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Tumultuous Tuesday – Venezuela Crisis Boosts Oil Prices

A coup! 

When's the last time we had a good, old-fashioned coup?  There's one going on right now in Venezuela, where Trump-backed opposition leader Juan Guaido has a small, or large (depending who you ask) group of army guys taking on the elected Socialist (Boo!  Hiss!!) leader, Nicolas Maduro, who was elected to a 2nd 6-year term a year ago.  

“The imperialist U.S. government is directing an operation to impose through a coup a puppet government for its interests,” Mr. Maduro said in a speech from a balcony of the presidential palace. “No one here is surrendering. We’re going to combat until victory.”

Guaido and his troops have apparently taken over part of a highway adjacent to an air base near Caracas, possibly in preparation for landing US or other troops though, of course, it would be completely outrageous for Trump to openly support the overthrow of a democratically elected leader – even if he is a Socialist but, of course – who are we kidding?  Do you really think he wouldn't?

US crude imports by country. Source | EIA 2013There's a lot at stake here as the US imports 10% of its oil from Venezeula yet it is thought that the country could produce 1-2 Million more barrels per day if the right investments are made but to make the right investments, we need a Capitalist-friendly Government that will allow US-based oil companies (ie. Trump donors) to take over Venezuela's valuable oil assets so – Viva la Revolution!  

Of course, Maduro is no prize and, though he won with 67.8% of the vote, it was only 6.2M out of 32M people voting so very low turnout and very possibly it was a sham election but none of that was proven and it was Henri Falcon who got the 2nd most votes (2M), Guaido wasn't even a candidate!  

In a REALLY crazy move – even for Republicans, Senator Marco Rubio tweeted out, not just support, but a call to action to overthrow a foreign Government, urging the Venezeulan Military to "fulfill their constitutional oath and defend the legitimate interim President Guaido."  I mean – WOW – WTF???  

There's a reason the US doesn't do things like this – it leads to global chaos.  Can America only be "great" again if we go back to a time when politicians were assassinated and Governments were overthrown on a regular basis?  I suppose a World in chaos is great for the carpet-baggers, who swoop in with money and take over the resources of target nations while making Billions in war profits, arming both sides of every conflict.  Those were the good old days, right?

Whatever the truth of the matter is, it's certainly chaos and Oil (/CL) is popping back to $65 and, though it's tempting, it can't be shorted ahead of tomorrow's inventory report, which is likely to show a post-holiday draw in inventory.  After that, it will be an interesting short but the May holiday weekend will be here soon and that's the start of Summer Driving Season, when demand usually picks up – so we'll have to be very careful about picking our spots.  

Meanwhile, we're still waiting on the Fed and watching the earnings reports flood in.  Google (GOOG) was a huge disappointment last night and is down about 8% this morning and that's costing the Nasdaq a bit as it's about 10% of the Composite Index's weight.  McDonald's (MCD) had great earnings but, up near $200 – it was kind of expected.  GE finally had good earnings and they are blasting higher but we got sick of them after the last spin-off and dumped our positions.  

Eurozone GDP showed signs of recovering at 0.4% vs 0.2% in Q4, which was up from 0.1% in Q3 so maybe 0.8% in Q2?  Either way, it's a lot better than continuing to play dead.   China had weak factory data overnight but was bosted back by positive trade talk – so we're back to that moving the markets now.  The White House claims a final deal could be worked out this morning, so traders remain optimistic.

Not much else is happening as we're waiting on the Fed.  

 


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  1. Adding new lines to my new lines already! Nasdaq the biggest culprit but not surprising looking the move from companies like AAPL and MSFT!


  2. And how disconnected are analysts – just blowing with the wind it seems:

    Apple shares have surpassed analysts' average 12-month price target


  3. Cellular prices in the US are completely insane. I remember 20 years ago, we used to be so much cheaper than Europe but now it's the complete reversal:

    https://gizmodo.com/new-research-shows-why-the-sprint-t-mobile-merger-could-1834395224

    Unfortunately, for us here in North America, things get even worse because while the U.S. is, essentially, a four MNO country (AT&T, Verizon, T-Mobile, and Sprint), the median price for a gig of data comes out to about 4.5 euros, which is three times higher than the median for a typical four MNO country.[...]

    Furthermore, the price of 4G data plans in Canada is 24 times more expensive than a similar plan in Europe, while the U.S. fared only slightly better with plans here rating 15 times more expensive.

    15 times more expensive! 


  4. GE- Beat by 5 cents, small miss on revs; importantly burned less cash than expected as Industrial performed better than expected which is leading shares higher; Reaffirmed its FY19 and longer term outlooks which is key; Also noted that the turnaround in the Power Unit, a long time drag, is in its early stages.


  5. Good morning!

    Dollar way down (97.22) so that's helping to boost things a bit – might not last.

    Dow has been all over the place this morning.

    Oil calming already.

    Cell prices/StJ – It's amazing all the ways they find to rip off consumers under "Capitalism" while "Cocialism" tends to keep costs under control.  It's the exact opposite of what they tell you – over and over and over again…

    GE/Albo – Stop, you'll make me want to play them again!  crying

    FTR catching some bids ahead of earnings:

    What Our Model Says

    Our proven model shows that Frontier Communications is likely to beat earnings this quarter as it has the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is exactly the case here as you will see below:

    Earnings ESP: Frontier Communications’ Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +55.80% as the former is pegged at a loss of 20 cents and the latter at a loss of 45 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

    Frontier Communications Corporation Price and EPS Surprise

     
    Frontier Communications Corporation Price and EPS Surprise


    Frontier Communications Corporation price-eps-surprise | Frontier Communications Corporation Quote

    Zacks Rank: Frontier Communications currently has a Zacks Rank #3. This increases the predictive power of ESP.

    Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

    Factors at Play

    In January 2019, Frontier Communications completed the sale of 100 wireless communication towers primarily in Connecticut, New York, and California for approximately $80 million. The assets were sold to Everest Infrastructure Partners — a Pittsburgh, PA-based investment firm specializing in infrastructure investments. The divesture is part of the company’s long-term strategy to strengthen its balance sheet.

    It launched Frontier Connect – Cloud that leverages the breadth of its Ethernet network to provide customers a secure and private cloud connection. This improved cloud application performance while reducing latency by enabling more consistent throughput to cloud services.

    The solution further enables application innovation and data center transformation, supporting cloud and multi-cloud strategies, bringing visibility and control to any network. The move is likely to have aided Frontier Communications’ top line in the to-be-reported quarter.

    The company has progressed in its Consumer business, which is expected to result in an improved revenue trend in the quarter, backed by better execution of operational strategies and initial benefits from its transformation program.

    IN the LTP, we have 20,000 shares of FTR at $4 for a massive loss of $27,000 and we sold 50 2021 $5 puts and 100 2021 $4 puts for about $2 and we sold 100 $3 calls for $1.65 so our net entry on 20,000 shares is $29,750 so under $1.50 per share is our cost but we're obligated to buy another 15,000 shares at about $3 ($45,000) which would bump us up to $2.15ish, if assigned and FTR is at $2.78 so this trade is WAY better off than it looks on paper at the moment!

    FTR Frontier Comms. Corp. 20000 1/2/2018 479 $80,000 $4.00 $-1.39 $4.03     $2.61 $0.08 $-27,800 -34.8% $52,200
    FTR Short Put 2021 15-JAN 5.00 PUT [FTR @ $2.61 $0.08] -50 11/20/2018 (630) $-12,250 $2.45 $0.78     $3.23 - $-3,875 -31.6% $-16,125
    FTR Short Put 2021 15-JAN 4.00 PUT [FTR @ $2.61 $0.08] -100 2/28/2019 (630) $-21,500 $2.15 $0.15     $2.30 - $-1,500 -7.0% $-23,000
    FTR Short Call 2021 15-JAN 3.00 CALL [FTR @ $2.61 $0.08] -100 3/1/2019 (630) $-16,500 $1.65 $-0.48     $1.18 $-0.13 $4,750 28.8% $-11,750

    As a new trade on FTR, I would go with:

    • Buy 10,000 FTR at $2.80 ($28,000) 
    • Sell 100 FTR 2021 $3 calls for $1.35 ($13,500) 
    • Sell 100 FTR 2021 $3 puts for $1.60 ($16,000) 

    That's a net CREDIT of $1,500 with a call-away at $30,000 and your worst case is having to own 10,000 shares of FTR for $2.85 (the current price) while your best case is making $31,500 if FTR is 0.20 higher in 20 months! 


  6. Good Morning!


  7. AAPL?


  8. M is surely battling


  9. FTR – Phil, I hope you're right on FTR. 

    A good report would bode well for CTL.

    CTL currently yields 8.7%.


  10.  Sold some Aug 8 RIG puts.

    RIG
     

    Transocean beats by $0.01, beats on revs 

    The company said "With the recent high-grading of our fleet, an industry-leading backlog, and a solid liquidity position, Transocean is well-positioned to capitalize on what we believe to be the early stages of a sustained recovery in offshore drilling."

     

    Halliburton (HAL) said last Monday that it sees international offshore spending to rise by 14% in 2019

    Meanwhile, when Schlumbergerg (SLB), the largest oil and gas equipment and services company in the world, recently reported, they said they see international offshore spending rising by about 7-8%


  11. I like the RIG puts Albo… may wait a day on it but will be joining you.


  12. Yikes, everything turning down now.  

    Consumer confidence was BTE but Chicago PMI was a disaster:

    • April Consumer Confidence129.2 vs. 127.1 consensus; 124.2 prior in March (revised).
    • Present situation Index 168.3 vs. 163.0 prior.
    • Expectations Index 103.0 vs. 98.3 prior.
    • Chain store sales increased 5.5% for the week ending on April 27, according to the latest report from Johnson Redbook.
    • Spring apparel sales and lawn/garden sales are finally picking up after a late start to the season
    • Sales in April are expected to be up 5.4% for the full month.

    RIG/Albo – I generally like that company.  We have a heavy bet on OIH as a sector bet – I talked about it in the last webinar – been too long since the majors spent money – it has to happen at some point. 

    • Stocks are off to a lower start, as Alphabet plunges more than 7% following a weak Q1 earnings report; Dow -0.1%, S&P -0.3%, Nasdaq -0.6%.
    • European bourses are in the red, with Germany's DAX -0.3%, France's CAC -0.4% and U.K.'s FTSE -0.5%; in Asia, Japan's Nikkei is closed on holiday while China's Shanghai Composite +0.5%.
    • Alphabet headlined today's slate of earnings reports, but positive results from the likes of GE (+5.4%), MasterCard (+2.6%), McDonald's (flat), Merck (+0.8%) and Pfizer (+1.3%) have provided some market support.
    • Among the S&P 500 sectors, Alphabet weighs heavily on the communication services group (-1.8%), while energy (+0.6%) outperforms the broader market.
    • U.S. Treasury prices are little changed, with the two-year and 10-year yields both flat at 2.29% and 2.54%, respectively; U.S. Dollar Index -0.4% to 97.50.
    • WTI crude oil +0.7% to $63.96/bbl.
    • Morgan Stanley drops its price target on Tesla (NASDAQ:TSLA) to $230 from $240 to account for a reduced estimate on the company's autonomous business to $45 per share from $55.
    • MS analyst Adam Jonas repeats a common Wall Street refrain about Tesla's Autonomy Day event, saying the tech was impressive, but the go-to-market strategy was unsettled.
    • Shares of Tesla are flat on the day and down 28% YTD.
    JPM finally catching up with me:  Alaska Air Group gains after JPMorgan nod
    • Alaska Air Group (NYSE:ALKgains 1.55% after JPMorgan upgrades the airline stock to Overweight from Neutral.
    • JP thinks Alaska Air will see a benefit to pricing in California. The firm's price target of $72 reps 18% upside potential for shares.
    • Analysts are commenting on General Electric's (GE +4.8%) results, noting Boeing's 737 MAX jet presented the only "new risk" for GE, which makes engines for the plane with partner Safran (OTCPK:SAFRY).
    • Credit Suisse (Neutral, PT $11): Industrial orders and sales were better than expected, with the segments in line, excluding a beat in Power.
    • Gordon Haskett (Underperform, PT $7): The firm sees GE bulls declaring "victory" because of the better cash print, but expects potentially significant "lower restructuring spending coupled with large 'deltas' for BHGE, which calls into question the degree to which the Q1 results were really that much better (vs expectations)."
    • Barclays (Overweight): Overall, the Power business' performance and the Industrial free cash flow should drive a positive reaction in the stock, offsetting the weaker Renewable figures.
    • RBC (Outperform, PT $13): There were no new developments of note in the earnings presentation slides. The Max issue was expected, given that GE is the sole-source engine provider for the aircraft.
    • Source: Bloomberg First Word
    • Corning (NYSE:GLW) is off 9.5% in opening action after it posted largely in-line results with its Q1 earnings but guided to a full-year slowdown in its largest segment.
    • Core equity earnings hit $26M and core EPS rose 29% to $0.40. Core sales were up 13.5% to $2.85B.
    • Revenue by segment: Display Technologies, $818M (up 10% Y/Y); Optical Communications, $1.06B (up 20%); Specialty Materials, $309M (up 11%); Environmental Technologies, $362M (up 12%); Life Sciences, $243M (up 5%).
    • In a capital allocation update, the company says it's on track for its 2016-2019 goals; it returned $414M to shareholders in Q1, for a total of $12.3B since introducing the Strategy and Capital Allocation Framework.
    • For the full year, Corning has revised down expectations for Optical Communications, to sales growth of about 10% vs. a previous expectation for low teens. It sees moderate sequential price declines in Display Technologies, with full-year price declines improving to mid single digits.
    • The full-year display glass market volume should rise by mid single digits, it says, and Environmental Technologies sales are expected to rise by at least 10% (higher than previous forecast for high single digits). Specialty Materials should grow, it says, and Life Sciences should grow by low to mid single digits.
    • Earnings call slides
    • Previously: Corning EPS in-line, beats on revenue (Apr. 30 2019)
    • Press release
    • Glencore (OTCPK:GLCNFOTCPK:GLNCY-4% in London trading after reporting a 7% decline in its Q1 copper production and cutting its full-year copper production guidance.
    • Glencore says own-sourced copper production fell 7% Y/Y to 320.7K mt from 345.4K mt in the year-earlier period, citing severe flooding in Australia and stoppages at its Mopani mine in Zambia.
    • Q1 cobalt production surged 56% to 10.9K tons, zinc production rose 8% to 262.3K tons and nickel production fell 10% to 27.1K tons.
    • For the full year, Glencore now expects copper production of 1.43M-1.49M mt, after earlier forecasting 1.54M mt, and narrows cobalt production guidance to 53K-61K mt from 52K-62K mt previously.
    • General Motors (NYSE:GM) falls in early trading after reporting revenue of $35B in Q1, EPS of $1.10 (adjusted for Lyft, PSA) vs. $1.12 consensus and adjusted EBIT of $2.3B vs. $1.78B consensus.
    • The automaker's North America EBIT tally was $1.9B vs. $2.2B a year ago and $2.0B consensus estimate.
    • GM expects full-year EPS of $6.50 to $7.00 vs. $6.50 consensus and adjusted automotive free cash flow of $4.5B to $6.0B.
    • Shares of GM are down 2.55% premarket to $39.00.
    • While the S&P 500 and Nasdaq both hit record highs this week, and the DJIA is just a handful of points away, the Russell 2000 remains more than 8% below its all-time high hit last August.
    • Writing in the WSJ, Jessica Menton wonders if small caps are about to have their day thanks to the resurgent greenback. After all (the conventional thinking goes), small caps tend to be more tied to the domestic economy, and thus relatively shielded from a firming dollar.
    • The Fed meets this week, and no policy changes are expected. But there's been a decent amount of rate cut talk in the air of late, and a signal that it's way early for that sort of chatter might lead to another leg up for the dollar, and for small caps.
    • Scorecard: On a year-over-year basis, the S&P 500 is up 11.% vs. the Russell 2000's 3.7% advance. Year-to-date, it's more matched, with the S&P 500's 17.4% gain actually trailing the Russell 2000 by 110 basis points.
    • Lumber Liquidators (NYSE:LL) heads lower in early trading after investors punish the company for an EPS miss.
    • Gross margin fell 110 bps Y/Y to to 35.2% of sales, primarily driven by higher tariff costs on products originating in China that were only partially offset by an improved mix of higher-margin manufactured products and lower warranty costs.
    • Looking ahead, Lumber Liquidators reaffirms prior guidance for full-year revenue growth in the mid-single digits and comparable store sales growth at a flat percentage to low-single digits.
    • Shares of LL are down 6.75% in premarket trading to $12.20.

  13. FTR – fool me once shame on you – fool me twice……..

    Since when did we start believing Zacks?

    Bankruptcy risk outweighs any possible thought of entering a trade on FTR.

    At some point one needs to look at the chart and believe that the price evolution over time is signalling something – and it sure ain't screaming BUY!!!!


  14. Well, we'll see later.

    Speaking of later – I have to be on the Radio at 2:30 so I'm leaving at 2 but I will be back later to look over AAPL earnings.  

    You can probably watch me @ https://www.facebook.com/hempbocashow/ - some kind of live feed thing should come up on FB.  

    Speaking of Hemp Boca – we got our first celebrity endorsement!  

    https://d3el26csp1xekx.cloudfront.net/v/no-wm-52vzmKymZ.mp4


  15. DIS – Great example of sell the news ?


  16. Hi Phil, a quick one on FTR. If I only have sold FTR 2020 $4 puts (sold for $1.23), would roll to 2021 or make any other adjustment?


  17. Hello Phil, could you comment on FTR and bankruptcy.  I understand they are in workaround mode over the next few years.


  18. Since we are talking about FTR and I want to learn more about how you determine value. How would you determine if something have changed in your assessment between the last time you checked and now. Especially if no earnings have been released during this time.

    Thanks





  19. Trump’s Dishonesty Isn’t Normal



  20. DIS/Albo – I'd say that was certainly priced in and expectations were met but now what?  They do have a lot of movies coming out the rest of the year but they just had a big miss with Dumbo – so not risk-free.  Star Wars will be the next big story (the theme park and hotel) I sure wouldn't bet against them but $140 was kind of silly.

    FTR/Alter – Because of switching costs (bid/ask spread and fees), I wouldn't do anything for now as $4 is not out of the question.  They are $1.80 now but an 0.20 spread makes them hard to get out of and the 2021 spreads are even worse so better off sticking to your guns and lets see what earnings actually are. 

    FTR/Robert – They are a telco and, like many Telcos, they borrow massive amounts of money and pay it back over time.  In this case, they borrowed about $10Bn to buy Florida, Texas and CA customers from VZ and those customers now pay FTR monthly revenues which FTR uses to pay down debt.  FTR is betting the customers won't all cut their cords until after the debt is paid and whatever is left will be profits – but it's a 10-year plan and we're in the 2nd year so people love to extrapolate failure off of any single data point.

    Image result for extrapolation cartoon

    They don't have any major debt payments until 2022, which isn't that far away but it's ridiculous to make assumptions now that they won't make their payments.  

    FTR/Garding – Well nothing has changed until we see the report and we know interest costs haven't changed so it's then a function of subscription revenues and expenses to see how well they can service their debt.  I have no change of opinion, the company has about $8.5Bn in sales and drops about 20% to Operating Income, which is just about enough to service their debt so we'd like to see more than $2.1Bn in sales or possibly and increase in Operating Income, which management feels they can deliver.

    Again, this is a Moore's Law thing as of course it costs less and less to provide Telco service over time.  The danger to FTR is that people cut the cords faster than they can provide wireless solutions (and they don't have a big budget to upgrade at the moment) but, if it turns out they can maintain most of their customers for the next 10 years, then "suddenly," they are dropping $1.5Bn to the bottom line and that's pretty good for a company you can buy for $300M at $2.85 – even if you do have to wait for the turnaround. 


  21. Thanks Phil.  Great comments on FTR.


  22. You're welcome Robert.

    I'm off to do the radio show. 


  23. Well it looks like people got nervous on AAPL into earnings.

    Here's the radio show:


  24. Well Winston was right, FTR got hammered on earnings.  Same guidance for the year, just nothing exciting and people are bailing again – down to $2.35.


  25. FTR – was able to exit my puts ( without a loss or a gain) and sole 50X Nov 3 calls at .75….  chip away at price.  Thought they too aggressive a run up….need to dig into earnings,  

     

    after I'm done looking at AAPL earnings….


  26. AAPL – shooting up – but I have not seen the release


  27. AAPL knocks it out of the park – Passing $210, $212…

    Raising dividends, buying additional $75Bn of their too-cheap stock back…  

    Have I mentioned how much I love AAPL lately?