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Troubling Tuesday – China Slows Down While IMF Warns of Global Contagion

Da-vos, Da-ay-ay-vos.

So the World leaders (the ones that matter) are gathered at Davos this week and, so far, they are not too optimisitc about the economy with China's economy posting the weakest growth in 28 years and the IMF taking the entire Global Growth forecast down to 3.5%, from 3.7% last quarter, knocking 0.3% off Europe and 0.6% off Germany in particular – all the way down to 1.3% for Europe's largest economy.    

According to Price-Waterhouse, the number of US CEOs feeling optimistic about the economy also fell off a cliff – from 63% last year to a current 37%, barely over 1/3.  “It is important to take stock of the many rising risks,” said Gita Gopinath, the IMF's new chief economist. “Given this backdrop, policymakers need to act now to reverse headwinds to growth and prepare for the next downturn.”  The IMF also warned the US GDP will fall to 1.8% in 2020 as stimulus from the tax cuts fades and the economy begins to feel the pressure of higher rates – so we have that to look forward to.

Unsurprisingly, the Futures are down a bit this morning but only half a percent and that's nothing after the recent rallies.  What matters this week is whether or not we hold those 50-day moving averages as well as the Must Hold line on the Russell on our Big Chart – which really MUST hold if we are to truly reverse our market downturn.  These are just the strong bounces we expected so far – at this point, we're really not expecting much more lift from the markets without re-opening the US Government and establishing a workable trade arrangement with China which, according to recent reports – is at an impasse over Intellectual Property Issues.  

Meanwhile, Brexit continues to drag on with Theresa May barely surviving a vote of confidence and now Parliament is asking the EU to extend the March 29th deadline while they negotiate for changes in Irish border rules, which seem to be the main blockage at the moment.  Italy's economic growth forecast has been cut to just 0.6% from an October estimate of 1% and likely down to 0.9% in 2020 BUT – at least it's not a recession.  The Italian Economy is the worst in Europe, with a 130% Debt to GDP Ratio but let's all keep in mind that that's about HALF of Japan's now 270% (this chart is old) - and we aren't even worried about them – yet…

China also has MASSIVE debts but, unlike the rest of the World, it's not Government Debt but Private Debt that is greater than their GDP and of course that is not sustainable and of course it's all going to collapse one day and take the World Economy with it but not today.  Maybe tomorrow though as exports from South Korea, often considered a leading indicator for all of Asia, fell off a cliff in the fist 3 weeks of 2019, down 14.6% from last year.  Petroleum exports fell on weaker prices but Semiconductor exports also tanked.  

It's not just the economy that's cooling as we had an Arctic Blast this weekend that was so cold that some ski resorts had to close down due to dangerous conditions.  New York City advised residents to stay indoors as the danger of frostbite was "extreme" – even with only limited exposure as wind-chills fell into the negative teens in Manhattan and as low as -30 in Albany (and my daughter's school in Amhers, MA!).  

You would think that would be bullish for Natural Gas prices (/NG) but they are down 9% this morning at $3.17 on the expiring /NGG19 (February) contracts that finish next Monday while our /NGN19 contracts stopped out as they retraced from a very nice $2.95 (we went long at $2.89) and now we'll be very interested in picking up the March contracts (/NGH19) as we test the $3 line – with tight stops below but down from $3.40 last Wednesday is a good enough correction for us and we'll look for at least a weak bounce back to $3.08 which, at $100 per penny, per contract, would be good for $800 per contract gains. 

So the risk is stopping out a $2.995 with a $50 loss vs. the good likelihood of a $400-$800 gain – those are the kind of trades we like to get into!  Notice on the chart that the next proper support below $3 is $2.80 and we'd LOVE to get in with some conviction down there but first we'll see what kind of bounce we get at $3 and then there are the inventory reports on Thursday, where we're very likely to see a surge in demand while a second cold blast is forecast so the conditions are ripe for a nice rally – despite this sudden flush.

If you are Futures-challenged, you can look at the Natural Gas ETF (UNG) and pick up the Apri $26 calls at $2.80 this morning (assuming the dip holds) and, as /NG recovers, I'd look to sell the $30s for $2 and that would net you into the $4 spread for net 0.80 with $3.20 (400%) upside potential if UNG can get over $30 and hold it into the spring thaw.

We think the continuing export of LNG out of the country is going to keep pounding away at inventories and, by spring, we will be significantly lower than the 5-year average and the drawdown cycle tends to peak out in mid-March, so it's a good time-frame to test our theory as export capacity is scheduled to double, to 8Bcf/day during 2019 and, when you consider that total storage is about 3,000Bcf, you can imagine that exporting an additional 1.46Bcf (divided by 2 due to the ramp-up average) will have a substantial impact at some point, right?

U.S. LNG export capacity

Working Gas in Underground Storage Compared with Five-Year Range

That's a pretty simple investing premise – if we're going to export +4Bcf/day out by the end of the year then we will begin to draw down our inventories unless production capacity increases significantly to keep up and production is very unlikely to keep pace with such a significant increase in exports as it's also constrained by infrastructure (pipelines, roads, rails) that is needed to move the gas to the ports and these LNG projects are VERY expensive ($10-20Bn per terminal complex) so they WILL be exporting /NG as soon as they are ready – no matter what it costs them to buy it on the open market (because the global market is much more expensive than the US, which is the whole point).  

So, we can expect /NG to rise into 2020 but, at some point, there will be terrible blowback as we're not the only country building LNG termials so, down the road, everyone will be trying to sell LNG to everyone else and prices will collapse – kind of like oil – so we have that to look forward to – but not until at least 2020.

With the Government shut down, we're getting very few data reports this week and NO Fed speak is scheduled so we're really on our own for the week and that means the spotlight will be on earnings and we hear from our 2019 Stock of the Year (IBM) this evening along with fellow Dow component Johnson and Johnson (JNJ) but it's still early innings in the earnings cycle so far.   IBM is right back to the $120 line, not far from where we made our pick on October 30th ($115), so still time to get into the trade from here.  

Today is going to be rough but, if we can hold the 50 dmas today, we're set up for a better move tomorrow.

 


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  1. China / Phil – The most troubling part about China is the continued misrepresentation of growth. At this stage, actual GDP could 20% smaller than the pretend numbers they run each year and that would make the debt load even more unsustainable. The numbers are just so unbelievable anyway as if Trump worded them!

    https://www.investors.com/politics/editorials/new-study-shines-light-literally-on-chinas-and-russias-fake-gdp-data/

    But is China really that big?

    If Martinez is right, no. China's average GDP growth has been roughly 30% less than reported, based on the measures of its changes in national lighting. This would be an enormous shift in how we view China's economy.

    (The same, by the way, is true for Russia. Its economy, similarly, is much smaller than official estimates show. But its economy also has been struggling for nearly 20 years, so the idea that it may be even worse than it seems comes as no great shock.)

    This year, World Bank and U.S. government estimates put U.S. GDP at roughly $17.7 trillion (in 2010$). By the same measure, China's GDP this year will be about $10.8 trillion.

    That's far short of the U.S. level, but taken at face value, it's still an amazing number given that as recently as 1980, China's GDP for its entire economy was just $340 billion. That's about a 3,200% gain.

    But Martinez cuts China's GDP to roughly $7.5 trillion currently. That's not even half the U.S. level.


  2. Phil, thoughts on IBM earnings?


  3. Good Morning!


  4. Cherry Calls / Yodi – I have been making several shorter term cherry calls with quite a bit of success.  However, I do have a couple that went against me, so when do you pull the trigger and roll?  Knowing the answer is subjective and there is no perfect answer.  Looking for some feedback to noodle on…

    My position is GIS.  I have 24 days left and sold a $42.50 short caller for $0.55, now $1.58.  Stock is current trading at $43.47.  I know you talk about patience and I do have a bit of time left.  Appreciate your thoughts.   

     

    I sell quite a few cherry calls now, and short term strangles which has been a huge help.  Thank you for sharing so much on the board,


  5. Grass GIS glade you making progress.

    But you said the right word patience. I do have the same caller and it has still .70 cents of premium this morning. I have not even looked at it. Do look at my write up off Friday on AMGN and just do the same with GIS. Once the premium has burned down you think of rolling. Still 24 days to go, by that time even the clown could be out of office, you hope!!!!


  6. For the futures impaired, in following natural gas discussion, invite thoughts on the following UNG trade:

    Buy 20 Jan21 25/30 bull call spread $1.83

    Sell 10 March18 30 calls $1.00

    Sell March18  25 puts $ 0.80

    Worse case own UNG at 25. Can continue to sell straddles for 2 years


  7. Good morning!

    China/StJ – I've always used $10-12Tn for an estimate and I think that's probably right.  There are 700M SMART phone users in China and, assuming they are not spending 20% of their income on phone services, that right there is at least $7Tn (assuming they make $10,000 to pay a $1,000 phone bill among their other expenses) so $7.5Tn is a ridiculously low estimate and I have no respect for a person who would publish such a low number.  Figure the other 700M people are much poorer, but even India poor or the African average is $2,000 so that's $1.4Tn and then there are the wealthy and then there's still Corporations to consider so $7.5Tn, I can't take a person seriously who comes up with that figure.

    Ouch, Existing Home Sales are a disaster – down 6.4% in Dec.  

    Existing Home Sales misses forecast

    And let's keep in mind that's out of 110M homes so the average turnover rate is once in 20 years – that's very, very low at 5M homes.  

    IBM/JMD - 

    Very low expectations this Q at $4.84 vs $5.14 last year and they've had 1% beats all year so let's say it is $4.84, which puts them at $2.45 + $3.08 + $3.42 + $4.85 = $13.80 per $123.50 share and notice each Q has gotten quite a bit better than previous so, unless they guide lower than $13 next year, this stock is stupidly underpriced with revenues still in-line with 2015 and 2016, when they topped out at $175 and earnings more than double 2017, when they bottomed out at $140.

    Year End 31st Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 102,874 98,367 92,793 81,741 79,919 79,139 80,373 79,617 78,817 -5.1%
    Operating Profit $m 22,540 20,244 19,986 15,944 12,330 11,400 11,377     -12.7%
    Net Profit $m 16,604 16,483 12,023 13,190 11,872 5,753 5,723 12,541 12,217 -19.1%
    EPS Reported $ 14.7 15.3 15.6 13.6 12.4 12.0 12.2     -4.0%
    EPS Normalised $ 14.7 16.0 16.8 13.6 12.7 11.4 12.2 13.7 13.8 -4.9%
    EPS Growth % +6.3 +8.7 +5.3 -19.1 -6.7 -10.1 +6.6 +20.2 +0.39  
    PE Ratio x           10.8 10.2 9.01 8.98  
    PEG x           0.54 0.50 22.9 3.66
    Profitability

    UNG/JMD – The ETF has a lot of decay so we shy away from very long plays – we're in CHK instead as a player in that space.  

    Short Call 2020 17-JAN 5.00 CALL [CHK @ $2.97 $0.00] -50 1/8/2018 (360) $-4,750 $0.95 $-0.70 $-0.25     $0.26 $0.01 $3,475 73.2% $-1,275
    Short Put 2020 17-JAN 4.00 PUT [CHK @ $2.97 $0.00] -50 1/8/2018 (360) $-6,000 $1.20 $0.20     $1.40 $0.03 $-1,000 -16.7% $-7,000
    Long Call 2020 17-JAN 2.00 CALL [CHK @ $2.97 $0.00] 50 2/9/2018 (360) $7,000 $1.40 $-0.15     $1.25 $0.00 $-750 -10.7% $6,250

  8. /CL taking a bath, back to $52 with /BZ at $60.50 – good bouncy spot if /BZ hits $60.

    /SI very tempting at $15.20.

    Waiting to reload on /KC too.

    I'd want to go long on /RB at $1.40 (/RBH19 at this point) but last year there was a horrible sell-off in early Feb – about 0.20 so that's keeping me out for now.

    Back at $1.25ish and I'd be happy to play with conviction into July, mabye get back into UGA.


  9. MO down 2.55 today looking for the low of the day and possible load up more stk.


  10. Speaking of IBM:

    Under the seven-year agreement, IBM will use its IBM Services Platform with Watson to help manage Juniper’s support systems including data centers, help desks, and data and voice networks

    Watson wining again as best in class NLP

    IBM Watson & Dutch Ministry of Justice ???? Speeding up small criminal cases by 400% using LTO Network blockchain, running small criminal cases on the blockchain…

    Ingenico launches IBM Watson-enabled chatbot to enhance customer experience (Jan-2019)

    powered or , has nearly doubled the gain of the S&P 500 so far this year. Powered by 's artificial intelligence , this actively managed portfolio is the first of its kind, said fund operator Sam Masucci, founder ETF Managers Group

    Behind the Code: See who’s using IBM Watson to help boost sales at brick-and-mortars. – YouTube

    IBM MaaS360 with Watson Among First-Ever Android Enterprise Recommended EMM Solutions

    Replying to  

    IBM's Watson supercomputer model says one inch of ice paralyzes DC Metro area and 1.5 inches NYC this weekend. It could be right this time. Power out where lines are overhead for days, maybe weeks! via

    "IBM Cloud Private for Data" being ranked #1 by on Enterprise Insight Platform. Decision Optimization is available as an add-on with all similar experiences as in Watson Studio Local.

    Behind the code: See who’s using IBM Watson to help simplify banking for more people. – YouTube

    How KONE is using Watson IoT to make its elevators smarter

    Why 2019 will be a breakthrough year for AI in business – Watson

    Financial Form Validation With Watson

    TECH BLOG: Predicting flight cancellations using weather with

    That's just going back a couple of weeks!  


  11. Phil / What is our current IBM trade? TIA


  12. somavision
     

    Search field is your friend… 


  13. Was able to find this:

    Sell 5 2021 $120 puts for $20 ($10,000)
    Buy 15 2021 $120 calls for $11.30 ($16,950)
    Sell 15 2021 $145 calls for $5 ($7,500)

    That's a net $550 credit on the $37,500 spread so $38,050 upside potential (6,918%) if IBM is over $145 in Jan 2021.


  14. IBM/Soma:

    Short Put 2020 17-JAN 145.00 PUT [IBM @ $123.82 $0.00] -10 1/17/2018 (360) $-18,100 $18.10 $8.45 $-0.48     $26.55 - $-8,450 -46.7% $-26,550
    Short Call 2020 17-JAN 150.00 CALL [IBM @ $123.82 $0.00] -15 7/6/2018 (360) $-14,850 $9.90 $-7.73     $2.17 $0.03 $11,595 78.1% $-3,255
    Long Call 2021 15-JAN 110.00 CALL [IBM @ $123.82 $0.00] 25 10/30/2018 (724) $40,000 $16.00 $3.93     $19.93 - $9,813 24.5% $49,813
    Short Call 2021 15-JAN 140.00 CALL [IBM @ $123.82 $0.00] -25 10/30/2018 (724) $-16,175 $6.47 $0.93     $7.40 $-0.10 $-2,325 -14.4% $-18,500

    The short Jans were leftover from another trade.  In fact, in the LTP, let's buy back the short IBM 2020 $150 calls into earnings and see what happens.  If earnings are good, we'll regret not buying them back and, if earnings are bad, we'll want to sell lower calls anyway.

    That other trade idea works too though the prices have changed a bit.  


  15. Morning Phil.

    I happen to have the following MO position:

    - 4 Jan '2020 $50 Long Call

    - 4 Jan '2020 $60 Short Call

    - 2 Jan '2020 $60 Short Put

    Any suggestions for how to adjust this would be really appreciated. Thanks!


  16. Trade negotiations with China must be going well:

    The Chinese government has granted Ivanka Trump’s company preliminary approval for another five trademarks this month, as her father’s administration pushes ahead on trade negotiations with China.


  17. Alter MO just roll the Jan 20 50 c to Jan 21 42.5 call.

    Later when recovered sell 2 only Jan 21 60 calls. exsiting Put and caller leave as is.

    My 2 cents


  18. MO/Alter – They are down on an MS downgrade and weak sales and possible ban on E-sigs, which were going to save them. Still, they are making $8Bn/yr and $45 is $84Bn so a good deal down here but I'd only to the mechanical roll if it comes up and roll the long 2020 $50s, which are $1.60, to the 2021 $40s at $6.80 as you are buying a year and $10 in position for $5.20 – seems like a bargain to me.  The rest you can wait and see how things bounce.

    And what Yodi said! 

    China/StJ – Well we know from the shutdown talks that Trump is willing to trade US services to get what he wants so who knows what he gave China in exchange for Ivanka's trademarks?  That's the whole point of politicians divesting into a blind trust – so they won't be tempted to do things like that but, for Trump, this is why he wanted the job in the first place – so he could enrich himself and his family at America's expense.

    /NGH19 has reached goal ($3).


  19. US home sales plummeted 6.4 percent in December




  20. Majority of Americans Support High-Skilled Immigration



  21. Apparently, we turned down a very reasonable offer by China to buy $1Tn of US goods to help balance the trade deficit over 3 years so $333Bn a year against a $500Bn deficit and they said they would take other measures to get things even but – NO DEAL!  

    Image result for trump no deal

    Sell-off seems overdone so I'm grabbing /TF at 1,450 long (tight stops below) and lined up with /YM 24,250, /ES 2,625 and /NQ 6,650 so those are our watch lines, down 1.5% on the first two and -2% on the last two should be bouncy.


  22. U.S. stocks slump to session lows following an FT report that the U.S. turned down China's offer of preparatory trade talks

    It's really interesting to see the size and scope of the takedown campaign against this woman:

    I actually didn’t say this, so while I know “brown women cursing” drives clicks, maybe you accurately quote the whole exchange instead of manipulating people into thinking I said this sentence instead of just the word “zero.”

     

    It's something else every day but, as noted in the clip above, she's a tough girl who knows how social media works and she can ju-jitsu an army of GOP and Russian trolls with a single tweet.  Fun to watch.  

    Image result for jiu jitsu girl animated gif

    And here’s the not only running with the false quote, but adding an angry photo to boot: This is how news hysteria develops out of nothing at all.

    This reinforces lazy tropes about women leaders in media: – Older + seasoned, but unlikeable – Passionate, but angry – Smart, but crazy – Well-intentioned, but naive – Attractive, but uninformed or gaffe-prone It’s unoriginal, lazy, and men don’t get the same either/or coverage.

    It’s wild that some people are more scared of a marginal tax rate than the fact that 40% of Americans struggle to pay for at least one basic need, like food or rent.

    The wealth of the 2,200 billionaires across the globe increased by $900 billion last year – $2.5 billion a day. The 26 richest billionaires now own as much as the 3.8 billion who comprise the bottom half of the planet’s population. Let that sink in.

    Also, how amazing is it that this isn't the top story on every network – purposely buried by all the other BS:

    We have just 12 years to make massive and unprecedented changes to global energy infrastructure to limit global warming to moderate levels, the United Nation’s climate science body said in a monumental new report released Sunday.

    “There is no documented historic precedent” for the action needed at this moment, the Intergovernmental Panel on Climate Change (IPCC) wrote in its 700-page report on the impacts of global warming of 2.7 degrees Fahrenheit, or 1.5 degrees Celsius.

    From rising sea levels to more devastating droughts to more damaging storms, the report makes brutally clear that warming will make the world worse for us in the forms of famine, disease, economic tolls, and refugee crises. And there is a vast gulf between the devastation from 1.5°C, what’s considered the moderate level of average warming, and 2°C.

    “It’s very clear that half a degree matters,” said Valérie Masson-Delmotte, co-chair of IPCC Working Group I at a press conference in Incheon, South Korea, where the report was released.

    $22 trillion of debt: totally unimportant. Some 15-year old twerp in a cap: the most important thing ever.


  23. Phil,

    What are your thoughts on MITK ? Seems like an interesting technology play.

    Thanks as always

    Pat


  24. Wow! US ambassador to the Republic of Korea Harris took a letter demanding that the RoK raise their contribution to the support of US troops in Korea by 150%. Not only that, instead of taking the letter to the Ministry of Foreign Affairs, he took it directly to the Blue House, the RoK White House equivalent. That's a load of US arrogance! https://thediplomat.com/2019/01/the-us-south-korea-military-cost-sharing-agreement-has-expired-now-what/?fbclid=IwAR3HGYR1_H9dhJAMt-p4qmSedjnRi1c-afNnRi6UDjxS228RUIsnj51RNpc


  25. Phil, Yodi – thanks!


  26. MITK/Pat – Not on my radar as they are fairly small with few options to trade but interesting with good revenue growth though no longer making a profit on it.  They are also not cheap because there was some drama with a buyout offer that I thought, at the time, was simply a pump and dump move but they held their gains and do seem to be growing.  Now they are at the buyout price ($11.50) bu that's $432M and, even if they did make $80M in sales, even at 30% profits they are pretty fully valued here.  I don't think I'd chase them – I'd wait for them to disappoint and come back closer to the 200 dma ($9).

    Korea/Snow – One of the few relationships left that Trump hasn't destroyed.  Of course with his time in office drawing to a close, Putin needs to have Trump screw things up with the rest of our allies ASAP!

    Got very little off /RTY and /NGH19 is at $2.986 but I have faith so 2 long at $2.995 avg I don't mind sleeping on.  

    Hopefully a stick into the close for a nice gain on the indexes…


    • The Trump administrations turned down an offer by two Chinese vice-ministers to hold preparatory trade talks because the two sides haven't progressed on two important issues, the Financial Times reports.
    • Major U.S. stock averages extend their declines, with the S&P sliding 1.8%, Nasdaq -2.1%, and Dow -1.7%.
    • This week's trip by Wang Shouwen and Liao Min was intended to prepare for a higher-level meeting in Washington on Jan. 30-31 by China Vice-Premier Liu He and U.S. Trade Rep Robert Lighthizer.
    • U.S. cites lack of progress on "forced" technology transfers and "structural" reforms to China's economy, FT reports, citing people briefed on the negotiations
    • Major U.S. stock averages slump as concerns over a slowing global economy and China, in particular, lead investors to avoid risk.
    • All 11 S&P sectors are sliding, with energy (-1.8%) and industrials (-1.3%) down the most.
    • The sectors feeling the least pain are utilities (-0.2%) and healthcare (-0.6%).
    • Crude oil drops 3.4% to $51.97/barrel and with it some notable petroleum names--Occidental Petroleum (-3.2%), ConocoPhillips (-2.6%)
    • Down in the industrial sector: 3M (-1.2%), and GE (-3.8%).
    • PG&E surges 10% after getting $5.5B of debtor-in-possession financing; Starbucks (+1.9%) after announcing an expanded delivery program.
    • With the aversion to risk, Treasuries rally--10-year note yield falls almost 4 basis points to 2.749%.
    • Dollar Index barely up (+0.01%) at 96.33.
    • Previously: U.S. stock futures indicate losses amid renewed global economic concerns (Jan. 22)

    • Goldman Sachs sees some Model 3 growing pains for Tesla (TSLA -0.6%) as the mix of sales at lower price points increases pressure margins even as the company's overall headcount is reduced.
    • "We believe that 2019 is shaping up to be another choppy year for Tesla and its shares as it navigates the US Federal Tax Credit phase-out and mix-down of its Model 3 program," writes analyst David Tamberrino.
    • "Ultimately we continue to see downside to consensus expectations over the coming years and expect the company’s shares to follow," he adds.
    • Goldman Sachs keeps a Sell rating on Tesla and price target of $225 based off probability-weighted valuations for the automotive segment ($200), Tesla Energy segment ($20), and the SolarCity segment ($5).
    • Apple (AAPL -1%) director of cellular systems architecture Matthias Sauer testifies that Qualcomm (QCOM -1.9%) was the only 4G-ready chip source when the industry was moving to 4G.
    • The admission happened in court on January 18 under questioning by Qualcomm's lawyer. Qualcomm is fighting the FTC's antitrust allegations.
    • Apple had considered Ericsson, Broadcom, and Intel as alternative suppliers as early as 2012 but none delivered chips that met Apple's standards. Apple only brought in another chip supplier with the late-2016 launch of the iPhone 7
    • In other Apple news, a WSJ report mentions the tech giant is likely dropping LCD screens for all OLED models for the 2020 iPhone lineup following the iPhone XR's disappointing sales.
    • Oil service stocks are reversing Friday's big gains, with the OSX Index dropping as much as 4.2% following bellwether Halliburton’s (HAL -5.4%Q4 results and crude oil's sharp drop amid more signs of an economic slowdown in China, sparking concerns about global growth and fuel demand.
    • WTI crude oil -3.3% to $52.02/bbl, Brent -2.9% to $60.91/bbl.
    • Stifel analyst Stephen Gengaro says "back of the envelope math" suggests the midpoint of HAL’s Q1 guidance implies EPS in the $0.22-$0.24 range vs. analyst consensus $0.31, according to Bloomberg First Word.
    • Stephens analyst Tommy Moll is positive on HAL’s comments of "modest" improvement in Q1 fracking activity, but E&P budget cuts and additional pressure pumper commentary likely are a larger negative for sector sentiment.
    • The number of active hydraulic fracturing fleets in the Permian Basin fell to 140 in January from 192 in June 2018, according to data from consultancy Primary Vision.
    • Today losers include WFT -7.6%SDRL -5.8%SPN -5.5%NBR -4.9%RIG -4.8%NE -3.3%OIS -3.7%NOV -2.4%SLB -1.9%BHGE -1.8%ESV -1.6%.

  27. Nope, the opposite of a spike up at the moment – getting back to our lows.  Glad we pressed those hedges into the weekend!  


  28. LOL – Now Kudlow on CNBC saying it's not true but who knows who's lying.


  29. Wow, quite the pop at the bell.


  30.  Interesting that all three major indices just tested and held support at the 50-day MA.


  31. 1,460 is the stop on /RTY now.


  32. go IBM!!!



  33. Wow – IBM $130! Now hold it!


  34. Does anyone on here have any idea why oil based energy companies just keep grinding lower and lower.

    any insight would be greatly appreciated.

    thank you very much
    tom


  35. Snow – Do you have any insights on SKM (Korean telecom)? They are cheap, pay a 5% div, low debt level and enough cash. Looks like an interesting story. The options don't go far, but they seem liquid enough.

    Any ideas Phil?


  36. Today is a traveling day! Bots are so predictable – bouncing off the the 50 DMA.


  37. Phil – Nice call on /NG 


  38. Good morning! 

    Our Stock of the Year off to a good start – especially as our 2-year target is only $140!  That was part of the reason we chose IBM, the spread was so compelling because IBM was collapsing on news they bought RHAT, which I thought was a clever idea and everyone else seemed to think meant IBM was going BK or something.

    Monday Market Madness – IBM’s $33Bn Shopping Spree Gives Tech Investors Hope

    It's a powerful thing.  IBM (IBM) announced over the weekend that they will be buying Red Hat Softwars (RHT) for $33Bn which is more than 50% over Friday's $20 close at $116.  I noted in our chat room this morning that $33Bn may have seemed less ridiculous as IBM began negotiating with RHT, probably over the summer as RHT had just been at that valuation – though the people who valued them there were IDIOTS, of course.  

    RHT has $3Bn in earnings and $250M in profit.  If it were an IBM division it would have been shut down years ago as not worth keeping but IBM sees RHT as leverage as their customers are the customers of Amazon (AMZN), Microsoft (MSFT) and pretty much all the other cloud providers and that gives the mighty IBM sales force a foot in the door to leverage the 10s of Billions of Dollars they spend on cloud services and THAT is why this deal makes sense for IBM. 

    It's also a brave and confident move by IBM CEO Ginny Rometty and it's the kind of thing woman CEOs do that men almost certainly would not, which is make a move that carries a lot of personal risk for them, has no immediate payback but paves the way for the company to be much healthier in the distant future.  It's a nurturing move and the question now is whether she will be tarred and feathered for making it but predominantly male investors and analysts.  

    We're in a fairly painful IBM position in our Long-Term Portfolio as we sold 5 2020 $145 puts in January for $12.50 to net in at $132.50 but this morning IBM will open around $120 so we're down about $6,250 (100%) on those.  We also bought 15 2020 $120/150 bull call spreads for $14 ($21,000) back in July and yes, we still have all of next year but now net $9 is down $6,000 on that end too – ouch!   

    I think a lot of short-term investors may pull the plug but I have long-term faith so, most likely, we'll rescue $13 from the 15 2020 $120 calls ($19,500) and pick up 25 of the 2021 $110 ($20)/$140 ($7) bull call spreads ($32,500) so we'll spend $13,000 more but now we have 25 spreads that are $10 in the money so $25,000 and pays up to $75,000 against our net $34,000 total investment if all goes well and, of course, we'll make some short call sales along the way – but not when they are below $140.

    As to the short puts, we'll leave them for now as $145 in a year is not a crazy target and we'll roll them along to 2021 or 2022 if we have to because, as I said, this is a long-term play in our Long-Term Portfolio.  IBM's Watson has been quietly taking on more and more tasks (nice list here) and you can even use Watson to help coach your fantasy football team now.   IBM has a very long-term strategy to put Watson in everyone's hands and get people used to using it – at home and at work.  

    Image result for ai market growthArtificial Intelligence is barely a $1Bn market in 2018 but is projected to be almost $12Bn in 6 years and $36Bn by 2025 so yes, the time is now for IBM to make their moves to dominate the AI and Cloud Spaces – and that's what this Red Hat deal is all about.  Rometty is banking on being able to show some progress next year as AI doubles – even as cloud growth begins to slow (who isn't in the cloud now?) and, after making less than $6Bn in 2017, IBM has made $6.7Bn in the first 3 quarters of 2018 yet you can buy the whold company for $112Bn, just 12.4 times likely $9Bn in current earnings.

    That's the kind of company we like to have in our Long-Term Portfolio – the kind that MAKES MONEY!  Last time IBM tested $120 was early 2016, when they began their turnaround program and I was banging the table hard for them at the time.  They since popped back to $180 but now $120 again and again I am banging the table for an IBM investment as they are clearly being sold off by short-term traders – to the great advantage of long-term investors.  

    It's a classic LTP play, we sold some puts, the stock went lower which made us like them even more, so we set up a bull call spread (in this case we had a higher 2020 spread and rolled our longs to 2021, sold more short calls in 2021 and left the earlier short calls to decay (and we bought them back yesterday with an 80% profit).  Now, when IBM gets back in near the top of our range ($140), we'll sell more puts and draw an income, while we wait to realize the full $75,000 from this net $34,000 (from scratch) spread.

    Jeff Bezos said a good CEO gets paid to make a few very important positions – that's very true and the same goes for a good stock analyst or hedge fund manager.  We're here every day so I talk about stuff every day but it's those BIG moves that really matter in the end, when we call big tops or big bottoms and put our money where our mouths are (and, of course, our hedge fund grabbed the IBM too!).

    Still it goes back to ALWAYS managing your portfolio in such a way that you are Ready, Willing AND Able to take advantage of these opportunities when they present themselves – or what's the point.  

    As we ramp up Trade Exchange for a rollout this year, I'm going to test the waters for the demand for a service with only a few really good trades since the whole point of Trade Exchange is that we send out an actionable text Alert when something happens – so people who live their whole lives on vacation (Savi!) will easily be able to keep up with our market picks.

    October 29th, 2018 at 2:36 pm | (Unlocked) | Permalink

    IBM/Pstas – The April $120 ($8)/$130 ($4) bull call spread is tempting at $4.

    October 29th, 2018 at 9:16 pm | Permalink

    IBM CEO on Red Hat: ‘There’s a $1 trillion dollar market in front of us’

    Yet the stock still went down to $113 the next day!  

    Also a good review the next day (10/30) of where we were at the 10% line and why I thought we had further to go at the time but now 

    10% Tuesday Correction – Have We Fallen Far Enough?

     

    Now we need to watch all the 10% lines to see if they fail and those and we're not goingt to get bullish again until we are back over our strong bounce lines – which would be 6% off the top, recapturing 40% of the drop.  Failing those 10% lines is a strong sign that we are on our way to a 20% correction – another 10% lower than we are now.  Those 10% lines to watch are:

    • Dow 24,300 with a weak bounce at 24,800 and a strong bounce at 25,300
    • S&P 2,640 with a weak bounce at 2,710 and a strong bounce at 2,780
    • Nasdaq 6,870 with a weak bounce at 7,080 and a strong bounce at 7,230
    • Russell 1,485 with a weak bounce at 1,530 and a strong bounce at 1,575
    • NYSE 11,880 with a weak bounce at 12,150 and a strong bounce at 12,400

    This morning we're at 24,566, 2,646, 6,692, 1,466 and 12,000 so we're back at the 10% lines and /ES is the inflection point that gives us 3 positive or 3 negative but what's really great is how the 5% Rule is holding up 3 months later!  That means we can be pretty aggressive with our bounce predictions and that means we're going to back in the Futures business (after I've been reluctant to make too many calls in the -20-10% zone as the lines didn't have time to prove out).  

    Well, this is going to be my morning post, I think…

    We have a good bounce going on and, on the whole, it's just good consolidation at the 50 dma – very healthy to clear out the short-term profit-takers from the 10% rally.  

    Oil/Tommy – A speech I have given many times is the answer.  

    The first one, is back from my activist days (I used to go to DC a lot to lobby, sometimes successfully) was the germ of my proposal to raise mileage requirements which was, of course, a non-starter under Bush but Obama's team picked it up (even more than I proposed!).

    You don’t need higher taxes to fix the economy, Forbes is right in general, a flat tax of 25% with NO exceptions for housholds over the median and progressive but flat from $20-50K coupled with a VAT tax for corporations (a tax on goods and services they buy) to avoid all the crooked crap they do with their books could bring in about $3T a year by simply eliminating the cheating.

    That’s $500Bn more than we get now and if we wind down the war over 4 years (not being ambitious) that’s another $200Bn a year we save. Then I set up a rock stready earmark that guarantees $500Bn a year in payments to pay down the debt along with a serious balanced budget ammendment and I refinance the debt at 4% over 30 years, which people would jump on because the new structure would turn the dollar into a home-run currency (and don’t forget countries like China, Germany and Japan would love a stable place to dump the $10T they currently hold).

    Those 30-year notes would actually cost us “Just” $360Bn to service the interest so even if we don’t put anything more than the $500Bn a year into debt repayment (and this is not much more than we currently pay in just interest) we would still retire $4.2T worth of the debt over 30 years. Assuming a steady $11.5Bn a month were put into retiring the debt, then we would actually be down to less than $4T after 30 years through the magic of pre-payments!

    In 30 years, even with 2% economic growth, the remaining $4T will be VERY manageable.

    The next big deal is Social Security. We’ve taken care of the $1.9T we owe them as part of our debt but that’s not going to solve the problem of us having just 2 workers for each retired person in 2040 as 50M retired people getting $1,500 a month in benefits = $900Bn a year!

    Since we will eliminate 75% of the deficit by then we will have an extra $500Bn a year laying around by then anyway but that’s no way to plan a budget so we should begin a plan to have $22.5T set aside by then so 4% interest alone will be enough to fund the system. Luckily we just paid them back the $1.9T we stole from them so we can compound that out to $9.4T at just 4%, which means we’re short $13.1T, which can be handled by adding just $135Bn a year on the same 4% schedule (compounding monthly).

    Winding down the war alone would cover that with plenty to spare and, if not, it’s really just a 1% tax on the GDP to fix the system (AFTER we pay back what we stole). So remember that when morons on TV tell you it’s an unfixable problem and we should start screwing the poor people now and get it over with.

    Well that wasn’t so hard – I’ll see you later, I have to go fix the middle east! Perhaps I’ll start by placing a .50 per gallon tax on all fuel consumption (we were just paying that much a few months ago so it won’t “wreck the economy”), that’s $153Bn a year I’ll have earmarked for alternative energy research annually that me and the boys at OPEC can bat around. If they threaten to raise prices, I’ll threaten to raise the tax bring it up to $300Bn a year on research.

    Only 16M cars and trucks are sold a year so we’ve got (at just $153Bn) about $10K per car to make sure they’re more fuel efficient. Since Lexus charges just $3,500 more for the hybrid SUV than the regular, let’s say a $5K per vehicle allowance will allow us to raise mileage on new cars from 22mpg to 35mpg, which would save us 1M barrels of oil per day once we convert the US fleet (about 7 years). So that’s 1/2 of my $153Bn budget spent to immediately knock 1M barrels a wek off exports and another 1MB a week less every year for the next 7 year and I still have $76Bn left to play with!

    This is not a very ambitious program as the Honda insight gets 63 MPG and people in Europe pay $6 per gallon for gas and their economy is kicking our asses but I expect to get hundreds of millions in contributions from energy companies to go easy on them so I’m being nice! 8-)

    Since the entire market cap of PEIX is $500M and FSLR is $7Bn and SPWR is $6Bn, I figure we can get something done with $67Bn a year (and don’t forget, that’s just .25 per gallon). I know Al Gore was lauged out of Congress when he wanted to put a .075 per gallon tax on gasoline for energy research back in 1992 because it would drive up energy prices and destroy the country but I’m willing to take Congress on for this one…

    Submitted on 2007/11/23 at 9:41 am

    Fred – Don’t get me started! You’re right its am amazing thing and I just spent a nice day with some movers and shakers and it’s disturbing how little they worry about who they crush when they move and shake but ask most Texans what they think about China and they’ll be happy to tell you how they are ruining the planet with their industrialization and fuel consumption. I can’t believe how short-changed the facts (that China uses 1/5 the amound of oil we do) are in an oil town like Houston. They fight against changing mileage requirements even though raising US standards to 35MPG would save more fuel than all of Asia (including Russia) uses in total!

    Submitted on 2008/01/15 at 11:49 am

    Meanwhile, I’m toying with a progressive rebate/penalty system for cars that sets a baseline at 30 MPG and gives you $2.5K for buying a car that gets 35, $5K for 40 up to $10K for 50+ whith penalties going the other way at 25, 22.50, 20 and 15. With 16M cars sold a year the worst imbalance the government would have to shell out (assuming everyone bought a 50mpg car) would be $160Bn, less than my gas tax (which won’t affect you if you get a car with 30% better mileage). Again, this is a 12-month plan to radical change as shifting just 10% of our fleet into 20% better mileage saves 400,000 barrels a day of imports. What do you think the impact would be of 2.8Mb/week of extra oil in the first year?

    Submitted on 2008/02/15 at 3:25 pm

    Orion – 14% is good. That’s why a 20% tax on energy would be neutral for the consumers (it would simply force them to conserve) but would put $109Bn a year into alt energy research that would yield tremendous benefits down the road. It’s nice that a motivated person can do it but this is what governments are for, to take the long view.

    I’ve written before about my conservation tax. $109Bn buys a lot of research (look how excited people are about a $25M prize!). If I give you $5,000 for trading in your used car for a car that gets 15MPG more and 1/2 of the 8M people who buys cars does that, I would pay $40Bn (which would boost the auto industry) and, at 15,000 miles average per driver I would save about 400 gallons (10 Barrels) per vehicle (saving the driver $1,200 a year on top of the rebate) x 8M vehicles = 80M barrels of oil a year. That’s $7.2Bn per year off our trade deficit and $7.2Bn dollars back into the economy PER YEAR on my $40Bn investment.

    I would still have $69Bn remaining to develop alt energy and encourage other forms of conservation but just 5 years of that program, if only the mileage upgrades worked, would save 400M barrels of oil a year (1/2 the US fleet moved up just 15MPG) and would save Americans $36Bn a year even if my $345Bn spent on finding alternataves yeilded NOTHING (and assuming oil doesn’t come down in price despite our reduced usage).

    That’s all it takes, a 20% tax on energy and 5 years and WE CAN change the world.

    Submitted on 2008/05/11 at 1:12 pm

    As to public transportation – I don’t think it so much has to be free as extremely competitive.  In NY, you can take the subway anywhere for $2, the same price as it costs just to step into a cab.  I do think they should make it free for kids under 16, again as it’s a burden on the parents and kids have limited ability to make money.  That’s what you don’t see in the subway is groups and families as once you have 4 people, you almost may as well take a cab.  In general, public transport is a major infrastructure issue and this country has never taken it seriously.  In most of the world, you don’t have to wonder if 2 cities are connected by train, you just go to the station and find out what time.  We can barely get from NY to Boston or Washington without a major hassle.  That’s would take decades to fix…

    That Canada tax scheme sounds bizarre, send me a link if you have one.  I think tax is a BS solution because it simply punishes the poor.  My plan is to encourage then mandate 35mpg by "taxing" cars that are under 25MPG by $1K per mpg and rebating cars that are over 25Mpg by about $1K per mpg and moving the midpoint up 2 miles per year until we get to 40.  That let’s people make a free-market decision, if you want to buy a Hummer, then pay the $15K penalty and help someone else buy a Prius for $15K less.  That will drive demand for fuel efficient cars immediately and, since we waste so much fuel driving low-mileage vehicles, starting there will have the most, immediate impact on our fuel consumption.

    Mass Transit is a great idea but once you’ve developed the bulk of the country to this extent, the idea of ripping it all up to put in trains is highly unlikely.  Europe and Japan already had low-speed trains and stations and towns were built around them and now they have upgraded tracks to accommodate high-speed trains that compete effectively with cars and planes but, even if you upgraded the few hubs we do have in this country, the spokes are an entirely different matter.

    Good commentary on the ANWR farce:  http://www.alternet.org/columnists/story/21455/  also, down memory lane, here was the ANWR discussion in 2002, when Bush still had the house and the senate:  http://alternet.org/columnists/story/12842/

    Let’s keep in mind that 16M new cars are sold each year in this country.  Raising the average US mileage requirement from 20 to 25 mpg on next year’s fleet with an average of 15,000 miles per year per car (national average) would be 240Bn miles or 12Bn gallons ( ) at 20mpg and 9.6Bn gallons at 25mpg.  So that’s 2.4Bn gallons of gas saved in the first year of raising mileage requirements at 42 gallons a barrel that’s 57M barrels or 1Mb/week in the first year of mileage improvement.  We continue to save that 1Mb/week and save an additional 1/Mb week each year for the 7 years it takes the fleet to roll over EVEN IF WE ONLY RAISE THE REQUIREMENT TO 25 mpg.

    So let’s not pretend this jackass has any interest whatsoever in doing anything constructive for this country.  They can’t make money by having you consume less, pure and simple so it’s not a solution that’s even on the table!  Europe has a 35 mpg fleet requirement and do you know who is Europe’s number 1 seller of cars?  GM!!!  That’s right, the same guys who can’t compete here are able to outsell rivals in Europe with a fleet of vehicles that averages 75% better mileage than the cars they sell in the US.  Yeah, you get me on that talk show – I’ll murderize the bums!

    Consumption – I had a very simple idea:  You set a standard at 30 mpg.  If you buy a car that gets less than 30 mpg, you pay $5,000, if you buy a car that does better, you get $5,000.  At 25 you pay $10,000, at 35 you get $10,000.  At 20 you pay $15,000, at 40mpg you get $15,000….  Give Detroit 18 months until you enact the tax and let them figure out what the demand will be in the showrooms.   Let rich folks drive what they want, it’ll be directly offset by helpiing someone else buy a car that gets proportionately better mileage.  If we raise our milage over 3 years to 30mpg then boom, 5Mbd saved.

    Submitted on 2008/05/22 at 1:28 pm

    JB – You could set a separate standard for commecial vehicles but with the same goal of upping standard mileage by 50%.  This is what people don’t get, we consume 15Mb of gasoline a day.  The fleet needs to improve 50% so getting a truck from 8 to 12 is just as important as getting a car from 20 to 30 and just as effective.  It is not impossible to make a truck that gets better fuel, just more expensive and don’t forget that saving 50% on fuel over the time of ownership will pay for itself so the "burden" you are placing on small truck owners is not tremendous.  Let’s say the average contractor’s flatbed gets 12 mpg.  All I’m saying is that if they buy one that gets 12 mpg again they will pay $5K, if they buy one that gets better than 18mpg, they will get $5K…  Pehaps it will be slightly smaller and haul slightly less (like the ones you see in Europe) but the question will be, is it worth $5K to them.

    Car Exchange – That’s like my solution to encourage people to buy cars that get better mileage.  It could be accomplised in one model year.  All we have to do is tell auto makers that starting next summer, cars that get under 20 mpg will pay a $10,000 energy tax, cars getting from $21-25 mpg pay a $5,000 tax and cars that get 26-30 pay $2,500 tax.  Cars that get 31 to 35 mpg will get a $5,000 credit with a $7,500 credit at $36-40 and a $10,000 credit over 40.  Then let the automakers market accordingly.  If it costs the government an average of $5K for 20M cars (assuming the rebates increase sales 25%) sold next year, that’s just $100Bn but we save at least 1/3 of the fuel consumption on 20M cars so that’s 95M barrels of oil saved in year one of the program which will reduce our trade imbalance by $1Bn a month, even if oil prices stay high, which will strengthen the dollar and pump $12Bn back into the US economy. 

    If George Bush had any balls he’d get up tomorrow and whip out a checkbook and write $1Tn worth of checks tomorrow morning and just say "Go ahead and impeach me if you want but I’m saving the damn markets."  The government needs to step in and guarantee all home loans and then start an audit process on bank books and homeowners along a 10-year plan to move people to the right mortgage who can afford them and move people out of homes who can’t. 

    Step 2 would be to buy bank stock from any bank that wants capital, at this point shareholders should be thrilled to be dilluted for cash.  I’d be sitting down with Ford and GM and nationalizing them and busting the union and appointing someone like Kerkorian to rework all the contracts in a fair manner that will keep people employed and then I’d spend what it takes to retool them into high-mileage vehicle producers. 

    I’d also get on TV and tell OPEC if they cut production I’ll release the SPR at double the rate of their cut and put $200Bn of taxpayer dollars on oil puts and after I’m done trashing the market and get a double I’ll go long and start buying back oil for the SPR until my calls are worth $800Bn and then I’d go the other way again.  Nothing illegal about it apparently as all the funds have been doing it for years….

    So when Obama came in and actually raised the mileage requirement for the auto fleet to 35 mpg over 7 years – the plan kicked into play (over the kicking and screaming of the auto sector) and, as we expected, consumption dropped year after year as the rollover of low mileage cars continued.  

    Unfortunately, Trump has not only stopped the next leg of the plan to 50 mpg by 2023 but he's rolled back the 35 mpg requirements.  A move that single-handedly may tip the scales that wipe human beings off this planet – so congrats to all who voted for that!  

    Here's a blast from the past I found looking for the above:

     

     

    Hawaiian Holdings just flashed new lows 3 times in a row on my screen as the Dow tested 8,200 and my screen said: "HA HA HA" – I wonder if that’s trying to tell me something?

    New idea for Congress.  Give Donald Trump the $25Bn to give to the auto companies and he makes them perform different tasks every week to get a check.  One week they could try to sell cars people want, the next week they can pollute less, the next week they can fix the pension plan, the next week they can improve MPG.  In the very least, at least the taxpayers would get some ad revenues back for our $25Bn investment…


  39. Phil// Is this a good time to initiate some positions on T?  If so can you recommend a trade that I can initiate now?  This will be in my IRA/retirement account.

    Thanks.