expire worthless.


  38. How much cash does HMNY have left or maybe how many shares did they sell? I mean, they lost $100M in Q2. 


  39. SCO/Soma – my broker shows .25/3.10. Wide spread!!!
    But check 17s .40/.60
    Yours are cheaper by a few cents


  40. Volume is 73M share today when they still show only 6.7M shares outstanding on TOS.


  41. Maybe you were right Phil – by the time you come back from your vacation we won't have to redraw the lines!


  42. Out of RB with a penny done for the day


  43. WPM/ Jan 2020 17.5 Puts can be sold for $1.65
    For a sub $16 entry


  44. WPM – I sold the 2020 – 20 puts at 3 along with Phil.  I played RB for a penny as well.  I'm out for today.  Now we need somewhat of a rally in metals.  I went long PALL (Palladium) as they were down 6.5% at one point today. 


  45. Phil – What's your avg in KCN9?   I am adding contracts on the way down.  While painful, I keep telling myself it is for 2019.  4 @ 115.35, scaled out of 2 for a loss yesterday, but added 2 today when it dipped into the $113 range.  Like Palotay… your thoughts/conviction help to maintain the course.  TIA     


  46. OK, I THINK the portfolios are up to date – let me know if I miss anything.

    HMNY/StJ – No way to know.  I they have not been raising money selling 1.2Bn shares for 0.10(ish), which is only $120M, then it's all about their $300M line of credit and what the deal is with that.  

    Lines/StJ – They are there for a reason.

    Penny/Bert – Nice job – especially on a day like today. 

    WPM/Lionel – For the past 3 years we've been buying them at $19 – no regrets so far.  Took them off the table for Money Talk last month – great timing at the top of the channel too.  Doug just added them to the hedge fund this morning.

    Hedge Fund, by the way, up 1% on the day so we are, in fact, well-hedged (not bearish, just well-hedged).

    Speaking of well-hedged – STP up 150% for the year now so up $150,000 is up about $38,000 since our last review.  


  47. RB/Phil – Great bottom call. Riding the surge! Hopefully another 3c to 1.925.


  48. Phil where can I see the current OOP portfolio – when I click on the Virtual Portfolio link I only see review from Aug 2nd


  49. Man, I need a 5-day rule with WPM!


  50. Hi All!

    Quick note. Phil's having some internet issues. He'll be back as soon as we get them sorted out.


  51. WPM/Jean-Luc – It is hard to commit to metals with HG so low and not bouncing…yet!

    FCX is on my radar. I will apply your 5 day rule and review next Tuesday.

    In the meantime great new entry on RB!


  52. Good deal Lionel! I usually have a 3-day rule but am stretching it to 5 days I guess.

    In the meantime, F is really not acting well. A sleeper in my portfolio is FLR. Didn't know much about them but they have been doing great since I added them in May. That was my infrastructure bet!


  53.  Sorry guys, I cannot log back in. I guess I’ll try again tomorrow when we are back at sea. This is my Verizon old iPad but my new AT&T will iPad, My AT&T iPhone X and my Internet connected computer cannot get on the site. They get other Internet but not PSW.

     

     My AT&T iPhone X and my Internet connected computer cannot get on the site. They get other Internet but not PSW.

     

    If you have any ideas,  please let Greg know!


  54. Greg/Internet,

    Phil not able to get onto internet -

    1) Can he try the internet explorer without the add-ons – you can type in internet in the search button after clicking the start button and select the one that says Internet Explorer (No Add-ons)

    2) is there some securitiy certificate that Phil needs to agree or bypass? Does he get any security risk screen or just does not load?

    regards


  55. F/Jean-Luc – Do you have Phil's setup for F?

    Bought stocks and covered them with 11.87 Jan 2020 calls?

    I quite like how F is handling itself to be honest.

    Calls have already lost 2/3 of their value! Just waiting for Phil to pull the trigger on those and buy them back.

    Puts sold are fine!

    Easy pleasy…No?

    Oh mini stick to bring us above strong bounce lines!


  56.  Nice last minute come back for the indexes, especially the Dow.  

     I’m online now but very slow. My theory is that AT&T  is also being used by Disney and that everyone coming back from the shore things  overloaded system at Saint Thomas this afternoon. Now it’s on, but spotty, Hopefully it will work better tomorrow.

     

      Hopefully it will work better tomorrow.

     

    For now, Nothing to do about it but drink and swim!

    Later,

    - Phil


  57. What is the 5 day rule?


  58. gold still crushed again.

    abx ouch!


  59. What's with Macys today. down 15%

    regards


  60. pat swap—hope LB does the opposite next week,.


  61. F / lionel – Nope, sold puts only. Not losing sleep over it, but not a great chart:

    F Ford Motor Company daily Stock Chart


  62. Basic questions but if anyone can lay it out for me it would be appreciated. 

    I'm with Interactive brokers and just trying to get my head around margin requirements and potential risk of liquidation.

    On my accounts page;

    "Net liquidation value" 167k, i get this, the current value of all my positions if i were to liquidate now. 

    "Equity with loan value" 135k, not sure what this is? i think its just the same as above except not counting my unrealized gains? 

    "Cash" 134k self explanatory

    Now…."current margin" is 85k, is this margin requirements measured against my cash or my net liquidation value? basically is it saying as long as I have 85k cash in my account I will not be margin called? Or as long as I have positions which can be liquidated to cover 85k?

    I also realize that the margin requirement could go up if the market were to go down significantly.

    The reason I ask is that i was looking at putting on a position in LB and it would increase my margin requirement significantly (to approx $115k) which does seem like it could be cutting it close if measured against my current cash? Does that mean i effectively have to keep $115k cash in my account to cover the margin? (and likely more than that as I would want to have a bit of a safety cushion, i don't want positions being liquidated at inopportune times) 

    Any guidance is appreciated, thanks!


  63. crs101010 – I've actually had luck calling IB and having someone explain it to me.  You might also want to ask about portfolio margining.  Accounts over $100K qualify.  I as well would like something that is very detailed that explains exactly what everything means.  Good luck.


  64. from Morgan Stanley:

    STZ Increasing its Stake in Canopy Growth: STZ announced it is expanding its strategic partnership with Canopy Growth (CGC) with the goal of positioning Canopy Growth as the global leader in cannabis production, branding, intellectual property, and retailing. Our Thoughts Up Front (Details on the Deal Below)-We'd note these thoughts and accretion numbers are preliminary with a lot to digest here. Our thoughts on the deal are that it creates short-term risk and EPS dilution to what was otherwise in our minds an attractive stock with high visibility, but that STZ is essentially buying a call option into an entity that is likely well positioned as a leading player in the potentially sizeable cannabis market over time. We are not surprised to see the stock down 8% intraday as a result of the deal (we expected a HSD market reaction) given the expensive price and dilution, but after this reaction we view the near-term risk as priced in, and remain OW post this fair pullback. We still view STZ as an attractive stock ex the Canopy investment, as well as now having a call option on the global cannabis market, which could end up being a significant opportunity, with market skepticism (particularly with STZ's historical acquisition track record) already now priced in. Conceptually, thinking about the bear arguments or quantifying stock downside on this deal, there are two primary areas, EPS dilution and deal value destruction risk: EPS Dilution: We expect near-term mid to HSD EPS dilution (including a lack of share repurchases) at STZ, with roughly a 4-5% direct EPS dilution from interest expense (using a 3.25-3.5% blended interest rate), and 3% EPS dilution from an indirect assumed lack of share repurchases vs our prior model, although this would potentially be offset Canopy's losses potentially turning to profit over the next few years, with STZ highlighting they expect EPS accretion by 2021. STZ guidance seems a bit aggressive to us (and likely does not include the loss  





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  71. Good morning! 

    I'm trying to catch up on portfolio reviews so all unanswered questions can please be re-asked in today's post.  

    Nice reversal this morning for what are now great gains off our bounce lines.  /RBV8 is still very playable long at $1.887 as the Dollar hasn't even begun to come down yet.