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Manufactured Monday – Chinese Data Turns Back Up, Markets Rise With It

Related imageGood news everyone!  

China's Manufacturing PMI rose from 49.2 in February to 50.05 in March, which is back to expansion and that's boosted Asian markets which in turn boosted the EU open which is now boosting the US Futures, so it looks like we're going to have a good open.  Of course, Chinese PMI always rises in March as Feb is their Lunar New Year, when things are closed for a week but, shhhhhhhh… let people celebrate if they want to….

Even if we pretend to trust Chinese data, if their economy is rebounding while under Trump's sanctions, they may consider that they don't have to make as many trade concessions – and that can drag out or completely derail the process that has been the basis for these record-setting Q1 gains in the indexes.  David Lipton, the International Monetary Fund’s first deputy managing director, said last week that trade tensions between the two biggest economies “pose the largest risk to global stability.”

To boost the Chinese economy in March, policy makers urged banks to lend more, especially to small and private companies, boosted spending on infrastructure and promised 2 Trillion yuan ($298Bn) in cuts to taxes and fees on businesses and households.  First-quarter reports of company borrowing matched the highest level since mid-2013

According to the WSJ, FOMO (Fear of Missing Out) is back as a driving force in the market as investors are worried about missing the rally and falling behind and I have to agree with that assessment as it's the only reason we haven't cashed out – and it bothers me every day as it's a pretty dumb reason to be bullish but, on the other hand, we'd hate to miss more gains..

And, of course, if you don't want to buy stock in a company, they are happy to buy it themselves.  Some analysts say greater investor demand for stocks could join robust corporate buybacks in supporting major indexes. S&P 500 share repurchases in the fourth quarter rose to a record $223 billion, a 63% increase from a year earlier, according to S&P Dow Jones Indices.

Meanwhile, these record-high market levels are MADNESS considering we're heading into a significiant slump in Corporate profits – the first one after two straight years of gains:

Meanwhile, we can't complain too much as our portfolios keep tacking on stunning gains in this ridiculous rally.  I'm glad we didn't miss out, for example, on the Money Talk Portfolio, which we thought was doing great on Feb 13th, when it was up "only" 137% at $118,630 since it's 9/6/17 inception at $50,000.  We like using the MTP as a benchmark since it's a portfolio we only adjust live on BNN's Money Talk Show once per quarter so it's a good example of how our trades do if you simply leave them alone.

In this case, just 6 weeks later, we've jumped another 33%, now up 170.3% at $135,153 and that includes the hedges, which are included in the mix on this portfolio.  It is RIDICULOUS to make over 5% PER WEEK in your portfolios, that would be 260% per year so, when we make this much money this fast – we HAVE to be suspicious that there will be Hell to pay on the other end of this streak.

Meanwhile, the fear of missing out on another 30% gain over the next 6 weeks is keeping us invested, though we keep bumping up our hedges and we keep one hand firmly on the exit door at all times – just in case.

Retail Sales were already a bust this morning, coming in at -0.2% vs +0.2% expected by leading Economorons.  Ex-Auto was even wose, down 0.4% vs up 0.3% expected which reminds us that no one understands this economy, which means the exuberance shown by investors at the moment is very likely to be irrational.

We have PMI, ISM and Business Inventories this morning, Durable Goods tomorrow and then a bunch of Fed speak into Non-Farm Payrolls on Friday.  Last month's report was a disaster and the market still raced to new highs so really, does it matter?

Let's start trading – or else we might miss out!  

 


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  1. Trump White House doubles down on threat to close U.S.-Mexico border




  2. Toyota robot can’t slam dunk but shoots a mean 3-pointer


  3. Plenty of justifications for the move up – incredible GDP growth, increasing earnings, budget deficits under control, cool headed leadership in Washington! </irony>





  4. Aramco Unveils Financial Secrets of World’s Most Profitable Firm



  5. Good Morning!


  6. Market commentary – Irrational Exuberance


  7. Good morning! 

    Irony/StJ – We don't get that around here….  Having a bit of a sell-off from the open but these gains are simply relentless.  Weekly charts are super-bullish and we're golden-crossing now, so who knows how high we can go?

    All we can really do is keep taking 25% of our paper profits to lock in what we can through hedges on the way up.  To me, it's a choice between making 75% of the rally by staying in and hedging or getting out and missing out entirely because staying in without hedging is just not an acceptable option.

    Price/Sales/StJ – Well, you can't compare GOOGL, who makes 67% on sales to LYFT, who lose 20% to sales – that's where these things fall apart. 

    Dow 26,000 by the way.

    I think the Banksters are goosing the markets because they have a record number of IPOs on deck this year and they want to get top dollar (massive fees).  

     

    Just remember. When you see a really happy VC. You’ll probably find an unhappy public shareholder soon after. We warned you. down 10%, now below IPO price.


  8. Interesting to note crypto slowly moving up over the last month or so…


  9. Phil any thoughts on CPRI (formerly Kors)? been doing my own research on it and i think im getting close to initiating a position just wanted to get your take. 

    Only issue is my current positions are already pretty heavy in retail (M, TGT, HBI) but im sitting on a lot of cash and liking what im seeing in CPRI. 

    If i recall correctly i think you may have had Kors position in the past?

    thanks


  10. Hello Phil,  Thanks for comments on FTR over the weekend.  I am very patient and I am very happy to sell around a $1.00 of premium every quarter on a $2.10 price stock.  My big concern was BK which it seems you don't really have any BK fears for them.  Have a great day.


  11. Soma – I've noticed that too. Added some more ETH at around $105… always tempting to get right out again but I'm hoping there's a good run due to Fidelity etc pumping the products. 








  12. Coffee down 1.6%


  13. Hi Phil.  I asked this yesterday:

    Happy Belated Birthday Phil!  I have a question about adjusting my CMG position that I'm hoping you can help with.  Right now I have the following (showing a $11.7k loss so far):

    Short 2 January $630 Calls (Basis $69). Now $139

    Long 2 2021 $700/800 spreads (basis $33ish, now $42)

    Short 2 2021 $400 puts (Basis $14, now $12.75)

    I'm not worried, and am fine with just waiting to see if it works out, and rolling if it doesn't, and I agree with your view on CMG (Rising wages to pressure margins, food safety risk, potential recession in the next 1-2 years, and a PE ratio of over 70!).  With that being said, the premium on more calls sure is looking juicy.  I was thinking of shorting 2 January $800 calls at $54, for another $10,800, and using some of that money to buy two more $700/800 2021 call spreads for $41.  The short calls have way more delta than the spreads, so if CMG disappoints and plunges, I should be able to salvage a bunch of capital from the spreads.  This raises my break-even in January to about $780 (according to TOS), compared to break-even at $716 with my current position. 

    Thoughts?

    You responded with:

    CMG/Palotay – Going to the moon at the moment at $710.  Keep in mind the Jan $630s are only $80 in the money and the rest is premium which WILL expire if you wait it out.  I'd rather sell the $500 puts ($32) and roll the loser as it's better balance to the short $630s and, when contemplating more shorts, I'd first deal with the ones you have.  The $650 ($165)/800 ($97) bull call spreads are $68 for $150 so I'd sure rather do that than buy back the short calls and the 2 short Jan $630s at $139 can be rolled to 3 or 4 June $700s at $55 as you are rolling your $140 loss, not the whole thing and then you'd have 3 more quarters to sell.   I'd do that roll first and buy the new spread to cover if $720 breaks.

    I'm having trouble following your recommendation, can you clarify?    Do you recommend rolling my short $400 puts, to the $500 puts, to sell more premium?  I think you are also pointing out that I could roll my 2020 $630 calls, to multiple June $700 calls, and not to do that all at once. CMG is going down today, so probably not that pressing, but I still would like to understand your recommendation.  Thanks!


  14. Crypto/Soma – Yes, just after they declared it dead, it's started getting traction again.

    CPRI/CRS – We played KORS when they were a lot cheaper, they are not a bad brand and they are coming through a turnaround investment that seems to be working but I'd want to see Q1 earnings before jumping in.  Still, they made almost $600M last year and, at $46.50, you are buying the company for $7Bn, so a nice retailer to have in your portfolio for the long term.  

    The dropped with the sector back in Nov but also because they paid $2.1Bn for Versace, which seemed a bit much but it as all part of their overall rebranding strategy, so you either believe in management or you don't.  They are actually very small in Asia (19% of revenues) and I think that's a plus going forward as those "Crazy Rich Asians" do love their luxury brands. 

    As a trade on them, I like:

    • Sell 5 2021 $40 puts for $4.80 ($2,400)
    • Buy 10 2021 $35 calls for $17 ($17,000)
    • Sell 10 2021 $50 calls for $9.25 ($9,250)

    That's net $6,350 on the $15,000 spread that's $11,000 in the money to start so the "only" $8,650 (136%) profit potential is mitigated by the fact that it's very likely to pay off and, of course, if they go lower, THEN you can sell 5 more puts and use that $2,500(ish) to roll your 10 longs $5-10 lower.

    Speaking of retail, I owe Winston one more big winner and that's going to be M at $24.40.  That's $7.5Bn and if you like CPRI for that price, M makes $1Bn a year (50% more) and is sitting on about $16Bn in real estate or $21Bn according to Starboard, who are an activist investor in M.  

    Interestingly, M pays a $1.51 dividend, which is 6.5% at the moment so it's actually good for a dividend play so, since I'd LOVE to own the stock at $24.40, I can sell very aggressive puts where my only downside is owning the stock and collecting dividends. 

    So, for the OOP, let's add:

    • Sell 10 M 2021 $28 puts for $7.50 ($7,500) 
    • Buy 25  M 2021 $23 calls for $4.75 ($11,875)
    • Sell 25 M 2021 $30 calls for $2.40 ($6,000)   

    That's still a net $1,625 credit on the $17,500 spread so the upside potential is $19,125 (1,176% on negative cash) at just $30 so, even if assigned, the net is still $1.625 less than $28 or $26.37 and then we can sell $23 calls for $4.75 and drop our net to $21.62, about 10% below the current price.  Also, if M takes off, we can sell 5 or 10 short calls for extra cash along the way.

    FTR/Robert – I just can't see a BK playing out over the next 3-5 years at least.


  15. Phil – OK that's 3 picks in the bag to turn $100k into $150k by Jan 2021.

    #1: RH – Friday's Top Trade:

    So let's say we fill the 5 short puts at $30 ($15,000).  Margin is around $7,000 so very efficient.  We could then buy 15 of the 2021 $85 ($40)/120 ($27) bull call spreads for $13 ($19,500) and that's net $4,500 on the $37,500 spread so the upside here is $33,000 (733%) at $120.

    NOTE: Phil got the numbers all wrong on the spread. It's a $35 spread with 15 contracts makes it a $52,500 spread (not $37,500 spread) – so the upside is $48,000 at $120 not $33,000.

     #2: ALK:

    Sell 5 ALK 2021 $55 puts for $8 ($4,000) 

    Buy 10 ALK 2021 $50 calls for $11.80 ($11,800) 

    Sell 10 ALK 2021 $65 calls for $5.40 ($5,400) 

    That's net $2,400 on the $15,000 spread so $12,600 (525%) upside potential at $65 and we're starting out $6,000 in the money.

    #3: M as above

    So: theoretically RH: $48k + ALK $12.6 + M $19.1 equals $79.7 using a lot less than $100k.

    Thanks for all the work to choose those 3 candidates – I'd love to see whether other members have 'better' suggestions – or simply their favorite picks of the moment.


  16. CMG/Palotay – Back to $703 today, I know I'm relieved.  I'm saying I wouldn't do anything until more premium burns off on the short calls you already sold and worst case is the 2x roll and then, if it keeps going up, add the bull call spread for more upside coverage.  A stock that burns me by $100+ is not my first choice to DD on if I can avoid it!  


  17. Here is an article I found interesting about FTR:

    https://seekingalpha.com/article/4249649-frontier-communications-debt-refinancing-just-happened

    Apparently the terms of the refinance (which were at a worse interest rate) preclude FTR from buying long dated mature debt on the open market at a discount, until the earlier (and easier to payoff) maturities are paid off.  This hurts their ability to safely navigate the upcoming debt wall in a few years, since now they can't buy that debt at a 30%+ discount.  

    Right now they aren't even coming close to generating enough free cash flow to payoff the debt in 2022/2023 (read The Owl's previous articles where he plainly models out the cash flow to debt picture).  Investing in this now, is betting on them increasing free cash flow dramatically, or as the author recommends, diverting significant cap-ex to debt repayment, instead of growth investments.  This is an extremely indebted company in an industry that is seeing massive upheaval from cutting the cord, and potentially 5G in the next couple years. 

    Frankly, this one feels doomed to me, but I'm holding on with very large losses.  With that being said last quarter was a good sign, if they can continue to improve cash flow, and actually grow revenues there may be hope, but I'm not holding my breath.  They need to dramatically increase the amount of debt they are paying back now, not next year.  Furthermore, management avoids talking about their plan for paying off the wall of debt that comes due in a few years, which is a major red flag.


  18. RH/Winston – Hopefully this is the bottom.

    ALK looking good:

    OMG, by the way. I just flew Spirit (SAVE) to Philly (I'm there now) last night in a regular seat, figuring how bad could it be for 2.5 hours.  Well, it was TORTURE!!!  I have never sat in a more uncomfortable seat in my life and it doesn't recline and now they've even taken away the pouch in the seat in front of you (all the seats, not just some) so you have nowhere to put things (tray table also half-sized) and they have no video in the headrests so everyone has a device in their laps in super-crowded seats.  

    I'm convinced it's more of a science experiment than an airline – to see how much people will take before they snap. Even after printing my own tag, I had to wait in a one-hour line to hand my bag to the person who puts it on the belt and, when we landed at 11:30, it took until 12:15 for the first bag to come off the carousel.  They charge $2 for water or coffee or tea (absolutely nothing is free) and the time it takes them to collect the money is more than it's worth.   There's not one thing about that airline that isn't awful – I will never complain about United again (well, yes I will).  

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 2019E 2020E CAGR / Avg
    Revenue $m 1,654 1,932 2,141 2,320 2,644 3,323 3,926 4,494 +15.0%
    Operating Profit $m 282.3 355.3 509.1 441.5 384.8 260.6     -1.6%
    Net Profit $m 176.9 225.5 317.2 263.5 415.5 155.7 446.5 477.5 -2.5%
    EPS Reported $ 2.42 3.10 4.38 3.74 3.15 2.28     -1.2%
    EPS Normalised $ 2.43 3.12 4.40 4.11 3.31 4.37 6.52 6.98 +12.5%
    EPS Growth % +69.9 +28.6 +40.9 -6.6 -19.5 +32.3 +49.1 +7.11  
    PE Ratio x           12.1 8.11 7.57  
    PEG x           0.25 1.14 0.58
    Profitability

  19. Palotay CMG, I do not have to add anything to Phil's Comment but I just like  to point out one thing and this not only applies to your play but in general to all BCS and selling additional cherry calls. You have two BCS and you sold two cherry calls. The role is in your case you should have only sold ONE cherry call. Even if the cherry call runs ITM it does not hurt that much if you have double the amount of BCS, as well it is easier to roll the cherry call.


  20. Thanks Yodi.  I think the difference is that I started with the short call (because I'm bearish on CMG), and then only when it went against me by $30, did I decide to add the bullish spread. I didn't want to buy too many longs, since I think CMG's fair value is $500'ish.  


  21. Winston here your best M trade Sell the may 19 24/25 strangle fro 2.46 and buy the stock now 24.34 Your monthly conbined return is 5.9%. Holding the stock you can carry on with your armchair trades after may if not called at 25 and you stuck with the cash!!!!


  22. Palotay Naked calls Ok is like walking over the deck of an Oil tanker with a burning cigarette


  23. Winston sorry on the M trade I just slipped it is 7.1% per month!!!!


  24. Winston 

     As a long shot BeiGene, Ltd. (BGNE)

     Let me know what you think


  25. Yodi – that is a more capital intensive trade, but a very nice setup for selling strangles on a regular basis. Maybe 5,000 shares and 50 short strangles could make it interesting in absolute returns?


  26. RH butterfly hybrid:

    Buy 20 2021 bcs 90/120 for $11.80 at 105

    Sell 10 May 110 calls for $ 5.00

    Sell 10  100/85 put spreads $3.70

    Margin $5000.00


  27. RH I traded that stock when it was in the 45 / 50th and lost money, so you guys call it a bottom at 105 ?????


  28. qcmike – thanks for the idea – I generally avoid significant bets on China/HK based companies – mainly due to lack of transparency on the financials and the regulatory environment (i.e. Beijing's influence). I would be very interested to know what attracted you to this company in the first place?


  29. Winston 

    Mainly the pipeline and the founders its more of a trade


  30. jmd / I like that line of thinking – it's gung ho aggressive – risking $15 to make $3.70 on the put credit spread – but then you get to collect the $5 on the short calls. Also it will be difficult to fill that spread at those prices – TOS is showing $14.30 as more likely. 

    I'd like to leverage that idea on to some other underlying, but I guess you must have plenty of other plays you have used that setup on?


  31. Numbers/Winston – In my defense, I often change my mind about amounts/strikes while writing up a trade so I have to go back and correct all the things I just wrote to reflect the new numbers and sometimes I miss them.  Just so you guys know I'm not going senile – just happens when I have a lot of stuff going on.  It always pays to check my math!

    3 trades/Winston – You see what I mean about better uses of cash.  We're using $5,275 in cash and not too much margin and we risk owning 500 shares of RH ($50,000) and 500 shares of ALK ($27,500) and 1,000 shares of M ($28,000) though RH doesn't count as it's not yet filled.  Still, the point is, we're keeping our allocations reasonable so if any one of them drops significantly, we still have the buying power to adjust and they are all very solid stocks where our fallback position is ownership.  As you note, if all goes well, they return almost $80,000 and, of course, once they are well on track after a year, we can reasonably free up the unused allocations and make more trades, leveraging the cash even further. 

    That's one of the secrets of our success, our LTP plays often get to a point where we no longer need to hedge them (other than catastrophic) or worry about them so the unused allocations then roll over to new trades – that's why we're carrying so many LTP trades now – the market never had a serious correction so, after a year, we' still have most of our originals (many deep in the money) and a bunch of new ones as well.

    By the middle of this year, there won't be many 2020 plays (our originals) left as we'll be up close to 80% on most of them so back to CASH!!! and the cycle rolls over.  Simply shortening the cycle from 2 years to 18 months is a very powerful multiplier on our 40% annual model and, of course, it was 40% of $500,000 and now our base is $1.3M so 40% of that is $500K, which adds 100% to the LTP's base now – that's why our gains accelerate so quickly when things are going well – we're still generally going for 40% annual growth – it's just we keep having more and more cash at work every Q.

    Interesting JMD.  I think they are a bit low to sell calls against but the cover with the put spread makes it less dangerous.


  32.  Phil, is your hedge fund generating similar returns as the LTP and STP?


  33. Trade on NVDA
    Buy 2x the Jan 21 170/185 BCS 7.15  sell 1x the May 19 195 call for 6.15 sell 1x May 19 170 put for 5.55 and buy 1x May 19 165 put for 4.15

    Over 46 days
    Max potential profit at 195 15.8%
    If unchanged at 182 12.6%
    Lower protection 167.00


  34. Vs the weekend summary of our positions at March expiration (most of which we reviewed early as I was going to California):

    • LTP was $1,249,183, now $1,314,863.
    • STP was $741,198, now $727,798
    • MTP, as noted above, was $118,630, now $134,470 (lost a bit today). 
    • Butterfly was $151,344, now $157,024 (gotta love it!)
    • OOP was $283,465, now $423,388.  Well, that's wrong, for some reason they haven't fixed HOV yet.  
    HOV Hovnanian Enterprises Inc. 10000 2/21/2019 39 $6,700 $0.67 $11.64 $0.67     $12.31 $1.34 $116,400 1,737.3% $123,100
    Short Call HOV 2019 16-AUG 1.00 CALL -100 2/21/2019 (0) $-1,300 $0.13 $-0.13     $0.00 $-0.13 $1,300 100.0% $0

    Even if we just delete that $123,100, still over $300,000 so a nice gain on the well-balanced OOP as well. 

    We made very few changes last month and added few positions since but now we'll sell a couple of weeks of earnings before the 4/19 rollover but 4/19 is Good Friday, so I guess we need to be done by 4/18, which sucks as I am in Philly now (1/2 day tomorrow) and back late Weds night but then leaving Thurs (1/2 day Thurs) for Boston, where I'll be for a week and back on the 14th so nothing but Portfolio Reviews 4/15-4/18!  

    I'm in Philly for one big meeting with a potential partner in our Judgment Search Network (a PSWI project) and in Boston to meet with potential investors in our MJ Hedge Fund and also to head over to Lee, Mass, where New Age is putting together a deal for a $7.5M vertical integration project that will give us a nice hub on the East Coast. 

    We're still collecting names for initial MJ Fund Investors, contact Greg at Philstockworld dot com if interested.  


  35. Phil,

    I contacted Greg about the MJ Fund. Any idea when you are going to request capital from those interested?


  36. BA is going to have a $$hit  in front of them, difficult to calculate the cost of the legal actions that will face.

    https://www.nytimes.com/interactive/2019/03/29/business/boeing-737-max-8-flaws.html?smid=nytcore-ios-share


  37. MJ/Japar –  I’m hoping to get one lead investor at about $20 million,  so I am pursuing that at the moment with an eye on launching during the third-quarter.  


  38. Dow up 300, they are going to just keep on printing money for us I guess…

    VIX still not below 15 though:

    Someone is covering on the way up.  It's also another low-volume rally but can't fight the tape.




  39. Looks like we're finishing at the highs, just under 7,500 on /NQ.

    Dollar strong up at 97 too so room to run if the Dollar dips again.  

    Oil sneaking up to almost $62, /RB $1.90.





  40. Phil I asked a question yesterday in port review at 12.49am. Can I ask again now or wait until tues post? I live in asia


  41. Phil,

    Didn’t know you are traveling around so much so get some sleep and I’ll ask when tues post is up. Thanks 



  42. Tesla Stock: Headed to $450?


  43. Get ready for a big drop in Tesla sales