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Thursday Failure – MMM Drops The Dow

Well our site was down this morning.

It seemed to have gone down last night, perhaps on all that Canadian traffic as I appeared on BNN (Canadian Bloomberg)'s Money Talk with Kim Parlee and we went over our Money Talk Portfolio (see yesterday's Report for details), which is now up 155% since it's inception in Sept of 2017 – so it's not surprising that a lot of people want to check it out…

As I noted on the show, we can justify the current market levels given the strong earnings we're seeing (not you MMM!) while taking into account what I'm calling an Automation Super-Cycle that, while being disruptive and destructive at times, is going to be an overall long-term positive for corporate profits as we lurch ever-forward into the 21st Century.

We added trade ideas for Bank of Nova Scotia (BNS) as well as the Natural Gas ETF (UNG) on yesterday's show but it was L Brands (LB), which we noted was a laggard yesterday morning, that popped over 3% on the day but is still very, very playable for very nice profits ahead.

This morning, 3M (MMM) is dinging the Dow but, on the whole, the Futures are holding up well and the Dow Futures (/YM) are bouncing off the 26,400 line as we wait for the Durable Good Report at 8:30 and the Kansas City Fed Report at 11 along with a $32Bn, 7-year note auction at 1pm – so it's a good day for the Dow to turn down to chase some money into bonds anyway.

8:30 Update:  Durable Goods came in at a very nice 2.7% headline,  up from -1.6% last month and ex-transports it was in-line at 0.4% so the economy is still chugging along and tomorrow GDP should beat 2.1% expected and then we'll see how Michigan Sentiment looks (97.1 expected) and then it's time for the weekend again.

Once again, sorry the site was down this morning – some issue with Amazon Web Services that I do not understand at all!  

Earlier comments were over at Seeking Alpha and, whenever PSW is down (hopefully not often!), just check our Twitter feed to see where we're chatting.

 


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  1. Good morning!  

    (at least it's still morning).

    Sorry about the downtime but back to normal now.  Been a very long time since we were down – I almost forgot it could happen…


  2. Phil:  My memory is that you like FCX, especially with the notion in mind that a trade deal is coming.  The stock has been battered this morning on poor earnings.  Your thoughts?


  3. Hoping for more on the Automation Super Cycle concept. Makes sense intuitively , robotics, IoT. How to quantify if even possible?

    Not sure I agree on current earnings levels as stock prices/GDP (Buffet Indicator) still elevated. However, earnings may catch up to prices over time making this time different. 


  4. CMG – Nice pullback.


  5. You had 2 problems with your site.

    1) the webserver was not accepting connections.

    2) the AWS dns servers refused dns queries.



  6. Phil,

    What do you think of HOG?

    Thanks


  7. Still morning somewhere indeed…


  8. kgabor  I would watch out for the African swine flu. I hear its really bad


  9. Grantham not super enthusiastic about the markets for the next 20 years:

    https://www.marketwatch.com/story/investor-credited-with-calling-the-2008-crisis-says-the-next-20-years-in-the-stock-market-will-break-a-lot-of-hearts-2019-03-07?mod=investing

    “In the last 100 years, we’re used to delivering perhaps 6%,” but the U.S. market will be delivering real returns of about 2% or 3% on average over next 20 years, the value investor and co-founder of Boston-based asset manager GMO told CNBC in a rare interview.


  10. Interesting chart:

    Could be that Buffett has not invested in high flyers of the last 10 years.


  11. Tesla looking real sick. Not sure how institutional "growth" funds can justify holding it anymore.  Here is an interesting view on their projected cash balance during Q2.

    Tesla Cashflow Analysis v2 Telsa’s Q1 Update letter provided updated financials. Let’s see how my predictions turned outing perseid-capital.com       

    The big question is how many cars can they deliver in Q2, and at what ASP?


  12. Speaking of high flyers – MSFT! What a turn around! Betting on the cloud is a real winner moving forward – in a survey, experts expected 95% of all businesses processes to be in the cloud 5 years from now. This will also benefit Amazon and Google of course. They really have made a good transition from desktop to cloud. Only a couple of years back, people where talking about the death of MSFT.


  13. STJ – MSFT has been a worthwhile long term holding, even if we did have to suffer through the Ballmer years.



  14. WTF – no wonder Kim likes Trump! We pay for hostages:

    https://www.motherjones.com/kevin-drum/2019/04/wapo-north-korea-billed-trump-2-million-for-release-of-hostage/

    North Korea issued a $2 million bill for the hospital care of comatose American Otto Warmbier, insisting that a U.S. official sign a pledge to pay it before being allowed to fly the University of Virginia student from Pyongyang in 2017.

    $2M has to pay a lot of hospital care in N. Korea.


  15. FCX/John – Yes, I like them because I think Gold is heading up (one day) and copper should blast off if we ever do close a trade deal with China.  

    FCX is in the middle of a $15Bn project so expenses are running hot and copper is way lower than it was last year's Q1.  Of course, FCX was up 40% since Jan so a pullback was bound to happen – it's what holds that matters.  This year is likely a dud but next year they should be able to make $1/share so $12.50 not too outrageous and we do have the 2021 $10 ($4)/$17 ($1.35) bull call spread with short $15 ($3.85) puts in the LTP that we paid net $0ish for so we're up a bit but I still like the spread (50 longs, 20 shorts).  

    Dow coming back.

    CMG coming back (we bought back 1/2 our short calls in the Fund).

    Super Cycle/Pstas – I just look at places like MCD and, as I noted in the Webinar, we're eliminating 3 $20,000 jobs for 3 terminals ($20,000) and figure 3-year life-cycle for the machines so $7,000/yr vs $60,000 saves $53,000 per store x 37,500 stores = $2Bn/yr vs current $6Bn in profits means just replacing 1/3 of their tellers with kiosks increases profits by 33% for MCD and other fast foodies.  Simple calculations like that give you an idea of the impact on various businesses – just stick to what's fairly certain to happen and obvious savings for now – there's plenty of that to go around without having to get deeply analytical.  

    CMG/Albo – We took it and ran (1/2) because I think the dip is really about the subpoena from the 2-year old event and not about earnings.  Not that I think they are worth $650 anyway – but other people clearly do.

    AWS/Gardling – The real problem is AMZN can't be bothered to staff actual humans for their web services.  At least not for companies our size.  Another example of the little ways in which the Oligopolists will ultimately steamroll the competition.

    HOG/Kgab – Well I like the iconic brand thing but I think they are really struggling to find new buyers and they had that whole overseas manufacturing thing that hurt them as well as their brand is all tied up in the stars and stripes.  They are not expensive at $37, which is $5.8Bn with $5.7Bn in sales and $500M in profits so p/e around 12 is fine but I wouldn't expect much growth.  Still, you can construct a Harley trade as such:

    • Sell 10 2021 $32.50 puts for $4.20 ($4,200) 
    • Buy 15 2021 $30 calls for $9 ($13,500)
    • Sell 15 2012 $40 calls for $4.10 ($6,150) 

    That's net $3,150 on the $15,000 spread that's more than 1/2 in the money to start and, when HOG is high in the channel, you can sell 5 short calls like (not now), the Aug $37.50 calls for $2.20 ($1,100).  You have 6 quarters to sell and can generate $6,600 (209%) extra while you wait to see if you make $11,850 (376%) at $40 and your worst case is owning 1,500 shares of HOG at net $34ish, which is still 10% less than it's trading for now.


  16. Big Chart – Needs to be BIGGER!!!   NYSE is dragging for now but RUT not out of danger yet.

    Swine/Stock – That thing is no joke, complete disaster in the pork biz.  

    Berkshire/StJ – Well we stopped buying them.  Portfolio is too boring now, even for me – and I like boring!  He'll look like a genius again if Grantham gets his crash.

    TSLA/Palotay – If they slip below $240, horrible things happen with notes and covenants so the Banksters can't let that happen – that's why they are still in and still pumping – there's no exit from this thing.  

    My top fear of 2019 (outside of Trump) is that TSLA will crash and take the market with it – still very possible.  It doesn't matter how many cars they deliver if they are losing $700M delivering 70,000 cars, right?  That's -$10,000 per car!  

    MSFT/StJ – The damage Steve Ballmer did to that company is amazing!  Bill Gates should have $200Bn now, not $100Bn….

    14 F'ing years (2000-14) this guy was the CEO – what a waste!  And he still walked out with $40Bn+

    NoKo/StJ – Wow, they torture him and force him to need $2M in care and then send us the bill?  That's major cajones…


  17. Hello Phil, two questions please.  1)  Do you like FCX at this place for a new trade?  2)  The markets seem to be moving up; however, there are some good stocks like M that have not moved with the recent upturn in the market.  How do you feel about starting a new position at this time?  LB was another stock that really hasn't participated in the move up ( you talked about them in your morning post).


  18. FCX/Robert – I like but don't love them as they are going to have a rough year and may test $10-11 again, then I'd be back to love for an entry.  Still, this ($12.50) is fine if you don't mind riding it out.

    M/Robert – I like M and LB a lot but M is safer as they actually have some assets of value (stores they own) while LB just has leases – the advantage of being 100+ years older.  At $24, M is being valued at $7.5Bn but they generally drop $1Bn to the bottom line on $25Bn in sales so low p/e (7.5) and $21Bn in real estate against $12Bn in debt makes them very attractive.  M owns about 1/2 (360) of their stores, including a massive block of NYC worth $3-5Bn on it's own.  Recently, they floated the idea of building over 1M ft of office ABOVE the NYC flagship – a very good idea at $1,000+/ft/year in revenues. 

    Image result for rent per square foot manhattan chart commercial


  19. /CL finally selling off.  


  20. CBL / Phil;

    This company has been falling from $6 to $1  today, my loss is now around $16,000, it seems that 1 dollar could be the bottom ( but I said that too with $2), what´s your opinion…taking my losses and moving out, or keeping it with an option strategy…..hoping  it moves away of problems.


  21. Phil, I covered 1/3 of /CL short from Tues following your call and a similar call from Briefing Trader.  Stops down to 65.70.

    Thanks !


  22. Oil/Albo – Took long enough – good job taking those profits! 

    CBL/Advill – I don't follow them so I don't know how healthy the portfolio is. Revenues keep going lower and profits went negative last year and don't seem to be improving so I'm not sure what it is you like about this thing?

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 2019E 2020E CAGR / Avg
    Revenue $m 1,054 1,061 1,055 1,028 927.3 858.6 780.1 773 -4.0%
    Operating Profit $m 321.7 463 277.8 253.6 263.5 83.7     -23.6%
    Net Profit $m 85.2 219.2 103.4 172.9 120.9 -78.6 -22.1 -39.4  
    EPS Reported $ 0.27 1.02 0.34 0.75 0.46 -0.72      
    EPS Normalised $ 0.71 0.59 0.67 1.05 0.31 -0.089 -0.14 -0.22  
    EPS Growth % +52.3 -17.6 +13.7 +57.4 -70.2        
    PE Ratio x           n/a n/a n/a  
    PEG x           n/a n/a n/a
    Profitability


  23. China to build moon base near lunar south pole



  24. Phil; thoughts on MMM as a long term dividend play.  Thx


  25. Ford finally making a move


  26. who’s earning killed the Nasdaq dropped 50 points after the bell


  27. INTC had some bad earnings Bert. And yeah, hooray on F! I sure would like to sell some 11 calls against all this assigned stock one of these days :)


  28. INTC – Coming back to Poppa.   I think this is the bottom quarter for semis.

    Looking to add on further weakness.


  29. MMM/Options – Well the weakness for them was China as well as automotive products in the US.  It's not a short-term thing as they are laying off 2,000 people (more charges) and they lowered guidance to about $9.50 for the year from $10.50, so the sell-off is well justified and they missed and lowered last Q too.  To me, $190 isn't cheap enough as you're still trading 20x earnings for a company that's treading water at best.  

    F/Coulter – About time on them.  

    Earnings/Bert – Intel, down 10% – could take semis with them tomorrow.  China blamed once again as data center biz there is in decline.  China may be in trouble again.  INTC lowered guidance:

    While Intel highlighted problems in China, "there was weakness, in terms of orders, across almost every single end-market for them," said Christopher Roll and, an analyst with Susquehanna Financial Group. "It's really across the board."

    The chipmaker cut its 2019 revenue forecast to $69 billion, from the $71.5 billion it told investors to expect when it last reported earnings in January.

    A year-long U.S.-China trade war and weakening smartphone sales have taken a toll on the global semiconductor industry. Investors are banking on the launch of 5G telecom networks and demand for chips used in self-driving vehicles to reignite growth. Swan said a 30% boost in so-called programmable chips that go into 5G networking equipment showed early gains for Intel.

     

    The Santa Clara, California-based chipmaker estimated profit of 89 cents per share on revenue of $15.6 billion for its second quarter that ends in June, compared with analysts' expectation of $1.01 per share on $16.85 billion.

    For the first quarter, net income fell to $3.97 billion, or 87 cents per share, from $4.45 billion, or 93 cents per share, a year earlier.

    Excluding items, the company earned 89 cents per share, beating analysts' estimate of 87 cents.

    Revenue in Intel's client computing business, which caters to PC makers and still the biggest contributor to sales, rose 4.45% to $8.59 billion, beating Fact Set estimates of $8.38 billion.

    AMZN only up $11 (not even 1%) after knocking the bottom line out of the park and into the next city.  People are getting more picky I think.

    Overall, Amazon reported net income of $3.56 billion, or $7.09 per share, for the first three months of the year. That beat expectations of $4.61 per share, according to Zacks Investment Research.  In the same time a year ago, it reported net income of $1.63 billion, or $3.27 per share.

    The e-commerce giant Amazon (AMZN) announced it would invest $800 million in the second quarter to speed up its current two-day delivery pledge for Prime members to a one-day delivery pledge.

    According management, the one-day promise will be supported by its own delivery arm as wells as partners like UPS (UPS), Fedex (FDX) and USPS. Amazon has been expanding air hubs while shifting more tasks to its own logistics network.

    Amazon Prime membership costs $119 a year (after a 20% hike in April 2018). The program has over 100 million users across the world. Olsavsky said 2018 saw the most new sign-ups for Prime than ever before.

    Amazon 2019 Q1 earnings in a chart

    AMZN was already up over 25% for the year but, if they are making $30+/share, that's very impressive.  Glad we stopped shorting them (the hedge fund is long, in fact). 


  30. Closed out another 1/3 of /CL short at 64.