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Non-Farm Friday – The Sum of All Fears

Could this be the last straw?

We're getting the Non-Farm Payroll Report at 8:30 and it's usually a market-mover but more so this week as it will confirm or deny a worsening economy.  At the moment, I've refrained from getting more bearish as I think the 20% correction is enough and that, though people are freaked out about Trade issues and Government Shutdowns – these are self-inflicted wounds that can be quickly reversed – so it doesn't play into our long-term investing outlook, which anticipated this 20% correction all summer long.  The only surprise was how long it took us to be right.  

Our long-term bullish premise is predicated on more jobs and higher wages driving forward a virtuous economic cycle that will bring about some inflation, but the good kind that is the result of rising wages, which makes fixed consumer debts like home and auto loans easier to pay down over time.  Remember the good old days when you were disappointed that you only got a 5% raise?  You have to be pretty old at this point to remember inflation being your friend – when we could buy a car or a home we couldn't really afford because we fully expected our salaries to double over the next 5 or so years in almost any job.  

The first Bush Banking Crisis of 1986 was, in large part caused by a slowdown in wage growth (thanks to Reaganomics, now known as Trump's Tax Plan) and the models used by the banks for lending and the assumptions our workers made for buying a home were not adjusted fast enough to allow for flat wages and flat home prices and people found they were in far over their heads on 8-14% morgages without enough equity to refinance – even as rates ticked lower.  That led to the failure of about 1/3 of all Savings and Loan Associations, which led to the rise of the mega-banks which took their place – only to have their own crisis as Bush II repeated the sins of his father. 

Image result for economic multiplierThough Trump is repeating those same economic mistakes, at least he hasn't done anything to stop the increases in minimum wages that began under Obama and that is putting upward pressure on all wages and that is the best thing you can do for an economy – put money in the hands of people who actually use it every day.  Money given to people in the Bottom 80% has an economic multiplier of 3.1 while giving money to those in the Top 10% actually makes it disappear from the economy at a rate of 0.6% returned.  

The chart on the left illustrates tourism's multiplier effect (something else Trump is screwing up) but it gives you the idea of how money flows from the bottom to the top as money is spent in the economy.  Now, think of what happens if you give 1,000 poor people $1,000 vs giving me $1M.  What am I going to do with $1M?  I'm going to put most of it right in the bank!  You can test that theory by giving me $1M and I will report back to you on where it went if you don't believe me….

However, money given to people at the bottom of the ladder is spent at the bottom but it doesn't stop there as money spent on consumables is what creates the jobs up the food chain.  That's why tax cuts for the rich are so idiotic and that's why rising wages are so great for the economy.  What we have at the moment is a little of both and rising wages are a very slow-moving effect, so it will take time for the money to "trickle-up" and begin to affect Corporate Profits – which first become impacted by rising wages.  We'll see some of that in this earnings cycle but I think that "bad news" is baked in at this point – though you couldn't tell from the way Apple was treated yesterday.

8:30 Update: 312,000 jobs created in December!  Not only that but October and November have been revised up about 20,000 jobs each so that's + 352,000 jobs in this report – told you so!  This indicates the US economy is doing just fine though the initial reaction is likely to be muted as this many new jobs boosts the Dollar (need Dollars to pay wages), which puts a bit of short-term pressure on stocks and commodities but, on the whole, it's a very strong number for December, blowing away consensus expectations of under 200,000 formed by all the leading Economorons.

That, by the way, is 352,000 potential new IPhone customers as well!  The only negative here is that a jobs number that strong puts the Fed back on the table as they don't want rising wages to get out of control – as a tight labor market is wont to do.  

Once again we'll be picking up Nasdaq (/NQ) longs when they cross over the 6,200 line (with tight stops below) – that one has been good for several $1,000+ gains this week so there's no reason to stop going to that well.  That should line up with Dow (/YM) 22,800, S&P (/ES) 2,460 and Russell (/RTY) 1,340 so we can go long on any of them as long as they are holding those lines (and they should as it's only a Dollar correction taking them down at the moment).  

Yesterday's sell-off was silly and we'll be adjusting our Apple (AAPL) positions today as we've been giving a fantastic opportunity to improve our position.  For all of our Portfolios, our goal is to roll down our long calls, like the 2021 $160 calls, which are now $18.65, to calls that are $20 lower, as long as it costs less than $10 to make the roll.  The 2021 $140s are $26.60 so check but the 2021 $120s are $37, so right on the edge but the $130s are $31.50, just $5 more than the $140s so the $130s or $120s will be our goal to establish out lower AAPL calls in all our Member Portfolios.  

The 2021s have 2 years to mature so Apple has plenty of time to recover and spending $20 to drop from the $160s to the $120s puts us $25 in the money for $20 – a very good deal and it also widens our spread by $40, giving us a lot more upside potential and it also makes it more comfortable for us to sell short-term calls down the road – all good things!  

There still may be a few downgrades for Apple by lazy analysts who want to follow the herd but, as I said yesterday, Tim Cook just told us AAPL made $32Bn in Gross profits FOR THE QUARTER and, in fact, in Cook's letter to investors, he also said Operating Expenses were $8.7Bn so that's 32-8.7 = $23.3Bn and then taxes are 16.5% ($3.8Bn) so that's a Net Profit of $19.5Bn FOR THE QUARTER compared to $20,065,000,000 a year ago, when AAPL was priced at $170 on the way to $230 (and, by the way, they now have 5% less shares than last year) – so you'll forgive me for pounding the table on AAPL down here, right?

Image result for more cowbell

Our Members know exactly what I mean! 

Have a great weekend, 

- Phil


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  1. Statistically, the previous year's performance is not very predictive of the next:

  2. Good Morning!

  3. Phil,

    Do you see a play on /RB or /CL? Up on excepted decline but US production still up

  4. Of course, now that I sold my UGA calls at a loss, UGA has been up everyday since. Doh!!! ; (

  5. Good morning!

    Very important – in ALL portfolios, we are rolling AAPL long calls to the 2021 $120 calls – that's the only change at the moment. 

     Big Chart – Very, very ugly.  Keep in mind we are barely weak-bouncing during a 20% correction so far, failing a strong bounce by next week means we may be heading for a 40% correction so we'd better HOPE today's rally sticks!  

    As I said yesterday morning, movement within our bounce line ranges is meaningless – today certainly illustrates that point..

    • Dow 27,000 to 21,600 is 5,400 points so 1,080-point bounces to 22,680 (weak) and 23,760 (strong) 
    • S&P 2,950 to 2,360 is 590 points so 120-point bounces to 2,480 (weak) and 2,600 (strong) 
    • Nasdaq 7,700 to 6,160 is 1,540 points so 300-point bounces to 6,460 (weak) and 6,760 (strong) 
    • NYSE 13,200 to 10,560 is 2,640 points so 528-point bounces to 11,058 (weak) and 11,586 (strong) 
    • Russell 1,750 to 1,400 is 350 points so 70-point bounces to 1,470 (weak) and 1,540 (strong)

    Are we adding green or red boxes – that's the only indicator that really matters.  We added the weak bounce on /ES since yesterday morning – other than that – IGNORE THE NOISE!  

    Trust/StJ – I would have said Marriott but that hasn't worked out or Trans Union.  It's too late for us, our personal information is in hundreds of poorly secured data-bases.  You can only assume hackers have it.  My banks, Brokers and AMEX have instructions that no large transactions can go without my approval and Credit Agencies have a "lock" on my account that makes it impossible for people to open new accounts without strong verification.  It's a bit of a pain but worth it for the peace of mind. 

    /RB/Japar – We called it on Weds but I wouldn't make the bet over the weekend other than the UGA/SCO stuff we already have. 

    UGA/Soma – Gotta have faith…

    Come on honey badger..

  6. Kudlow just went on TV and said that there is no recession in sight. He said the exact same thing in 2007 when he talked about the Bush Boom. That did end with a boom indeed…

  7. Why 2019 Will Be the Year of Weed

  8. Texas marijuana advocates get fired up to decriminalize pot in 2019

  9. Euro-Area Economy on Weak Footing Faces 2019 Uncertainties

  10. Trump’s Cracked Afghan History

  11. Recession/StJ – This time is very different.  If Trump hadn't screwed things up this economy would be flying and all he has to do is stop screwing things up and it can fly again.  Brexit is another self-inflicted wound and the Trade Wars are dragging Asia too – the underlying fundamentals for Global Growth are there and my main concern was Hyperinflation – not a recession.   Now I doubt we have either.

    Powell, Yellin and Bernanke are speaking!  

  12. Don't forget, 2% is a weak bounce for AAPL off yesterday's 10% drop so we need a strong ($148+) into the close to wipe out yesterday's trend damage. 

  13. Powell now speaking and it seems the market likes what he has to say.


    Powell said 

    paraphrasing: 'we will be willing to dramatically and quickly shift policy in response to factors that suggest the markets and economy need support.

  14. The question is-if the economy and markets are doing so darn "well" WHY in the world would they NEED support? Good grief can't any of these talking heads ever keep their mouths shut?!! They see the dark clouds or they wouldn't be spouting such total idiocy.

  15. WHY? = Trump  :)

  16. Trump has hit his Waterloo with the change in legislature. I do believe he knows the wall he is going to slam into is up and waiting already for him and his family to go "splat!!"

  17. Now the new rabbit out of the hat is "trade talks" with China, again.

  18. Pirate:

    Think you are reading too much in to it.  Perhaps Powell doesn’t want the market to tank too much because of the psychological damage it does to the “economy”.  He doesn’t want a collapse, but probably didn’t mind seeing a healthy corection. I think he’s realizing the power of his words.  It didn’t cost him anything to say what he said.  

    I agree with Phil that most of the “problems” are self-inflicted and can be corrected quickly once most are resolved.  

  19. Trump is blaming the entire stock market correction on the Fed (and the Dems).  He BETTER say something doveish.

  20. dc-what Powell "wants" is irrelevant to what the market does. It didn't cost him anything, but this is all reminiscent of 2007-2008 when every prop job out there was saying that everything was "great" and not to worry. A few of us were screaming the bubble is going to burst and it will take everything with it. The market has changed and the economy is not doing great. The more I hear the opposite, the more wary I get. They prop things up and then pull the rug out, over and over.

  21. Channel Strength

  22. I have profitable long dated spreads in DIS, and have been selling straddles/strangles each month for income. 

    With 14 days until expiration you can sell the Jan 19 DIS $110 straddle for $4. It's a gamble, but at least you win on one side. The Jan 19 $110 calls roll to the Feb 19 $115 calls for $0.25, and the Jan 19 $110 puts roll to the Feb 19 $105 puts for $1.26. Seems reasonable odds to with a route to managing out of the trade.

  23. Well, It's a nice turn-around but still not breaking higher in our zones.  Still, much better than following through from yesterday and AAPL $147, so not far to go.   

    Why/Pirate – Well so much of what's doing well is due to stimulus, if they pull it to fast it will collapse.  That's the trap you fall into.

    Related image

    Rabbit/Pirate – It was the Fed, not the trade talks. 

    And I agree with DC agreeing with me!  cool  This is not like 2008, 2008 was a market propped up by a great deal of fraud.  As stupid as they are, tax breaks are not fraud, low rates are not fraud (though long-term not sustainable but that's tomorrow's problem, not today's).

    Good moves Winston.

  24. Just like to mention this is a day you should be selling cherry calls. The wind might change tomorrow again!!! This applies in respect to armchairs and Leap BCS.

  25. Just for the record I filled 40 so far,

  26. yogi – these cherry calls you sell… how many months out (on average)? Thanks for the reminder!

  27. Soma At present mostly Feb 2019

  28. Selling/Yodi – I still think there's more positives ahead.  Government shut-down can only get better, Trade not likely to get worse as US and China both hurting and the Fed just announced they still have a put on the market.

    There's $148 (strong bounce) on AAPL – nice if we hold it.

    Nas and NYSE closest to making green boxes but we're already up 3.5% for the day – so that would be asking a lot.  Actually /NQ up 4.5% and /RTY up 4% – WOW!!!

    You know, 20 years from now people will ask if you were trading in this crazy market and you'll say you were and tell war stories – but mostly we're hanging out and drinking tea (well, I am) as it's all a big nothing in the end…

    When your portfolios are balanced well, this kind of stuff is fun!

  29. Happy your optimistic, but my 170 aapl puts paid me handsomely for being pessimistic! I see nothing BUT scams, fraud, manipulation as far as the eye can see and giving the  tax breaks to the people who don't need the money isn't basic fraud? And taking from those who need it the most and will end up having to pay for it? I guess everyone has their own morality, but as Yodi says it can change tomorrow and usually does.

  30. Phil, yes you might be right and I hope for the long run that will be, but watch out for Monday all the train jumpers will be jumping off again.

    AAPL from 143 to 148 not much of a jump up after losing 10% when the /es is over+ 90 points. Even TSLA making a better showing.

  31. 20 years / Phil – Of course then our markets might look rational compared to the market for water filters and personal body armor!


    Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer press conference following White House meeting on Government funding .

    Had a lengthy and "sometimes contentious" conversation with President Trump

    Democrats can not have discussions over other matters until the government is reopened.

    Chuck Schumer says President Trump told him he would keep the Government closed for months or years if that is what it takes.

  33. If you need trade ideas – there's a lot of good ones in the past couple of months of Top Trade Alerts.

    I was looking for that time I made a bunch of picks to make $100,000 – thought it was a top trade…

    CHL doing oddly well:

    I wanted to see how those trades are doing (CMG, etc that were supposed to make $100,000 in the downturn) but I can't find it.  If anyone has a link, I'd appreciate it.

    Fraud/Pirate – Yes but tax breaks we can't afford are a Madoff-like fraud that will take years to boomerang on us.  For now – it's a net positive for the market.  

    AAPL/Yodi – They were down 10% and now up 4% is a strong bounce, technically up $5.60 for the day at $147.80.

    True StJ!  

    Shutdown/Albo – That's good, now we can see the effect of negative shut-down news against positive Fed news and jobs data and rumors of trade.  It's great when only one variable is off – then we get a better sense of it.

  34. AAPL:  Well, Hmmmm……..    Didn't have to wait long for that.  Today bought back that 11Jan 140/130 put credit spread I sold yesterday for a 60% gain!   This time I didn't take 1/2 off the table.  I took it ALL off the table.  Happy Trading!

  35. go Trump!!!!

    cut a deal!!! 


  36. Sorry for the down speak. Was at food bank yesterday and when I see such horrendous "basic" needs of people not being met I get grouchy! Appreciate all of you for your input and comments. Wish I was a billionaire so I could just write a check for people to get new water heater, pumps, stoves, medical care, dental care and a car for transportation. So many are disabled and older. We have a family that needs 165K for an adopted 13 year old boy for medical care for lymes disease. Guess it went to his brain undiagnosed. I keep asking "what is wrong with this picture," and of course feel guilty as my needs are met!!!

  37. I empathize, Pirate – I live in Korea 8 months out of the year, and feeling my friends', relatives', and colleagues' frustration with the US's inept, clumsy diplomacy is very frustrating.

  38. Thanks Snow. I'm going to try to take the bull by the horns and see if I can do something about things. Something positive rather negative. Rural areas are very hard hit in this country and unnoticed for the most part.

  39. Guilt/Pirate, Snow - We can only do what we can.  Unfortunately, there's never enough to help everyone (and Bill Gates has proven that) when the culture creates so much need.  That's why I decided to get more politically active – there was no magic wand I could wave that would turn the tide of poverty – we have to change hearts and minds over the long haul and I thought we were getting there with Obama but that turned to frustration as the GOP blocked everything and then Trump got in and dismantled all the progress but what can we do but get up and do it all over again – until we get it right?  

    You know one person can have a great impact on another and even many so just do what you can and hope it pays forward and take joy in the joy you are able to provide – we can't fix the World – but we can sure help and the more we inspire others, the more people end up helping until, once day – we get to that critical mass and actually fix it!  

    I want to know what became of the changes
    We waited for love to bring
    Were they only the fitful dreams
    Of some greater awakening?
    I've been aware of the time going by
    They say in the end it's the wink of an eye
    When the morning light comes streaming in
    You'll get up and do it again

    Caught between the longing for love
    And the struggle for the legal tender
    Where the sirens sing and the church bells ring
    And the junk man pounds his fender.
    Where the veterans dream of the fight
    Fast asleep at the traffic light
    And the children solemnly wait
    For the ice cream vendor
    Out into the cool of the evening
    Strolls the Pretender
    He knows that all his hopes and dreams
    Begin and end there
    Ah the laughter of the lovers
    As they run through the night
    Leaving nothing for the others
    But to choose off and fight
    And tear at the world with all their might
    While the ships bearing their dreams
    Sail out of sight
    I'm gonna find myself a girl
    Who can show me what laughter means
    And we'll fill in the missing colors
    In each other's paint-by-number dreams
    And then we'll put our dark glasses on
    And we'll make love until our strength is gone
    And when the morning light comes streaming in
    We'll get up and do it again
    Get it up again
    I'm gonna be a happy idiot
    And struggle for the legal tender
    Where the ads take aim and lay their claim
    To the heart and the soul of the spender
    And believe in whatever may lie 
    In those things that money can buy
    Thought true love could have been a contender
    Are you there?
    Say a prayer for the Pretender.
    Who started out so young and strong
    Only to surrender.

  40. Thanks, Phil.

  41. Thanks Phil! Not going to change the world for sure but Wisc has 6 billion in tax breaks for QuikTrip (gas stations) and another 3 billion for FoxConn. Still a little help for people might change some hearts and minds. Many do nothing!

  42. Nas rejected right at the weak bounce line (6,460) but can't complain as it was the 5% line for the day so of course we pull back to 4% (weak retrace) to consolidate.  NYSE doing the same thing at 11,586 but that's the strong bounce line so very good sign if we take that back on the broadest index. 

    Wisconsin/Pirate – Well that's the kind of BS you need to raise awareness on.  Point it out and do the math for people, boycott QuickTrip until Wisconsin puts $3Bn into health care using examples like that boy.  I used to get too wrapped up in individual issues and then I realized I needed to get people involved so I started talking about the Top 1% and pointing out the inequality and then Occupy Wall Street became a thing and now everyone knows what the Top 1% is and people say Banksters all the time and I've pushed and prodded and gotten NY and NJ politically a lot more liberal and now I'm working on Florida but it's more of a victory to me to have a good meeting and get a dozen people fired up to make changes than to help a single person because I know how many of those people are out there and I know the best way to help them is CHANGE!  

    There's only 6M people in Wisconsin – you have to do the math for them and talk about how $6Bn (make sure you have math and citations) is $1,000 per man, woman and child and about $3,000 per taxpayer that you guys are giving to these companies and what are you getting out of it?  Where could that money be better spent?  People can't grasp big concepts, you need to bring it down to how it affects them directly. 

    How many people do they employ?  I'd be surprised if it's even 60,000 between them so one out of 100 people gets a job at the cost of $100,000 per job?   That's how you raise awareness to the political BS that's going on.  These politicians are like roaches, they hate the light and you have to shine it on them but you have to be very accurate or you lose your impact very quickly.  On the other hand, simple truths that stand up to fact checks will serve you very well.

    And with that, our day is done – Dow and S&P up 3.5%, Nas up 4.5% and RUT up 4% – all in all, it was a slightly up week on low volume – NEXT!


    Have a great weekend, 

    - Phil

  43. Phil/tax cuts… just did a preliminary run-through of my tax return as a NJ resident, and my tax "cut" will cost me $2,500 in total Fed taxes owed. And I am *not* in the one percent.  Hmm, do my kids really need textbooks in college this year?

    I have heard stories that the Feds did a guesstimate at adjusting the withholding tables in 2018, and many people are going to discover that they have been underwithheld all year.  They are in for a nasty surprise come April.  But that's not my issue — my Federal tax bill is simply higher now.  Thanks, Paul Ryan!  I'm sure *his* tax return looks great.

  44. AAPL closing at 148.2

  45. Taxes/Tom – NJ got very screwed along with other high-tax states.  Those tax cuts are a shell game to rob the poor and pay the rich and it pains me that so many people can't see that.  

    AAPL/Batman – Strong bounce is all you can ask of a day.

  46. WOW!!!

    have a great weekend!

  47. Yes I have pointed out exactly these facts to people. We are trying to raise money for this boy to get treatment. Npr did point out the stats of how much each job is costing the taxpayers. I do think incomes are so low that they can not comprehend exactly the ramifications, or just don't care!  Sometimes you do feel like you live in a desert with no working grey cells evident!

  48. AAPL analysis – if you have time at the weekend, the following is a nice learning exercise on free cash flow and valuing companies – using AAPL as an example.

    What should I do with my AAPL shares?

    The ratio Share price / Free Cash flow should be a metric within most decent stock screeners. The author recommends focusing on companies that have the Price/FCF ratio below 15.

  49. Bayer Shares Jump After Monsanto Weedkillers Court Ruling

  50. Sears Survival Hangs by Thread as Bid Ruling Said to Be Delayed

  51. Fracking’s Secret Problem—Oil Wells Aren’t Producing as Much as Forecast – WSJ

  52. Pot Plants Thrive on Jamaica Farm Aphria That Short Sellers Doubted

  53. This was bound to happen…what if interstate sales are allowed?

  54. The People vs. Donald J. Trump

  55. Sure, why not?

    S&P 4,245?

  56. Southeast Asia wary of China’s Belt and Road project, skeptical of U.S.: survey

  57. France’s ‘Yellow Vests’ Show Staying Power

  58. futures strong like bull!

  59. Disney goes back to the future