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Monday Market Mayhem – Stocks Continue Lower

Greetings from Havana!  

I'm over in Cuba checking out this Communism thing as, clearly, Capitalism just isn't cutting it anymore and we'll need a better alternative for 2020.

Before 1959, Cuba was run by a US-backed regime which was ousted by Fidel Castro, who allied himself with the Soviet Union and, ever since then, Cuba has been BAD, like Iran is BAD but for different reasons that we had to make up since they overthrew a totally different US puppet Government.  That makes it a bit confusuing as to why we're supposed to hate everyone but it seems hate is becomming a huge US export lately – there seems to be plenty for everybody.

Predient Obama and Raul Castro attempted to begin normalizing relations in 2008 and between 2009 and 2013 the number of self-employed workers in Cuba tripled thanks to reforms including decentralizing the agricultural sector, relaxing restrictions on small businesses, liberalizing real estate markets, easing Cubans’ ability to obtain permission to travel abroad, and expanding access to consumer goods.   While the state still controlls 70% of the island's $92Bn economy, they were making good progress until Trump rolled it all back – now it's unclear how Cuba is doing – so I think it's worth a look.

Cuba: Major export destinationsCuba's economy is 20 times bigger than Puerto Rico and they mostly trade with countries in South and Central America – not Russia – not at all.  Canada is 10% of Cuba's trade but it's dominated by Venezuela, more than 1/3 of the total and Venezuela's a mess and that hurts Cuba.

The market is still hurting this morning as the indexes look to open a little lower but off the lows as Mexico has indicated it will try to work with Trump to find some compromises to his demands for immigration to avoid the tariffs the President has threatened to impose. 

If anything, China has firmed up their resistance to Trump's trade tactics over the weekend, releasing a "White Paper" that concludes trade problems were started by the US and the US has been "unreliable" in negotiations.  “During the consultations, China has overcome many difficulties and put forward pragmatic solutions. However, the U.S. has backtracked, and when you give them an inch, they want a yard,” China's Vice Commerce Minister Wang said.

Increasingly, officials in Beijing talk of bracing for a dispute that will last decades.

A paper mache Donald Trump bullTragically, we don't have decades according to Morgan Stanley, who see a Global Recession in just 3 quarters if Trump carries through with his plan to escalate the trade by adding Mexico or even following through with his planned tariff increases on Chinese goods.  From what I'm seeing in the news and on my travels, the real damage Trump is causing to the US is he's forcing the rest of the World to move on without us as we seem less and less of a reliable partner, not just to China, but to our closest allies as well.

Meanwhile, the week is off to a bad start as the S&P Futures (/ES) are indicating 2,746, not very far above our 5% line at 2,730 but at least we should bounce there and the fall was all the way from 2,950 so 220 points would give us a 45-point bounce to 2,775 so we'll need to take that line back quickly if this weeek is going to see a recovery and another 45 points from there to 2,820 before we even begin to feel like we're back on a bullish track.

This is the same chart with the same lines we've been using all year so nothing surprising is going on – we're simply trading within our expected range.  What was unexpected was when we popped over it into the end of April but now we're settling back down and most likely we'll fall back to between the -5% and +5% lines until these trade tensions wear off or, if not, then back to the December lows – still another 15% drop from here.

We added more hedges into the weekend and slept better for it but we still have plenty of long positions (or they wouldn't be hedges, they would be bets) and we do hope the market can overcome this latest round of idiocy from the White House but, at th moment – it doesn't look all that promising.


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  4. Trump Walks Business-Politics Tightrope on Cuba After Castro

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  6. Good morning!

    Oil is back to $54.50 from almost $52 at Sunday's open.  My break-even on 4 is $56.67 and I'd be so thrilled to see that today.  I couldn't DD as I'm on a ship and was out last night which sucks as I'd be even now.  By the time I had a chance we were already back at $53 and I didn't want to DD as it had just been $1 lower and there was no particular news to take it up (just my feeling it was too low).

    Indexes back to flat and hopefully a bit of a bounce.  Very quick, rough numbers (as I'm late) are:

    • Dow 26,700 to 24,700 is 3,000 so huge 600-point bounces to 27,300 and 27,900
    • S&P 2,950 to 2,750 is 200 so 40-point bounces (or what I said above) to 2,790 and 2,830
    • Nas 7,850 to 7,100 is 750 so 150-point bounces to 7,250 and 7,400
    • RUT 1,600 to 1,450 is 150 so 30-point bounces to 1,480 and 1,510

    We need to see weaks taken and held today to be more bullish and watch the Vix and make sure it's heading down and watch the Dollar as it may bounce too.

    I'll be in Cuba all day, not even a phone working here but I'll check in this evening and tomorrow will be more or less normal other than I'll be in the middle of the ocean and working on ship wifi.

    Have a great day, 

    - Phil

  7. Phil/ Good morning.

    I am not sure of your opening statement regarding the size of Cuba s economy

    Although data on Cuba s economy are very volatile, GDP PPP estimate is  255 billions (World Bank 2015)

    whereas Puerto RIco is GDP PPP 135 billions (IMF 2015).

    Keeping in mind Cuba has a bit more than 3.5 times the population of Puerto Rico

    Enjoy your trip in Cuba.

  8. Dow 26,700 to 24,700 is 3,000 so huge 600-point bounces to 27,300 and 27,900           

    Correction :    Dow 26,700 to 24,700 is 2,000 so huge 400-point bounces to 25,100 and 25,500

  9. Nice article on AVGO in Barron's :

    "Investors should still buy it's shares. Barron's recommended them at $240 eight months ago.   They topped $320 in April but recently changed hands at $252. At that price (Broadcom (ticker AVGO) is 35% cheaper than the S & P 500 index relative to estimated earnings, despite faster growth and a much higher dividend yield."

    Stock up big today.  I consider it a core holding.

  10. FB is getting destroyed. Closing some put spreads…

  11. has M bottomed? time for 15/25 BCS?

  12. ….and AMZN is -5% on the rumor that a possible FTC probe in FB could be extended to others.

  13. Advill, there's also this.  And AMZN is getting hit as well.

    Shares of Alphabet (GOOG, GOOGL -6%) are trading at a five-month low after The Wall Street Journal reported that the Justice Department is set to open an antitrust probe against Google related to its core search and other businesses.

  14. Albo / AMZN

    It´s killing my puts I´m afraid that  will be called (mine is 1880)

  15. Advill – I hear you.  

    This is a very strange day, with the NASDAQ getting clobbered.

    Meanwhile the Dow not that weak and advance/decline very positive.

    If DOJ and FTC do indeed go after AMZN, GOOG, & FB as they did against QCOM it's going to very hard for the market to rally.  IMHO

  16. Only good thing I see today is that CMG is breaking down pretty hard.

  17. FB getting clobbered is OK with me Albo. I hope BDC shorted some too :)

    Getting a hair long NQ into the close here. 

  18. "Only good thing I see today…"

    One more good news item – NLY up $0.30 on news of a buyback. 

  19. Looks like I didn't miss too much.  

    Cuba is very interesting.  Essentially, they are experimenting with Capitalism and trying very hard to be more like China and less like Russia.  So ridiculous not to have normal relations with these guys, I met a lot of sincere people who would very much like to be accepted on the World stage.

    As to their economy, Lionel, I'd say it's very hard to tell as most people seem to have side gigs so a lot of the economy is hidden.  I got the numbers here – you can complain to Wiki editors and see if they can sort it out but it's not Purchasing Power Parity – just their actual GDP using current exchange rates.  Also, I wasn't saying Cuba is "better" than Puerto Rico (in fact, I was telling people today they should check out Puerto Rico as a good model to move towards as a better tourist destination), just to compare it to something similar that we do seem to consider important.

    Dow/Den – Thanks, my mistake.  Unfortunately, we didn't even get close. 

    M/Millard – Way too cheap and we already have bull spreads, don't we?  I certainly like them as a new trade.

    FB/Ati – Fines, regulations and a possible break-up are in their future.  

    CMG/Albo – That's why it's nice to have a few shorts on high-flyers as a hedge.  CMG is really helping the Hedge Fund a lot as we stuck with our shorts and a bonus for the LTP as well.

    Nas right at a 10% drop at 7,000.   Could become our next major indicator that we're heading to -20%.

    Columbia/Pstas – That's why I don't want to be a grower but it will be a very long time before Columbia is allowed to legally supply the World as they would first have to halt illegal operations – good luck with that!  This is, by the way, why our plan is to cash out in about 5 years.  Right now, it's like a gold rush in every state but these things don't last and we're just selling picks and shovels (manufacturing) to people who think they will get rich growing and retailing.

  20. Phil/ Cuba

    Absolutely. They could become a very important piece of the logistics puzzle of the Caribbeans and replace Kingstown as the central warehousing/cross shipping hub.

    But Cuba GDP is on par with Puerto Rico's. And you can tell just by comparing the level of poverty in the streets. To be fair Cuba's isolation is not only due to US politics. If Castro hadnt been a staunch supporter of every Marxist-Leninist factions in the world, Cuba would have had much more allies and friends. Now that USSR is gone and Bolivarian Venezuela gone, Cuba will have to come to their neighbours and ask for trade and assistance. Free elections any time soon?

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