Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Trumpless Tuesday – Small Cap Stocks Erase ALL the Gains of the Trump Error

A World without Trump!

That was the subject of the opening sketch on Saturday Night Live this weekend which, like "It's a Wonderful Life" showed Donald Trump how much better off the World would have been if only he had not been President.  The chart on the right shows that small caps (IWM) have already given up ALL of the Trump error gains and the other indexes are not too far behind.  As Trump (Baldwin) says in the sketch "It's terrible, everything is falling apart" and that's certainly true of the stock market, which isn't waiting for Trump to be handcuffed and forcibly removed from the White House to roll back the rally that's put the country $2.5Tn further into debt in just two years.  

Maybe the markets are worried about the debt, maybe they are worried about President Pelosi (Pence is looking like he'll be out as well) or the looming Government Shutdown or maybe the economy isn't quite as good as Team Trump has been claiming or maybe investors are finally realizing what I've been saying all year:  That earnings have been the result of a massive tax-cut sugar-high that cannot be repeated (and shouldn't have happened in the first place) and that there is no way that most companies will live up to the valuations that have been wrongfully extrapolated based on a one-time event.  

Image result for extrapolating cartoon

tax reformAccording to FactSet, almost 50% of the S&P 500s earnings growth has been from Trump Tax Breaks and no, they have not used that money to create more jobs (Trump has created far less jobs than any two Obama years) nor have they used the money to open new factories but they have bought back over $1Tn of their own stock – at record-high prices – isn't that clever?  

While $1Tn may seem like a lot of money, it's "only" about 2.5% of the US Market's $40Tn market cap though it does account for more than 1/2 of all inflows into the market in 2018 so, whenever you sell a stock, there's a 50/50 chance you are selling it back to the company!

Lowering the share count by 2.5% means that the number of shares we divide earnings by next year will be lower than this year, making it much easier for companies to hit their earnings targets, so it is a good use of funds for incompetent CEOs who want to make themselves look good to shareholders who can't do math (and, thanks to the US school system, very few of them can).  Unfortunately, without another massive tax cut to boost earnings, those CEOs will have to actually figure out how to make more sales or trim costs next year and, since they haven't been able to increase sales the past two years – look for a lot of Corporate cost-cutting into 2019 and that is NOT a good thing for our economy

Image result for trump hooverDecember is only 18 days old but, already, this is the worst-performing December in the stock market since December of 1928, when another "Chicken in every pot" Republican President was busy destroying the country.  The good news is that, in the spring of 1929, Hoover announced another round of stimulus and the market jumped up 25% – right before collasping 60% that fall.  Still, if we time it perfectly - we might make a bit more money on both ends, right?  

My take on the market is exactly the same as it was back in August, when I said:  

As you can see from the chart on the right (click for bigger view), people have been saying this rally is going to end since it started – and that was about 10 years ago at this point!  I'm included in those people as, on several occasions, including this year – I have wanted to cash out and, in fact, I did cash out my kids' college accounts into the Summer (still in cash) and our Hedge Fund is mainly in cash as well as we wait for the market correction (and buying opportunity) that never seems to come.

We got a little into studying the value of the S&P 500 and I said that our old "Must Hold" level of 2,200 on the S&P (/ES) was likely too low for a bottom as long as the tax cuts were in place and it was more likely the 10% line at 2,420 would hold and that's where we wanted to move our CASH!!! back off the sidelines.  While we haven't exactly sat on our hands for the last 4 months, we certainly havn't gotten too excited about the minor dips along the way but, FINALLY, we are getting close to 2,420 on the S&P, which lines up (on our Big Chart) with the 10% lines at Dow 23,100, Nasdaq 5,940, NYSE 14,080 and Russell 1,584.  

Unfortunately, the Russell (1,400) and the NYSE (11,500) are both miles below their 10% lines, which does not bode well for the other indexes if those two fail to hold these major support lines.  If not, it's still the Nasdaq that has the farthest to fall, still at 6,540 – it's 10% over it's 10% line, which is why the Nasdaq Ultra-Short (SQQQ) is still our primary hedge.  

We did gamble over the weekend that there would be a bounce and we sold our long Russell Ultra-Short (TZA) calls in our Short-Term Portfolio and our Options Opportunity Portfolio but the Russell has fallen another 20 points since then (1,420) and if we're still below 1,400 today, we'll have to re-buy those long calls for a small loss but it's hard to say things are actually worse for corporate profits AFTER Trump's tax cuts – even if the economy is slowing somewhat.

Image result for us wages 2018Wages are rising, slowly but surely and you may not think that's a big deal but back in 1973 I felt pretty good about making $20/week on my paper route and FINALLY, after 45 years, we are back to making $22.65 AN HOUR – that's 40 times more comic books than I could afford in 1973!  While it's terrible that it's taken 45 years for wages to finally catch up to inflation – the fact is that they have and, long-term, that's still a plus for the economy – it just takes a while for it to have a real effect as people are still paying off 45 years worth of debt.

My primary motivation for my paper route in 1973 (I was 10) was to save up for a car and I had my eye on a brand new Volkswagen Beetle for $2,000 so I would have to work 100 weeks to get it.  A person earning $22.65 and hour makes $900 a week so 100 weeks for them is $90,600 – certainly they can afford a Beetle with that money (though they probably don't live with Mom and Dad, like I did) so things are, finally, getting a bit better for the working American and, hopefully, things don't completely collapse from here but this is not like it was in 1928 or even 2008, when the earnings of energy companies were based on $140 oil that was killing the rest of us and the housing and banking sectors were flying higher on what was, essentially, a huge Ponzi scheme that fell apart and THAT is what wrecked the economy.  

These earnings aren't fake, they are artificially inflated due to an unrealistically low tax base that can't be sustatined by a solvent nation and THAT is a problem we will certainly have to deal with but I do stand by my August analysis of the S&P and I don't see any reason we should go much lower than we are now.  Hopefully we will form a bottom here and hopefully I will be able to re-deploy my kids' college funds – there certainly are a lot of bargains to be had.


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!

Comments (reverse order)

    You must be logged in to make a comment.
    You can sign up for a membership or log in

    Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

    Click here to see some testimonials from our members!

  1. Good Morning.

  2. Good morning!  

    Now that's a PSA! 

    For the intra-day bounce, we go 24,100 to 23,500 so 600 points so 120 points is a weak bounce to 23,620 and 23,740 would be strong and we're at 23,840 so, if we hold it, then we can hopefully ignore yesterday's spike low.

    It's the RUT that has me worried so 1,420 to 1,380 is 60 so 12s are 1,392 and 1,404 – anything less than that and we're still being led lower by the RUT (and NYSE, which is already at the -10% line at 11,600 this morning).  

    Yesterday's move accelerated the Dow's death cross progress.

  3. Europe is flat but they were closed when we did most of our falling yesterday so flat is actually kind of bullish compared to our wipeout – get it?

  4. Put/call ratio over 1.50.   Perhaps this bounce has legs..

  5. /CL very weak.

    Time for an announcement from the Saudis ?

  6. Yeah, didn't think we'd get quite to here in /CL. It's probably not helping the indexes at this point.

  7. Not getting a lot of traction so far – just doing the bare minimum not to fail on the indexes.

    /CL $48, very tempting for a long.

    /RB $1.36 was the bottom, $1.375 now.

    /NG with a nice bounce from $3.516 to $3.675.

    /KC still a lost cause at $105.60 (/KCN19)

    /HG (copper) took a huge dive back to $2.67 – that's a negative comment on the global economy! 

    The NY AG just shut down the Trump Foundation and will bar the whole family from serving on charity boards in the future.

    • The White House backs away from threats of a partial government shutdown, saying it's found other ways to get the border wall, the Washington Post reports, citing White House spokeswoman Sarah Sanders.
    • President Trump had been demanding $5B from Congress for the wall, which Democrats refused to agree to.
    • "We have other ways that we can get to that $5B," Sanders told Fox New Channel. She said the Trump administration was exploring other funding sources and believed it could be legally done.
    • Previously: Government shutdown a hot topic this week (Dec. 17)
    • U.S. stock markets start strongly, led by industrial goods (+1.6%), tech (+1.1%), and financial (+1.0%).
    • S&P 500 1.1%, Nasdaq +1.1%, Dow +1.4%.
    • Individual names gaining include Amazon (AMZN +1.8%), Alphabet (GOOG +1.6%), Boeing (BA+4.8%), Bank of America (BAC +2.4%).
    • J&J (JNJ +1%) rebounds as it announces a $5B stock buyback; follows a sharp two-day decline on a Reuters story alleging asbestos was found in the company's baby powder.
    • Oracle (ORCL +3.8%) gains after providing better-than-expected Q3 guidance.
    • Crude falls 3.1% to $48.36; prices drop to a 14-month low.
    • U.S. dollar index falls 0.2% to 96.98.
    • U.S. 10-year Treasury bid up, pushing yield down almost 1 basis point to 2.85%; 2-year Treasury yield also down almost 1 basis point at 2.687%.
    • The Atlanta Fed's GDPNow model for Q4 real GDP growth ticks down to 2.9% from 3.0% on Dec. 14.
    • Factors in Q4 real residential investment growth of -2.4% vs. -4.2% previously.
    • On Dec. 14, GDPNow model had increased to 3.0% from 2.5%.
    • November Housing Starts+3.2% to 1.256M vs. 1.221M expected, 1.217M prior (revised from 1.228M).
    • Building permits 1.328M vs. 1.255M expected and 1.265M prior (revised from 1.263M).
    • Chain store sales increased 7.1% in the latest weekly read by Johnson Redbook vs. +6.6% for the week prior.
    • Month-to-date sales are 6.8% higher. December sales are expected to be up 8.1%.

    • New Leaf Data Services unit Cannabis Benchmarks launches its Canada Cannabis Spot Index (CCSI) which will track the average wholesale price that an online or retail site pays for dried cannabis flower from licensed producers.
    • The CCSI was C$7.79/gram (US$2,678/pound) last week.
    • Helios & Matheson Analytics (NASDAQ:HMNY) discloses an exchange of the remaining amount payable on its $18.8M November convertible notes and its $25.7 million January convertible note for about $11.3M in new non-convertible Series B senior notes.
    • SEC Form 8-K
    • HMNY trades at $0.02.
    • Bernstein analyst Todd Juenger maintains an Outperform rating for Netflix (NASDAQ:NFLX) but lowers the target from $465 to $421.
    • The analyst is grappling with the "especially tough question" of what's already priced into the stock, saying the market is no longer buying into the idea that higher programming spend is necessary to build subscribers.
    • Juenger remains positive on subscriber numbers beating expectations.
    • Source: Bloomberg First Word.
    • Netflix shares are up 2% to $268.01.
    • AT&T (NYSE:Tannounces that its 5G network will be live in 12 cities in the United States.
    • The service and first 5G-compatible device, Netgear’s (NASDAQ:NTGR) Nighthawk 5G Mobile Hotspot, become available on December 21.
    • The cities: Atlanta, Charlotte, N.C., Dallas, Houston, Indianapolis, Jacksonville, Fla., Louisville, Ky., Oklahoma City, New Orleans, Raleigh, N.C., San Antonio and Waco, Texas.
    • In 1H19, AT&T's 5G will launch in Las Vegas, Los Angeles, Nashville, Orlando, San Diego, San Francisco and San Jose, Calif.
    • The company's offer for initial adopters includes the mobile device and 5G data usage at no cost for at least 90 days. In the spring, Nighthawk will be available for $499 upfront and 15GB of data for $70 a month on a compatible plan.

    • SpaceX (SPACE) is poised to raise $500M in a new funding round at a $30.5B valuation level, according to The Wall Street Journal.
    • Sources say new investor Baillie Gifford is joining current investors in the funding round.
    • A formal announcement from the company is expected by the end of the year.
    • Morgan Stanley sees the rally in Tesla (NASDAQ:TSLA) running out of steam shortly.
    • "While we acknowledge the significance of Tesla’s very strong 3Q result, we do not believe investors will assume the company is fully self-sufficient without a more sustained period of execution," writes analyst Adam Jonas.
    • Jonas points to the ongoing concerns with Tesla's business in China and the European Union, while warning on an "emerging peak" in investor sentiment.
    • Also weighing today on Tesla is the Goldman Sachs team, reiterating the firm's Sell rating and pointing once again to the new EV competition that Tesla faces.
    • Shares of Tesla are up 0.84% in premarket action to $351.35 and are up 12% YTD.
    • Cheniere Energy Partners (NYSEMKT:CQP) enters a liquefied natural gas sale and purchase agreement with Petronas LNG, a subsidiary of Malaysia's state-owned oil and gas company, Petronas (OTC:PNADF).
    • Petronas LNG agrees to buy about 1.1M TPA of LNG from Train 6 of Cheniere's Sabine Pass liquefaction project.
    • LNG purchase to be made on a free-on-board basis for a term of 20 years following the date of first commercial delivery from Train 6.
    • Purchase price is indexed to the monthly Henry Hub price, plus a fee.
    • Previously: Cheniere Energy ships first LNG export cargo from Corpus Christi (Dec. 11)

  8. Phil,

    Do you have any futures positions?

  9. I had posted a prediction that /CL would hit $47 2 weeks ago. And there we go…

  10. japar,

    he has KCN coffee/july

  11. beginning long-term tulip bulb buildup @ coinbase (starting wtih ZRX, ZEC, BAT and USDC). Literally $10 each, so small amount and slow build

  12. "Worst December since 1931" has an ugly ring to it.

  13. Thanks jomptien. I have that one too

  14. TSLA will test that 5-yr 190 support line soon. IMO.

  15. I agree re: TSLA.  It looks like they goosed their numbers last quarter by selling a bunch of high margin Model S/X cars to a leasing company, before they have been sold to customers.  There is a bunch of evidence that demand for the Model 3 has fallen off a cliff, and the tax rebate is about to be cut in half.  Furthermore there is evidence that they have not completed Model 3 Homologation for the EU, so it is likely that they won't be able to book any sales in Q1 there to help offset the sales falloff in the US.  Not sure how the growth story (and absurd valuation) survives after the next couple quarters.  I'm short 2020 $450 and $500 calls, and long a bunch of $250 puts.

    Check this thread out:

  16. I wish I could sell TSLA calls naked! Premiums are so high I can't do anything with TSLA except watch. The June 200 puts are 12.70!

  17. Futures/Japar – Nope, too crazy other than my usual /KCN19 (2).  I was tempted to long /CL but that didn't hold $48 but $47.50 is tempting too as long as it's over as it's about 5% down for the day.  Still, nothing is a good short and nothing is working long so no go until the Fed.  

    Good prediction, StJ.  OPEC has no power, not even OPEC+

    And what Jomp said.

    Coins/BDC – Good luck!  As to Dec, Bloomberg was saying 1928 this morning, not sure where that went on this chart.

    TSLA/BDC, Palotay – That would be a nice short but I have to see the next numbers before risking it again (sorry I missed $380 last week – wasn't quite there).

  18. I just rolled my short 2020 $450 and $500 Tesla calls to 2021's for $21 more in premium.  

  19. oil/natural gas is a race to the bottom. The reason is, big picture wise, fossil energy needs to remain fossilized. With the known externalities there's too much at stake now. Electrification of the transportation grid, with the exception of airlines, is all but assured. Who wins is the question (hence the high valuation for TSLA, who else are you going to invest in?). Distributed energy, energy storage, decentralized payments, peer-to-peer energy economy; these are the concepts to look at going forward. It's all in the name of decarbonization of the 1st world human lifestyle. It's a $4T per year problem (5% of the global GDP, so not really that bad), but that's a big market none the less. With that kind of market size, lot's of money is going to slosh around in unpredictable ways. Show me another $4T market anywhere. 

    The Paris Convention accord is a waste of time. Don't get me wrong, I think it's great to get together and talk about stuff (it's about Peace after all, and I love peace time, as should you). But the US is the unadulterated, undisputed heavyweight leader in cleantech and automated technology. We've reduced emissions further than any other nation that had any emissions to speak of. It's about making the problem an economic one and not a political one. You're not going to gas-tax your way out of this. Look at Paris. Not going to happen. We're getting smart about it, and being smart means being efficient.

  20. Phil,

    Any thoughts on MDR?  I got assigned 308 shares from some left-over CBI puts (had that 0.77 split) that I kind of forgot about, and am down about $3K.  Not a big number, but I wanted to see what the best way would be to work myself out of it.  They are close to all time low @ $6.70, but with a forward PE of around 6 for what that is worth.

    I am considering doubling down by selling the shares and buying 2x Jan 21 $4/$13 spread for app $3.  Would get me out of the hole in 2 years if it hits $13, and I could possible sell puts and call along the way.  Other better options, including just selling the shares and take my lumps?

  21. The head of global sales at Tesla just left the company - adding to the long list of high level departures.  It's hard finding news that doesn't feed my confirmation bias. 

  22. 14,889,930,106,680 Reasons to Fear Recession

  23. White House Signals Retreat on Shutdown Threat

  24. MDR/Lotter – They never do the infrastructure bill so they languish.  They are cyclical and down to $1.2Bn at $6.66 and dropped $177M to the bottom line last year and on pace for $120M+ this year (but with the restructuring) so I'm perfectly happy to hold them down here.  They don't pay a dividend so I agree with your spread though $13 may be a bit ambitious.  I think the 2021 $5 ($3.40)/$10 (1.70) bull call spreads at $1.70 are better bang for the buck or even the $4 ($4)/8 ($2) bull call spreads at $2 – just buy more of them!  If you are willing to own them at $5, you can sell the 2021 $8 puts for $3 so let's say 5 of those for $1,500 and then buy 10 of the $5/10 spreads for $1,700 and you are in for net $200 on the $5,000 spread that's $1,666 in the money to start.  Worst case is you own 500 at $8.40 and, at $6.66 – you would be down no more than you are now.

  25. PM at 76 now. looking at some putters

  26. PM. 

    Shares of tobacco maker Philip Morris International Inc. (PM - Get Report) dropped on Tuesday after the company was downgraded by equities researchers at Credit Suisse Group to "underperform" from "neutral." 


    Philip Morris shares were down 5.3% to $77.06 on the New York Stock Exchange after Credit Suisse downgraded the company's stock and slashed its price target to $74 from $92, citing the company's reliance on heated tobacco products.

  27. Wow, another horrific sell-off.  At this point, the Fed needs to lower rates, I think but, then again, that would cause panic.  No-win situation tomorrow?

    • The Federal Reserve's "quantitative tightening" program, its plan to gradually shrink its balance sheet without jarring financial markets, could end sooner than Fed Chair Jerome Powell had previously indicated, according to Wall Street firms' prognosticators.
    • Powell has discussed reducing the balance sheet to as low as $2.5T, but some Wall Street firms say the Fed may keep it as high as $3.8T, MarketWatch reports.
    • Under its plan, the Fed is allowing as much as $50B of its Treasury- and mortgage-backed securities holdings mature each month without replacing them, a tactic takes money out of the financial system as the Treasury finds new buyers for its debt.
    • Since October 2017, the Fed's bond portfolio declined by about $365B to $4.14T.
    • Morgan Stanley sees the Fed stopping the balance sheet runoff in September 2019 with the portfolio at about $3.8T.
    • Scotiabank sees the plan continuing until late 2020 or early 2021.
    • Previously: Fed estimates `neutral' level of rates at 2.5%-3.5%: Quarles (Dec. 3)

    PM/Batman – Amazing how suddenly the analysts are downgrading everything after telling us the all-time highs were just a start just a few months ago…  

    Oil is now down 7.7% for the day, crazy!

    /KC below 100

    Yeah, sales must be GREAT at TSLA – so great that the head of sales bolted:

    • Tesla's (TSLA +0.1%) head of global sales and marketing left the company to join Airbnb (AIRB), according to Bloomberg.
    • Dan Kim exited the company earlier this month after being hired last January. Kim's LinkedIn page currently lists him as a director of Airbnb Plus.
    • The Securities and Exchange Commission requests comments on the rules governing earnings releases and quarterly reports made by reporting companies.
    • The commission says it's looking for ways to reduce burdens on reporting companies while maintaining, or even enhancing, disclosure effectiveness and investor protections.
    • The current requirements have been criticized for encouraging a short-term focus on financial performance, making it difficult for companies to plan for the long term.
    • "We recognize the importance of this information to well-functioning and fair capital markets," says SEC Chairman Jay Clayton. "We also recognize the need for companies and investors to plan for the long term. Our rules should reflect these realities."
    • Previously: SEC to review quarterly earnings requirements (Nov. 30)

    • Oil prices tumbled again as supply and demand forces work against other once again. Traders are looking at the high level of output from the U.S. and Russia even as global growth expectations are reeled in. Also in the mix is a report from earlier today that Saudi Arabia crude oil exports jumped to a 22-month high of 7.70M bpd in October.
    • WTI crude oil futures -7.2% to $46.30/bbl. Brent crude -5.4% to $56.38/bbl.

  28. Neuroscience Has a Lot To Learn from Buddhism

  29. See, all better now. 

    That's why, sometimes, we just need to take a "watch and wait" day as it's just plain silly to react to all the nonsense…

    Image result for only winning move is not to play

    Tomorrow, on the other hand, should be interesting.

  30. And now we're back near the lows after the bell! Yikes.

  31. The Mueller conspiracy graveyard inters another corpse

  32. General Electric Files Confidentially for Health IPO

  33. Nevada becomes 1st US state with female-majority Legislature

  34. Trump’s tax cuts are a bust