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Tuesday Already? Short Week but Plenty of Problems

We've got 99 problems and Trump is only 69 of them (nice!).

I hate to start a short week off this way but, "lest we forget" – here's SOME of the top issues (just the ones still making news this weekend):

That is just this morning's round-up and I'm not trying to bring you down but, as noted by Jeff Gundlach, when asked how he consistently has one of the top-performing funds in the World, "I look at the News Wires more than anyting else,…  I think what's important is to look at the news flow and watch for those times when the news doesn't change, but the interpretation does – or the news does change, and the interpretation doesn't.”

Clearly Jeff is a PSW subscriber or, in the very least, he's running the same strategy we do, which is Fundamental-based Investing, where we understand the true value of companies and then we wait, PATIENTLY for a mismatch between the current PRICE and the actual VALUE – so we can jump in and take advantage of it.  

Image result for give a man a fishLike me, Gundlach simply enjoys using market action to make sense of the World and we also share the philosophy that we don't mind giving away our "strategy" as our strategy involves constant hard work and study and it's not worth much in the "give a man a fish" model – we prefer to teach our Members to fish – and we all grow from the sharing of knowledge.

We're generally bullish on the market but the NEWS CYCLE is certainly shiftting down and that led us to sell off some of our portfolio winners last week and also to bump up our hedges – just in case.  The hardest thing about Fundamental Investing is getting the timing right.  We are often too early in our picks though very often are we wrong.  

Frontier Communication (FTR) is one we were way too early on, moving in as one of our first trades of 2018 in our new portfolios.  In the Options Opportunity Portfolio, we bought 3,000 shares (after doubling down) for $4.54 ($13,620) and sold 15 short Jan $8 calls for $1.25 ($1,875) and 30 (after rolling) 2021 $5 puts for net $2.15 ($6,450), so our net entry cost is $5,295 on 3,000 shares ($1.76) but, since the stock is way below $5, we're currently showing a net $7,545 loss for our troubles.

30 FTR 2021 15-JAN 5.00 PUT SP $ 9,900.00 12/11/2018 $ 8,100.00   70
$ -1,800.00 -22.2 %
3000 Frontier Comms. Corp. (FTR) LS $ 13,620.00 1/2/2018 $ 7,950.00   413
$ -5,670.00 -41.6 %
15 FTR 2020 17-JAN 8.00 PUT SP $ 7,650.00 1/3/2018 $ 6,000.00 12/11/2018 342
$ -1,650.00 -27.5 %
15 FTR 2020 17-JAN 8.00 CALL SC $ 300.00 1/3/2018 $ 1,875.00   412
$ 1,575.00 84.0 %
Total Gain/Loss for FTR
$ -7,545.00 -24.0 %

FTR bought Verizon's (VZ) landline business, including FIOS Fiberoptics, in California, Texas and Florida for $10.5Bn two years ago and doing so added massive debt and tripled the size off FTR's staff and the transition has been painful and investors got impatient (as well as spooked by the debt) and have fled the company but FUNDAMENTAL investors remember that FTR bought 15 states from VZ back in 2010 and the stock went from $150 in 2010 to $50 in 2012 before going back to $125 in 2015.  That makes $2.65 seem pretty cheap and it was closer to $2 last week, when we made the following adjustment on the morning of 2/14:

  • FTR – We sold the $5 puts for $2.70 and now they are $3.10 so let's take that loss ($1,200) and spend $6,780 more to buy $3,000 more shares, which will make our average cost $3.40 and we'll buy back the 15 short Jan $8 calls for 0.15 ($225) and that profit more than cancels what lost on the short puts so we have a clean $3.40 on the stock and we COULD sell the 2021 $3 calls for $1 and drop our net to $2.40 but let's just see where earnings end up first on 2/26.

So now we have 6,000 long shares, uncovered into earnings next Tuesday and I don't think THIS is the one where we begin to turn around but I do feel that EVENTUALLY we will turn around and we just want to be there when it happends.  Making back our $7,500 loss would take a $1.50 move up but, at $2.65, FTR's market cap is just $280M for a company with $9Bn in annual sales. 

Looking at other small telcos, they generally drop 5-10% to the bottom line and even 5% would be $450M a year for FTR and, even if that is taken up paying off debt for the next decade or so – it's like a mortgage – eventually you own the home!  FTR is priced as if it's about to go Bankrupt but, as you can see from this chart, they don't even face a very significant debt redemption until 2022.

Of course investors are worried that wire-line communications are dead and they are likely to wind down over time but we're not ready to cut the cord on the internet just yet – nor have most homes even given up land-lines and the bandwidth needs of businesses are not going to be addressed by LTE or even 5G – so a good 10 years before this kind of business really dies – and that's a long, long time for a stock to trade at 1/10th of its value.

Essentially, FTR's stock is a call option on it's potential to generate CASH!!! down the road.  Guidance for Free Cash Flow in 2019 was $700M on the last report (that's cash-flow, not profits as they'll be writing off assets for many years) and, if that number is unchanged or up at this report, I wouldn't be surprised if we get even very quickly.  

As Gundlach says, we need to wait for the "interpretation" of the news from FTR to change because, so far, there's nothing so terrible in the news that we are getting – which is why we keep buying.

It's a short week but we have 7 Fed Speakers along with the Minutes of the last Meeting tomorrow at 7pm.  As noted above, Oil (/CL) blasted up to $56.50 into the holiday weekend with Gasoline (/RB) hitting $1.58 but those are both shorts this morning as it was all BS to jack up prices at the pump.  We won't see Oil Inventories until Thursday at 11 but Durable Goods will be out at 8:30 with the Philly Fed that morning and then PMI and Home Sales – so no one has time for the nosnese of oil.

I worries me when they have 5 Fed speakers on the same day, especially a Friday – makes me think they expect the markets to need a save that day so – be careful out there!  

Have a great week,

- Phil


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  1. Good Morning!

  2. An idea outside the PSW norm… AMD options are carrying a boatload of vol. If we buy the 12/22 Jan 2020 spread for $6.60 (Fri close) we could make 82% in 11 months if AMD doesn’t go down past $22. it’s trading at $23 and change. Obviously if the market makes a big move, that might change. But something I’m watching. The thing I like about it is AMD has to drop past $18.60 for us to lose, and it’s most likely going to $30 or more by year end if it stays on track with 7nm product launches and taking market share as anticipated. 

  3. AMD/Dawg – My sense is that "normal PSW" would be to sell the 2020 $22 Puts for $3.80. 

  4. Probably but I don’t like using margin like that. 

  5. And the play is a volatility capture – at least that’s what I call it. I’m not sure I’d want AMD at $22. Anyway, just realized my math is off. The upside is only 52%. Still not bad but not great. 

  6. Phil,

    What would be a good set up to short DPZ? I believe they are over valued at 36 times PE. (Per CNBC numbers). Plus as there are rumors of Blaze Pizza going public, I feel Blaze has a better product to market that may quickly eat up DPZ's business.



  7. Phil/anyone/REITS

    Good morning!

    A severely rainy weekend in San Diego..patio furniture now in neighbor’s yard! Hope he returns it.

    Anyway, anyone have strong feelings about a REIT I can purchase that is a good company with stable finances and stable manangement? I am looking for 8-11% distributions.

    I have owned AGNC for a couple of years, getting about 11% a year, paid in monthly installments.

    I do not want to buy more as I will be overextended in one company.

    Any ideas from anyone welcome

  8. Kamikaze trade -  Bought some WIN at $1.08.

  9. REITS – Phil likes NLY, short long-dated $8 calls for some nice downside protection/basis reduction. Distributions are somewhere just above 10% I believe.

    Currently moving into some more of it as it gets back down closer to $10… I have only been in it for about a year, but so far so good. 

  10. Pat DPZ In principal I feel the price of the stock is to high 278.33 to gamble.
    The risk to sell an April 250 put can cost you 25K against selling a 240/250 April put vertical for 1.25 and your risk is limited to 875.00

  11. Wow, the GOP and Conservative Media are pulling out all the stops to vilify the "New Green Deal" and anything that even looks like Socialism.  

    Anything negative that they can connect to either is immediately made a big deal of – including Venezuela, which has been a problem forever but suddenly is being painted as a "Socialist Hellscape" that must be dealt with.  Maduro came on after Chavez died in 2013, he had been President since 1998, the US attempted to force  a coup against Chavez in 2002 after the Government required that the State Oil Company (PDVSA) own a majority stake in all oil projects (SOCIALISM!!!).   

    Maduro has passed laws limiting profit margins, leading to his attempted assassination in 2014 and Maduro has long maintained that his opposition as well as the terrorists are funded by the US and its Corporate Allies.  In 2015, the Mayor of Caracas did, in fact, attempt a coup with US backing.

    Anti-government demonstrators clash with riot police at Altamira Square in Caracas on 24 February 2014 You can tell these terrorists came straight out of Central Casting…

    Last August, two drones with explosives attacked Maduro and Team Trump is mainly trying to get him out now before they can finish an investigation that ties those drones directly back to the White House.

    Not that Maduro is a party, just that the vilification of him seems driven by another agenda.

    September 8, 2018 - A report is published in the New York Times detailing secret meetings between US officials and Venezuelan military officers planning a coup against Maduro. CNN confirms the report, which describes a series of meetings over the course of a year. Ultimately, the US government decided not to back the coup.

    January 23, 2019 - Juan Guaidó, who leads the National Assembly in Venezuela, declares himself the interim president amid massive anti-government protests. Following Guaidó's announcement, Trump states that the US recognizes him as the legitimate president of Venezuela.

    January 24, 2019 - US Secretary of State Mike Pompeo announces the US is ready to provide humanitarian aid to assist with the effects of the proliferating crisis surrounding Maduro's illegitimate government.

     I'm sure the Iranians feel they've seen this movie before….  

    Big Chart – Can't fight the tape – for now.

    AMD/Dawg – $6.60 is a lot to make $10 but you are right about the premiums – pretty nice.  I don't think AMD goes much higher but Buckeye is right as selling the 2021 $20 puts for $4.35 accomplishes plenty (and that's what margin if for) with a net $15.65 entry and just $2,014 of ordinary margin against $4,300 collected – a very nice two-year return so why take a risk on anything else?   Let's sell 10 in the LTP and see how it goes.

    DPZ/Pat – Well having a better product than Domino's is a very low bar but I'm no fan of Blaze either.  Of course, most of the country has crap pizza and doesn't know any better, so it's all about the numbers and DPZ is way overpriced at $280 ($11.5Bn) with less than $3Bn in sales and $300M in profits.  They've been in business for decades so it's not like they will suddenly pop up to even $550M to bring the p/e down to 20 in the near future. Still, to play something long I don't need a reason as, ultimately, I end up owning it so, if I'm right, it eventually goes up.  Shorting gives you a new chance to be proven wrong every year and you have nothing to show for it if you're wrong other than losses.

    DPZ has earnings this week so I wouldn't play at all and hope they pop back to $300 so I could sell calls (assuming we don't think earnings are a game-changer).  The Jan $300s are $23 and the $270s are $36 so anything over the middle ($30+) and I love selling the call.   As to a bear spread – again, not ahead of earnings but I'd rather buy the 2021 $240 puts for $20 and sell the April $270 puts for $10 so, if DPZ does go up, you are in the long puts for net $10 and, if DPZ goes down – RAWHIDE

  12. REITS/Maya – Just reviewed them on Friday for the LTP, we have 5 of them! 

    WIN/Albo – The new FTR.

  13. Phil – The information that you presented for FTR makes a strong case for CTL and their 7% dividend, IMO.

    Meanwhile, Southeastern Asset Management, holder of 6.2% of the shares has gone from a passive to an active investor.

  14. I am recently back from Caracas and the country is basically the same as it was last year and the year before that, except the government has less money to subsidize life because oil prices are down and production continues to decrease. Misery there is the inverse of oil price x production.

    For those who may not know, Chavez attempted a coup in 1992, people were killed and the attempt failed.  “The Venezuelan coup attempts of 1992 were attempts to seize control of the government of Venezuela by the Hugo Chávez-led Revolutionary Bolivarian Movement-200. The first coup attempt took place on February 4, 1992, and was led by Chávez”état_attempts

  15. CTL/Albo – I think they are pretty much in the same boat. Just be careful because CTL may also choose to cut their dividend and send the stock spiraling lower.

    Venezuela/Mike –  so how do people on the ground really feel about Maduro?   Do they blame him for the economic woes or do they understand that it mainly relates to the price of oil?  

  16. Phil – CTL did just cut their dividend from $2.16 to $1 even though their Fre Cash Flow covered the $2.16.

  17. pat_swap/DPZ   I agree that DPZ is overvalued but comparing them with Blaze is apples to oranges.  Blaze Pizza is primarily a destination restaurant with under 300 locations.  Domino's is a pizza delivery service with 15,000 locations worldwide.  Its hard to see how Blaze going public would have a major impact on DPZ

  18. Venezuela/Phil, the country is poor and everyone there knows there is corruption no matter who is in government. Chavez, and continued by Maduro, put punitive fiscal and monetary policies in place to prevent any concentration of power that could threaten control – over time this killed off just about all private industry leaving just oil/government.  The country is a mafia or top down pyramid, the very definition of trickle down.  Under Chavez when oil screamed up in price money was flowing down hill at a pace never seen before in that country and the poor benefited tremendously. The educated understood the need to reserve for a rainy day but Chavez did not operate like that and as we all know the price of oil fell hard and all of the usual problems returned.

    Most understand the price of oil has fallen but none of the poor realize that the neglect of the oil fields and equipment that has compounded over time is now an almost insurmountable problem (similar the state/local pension problem here in the US). About half support the government because they want to return those grand 'ol trickle down days, about a quarter were always the opposition and the remaining quarter are poor who are tired and want to try something else.

  19. The Spiritual Case for Socialism

  20. One of my very favorite things about PSW is the introduction to some of the web sites that Phil looks at.  When my kids were living at home, they used to tell me about kool new sites, but no longer.

    Today it was discovering  Anonymous Content.   Thanks Phil

  21. Phil, whats with the /RTYH19  today…..Being set up for a fall?

  22. Hello from sunny Mex (don't hold it against me ;)  

    I have the original partial bcs on ABX/GOLD. 

    long 50 Jan'20 $15c (pd $2.82, now .89), short 25 Jan'20 $15p ($2.46, now $2.8).

    Should I roll the longs to say Jan'20 $10 or $12s (buying less premium than '21s) and sell maybe the '21 $17calls?

    Should I wait out the put premium and keep them until closer .. not much left actually?


  23. Phil,

    Would like your thoughts on a longer term idea -  solar. Looking at DQ (best financial numbers) but much smaller, FSLR which is the biggest and SPWR which has enormous debt.

    Thanks in advance

  24. Sold 1/2 of WIN trade up 22%.

  25. Emergency powers helped Hitler’s rise. Germany has avoided them ever since.

  26. mikezuela 


    Thank U for the information

  27. FCX – Up big today on move in copper and upgrade from Citi.

    Copper price near 6 month high.

  28. Other metals up strongly also as dollar weakens.

    Bought some NUGT, 3X Bullish Gold ETF.

  29. albo – holding NUGT for a bit or just a day trade?

  30. Somavision – Don't want to hold NUGT too long as it's leveraged and subject to degradation.  Hopefully hold for a week or so.

    Pstas – Yes, that is Southeastern Asset Management who holds 6.2% stake in CTl.  They disagreed with the sharp dividend cut and felt that deleveraging could be accomplished by some asset sales.

  31. Sorry guys, lost my whole last comment somehow (friggin' laptop!).  Only just noticed it never came up.

    CTL/Albo – That's how it started with FTR – just sayin….

    DPZ/Stock – Not a direct ding but can lead people to look at DPZ as old and stale.

    Venezuela/Mike – Thanks, I love getting local color on things.

    AC/Stock – I get sent so much stuff and most of it is crap but sometimes there are gems in there.

    RTY/Jasu – This sucks because I put a lot of work into that one…  Short story is, if RTY is on a bullish path, that would be 1,200 to 1,800 and if 1,800 is real, then a 20% retrace from there would be 1,440 and the rest would then be overshoot to the downside (all the way to 1,300!).  Doesn't matter, as long as it reverses quickly (relatively).

    So, that being the case, we would expect the 5% Rule to be obeyed between 1,440 and 1,800 which is 360 points so 72-point bounce lines to 1,512 (weak), 1,584 (strong), 1,656, 1,728 (weak retrace – where we failed before) and 1,800.  So expect good resistance at 1,584 and no more than a strong retrace of that run from 1,440 (if we're bullish)  which is 144 so 29(ish) down to 1,555 (weak retrace) and 1,526 and we'll see how that goes:

  32. Phil, reading over Friday's review. How about BHC as a butterfly?

  33. ABX/Wing – Well you essentially are net $0 if you sell the calls and buy back the puts so it's really a new trade on GOLD but I'd sell 15 of the 2021 $15 puts for $3 ($4,500) and buy 30 of the 2021 $10 ($4.65)/$15 ($2.10) bull call spreads for net $2.55 ($7,650) so that's net $3,150 on the $15,000 spread and you're 1/2 in the money ($7,500) on the bull spread to start – so that's nice.  This way, you're not over-leveraged on the short puts and still have room to roll and the upside is nice enough to get your money back and then some.  

    Better hurry though as it's going up since the last time I wrote this! cheeky

    DQ/8800 – They are small and I don't follow them and I'm missing half my screens so I would prefer to wait for the weekend to look into them (still way ahead of earnings at month's end).  Options don't go out far (Oct) but at least they are decently traded.  I THINK that their market cap is in Dollars and their earning are in RMB (so divide by 7) and that's why they seem to be such a bargain.  Seems unlikely they have $350M in sales and $94M in profits when JKS has $6.6Bn in sales and $200M in profits or CSIQ ($770M/70M)…  

    WIN/Albo – Very nice!  

    Maybe they are the new FTR?

    FCX/Albo – I guess we beat them to that upgrade.  

    Submitted on 2019/02/15 at 1:56 pm

    • FCX – Well this one found a bottom so we can add to it (I know, not what I wanted) by buying 50 of the 2021 $10s at $4 ($20,000) and selling 50 of the 2021 $17s at $1.40 ($7,000) for net $2.60 ($13,000) less the $9,700 we already took on the 20 short $15 puts means we're in this $35,000 spread that's $11,500 for net $3,300 – still good for a new trade – even with the puts at "just" $4.25. 

    BHC/JMD – Did I say they should be a Butterfly?  While I do like them as a new, bullish trade, the moves from $25 to $17 and back during just Dec and previous, MANY massive moves before that make them not the kind of trade we'd do a Butterfly on as it's not a question of IF you get blown out of your shorts but WHEN.

    The point of a Butterfly play is to sell short puts and calls on a regular basis.  Let's say we sell each Q and the BHC May $25 puts and calls are $4.50 so all BHC has to do is hit our target on the nose and we make $4.50 but that's not likely (and the way BHC moves, no target is LIKELY within $2) but let's say we make $2 and we have 7 chances to collect for $14 over 2 years. 

    Let's say the spread is only $5 so + $9 if all goes well but just one move to $18, like we had in Dec, would put us $7 behind on the puts so net $3 loss vs $4 sold (ish) means it would take us 3 more months just to get even but if we get blown out again and lose another $3, then it will take us almost all of next year to catch up and now it's a pointless trade wasting space and resources in our portfolio. 

    We try to avoid letting that happen by NOT getting into stocks that are too volatile to predict.

  34. Not a good day for the indexes since the Dollar is down half a point.  Great day for /SI, testing $16 and /YM at $1,340.  Oil came back put paid well earlier.

    No one seems worried

  35. Hi Phil.  Getting "database error" on your Wiki.  In your last review, you bought 10,000 more FTR.  Why buy the stock and not the calls?  Thx.

  36. Yodi -

    Thanks for all the info -just to clarify I was not looking for a free ride to piggyback on all your plays.  I just know that you often seek out solid dividend paying companies so I thought that would be a great place to start.  I read all your posts – and follow as best I can but I can't commit the time right now to do a pure armchair portfolio (too much oversight required) due to my actual day job. 

    I have been lurking here for a few years trying to figure out where I 'belong' in terms of strategies.  I have been trying to emulate the OOP for the past year or so but haven't had great success – I didn't have the capital to double and quadruple down on losing positions (my fault entirely) so my losers cancelled out most of my winners.


    Now I do have some capital to commit – and I want to be pretty conservative with about 80% of it – thus the covered call/dividend plays.  Hopefully soon I will be able to fully participate in the 187% gains of some of the portfolios but just not there yet.


    Thanks to everyone who contributes – I will post some of my potential trades like I did the F one last week to get opinions.

  37. Phil,

    thanks for the solar commentary

  38. Phil – Great call on FCX !

  39. Thanks Albo.

    Well, Dollar down 1% since Friday and S&P up 0.24% is not what I'd call a winning day and a weak finish too.  We'll just have to see what happens tomorrow, I guess.

  40. Good morning!  

    Indexes off just a bit with gold and oil up and the Dollar down.

    /NG flying higher – finally!

    Finally positive on the /NGV19s after a rough ride but I'm in for the long haul on these:

    Submitted on 2019/02/04 at 7:31 am

    Not to much going on.  /NGH19 even lower today, $2.715 on reports warming weather is coming   Even July (/NGN19) dropped to $2.79 but /NGV19 (Oct) is better now at $2.80 so that's where I'm rolling.

    Submitted on 2019/02/07 at 1:10 pm

    /NG/Ati – I have the /NGV19s, which are down to $2.73 at the moment – held up relatively well against the front-month but very disappointing and the in-line inventory didn't help (but still a good draw):

    We're still trending on the very low edge of the 5-year average band but not getting the reaction I thought we would this month from the cold so better to stick with the long-tern play, I think,

    Working Gas in Underground Storage Compared with Five-Year Range

    The front month had wild swings down but /NGV19 bottomed out around $2.72 (on the 7th) – Good example of what we were talking about last week which is don't just stop out of things – check your premise because very often commodities make blow-off move to shake out the longs (or shorts) before reversing so you need to have a bit of conviction if you are a long-term player.