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Which Way Wednesday – FOMC Edition

Image result for economy cliff cartoonWill the Fed save us or doom us? 

Forget the Fed, actually, let's talk about FedEx (FDX) and Micron (MU) both of whom are down 7.5% this morning as they are being shorted by the same algos and both of which are widely-held stocks that have their fingers on the pulse of the economy and both of which are warning us that the Global Economy is in arrest!  

Micron actually hit on earnings ($2.97 vs $2.95 expected) but missed on sales ($7.91Bn vs $8.01Bn expected) as tariffs have indeed weakened demand and the company warned that an escalation in tariffs from 10% to 25% would significantly impact them going forward.

FedEx, on the other hand, also beat on earnings ($4.03 vs $3.94 expected) and beat on revenues ($17.8Bn vs $17.69Bn expected) but issued a dire warning as they issued weak guidance and warned of the grim impact trade wars are having on the global economy, saying: "Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term."  Despite beating on both the top and bottom lines, shares fell after FedEx announced a cost-cutting initiative and lowered its full-year forecast on trade and tariff-related issues. The company now expects to earn between $15.50 and $16.50 per share in fiscal 2019, which is far below consensus estimates of $17.73 per share.

“While the U.S. economy remains solid, our international business weakened during the quarter, especially in Europe. We are taking action to mitigate the impact of this trend through new cost-reduction initiatives,” Frederick W. Smith, FedEx chairman and CEO said in a statement.

I just said yesterday morning that we should look for a lot of Corporate cost-cutting into 2019 that would indicate we are slowing down and usually it takes more than 24 hours for me to be proven right – but I'll take the "win", I guess…

Related imageI'm not happy about it, this means the damage is worse than expected already and the Fed really shouldn't be tightening this afternoon but they kind of have to tighten as rates are still too low (2.25%) and that means, if we do have a Recession, they don't have very much room to boost the economy.  Not to mention the Fed is still sitting on a $4.5Tn balance sheet, which is 25% of our GDP but that's nothing compared to the Bank of Japan's $5Tn balance sheet, which is 100% of their GDP and the BOJ owns 40% of all Japanese equities – how's that for a trapped economy?

So, much like the hapless coyote, the FOMC is between a rock and a hard place and gravity is a royal bitch after you've spent 10 year propping up an economy that still isn't capable of running without life support.  Well, I take that back, the economy is perfectly capable of running but not at levels that justify all-time high valuations on stocks – THAT is the problem, attempting to maintain markets at levels they never should have been at in the first place.  

Image result for us savings rate historicalOnce upon a time, boys and girls, a NORMAL company would have a p/e of 10 while a bank would pay you 5% for a savings account.  The savings account was, essentially, risk-free while the stocks would go up or down but generally provided a nice rate of return and people would have a mix of stocks and bonds and were pretty good at saving money. 

I like the chart on the right because it goes back 100 years and I can tell you how it ends – we're currently at 2%, half of where we were in 2013 after the mild shock of the 2008 crash scared people, briefly, into saving again but that's all over now as we have another Hoover in the White House, who promised the people a chicken in every pot and got them to open up their wallets and spend again – boosting the econmy right when the last thing it needed was another boost.

Artificial stimulus, whether it's from below-market funds rates or BS promises made by politicians, cause MALinvestment, which means money goes to companies that would otherwise be struggling and money does not go to the companies who have real solutions for the real problems we are ignoring – like Global Warming or Educating our Children.  Just yesterday, in fact, the Potsdam Institute’s chief economist, Ottmar Edenhofer, said the fundamental reality was an oversupply of fossil fuels, making it harder for renewables to be cost-competitive with coal.

Related imageAn underappreciated factor, he suggested, is monetary policy. Zero interest rates act as an artificial stimulus to renewable energy, which is much more capital-intensive than gas and coal. To students of Austrian economics, it’s a classic malinvestment: When interest rates are suppressed below the natural rate, too much of the wrong sort of investment leads to a boom, then a bust.  

As interest rates rise, renewable energy can’t compete without carbon pricing – economists’ magic bullet to solve global warming. Therein lies the biggest cause of despair at the climate conference. Thanks to French President Emmanuel Macron’s carbon-tax folly, politicians of all stripes are likely to treat carbon pricing like the plague – just when we need it the most.  

Following the GOP strategy of "drill baby drill," the US is producting record amounts of oil, keeping the global price down BUT the US only has 10 years worth of oil (35Bn barrels) at our current rate of production (10Mb/d) and it's not likely we'll be able to extract the last 20% economically so we're basically draining our retirement accounts in order to have one last blow-out party insead of biting the bullet and investing heavily in renewables now – as we must, both for our own future and the future of the entire planet.  

Image result for trump putin puppetNot only is Trump no longer giving incentives for electric cars but he has removed the mileage requirements for gas-powered cars to encourage Americans to waste as much fuel as possible.  The prices are currently down to to over-production and a slowdown in the global economy but, 8 years from now, the US will stop producing 10Mbd and, if the World hasn't learned to cut back 10% on it's fossil-fuel consumption by then, prices will skyrocket – hitting the US worst of all and setting out country up to be economically cripled – Putin wins again!  

The US, in fact, will be hit especially hard as we will go from producting half our oil domestically to producting none, forcing us to import all of our oil which floods the World with Dollars and devalues them.  I'm in the Top 1% – I'll be leaving the country long before this house of cards collapses but the idiots who put this bastard in power will still be here and will have to deal with the consequences.  8 years is not a very long time – you need to start thinking about your own future sooner rather than later…

Malinvestments does not just apply to macro economics, you make your own personal malinvestments all the time, like buying a house in Florida which will be underwater in 50 years or counting on getting a Social Security check after 2030 in your retirement strategy.  That savings rate chart and the coyote say it all, we are just a small push away from going right off an economic cliff and you ignore the gravity of the situation at your own peril.

Now, let's sit back and see if the Fed can save us at 2pm – right?

 


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  1. Good Morning.


  2. All – reading an interesting article, worth sharing (I'm back in Altadena, California, over winter break from my college in Korea); https://medium.com/jacobin/why-shadow-banking-is-bigger-than-ever-73474235f49d



  3. Futures are looking good but the play has to been to fade the opening move so far.


  4. Good morning, All!

    It's Wednesday! Join us for the weekly webinar at 1pm!

    https://attendee.gotowebinar.com/register/6364359625726742541


  5. FDX and MU sharply lower after earnings.

    Tempted to try a scalp trade on FDX.


  6. Fading the open really has been working Stjean. If we approach /ES 2560 right at open I may give it another go.


  7. Good morning!

    Image may contain: text

    This is new (and really good for New Age as we're pure medical-grade):

    Shares of cannabis company Tilray jumped as much as 21.9 percent in intraday trading Tuesday after the Canadian marijuana producer announced it has entered a global supply and distribution agreement with Swiss drugmaker Novartis.

    The company plans to work with Novartis’ generic drug business Sandoz and supply non-smokable and non-combustible medical cannabis products where it is legally allowed, Tilray announced in a press release. As a part of the deal, Tilray and Sandoz may co-brand certain products as well as develop new ones.

    “This agreement represents a major milestone in the movement to provide access to safe, GMP-certified medical cannabis to patients in need across the world,” Tilray CEO Brendan Kennedy said in a statement Tuesday.

    TLRY is valued at $7.5Bn with just $20M in sales and no profits ($8M loss) last year and this year looks like $40M in sales and a $50M loss.  New Age, if all goes well, will hit $40M in sales with $10M in profits next year.  I hope we get a $7.5Bn valuation too (PSW Investments owns 16.6% of New Age (after our expected clawback)).  TLRY is in Canada, so they are federally legal there, New Age (California) is not – that's the big difference so our strategy is simply to get very big and wait to become federally legal and then – Ka-Ching!  

    This is why we're putting together a Cannabis-specific fund next year as there are still tons of opportunities in this space.  2018 sales in the US are $6Bn and $20Bn projected in 2020 and tobacco sales are $100Bn in the US and liquor is $250Bn so lots and lots of room for growth as we take a bit of market share from other vices!  

    I don't think people consider this from a consumer standpoint but 5mg of THC is enough to get you nicely buzzed and that's $2.50 at retail and as low as $1 in the form of edibles so Pot is the cheapest escape of them all – which is why they criminalized it in the first place.

    Shadows/Snow – Good read.  

    Big Chart – Wow, 15% lines on Dow and S&P, 20% on Nasdaq, -5% on the RUT and -10% on the NYSE – who'd have thunk it?  NDX is super-critical, that 20% line has to hold or we can't even pretend this market isn't going lower.  Call it 6,500.  On the big picture, we're down from 6,800 on this leg so look for 60-point bounces but they are already taking too long so nothing less than 6,620 post-Fed or it's going to look pretty hopeless.

    MU/Albo – They are calming down (great buy at $32.50) but FDX has deep problems if trade war persists. 


  8. General Mills posts quarterly profit above estimates, shares rise



  9. Will Texas expand medical marijuana program in 2019?



  10. U.S. Oil Prices Down Almost 40% From High







  11. Citigroup Faces $180 Million Loss on Loan to Asia Fund





  12. SoftBank Finds Limits to Its Love for WeWork as Investors Push Back


  13. Phil re Fla. Having been heavily involved in the environmental aspect of Fla when we lived there full time, thankfully with Lawton/Mckay/ Bush as governors I can tell you there will be a faster problem with Fla than 50 years. They were having severe water problems in the Tampa area with wells getting salt water way back then as more fresh water was coming out and the salt water was moving in. Not only that the Karst system is all underground rivers that are holding up the thin layer of sand that all the developments are on. The red tides are caused by pollutants from unmonitored sewage systems, and cesspools which contaminate the fresh water also. I would say a lot more sink holes happening, which happen already as the water tables get more depleted. Needless to say we unloaded all our Fla properties and if we buy anything it will be central and northern FLA which may be more secure water wise.


  14. Thanks, Phil.  Good thought on FDX.


  15. Today would be a good day to delete your Facebook account!

    There is just no transparency whatsoever on what they do with the data.


  16. HBI. Testing the water with some Jan 2021  13 puts.  For 2.80 they filled instantly.  


  17. I guess the dollar is not allowing the opening fade to happen! Not stopped out just yet, but close.


  18. HBI??? wtf?

    LB too…

    wtf?


  19. ABX??

    Barrick Gold raises quarterly dividend to $0.07/share from $0.03/share

    Font size: A | A | A

     

    4:54 PM ET 12/17/18 | Briefing.com

    RELATED QUOTES

     

    10:43 AM ET 12/19/18

    Symbol

    Last

    % Chg

     

    ABX

     

    13.65

    -1.66%

    Real time quote.

     

     

    Following the completion of Barrick's merger with Randgold Resources (GOLD), the company expects to pay a quarterly dividend of $0.04/share, commencing with the dividend to be declared in April 2019 in respect of the first quarter of 2019.


  20. Phil,

    I believe we added FDX to LTP recently with the sold 2021 180 puts at $22.00. Based on the earnings and continued damage from the trade war, do you believe these are still safe? Of course, it is way early on this trade….Thx


  21. sundevils save is nothing!!!! Any idea what will be in two years. At present patience is the word.


  22. Comment content omitted because it is too long.


  23. Net draw in oil helping a bit but not a good /RB number:

    • EIA Petroleum Inventories: Crude -0.5M barrels vs. -2.4M consensus, -1.2M last week.
    • Gasoline +1.8M barrels vs. +1.2M consensus, +2.1M last week.
    • Distillates -4.2M barrels vs. +0.6M consensus, -1.5M last week.
    • Futures +2.21% to $47.63.

    Move is more from the Dollar than the inventory reports

    Dollar is helping everything at the moment.

    Florida/Pirate – True, I was only thinking about what will literally be underwater.  It's not a state I'd want to buy long-term assets in.

    You're welcome Albo.

    FB/StJ – If it were just them, I would but your data is already out there for all the World to see from hundreds of sources – privacy is a complete illusion at this point.

    • SpaceX (SPACE) has halted the long-delayed launch of a navigation satellite for the U.S. military, failing to complete its first designated American national security mission due to a technical issue with its rocket.
    • The Falcon 9 rocket, carrying a roughly $500M GPS satellite built by Lockheed Martin (LMT+1.1%), was slated to take off from Florida's Cape Canaveral shortly after 9 a.m. local time.
    • Needham downgrades Micron (NASDAQ:MU) from Strong Buy to Hold after earnings.
    • Analyst Rajvindra Gill says the firm is concerned demand conditions could worsen and put more pressure on margins.
    • Gill: "While we are hesitant about downgrading at this valuation level, we believe the overall demand environment will remain murky for at least the next six months and therefore we move to the sidelines."
    • More action: RBC Capital downgrades from Outperform to Sector Perform and lowers the price target from $59 to $40, a 17% upside to yesterday's close.
    • Analyst Amit Daryanani cites inventory and demand risks, node transitions, and operating expense levels. The firm sees "sizable risk" for revenue, gross margins, and EPS reductions for the next two to three quarters.
    • WSJ's Heard on the Street column is out negative on MU citing the Q2 revenue guidance, which represents the largest Q/Q drop in a decade at the midpoint, and the FY capex cut that suggests the company doesn't expect things to improve soon.
    • Micron shares are down 8.2% premarket to $31.33.
    • Previously: Micron -7% on mixed Q1, downside guide, capex cut (Dec. 18)

    GE finally getting more than one up day in a row:

     


  24. HBI/Bert – Crazy low now.  No news, just down and down.

    $12.50 is $4.5Bn for them against a pretty steady $600M in profits.  People are idiots because they took a restructuring hit in Q4 of last year and put up -$384M which carried into Q1 too ($80M) but Q2 was $140M and Q3 is $171M and should be the same for Q4 (underwear isn't a big thing for Xmas) so $500M this year and then back to normal.   

    Year End 30th Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 4,526 4,628 5,325 5,732 6,028 6,471 6,681 6,746 6,793 +7.4%
    Operating Profit $m 440.1 515.2 564 595.1 775.6 723.1 742.8     +10.4%
    Net Profit $m 164.7 330.5 404.5 428.9 539.4 61.9 6.85 624.4 646.8 -17.8%
    EPS Reported $ 0.58 0.81 0.99 1.06 1.40 1.41 1.27     +19.5%
    EPS Normalised $ 0.58 0.81 0.99 1.06 1.40 2.29 1.87 1.72 1.80 +31.6%
    EPS Growth % -5.1 +40.0 +22.2 +7.2 +31.4 +64.1 +2.4 -25.1 +5.11  
    PE Ratio x           5.57 6.82 7.44 7.08  
    PEG x           n/a n/a 1.46 3.01
    Profitability

     


  25. In the LTP, we have:

    Short Put 2020 17-JAN 18.00 PUT [HBI @ $12.86 $-0.12] -30 8/31/2018 (395) $-7,950 $2.65 $3.10 $-2.07     $5.75 $0.00 $-9,300 -117.0% $-17,250
    Long Call 2021 15-JAN 10.00 CALL [HBI @ $12.86 $-0.12] 50 11/20/2018 (759) $26,500 $5.30 $-1.45     $3.85 $-0.16 $-7,250 -27.4% $19,250
    Short Call 2019 18-APR 16.00 CALL [HBI @ $12.86 $-0.12] -30 11/19/2018 (121) $-3,000 $1.00 $-0.65     $0.35 $-0.00 $1,950 65.0% $-1,050

    This is our second entry on HBI, our first entry was profitable so we're only down $8,875 overall:

    HBI
    30 HBI 2019 18-APR 16.00 CALL SC $ 1,050.00 11/19/2018 $ 3,000.00   30
    $ 1,950.00 65.0 %
    50 HBI 2021 15-JAN 10.00 CALL LC $ 26,500.00 11/20/2018 $ 18,000.00   29
    $ -8,500.00 -32.1 %
    30 HBI 2020 17-JAN 18.00 PUT SP $ 18,300.00 8/31/2018 $ 7,950.00   110
    $ -10,350.00 -130.2 %
    50 HBI 2020 17-JAN 20.00 CALL SC $ 3,000.00 8/31/2018 $ 7,250.00 11/20/2018 81
    $ 4,250.00 58.6 %
    50 HBI 2020 17-JAN 13.00 CALL LC $ 25,000.00 8/31/2018 $ 19,000.00 11/26/2018 87
    $ -6,000.00 -24.0 %
    15 HBI 2020 17-JAN 20.00 PUT SP $ 3,150.00 3/20/2018 $ 5,550.00 7/20/2018 122
    $ 2,400.00 43.2 %
    25 HBI 2020 17-JAN 23.00 CALL SC $ 3,000.00 3/15/2018 $ 5,250.00 8/15/2018 153
    $ 2,250.00 42.9 %
    25 HBI 2020 17-JAN 15.00 CALL LC $ 14,500.00 3/15/2018 $ 19,625.00 7/20/2018 127
    $ 5,125.00 35.3 %
    Total Gain/Loss for HBI
    $ -8,875.00 -9.4 %

    They pay an 0.60 dividend so it's getting interesting to own the stock at this level which means we'll be happy to sell more puts for the LTP and the 2021 $15 puts are $4.20 so 50 of those ($21,000) will be the roll from the 30 short 2020 $18 puts at $6 ($18,000) and the 2021 $10 calls are still in the money at $3.60 and we'll just buy back the 30 short April $16 calls for now at 0.25 ($750) as earnings (2/7ish) might push them up fast since they are priced like they are going BK.  

    So we're actually putting $2,250 in our pocket on this change and our net exposure goes from owning 3,000 at $18 ($54,000) to owning 5,000 at $15 ($75,000) so not too much commitment and, if we do get assigned, we can sell 50 of the 2021 $15 calls for $1.60 ($18,000) and drop our net back to $57,000 anyway, which would be $11.40 per share and make the 0.60 dividend better than 5% while we wait to see if we get called away for $75,000 at $15.  

    In the OOP, we have a far smaller put commitment:

    Short Put 2020 17-JAN 18.00 PUT [HBI @ $12.59 $-0.18] -5 3/15/2018 (394) $-1,300 $2.60 $3.30 $-1.86     $5.90 $0.20 $-1,650 -126.9% $-2,950
    Long Call 2021 15-JAN 13.00 CALL [HBI @ $12.59 $-0.18] 20 10/18/2018 (758) $9,000 $4.50 $-2.23     $2.28 $-0.06 $-4,450 -49.4% $4,550
    Short Call 2021 15-JAN 20.00 CALL [HBI @ $12.59 $-0.18] -20 10/19/2018 (758) $-3,600 $1.80 $-1.03     $0.78 $0.12 $2,050 56.9% $-1,550

    We're already in 2021 her and I'm not paying 0.78 to buy back the $20 calls but I will roll the 5 short 2020 $18 puts at $6 ($3,000) to 10 of the 2021 $15 puts at $4.20 ($4,200) and roll the 20 2021 $13 calls ($2.35) to 20 2021 $10 calls ($3.60) for $1.25 ($1,250) so here it's costing us $50 cash to improve the position and we're committing to own $15,000 worth of HBI, worst-case.

    FDX/Sun – Our net is $158 and they are still at $166 and we don't really have a reason to sell.  Keep in mind, they are still making the money – they are just telling us they are worried about how hard it will be to keep it up but an agreement with China will quickly reverse the slide.  If the overall market wasn't such crap – I'd be adding a bull call spread.

    And what Yodi said!  

    Keep in mind that, had we had the Jan $180 puts and thought they were safe last month, those are now $15 and they can be rolled to the 2021 $150 puts for about even so, if we can look forward to rolling FDX down $30 every 2 years, in 10 years we'll be forced to buy the stock for $30.  If that scares you – then sure, get out now….  cheeky




  26. Hello All.  I am considering MU ($32.88) selling the $35 @ $7.05 and buying 7X 17Jan20 $28 ($9.25) / $30 ($8.20) for $1.05.  I calculated return on having to buy the puts meaning I am "reserving" $3500 per contract for buying the puts.  Cost of trade $7.35 less put sale of $7.05 nets $0.30 per set sold.  It will return $1400 per set or 40% on reserved capital.   This spread is 100% ITM with a $2.88 cushion on MU price (almost a 9% price cushion) to stay ITM.  Any comments are very welcome!  


  27. Started a small position in FDX at 166.20.   Only risking 2 points.


  28. No, that doesn't scare me!! I'm pretty confident in FDX long term…Thx Phil


  29. Phil / HBI – they have a crazy payout ratio on the divvy – do u think this is safe?


  30. batman-- i highly doubt that it is very safe. All of these falling knives have had their dividend cut or removed after they have gotten clobbered. Why should HBI be any different?


  31. TSLA Boring Company – What a joke giving one mile ride at top speeds of 35 miles per hour. TSLA Dec 360 calls  will expire worthless this Friday. Rolling to Feb 400 calls as next play. Playing conservative as Musk needs to get stock prize up into upper 300's so he can distribute stock instead of cash early next year.


  32. TSLA denlundy  -  do you know the debt / stock conversion price?   I thought the conversion price was 176?


  33. Batman  http://www.todforex.com/2018/12/tesla-quick-look-at-the-2019-convertible-settlement-tesla-inc-nasdaqtsla/

    The $920 million of .25% 2019 Converts due March 1 have a conversion price of $359.87. TSLA’s stock price has been bouncing between $360 and $370 recently as several Wall Street analysts, including Oppenheimer, Baird and Wedbush, have upgraded the stock to neutral/market perform or even outperform. Investors may therefore chose to convert if the 20 trading day VWAP beginning 22 trading days prior to conversion exceeds the conversion price of $359.87 on the 2019 Converts (the definitions are a bit more complicated in the Prospectus but this is the plain English explanation). By my count, that means the observation period begins Jan. 29 and ends Feb. 26.

    The tricky thing about that observation period is that it will encompass Tesla’s announcements on Q4 production and the release of Q4 and full-year earnings in early February. During the Q3 2018 conference call Musk stated:

    “The current operating plan is to pay off our debts and not to refinance them, but to pay them off and reduce the debt load and overall leverage of the company,”

    Given that the maturities of the November 2018 Converts and the March 2019 Converts would total $1.15 billion, this was quite a statement about Musk’s confidence of staying meaningfully cash flow positive during Q4 2018 and Q1 2019. Consensus estimates by analysts support that confidence:

    The electric car maker is expected to generate $360 million in free cash flow in the fourth quarter and about $110 million in the first three months of 2019, according to analysts’ estimates compiled by Bloomberg.


  34. Jabo / hbi  I’m going through the financials now.  Looking at debt and payouts


  35. Tsla/ Denlundy    Thanks for the details on this.  


  36. Almost back to Monday's open, which was last week's low so NOW we're ready for the Fed:

    This is why we watch and wait…

    2,600 will make a nice base if we get back over and hold it.  The 20% line on /ES is 2,640, so that's the real spot to look for and, as noted when we were last thinking about changing the charts (and now I've realized what makes the most sense) the larger-cap Dow, S&P and Nas are full of companies that can take great advantage of the tax breaks, so those indexes need to have their Must Hold Lines raised by 10%(ish), which makes 2,640 the 10% line, not the 20% line. 

    The NYSE and RUT don't have the same benefit and those levels will remain the same as they also include many companies that face a competitive disadvantage due to Trump's policies, which favor Top 10% Corporations as well as individuals.  That is how we are going to reconcile the Big Chart but I still need to see Q4 earnings to figure out exactly what kind of long-term impact the tax breaks will have.  

    MU/Robert – I like it but you are risking, say $1,750 to make $1,400 in the end (assuming MU can fall 50%).  For me, I prefer selling, for example, 5 of the 2021 $28 puts for $4.80 ($2,400) and buying 10 of the 2021 $30 ($10.50)/$38 ($7.50) bull call spreads for $3 ($3,000) and that's net $600 on the $8,000 spread that's $3,000 in the money to start.  Downside at $17.50 is $7,750 but you can also sell 5 short calls along the way, like the April $38s at $1.95 ($975) so 8 sales like that mitigates your downside risk considerably.

    FDX/Sun – Last week we were talking about how massively far away AMZN is from building a FDX-style hub network so I'm very long-term confident too.  FDX is only $44Bn at $168, easier for AMZN to buy them…  In fact, adding FDX's $3Bn to AMZN's bottom line would double their income so, in theory (insane theory) FDX is worth $1Tn to AMZN!  

    HBI/Batman – They are doing fine, lots of debt but no payment issues and solid profits.  I don't think they would cut it just because their stock is down.  They hit $17.50 in 2017 and recovered back to $24 then $22 and $22 again and $16 in April and back to $22 (up 37%) in June before the recent fall and the 200 dma is $18 so I don't see any reason they can't get back to $18, which would be a $6Bn market cap and a p/e of 10 – still very reasonable.  

    Boring/Den – Not only that but the whole design makes no sense.  $40M for a 1 mile tunnel that fits one car, one-way?  How do the guide wheels return from the destination?  How long does it take to go up and down in the elevator and how long would you be waiting in line to use the tunnel vs just driving a mile?  Even at 5 miles and hour, you still get where you're going in 12 mins.  Of course he's looking to get $1Bn for a 25-mile tunnel so let's say you wait 30 mins to get a turn and then the trip is at 100 mph so 15 mins is 45 mins and then 5 mins to exit (assuming they don't have to scrape you off the walls) so 50 mins for the tunnel vs driving.  How many times do you actually hit traffic that's slower than that?  

    The same $1Bn could pay for 20 electric buses and you could put a designated bus lane on the route so the bus could go 30-60 mph with 10 buses each way (picking up people every 5 mins or less) WITHOUT dumping thousands and thousands of cars at the congested destination.  

    The problem with Government is they don't interfere enough with problems.  LA has 8 lanes on their crowded roads and they have one lane for 2+ commuters during rush hour but why not just put buses there and encourage people to take those if they want to get somewhere faster?  NYC does it in the Lincoln Tunnel and those buses are FULL!  In NYC, they should make 6th Ave (the middle) buses only and maybe make every 10th street buses only so you can easily take a bus to anywhere in the city with a 10-block walk (1 mile) or a short taxi or whatever.  Very simple but it takes a Government willing to say NO to people.  Sadly, they don't have the balls.  

    $1.15Bn/Den – Hmm, that's how much Musk wants "for his tunnel"…

    HBI/Batman – Looks like a 33% payout ratio to me but that includes the restructuring charges so I think better than that.

    Webinar time – oops, I'm late!


  37. Webinar time?


  38. In the OOP and the LTP, let's buy back all short AAPL calls!


  39. Well, at least we got good pricing on those short calls.  What a mess!  I don't see what the panic is over a fairly neutral Fed Statement and Powell saying nothing we don't expect.  

    I'm blaming an out-of-control algo on this one (and the Dollar popped up 0.5% too).

    We'll just have to see how it shakes out but 2,500 on /ES is a great line to go long with tight stops below and 1,350 on /RTY as well.


  40. I sure like AAPL at 160 so I rolled down my 170's and bought some more. 


  41. AAPL/Pstas – From $230 to $160, that's incredible.  What stock is safe if a company making $60Bn a year can't find buyers at $750Bn?

    I really don't know what people thought the Fed was going to do to be the disappointed about.  They raised rates but they also said just 2 more next year so 3.25% is a cap and people are upset?  

    I'd like to stay bullish (not cover TZA) but Monday is 1/2 day and Tuesday we're closed and the whole week will have almost no volume and then the next Tuesday we're closed again for New Year's – very scary if people panic in a low-volume market.


  42. In the OOP, we have 50 short Jan $12 calls we sold for $2.39 and they are now $3.20 so those are not the issue, in the STP though, we have 100 short April $11 calls at 0.60, now $4.12 and 200 short 2020 $15 calls at $1.55, now $4.20.  As noted in the webinar, we cashed the April $7s at $4.10 ($41,000) and the 2020 $9s at $4.40 ($88,000) and it would cost us about $120,000 to close them out so it's not so much a loss on TZA as the fact that we effectively haven't had a hedge for the last 100 points of the drop from 1,450 on /RTY – so more of an opportunity cost if we have to cover.


  43. Somebody just needs to unplug the bot and things will settle down.


  44. AAPL -  you mean just the naked short right?


  45. Fed / Phil – Did people buy in the possibility that Powell would be intimidated by Trump and stop raising? That would be my story now.


  46. Remember the days when every news was a reason to buy… Now every news is a reason to sell it seems. Went from buy the dips to sell the dips!


  47. Wow – FB continues the dump into the close. Good riddance. 


  48. Fed raises rates, defying Trump



  49. Home Sales Post Steepest Decline in Over Seven Years





  50. Phil / AAPL – Are your buying back all short AAPL calls or just the Naked short Callers?


  51. On Dec 15th at 7:32 AM crypto hit $100.787B. This may very well be the low (now about $123B). The high ($822B) was 1/7/18 at 5 PM. If so, it took 341.6 days to hit the bottom, and lost 87.75% from the peak, which is an astonishing average of -$2.114B per day.

    If the low's indeed in, someone made 25% timing it. Don't bother timing lows of course. If this is anything like the previous 4 to 6 crashes, expect 9-24 months (or more?) if boring flat and low gains ("low gains being up to 100% annum, this is crypto afterall). Any type of really big move would probably be much later on. 2020, 2021, even 2022? Lot's of time for patient folks.


  52. AAPL/Batman – Buying back all the calls, they are already up plenty.


  53. Phil / AAPL.  THank you    You expecting a big bounce     I listened Powell conference   I heard nothing that was troubling   However he left his options open  


  54. Phil /AAPL – I struggling with selling all the calls,  Some of these are in the money, but others not as much.   I’m struggling with having about 240 long calls, uncovered.  Below are my current positions.  Some make sense to sell out of but then I’m struggling with no short callers at all.

    40 Jan’21 $180 (31) / $230 (13.5) <These make sense to sell the short calls are at 10.2 and wait for uptick to cover or exit the position completely.

    80X Jan ’21 $170 (31) / $210 (15.5) < Not sure These make sense to sell, the short calls are at 13.3

    40X Jan ’21 $170 (31) / $220 (13.5) < These make sense to sell, the short calls are at 11.4

    70X Jan ’21 $160 (32) / $220 (13) < These make sense to sell, the short calls are at 10.4

    60X Jan ’21 $170 Puts ( 24) I’m fine with these 

    In addition some cherry callers that are highly profitable – i agree these should all be closed and I will all profitable I’ve sold these ( Jan / Dec June)   I'm struggling with being 100% uncovered at this level.       What makes you so confident that AAPL is done falling?  I know 150 may be a strong floor, and the Fed in my view was way more dovish than  the market reaction indicates, but still you've seared in my brain to keep positioned covered. We still have tariffs, a crazy president and the rest of the world showing some slow growth.  All of which may or may not directly affect AAPL but the price still may  pounded. I’m bullish on AAPL long term, but I believe short term there is risk….  In my mind I still hear you castrating my for having naked long calls. Please enlighten me.  Thank You


  55. Batman, my two cents (FWIW). You say 'selIing' the calls – Phil was referring to 'buying' back the short calls – that is going to be cash consuming (but I know you know that). I'd follow your instinct. They are 2021 positions and you have plenty of time to make adjustments. There is no need to be the hero who calls the short term bottom in AAPL. If AAPL reverses that works in favor of your spreads (just not as much as a naked strategy). If you buy back the short calls now you are paying top dollar in terms of volatility premium. And then you are going to have to be a timing maestro to start re-selling another set of short calls when AAPL makes a new high – and the volatility boost is likely to be much less. That all seems like being the gambler not the house. – nothing wrong with that (?) but not sure there is a need for that strategy at this moment in time.

    Surely cash preservation and reducing risk is the way to go forward short term – not the reverse. 

    Miracles I can believe in – but walking on water as well?


  56. Amazon keeps expanding into more and more industries.  


  57. Good morning!

    Well, up is better than down but we'll have to wait and see what sticks.  At least we can now calculate new bounce lines (not that we've needed them as they haven't been hit in ages).

    AAPL/Batman – Keep things in context, you have a huge AAPL position whereas the moves I'm making (aggressive) in the LTP are on $45,000 worth of longs in an $800,000 portfolio so it's an appropriate risk vs the size of the portfolio (and the fact that we're up 60% for the year, so we can afford to take a chance).  

    We were not selling all calls, just buying back the short calls.  Why, because they are up 74% on calls that don't expire for 2 years, so the most we can make is 25% over 2 years or 12.5% a year, which is a crap return and the short-term calls are up 90% and they are very small ($3,325 now) and there is a very slim possibility that AAPL could get good news and pop $40 in 30 days and burn us – and that would be stupid. 

    Winston still needs to work on the depth of his outlook as he still sees moves as static whereas I see buying back the short calls as step one towards selling other calls – not some daredevil bottom call.  The difference is, I'm making a roll in slow-motion, first buying back the short calls we have and then waiting PATIENTLY for more information (whether we bounce back or not) before EITHER selling lower calls and using that money to roll down my longs (if we break below $160) or selling higher calls or the same calls for more money if we have a nice bounce.  If AAPL is flat into earnings, all we do through our inaction is lose one month (1/24th) of premium time decay on the 2021 calls we would have sold.

    You do not have to be a "maestro" to time it right, you just need to pay attention to when a trend is likely to exhaust itself and, if you have pulled most of the value out of your shorts – the move is obvious and fairly automatic.  It's not taking a risk – it's following a system….

    Short Call 2021 15-JAN 240.00 CALL [AAPL @ $160.89 $-5.18] -40 9/24/2018 (757) $-120,000 $30.00 $-22.23 $-17.41     $7.78 $-0.93 $88,900 74.1% $-31,100
    Short Call 2019 21-JUN 200.00 CALL [AAPL @ $160.89 $-5.18] -10 9/21/2018 (183) $-31,000 $31.00 $-27.68     $3.33 $-1.28 $27,675 89.3% $-3,325
    Short Put 2021 15-JAN 170.00 PUT [AAPL @ $160.89 $-5.18] -15 11/20/2018 (757) $-33,000 $22.00 $8.13     $30.13 $3.63 $-12,188 -36.9% $-45,188
    Long Call 2021 15-JAN 180.00 CALL [AAPL @ $160.89 $-5.18] 40 11/19/2018 (757) $148,000 $37.00 $-15.43     $21.58 $-2.50 $-61,700 -41.7% $86,300

    The RISK we took is buying back the TZA longs and that's cost us about $80,000 in the LTP/STP so far but again, we can afford that risk and the FUNDAMENTALS point to a bottom – but that doesn't mean we can't panic lower first.  As I said yesterday in the Webinar, I have to at least give my gut a chance to be right, this is WHY we have such great gains for the year – in addition to our usual system, which makes a reliable 20-40%, we've made some really well-timed top and bottom calls that have drastically boosted our profits.  

    Winston – you would be an excellent risk management officer in a fund but, unfortunately, it's the job of the traders to completely ignore the risk manager quite a lot of the time – otherwise they would never trade!  

    As to your position Batman – AAPL is at $160 and you have a mix of 2021 $160, $170 and $180 calls and the $170s are $25.80 and the $160s are $29.70 and the $150s are $34.50 and the $140s are $41 so it would be wrong not to roll down to the $150s, where each $10 can be bought for $5.  That then, positions you to sell lower calls and still have a wide spread.  I agree about not worrying about the short puts, as long as you can actually afford to own 6,000 shares of AAPL at $170, your worst case is rolling to 2023 $150s or less.  

    So, assuming $5 per $10, 40 $180 calls go to $150s for $60,000, 120 $170 calls drop for $240,000 and 70 $160s drop for $35,000 and then buying back the short calls is roughly $250,000 so we're talking about spending about $600,000 to reposition to 230 2021 $150 calls at $34.50 ($793,500).  I will assume you took your $50 spreads for $25 so $575,000 initially means you are in for about $1.2M less short calls so I'm guessing $1M and at $793,500 – you're down about $200,000 (not including the short puts).

    In the context of a $10M portfolio, which I certainly hope you are working with, that's not too terrible but no one likes to lose half a condo (especially if it's the half with the bathroom) so what next?  

    Well, EVENTUALLY you are going to cover the 2021s and ideally you'd like to cover them with $200 callers, which are now $15 but what if we sold 100 2021 $175 calls for $23.50 – that's $235,500 in your pocket and now your net is back to the current value of the long calls and you are only 40% covered so you can easily roll the $175s up to 2x the $200s or better if AAPL does improve and you still wouldn't be fully covered.  If AAPL goes lower, you can sell another $200,000 worth of calls and that would give you $435,000 to roll the $150s lower with and that's $20 per long so $40 lower to the $110s.  Obviously, if that doesn't appeal to you, don't start now!  

    Meanwhile, if AAPL does pop, you can sell maybe 40 of the short April whatevers (maybe the $180s, now $5.50 for $12 or more) and that would put $40-50k in pocket for the Q.  So that's how I'd adjust it, a little less aggressive so you can still afford to go to the bathroom!  


  58. Phil// Since AAPL has fallen from its grace now what would be your recommended trade?  Thanks 


  59.  Phil / AAPL – Need to digest this….  The position in proportional although with some AAPL shares i may need to buy it's getting to the 25% – I'm fine with that, as this is the absolute best value of any of other companies I am looking at, and I do believe this will turn around in the late '20 / early '21 timeframe when 5G is gaining traction, and the services besides has 1 to 2 years of solid growth along with margin expansion.  I need to think through this, the rolling down of the 180s makes sense and maybe the 170s I like the idea of having them 1/2 covered with the lower strike price which gives you more protection on the down side.  Is there a price of AAPL where you are looking covering ? longer term calls become more attractive.


  60. Winston – We are the same track on this….  


  61. Phil – AAPL – Thank you for your input.


  62. Phil / AAPL – Thank you for your analysis on this.  Need to digest this….  The position in proportional although with some AAPL shares i may need to buy it's getting to the 25% – I'm fine with that, as this is the absolute best value of any of other companies I am looking at, and I do believe this will turn around in the late '20 / early '21 timeframe when 5G is gaining traction, and the services besides has 1 to 2 years of solid growth along with margin expansion.  I need to think through this, the rolling down of the 180s makes sense and maybe the 170s I like the idea of having them 1/2 covered with the lower strike price which gives you more protection on the down side.  Is there a price of AAPL where you are looking covering ? longer term calls become more attractive.