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Thursday Failure – Shanghai Stocks Down 20% for the Year and Social Security Closer to Failure

Harmless trade war?

That's how the Conservatives are spinning it and many are drinking the Kool Aid and ignoring the stress and strain we are putting on the rest of the World – especially China, where the Shanghai Composite is officially a bear market, down 20% for the year and almost 50% off it's 2015 highs.  2015 was another crisis we ignored in China – until we had a "flash crash" in August and a proper 10% correction in the beginning of 2016 – even as China was "recovering" a bit.

When people tell you that what happens to the second largest economy in the World doesn't effect the largest economy in the World, those people are idiots and you should never listen to anything they say to you – ever again.  Jamie Dimon of JP Morgan, for his part, is doing his best to minimize the concerns of retail investors so he can keep dumping stocks on them:

"If you look at tariffs on $200 billion (worth of Chinese goods), and this may all get passed on to American consumers and they have to pay another $20 billion (on Chinese imports), it's a $20 trillion economy, so the actual economic effect is not dramatic," Dimon said.

"We can add tariffs to more things and the Chinese can retaliate in other ways and I don't think all that's good. It's not a devastating thing, it's not a war, it's a trade skirmish that can have negative economic effects."

Dimon is not going to say what happens in China has no effect but he's mimizing the impact and misleading traders by using the 10% figure that costs $20Bn but that 10% tariff escalates to 25% at the end of the year ($50Bn) and then Trump plans to double the number of goods that are taxed ($100Bn) so a smart reporter would ask Dimon – does $100Bn matter then?

You can nod your head and agree with Dimon (after all, he's a rich guy, so he must know stuff and he would never lie to you, right?) because $20Bn is only 0.1% of our GDP, though that's still enough to knock growth down from 4% to 3.9%.  $100Bn, on the other hand, is 0.5% of our entire GDP – it's really kind of hard to find any justifcation to minimize the impact of that other than – "Because I'm an investment banker and my wealthy clients need greater fools to sell their ridiculously over-priced equities too."  Kind of like these bastards:

This is what "THEY" do to retail investors at the tail end of the rally, they herd all the sheeple into the markets at the WORST possible time, cranking up the propaganda machine and doing whatever it takes to pretty up the indexes to draw as many people as they can into the markets – providing fresh buyers so they can cash out of the stuff they bought when they were telling consumers to stay out of equities.

Image result for stock market sheep

I guess your investing premise can be that tariffs (ie. taxes) amounting to 5% of our GDP won't impact the economy because….  well, I can't think of why because it's not my premise… or your premise could be that President Trump has lied to the American people 6,000 confirmed times in less than 2 years in office (millions of times before as well) so why should we believe he'll go through with anything he says so it will all work out in the end.  If that makes you sleep better at night, that's great but the fact that there are people who believe that crap is exactly what keeps me up at night.

Wealthy Conservatives like Dimon love to tell you that you can learn to live without Chinese goods because the only Chinese goods in Dimon's house are Ming vases and silk pajamas but the average American, who is already struggling to make ends meet, is going to have a hard time avoiding Trump's 25% tax on most of the things they buy.  Of course, that's exactly the point – Trump is taxing the poor in order to give tax cuts to rich people like Dimon, who has a net worth of $1.4Bn.

If anyone steals $1.4M from Jamie Dimon, make sure you use his quote above as 1% of his wealth is "not dramatic" enough to be a crime!

Image result for income inequality pie cartoonThis is the problem when you have Billionaire setting US policy – they don't live in the same world as the rest of us so their concerns are NOT the concerns of the average citizen of even the average Millionaire.  If you are a Millionaire, you are to Jamie Dimon and Donald Trump as much of a concern as a person with $1,000 is to you.  That's what a Billionaire is – one thousand Millionaires – if you say "F the poor", well, you are the poor to them!  

Speaking of F'ing the poor, as well as your parents if they are still living – Trump's tax cuts combined with lower than promised job gains has caused the Congressional Budget Office to accelerate the dates that Social Security (2022) and Medicare (2026) will run out of money by 3 years.  Well SS won't "run out of money" as they have $2.8Tn in reserves but, once they go negative in 2022, they are now projected to be out of reserves by 2034.  

I'll be 71 in 2034 so I guess all the money I put in over the last 40 years plus the money they will continue to collect for the next 16 years will be lost.  We should all be pissed off that we now have to contribute to a fund that will never pay us back.  The reason they are called "Entitlements" is because we are ENTITLED to the benefits – this was our money that was taken out of our paychecks and placed in a forced savings account "for our own good."

Image result for social security collapse61M Americans, who worked and saved their whole lives, are currently collecting $952Bn a year but, in perspective, that's only $15,606 per person but the Trump Administration is going after that money and each year they cut is another Trillion Dollars they can give out to their friends and family. 

Consider the average American who made the average salary of $6,000/yr back in the 50s and 60s, $20,000/yr in the 70s and 80s and $40,000/yr in the 90s and 00s and is now retired.  In each 20 years they made $120,000, $400,000 and $800,000 so the 12% SS tax (half you, half the company) would have been $14,400, $48,000 and $96,000 but $14,400 saved at just 3.5% in 1960 would be worth $105,901 and $48,000 at 3.5% since 1980 would have been $177,000 and $96,000 at 3.5% since 2000 would have been $178,000 today.  

So a total of $461,000 was contributed by the average American and, at 3.5% that's $16,135 in annual interest.  See – ENTITLEMENT – they are only getting back the money they put in (and the government keeps the principal when they die) - albeit at a ridiculously low rate of return since wealthy people, who were not forced to save 10% of their earnings (it caps out at $100K), were able to invest in the market at 8% average returns, earning them (and yes, this is real math) $5,496,000 on the EXACT SAME SAVINGS.  

Image result for top 1% rob the poor cartoonThat money has been STOLEN from the American people to benefit the Top 1% and, now that the piggy bank is empty and the Ponzi scheme is collapsing, the Top 1% are saying that YOU have a problem because the system is empty and they are reclassifying "entitlements" as if it's some kind of Socialist Agenda as opposed to a CONTRACT they Government made with you where you contribute 12% of your income and they will invest it wisely for you to make sure you have enough money to live on in your old age.  

Rembember, we're not even talking about what constitutes "enough money" as $15,000 a year isn't all that much to live on – even if you enjoy cat food.  The entitlement payouts have never kept up with inflation – even the Fed's fake inflation numbers that minimize the Government's need to adjust the payouts.  We're talking about the fact that money you could have saved yourself was taken from you and used by the Government (mostly Republican ones) to excuse cutting taxes to the Top 1% so they would have more and you would have less – in 2022.  

Since 2022 seemed very far away at the time (and the date keeps moving closer) and since Americans are not known for thinking about the Future, this was an easy crime to commit as there wouldn't even be an investigation until the victims began to realize they have been robbed but now it's just 4 years until even Trump's base will notice there are no more checks coming or drastically reduced checks and there WILL be a reckoning but, sadly, it's far to late to really save the projected 105M people  who will be turning 65 with NOTHING to retire on – NOTHING! 

Image result for social security collapse

This country has an expiration date – and it's rapidly approaching.  What's going on at the moment is the Top 1% are milking whatever wealth they can and they will be long gone before the collapse.  Where will you be?

 


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  1. Good Morning, All!

    Join us for this week's webinar, TODAY at 1pm!

    https://attendee.gotowebinar.com/register/282291207925225741


  2. It's so funny to see the GOP upset that we are wasting time on the Supreme Court nomination because it's urgent to fill that seat. The same people who held a seat open for one year…


  3. Brexit will do long term damage:

    https://www.bloomberg.com/news/articles/2018-09-19/brexit-has-brought-britain-to-a-standstill

    The delay in providing clarity on Britain’s post-Brexit future is denting investor confidence in the country, says Stephen Phipson, head of EEF, a manufacturing lobby group. The mood of large multinationals has changed over the past two years “from waiting and being impatient to anger in a lot of cases,” he says.


  4. Stronger unions could be helpful:

    https://www.bloomberg.com/view/articles/2018-06-13/unions-did-great-things-for-the-american-working-class

    The authors find that as unionization rises, inequality tends to fall, and vice versa. Nor is this effect driven by greater skills and education on the part of union workers; during the era from 1940 through 1970, when unionization rose and inequality fell, union workers tended to be less educated than others. In other words, unions lifted the workers at the bottom of the distribution. Black workers, and other nonwhite workers, tended to benefit the most from the union boost.[...]

    So supporters of free markets should rethink their antipathy to unions. As socialism gains support among the young, both economists and free-market thinkers should consider the possibility that unions — that odd hybrid of free-market bargaining and government intervention — were the vaccine that allowed the U.S. and other rich nations to largely escape the disasters of communism in the 20th century.


  5. Boom!


  6. Good morning all!

    Does anyone have the pivot points on /CL handy?


  7. Phil / NXPI – taking on the chin…. down at 90 and at the $90 range it was at prior to QCOM buyout offer.  I like this company based on the markets they serve, and the significant IP they own, along with strong FCF.   Not sure if the bottom has formed but I do think they can hit Ann EPS below

    2018 – $7.58

    2019 – $8.6

    2020 – $9.6

    and with a 13 to 15 multiple a $120 Share price is not unreasonable.  I know we have some in the ports ( I have '20 $185 Put ( 9.6). looking to add a BCS of 2021

    Jan '21 $185 ( 22)

    Jan '21 $115 ( 10.2)

    What do you think?


  8. Good Morning!


  9. Good morning! 

    Oil with another chance to short at $71, that's my favorite this morning.  Today is rollover day and we might get lucky again.

    /KC finally winning – I'll let you know when I decide to cut back to 4 long.  If I were not still working my way back from that $20K Nasdaq loss last month, I'd let it ride though.  As it is, I'm still $6K from even so no messing around until I'm back.

    $106 is my 1/2 stop at the moment, hopefully it doesn't trigger. 

    Indexes off to a flying start but maybe a bit of BS.  I still have 4 short /ES at avg 2,919 and I'm hoping for a sell-off later.  Europe is up 1%, so I think they are boosting us until 11:30. 

    TLRY only up 10% this morning, slow day…  cheeky

    Options on this thing should be $100 at the money (and I still wouldn't touch them)!  

    Pivot points/Buckey:

    NXPI/Batman – I have a CC at 10 but right after that.  Sorry.


  10. Phil / NXPI – thanks and NP


  11. TLRY – Closed out my put position for 1/2 point loss.  Stock up again today but volatility keeping puts from going down.  Not worth the hassle.


  12. Cl/Phil- where will you be looking to take profits? 69.50?


  13. $70.50 is now the bounce stop on /CL, hitting $107 on /KC and I still don't want to take things off but I will if we fail here.


  14. TLRY – Don't understand how anyone can be bullish with a chart like that. Classical bubble chart with parabolic rise.


  15. TRVG up big in the last 10 days. 

    Short some puts, but wish I were long.


  16. Oh my gosh I hate startups!  That was a call for PSWI's Judgment Search Network and we're still shaking out Beta Bugs, which drives me nuts but I see light at the end of the tunnel, at least…

    The good news is we should be able to process 300 names a day at $10/name by next month so $3,000/day and next year we can ramp it up to 1,000 names a day for $10,000/day and then we have a nice little money-maker!  

    TLRY/Albo – Very wise, so crazy.  Down 10% now.  

    /CL/Dave – I wish, just stopped out at $70.50 but happy to go back in if we either hit $71 again or cross back below $70.50.  I was on the phone and missed /RB hitting $2.035 - that was a gift.

    NXPI/Batman – $93.50 is $28.5Bn for $9Bn in sales and $2.3Bn in profit but the profit is BS because they got paid $500M by the IRS last year (and $850M the year before).  So figure $1.8Bn less $300M (at least) in taxes is $1.5B so $28.5Bn is 19x, which means $95-105 is a fair price range for them – as long as things keep going well.

    Likewise the current EPS and extrapolated EPS is BS so I would be very careful assuming they'll bounce back the idiotic levels they were trading at – especially after missing Q2 estimates by 10% at $1.50/share, which works out to $6 over 4 quarters, not $7.58 though I'll give you that Q1 was only a 4% miss at $1.55 so maybe $6.10 for the year…  cheeky

    My "bullishness" on /NXPI was adding 5 short 2020 $85 puts for $10 to the LTP (2018/08/20 at 10:42 am) – don't extrapolate that net $75 1x entry (which we'd roll down to $75 or $65 before taking an assignment) to mean I think your targets will work.  

    Nextly, I have no idea what you are talking about when you say you have " '20 $185 Put (9.6)" maybe you bought puts which I can't believe you didn't cash out at $100 or maybe your sold a put and you are down $100 but NXPI topped out at $125 so I can't even begin to imagine what you are talking about.

    TRVG/Albo – No profits but great growth.

    Year End 31st Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue €m 0.000 0.000 309.3 493.1 754.2 1,035 963.8 930.4 982.5 +49.6%
    Operating Profit €m 0.000 0.000 -30.3 -47.9 -44.4 -18.4 -83.7      
    Net Profit €m 0.000 0.000 -23.1 -39.1 -50.7 -12.5 -58.0 -43.4 -11.7  
    EPS Reported 0.000 0.000 -0.067 -0.11 -0.21 -0.045 -0.17      
    EPS Normalised 0.000 0.000 -0.067 -0.11 -0.21 -0.050 -0.17 -0.12 -0.041  
    EPS Growth %                    
    PE Ratio x           n/a n/a n/a n/a  
    PEG x           n/a n/a n/a n/a
    Profitability


  17. MU reports after the bell today


  18. OK, $107.50 was a good place to take half off the table on /KCN9 – down to 4 longs with a stop at $107 now, that's coming up on 100 on /KC and likely to be rejected and don't forget, /KC stops trading about 1pm so if you leave it all open, you risk gapping out of your profits so I'd rather reduce, lock in profits and be flexible.


  19. Butterfly portfolio -  How many stocks do you want in it when it is "full"?  When you say it is self hedging do you mean that if the market dropped 20% it would only drop 10% (to pick 2 numbers out of the air just for example)?


  20. Butterfly/Tangled – Well the goal is to, as safely as possible, make 20-40% a year so, when we're in a market that accomplishes that with 4 positions, then 4 positions is full.  Once we have a cushion (anything over 30% is bonus money to me), then we can get a bit more aggressive and, as the portfolio grows in value, you tend to need more (or bigger but I prefer to diversify) positions to keep up the 20-40% flow rate so we just add them along the way but usually just 1 per quarter on average.  

    I'm doing the LTP review and, once again, CMG was a gold mine for us as we turned bearish at $520, cashing in our longs and selling more short calls.  All we're doing is playing the channel but this one has been fantastic for us all year.  

    Submitted on 2018/08/24 at 10:26 am

    Speaking of crazy turnarounds, CMG can poison whoever they want these days:

    Our LTP position needs adjusting, it's:

    Short Put 2020 17-JAN 270.00 PUT [CMG @ $520.25 $2.21] -5 1/2/2018 (511) $-17,600 $35.20 $-31.53 $-115.14     $3.68 $-0.73 $15,763 89.6% $-1,838
    Short Call 2019 18-JAN 420.00 CALL [CMG @ $520.25 $2.21] -6 5/24/2018 (147) $-32,640 $54.40 $59.00     $113.40 $0.40 $-35,400 -108.5% $-68,040
    Long Call 2020 17-JAN 400.00 CALL [CMG @ $520.25 $2.21] 15 5/24/2018 (511) $143,400 $95.60 $64.40     $160.00 - $96,600 67.4% $240,000
    Short Call 2020 17-JAN 480.00 CALL [CMG @ $520.25 $2.21] -15 5/21/2018 (511) $-87,675 $58.45 $48.10     $106.55 - $-72,150 -82.3% $-159,825

    I think we're a bit overdone here at $520 as that's $14.5Bn for a FAST FOOD COMPANY with $4.5Bn in sales and $200M in profits so 70x earnings but let's assume 35x as they work their way back to pre-crisis profit levels.  The thing is, new traders are seeing this as explosive profit growth ($23M in 2016, $176M last year, $116M in Q1 and Q2 this year) but they make $475M in 2015 on $4.5Bn in sales – before all this nonsense although people were paying $750 back then!

    Still, I think $520 is plenty and what we can in the LTP do is roll the 6 short Jan $420 calls ($113 = $67,800) and the 15 short 2020 $480 calls ($106 = $159,000) to 20 short Jan $460 calls at $80 ($160,000) and we'll cash in our 15 2020 $400 calls at $159 ($238,000) and buy 20 2020 $460 ($118)/580 ($58) bull call spreads at $60 ($120,000) so we are taking $51,200 off the table and now we have a $240,000 spread that's $120,000 in the money covering the 20 short, rollable calls that are $120,000 in the money too so we're playing this for a pullback and, when we get one, we'll buy back some short calls to restore a 2:1 ratio.

    Just because you own a stock and it's doing well doesn't mean you can't be realistic about it's forward prospects.  Learning to take those profits when your stock is overdone can add tremendous returns to your portfolios!  


  21. Butterfly – How do you enter it if not already in?  Wait for the next new entry?  Though I think in the review you did mention that one of the positions is good for a new entry.


  22. Butterfly/Tangled – Essentially, any trade is good new as we are constantly adjusting the short front-months and the long positions are only backstops for our intended regular premium selling sessions.  Start with one and, once it's going well, add another – there's really no hurry, the money comes rolling in eventually so just BE PATIENT!  

    Watch this while you wait:

    HBI is another good example of taking profits off the table – we're back in on 8/31 but, on 7/20 I said:

    2018/07/20 at 2:45 pm

    • HBI – Right on track but it's net $9,000 out of $12,000 so let's take it off the table rather than wait 18 months for 33% more money.

    My little profit-taking habit not only locked in the $9,000 but now allowed us to jump back in (8/31) with a new net $10,000 spread that can pay us back $35,000 at $20.

    I've been looking back on these trades trying to figure out how the hell we gained $261,042 since July 20th.  That's 50% of our starting $500K and $100K came in the last few days as the market rocketed but mostly it's because we got very aggressively bullish with our losing positions in July and a lot of them came back nicely.

    Still, now we're at $895,483 and I really think the best thing to do is CASH!!! out – but I said that in June when we were only at $700,000 so we're just doing the same as June, which is pressing our STP hedges and keeping the LTP nice and bullish.


  23. Woo hoo on /KC – I'm down to 4 but thrilled!  


  24. Wow, even conservatives are counting tariffs as taxes now:

    https://www.ntu.org/foundation/detail/trump-trade-taxes-will-exceed-obamacare-taxes-next-year

    President Trump recently announced plans to impose a 10 percent tax on $200 billion of imports from China effective September 24, escalating to 25 percent effective January 1, 2019. When added to tariffs that have already been implemented, total trade taxes imposed on American consumers and businesses via unilateral executive action exceed all the taxes included in President Obama’s Affordable Care Act (ACA).


  25. TRVG – Now down on the day. 

    Sold a few more Jan $5 puts for .50.


  26. Good Webinar Phil!  :)


  27. Phil, new member here…been reading and learning last few weeks…interested in starting butterfly portfolio with part of my available funds…noticed in your review this week that you said MDLZ is still good for new trade.  Would like to review and confirm set-up, as it exists today…

    Sell 10 MDLZ 2020 $40 puts for ~$2.15 (current price)
    Buy 20 MDLZ 2020 $40 calls for ~$6.30 (current price)
    Sell 20 MDLZ 2020 $47 calls for ~$2.75 (current price)
    Sell 5 MDLZ Aug $42 calls for ~$2.05 (current price)
    Sell 5 MDLZ Aug $42 puts for $.20 (current price)

    Net entry ~$3,895.  I'm assuming four trades here to set this up. Buy the bull call spread ($40/47) then sell the $40 puts, the $42 puts and the $42 calls.  Do I have this right?  TIA!!


  28. LTP and OOP up another 1% since this morning.  Nice 365% annual pace!

    Oil $70, missed out on that last leg down (rollover day) into the close.

    /RB back to $2.01 – we knew that was going to work.

    /NG unstoppable:

    /KCN9 hit $108.50 but now back to $107.30 – crazy!  

    $99 on /KC is my stop for the last 4 ($107) but I hate not to have them long.

    Dollar down and down:

    Tariffs/StJ – All should see that!  

    Thanks 1020.

    Welcome Idicorp!  Well MDLZ is at $44 now so no reason to sell $42 puts and calls, the idea is to sell all the premium you can.  

    The long play is net $2.48 ($4,960) and that's fine though now you can go to 2021 where the $42 ($6.50)/$47 ($4.25) bull call spread is just $2.25 so I'd rather have 25 of those for $5,625 and sell 10 of the 2021 $40 puts for $3.20 ($3,200) to net in for $2,425 and then you can sell 8 (1/3) Jan $44 calls for $1.60 ($1,280) and 5 (1/5) of the Jan $42 puts for 0.95 ($475).

    Jan is 120 days from expiration and you've sold $1,755 of 100% premium which is 72% of the cash you laid out and your longs are 848 days out so 6 sales like that ahead means you have a very good chance of tripling up on this one over the next two years.  

    Since we're starting with 1/3 and 1/5 covers, there's plenty of room to adjust as well.  If MDLZ drops back to $40, for example, you could sell 5 more puts and use that money ($2,000ish) to roll the long calls down $2-3 in strike, which would widen the spread.


  29. Phil / NXPI – Thanks for looking at this one.  I totally missed the tax impact ( which is really poor on my part).  When I account for this this looks lots more choppy and risky.  I still like the IP they have ( especially around Batter Control Systems) this is a very high margin business.   Anyway I'm backing off of this one.   We have AVGO and NVDA that are in a better position…


  30. Spot VIX below 12 – no one is worried! VIX futures are close to 14 though (that's the Finviz view – it doesn't show spot) so maybe a bit worries.


  31. Excellent advice, Phil!  Thanks!!


  32. How Puberty Kills Girls’ Confidence


  33. America’s Fukushima moment is at hand


  34. JetBlue and Airbus Take to the Sky Using Renewable Jet Fuel – Press Releases on CSRwire.com




  35. Got any insight here Phil -  I have been letting a lot of money go to waste in my mostly sitting in cash Ameritrade account.   They never mentioned their sweep account options until I asked.  A couple of options are PTTXX and MOTXX with the former paying 1.54% taxable and the latter 1.09% tax free.  I have no clue how to evaluate the risk of NAV loss on these?


  36.  They are both here relatively safe ways to add a little bit of income to your cash. I don’t know about your specific tax implications but keep in mind you only get the interest overnight so, for me I want to at least get the larger amount as it isn’t that much anyway    







  37. I do not understand this "you only get the interest overnight" .  What does that have to do with whether or not it is worth going for the tax free interest?


  38. Good morning!

    Quad witching today so anything can happen.  Very dangerous to guess this morning.

    Overnight/Tangled – I'm saying you're only effectively getting 1/2 of 1% for the year and it's not very much money to worry about taxes so I prefer 1/2 of 1.5% unless you are paying more than 1/3 in taxes, then what's the point of tax-free?