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GDPhursday – Trump Finally Goes to Vietnam – And Loses

Image result for no deal trumpNo deal!  

Trump called an early end to his long-awaited summit with Kim Jong Un last night, 2 hours before the two were scheduled to have a "joint signing event" to conclude the negotiations.  Our deal-maker in chief said they reached an impasse and "We actually had papers ready to be signed, but it just wasn't appropriate."  Now I guess that sounds fine to a farmer in Iowa but anyone who's been top management at a company knows that when you schedule a closing for deal and people fly around the World to get it done and then it blows up at the last minute – that there was some seriously incompetent crap happening beforehand.

What really bothers me about North Korea is the implications it has for the China Trade Deal as that may end up not happening just as easily as Team Trump was assuring us up to the last second that North Korea was in the bag and Japan's Shinzo Abe has already nominated Trump for a Nobel Peace Prize for "Bringing Peace to the Korean Peninsula" – which hasn't actually been at war for 50 years – but who's counting.  Despite that very low bar of making it through year 51 – Trump has failed – capping off a very bad day where Trump's lawyer provided Congress with a list of Felonies committed by the President, including:  Bank Fraud, Tax Fraud and Campaign Finance Violations.  

Image result for trump robin hoodMy working theory remains that Trump does not want a trade deal with China because he's taxing AMERICANS hundreds of Billions of Dollars a year in order to balance the tax cuts in his budget.  In other words, the tariffs are nothing more than Trump's way of robbing the poor to give to the rich and, even though Farm Loan Delinquencies have skyrocketed to 19.4% of all loans – despite the $7.7Bn Socialist Government hand-out – yet Trump's base is still too dumb to connect the dots!

This morning, we see how the overall economy has been affected by the Trade War and it looks like Q4 GDP is coming in at 2.6% – better than the worst case but down 0.8% (23.5%) from Q3s 3.4%.  If we can make a deal with China soon (the deadline was March 2nd but has been pushed back to no specific date), then we can expect GDP to rebound but it's also possible that the number is fake and being used to put pressure on China, allowing Trump to say "See China, we still have 2.6% growth – we can continue the tariffs longer than you can."  This is how Trump negotiates – tricks and lies – something that Michael Cohen explained in great detail yesterday…

Image result for bankers taking farms cartoonAnd, of course, there's nothing rich people like doing more than foreclosing on farmers, who have millions of acres of land that is ready to be plowed over and turned into cookie-cutter communities and shopping malls.  Trump is a real estate developer and so are most of his friends and family – bankrupting farmers is the best thing he can do to ensure their futures as it will provide them with cheap land they can build on for decades to come.

We'll keep an eye on this crisis as it develops as well as the GDP data.  Many economists expect a more muted pace of growth in 2019 due to weaker global growth and waning effects of 2017’s tax-cut boost, although the U.S. economy still has strong support from low unemployment and rising incomes. The Federal Reserve predicts 2.3% growth in 2019. 

Consumer spending, which accounts for more than two-thirds of the economy, rose at an inflation-adjusted, annualized rate of 2.8% in the fourth quarter, pulling back from the third quarter when it rose at a 3.5% rate. While Americans boosted spending on big-ticket items, their spending on services and nondurable goods slowed.  Exports rose at a 1.6% rate in the fourth quarter, after a 4.9% decline in the third. The Commerce Department attributed the upturn to petroleum and capital goods exports.  The shutdown had little effect on Q4 as it began on 12/22 – it's the Q1 GDP we should be worried about!

While 2.6% was stronger than expected, we'll be lucky to break 2% in Q1 and, as I noted, I'm not sure I trust the Q4 numbers as this is only the initial estimate.  We're not over our lines yet and we're already well-hedged so it's mostly "Watch and Wait" into the weekend.


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  1. Good Morning!

  2. Good morning, All!

    The webinar replay is now available!

  3. Losing some lines!

  4. Good morning! 

    I have a meeting at 10:30 but should be back at noon.

  5. Someone named Weisselberg probably didn't well last night!

  6. Thank you Trump:

  7. Some of the worst cliches in sports and investing:

    “Stocks fall due to sellers outweighing buyers”
    Literally every single trade has a seller and a buyer. Every. Single. One.

    I know what people mean by that, but it's true, there are never more sellers than buyers technically speaking.

  8. Short /ES and /YM.

  9. Same here Albo, but /NQ. Covered 1/3 already.

    Looks like some dip buyers are moving in on WTW – up almost 10% this morning. 

  10. Covered 1/3 of /YM up 40 points.  Stops to entry.

  11. Covered 1/3 on /ES for 7 ticks on the move into the money.  Stops to entry.

    Playing these tight as this is the last day for monthly window dressing.

  12. WTW down 84% from last summer's high as Oprah's influence wanes.

  13. Phil had some good commentary on WTW in the webinar. I have a failed earnings play in there so am welcoming the small rally today. 

    Still holding one last short /NQ.

  14. Fleets Continue to Prop Up U.S. Auto Sales Numbers

  15. DeVos to pitch federal tax credit for ‘educational freedom’

  16. I just called and asked TD Ameritrade to switch my cash sweep vehicle to PTTXX which currently pays 1.99%. The client advisor didn't think it was going to be a problem, but it needs to be approved by a separate team. I have just over $1M with TDA, across multiple accounts. Just an FYI for everyone. 2% is nothing to sneeze at, especially considering Phil's strategy leads to holding such high cash balances.

  17. Palotay – interesting, are the crediting your margin same as cash?

  18. Palotoy – PTTXX – has a 1.99 yield, but expense ratio of .86 - while the yield may fluctuate the expense ration will not…   

  19. Palatoy – VMMXX – similar find from vanguard – 2.46 yield with a .16 expense ratio…

  20. Indexes hanging on for now – just a little red. 

    LB did not help themselves this morning – down around $25.

    In the OOP:

    Long Call 2021 15-JAN 20.00 CALL [LB @ $25.18 $-2.22] 15 1/10/2019 (687) $12,750 $8.50 $-0.75 $8.50     $7.75 - $-1,125 -8.8% $11,625
    Short Call 2021 15-JAN 27.50 CALL [LB @ $25.18 $-2.22] -15 1/14/2019 (687) $-7,500 $5.00 $-0.70     $4.30 - $1,050 14.0% $-6,450
    Short Put 2021 15-JAN 27.50 PUT [LB @ $25.18 $-2.22] -5 1/10/2019 (687) $-3,350 $6.70 $0.25     $6.95 - $-125 -3.7% $-3,475

    Not much to be done here – we already considerably lowered our targets and it's not like $27.50 is out of reach – just a set-back.  Nor is it worth buying back short calls or rolling long ones….

    The LTP, on the other hand, can be adjusted:

    2021 15-JAN 27.50 CALL [LB @ $25.18 $-2.22] 50 9/21/2018 (687) $34,750 $6.95 $-2.65 $6.52     $4.30 - $-13,250 -38.1% $21,500
    2021 15-JAN 35.00 CALL [LB @ $25.18 $-2.22] -50 9/21/2018 (687) $-21,650 $4.33 $-2.03     $2.30 - $10,150 46.9% $-11,500
    2021 15-JAN 30.00 PUT [LB @ $25.18 $-2.22] -20 1/10/2019 (687) $-16,200 $8.10 $0.45     $8.55 - $-900 -5.6% $-17,100

    Nothing heroic, let's just roll the 50 2021 $27.50 calls at $4.35 to 50 2021 $20 calls at $7.65 so we're spending net $3.30 ($16,500) to go $25,000 in the money and widen our spread to $15 ($75,000) and our prior net was a $100 credit so now $16,400 on the spread that's $25,000 in the money doesn't suck.

     Wow, these /NG swings are crazy!

  21. Thanks Batman.  Very good point. Did TDA agree to give you the Vanguard product?

  22. Pompeo explains why no deal was reached with Kim

  23. PTTXX- I was told by TDA that fund is not "marginable" in a PM account which is where I carry large cash balances so I took a pass. 

  24. Stopped out of /ES and /YM at entry.  Took some profits early and left quite a bit on the table.  The early gains allowed for trying to let profits run with no risk exposure.  That didn't work.  Might look to re-enter later.

  25. Hello Phil,  I have an LB trade on as well.  I am in the 17Jan20 30/35 BCS.  Per your training I am rolling the longs down $7.50 in strike for $3.00 and will be left with $22.5/ $35 BCS.  My question is about the short $35 call which are at  $0.88.  It really doesn't have a lot of meat left would you roll this down as well?

  26. Thanks pstas.  Per my discussion with TDA just now, it seems like you need to make sure they use the fund  as a sweep vehicle for your account.  It seems like if you have more than $1M they will let you do that, which shouldn't negatively impact margin because it will be considered equivalent to cash.  Right now the basic sweep vehicle that they use, that only pays .07%, doesn't negatively impact buying power, so I believe PTTXX will be treated the same.  PTTXX seems like the best choice with TDA, and will net me 1.3% which thankfully is better than .07%, but still far inferior to what Interactive Brokers gives.  I think I may start an account with IB, and see how I like their platform.  They have lower commissions, and better interest.  Which I think could save me a significant amount of money per year.

  27. Indexes/Albo – Very tricky at the moment.

    LB/Robert – It's a trade-off so I'd buy back the short $35 calls (0.85) and sell 1/2 the $32.50s ($2.70) and use the extra money to roll the longs to the $20s, 1/2 covered, instead of the $22.50s fully covered.  

    Sweeps/Palotay – Good point on that, TD is being ridiculous.

    "Fordham University is confirming it received a letter from Donald Trump’s then-lawyer threatening legal action if Trump’s academic records became public."

    Israel’s attorney-general has announced that he intends to indict Prime Minister Benjamin Netanyahu on charges of bribery and fraud.

  28. Palotay PTTXX is what I switched to after finding out I was making nothing for years.  It is currently paying 1.99%

  29. Tangledweb/palotay- do either of you have a portfolio margin account where you are using PTTXX. If so, is there any change to you available margin?

  30. I have PM, but they haven't implemented the change yet, so I can't say for sure.  However the client advisor I spoke to was confident it would work like the current sweep vehicle.

  31. Nice article on ARCC, one of my high yielding positions.  Have held the stock since 2008.

  32. Palotay look here at the performance and then yield tabs

  33. Another day where the indexes weaken into the close.  This is not a good trend.

    No news, no nothing…

    Well, there is some fake news we can put in the "ignore" pile:

    Fish populations are declining as oceans warm, the result of human-caused climate change, a new study found. The decrease puts a key source of food and income at risk for millions of people.

  34. Interesting thread (link below) about the utter disaster Tesla's Model 3 order book in Europe is.  Elon is announcing something this afternoon after the market closes.  There is speculation (not an investment thesis) that he may step down as CEO (what the SEC wants).  In my view, this would crush the stock, which is why I view it as unlikely.  It could also be an announcement of a cheaper Model 3, most likely a software range limited version (would not make COGS cheaper) so they can try to reduce the very large amount of outstanding inventory they have in the US.  They are desperate for cash right now, and would probably be willing to sell cars at 0% or negative margin so they can avoid a restructuring for another couple months..  I added more short May $380 calls, and bought 2x May $200 puts.  This thing is going to die this year.

  35. No photo description available.

    Dogs using tools:

    TSLA/Palotay – That $900M is due on Friday!

  36. Palotay- please keep us posted on how the PTTXX works out in the PM account.


  37. Phil/NK – your hypothesis that Trump flew a trial balloon at Hanoi for cancelling the PRC trade talks is interesting. I'll see what Korean commentators come up with this evening. Kim should be back in town on his side of the line by this afternoon, and we'll probably get some comments from him as well. My wife thinks Kim didn't push for the deal as much as he might've as he figures Trump's in trouble and he doesn't want to make a deal that will just get cancelled by the next president, say, for example, Pelosi – who doesn't seem to like Kim very much (wonder if she's up for election).

  38. Many of my friends are pointing out that bringing Bolton to the Hanoi summit was an excellent way to derail it. Word is he demanded reports of chemical & biological weapons, and at that point Kim said, okay, if you lift all sanctions.

  39. That N. Korea deal was never going to happen anyway because:
    1. We are not going to lift sanctions without being able to verify the outcome
    2. Kim was never going to let us verify the outcome

    It was just a pipe dream to begin with. Trump thought he could just show up, BS Kim like he was doing selling condos and all was going to be good. But they had one preparatory meeting and no deal was agreed beforehand. These deals don't work like real estate in Boca.

  40. Will do Pstas.

  41. Elon just admitted on a press conference call that Q1 wouldn't be profitable, essentially confirming that Q3 & Q4 were the best quarters Tesla will ever achieve, even though they are benefitting from pent up European "demand" for the Model 3 in Q1.  Elon also announced significant price cuts, including a 9.2% price cut on the Model S, which is a massive hit to profit margin! They are closing all of their sales offices, which means another significant layoff.  They are finally releasing a cheaper Model 3, at $35k, which no one believes they can make at a profit. How is this POS growth company still worth $53B?  They are just down 3.5% after hours on this horrible news.  What is it going to take Phil?

  42. Trump Ordered Officials to Give Jared Kushner a Security Clearance

  43. Can 5G operators really do without Huawei’s equipment?

  44. Aston Martin shares have plunged 40% since October

  45. Good morning!

    TSLA now down 5% but the market is skyrocketing mostly because Kudlow once again talked up the China Talks as making good progress.  How often can you fool some of the people?  ALL of the time!

    Same goes for Tesla, where, as Palotay notes, SOME of the people still think this is a $50Bn company with $11Bn in debt, $3Bn in cash ($2Bn after today), two cars that don't make money and a solar company and a battery company that also lose money.  While TSLA may have had two quarters of profits (the last two), those profits were $250M in Q3 and $210M in Q4 vs this:

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 2019E 2020E CAGR / Avg
    Revenue $m 2,013 3,198 4,046 7,000 11,759 21,461 28,261 33,267 +60.5%
    Operating Profit $m -61.3 -186.7 -716.6 -667.3 -1,632 -388.1      
    Net Profit $m -74.0 -294 -888.7 -674.9 -1,961 -976.1 1,002 1,683  
    EPS Reported $ -0.62 -2.36 -6.93 -4.68 -7.47 -5.72      
    EPS Normalised $ -0.62 -2.36 -6.93 -4.68 -7.47 -5.21 5.57 9.31  
    EPS Growth %               +67.0  
    PE Ratio x           n/a 57.4 34.4  
    PEG x           n/a 0.86 0.50

    Looks to me like about $5Bn in losses since 2013 so it cost them net $8Bn to lose $5Bn and they still owe the $8Bn and now they are going to close 200 showrooms and lay off about 1,000 more people.  What about the leases?  What about all the money they sunk into 200 buildings, furniture, etc.  Let's say it was "just" $2M per store – that's a $400M write-off right there + whatever lease deals they are stuck with and now how do you get your car repaired?

    Keep in mind Consumer Reports just called the Model 3 a defect nightmare.  It's not even $35,000 as that's the "base" model and even the base model has a $1,200 "destination charge" since you can't pick it up anywhere. The base model is only black – any other color is +$1,500 and, by the way, they are out of black…

    Musk said 78% of the orders came on-line and that may be true but they HAD showrooms and those showrooms didn't sell you a car – they sent you on-line to order it so justifying shutting down the showrooms because you get 78% of your orders on-line is complete BS.  

    Believing your brand is so great that sales and marketing don't matter is what happened to KHC!  

    NoKo/Snow – The North Koreans are saying (nicely) that Trump is lying and they aren't quite sure why their lunch meeting was suddenly cancelled and the US pulled out.  As with anything to do with Trump – who knows what the truth is but I tend to believe the word of even psychotic dictators over our President these days…

    Russian TV mocks Trump-Kim summit collapse

    Trump-Kim summit: US president emerges the 'biggest loser'

    “Amateur-Hour Diplomacy”: Insiders Fuming After Trump-Kim Summit

    North Korea's foreign minister says country seeks only partial …

    Good point on Bolton and that goes back to my premise because Trump surrounds himself with guys who are absolutely the WORST guys to have in a room if you seriously want to make deals.

    Bolton is instead one of the most prominent proponents of a radical idea, which some hardline U.S. officials in Congress and the White House have refused to rule out but have not recommended with Bolton-like conviction: striking North Korea now, and risking the most destructive war in living memory, to prevent it from threatening the United States with nuclear weapons later.

    In February, when Trump announced the “strongest sanctions … that we have ever put on a country,” on ships and shipping companies helping North Korea evade trade restrictions, Bolton dismissed the measures. Twenty-five years of “pressure and diplomacy” have “failed” to halt the North’s pursuit of nuclear weapons, the former George W. Bush administration official told Newsweek. Sanctions might have made a difference 15 years ago, before North Korea tested its first nuclear weapon, but they won’t today, he maintained.

    Just showing up with this guy is an insult to Kim Jong Un.