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Monday Market Movement – OPEC Blasts Oil Higher, China Walks from Trade Talks

Move along folks, nothing to see here.

Despite a run of bad news over the weekend, so far, the market indexes seem unphased by negative news reports.  Of course it is the last week of the quarter and windows need to be dressed so we'll see what happens when October rolls in, along with Q3 earnings, when we may begin to see some companies begin to choke on higher wages and trade concerns.  As noted in the Wall Street Journal, Industrial and Material stocks are in their own private bear market yet no one is taking it seriously at all.

There’s a number of money managers who’ve been hesitant to be involved with the [companies] that are going to be potentially affected by the tariffs, whether they’ll be able to export fewer goods or be buying less from China,” said Mark Grant, managing director and chief global strategist at B. Riley FBR Inc.

As I noted last week, China's Shanghai Composite is down 20% for the year and would likely have been down more today as China withdrew from trade negotiations over the weekend but that market is closed today for a holiday.  THESE ARE THE SAME KIND OF THINGS PEOPLE IGNORED IN 2007/8!

Image result for trump china trade warAnalysts caution that while investors have been pricing the risk of a trade war into shares of manufacturers, mining firms, home builders and others, they mostly have ignored the glaring risks associated with major tech companies, such as potential punitive measures that could affect Apple’s manufacturing in China or cost increases that could hurt Amazon’s e-commerce sales. That puts the S&P 500’s narrow leadership at risk of a sharp pullback if trade tensions reach a boiling point, similar to the swift correction that stocks suffered in February on worries about a potential pickup in inflation.  

Last night, China cancelled this week's trade negotiations with the Trump Administration and no further talks are scheduled as the US insisted on moving forward with $200Bn in additional tariffs that take effect today.  That makes it very doubtful there will be any resolution before the election as China has no reason not to wait and see if they will have more a more reasonable Government to deal with in 45 days.  

Meanwhile, in other news that's hurting the United States, Trump's unprovoked sanctions on Iran based on long-disproved Israeli intelligence reports is causing oil prices to rise and OPEC just had a meeting over the weekend where they did not agree to increase supply to cover Trump's self-inflicted shortage.  That sent the price of Brent Crude (/BZ) back over $80 for the first time since 2014, when it was on the way down from $120.

Doubling the price of oil is indeed making things GREAT again for some of Trump's biggest donors but don't worry, you get to donate every time you go to a gas station as Gasoline is already averaging 30% more than it was last year but still hovering around just $3/gallon so a long way to go to get back to the $4-5 range – so we have that to look forward to as yet another way Trump manages to transfer money from the poor to the rich.   

Of course it's all nonsense and the truth is that without production issues in Venezuela (-1.5Mb/d) and sanctions on Iran (-2Mb/d) and OPEC's production cuts (-1Mb/d) the World would be drowning in oil as demand has been cutting back while total production capacity has increased and the escalation of a trade war between the US and China – even if it does not spread to other countries – will put further curbs on the demand for oil as 1/3 of all oil demand is trade-related.

These are the last gasps of a dying commodity and, no matter how much money the oil barrons pay Trump and his family to create false crises along the way – the day's of $80 oil (Brent) are over and we're very happy to short NYMEX Oil (/CL) again below the $72.50 mark, with tight stops above and Gasoline (/RB) at the $2.05 line, also with tight stops above.  They can scare people into anything – especially early in the monthly contract cycle (we just started trading November) but there are already 308,000 FAKE contracts in November to deliver 308Mb to Cushing, OK by Nov 30th – a facility that can only handle 50M real barrels a month.

Click for
Chart
Current Session Prior Day Opt's
Open High Low Last Time Set Chg Vol Set Op Int
Nov'18 71.14 72.39 71.14 72.23 09:21
Sep 24


-

1.09 166691

-
433907 Call Put
Dec'18 70.75 71.89 70.68 71.71 09:21
Sep 24


-

0.96 37540

-
308728 Call Put
Jan'19 70.36 71.55 70.36 71.31 09:21
Sep 24


-

0.95 13590

-
168201 Call Put
Feb'19 70.39 71.20 70.36 70.98 09:21
Sep 24


-

0.59 7448

-
94939 Call Put
Mar'19 70.00 70.96 70.00 70.75 09:21
Sep 24


-

0.75 6725

-
147986 Call Put

The US produces 11Mb/d and we import 4Mb/d via pipeline from Canada and Mexico and there are 2 other ports where oil comes into the country to provide for our 600Mb monthly consumption.  11 x 30 is 300Mb and 4 x 30 is 120Mb and 433,907 FAKE contracts at the NYMEX is 434Mb if we round up by 93,000 so that's 854Mb of oil less 600M we actually use is 254M barrels of completely and utterly FAKE demand being pushed at the NYMEX for no purpose other than to rip you off at the gas pumps. 

Notice how the front month is far more expensive than longer months – they KNOW oil is going down over time but, as long as they can screw you out of $5 every time 200M Americans fill up their cars – it's a nice $360Bn annual scam.

The more fake "crises" they can dredge up, the more likely you are not to think about what's really causing these prices to climb and the more they can get away with.  And it's not just oil – the Trade Wars will be an excuse for many companies to raise their prices, forcing the consumers to pay for Trump's "tariffs" a second time.  I know the market trades like none of this matters but disposable income is being squeezed from all sides and something has got to give.

Be careful out there!  

 


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  1. Tariffs, higher oil prices, higher healthcare costs – the Trump tax hikes are on a roll!


  2. Looking at that ABX/GOLD merger, the good thing I see is that GOLD doesn't carry debt and their operational margin is much higher than ABX so that could improve the ABX bottom line long term. So they might add debt, but should be have more resources to pay it back. That's my 20 second analysis! I am probably wrong but hoping for silver lining for ABX.


  3. No wonder there is a push for a new Brexit vote. A No Deal Brexit would be a disaster and some people are waking up to the reality:

    http://www.spiegel.de/international/europe/the-dangers-of-a-no-deal-brexit-a-1228487.html

    The pain would be even more intense for the UK, which the institute predicts would suffer losses of 140 billion euros. And it's not alone in making that prediction. "From our perspective, the consequences could be even far graver than what the British government is preparing its people for," says Joachim Lang, director general of the powerful Federation of German Industries (BDI). "We would be able to overcome it because we have the other Europeans in the EU. But the British would have no one left."

    But the raw figures alone don't go far enough in illustrating how deeply a no-deal could shake Britain. Few believe the British would simply be willing to put up with empty shelves, horrendous prices for vegetables, meat and gasoline and chaos in the hospitals, on the streets and at the airports. Companies like Amazon have begun warning about the possibility of "civil unrest." The government claims there are no plans to deploy the army. But that's also not entirely true. Recently, a confidential police document was leaked to the media in which calls for the military to help are described as a "real possibility."


  4. No one gives a crap about deficits anymore:

    https://reason.com/blog/2018/09/16/who-killed-the-deficit-hawks-you-and-me

    Prediction: Right-leaning deficit hawks will magically spring back to life the minute the Democrats takes control of some combination of the House, Senate, and Oval Office. It will turn out that the hawks weren't really dead, they were just resting their eyes. It's anyone's guess when left-leaning deficit hawks might re-emerge. Reason's Peter Suderman has argued convincingly that due to blatant Republican hypocrisy on spending issues, Democrats no longer even have to pretend to give a shit about how to pay for stuff anymore. Alexandria Ocasio-Cortez and other "Democratic socialists" really don't have to come up with plausible means to pay for $40 trillion (!) in new spending over the next decade because Republicans didn't bother to pay for all the new stuff they bought.

    So, who killed the deficit hawks? Well, Paul Ryan, for sure, and other hypocritical Republicans. But after all, it was you and me.


  5. And federal spending is not skyrocketing:

    https://www.motherjones.com/kevin-drum/2018/09/chart-of-the-day-a-taxpayers-guide-to-skyrocketing-federal-spending/

     

    The deficit problem is reduced tax revenues!


  6. Good Morning!


  7. Good morning! 

    Nice little dip at the open except the Nas is already bouncing and it's Monday – so who knows what's going to happen.  

    The Dollar is trying to help – it's back down to 93.60 and we were playing 94 for support last week so this could be the start of a leg lower but I still like the /CL and /RB shorts above. 

    If Brent fails $80, they are in big trouble.

    Honey badger don't care:

    So of course 93.50 is bouncy and call it down from 94 which makes 93.60 weak and 93.70 strong but 93.70 is also the weak bounce from 94.50 – so that one will be significant.  

    Argggh, gold was so easy this morning, lagging /SI as it poked back over $1,200 but I was busy…

    /KC holding up. 

    Remember when bonds were in trouble if we couldn't hold 120?

    Yep, they're in trouble.  

    10 years worth of notes out there at 2-3% so at 4% they lose 10% in value ($3Tn) and at 5%, they lose 20%, etc. and the Fed is promising at least 4.25% at the end of next year.  


  8. Phil / ABX – With the new merger – do you have a view of the new valuation on this?


  9. Big Chart – Yeah, when you have to make 40% lines then those Must Hold lines are too low!   The point of a Must Hold line is to let you know when you are correcting so it needs to be the middle of our expected channel and I don't think even a major correction will take us more than 30% lower so up 10-20% is what we'll need to do – except the NYSE, which stays where it is and which also is the reason I'm leery about changing anything since the broadest index is still not rallying with the narrower ones. 

    Roll/StJ – Hopefully he rolls right out of office soon.

    ABX/StJ – Well up 6.5% means people like it so far.  It's all stock and technically a "merger" so ABX isn't overpaying by too much. 

    The new Barrick company, which will be listed in New York and Toronto, will own five of the world's 10 lowest cost gold mines and will be valued at $24 billion including debt.

    The deal marks the biggest transaction in years in the gold mining industry, where companies have come under fire from investors for poorly managing capital, forcing them to focus on costs while dampening enthusiasm for acquisitions.

    "Randgold has the agility and swift-footedness of a younger and smaller company, much like Barrick in its early years, while Barrick has the infrastructure and global reach of a large corporate company," Barrick Chairman John Thornton said in a conference call.

    The merger values Randgold at 4.58 billion pounds ($6 billion), at 48.5 pound-a-share and is equal to Randgold's market capitalization as of Friday's close.

     

    This lack of a premium for Randgold shareholders prompted scepticism from some analysts who were also concerned that Randgold's agility could be bogged down by the mammoth Barrick.

    "U.K. shareholders are arguably being dealt a poor hand with the merger," said Russ Mould, investment director at AJ Bell.

    That's what us ABX shareholders like to hear!  

    The new company will have the sector's highest adjusted EBITDA and EBITDA margin of nearly 50 percent based on 2017 numbers, and the lowest total cash cost position among its peers, the companies said.

    Under the terms of the deal, each Randgold shareholder will receive 6.1280 new Barrick shares for each share of the African rival, the companies said.

    Talks on the deal, which is still subject to regulatory and shareholder approvals and scheduled to close in the first quarter of 2019, started more than three years ago with advisors taken in July, a person familiar with the talks told Reuters.

    In 2017, Barrick and Randgold combined produced 6.64 million ounces while the next largest gold miner, Newmont Mining Corp, churned out 5.27 million ounces.

    The two companies said they were aligned on their strategy with Chinese investors after Barrick said it would make a bigger push to attract investors in China.

    So we get diluted by share count but 50% bigger company so all is good.

    Brexit/StJ – Huge wild card still.

    Deficits/StJ – Someone made a good point about how 0 GOP Congresspeople have complained about the $13Bn cost of Space Force while freaking out about $400M in Food Stamps that "must be cut because we can't afford it".  

    Image result for food stamps need children

    Children, Facebook, and Food: Conservative logic101<br />
 Corporate CEO<br />
 Working Poor<br />
 Makes 10 million a year<br />
 presiding over5000 Works 2 full time jobs while<br />
 employees, each making<br />
 less in a month than he needs food stamps to feed<br />
 going to school and still<br />
 her children.<br />
 "Lazy Moocher"<br />
 makes in an hour.<br />
 "Job Creator"<br />
 (Should pay less in taxes)<br />
 Should have benefits cut)<br />
 Facebook.com/conservativelogic101

    Spending/StJ – The real problem is we should be spending much more as now we have a $4Tn Infrasrtucture deficit that would have moved that chart up 1% of GDP for the last 20 years but that was too much and fixing SS would have been another 1% but that was too much so now the problems are "too big to fix" so we're just F'd.

    ABX/Batman – Sure just add them up and that's the new value – about $20Bn is very fair.


  10. Brexit / Phil – It's insane that we are even simply ignoring that! It's 6 months down the road. Is more than 10 minutes too long of an investment horizon now? I guess when we program bots to trade in nanoseconds, 10 minutes is an eternity!


  11. Deficits / Phil – And recall these deficits hawks that balked at the $800B that Obama wanted to spend on actual projects that would have created jobs. Instead, we had to accept a mix of tax cuts to get the votes we needed. But still that was too much for them. But a $3T tax cuts, no worries… No wonder some on the left are simply saying WTF, let's propose stuff we can't pay for. A chicken in every pot!











  12. Rosenstein out. Not good. 




  13. AP Explains: The US push to boost ‘quantum computing’





  14. Rob Goldstone wishes he’d never set up that Trump Tower meeting with the Russians


  15. Eternity/StJ – That's one of my big concerns about AI.  If you make a thinking computer it will instantly get bored to the point of going insane just waiting for you to respond to a query.  I saw this cool BBC thing on plants and they showed how plants climb trees by showing you a month's worth of video in a minute and you can see the plants look like animals crawling up the trees from that perspective but, to us, they just stand still.  Well, to a computer, we're standing still and an actually intelligent computer will have all the time in the World to do whatever it wants long before we can react to it.

    As to stuff we can't pay for – I don't understand how easy it is to mislead people because the GOP says that we can't afford single-payer health care but we, as a country, are already spending $3.5Tn (17% of GDP) on health care and other countries with single-payer spend less than 10% of their GDP so moving to that system would SAVE us $1.5Tn, not cost us anything.  Only the way the money is collected and distributed would change – why should this be hard to explain to people?

    Image result for single payer health care savings

    Image result for single payer health care savings

    Image result for single payer health care savings

    Image result for single payer health care savings

    Related image

    Rosenstein/Palotay – Wow, what a mess.

    Rosenstein Expects to Be Fired, Clouding Mueller Investigation

    And a bigger mess:


  16. Interesting opportunities for new energy tech in Germany/EU.


  17. Phil,

    /RTY close to the 50 dma…does it make sense to go long during this window washing/dressing period? Your thoughts appreciated! thank you


  18. TLRY/Phil- how does 2020 $60 puts sound? worse case long TLRY at $35


  19. Hi Phil, 

    How high do you think oil could be run up on this latest spike? It would seem to me that as we get into October, we should see prices moderate back down to the upper 60's….Thoughts?


  20. TLRY/Dave – They're just not worth $9.5Bn ($102.50).  Are they worth $3.5Bn?  Well they raised $135M at a $1.4Bn valuation so that was 10% of the company given up at that price and I guess you could argue they could grow their current $10M revenues to $100M and let's say they make 30% margins so $30M in profit and $1.4Bn would only be 46x earnings which seems very reasonable compared to their current 1,000,000,000x valuation.  Not for me at all – seems like a complete waste of time and money to speculate on that nonsense – at least in Vegas they give you drinks when you lose.

    Oil/Sun – Well, as I said in the morning post, I like $72.50 short now and I like $2.05 on /RB as I don't see more OPEC noise overriding fundamental supply/demand imbalance – not to mention all the BS we're seeing on the NYMEX, where they seem to have overplayed their weak hands with unrealistic amounts of contracts to roll over this month and next. 

    Still, you have to be careful as, if they are determined to talk oil up – they can just keep talking and then get some positive press dropped and have GS or JPM come out with a bullish call – there's no end to the nonsense they can pull to drive prices higher and sometimes you just have to wait for it to blow over.


  21. Thanks, Phil…


  22. hello Phil, do you have options recommendations?


  23. Volume back to dead, Nas and Dow crossing each other recently.

    Date Open High Low Close* Adj Close** Volume
    Sep 24, 2018 291.34 291.50 290.37 291.26 291.26 34,161,873
    Sep 21, 2018 293.09 293.22 291.81 291.99 291.99 105,451,600
    Sep 21, 2018 1.323 Dividend
    Sep 20, 2018 292.64 293.94 291.24 293.58 292.26 100,360,600
    Sep 19, 2018 290.97 291.69 290.83 291.22 289.91 49,080,600
    Sep 18, 2018 289.58 291.58 289.55 290.91 289.60 61,930,400
    Sep 17, 2018 290.82 290.86 289.03 289.34 288.04 68,244,000
    Sep 14, 2018 291.06 291.27 290.00 290.88 289.57 55,079,900

    Options/Mbiz – On what?  If you are asking in general, we just did a portfolio review so look for ones that are noted at "good for a new trade" – that's a good start.  Also look at recent Top Trade Alerts – plenty of ideas there.  Other than that – I call 'em when I see them but not if I don't and today is kind of a "watch and wait" day – as will the week be ahead of the Fed on Weds.  


  24. This is interesting, Team Trump thinks the Times article about Rosenstein is a trap to get Trump to fire him which would give more fuel to the obstruction charges so they don't want to fire him now.  Too funny! 

    Rosenstein Will Meet Trump to Consider His Future at DOJ

    Deputy Attorney General Rod Rosenstein, who oversees Robert Mueller’s Russian probe, is set to meet with President Trump Thursday to discuss “recent news stories,” the White House said, amid conflicting reports on whether Mr. Rosenstein is leaving his post. 


  25. Phil, I'm in the money talk ABX trade, and I know you don't officially adjust these unless you make an appearance, but with the big move today, just wondering (between us PSW members), if you would recommend rolling down the $17 puts to $15, or even $13?


  26. ABX/Phil- will we be covering some of the naked ABX calls or waiting it to be near $13?


  27. Somebody needs to poke the DOW with a stick.


  28. phil any thought on SIRI after the big pullback?


  29. ABX/Idi – If you mean the MoneyTalk version of the trade, that's:

    Short Put 2020 17-JAN 17.00 PUT [ABX @ $11.11 $0.64] -10 2/1/2018 (480) $-4,000 $4.00 $2.05 $-2.05     $6.05 $-0.50 $-2,050 -51.3% $-6,050
    Long Call 2020 17-JAN 10.00 CALL [ABX @ $11.11 $0.64] 25 7/19/2018 (480) $8,625 $3.45 $-1.16     $2.30 $0.43 $-2,888 -33.5% $5,738
    Short Call 2020 17-JAN 15.00 CALL [ABX @ $11.11 $0.64] -25 7/20/2018 (480) $-2,750 $1.10 $-0.38     $0.72 $0.23 $950 34.5% $-1,800

    We're still showing a loss but maybe you got better prices.  The 2020 $17 puts are $6 and the 2021 $15 puts are $4.60 and $15 is a pretty realistic target so I'd roll 10 of the $17 puts ($6,000) to 14 of the $15 puts ($6,440) and if you originally collected $4,000 then you have $4,440/14 = net $3.17 on each new put so the break-even is a very reasonable $10.83.

    ABX/Dave – I like the merger, might be the catalyst to bring people back to the table.

    SIRI/Coutler – I think they just flushed the money to buy P so I wouldn't play them.  SIRI is silly already at $28Bn at $6.25 (shows how many splits they had with about 4Bn shares – like HMNY!) and making about $700M on $5.5Bn in sales for a p/e of 40 vs P LOSING $500M last year on $1.4Bn in sales.  So SIRI/P is likely to show pretty much no profits for the next year – plenty of opportunity to buy them cheaper, I think..





  30. Buying a President




  31. Share Buybacks Help Lift Corporate Earnings




  32. Builders Slump as U.S. Housing Market Shifts to the Slow Lane


  33. Sears CEO Pushes a Rescue Plan to Avoid Bankruptcy




  34. Trump plan to rollback fuel standards to get second hearing


  35. The 53% ride-hailing pay cut


  36. Fed to Spurn Rate Pause and Stick With Quarterly Hikes: Survey




  37. Good morning!

    Indexes drifting higher so far.  Oil back at $72.50, /RB way up at $2.0675, /BZ $82 so shorting /CL again seems dicey.

    Dollar 93.75 is up 0.35 from yesterday morning.

    Not seeing anything clearly good to trade at the moment – Fed coming up makes it all very dangerous.


  38. Well, I decided to play the dicey oil short – in at $72.41 with a stop over $72.50.