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Tariffic Tuesday – Markets Ignore Another $200Bn Drag on Global Trade

Image result for tariff tax cartoonSo what?

$200Bn here, $200Bn there – after a while it might add up to something but investors only react AFTER something is a problem and these tariffs don't even take effect until next week (24th).  Our wise Negotiator-In-Chief has decided to hit China (ie. the suckers who voted for him and actually have to pay this tax) with a 10% tax on $200Bn worth of Chinese goods that are bought in the US and that tax will rise to 25% – taking another $30Bn out of the pockets of the poor so Trump can continue to give tax breaks to the rich.  

But $50Bn worth of taxes on US Consumers isn't going to be enough for President Trump and he also announced his intention to put another 25% tax on another $267Bn worth of Chinese Goods, costing the suckers who voted for him another $66.7Bn and that, plus the first $50Bn – balances the budget for Trump's $100Bn additional tax cut to himself, his family and his friends.

Of course, Trump has pushed most of the bite of these ridiculous taxes posing as tariffs out past the November elections because he knows he can baffle his base with BS for another 45 days and probably keep control of the Senate, which will make it difficult for the Democrats to roll back the tortures he is inflicting on the American people. 

As you can see from the cartoon above, at the start of the Great Depression – Trump is nothing more than Herbert Hoover in a new wrapper and history is repeating itself as another one-term President embroiled in non-stop corruption scandals takes a 10-year rally and turns it into an economic catastrophe that almost destroys the country (oops – spoilers!).  Interestingly, like Trump, Hoover also made his fortune through dealings with Russians!  

As was the case in the late 1920s, the markets are shaking off all the signs of a pending Global catastrophe and continuing to move higher, albeit on the lowest volumes we've seen this century.  You can see the "smart money" moving out of the market – even as it continues to make new highs as there are plenty of retail suckers still out there, willing to pay ridiculous multilples for future earnings that may never come to pass – despite being harshly reminded of how foolish that is just 10 years ago this week!  

FedEx (FDX) becames the first major victim of rising wages as they missed estimates and guided lower for the year.  It's getting more expensive to retain employees as strong job demand is fueling competition for existing workers and not enough new ones are entering the work force (and Trump is kicking millions of workers out of the country too!).  FDX also said they see moderating economic activity in China already – and that's just from the first $50Bn in tariffs – yesterday Trump went to 5 times that amount ($250Bn total) and is threatening to double that to $517Bn – essentially ALL goods imported from China.  

I wouldn't bet against FDX, as I think they are reasonably priced at $250 as they do make over $15/share but, as with many companies, that's mainly because they didn't pay taxes (they got a $219M refund last year on $4.35Bn in profits) thanks to Trump's bailouts for the rich – so it's a double-edged sword that does cut some of our Top 1% Corporate Masters.  If FDX were paying ordinary taxes, they would be making about $11/share so nothing wrong with 20x at $220 and even $250 is not so terrible but I wouldn't play them to break higher.

Now, when you consider that a huge company like FedEx has their earnings overstated by 50% ($4.5Bn vs $3Bn) due to one-time changes in the tax laws, you can imagine how ridiculously over-priced the entire stock market is as it's all based on a massive pile of hopes and dreams that simply can't come to pass because our Government can't survive PAYING companies like FDX 5% of their income instead of taxing them.  

While Trump's tariffs on Consumers (excuse me, "China") may offset some of those losses – in the long run, there simply isn't enough money in the World, let alone the US Budget, to keep funding this madness.

We have the same shorting lines today on the Dow (/YM) Futures at 26,200.  Yesterday's short idea was good for a $1,000 per contract gain (you're welcome!   

At least Coffee (/KCN9) is still cheap at $105.40 and I still like them long but have to take the loss if they fail to hold $100 or, better yet, tight stops at $105 and then try again at $100 with tight stops there too – saves a lot of money that way!

 


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  1. Good Morning!



  2. Yesterday's latest attack on facts:

    https://www.motherjones.com/kevin-drum/2018/09/rip-van-kevin-wakes-up-and-surveys-the-day/

    Donald Trump decided to raise taxes on American consumers yet again, this time by $20 billion. This tax is known as a “tariff” by some, but it’s still a tax. Where is Grover Norquist when you need him?

    Larry Kudlow went on TV this morning and said our deficits are too high. But this is absolutely not because of the Republican tax bill. No way. The problem is that we’re spending too much on entitlements and they need to be cut—after the election, of course. 

    Remember when they complained that Obama doubled the deficits – of course, they forget to mention the source of the deficits and how long they will impact us. Now add the Trump tax cuts to the mix – not on this chart! But these are facts… Don't like them!

    Image result for source of deficit budget


  3. TLRY – Makes TSLA look like a value stock.  Up over another $1 billion pre-market as shorts get squeezed.   Now worth over $10 billion.  That is insane as it generated $10M in revenue last quarter. Also the riskiest short in the market right now.  


  4. Phil Good morning -  Should be an interesting day…  Do you have a link to the 200 Tarrifs? WSJ had a crappy summary…. I can't find anything…. 


  5. Thoughts on GIS??


  6. Good morning!

    Well, we were up in the Futures but not so much at the open but another short entry at 26,200 was nice but stopped out already on a 50-point drop that bounced before getting to 100 (and while I wasn't paying attention as I was writing my report).  

    See morning notes as oil is up over Saudi comments that they would be happy if it's over $80 (of course they would!) and China's rebuke of our $200Bn is, so far, just the $60Bn they already promised.  

    We want oil and /RB to go higher so we can short it again but, for now, we're just waiting and seeing.  Contracts roll over on Thursday.  TOS is already showing /CLX8 (Nov) as the front-month and that's $69.87 while /CLV8 (Oct), which we've been trading, is at $70.13, which makes for an easy roll as the traders are getting PAID 0.26 to fake the Nov contracts when they are done with the Oct contracts.

    That's how this game works – it's no coincidence that the Saudis made that announcement today.

    As of yesterday's close, the NYMEX had WAY too many fake contracts left in Oct for 2 days of trading:

    Click for
    Chart
    Current Session Prior Day Opt's
    Open High Low Last Time Set Chg Vol Set Op Int
    Oct'18 68.80 70.00 68.53 69.81 09:30
    Sep 18


    -

    0.90 77877 68.91 98020 Call Put
    Nov'18 68.58 69.77 68.29 69.58 09:30
    Sep 18


    -

    0.90 147241 68.68 399222 Call Put
    Dec'18 68.59 69.64 68.19 69.45 09:30
    Sep 18


    -

    0.86 31319 68.59 296066 Call Put
    Jan'19 68.35 69.47 68.06 69.24 09:30
    Sep 18


    -

    0.77 7147 68.47 161107 Call Put
    Feb'19 68.11 69.28 67.95 69.04 09:30
    Sep 18


    -

    0.72 4988 68.32 95398 Call Put

    It's too early to call a top though, we'll have to wait on inventories.

    Big Chart – Nas back at the magnetic 50 dma and RUT too – others hanging tough so far.  

    TLRY/Stu – Making money is a huge mistake in this market.   Sell nothing, make nothing and have huge, impossible plans for the future – that's the new American way! 

    Links/Batman – See morning notes in prev post.

    GIS/Jabob – Yikes, down 6%.  This was their Q1 and they actually beat (sales up 8.6%) but North America was surprisingly weak (down 2.1%).  Pet food (Blue Buffalo) up 14% and that's the acquisition people were worried about so I'm happy with the report.  Profits were down 3.1% due to interest charges on the Buffalo acquisition but they were already estimated at 0.64 and the company put up 0.71 after adjustments and 0.65 before so, once again, traders are just idiots. 

    In the LTP, we have:

    Long Call 2020 17-JAN 40.00 CALL [GIS @ $47.77 $0.00] 20 4/18/2018 (486) $14,700 $7.35 $1.60 $7.35     $8.95 $-0.12 $3,200 21.8% $17,900
    Short Call 2020 17-JAN 52.50 CALL [GIS @ $47.77 $0.00] -20 4/18/2018 (486) $-4,000 $2.00 $0.52     $2.52 $0.16 $-1,030 -25.8% $-5,030
    Short Put 2020 17-JAN 45.00 PUT [GIS @ $47.77 $0.00] -10 4/18/2018 (486) $-5,250 $5.25 $-1.68     $3.58 $-0.02 $1,675 31.9% $-3,575

    Nothing to worry about there as this is about where we came in but, since we sold more premium than we bought, 6 months is taking a toll on the shorts we sold.



















  7. TLRY – Now up over $2 billion on the day!  Shorts getting their faces ripped off.


  8. Nice, oil topped out right at $70 and now back below $69.50, which is now the stop, of course.

    /KC is a total disaster though, now $103.35 on /KCN9 and testing 95 on /KC – amazingly low!


  9. Young Brett Kavanaugh


  10. lb inching up…


  11. SPWR – Very strong today.


  12. TSLA facing a criminal probe over Musk's statements. Off $15.


  13. TLRY/Stu – Wow, if Musk wants to get to Mars he should just get on TLRY….

    LB/Jabob – Someone (MS?) upped their target this morning to $33.  Our 2020 target is $35 so fine by me…

    In the OOP, we have:

    Short Put 2020 17-JAN 35.00 PUT [LB @ $29.34 $0.90] -10 3/1/2018 (486) $-7,000 $7.00 $2.25 $-0.01     $9.25 $-0.15 $-2,250 -32.1% $-9,250
    Long Call 2020 17-JAN 20.00 CALL [LB @ $29.34 $0.90] 20 8/23/2018 (486) $19,000 $9.50 $0.45     $9.95 $0.45 $900 4.7% $19,900

    In the LTP, we have:

    Short Put 2020 17-JAN 37.50 PUT [LB @ $29.42 $0.98] -15 5/11/2018 (486) $-14,550 $9.70 $1.40 $-18.45     $11.10 - $-2,100 -14.4% $-16,650
    Long Call 2020 17-JAN 20.00 CALL [LB @ $29.42 $0.98] 30 5/24/2018 (486) $42,000 $14.00 $-4.15     $9.85 $0.35 $-12,450 -29.6% $29,550
    Short Put 2020 17-JAN 30.00 PUT [LB @ $29.42 $0.98] -15 5/24/2018 (486) $-7,800 $5.20 $0.75     $5.95 $-0.30 $-1,125 -14.4% $-8,925

    As noted back on 8/23, when we made our most recent adjustment, we've gotten more and more aggressive as it's gone lower and now we have 30 of the 2020 $20s, naked so, if we hit $35, those will fetch $45,000 and the short puts will go mostly worthless so call it net $42,000 back from our (so far) net $575 credit on the entire trade which, at the moment, shows a net $15,675 loss.  

    As a new trade, it's a bit aggressive but net $3,975 can still return $45,000 for a $40,025 profit (1,007%) at $37.50

    SPWR – That's why we like all our underperforming trades so much, they should all do very well as people start repositioning their portfolios.

    Short Call 2020 17-JAN 12.00 CALL [SPWR @ $7.24 $0.66] -30 1/3/2018 (486) $-6,300 $2.10 $-1.47 $-0.80     $0.64 $0.16 $4,395 69.8% $-1,905
    Short Put 2020 17-JAN 7.00 PUT [SPWR @ $7.24 $0.66] -20 1/4/2018 (486) $-4,600 $2.30 $-0.09     $2.22 - $170 3.7% $-4,430
    Long Call 2020 17-JAN 5.00 CALL [SPWR @ $7.24 $0.66] 30 2/8/2018 (486) $9,000 $3.00 $0.20     $3.20 $1.00 $585 6.5% $9,585

    That's from the LTP – the OOP position is still playable (very aggressive):

    Short Put 2020 17-JAN 7.00 PUT [SPWR @ $7.24 $0.66] -20 1/4/2018 (486) $-4,600 $2.30 $-0.09 $-4.68     $2.22 - $170 3.7% $-4,430
    Long Call 2020 17-JAN 5.00 CALL [SPWR @ $7.24 $0.66] 30 2/6/2018 (486) $10,200 $3.40 $-0.21     $3.20 $1.00 $-615 -6.0% $9,585

    Speaking of portfolios, it's kind of slow and tomorrow is a fasting holiday and there's not much data this week so I'm going to start doing the portfolio reviews:  OOP will be first…

    TSLA/Ati – That was one we saw coming.


  14. TSLA/Ati – That was one we saw coming.

    Yeah! It's been a great play.


  15. GIS as a new butterfly?

    Buy 2x's 2021 40/52.5 BCS $4.60    Buy 2021 40 put $4.5.  

    Sell Oct 45 put 1.9.  Sell Oct 45 call  .65


  16. Wow, KC popping off the bottom (finally). 

    GIS/JMD – It moves too violently for a Butterfly play.

    $60 to $42 isn't even the worst of it, they were at $72 in 2016 and fell to $50, then back to $60 (on this chart) and then lower.  So, selling puts and calls for $2.50 on a stock that's moved $20 twice in two years is an automatic "NO" for a Butterfly Play.


  17. Options Opportunity Portfolio Review (OOP) – Part 1:  I do love a diverse portfolio and this one is now up 37.3% for the year at $137,292 and that's up $6,417 (6%) since our 8/21 review, so very good for less than a month.  I keep looking for things to cash out but then I review them and I like them all too much so I'm not even going to raise expectations here and we'll just be happy to keep chugging along for now.  

    All of our adjustments last month were to get a bit more bullish on the positions that haven't been working yet and that's been paying off this month as SPWR, LB, GNC and even FTR begin to find some buyers.  Unlike last month, however, we now only have $38,720 in CASH!!! so I'm not going to be as anxious to put money into things as I was last month when we had $18,000 more to spend.  

    • HMNY – Down to 0.012 and, if they reverse split again 1/250, we'll have just 160 shares at $3 – for as long as that lasts.  No point throwing MORE good money after bad on this one but no point in cashing out either.  
    • SQQQ – Very aggressive hedge down $6,900 but it's $6,640 in the money so good protection.  If the Nasdaq were to fall 10%, then SQQQ would go up 30% ($3.60) to $15.75(ish) and then we'd have $23,000, which is + $12,500 so that's our conservative protection from these calls.  
    • Short puts – All good and on track to expire worthless except:
    • SCO – Let's add a bull call spread to them as they are back at $15.   The Nov $14s are $1.85 and we can buy 10 of those ($1,850) and sell 10 of the Nov $16s for 0.95 ($950) and that's net $900 on the $2,000 spread that's half in the money to start.  Anything under $70 on oil is good for us!  

    • BJO – This one is turning ugly as BJO falls apart but it's March and we sold calls to cover so we can afford to be patient. 
    • TZA – Our other hedge at net $5,925 with potential for $25,000 at $12 but TZA at $8 x 1.3 is only $10.40 so that's our real protection on a 10% drop so $3.40 x 50 = $17,000 or another $11,000(ish) of protection here.  

    • FTR – Back on track baby!  
    • ABX – We got more aggressive last month and now we'll just have to wait and see.  Though it's improved the past week – we're only back to where we were last month. 

    • ALK – In my recent travels I heard good things about them – seem to be improving quickly and already at our goal.  Let's keep in mind though that it was, originally, just a $5,000 spread where we sold 4 short puts and the net was a $2,000ish credit so $7,000 was our max upside.  When they went lower, we sold more puts and now the spread is up $6,070 though the potential is $12,000 now as well.  Anyway, we're not going to let the net go below $5K at this point.  
    • BBBY – We got more aggressive on these too and, hopefully $18 will hold up and begin to form a supportive base.

    • BHC (formerly VRX) – On track.
    • C – Halfway to $20,000 and over the money already.  
    • CDE – I forgot to make the changes blue and bold last time and I forgot to make them myself, our plan was (and is):  We may as well roll the 20 2020 $7 calls at 0.90 down to the 2020 $5 calls at $1.65 as we pick up $2 in strike for just 0.75 and, since it's such a nice deal, we'll double down to 40 long $5s at $1.91 avg (not counting the short puts).


  18. Options Opportunity Portfolio Review (OOP) – Part II: 

    • CHK – They broke down instead of up.  We don't have enough cash for me to be comfortable pressing this one but I do still like them.
    • FNSR – Back on track.  
    • GE – Well, the 2021s are out and we can roll our 10 2020 $20 puts at $7.35 ($7,350) to 20 of the 2021 $15 puts at $3.35 ($6,700) for $550 and I think we should do that as it's a big reduction in strike target.

    • GNC – Fantastic timing on our DD last month.  All it took was approval of the deal that we've been looking at for months yet the stock just kept selling as if it wouldn't happen.  Now we have a lot of shares deep in the money – hopefully they keep going.  

    • HBI – A bit low but still profitable.  Good for a new one.
    • HRB – Good for a new trade now.

    • NLY – Price action has been weak but we did the math on them in chat last week and we still like the play as it stands.  
    • OIH – New trade and still good for a new trade.  
    • SPWR – Up 10% since last month, hopefully it continues.  Still good as a new trade.  
    • WBA – Easy money on that one, on track.  

    • WPM – Was getting scary but now coming back so we'll have to wait and see.  I still like this as a new trade – way cheaper than where entered!  

    Still nothing we want to cash out (well, we're trapped in HMNY now) and overall performance is strong so not too many changes and we'll see how the next few weeks play out.  I don't think we have enough hedges but the Dow is up 166 today so I feel like that's another case of throwing good money after bad but, if things do turn down, I'll want to use some of that sideline cash for more hedging!  

     


  19. Phil;  what are you doing with the SCO 16 Puts?  If oil doesn't fall this week you will be exercised.


  20. SPWR / Phil – Sell puts at $7 and sell calls at $9 has been working well…


  21. Big move up on /NG – out a dime too early. Look at it go!


  22. TLRY – Kamikaze trade.  Sold a few Oct $80 puts for $9.50 on the premise that the short sellers will keep the stock above there for 31 days.  Pure gamble.


  23. SCO/Options – Oops, I didn't realize they were this months.  Well I suppose we'll have to roll the 10 SCO Sept $16 puts (0.95) out to 10 Nov  $16 puts at $1.80 in the OOP.  

    SPWR/StJ – Yes, almost good enough for a butterfly play in that channel:

    Of course that is pretty much what we did when we bought back the short calls at the bottom of the channel – just another way of playing it without mucking about with short-term callers.

    /NG/Ati – That got crazy today.

    I think it was that article that they don't have the infrastructure available to expand production further. 

    TLRY/Albo – Too rich for my blood!

    Holy crap, look at the Dow go!  Up 240.  More tariffs please! 

    /YG back to $1,200, that's a good bounce line with tight stops below.


  24. Copper with a big move too:


  25. One year anniversary for the Money Talk Portfolio and we can't make any adjustments (as I only do them on the show) so here it is.  We haven't looked at it since I did the show back in July (17th) and we were at $84,300 and, since then, we've moved to $89,287 so up 78.6% for the year.  Keep in mind we went to much more CASH!!! last time as I didn't want to stay open for the summer and we have dogs like WPM, ABX, LB and GE left in the portfolio but, BECAUSE we keep plugging away and we keep selling premium – we just keep making profits!  

    I would certainly encourage you to go back and read the last review and contemplate how conservatively we play this ultra low-touch (once a quarter, never in between) portfolio.  All year long we simply take off the maturing winners and add a new play each Q and, despite several very disappointing stocks – we make money anyway because we keep selling premium and we take non-greedy exits.

    In fact, that $24,475 profit on short WPM calls was the short leg of a long spread but we CASHED out the long leg because $22 was the top of our expected range.  So we got more than the full expected profit on the long end and now we owe nothing to the short caller.  The new bull call spread was only set up to cover the short 50 calls, we didn't expect WPM to go that high.

    All in all, I'm very happy with this portfolio – despite the restrictions. 


  26.  

    Tesla comments on DOJ probe

    |By:, SA News Editor 

    A spokesperson for Tesla (TSLA -3.8%) says the company has not received a subpoena from the Department of Justice, but is voluntarily cooperating with requests for documents.

    Bloomberg reported earlier in the day that the U.S. Attorney's office in the Northern District of California is probing the company over CEO Elon Musk's communications on taking Tesla private.

    Full Tesla statement: "Last month, following Elon's announcement that he was considering taking the company private, Tesla received a voluntary request for documents from the DOJ and has been cooperative in responding to it," the spokesperson said. "We have not received a subpoena, a request for testimony, or any other formal process. We respect the DOJ's desire to get information about this and believe that the matter should be quickly resolved as they review the information they have received."

    Previously: Tesla said to be under criminal investigation (Sept. 18)


  27. API looks like a 1.25Mb build but there's some kind of minor OPEC meeting that seems to be supporting prices (rumors).  Can't see any major announcements being made outside of their proper meeting (Nov).  /RB down 1.5Mb cancels it out too but Distilates up 1.5Mb to break the tie so no reason oil should break higher unless EIA paints a different picture.  

    U.S. oil prices retreated in electronic trading Tuesday after the American Petroleum Institute reported that U.S. crude supplies increased by 1.249 million barrels for the week ended Sept. 14., according to sources. The build comes after a sizable decline of 8.6 million barrels for the week ended Sept. 7. Phil Flynn, senior market analyst at Price Futures Group, said the build up was likely a result of Tropical storm Gordon. The API data also showed supplies of gasoline declined 1.485 barrels, while distillate stockpiles climbed by 1.536 million barrels. Supply data from the Energy Information Administration will be released Wednesday. Analysts polled by S&P Global Platts forecast a fall of 3 million barrels in crude supplies in the latest week, with inventories of gasoline down 1.6 million barrels and distillates down 282,000 barrels. October crude was at $69.65 a barrel in electronic trading, down from the $69.85 settlement on the New York Mercantile Exchange.


  28. Good morning!  

    It's Yom Kippur, Day of Atonement and I'm fasting but, obviously, using a computer (bad Jew!) but it's supposed to be a day of reflection and I think that should include portfolio reviews.  It does not include doing a Webinar, however, we'll do that tomorrow as I'd be in a lousy mood anyway since I am fasting until dinner.

    Should be a slow market day…


  29. TLRY – Even more insane today.  Got called on some of my covers of my long calls overnight.  Now short the stock but covered with the long calls.  Goes from requiring zero margin to lots of margin.  Lesson learned. 


  30. TLRY – I covered 1/3 of those shorts this am expecting forced covers by shorts after the open.  I expect there will be potential margin calls this am around 10:00 – 10:15 so the stock might peak around then.  


  31. Albo should be happy w/his short TLRY puts today!