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Tuesday Already – Short Week Begins with a Bounce

May has not been kind to the markets

As you can see from the S&P chart, we're down from 2,950 back to just over 2,800 and it's about a 5% drop (2,802 is exact) and that means, according to the Fabulous 5% Rule™, that we can expect AT LEAST a 30-point bounce to 2,830 but the exact number is 2,832, which is EXACTLY where we are at about 8:30 this morning.

The reason the 5% Rule is so amazing at predicting these levels weeks in advance is that it's not TA, we're merely exploiting the mathematical convergences inherent in bot-trading programs – which dominate trading these days – ESPECIALLY in low-volume markets, like we're having now.  In fact, here's the S&P chart we drew on 5/15 – still stuck in the range we expected:

Remember, the 5% Rule can only tell you the range the indexes are likely to track in and we are Philstockworld can only tell you how to profit frtom trading those moves – the rest is up to you.

Speaking of things that were up to you – congratulations to all who stuck it our with us on our Gasoline (/RBN19) trade as we got a nice pop Friday that followed-through into this morning and now we're up over $2,500 on two contracts and we're very happy to lock that in with a tight stop at $1.94 since both Silver (/SI) at $14.30 and Natural Gas (/NGv19) at $2.60 are both back to our buy points as the Dollar pops back to 97.70 so we're happy to switch horses at this spot.

Fututres have been all over the place as Trump said yesterday that the US is "not ready" to make a Trade Deal with ChinaChina's Industrial Profits fell  in April but that was before the new round of tariffs so it's hard to say if Trump is "winning" or just kicking China while it's down – something the Middle Kingdom will not soon forget.  In reality (something the President is not very familiar with), the drop in profits was mainly due to the comparison to high profits a year ago and also to companies trying to take advantage of a tax change on April 1, the NBS said. Companies bought industrial goods in March ahead of the tax cut and then cut back on purchases in April, lowering profits.

There was, however, a bank failure in China this weekend as Mongolia's Baoshang Bank had to be taken over by the Government and that's the first time in 30 years China has had to take such an action.  

Image result for trump trade cartoonSince there is no trade deal with China, Trump is pushing for an August trade deal with Japan – so it will look like he's accomplishing something.  Keep in mind that we already HAD trade deals with all of these countries – until Trump screwed them up so it's kind of funny to see him crowing about these "accomlishments" when Trump is only partially cleaning up the mess Trump made.  

Meanwhile, while Trump is closing borders and restricting trade, China is busy pursuing their "Belt and Road" initiative to develop roads, rails and ports connecting China through Southeast Asia, across the Indian Ocean and into Africa and Europe – effectively turning the entire planet into a single trading block – except the US – who were invited to join but, well, Trump…

That's why we aren't going to be able to get China to change just to please Trump.  China sees a Western financial system that led the world to the brink of depression with the 2008 financial crisis, and Western Democracies trapped in debilitating political paralysis and Trump is attempting to force them to become more like us – no thanks, they say!  

Speaking of screwed-up democracies, Italian bond yields are shooting up today as the EU threatens to fine the country $4Bn for failing to rein in their debt, which seems silly as it only adds more debt they have to rein in…  Under EU fiscal rules, the bloc’s members need to keep their deficit below 3% of GDP and debt under 60% of GDP. Countries with debt that exceeds that level need to be reducing it at a satisfactory pace. At 132% of output, Italy’s debt is more than twice the EU limit, and, according to the bloc’s executive arm, not falling fast enough.  

While 2.6% is not Greece yet, this is not something that's going to go away any time soon as 132% of GDP in debt is clearly unsustainable.  Thank goodnees the US only has $21Tn in debt and our GDP is $19.5Tn so that's only 107% of our GDP but we'll be at 130% if Trump's budget stays in place through 2024 – both of which are terrifying thoughts!  

Meanwhile, the ECB has it's own problems as their balance sheet is now 40% of the GDP of the entire Eurozone (45% if the UK leaves) and that's even crazier than our own Fed, with $4.5Tn out of $19.5Tn (25%) yet the ECB keeps buying those bonds to keep the rates as low as possible or the debtor nations, like Italy, would simply blow up.  

The bottom line is no one is bidding on EU bonds at these prices and the US auctions are deteriorating as well and that is going to be quite a crisis if it becomes a trend so keep an eye on those bonds – they were the canary in the coal mine in 2007 and 2008 and those who ignored those signs found our just how far down the shaft your portfolio can fall when people lose faith in the bond market.

 


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  1. thoughts on M, I am long 8 Jan21 $20 covered by 4 Jan21 $30 and long 4 Jan20 $18. I am also short 2 Jan 21 $25 Puts. Should I be looking to sell Aug or Nov calls?



  2. Good Morning!


  3. CEO get raises no matter what – good job, bad job, just doing their job, scandals…

    https://www.nytimes.com/2019/05/24/business/highest-paid-ceos-2018.html


  4. Fed balance sheet is currently around $3.9T


  5. Good morning!

    Jean is still in Thailand (where we have a huge opportunity) so I'll be co-hosting the Hemp Boca Radio Show/Podcast this afternoon at 2:30 and I'll be leaving at 2 for that.

    Looks like we're being jammed up at the open, we'll see what sticks.  

    /SI still weak at $14.30.  I'd love $14.25 but I don't think we get there so I'm using $14.30 with tight stops below.  If we get to $14.25, I'll play that with more conviction.  

    Keep in mind that $820 is a pretty good spot to go long Soybeans and certainly $800 if it hits that.

    And, of course, Coffee is like Old Faithful – just wait around a while and it takes off:

    /NG is right where we want them, $2.85 on /NGZ19

    "Now once, I was down-hearted

    Disappointment, was my closest friend" – Carl Smith


  6. Good interview with  Howard

    Howard Stern's Extended 'Late Show' Interview

    https://www.youtube.com/watch?v=Z7fqlJ_dTFI

     

     


  7. M/Millard – I think they are too low in the channel to lock out gains by selling more short calls.  Let's call it a 2021 1/2 covered $20/30 spread and ALSO you have 4 Jan $18 calls with no covers, right?  So what would the plan be?  Collect $2 for the Nov $21s?  If you have that little faith in M then why sell puts?  Of course, if you were to sell the Nov $21s for $2 and spend 0.50 more to roll the 2021 $18s ($4) to the 2021 $15s ($6.50), then I think that's just fabulous as you are spending net 0.50 to buy a year (so presumably more call sales are possible) and to go $3 deeper into the money – that's a good deal!  

    Meanwhile, the 2021 $30s are $1 and I'd buy those back and hope for a bounce or, of not, you can always sell 3 of the Nov $21s for no less than $1.50 and there's your $4 back and room to sell more covers if $20 doesn't hold (and raise money to roll those calls down).

    Big Chart/StJ – Still not getting the signal to buy more hedges but so close.  Dow up 100 now so not today it seems.

    CRON/Advill – They are getting a lot of buys this weekend, maybe a PR push.  Anyway, they are in the MJ ETF and I feel a lot safer there.  

    CEOs/StJ – Ridiculous but then you tie their comp to the stock and they manipulate that too.

    Fed/Mike – Didn't realize they cut so much this year.  


  8. Hedges / Phil – Dow is up, but spot VIX is up too so not everybody is on-board yet. 


  9. Chinese tourism to US drops for 1st time in 15 years




  10. Phil – XLNS – Looking at this for a bit now. taking a hit lately after a big run up.  I like the tie into G5 roll out  especially given that companies rely on them as they develop for new launches ( FPGA and FSSA) as well as the beat and increase last earnings.  With a GM at 69% and and Operating margin at 31% looks to be solid.  They have  a bit of Debt at 1.23B with Cash avow doubt 3.2B but the debt ratios look good.  I've got them with a EPS growth rate of 15%.  This gets me to a target price of about 125 to 130….  I'm looking at the

     

    '21 BCS of 90 (25) / 125 (20.5) with maybe a short $80 Put –  I'm concerned about catching a falling knife on this one would like your thoughts.



  11. Phil / XLNS – the BCS should be 

    '21 BCS of 90 (25) / 125 (10.5) with maybe a short $80 Put


  12. Batman – XLNX ?


  13. Phil – XLN

     – Looking at this for a bit now. taking a hit lately after a big run up.  I like the tie into G5 roll out  especially given that companies rely on them as they develop for new launches ( FPGA and FSSA) as well as the beat and increase last earnings.  With a GM at 69% and and Operating margin at 31% looks to be solid.  They have  a bit of Debt at 1.23B with Cash avow doubt 3.2B but the debt ratios look good.  I've got them with a EPS growth rate of 15%.  This gets me to a target price of about 125 to 130….  I'm looking at the

     

    '21 BCS of 90 (25) / 125 (10.5) with maybe a short $80 Put –  I'm concerned about catching a falling knife on this one would like your thoughts.

    ALBO  Thanks for catching the Typo


  14. Thoughts on KEY? Paying 4% and 2021 15/17 strangle pays $5+ on a $16 stock


  15. Phil,

    Wouldn't Trump's desire (and need) to win in 2020 effectively put a floor under the market by calling off the tariff war with China, etc once the economic effects of  the tariffs begin to manifest ?

    Trump might not grasp the economics, but Kudlow and Mnuchin do and will advise that the tariff war will hurt the economy and stock market and therefor his chances for re-election. His tweets seem to reveal that he understands that both the market and economy are essential for his re-election and therefore avoidance of personal criminal prosecution. Unless he becomes totally irrational, it doesn't seem likely that he would jeopardize his future" to teach the Chinese a lesson." So wouldn't that reality put a 'short Trump put' under the market? 

    Your thoughts appreciated. TIA


  16. I continue to view AVGO as a core holding, despite all the news from China.  Would like to add to my position if it continues to drift lower.

    Sold a couple of June 7 $245 puts for $3.60.


  17. Phil,

    I know you cashed out of /RB but I’m in at the 1.97 so need to ride it out a bit. What are your predictions for inventories and for /RB this week?


  18. OK entered M position: 2021 13/28 BCS for $6.87, sell 2020 25 Call for 0.90. 

    15 dollar spread 8 dollar in the money for 6 bucks. Puts?


  19. Phil,

    Looks like /rut is being played like a yo-yo on a string……violent gyrations between 15717 and 1510….what gives?


  20. GM PSW members!

    ASCO (Cancer meeting) is coming up, and there are a few companies that are going to be speaking.  One of which I think is worth a flier on is MGNX.  They are competing against Roche's Herceptin, but their drug is more specific mAb that is targeting an allele mutant.  I am thinking that the data will be rolled out, and by January the stock should recover to the highs.  So, Buying the Jan 2020 20/30 BCS for $2.15 or better.  Don't go crazy, but this is a roll the dice play thinking that things will look up higher than expected.


  21. phil, araghh!   1517 to 1510 and back….my bad


  22. VIX/StJ – Plenty to worry about still.

    XLNX/Batman – Oldie but goodie but not all that cheap at $100, which is $25.5Bn on barely $1Bn in profits.  They do have growth but they'd better at 25x earnings so priced for perfection at $100 – I don't see the other 25% coming so quickly.  However, that doesn't mean it's not playable – I'd just go more conservative and sell the 2021 $80 puts for $9 and buy the $80 ($30.50)/$100 ($20) bull call spreads for $10.50 and that puts you in the $20 spreads that are 100% in the money for $1.50 with an $8.50 (566%) upside and all XLNX has to do it not go lower.  Worst case is you own them for net $81.50 which, according to your target, is 33% off!  cool

    KEY/Millard – Now we're talkin'!  Pretty big regional bank with 1Bn shares outstanding so and easy-to-calculate $16.5Bn valuation at $16.50 and they are dropping $1.8Bn to the bottom line so I like them 80% better than I like XLNX and a triple word bonus for not being part of Trump's Trade War!  

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 4,091 4,090 4,228 4,990 6,255 6,424 6,392 6,482 6,698 +9.4%
    Operating Profit $m 1,141 1,272 1,222 968 1,928 2,203 2,213     +14.1%
    Net Profit $m 910 900 916 791 1,296 1,866 1,855 1,801 1,861 +15.4%
    EPS Reported $ 0.93 1.04 1.06 0.80 1.25 1.70 1.71     +12.9%
    EPS Normalised $ 0.93 1.04 1.06 0.80 1.25 1.70 1.71 1.80 1.95 +12.9%
    EPS Growth % +7.0 +12.5 +1.2 -24.0 +56.4 +35.5 +25.6 +5.59 +8.52  
    PE Ratio x           9.78 9.75 9.26 8.54  
    PEG x           1.75 1.74 1.09 1.04
    Profitability

    They were all the way down to $13.40 in Dec but I'd just back up the truck if that happens.  Rather than play for the 0.68 dividend, I'd just sell the 2021 $17 puts for $2.85 as that's 20% back on your $14.15 max risk so, no need to mess around while you wait to see if you get a cheap entry.  You're looking at buying the stock for $16.50 and selling the 2021 $15 calls for $2.95 and the $17 puts for $2.85 for net $10.70, called away at $15 for a $4.30 profit (28.6%) plus $1.02 (6) in dividends and that's good too but I'd rather (in this uncertain environment) just sell the puts as a first step and grab the bull spread (and maybe the the stock) if it drops again.  

    Trump/8800 – I think if Presidents could control the market to that extent, Trump wouldn't be the first to have figured it out.  Any President/Fed can twist policy and sentiment for the short run but, in the long run, the real economy tends to assert itself.   Speaking of which, today's rally is unwinding fast and ugly…

    Also, you think Kudlow "grasps the economics"?  The guy's is a buffoon!  How's that advice working so far on Trump?  I don't think you're dealing with a rational person here (Kudlow or Trump!) and the adults in that room tend to get fired – I'm sure Mnuchin has learned that lesson as he's a GS survivor but, let's not forget, he was a Sears Board Member until Trump picked him up and he was quite content to let that ship crash and burn while lining his own pockets (him and Lampert are specifically being sued for self-enrichment at the expense of shareholders).   

    Mnuchin and Lampert both went to Yale together with my cousin so I've always known they were both assholes.   Mnuchin's Dad was at GS so he just oozed his way in and golden parachuted out and his real money came from "bailing out" IndyMac during the crisis and getting it for nothing and flipping it to CIT for a huge profit (but not before being sued for illegal foreclosure practices) - just the kind of crap connected people get to do.  That's why he and Trump get along so well – both sons of rich men who claim to be business geniuses.  People talk about his film career but he only invested in the company that invested in some hit films, his own film company was Relativity Media, which went BK.  

    All that aside, what would you think is a "Trump put" when we're 15% higher than the December lows?  Clearly we're able to drop 15% from here with Trump, Mnuchin and Kudlow steering the ship and they saved us then by saying a China deal was practically on the table – that turned out to be BS so what was the 15% rally all about and what will we all fall for next time we drop back to NORMAL market levels, when taking the trade war into account? 

    AVGO/Albo – Not a bad price at $253.50, which is $100Bn and they made $6.5Bn last year and are expected to ramp up from here.  I'll be loving them back at $220 though it's hard for me to pay that much for a stock we used to own at $50.

    /RB/Japar – Yep, stopped out now.  I still think we go higher on inventories but /NG and /SI got so cheap I felt it was a good time to trade.  No change in my "prediction" but that was why I doubled down, which is what allowed me to get out without having to hang my hat on needing such a massive move just to get even – which is what seems to have prevented you from taking the money and running at $1.95.

    You have to realize that EVEN IF /RB was destined to go to $1.95, we fell from $2.05 to $1.90 so 0.15 and the weak bounce is $1.93 and strong is $1.96 and you KNOW you're going to retrace from the strong bounce so that's an 0.06 move so 0.012(5) pullbacks would be $1.9475 and $1.935.  Since $1.95 was rejected, I stopped out in case $1.935 didn't hold but it seems to have so far and, if it's going well, then I can always get back in over $1.95 with tight stops below that line and all I'll do is miss a penny out of the 0.15 run you are hoping for.


  23. KHC

    Kraft Heinz seeing outsized weakness on heavy volume as shares fall 5% to fresh all-time lows with the company still delinquent in filing its 2018 10-K & 1Q19 10-Q .

     

    I wonder if there's a price at which Buffett would buy the company? 


  24. Phil. / XLNX – thanks or the spread …. I like that one more but I may wait for a bit more of a pullback on this one.   I'll set an alert at 90.  AVGO on the other hand is a core holding for me ( or at least I'm building up to a core ).  Started buying this at 237 last year and have whittled this down to about 220…   but I'd like to pick more up — they have a good dividend and are probable taking it up by 50% at end of year.


  25. M/JMD – From scratch I would have gone with 15 of the 2021 $15 ($6.50)/$25 ($2) bull call spreads for $4.50 ($6,750) and sold 5 of the 2021 $20 puts for $4 ($2,000) and 5 of the July $20 calls for $1.50 ($750) because it's only a 1/3 cover and they can be rolled to 10 of the Nov $24 calls (now 0.85) if all is going well and, if not, you can sell 5 more.  The net is initially $4,000 on the $15,000 spread but July is only 52 days out of 600 so you should easily be able to sell another $4,000 in premium over the next 9 sales – and that's with just a 1/3 cover.  

    RUT/Jasu – Not much more violent than the others – we're just jerking around ont he latest rumors.  

    MGNX/Pharm – Pretty thinly traded, have to be careful.  At $18.36 you can sell the Jan $22.50 puts for $6.50 and cover with the long $12.50 puts at $1.50 and, while I don't like doing those spreads, it will make $5 if things go well and would hopefully not get too killed if they don't but $5 is the max loss though very unlikely that would happen as the net delta is 0.60 so a $5 drop would cost you $3, not much more risk than the $20/30 bull spread but only needs $22 to pay $5.

    KHC/Albo – Wow, I don't know what people think they are hiding.  So silly.  

    They announced the huge goodwill write-down and that is causing the delays in their filings (which will also be adjusted downwards for prior quarters to reflect it as it's not a sudden change that happens at a certain date).  What's happening now is that KHC has a loan covenant that requires them to maintain a $35Bn valuation and that's where they are at $29 so bears are attacking them to try to force them under and create panic.  I'm sure Buffett is licking his chops on this one as he can come in and buy up more shares while looking like a nice guy who saved the company.  

    XLNX/Batman – Yes, I'd wait.  That's why we keep the Watch Lists – while we may find things attractive, some of them will become more so…


    • Wall Street opens on a higher note following a fairly quiet three-day weekend; S&P and Dow both +0.4%, Nasdaq +0.6%.
    • Pres. Trump said he expects a trade deal with China in the future but that the U.S. currently is "not ready," adding that tariffs on Chinese imports could rise "substantially."
    • European markets are mixed, with U.K.'s FTSE +0.1% but France's CAC -0.1% and Germany's DAX -0.2%; in Asia, Japan's Nikkei +0.4% and China's Shanghai Composite +0.6%.
    • In the U.S., the information technology (+0.8%), consumer discretionary (+0.6%) and communication services (+0.5%) groups top the early S&P sector leaderboard, while consumer staples (-0.1%), utilities (-0.1%) and financials (flat) lag.
    • U.S. Treasury prices continue to rise, pushing the two-year down a basis point to 2.15% and the 10-year yield down 3 bps to 2.29%; U.S. Dollar Index +0.1% to 97.73.
    • U.S. WTI crude oil +1.2% at $59.37/bbl following last week's biggest weekly loss since December.

    • Stocks fluctuate, erasing much of their early gains, and Treasuries advance, pushing yields to a 17-month low, as President Trump's comments that tariffs on Chinese goods  can rise "substantially" put pressure on equity markets.
    • The S&P 500 rises 0.2%, paring its earlier gain of 0.5%. Nasdaq, up 0.4%, had risen as much as 0.7%. And the Dow increase of 0.2% compares with its earlier gain of 0.5%.
    • Communications services (+0.7%) and consumer discretionary (+0.4%) outperform the broader market, while consumer staples (-0.6%) and utilities (-0.5%) lag.
    • 10-year Treasury rallies, pushing yield down 4 basis points to 2.287%.
    • Crude oil rises +0.3% to $58.79 per barrel.
    • Dollar Index rises 0.2% to 97.85.
    • Barrick Gold (GOLD -1.5%) said it was considering a $1B expansion of its Pueblo Viejo mine, in the Dominican Republic
    • The expansion includes processing plant and tailings capacity and with a potential to extend the life of the mine into 2030s.
    • The mine is a 60-40 JV with Newmont Gold, and both the companies have already invested $5.2B in Pueblo Viejo.
    • Pueblo Viejo began production in 2012, and in 2018, it churned out 581,000 ounces of gold at AISC of $623/ounce and forecast to produce 550,000 to 600,000 ounces in 2019 at an AISC of $610-$650
    • Teva Pharmaceutical Industries (TEVA -5%) is down in early trade on the heels of a downgrade to Neutral and $12 price target at UBS after the company announced an $85M settlement with Oklahoma. Analyst Navin Jacob believes that the company could have a much as a $4B exposure with the remaining plaintiffs who have filed suits against certain painkiller makers for their role in the opioid crisis. The company and its affiliates face 1,500 lawsuits over their promotional activities of the addictive drugs. A much-anticipated trial in Ohio will start in October.
    • Teva is also mired in a U.S. lawsuit over alleged price-fixing of generic medicines that could result in $600M – 3,200M in additional damages according to Mr. Jacob.
    • JPMorgan's Chris Schott and Leerink's Ami Fadia share UBS's cautious outlook on the company, but Raymond James' Elliot Wilbur (Outperform 2) does not appear too concerned saying "any ultimate settlement will be reasonably relative to the company’s underlying cash flow generation," adding that Teva was "uniquely motivated" to settle with Oklahoma.
    • The SA Authors Rating is Very Bullish. The Quant Rating is Very Bearish and the prevailing Sell-Side Rating is Hold.
    • In the coming months, Amazon (NASDAQ:AMZN) will stop placing bulk orders with thousands of smaller suppliers, according to Bloomberg sources.
    • Amazon wants to cut costs and prioritize wholesale purchases with larger brands, including Sony and Procter & Gamble.
    • The plan is currently in motion but could still change or terminate.
    • Amazon's statement to Bloomberg: “We review our selling partner relationships on an individual basis as part of our normal course of business, and any speculation of a large scale reduction of vendors is incorrect.”
    • Dallas Fed Manufacturing Survey: -5.3 vs. +5.8 consensus and +2 prior.
    • Production: +6.3 vs. +12.4 prior.
    • Capacity Utilization: +7.7 vs. +15.6 prior.
    • New Orders: +2.4 vs. +9.8 prior.
    • Mortgage REITs stand to grow as the goverment's role in the mortgage market ebbs.
    • REITs that buy residential home loans increased their mortgage-bond portfolios by almost 28% to $308B during the last 12 months through March, the Wall Street Journal reports, citing analysis of 15 REITs by industry research group Inside Mortgage Finance. Annaly Capital Management (NLY -0.2%) and AGNC Investment (AGNC -0.2%), the two biggest mREITs, drove most of that growth.
    • The sector stands to benefit if government efforts to overhaul the housing-finance system finally make headway and allow more private capital to to enter.
    • Some analysts worry that REITs taking on more mortgages will put more of the market into the hands of leverage firms with minimal oversight. “To get the returns they needed, they were leveraged pretty dramatically,” said Ted Tozer, a fellow at the Milken Institute and former president of government mortgage corporation Ginnie Mae.
    • And mREITs' results have been mixed. Annaly's stock returned 37% over the past five years, including dividends, and Two Harbors (TWO -0.1%returned 7.9% compared with the S&P 500 Index's 65% return. New Residential, though, returned 144% over the same period.
    • In addition to buying mortgages, some REITs, including New Residential, are adding mortgage servicing rights that entitle the owners to a stream of income from performing tasks like collecting mortgage payments, dealing with taxes, and handling delinquencies.
    • May Consumer Confidence134.1 vs. 129.9 consensus; 129.2 prior in April (unrevised).
    • Present situation Index 175.2 vs. 169.0 prior.
    • Expectations Index 106.6 vs. 102.7 prior.
    • AMD (AMD +5.3%announces its 7nm product roadmap at Computex, which includes several products across all markets set to launch in the next six months.
    • New products on the way: Zen 2 CPUs, third-gen AMD Ryzen desktop processors, AMD X570 chipset, RDNA gaming architecture, and the Radeon RX 5700-series gaming graphics card.
    • Cowen analyst Matthew Ramsey weighs in on what the roadmap means for AMD and competitor Intel (INTC -0.9%): "With 7nm Ryzen 3 PC and Rome server CPUs launching in mid-2019, Intel will no longer be able to rely on its n-node silicon advantage, and will instead lean on its incumbency and breadth of silicon as its 10nm chips are not expected out until late 2019 in PCs and 2020 in servers."
    • Analysts continue to send in warnings that a fourth round of China tariffs is the "big one" that can't be recouped through higher prices or supplier moves.
    • JPMorgan is out with a note this morning, saying Best Buy (NYSE:BBY) would be the hardest hit on the bottom line by the tranche 4 tariff scenario, followed by Dick's Sporting Goods (NYSE:DKS) and Bed Bath & Beyond (NASDAQ:BBBY). Auto retailers AutoZone (NYSE:AZO) and Genuine Parts Company (NYSE:GPC) are also high on the list.
    • Citigroup (NYSE:C) had been in advanced talks with Apple for its credit card, but pulled out amid concern that the partnership would general acceptable profits, CNBC reports, citing people familiar with the talks.
    • Other banks, including JPMorgan Chase, Barclays, and Synchrony also were contending for the Apple card.
    • The Apple Card's consumer-friendly features, including no fees of any kind, software that encourages users to avoid debt or pay it down quickly, and potentially lower interest rates, make it more difficult for banks to make money on the partnership.
    • Representing Goldman Sachs's (NYSE:GS) first foray into credit cards, it will test whether the bank can profitability build a consumer business in the the late stages of the U.S. economic expansion.
    • Citi slips 0.3% in premarket trading; Goldman falls 0.4%.
    • Citi maintains a Buy rating on Apple (NASDAQ:AAPL) but lowers the target from $220 to $205.
    • The firm cites "a slowdown of Apple iPhone demand in China as China residents shift their purchasing preference to China national brands.
    • Analyst Jim Suva says Apple has a 12% unit share in China and thinks that number could get cut in half.
    • Nearly 20% of Apple's 2018 revenue came from China.
    • AAPL shares are down 0.5% pre-market to $178.14.
    • Apple has a Very Bullish Quant rating, Bullish average SA Authors' rating, and Outperform Sell Side rating.

    • Gilead Sciences (NASDAQ:GILD) is down 2% premarket on light volume on the heels of a downgrade to Sell with a $60 price target (from $70) at Goldman Sachs. Analyst Terence Flynn cites the looming loss of patent exclusivity for Truvada and Atripla. He also mentions that Biktarvy can only protect about half of the company's $16B HIV franchise from generic competition. Goldman had been Neutral on the company since 2012.
    • The SA Author Rating on the stock is Bullish. The Quant Rating is Neutral and the prevailing Sell-Side Rating is Outperform.
    • Rio Tinto (NYSE:RIO+2.6%BHP +1.7% and Cleveland-Cliffs (NYSE:CLF+1.5% pre-market after iron ore delivered to China jumped 4.2% overnight to close at $108/mt, as iron ore stockpiles in the country tumble to their lowest level in more than two years.
    • Iron ore prices have been high since the January collapse of a tailings dam at a Vale (NYSE:VALE) operation in Brazil, prompting mine closures and heightened scrutiny of the safety of Brazil's tailings dams in Brazil that cut more than 90M metric tons in annual capacity.
    • Reflecting the benign environment, Goldman Sachs has upgraded Rio shares to Buy, saying Rio was generating $8B-$9 B/year of free cash flow and improving margins and returns.

    Aladdin's Success Shows Why Disney May Be Netflix's Biggest Threat Yet 

    • Fallout from Brexit has helped New York overtake London to become the world's pre-eminent financial center, according to a survey of financial executives by Duff & Phelps.
    • "Last year, Brexit cast a shadow of uncertainty over the United Kingdom’s economy; it has now escalated to a full-blown crisis," the report said.
    • "Looking ahead, however, globalization’s diffusion of influence begins to be apparent: 12% of respondents expect Hong Kong to be the world’s preeminent financial center five years from now."

    • "LNG prices are pretty weak right now, but we believe it’s a short term phenomenon,” ConocoPhillips (NYSE:COP) CEO Ryan Lance said at an industry conference in Australia, adding that growing demand will soak up the excess supply in the market.
    • The company operates the 3.7M tons a year Darwin LNG plant in northern Australia and the 9M tons a year Australia Pacific LNG plant on the east coast.
    • Canada has taken a first step toward ratifying a new North American trade agreement after the U.S. struck deals on May 17 to lift tariffs on steel and aluminum imports.
    • Foreign Minister Chrystia Freeland presented what is known as a "ways and means motion" to the House of Commons, the first step in the process for parliamentary approval.
    • The deal known as the USMCA, which would replace the 25-year-old NAFTA, has yet to be approved by legislatures of the three participating countries – Canada, Mexico and the U.S.
    • Disney's (NYSE:DIS) live action remake of the 1992 animated classic Aladdin grabbed the top spot of the domestic box office during the U.S. holiday weekend, hauling in an estimated $112.7M.
    • Globally, the movie drew in $207.1M over the three-day weekend, excluding Monday, further propelling the so-called Disney renaissance.
    • The studio's Avengers: Endgame also continued its record-setting haul in third place, putting it about $100M behind the worldwide total of Avatar, the top-grossing movie of all time.
    • Alibaba (NYSE:BABA) is reportedly considering raising as much as $20B through a listing in Hong Kong, lining up a second blockbuster deal following its 2014 record $25B float in New York.
    • The follow-on share sale would provide Alibaba with additional capital to fund its new initiatives, like cloud computing and Hema supermarkets, and comes as founder Jack Ma prepares to step down as chairman in September.
    • A Hong Kong listing would also give mainland investors their first direct access to one of China’s biggest success stories, via the stock connect trading link between Hong Kong, Shanghai and Shenzhen.
    • BABA +0.7% premarket
    • SeaWorld Entertainment (SEAS +18.9%) trades at its highest level in over five years after Hill Path Capital Partners said it would increase its stake in the theme park operator to about 34.5%.
    • B. Riley analyst Eric Wold says the development creates a stable SeaWorld shareholder base and boosts its future earnings power.

  26. Phil,

    Thanks for the thorough response to my Trump/tariff question.

    I agree completely that the present cabinet members are far from the best minds in their respective fields (but the only ones Trump can get). My point was that if Trump were concerned about his re-election because of a market sell-off , he would just capitulate to China (without saying so), 'declare victory' and end the tariff war which should make the markets pop up – or so one would expect. Hence, a floor under the market, the exact level of which would depend on how panicked he is. Do you think he would wait for the Dec lows?

    Just a thought from the bleachers.Thanks again


  27. Pharm

     

    Forty Seven, Inc. (FTSV)

     

    Any thoughts on 47

    Thanks


  28. Hi All – Hoping to talk through a BABA position I have that was doing fine until last week.

    I own the 135/165 bcs for Jun '19.  Own the spread for $18, worth about $16 today.  

    I doubt stock rallies back that rapidly in 3 weeks. Think more downside risk. My  ideas are 1) cut bait now and move on as I'm not keen on BABA like I once was, 2) cash out the long calls and hang on to the short 165 (still $17.50 in premium left) expecting the stock to remain stagnant 3) do nothing and hope

    Leaning towards option 1 hearing Phil's "get out!" from last week and  it feels their price is directly related to a deal or lack there of and who knows what is really going on.


  29. Bitcoin continues to rally.    

    GBTC up almost 8% today.


  30. China/8800 – As long as Trump can keep getting away with his "China is paying for it" BS then he's happy to have a tax on the idiots who voted for him.  As with the Farm Aid – it gives him Billions of Dollars to play with so he can hand them out and buy votes.  Of course if it's expedient, he'll flip but what if China decides it's no longer in their interests to make him look good?  Why go on the assumption that Trump holds all the cards?  That's why he went BK 6 times – he plays financial chicken and, sometimes, the other guy doesn't blink….

    I do think the Dec lows were probably a floor – just not where we are now.  We're always a tweet away from a 10% drop.

    BABA/Music – I'm thinking of adding them at this point.  $140 would do it for me.  In your case, shame on you for not cashing out over $190 – I'm sure you could've gotten more than 80% off the table just a few weeks ago.  The June $135s are $21 so I'd sell those and roll to the 2021 $125 ($45.50)/$170 ($22.50) bull call spreads at $23 and hopefully the short $165s expire worthless and then you have a $45 spread that's $30 in the money and you can sell more calls (and puts) along the way – though I'd do 1/2 or 1/3 sales, not full as it's a dangerous stock.  

    Bitcoin/Albo – From $20,000 to $3,000 is $17,000 so $3,500 bounces to $6,500 and $10,000 so we'll see what happens at $10,000 ($9,800 to be exact).

    Gotta go do the radio!  


  31. TEVA must be a terrible company.

    However, I sold some Jan 2020  7.5 puts at .80.

    Hopefully it's worth more than $6.70.


  32. TEVA / Albo – You have protection from the Bibi put as they can't let it fail in Israel.


  33. FTSV – man, I am so out of it.  Companies are springing up everywhere!  FTSV has a mAb against CD47 which is a flag that says I am normal, don't destroy me.  Very interesting, and worth a flier of a few shares to see where they go.  Data are not due out for a while, but the huge drop was due to a less than robust outcome in an abstract that was released for a meeting in June.  I don't know enough about the trial, but to me it is very hard to predict these things in such an early stage.


  34. Pharm

    Thanks if you look at the company its mostly medical people from the CEO down I think they are on to something and Stanford is in on the CD47


  35. /RBN19 / Japar – I was out at $1.95 earlier this morning with a nice gain, DD as it went lower last week.  I just jumped back in with one at $1.93; weak bounce Phil called out earlier.


  36. Pharm- probably not in your wheelhouse (medical devices) but company located in your back yard (Carlsbad) RMED (Ra Medical Systems Inc.) so thought I would ask. Any info/opinion?


  37. STJ – It looks terrible.  And the opioid settlements are a real problem.  Thought it was worth a toss,but small.


  38. /RBN19 / Japar – Stopped out at 1.9274


  39. Holy crap, what did you guys do while I was gone?

    Down 280?

    TEVA/Albo – Good or bad that's a huge fine they'll be paying.  It will take them a long time to recover.  


  40. Phil, where can you go to see the information you shared with us concerning the $35 billion market cap on one of their loan covenant?  That is really great information and if I was a bear i would be hammering them to drive them under.


  41. BKNG / Phil – Phil what do you think of BKNG at $1688?  It is within about 5% of its 2 year lows, has a forward P/E of 17 and has been buying back shares like crazy.  In the last year it has bought back 11% of its shares under a $10B share buyback authorization and just set up a new $15B authorization in May.  YTD they bought back over $4.5 B as the share price fell so there may be good support at or near this level.  


  42. Phil  Holly crap is right. News stories regarding China comments referencing weaponizing rare earth minerals were published between 1 and 2 pm this afternoon. Glad to be holding an outsized position in SQQQ call options.


  43. US will rue forcing China's hand on rare earths

    An export ban on rare earths is a powerful weapon if used in the China-US trade war. Nevertheless, China will mainly use it for defense. It is not the first choice of China's offensive weaponries.
    Source: Global Times | 2019/5/29 5:28:38




  44. Good morning (not for the bulls)!  

    Oil and /RB took a big dive, EIA report isn't until tomorrow.  /NG still flying – this is why we take the fresh horses…

    KHC/Robert – It's right in the 2017 10K under debt:

    Actually, I read it on Seeking Alpha – not something I would have been digging into myself.   Keep in mind though, they knew this would happen when they took the impairments.  To a large extent, the company engineered this crisis.  

    BKNG/Stu – I never understood why they changed their name, seemed silly to me.  The trade war would keep me out of this one, especially at $73Bn dropping $4Bn to the bottom line – that's only about right for this kind of company.  Though they are doing great, there's not much of a moat to the business for a long-term investor and Google's new travel search is really going to hurt these guys.    You say they are buying back $25Bn worth of stock in two years where they made $8Bn like it's a huge positive – I see it as a company that has no way to expand and is buying back shares to cover up the drastic slowdown in earnings growth. Assuming they are borrowing to buy back stock – I think that's idiotic.

    Rare Earths/Den – It would be funny if China pulled that trigger though then very tragic for the US economy. 


  45. Molycorp owned a huge rare earth minerals mine in Mountain Pass CA. They BK’ed in 2015 due they say to changing competitive landscape (read China dropped prices below their cost of production). Actually it was exacerbated by being waist deep in debt from hiring complete idiots to manage the construction of the processing facility – they had a half wit electrical superintendent coordinating all construction on the upper plateau for example. Anyway they got taken over by Oak Tree who then IPOed as NOPMF. But Oak Tree still owns 65% I think.