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Monday Market Movement – Big Earnings Week Ahead

Now we'll see.

30% of the S&P 500 report this week and we'll have more than 2/3 reporting by the end of the week so, hopefully, we'll have a good handle on what's going on by then.   We also have a Fed Meeting on Wednesday and Non-Farm Payrolls on Friday AND the month ends on Tuesday yet I'm VERY concerned because there are SIX (6) Fed speeches scheduled for Friday – that's a lot and it seems like they must be thinking they'll have something to spin with that schedule.

Apple (AAPL) announces their earnings tomorrow, after the bell and this evening we hear from Google (GOOGL) followed by several heavy-hitters lined up tomorrow morning.  It will be nice to get a fuller picture of how the S&P stocks are performing but, generally, it's so far, so good on earnings reports – with not too many areas of serious concern.

Unfortunately, our first data point of the week is not that good.  Personal Income only went up 0.1%, indicating wage growth is not keeping pace with even the low inflation we supposedly have while Personal Spending blasted up 9% and that means consumers are plunging deeper and deeper into debt, trying to keep up with the inflation the Fed pretends not to see while the economy continues to run on borrowed money.

The December bump in personal income reflects all the bonus money paid out on Wall Street, not raises on Main Street and, since the turn of the year, Income Growth has died and automation will continue to kill it as companies spend more and more on machines and less and less on people.  Notice in the above chart that Real Disposable Income has gone negative as rising gas prices along with inflation in other essentials is leaving consumers with less and less to spend (except on Avengers Endgame tickets, of course).

To me, this is not a recipe for a record-high stock market.  If the US consumer breaks (and they are certainly stretched to the breaking point), then there's no one left in the World to pick up the slack as WE are currently the growth-driving economy in the World.   We've already seen several F500 companies blame slowdowns in China for sales misses in Q1 and Europe is just limping along and Japan is a total disaster so it's up to US to carry the weight – and it's crushing our consumers in debt to try to do it.

US Consumers are $1.5Tn MORE in debt than we were when the economy collapsed in 2008 and Corporate Debt is also at record highs – as well as Government debt.  We're sitting on an ultra-low interest house of cards that can topple at the slightest increase – no wonder Trump is constantly hammering at the Fed to maintain or even lower rates – this country can't possibly afford a rate hike, it would be a disaster! 

Meanwhile, you can't fight the tape and we're still pushing those record highs and, so far, we haven't seen anything that seems to be able to derail this rally.  Of course, that's the trick – it's usually something you don't expect but we've been expecting a lot and a lot has happened, but nothing that's actually stopped the rally.  To some extent, it's because money has nowhere else to go with Europe and Japan pushing negative yeilds on their bonds and other economies looking scary.  Where can you go but US Equities?

It's a crappy investing premise – but it's the best one we have…

 


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  1. Good Morning!



  2. A higher minimum wage is not an economic killer:

    https://www.citylab.com/equity/2019/04/minimum-wage-by-state-jobs-data-employment-economic-research/587992/

    Conservative economists and pundits have long argued that higher minimum wages cause firms to reduce employment, especially of low-wage workers, and thus they inflict damage on the U.S. economy. But two new papers provide powerful evidence that higher minimum wages in fact boost the conditions of workers—especially the least skilled and lowest paid among them—without doing broad economic harm.


  3. Phil, do you think Home Depot's growth supports its PE of 20-21?


  4. Phil, no rush, but at some point, can you share your experience with what happens to a stock price when it goes BK?  Tesla has  high debt, large supplier purchase agreements, falling demand, negative EBITA, and negative cash flow.  I don't have much experience with what happens when a company that has these kind of commitments, fails to raise additional capital, and goes bust.   Does the equity typically go to $0?  

    If everyone finally realizes Elon is an emperor with no clothes, and they miss payroll, or a supplier forces bankruptcy,  what should I expect as a base case for the stock price?  I know you have counseled against thinking this goes to $0.  If you could elaborate on your thinking I would appreciate it.  This is one of my largest positions, and I want to make sure I keep my emotions in check and set realistic targets.  Should I worry about Apple, AMZN, or someone else swooping in at $100, or $50 and buying it, debt and all?  I would think that the coming competition, Tesla legal liabilities, and huge debt load, would make most potential suitors wait until after BK. 

    Thanks!


  5. Good morning! 

    Still looking for /NQ 8,000 to be retaken and we're not at 27,000 again so certainly room for improvement if this is a rally.  /RTY testing 1,600 and that's bullish if they finally break over but we have been there before so also not quite back to our highs here.

    Wages/StJ – Duh!  I can't believe the idiocy of the theory that lower wages cost jobs.  I guess that's the problem with the economy – half the voters don't even understand how it works!  

    HD/Mike – I don't think any retail outlet supports a 20x p/e without serious growth prospects and I don't see that case to be made for HD.  They are a good, solid company and, as with many F500, automation is driving profits but the kind of automation they do (back office, warehousing) was already put in place a few years ago and I don't know how much more they can squeeze out.  LOW is $89Bn at $112 with $72Bn in sales and $4+Bn in profits this year so they've probably got more of a chance to grow than HD, who will have to fight to keep market share.  

    Year End 03rd Feb 2014 2015 2016 2017 2018 2019 2020E 2021E CAGR / Avg
    Revenue $m 78,812 83,176 88,519 94,595 100,904 108,203 111,578 116,740 +6.5%
    Operating Profit $m 9,166 10,469 11,774 13,427 14,681 15,530     +11.1%
    Net Profit $m 5,385 6,345 7,009 7,957 8,630 11,121 11,106 11,813 +15.6%
    EPS Reported $ 3.76 4.71 5.46 6.45 7.63 9.66     +20.8%
    EPS Normalised $ 3.76 4.71 5.46 6.45 7.63 9.82 10.1 11.0 +21.2%
    EPS Growth % +25.1 +25.5 +15.9 +18.0 +18.3 +28.7 +2.83 +9.33  
    PE Ratio x           20.7 20.2 18.4  
    PEG x           7.31 2.16 2.23
    Profitability

    Neither one interests me high in their channel.

    BK/Palotay – There's no cookie-cutter answer for that.  BKs take many different forms and arrive at many different settlements but, more often than not, the shareholders get liquidated.  You own the company – it's YOUR debt and the company goes BK on behalf of YOU because you and the other shareholders are not able to repay the debts so the creditors come in and liquidate the assets – usually in total or you wouldn't have been going BK in the first place.  

    With TSLA in particular, they do have factories and they do have patents that people may want so they would slowly spiral downward – not some sudden move to zero just because they miss a loan deadline or something.  Also, they do have revenues, they do sell cars – $21.5Bn worth last year and yes, they made no money (-$1Bn) but GM sold $147Bn worth of cars and also made no money and they have a $56Bn valuation and F has a $40Bn valuation on $160Bn in sales and $3.6Bn in profits and FCAU sold $110Bn worth of cars and made $3Bn and has a $23Bn valuation.

    Can TSLA double their sales?  I'd say of course they can do that – their sales are tiny in the grand scheme of things and can they then turn a profit?  Sure they can because their car design is very reliant on electronics and Moore's Law says they will make money at some point – they just started too early in the tech cycle.  

    Musk's Uber plan is a good one and it makes a lot of sense and Uber is getting an $80Bn valuation for just that segment.  Is there any doubt people will want batteries in the future?  Well then the GigaFactory might make money one day and Moore's Law says the solar business will eventually pay off as well.  The question is how much can Elon juggle before they tech catches up with his dreams and how patient are the investors going to be?

    Fortunately for Musk, there's that old adage that, if you owe the Bank $1M, you are in big trouble but if you owe the bank $1Bn – the bank is in big trouble.  No one is looking to push them into BK to get 0.10 on Billions – everyone will just cross their fingers and pray and Musk is very good at giving people hope but I don't think he's really the right guy to pull it off in the end – they need serious operational discipline at some point and there's no one in the company I see to give it to them (also Musk's fault).

    As to worrying about someone paying over 50x best possible 2020 earnings – not sure why anyone would do that.  You can go to CES and buy all the tech TSLA has and start from scratch without all the burdens they've collected for WAY less than $42Bn but you never know in this kind of M&A environment because, apparently, $50Bn isn't considered a lot anymore and think of AMZN pumping up their sales by $40Bn (20%) while taking "only" a $1Bn loss.  Ignoring whether or not it's a good fit – it almost makes sense on their balance sheet.  

    What bothers me most with TSLA is the fact that Musk just blatantly lies to shareholders.  There's no way that next year (2020) there will be 1M self-driving TSLA taxis roaming around (1 for every 100 US families).  That's what makes me worry he's hiding some massive financial scam – he's generally a dishonest guy and will say anything – even risk jail time – if it suits his purposes.  Is that really a guy you can trust to not be cooking the books?


  6. Phil, excellent summary on TSLA !


  7. U.S. Consumer Spending Rises in February, March


  8. Tesla says may seek alternative financing sources






  9. Hi Phil – What are your views on the real estate market going forward?  Thanks!


  10. CMG not looking too hot.

    • The European Commission makes legally binding Mastercard's (MA +0.2%) and Visa's (V+0.7%) commitment to reduce "multilateral interchange fees", or fees charged to retailers when foreigners use their credit or debit cards in EU region.
    • The commitments, which will cut the inter-regional MIFs by on average 40%, "will significantly reduce the costs for retailers in the EEA when they accept payments made with cards issued outside the EEA," the commission said.
    • A trustee will be appointed by the commission to monitor the implementation of the commitments.
    • Previously: Mastercard, Visa slip after reports on tourist card fee cut in EU (Nov. 23, 2018)
    • Treasury Secretary Steven Mnuchin expects the next rounds of China-U.S. trade talks to reach a make-or-break point, he said in a Fox Business Network interview with Maria Bartiromo.
    • "We hope within the next two rounds — in China and in DC — to be at a point where we can either recommend to the president, we have a deal, or make a recommendation that we don't," he said.
    • Regarding an enforcement mechanism to ensure that China stops U.S. intellectual property theft, it's "close to done,"  he said, but "needs a little bit of fine tuning."
    • As for the U.S. economy, Mnuchin credits tax reform, regulatory reform and trade deals for the better than expected Q1 GDP number issued on Friday.
    • "The first quarter is normally 1% lower than usual and the government shutdown probably cost 30 basis points," he said. Without those factors, he figures GDP would have been  ~4.5%.
    • Previously: Japan trade talks kick off (April 25)
    • Diamond Offshore Drilling (DO -6.3%) sinks deep into the red after reporting a slightly smaller than expected Q1 loss, a 21% Y/Y decline in revenues and steadily lower average dayrates for its vessels.
    • Contract drilling revenue fell during the quarter mostly due to lower average daily revenue earned ($30.5M) and the effect of 74 fewer revenue-earning days ($25.9M).
    • DO says average dayrates for its fleet in Q1 were $309K, down from $315K in Q4 last year and $351K in the year-ago quarter.
    • Total contracted backlog at the end of Q1 was $1.8B, which excludes backlog secured in April 2019 from new four-year contracts with Woodside Petroleum for the Ocean BlackRhino and Ocean BlackHawk drillships in Senegal; the new dayrates are not disclosed.
    • Dallas Fed Manufacturing Survey+2 vs. +10 consensus and +6.9 prior (revised).
    • Production: +12.4 vs. +10.5 prior (revised).
    • Capacity Utilization: +15.6 vs. +9.4 prior (revised).
    • New Orders: +9.8 vs. +2.2 prior (revised).
    • Generac Holdings (GNRC +0.3%announces the acquisition of Pika Energy, Inc., a manufacturer of innovative battery storage technologies that capture and store solar or grid power for homeowners and businesses.
    • The acquisition closed on April 26, 2019. Terms of the deal were not disclosed.
    • There's another Amazon (AMZN -0.1%) shock to the retail sector after FreightWaves reports the e-commerce giant's digital freight brokerage platform is set to go live.
    • FreightWaves says Amazon is undercutting digital freight market prices by as much as 26% to 33%.
    • Notable decliners off the Amazon development include Air T (AIRT -4.4%), C.H. Robinson Worldwide (CHRW -5%), XPO Logistic (XPO -2.3%), J.B. Hunt Transport Services (JBHT-2.7%), Landstar Systems (LSTR -2.9%), USA Truck (USAK -2.2%), Old Dominion Freight Line (ODFL -2.1%), Werner Enterprises (WERN -2.6%), Hub Group (HUBG -1.4%), Schneider National (SNDR -2.3%) and YRC Worldwide (YRCW -1.2%).
    • Down during the premarket hours, Boeing (BA +0.7%) shares turn higher as CEO Dennis Muilenburg kicks off the company's annual general meeting.
    • "We're making steady progress on the path to certification for the 737 Max software fix," says Muilenburg, adding that planemaker will provide "enhanced education and training materials" for pilots.
    • No shareholder proposals were approved.
    • Q&A has begun…
    • When do you expect Boeing to manufacture a plane that can fly between any two cities? That has been exactly our strategy. Our 787 has created 230 new city pairs since it has gone into service. Additionally, the 777X will be able to connect any two cities in the world. Testing of the plane will begin this summer.
    • Are you going to recommend full simulation training [for the 737 MAX fix] or do it from the laptop? This is something were actively working with the FAA and airline customers. Computer based training is the way we're going with right now, with options down the line of simulator training if needed.
    • Once the 737 MAX has been approved again for commercial travel. Will you consider been on the inaugural flight, with a slate of directors? I'll tell you better than that. I've already been on two test flights.
    • You seemed to have rushed the 737 Max into production. What are we actually doing to make sure the company is doing safety assessments? You don't have anyone else to blame since the Chairman and CEO roles are combined. I want to assure you that safety is our top priority. Some media reports suggested we rushed the MAX to market – it's false (it was a six year process). It's important to understand the system takes into account pilot interaction. Our changes going forward include a dual sensor feed. We also have a culture of continous improvement.
    • There's no clear line between Boeing and FAA oversight. What are you doing about complete objectivity. What are you doing about conflicts of interest? We already have non-advocate, or independent, reviews. Our chief engineers network also contains independent checks. We will be taking another look on our degree of independence.
    • What sorts of things do you plan on doing in the services industry? Services is one of our biggest growth opportunities. Improvements on flight planning and capabilities
    • Tesla (NASDAQ:TSLA) discloses that it may seek "alternative sources" of financing even though it "generally" expects cash generated from the business to be enough to fund both debt and investments over the next year.
    • The EV automaker previously announced that it expects capital expenditures of about $2.5B to $3B annually for the next two fiscal years.
    • In today's filing, Tesla again mentioned the potential for a capital raise as well. "We expect that much of our investment in Gigafactory Shanghai will be funded through indebtedness arranged through local financial institutions in China, including a RMB 3.5 billion term facility that our subsidiary entered into in March 2019 . As always, we continually evaluate our capital expenditure needs and may decide it is best to raise additional capital to fund the rapid growth of our business," noted the company.
    • SEC Form 10-Q
    • Shares of Tesla are up 0.47% premarket to $236.00.
    • Lynx Equity Strategies thinks that price discounts have struggled to clear Apple (NASDAQ:AAPL) iPhone inventory.
    • The firm lowers its 2019 iPhone estimates from $143.5B in revenue and 188M units to $129B and 173M.
    • Lynx doesn't expect a 5G iPhone launch before 2021 and sees that device launching only in China since the firm expects U.S. 5G interest more in enterprise and smart city apps rather than consumer devices.
    • Lynx sees an appropriate Apple valuation at $185/share.

  11. Real Estate/1020 – I think property taxes and the changes in the tax law are killing the markets in the Northeast and anywhere where property taxes are high.  Rates are still very low but homes are expensive and not very affordable to a generation who have barely recovered their savings over the past decade.  We're not creating new households and, without formation, the rest tends to stagnate and we're certainly not creating a lot of real estate wealth for the ordinary buyers – the commercial sellers are getting too good at extracting it before it has a chance to trickle down.  

    So, overall, I don't see Real Estate being a big thing in the 2020s but then we'll start to get massive losses of inventory as cities go underwater – so that will be good for inland and high-elevation properties.  See, there's always a bright side!

    Image result for global warming animated gif cities

    That's NYC at +2 degrees.  We'll hit that by 2050.

    Related image

    • Occidental Petroleum (OXY -2.3%) is downgraded to Hold from Buy with a $66 price target, cut from $74, at Jefferies, which says the company's hostile counter-offer for Anadarko is a "risky but perhaps necessary move against a better-capitalized bidder for a company that rejected its initial overtures."
    • But Jefferies analyst Jason Gammel thinks OXY shares could come under further pressure regardless of whether or not it is ultimately successful in its bid for APC.
    • If OXY is the successful bidder for APC instead of Chevron, Gammel believes the effect on per-share metrics will be highly accretive but the balance sheet will be highly levered; as such, the "risks outweigh the potential short-term rewards" over the next 12 months for OXY shares.
    • Southern Copper (SCCO +0.1%) is little changed after Q1 earnings missed expectations and revenues fell 5% Y/Y to $1.75B, as lower metal prices weighed on sales.
    • SCCO sees a "slight" shortage of copper this year as production trails consumption, as CFO Raul Jacobs says the company is "very positive about where the copper market is going over the next few years" and predicts a "structural deficit in coming years."
    • Rains in Peru early this year caused a production loss of ~11K metric tons for the company, Jacob said during today's earnings conference call.
    • SCCO says it expects to spend $300M out of $1.8B in this year's capex for the long-delayed Tia Maria project in Peru, which the company says should receive a government license in H1; SCCO also plans to invest $2.1B in projects in 2020 and $2.9B in 2021.
    • Xinyuan Real Estate (NYSE:XINissued $200M of senior notes on April 15, 2019 and $100M of notes offered and priced on April 24, 2019 at the issue price of 103.932% plus accrued interest, representing an offer yield of 12.3%.
    • Consolidated as a single series, the notes are guaranteed by certain Xinyuan subsidiaries and secured by a pledge of the capital stock of certain subsidiaries.
    • Plans to use proceeds to refinance some offshore existing debt and for general corporate purposes.
    • On April 3, Xinyuan offered to buy 8.125% senior notes due 2019; offer was completed on April 15, 2019 and after completion, $156.6M aggregate principal amount of the notes remain outstanding.
    • The company also repurchased $75.7M of 9.875% senior notes due 2020, or about 37.85% of the original issue size, in a privately negotiated transaction.
    • Previously: Xinyuan sees 2019 contract sales rising 10% (Feb. 15)
    • IMAX (NYSE:IMAX) announces that Avengers:Endgame set a new IMAX all-time worldwide opening weekend record after taking in ~$91.5M to nearly double the the previous record holder Star Wars: The Force Awakens.
    • In China, IMAX set a new opening 5-day record with $42.4M surpassing its previous record by 65% and already outperforming the entire IMAX China (OTC:IMXCF) run of Avengers: Infinity War. In addition, IMAX set 50 new opening weekend territory records including France, Germany, Italy, Japan, India, Taiwan, Mexico, Brazil and Argentina. In North America, Avengers: Endgame grossed $26.5M in IMAX.
    • Avengers:Endgame is the second film to be filmed entirely with IMAX cameras.
    • IMAX +2.74% premarket to $25.10.
    • Source: Press Release
    • Previously: 'Avengers' hits $350M, smashing opening records (April 28)
    • Previously: AMC +7% after record-setting weekend (April 29)
    • The WSJ reported over the weekend that Boeing (NYSE:BA) didn't tell Southwest Airlines (NYSE:LUV) – its biggest 737 MAX customer – that a safety feature that was designed to warn pilots about a malfunctioning sensor had been deactivated.
    • The planemaker only told Southwest that the feature had been turned off after the Lion Air crash in Indonesia and would require the purchase of an additional package for it to actually work.
    • The WSJ further reported that investigators are looking into a dozen whistleblower complaints, alleging safety problems with 737 MAX jets.
    • Emirates regional partner airline, Flydubai, is also looking at a potential A320neo purchase following the Boeing 737 Max grounding.
    • BA -1.5% premarket
    • Previously: Boeing CEO to pitch 737 Max comeback (Apr. 29 2019)

    • The FAA is imposing new safety checks on Boeing's (NYSE:BA) 787 series of aircraft, the latest news to hit BA shares ahead of the open.
    • The new Airworthiness Directive, which will come into effect on June 3, will including inspections and checks for some of the planes parts, as well as inspections of aileron and elevator power control units.
    • The FAA said the new directive was prompted by reports of hydraulic leakage to the units caused by lightnings strikes.
    • BA -1% premarket
    • UBS analyst Eric Wasserstrom cuts his rating on American Express (NYSE:AXP) to neutral from buy, saying its earnings growth potential is limited by a deceleration in volume growth.
    • AmEx falls 0.9% in premarket trading.
    • He no longer sees "significant upside to consensus EPS forecasts over a two-year horizon."
    • "Rising credit losses will impede incremental revalution," he adds.
    • Analyst ratings.
    • Previously: American Express -2.4% after Q1 revenue trails estimate (April 18)
    • AMC Entertainment (NYSE:AMC) announces that it set a new single-day U.S. attendance record on Saturday with more than 2.6M tickets sold.
    • The company also set a new single-day food & beverage revenue records on Friday before breaking it again on Saturday with a tally of $15M.
    • AMC says it expects strong demand again this week from moviegoers for Avengers: Endgame.
    • AMC +6.69% premarket to $16.43.
    • Source: Press Release
    • Previously: 'Avengers' hits $350M, smashing opening records (April 28)
    • Crude futures fell 0.7% to $62.87/bbl overnight, extending a 3% slump from Friday that ended weeks of rallying, after President Trump demanded that OPEC raise output to soften the impact of U.S. sanctions against Iran.
    • Supply cuts have been supported by some non-OPEC producers, most notably Russia, but analysts said this cooperation may not last beyond an OPEC+ gathering scheduled for June.
    • Complicating the meeting is fresh data from the IMF showing that Saudi Arabia needs prices at about $85 a barrel to balance its budget this year, up from a forecast of $73 in September.
    • Alphabet (NASDAQ:GOOG) is scheduled to announce Q1 earnings results on Monday, April 29th, after market close.
    • Recent earnings Analysis from our contributors:Alphabet Q1 Report On Tap As Shares Continue To Rip
    • FanDuel (DUEL) reports that it took in $13.3M in online sports bets in New Jersey during March, while DraftKings (DRAFT) took in $7.3M for the month.
    • With another 15 states in the mix to have legalized sports betting to join New Jersey, Delaware, Mississippi, West Virginia, New Mexico, Pennsylvania and Rhode Island – online providers are scrambling to partner up with land-based casinos for "skins" that give them the right to operate in certain states. Existing deals are already in place between FanDuel and Boyd Gaming (NYSE:BYD), Empire Resorts (NASDAQ:NYNY) and Bet365, as well as DraftKings and Caesars Entertainment (NASDAQ:CZR). Global sportsbooks companies like William Hill (OTCPK:WIMHF) and The Stars Group (NASDAQ:TSG) are also seen as key partners in the "wild west" scenario of online sports betting opening up in new markets. Meanwhile, MGM Resorts (NYSE:MGM) has aggressive deals in place with several professional sports league that it's looking to leverage.
    • Underlying it all, casinos and online operators are trying to slice off as much as possible of the $150B in illegal sports bets in the U.S. every year. "Gambling is still dominated by an illegal grey-and-black market, whether with local bookies or offshore operators, that have been in place for a very long time. In a regulated, consumer-protected business, we’re very optimistic that we can actively displace that as more responsible actors," says FanDuel Chief Revenue Officer Mike Raffensperger.
    • Looking even further ahead, FanDuel and DraftKings are seen positioning themselves for an IPO in a year or two.
    • Berkshire Hathaway's (NYSE:BRK.B) (NYSE:BRK.A) real estate brokerage expands into the Middle East, opening an office in Dubai, Bloomberg reports, citing a company statement.
    • The unit of the Warren Buffett-run company will be headed by Chairman Ihsan Husein Al Marzouqi and CEO Phil Sheridan. Berkshire Hathaway HomeServices Gulf Properties will have 30 advisers and support staff.
    • It aims to triple its adviser count and open a second office in Abu Dhabi within a year, the company said.
    • The company is building its presence in Dubai as the emirate's property markets peaked in October 2014 and have been declining ever since.
    • Berkshire Hathaway Specialty Insurance started operating in Dubai last year.
    • Previously: Warren Buffett looks abroad to expand real estate network: Bloomberg (Nov. 13, 2018)
    • Pres. Trump pressed Japan Prime Minister Abe for Japanese automakers produce more vehicles in the U.S. at their meeting earlier this week, according to the U.S. ambassador to Japan.
    • "The president feels very positive that we will see such movement because all the economics support that," said Amb. William Hagerty.
    • Trump told a campaign rally in Wisconsin on Saturday that Abe said Japan would invest $40B in U.S. car factories, without providing details.
    • Toyota (NYSE:TM) said last month it planned to invest $13B in the U.S. over the next five years, topping a 2017 pledge to spend $10B.

  12. TSLA – Last week midweek the Friday 267.5/262.5 put spread was on sale for 2.58. Basically free money. Tesla has two choices – raise money or collapse. Problem is that Elon’s hubris doesn’t allow him to see that. The other factor at play is that Elon has about 20% of shares. If they do an equity raise big enough to make a difference, he risks losing control of the company. The other issue is that Elon has pledged a lot of his stock for loans. We’ve got to be getting close to where he gets a margin call and has to pledge more to cover it. This dynamic I think is why Tesla does what it does instead of doing what makes sense. The name has a lot of fanatic supporters so there’s no telling what the share price might do in the short run, but the long run seems like it’s going to end with orange coveralls and common getting wiped out. 


  13. Thanks Phil.  Very helpful. Sure, they could sell twice as many cars, but their history suggests that they would simply lose even more money if they did that.

    Dawgy, I agree.  The logical move would have been to raise after the impressive earnings Q3 2018 (if not earlier).  It doesn't make sense why they didn't raise, unless something is preventing them from doing it.  Either because of undisclosed SEC/DOJ investigations, lack of institutional support (Fidelity/TROWE reducing), fraudulent books that won't stand up to underwriting scrutiny for an offering, or dilution and the resulting margin call risk for Elon. Take your pick.  He mortgaged all of his mansions at the end of last year, and did a lease back of his jet.  These are not things you do if you can sell your overvalued shares to the public to raise more cash.  Something else is going on.  

    The 10Q was released today.  In it they disclose that they sold over $200M in regulatory credits in Q1.  This dramatically improved margins (but is not sustainable).  Without them, the automotive margins would be closer to 13% (not 20%).  They also continue to suffer major losses from "service", which has to be a ton of warranty work that was under reserved for, and should be deducted from automotive margins.  Twitter and the Tesla owner forums are filled to the brim with customers complaining about break downs, lack of parts, etc.

    It is going to be hard for them to survive this quarter without a raise.  Can they get it done?


  14. Phil,

    What are your thoughts on STNG? I feel the company is now overvalued with pumping all that money in to building new infrastructure. Oil supply being tightened there might be less demand for the tankers.

    Thinking about short to medium term play while the oil industry finds its balance again.

    Thanks as always

    Pat


  15. TSLA/Dawg – I'd say orange coveralls far from a long shot at this point.  If I were Musk, I would have stopped doing anything that doesn't actually make a profit and showed 4 straight quarters of profits.  THEN he could have borrowed or refinanced or whatever.  To me, the fact that he turned two $200M profits into a $700M loss indicates the $200M profit Qs were BS so the big red flag to watch out for is in the accounting now.  

    History/Palotay – Let's not forget that, in March of 2009, I said the same thing about GM: "STOP making cars!!!  You are losing $20,000 PER CAR you sell, so STOP making them!!!"  Interestingly, GM went through the same stages of denial and death that TSLA is going trough now – they even had Kirkorean say he was going to buy them at one point…

    Service/Palotay – I heard a number this weekend that 20% of the Tesla's going out have serious defects and need to come back.

    STNG/Pat – It's impossible to tell what's going on with these tanker companies as you don't know what they have or what they owe or what kind of contracts they are obligated to, etc.  Half of them are money-laundering schemes for Billionaire-owners and you, as a passive investor, either luck out or don't depending on the whims of their needs to drive the stock price.  STNG is a big one, with 110 ships and Lauro is heavy into port-building in Africa and Asia but I think it's through another company. 

    Lauro's also own SALT so lots of money is shuffled back and forth between those two and the port operations.  Anyway, they (STNG) don't show profits – in fact, they lost $200M on $600M last year and this year they borrowed a ton of money to "expand".  Also, mostly dry shipping – not a lot to do with oil  Just a stay-away stock for me.  

    Also, environmental regs kick in this year for all shippers to install pollution scrubbers at about $2.5-4M per ship and there's no payback to that other than being in compliance so I wouldn't touch any of these guys as it will take them years to make just that money back.


  16. Good overview of Beyond Burgers.  Going to be a huge industry down the road but a bit rich in the IPO at 10x sales (no profits).

    Impossible has partnerships with Burger King, White Castle, Red Robin and Qdoba among others. Beyond Meat has partnered with TGI Friday's, Del Taco, Carls' Jr and Burgerfi among others.


  17. Well, the market just keeps on creeping higher on no volume.  

    At least we have some earnings to keep us interested into the Fed.  

    • Daimler (OTCPK:DDAIF) is shifting strategies after gauging the declining micro-car market in the U.S. and Canada.
    • "After much careful consideration, smart will discontinue its battery-electric smart EQ fortwo model in the U.S. and Canadian markets at the conclusion of MY2019," confirms a Daimler spokesperson.
    • The Smart nameplate will live on in China, where it will be an all-electric brand run out of the joint venture with Zhejiang Geely Holding Group.
    • Things are already a bit perky in the IPO markets, and today brings an S-1 filing for Chewy.com- the online arm of PetSmart. Then there's news that WeWork a few months back confidentially filed to go public.
    • WeWork – which recently raised money at a $47B valuation - would likely be the year's 2nd-largest IPO. Chewy.com is likely to have a valuation closer to about $5B (one wonders what Pets.com bagholders must be thinking).
    • Other IPOs this year include TradeWeb, Lyft, and Pinterest.
    • Alphabet (GOOG +1.3%)(GOOGL +1.4%) reports Q1 earnings after the close and here's a rundown of what analysts expect beyond overall revenue and EPS.
    • Expected revenue breakdown: Google Properties, $26.26B; Google Network Members' Properties, $5.22B; Google Other, $5.67B; Other Bets, $172.2M.
    • Analysts expect TAC of $7.26B and operating income of $7.95B with $10.78B coming from Google and a $639.8M from Other Bets.
    • Consensus puts operating margin at 21.2%, and capex at $6.06B. Note that soaring capex in Q4 spooked investors temporarily after the print.
    • Phillips 66 (PSX +0.6%) is upgraded to Buy from Neutral at BofA Merrill Lynch, where analyst Doug Leggate believes the worst has passed for the U.S. independent refiners and that he now holds a less cautious sector view.
    • Leggate also upgrades HollyFrontier (HFC +0.1%) and PBF Energy (PBF +1.8%) to Neutral while retaining Marathon Petroleum (MPC +1%) and Valero Energy (VLO -0.6%) as his top-rated ideas in the group, saying he sees all the stocks trading below mid-cycle valuations
    • The SEC says it obtained an asset freeze in connection with suspected insider trading in Anadarko Petroleum (APC +0.1%) leading up to the company's takeover offer from Chevron.
    • A U.S. District Judge in Manhattan granted the freeze over accounts linked to suspicious purchases between Feb. 8 and April 1 by unknown buyers of APC shares, who the SEC said could have made $2.5M in illicit profits, according to a court filing.
    • The SEC says a combined 1,650 call options were purchased across four transactions during the period; each purchase accounted for a large portion of such call purchases on each particular day.
    • Bank of America Merrill Lynch expects General Motors (GM +1.3%) to report a drop in North America adjusted EBIT when it reports earnings later this week. The firm sees a less favorable volume/mix associated with production downtime on GM's large SUV and extra launch costs from the ongoing changeover/launch of the K2XX/T1XX platform.
    • BAML is still positive on Buy-rated GM looking beyond the tough quarter and tough macro environment.
    • "We continue to believe that GM's core business is well managed, while the company continues to take decisive action on addressing underperforming segments (GME sale, potential future exit of Korea), which is encouraging," writes analyst John Murphy.
    • "At the same time, we continue to believe that GM is one of the best positioned companies over the longer term, as its autonomous mobility on demand efforts, combined with the overlay of OnStar, puts the company in a unique competitive position. This should become more obvious as the technology is deployed and commercialized over time," he adds.
    • BAMl's price objective of $63 on GM reps +50% upside potential.
    • Iraq's government reportedly approves a plan to develop electricity projects in the country with help from Siemens (OTCPK:SIEGY +0.6%), which has been competing with General Electric (NYSE:GE) to win a deal worth as much as $15B.
    • The Iraqi order is crucial to both Siemens and GE, as it would lift either company's ailing power generation businesses.
    • Boosting power production also is an urgent priority for Iraq, where outages and unpredictable supplies of electricity have hobbled the economy for many years.
    • A technical issue with Sabre (SABR +0.3%) is reported to be impacting major airlines in the North America.
    • Systemwide outages have been reported by JetBlue (JBLU +0.6%), Alaska Air (ALK +0.1%), American Airlines (AAL +1.5%) and WestJet (OTC:WJAFF)
    • Flightaware.com is showing over 2K delays in the U.S. and 238 cancellations.
    • Two analysts have different takes on Berkshire Hathaway's (BRK.A +1.2%)(BRK.B +1.1%) prospects in the week leading up to the conglomerate's shareholder meeting.
    • Barclays Capital's Jay Gelb, with an overweight rating on the Omaha, NE-based company, says Berkshire stands to gain from economic expansion, stock buybacks, and major acquisitions, while KBW's Meyer Shields, with a market perform rating, says the company's large and diverse makeup will make it difficult to produce big returns.
    • Besides owning more than 90 companies, including Geico insurance, BNSF railroad, and Dairy Queen, Berkshire also holds big stakes in such companies as Apple, Bank of America,  Wells Fargo, and the four biggest U.S. airlines.
    • Investors may be too taken with Warren Buffett's persona and his past investment successes, says Shields. And while Gelb says CEO succession has been an overhang, the quality of Berkshire's management is "among the best."
    • Previously: Buffett's real estate arm expands to Dubai (April 28)
    • Toyota (TM +0.3%) is planning to invest hundreds of millions of dollars to produce its Lexus NX and a hybrid version of the crossover at a plant in Canada, sources tell Reuters.
    • An announcement is expected later today by the Japanese automaker from its factory in Ontario.
    • Goldman Sachs Group (GS +2.1%hasn't yet started discussions with the Department of Justice over how to resolve its role in the 1MDB corruption scandal, CEO David Solomon told Bloomberg Television in an interview.
    • That includes whether a guilty plea would be a part of the negotiations. "We haven't even started discussions with the Justice Department on any of that," he said.
    • "We are very focused on getting this resolved in the best way we can," Solomon added.
    • Last week, the Financial Times reported that U.S. prosecutors recommended to senior DoJ officials that Goldman be required to plead guilty to a crime to settle the probe.
    • Among other topics, Solomon observed improved client activity and "pretty constructive" credit markets, as well as a move back into risk assets.
    • Previously: DoJ staff urges Goldman guilty plea in 1MDB case – FT (April 24)
    • There's a bit more sell-side bailing going on today, with Argus Research cutting its medium-term rating to Hold from Buy (though maintaining a long-term Buy on the name). Analyst James Kelleher is worried that data center weakness is behind the company's guidance cut. With that division being a strong driver of margins and growth, Kellerher wants to see a "sustainable recovery" before getting back into the stock.
    • Deutsche Bank maintains a Buy rating, but trims its price target to $62 from $65.
    • INTC -2.3% today to $51.22 vs. being about a $59 stock less than a week ago.
    • Petrobras (PBR +0.9%plans to raise ~$20B through the sale of eight refineries in Brazil, which could take as long as a year to complete, Reuters reports.
    • On Friday, PBR detailed long-awaited plans to sell refineries and other assets as it focuses on its core oil and gas exploration business.
    • PBR's board approved a plan to sell eight refineries including the recently built Abreu e Lima unit, the PUDSA gas station chain in Uruguay and an additional stake in BR Distribuidora, Brazil's biggest fuel distribution company.
    • PBR, which owns a 71% stake in BR Distribuidora, said it is evaluating a secondary share offering to reduce its stake in that business, possibly to as low as 40%.
    • Scorpio Bulkers (NYSE:SALT) is up 14% after topping consensus estimates with its Q1 report.
    • J. Mintzmyer of Value Investor's Edge says Scorpio Bulkers performed very well during the quarter and shared good forward fixtures, considering the doom and gloom in the sector.
    • Mintzmyer expects more upside for SALT, especially due the large Scorpio Tankers ownership. He believes the stock is worth at least $8.00 and should track more of the recent STNG gains. The 52-week high for SALT is $7.95.
    • Previously: Scorpio Bulkers up ~3% on Q1 earnings beat (April 29)
    • Occidental Petroleum (OXY -2.3%) is downgraded to Hold from Buy with a $66 price target, cut from $74, at Jefferies, which says the company's hostile counter-offer for Anadarko is a "risky but perhaps necessary move against a better-capitalized bidder for a company that rejected its initial overtures."
    • But Jefferies analyst Jason Gammel thinks OXY shares could come under further pressure regardless of whether or not it is ultimately successful in its bid for APC.
    • If OXY is the successful bidder for APC instead of Chevron, Gammel believes the effect on per-share metrics will be highly accretive but the balance sheet will be highly levered; as such, the "risks outweigh the potential short-term rewards" over the next 12 months for OXY shares.

  18. Looks like GOOGL is not doing to well so fare 60$ down


  19. Phil – I’ve been trading in an IRA so the high leverage plays don’t work well because of having to cash cover all the short puts and naked short calls are completely out of bounds. Just opened a small regular brokerage account however. If you were going to pick a top two or three new play portfolio out of all the different things we’re doing right now, what would they be?