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Monetary Monday – Market on Pause Ahead of the Fed

Image result for fed funds rate chartWe're wating on the Fed.

We have "the greatest stock market in history" and "the greatest economy in history" with "record employment" but, if the Federal Reserve doesn't lower rates below the current 2.5% they have set – it will be "a disaster".  Clearly, to any rational person, something must wrong with those statements existing at the same time but they all come from our President's lips and far be it for me to call Donald Trump a liar – so I guess we just have to accept that it's all true.  

30-Year Fixed Mortgages are still 3.5-4.0% yet Home Sales are still trending lower and that's impacting a lot of high-paying construction jobs which, in turn, impacts the materials industry and even banking, as less people look for loans to buy homes and then the Durable Goods crowd can't sell washing machines, refrigerators, couches and TVs and there's less hardware and paint sales, etc., etc. 

Image result for new home sales 2019Housing, as always, is a major driver of the economy and it's kind of hard to ignore it when it begins to falter – but that's exactly what the market is doing at the moment.  This is where the panic is coming from as even a 1% rise in rates last year has caused a 10% decline in housing activity and we NEVER came close to getting back to our pre-2008 levels in the first place.  

What Trump doesn't understand is that, for the average American, low rates aren't enough to get them to invest in real estate.  You can't "take advantage" of low rates on homes you can't afford and very few Americans have $50,000 to plunk down on a $250,000 home – not that there are many $250,000 homes left anymore anyway.  Not only that but Property Taxes have risen out of control and Trump has limited their deductability – making the rises much harsher and not many people in the bottom 90% have tax lawyers to get them out of paying their share.  

Image result for property taxes risingAs you can see from this fairly typical example from King County in Washington (chosen because it's nicely done), property taxes are up 43% on 4 years, going from about $4,000 to $6,000 on a $500,000 home.  I WISH that's what I was paying in New Jersey, but it's about 4x more than that there.  In fact, the taxes on my home in NJ are now more than the Mortgage from 20 years ago, when we bought the house and taxes were about $4,500/yr, now $23,000/yr – that's up 400% in 20 years! 

No wonder people can't afford to buy homes, no matter what the "price" of the home is.  If the taxes are as much as the mortgage, the home is effectively twice as expensive and what's going on here is the Government is stealing the appreciation of your home because people don't buy a home – they buy a mortgage and mortgages include taxes so if the house was $500,000 with a $3,000 mortgage and $400/month in taxes, that's $3,400/month but if the taxes go up to $2,000/month and the person buying your home can still only afford $3,400 – then the only variable is the price of your home – which has to come down.  This is how the Government has stolen a large portion of American's home price appreciation over the past two decades. 

Now, you might want to blame the local Government but they generally work under balanced budget rules and the real variable that's changed is that the FEDERAL Government has cut back on the money they send to the states for schools, roads, infrastructure, police, etc and it's the Local Government that is forced to pick up the slack caused by all that Federal Tax-cutting, which leads to service cutting.  Because it's an issue that's too complex to fit into a tweet – no one talks about it.

Related image

Notice how New Jersey gets back just 0.61 on every Dollar of taxes they pay to the Federal Government while New Mexico gets back $2.03, Mississippi $2.02, Alaska $1.84, etc?  You also have to consider that NJ's 9M people pay more in taxes than the Top 10 taker states combined.  Populous, high-earning states like New York, Connecticut, Illinois and Massachusetts also get screwed.  New York just did a study showing the state pays $47.89 BILLION more to the Federal Government than it gets back in services – and Trump complains about China!  

And New York is having a picnic compared to New Jersey, as they get back 0.79 for every Dollar they send to Washington.  If those Blue States ever succeeded from the Union – the Union would be bankrupt!  

The key takeaway here is that that $48Bn deficit has to be made up locally, by the people through sales taxes and property taxes (and it's also unfortunatel for New Jersey that lots of their residents go shopping in New York and Philadelphia) as, unlike the Federal Government, which had a $208Bn deficit LAST MONTH, states have to balance their budgets so New York's 6M households each have to come up with $8,000 to cover what is given to New Mexico et al.  If people actually understood what is going on in this country – there would be a revolution!  

About time too!  As Thomas Jefferson said: "The tree of liberty must be refreshed from time to time with the blood of Patriots and Tyrants.  It is it's natural manure.  We need a revolution every 20 years just to keep the Government honest."  Seems like we're long overdue according to our Founding Father.  

Speaking of revolutions, Hong Kong citizens were takin' it to the streets with 2 Million of Hong Kong's 7M residents marching this weekend and, guess what – they won!  And of course they won when 30% of the entire country shows up to protest something because even the entire Chinese army only has 2M people (same as ours) and when the people actually get together and rise up against repression – the people tend to win.  Sadly that's a lesson our own children have forgotten.

Hong Kong Braces for New Protests as Extradition Bill Suspended

Meanwhile, it's very unlikely that the Fed will suddenly cut at Wednesday's meeting (2pm) but the bulls are looking for some kind of indication that that is their intention for the July meeting or we may see a revolution on Wall Street as the bears overthrow the tyranny of this rally in search of more rational equity pricing.  The calendar, otherwise, it very light:

 

 


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  1. Not much conviction either way last week – I guess we either go higher or lower from her :-)


  2. Where the returns might be in the next 10 years:

    https://ritholtz.com/2019/06/emerging-markets-returns-valuations-growth/


  3. Easy money as far as we can see:


  4. The end of the American century?

    https://www.foreignaffairs.com/articles/2019-06-11/self-destruction-american-power

    The Trump administration has hollowed out U.S. foreign policy even further. Trump’s instincts are Jacksonian, in that he is largely uninterested in the world except insofar as he believes that most countries are screwing the United States. He is a nationalist, a protectionist, and a populist, determined to put “America first.” But truthfully, more than anything else, he has abandoned the field. Under Trump, the United States has withdrawn from the Trans-Pacific Partnership and from engaging with Asia more generally. It is uncoupling itself from its 70-year partnership with Europe. It has dealt with Latin America through the prism of either keeping immigrants out or winning votes in Florida. It has even managed to alienate Canadians (no mean feat). And it has subcontracted Middle East policy to Israel and Saudi Arabia. With a few impulsive exceptions—such as the narcissistic desire to win a Nobel Prize by trying to make peace with North Korea—what is most notable about Trump’s foreign policy is its absence.[...]

    The question now is whether, as American power wanes, the international system it sponsored—the rules, norms, and values—will survive. Or will America also watch the decline of its empire of ideas?


  5. Good Morning!


  6. GBTC -Up big.  Sold 1/3 at $12.07. 


  7.  

    BID

    Sotheby's to be acquired by Patrick Drahi for $57/share in cash, or $3.7 bln.


  8. Good morning!

    I have a radio thing at 1pm, this time on Brooklyn Cafe – I should be back by 3.  

    Nasdaq shooting up at the open.  I don't see any particular reason.  

    Big Chart – We're holding the lines (50 dmas) - mostly.  The Nas and Rut were under but they are both catching up this morning so we'll see how things end up.  

    Returns/StJ – With our system, I'm a lot more comfortable playing US.  Anything that's not negative gives us great returns so why risk it chasing more on less-liquid exchanges?  As to the CBs, what choice do they have?  Raising rates will bankrupt Japan with others soon to follow and they all can't print money fast enough to get us out of that disaster so they have to keep kicking the can down the road and hope either Global Warming or a comet gets us before it's finally time to pay the piper.  It's a good plan – I love this plan!  

    Housing continues to slide, Economorons continue to get it wrong:

    Stocks edge higher with focus on the Fed

    • Stocks open slightly higher as investors look ahead to the start of the Fed's two-day monetary policy meeting on Tuesday; Dow +0.1%, S&P +0.2%, Nasdaq +0.7%.
    • Stocks have rallied this month after Chairman Powell said the Fed would act to sustain U.S. economic expansion amid growing geopolitical and trade tensions, but some analysts worry that investors are overestimating the likelihood of such a cut given a run of fairly positive economic data.
    • European markets are mixed, with France's CAC +0.2% but U.K.'s FTSE flat and Germany's DAX -0.2%; in Asia, Japan's Nikkei finished flat while China's Shanghai Composite closed +0.2%.
    • In the U.S., Pfizer agrees to acquire Array Biopharma (+57.8%) for $11.4B in cash, or $48/share, while Sotheby's (+57.1%) reportedly will be taken private for $3.7B.
    • Among the S&P sectors, the real estate (+0.6%) and communication services (+0.5%) groups top the early leaderboard, while the other nine sectors trade near their flatlines.
    • U.S. Treasury prices are little changed, with the two-year yield up a basis point to 1.85% and the 10-year yield flat at 2.09%; U.S. Dollar Index -0.2% to 97.39.
    • WTI crude oil -0.8% to $52.05/bbl.

     

    • Sotheby's (NYSE:BID) opens up 56.99% to $55.56 to fall just a bit short of the $57 offer price from Patrick Drahi's BidFair USA.
    • CNBC's David Faber reports that Sotheby's has been working on a deal for a while. The merger terms allow for a normal "go-shop" period for Sotheby's.
    • Previously: Sotheby's goes private for 60% premium (June 17)
    • Dunkin' Donuts (NASDAQ:DNKN) announces a partnership with GrubHub (NYSE:GRUB) for a new Dunkin' Delivers service.
    • The company says the first step in the rollout is the launch of delivery at more than 400 Dunkin' restaurants throughout New York City's five boroughs through GrubHub brand Seamless.
    • Following the initial launch, Dunkin' and Grubhub will look to expand the Dunkin' Delivers service to restaurants throughout other markets in the coming months, including in Boston, Chicago and Philadelphia.
    • Source: Press Release
    • Disney (NYSE:DIS) is 0.7% lower premarket as Imperial Capital cuts to In-line on valuation.
    • It had rated the stock an Outperform on catalysts that are now "pretty much built in to the stock," the firm says, pointing out the stock price and multiple on 2021 earnings at record levels.
    • Shares have risen 23.2% over the past quarter and are up 33.2% over the past year; they're up 40.2% off their 52-week low
    • Bernstein lowers its Baidu (NASDAQ:BIDU) target from $180 to $130 and maintains a Market Perform.
    • The firm says the "heavy investment in feed is value destructive" and Baidu "should stick with the core business in search going forward."
    • Bernstein says Baidu still has a "dominant position in search and a strong balance sheet."
    • BIDU shares are down 0.3% pre-market to $112.71.
    • Baidu has an Outperform Sell Side rating.
    • Boeing (NYSE:BA) engineers are reducing the scope and duration of certain costly physical tests used to certify the planemaker’s new aircraft, sources told Reuters.
    • As Boeing kicks off the year-long flight testing process on its new 777X, its engineers will cut hours off airborne testing by using computer models to simulate flight conditions, and then present the results to the FAA as part of the basis for certification.
    • For Boeing’s proposed twin-aisle jetliner, known internally as NMA, Boeing's Test & Evaluation group is developing the technology to replace costly and labor intensive physical safety tests used for decades – such as using machines to bend the wings to extreme angles and shaking the fuselage until it cracks – with computer modeling.
    • Catching up the big decline in the stock, Citi's Liav Abraham slashes her price target on Teva (NYSE:TEVA) to $13 from $23. While still expecting a global settlement over opioid painkillers, the timing is difficult to predict, she says. At current levels, the stock has priced in liabilities of $5B-$20B.
    • Also cutting her price target in Mizuho's Irina Koffler – to $11 from $18. She remains at Neutral on the stock.
    • The Quant Rating pulls no punches, giving Teva a Very Bearish outlook.
    • Shares are off a couple of pennies in premarket action.

    Weighing The Week Ahead: A De Facto Expansion Of The Fed's Mandate? 

    • Susquehanna cuts its Seagate Tech (NASDAQ:STX) price target from $40 to $36 and maintains a Negative rating.
    • Western Digital also received a Susquehanna trim this morning.
    • STX shares are down 0.4% pre-market to $44.10.
    • Seagate has a Neutral Quant rating.
    • Update with more details from the cut:
    • Analyst Mehdi Hosseini says Seagate's "unfavorable product portfolio is expected to cap quarterly earnings at $1.00 until 2H20."
    • The analyst thinks Seagate should benefit from double-digit sequential growth in Nearline EB shipments and notes that management has controlled costs in a challenging demand environment.
    • Airbus (OTCPK:EADSYlaunched a long-range version of its A321neo jet on the first day of the Paris Air Show, aiming to steal a march on rival Boeing's plans for a possible new mid-market jet.
    • The European planemaker intends to announce close to 200 orders for the new model – the A321XLR – over the week, sources told Reuters.
    • In response, Boeing (NYSE:BA) CEO Dennis Muilenburg said the A321XLR would only "scratch an edge" of the market segment targeted by the new midsize airplane (NMA).
    • Airbus also agreed to a deal to sell 14 A330neo wide-body passenger jets to Virgin Atlantic valued at $4.1B, with an option for the airline to order six more.
    • 737 MAX crisis… Boeing said it made a "mistake" in handling a problematic cockpit warning system and its communication with regulators, customers and the public "was not consistent. And that's unacceptable."
    • #ParisAirShow2019
    • GE Aviation (NYSE:GE) has found unexpected wear in a part for its new engine for the new Boeing (NYSE:BA) 777X passenger plane, forcing a delay of several months while it redesigns and tests the part.
    • Boeing, which had been expected to stage the maiden flight of the world's largest twin-engined jetliner in June, is now waiting for the GE9X engine while GE tests the part, called a compressor stator, GE Aviation CEO David Joyce said at the Paris Air Show.
    • GE still expects the first flight of 777X to take place this year.
    • #ParisAirShow2019
    • The Paris Air Show is underway with Boeing's (NYSE:BA) 737 Max crisis in the spotlight and Airbus (OTCPK:EADSY) looking to capitalize on home-court advantage.
    • Both planemakers are hoping to reverse a worrying trend in plane purchases as airlines add to order worries by waiting on the fallout from the U.S.-China trade war.
    • While Boeing has more than 5,500 commercial planes on its backlog, the company took just 32 new orders for 737 aircraft in Q1 and has been forced to reduce production so it can focus on getting its Max plane back in the sky.
    • In the first three months of 2019, Airbus posted more cancellations than new requests, but it may be looking to grab headlines this week by announcing a launch date for its long-range A321 variant.
    • #ParisAirShow2019

    • Pfizer (NYSE:PFE) inks a deal to acquire Array BioPharma (NASDAQ:ARRY) for a total enterprise value of ~$11.4B.
    • Pfizer agreed to acquire Array for $48 per share in cash in the deal that has already been approved by the boards of both companies
    • The addition of Array Biopharma is expected to strengthen Pfizer’s biopharmaceutical business and is anticipated to accelerate its growth trajectory particularly in the long term
    • The deal is also seen expanding Pfizer’s pipeline with multiple high-potential targeted investigational cancer therapies and adds a large portfolio of royalty-generating out-licensed medicines
    • "The proposed acquisition of Array strengthens our innovative biopharmaceutical business, is expected to enhance its long-term growth trajectory, and sets the stage to create a potentially industry-leading franchise for colorectal cancer alongside Pfizer’s existing expertise in breast and prostate cancers," says Pfizer CEO Albert Bourla.
    • Pfizer expects to finance the majority of the transaction with debt and the balance with existing cash.
    • The transaction is expected to be dilutive to Pfizer’s EPS by $0.04 -$0.05 in 2019, $0.04 -$0.05 in 2020, neutral in 2021 and accretive beginning in 2022, with additional accretion and growth anticipated thereafter.
    • PFE +0.28% premarket to $42.88. ARRY +60.4% premarket to $47.45.
    • Source: Press Release
    • Tehran will surpass the internationally agreed limit on its low-enriched uranium stockpiles in 10 days, according to the Iranian Atomic Energy Organization, as it increases enrichment levels to 20%.
    • However, it said Europe still has a chance to rescue the 2015 nuclear deal if its remaining signatories found a way to shield the Islamic Republic from the crippling effect of U.S. economic sanctions.
    • The Trump administration previously warned European allies that its Instex vehicle – designed to circumvent U.S. sanctions – and anyone associated with it, could be barred from the U.S. financial system if it goes into effect.
    • Investors are keeping their eyes on the European Central Bank as it kicks off its annual forum in Sintra, Portugal.
    • The event is often a market-mover, notably marked in 2017 by ECB President Mario Draghi sending the euro soaring with his assertion that the "threat of deflation is gone."
    • Ahead of this year's powwow, Vice President Luis de Guindos declared the ECB will act should inflation expectations deteriorate, while Governing Council member Ewald Nowotny said he favors the bank having more flexibility in reaching its inflation target.
    • Traffic in Hong Kong largely returned to normal on Monday, sending the Hang Seng Index up 0.5%, a day after an estimated 1M-plus black-clad protesters stormed the streets over a controversial extradition bill.
    • The benchmark slid 2.4% in the previous three trading sessions amid concerns about the political environment and tightening liquidity.
    • Chief Executive Carrie Lam caved in to pressure and suspended the passage of the bill on Saturday, but critics of the proposal are still calling for her resignation and demanding that the legislation be withdrawn completely.
    • Under the Connect scheme, Shanghai-listed companies can raise new funds via London’s stock market while British companies can broaden their investor base by selling existing shares in Shanghai.
    • Philip Hammond called the long-awaited scheme a chance to deepen "global connectivity" and is expected to say: "London is a global financial center like no other, and today's launch is a strong vote of confidence in the UK market."
    • Bitcoin (BTC-USD) leapt across the $9,000 mark on Sunday, for the first time since May 2018, boosted by reports that Facebook will release a white paper on a new cryptocurrency this week.
    • Experts say the involvement of large companies in the crypto space is boosting sentiment as it gives a degree of legitimacy to an industry long plagued by talk of illegal activity, speculative trading and regulatory scrutiny.
    • Bitcoin traveled as high as $9,381.82 in the last 24 hours (up 140% since the start of the year), but pared gains slightly on Monday, dropping 1.7% to $9,166.62.
    • Puerto Rico has inked a deal with its bondholders on how to restructure $35B of debt, which could allow the U.S. territory to emerge from bankruptcy in early 2020 after three years of financial limbo.
    • The agreement, which is on the framework for the plan of adjustment, provides for more than a 60% average haircut for all $35B, a 36% haircut on pre-2012 general obligation bonds, and a 27% haircut on public authority bonds.
    • Of the roughly $13B in outstanding GO bonds, the bonds issued pre-2012 would receive $0.64 on the dollar, while the 2012 and 2014 GO bonds have a settlement option of receiving $0.45 and and $0.35 on the dollar.
    • Huawei's American chip suppliers, including Qualcomm (NASDAQ:QCOM) and Intel (NASDAQ:INTC), are quietly pressing the U.S. government to ease its ban on sales to the Chinese tech giant, sources told Reuters.
    • Out of $70B that Huawei spent buying components in 2018, some $11B went to U.S. firms including Qualcomm, Intel and Micron Technology.
    • It comes as Huawei reportedly prepares for a 40% to 60% decline in international smartphone shipments, figures that may prompt the company to pull its latest overseas model, the Honor 20, and target a bigger share of China's smartphone market.
    • Deutsche Bank (NYSE:DB) is planning to overhaul its trading operations by creating a "bad bank" to house or sell assets valued at up to €50B – after adjusting for risk – and would shrink or shut its U.S. equity and trading businesses, FT reports.
    • Meanwhile, Goldman Sachs (NYSE:GS) is pulling together four separate units that invest in private companies, real estate and other hard-to-access deals, in a bid to boost its flagging stock price, sources told WSJ.
    • The division is likely to have around $140B in assets, making it nearly as big as KKR and about one-third the size of Blackstone.

  9. BID/Albo – That sucks as I was just looking at them as a buy again last week since they had drifted back down to a decent price. We haven't played them for ages but I think they were around $30 when we came in in 2016 and we got out in the $50s so it's the same range really.


  10. Plan / Phil – Well, some CBs will be releasing 100 year bonds so increasing the chances for an extinction type event by then. Well on way for sure.


  11. LOL, StJ, I suppose that's a nice way to extend and pretend.  There probably is more chance of Global Extinction than the CBs repaying all the National Debts – I suppose a mathematician could do a powerpoint and show the logic of burying our heads in the sand as the best way to go forward. 

    /ES back to 2,900 – we'll see if it sticks.  /YM just shy of 26,200, /NQ still below 7,100 and /RTY trying to retake 1,540.  

    Not much action but it's a Monday, of course.  


  12. Phil / GT – What are your thoughts on GT at these levels?  TIA!


  13. Butterfly Portfolio Review:  $164,759 is up 64.8% but down 4% ($3,870) since our 5/16 review.  OIH got clobbered and that's all of our losses but MJ is not off to a good start either but, on a new trade, that can simply be caused by the negative impact of the bid/ask spreads, though the ETF did drop $1 since we picked it up.  

    While it's never pleasant to lose on any position, the nice thing about a well-balanced portfolio is some things win and some things lose and we have plenty of cash to put into pressing OIH – if that's what we choose.  The last time OIH was this low was 2002, when oil was $20 a barrel – so I really don't think this is going to last but that doesn't mean it will be all better next quarter or even next year – just that there's more of an opportunity in sticking with it than giving up.

    • AAPL – We are pretty aggressive here and AAPL went down to $170 and back to $195 since we got more aggressive at $180 but really $175 held pretty well and I like the bottom call so we'll still wait and see before selling too many covers but I can't turn down the chance to sell 10 of the July $195 calls for $5.70 ($5,700) as it's silly to turn down the money on contracts that can's possibly hurt us (we are only covered 10 out of 25 on our June 2021 $160s).   If AAPL goes higher, we roll them to higher strikes but if AAPL goes lower, we have $2 per long to roll our $160s lower.  

    • DIS – We're getting killed on our short calls but it's a long way to September.  Keep in mind this portfolio is self-hedging so our slightly bearish play in DIS is a hedge against a bullish play on AAPL as it's not too likely AAPL would go down without taking the broad market with it.

    • MDLZ – OK, $55 is certainly enough letting this one run!  We're at about 25x earnings here, silly for a snack company.  Let's sell 10 Sept $55 calls for $1.80 ($1,800) and 10 Sept $52.50 puts for $1.20 ($1,200) to collect another $3,000 while we wait.  We already sold the Sept $50 calls for $3,900 so that's $6,900 collected for the quarter against a $7,500 long position – not bad! 

    • OIH – "Tin soldiers and Nixon's comin' This summer I hear the drummin'" big losses on OIH!  Just last month we doubled down on the 2021 $15 calls at $2.60 and now we're even lower at $1.55.  It's not even worth selling short-term calls as all that does is cap our gains (if we ever have them) so, if we're inclined to stay in we either should DD again ($7,750) or roll our calls down to the $12 calls at $2.90 for net $1.35 ($6,750).  While it may seem better to roll down, if we DD to 100 longs then we could sell 50 of the Jan $14 calls for $1.20 ($6,000) which pays for most of the doubling AND we're only 1/2 covered so the short calls can't hurt us and I'd always rather spend net $1,750 than $7,750 so that's our play:  We'll DD (to 100) on the 2021 $15 calls for $1.55 ($7,750) to average $2.79 (about what we paid last month) and sell 50 (1/2) of the Jan 2020 $14 calls for $1.20 ($6,000).  

    • WHR – Got a nice move up and a very nice gain on the Sept puts we sold already, taking advantage of what we thought was a silly dip.  The short June puts and calls should expire worthless so we're picking up $4,250 for the quarter and we already sold Sept puts so we'll sell 5 of the Sept $140 calls for $7.50 ($3,750) as I think that's a fair target range between the puts and the calls ($120-140).  I love this spread as we paid net $10,000(ish) for it and here we are selling the Sept quarter for $8,200! 

     


  14. GT/EMike – Traditionally, tires do well as new auto sales cycle down and GT is pretty cheap at $14.90, which is $3.5Bn on pretty steady $400-500M profits but it is a steady or declining business, so be very conservative if you are going to play them.  

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 19,540 18,138 16,443 15,158 15,377 15,475 15,243 15,312 15,687 -4.6%
    Operating Profit $m 1,274 1,339 1,030 1,520 1,179 1,261 1,113     -0.2%
    Net Profit $m 629 2,452 307 1,264 346 693 557 434.3 545.3 +2.0%
    EPS Reported $ 2.27 8.79 1.12 4.75 2.55 2.93 2.34     +5.3%
    EPS Normalised $ 2.53 9.06 2.63 5.12 2.91 3.09 2.65 1.89 2.41 +4.0%
    EPS Growth % +124 +257.5 -71.0 +94.9 -43.2 +6.0 -0.4 -38.9 +27.9  
    PE Ratio x           4.80 5.59 7.87 6.15  
    PEG x           n/a n/a 0.28 0.48
    Profitability

    Overall, my thoughts on this is that self-driving cars will be a think in 5 years and Uber, Lyft, etc. will put them on the road fast and that means anyone who doesn't NEED a car is not very likely to buy one unless they don't NEED money.  Both my kids and most of their friends have opted not to have cars and pay insurance and gas etc. and, if Uber eliminates drivers and isn't greedy, they can create a clear value proposition against auto ownership.  

    We make VERY inefficient use of cars as the average person drives 15,000 miles a year and, if you average 30Mph, that's only 500 hours a year in your car out of 8,760 hours in the year, less than 10% and even if your triple that to 30% (because many of us need a car during the same few hours) – it still means we could eliminate 2/3 to 1/2 of all autos on the road if we shift to autonomous driving.  

    So less cars is less demand and also bad for GT is the concentration of ownership of autos is going to give a lot of bargaining power to those companies and GT's margins will likely suffer.  Still, you can play them just to hold $15 with the 2021 $10 ($5.25)/15 ($2.35) bull call spread at $2.90, selling the 2021 $13 puts for $1.90 to net $1 on the $4 spread and, even at $13, you make 200%.  


  15. Gotta go do radio – be back around 3. 


  16. Phil / GT- I was thinking "EV's need tires too" but I think you're spot on with self driving cars dramatically reducing tire demand.  No trade.  Much appreciated!!


  17. But maybe robots need tires?  

    Well Comcast is apparently out in the area but not at my house so I'm back.  We taped a show for later distribution but live they did a replay. Apparently, a Wifi signal is not strong enough for broadcast quality. 

    Looks like not much has happened since I left other than /RB falling all the way to $1.69.  Oil $51.73, this OPEC meeting will be interesting.

    So $60 on Brent (/BZ) is $51 on /CL and that should be bouncy if we hit it but if that fails – look out below as there's no real support above $45 for /CL.  


  18. ARRY - whew, finally a biotech winner after scores of losers, $2.50 basis so I'm very happy. Thanks to Pharm or whomever here recommended it in 2012, long wait but still a nice annual ROI.



  19. MrM -  Congratulations !


  20. Hi Phil, would you do a new play on OIH now to uncertain with the latest oil price moves?


  21. albo – thanks. A stopped clock is right twice a day but a small biotech investment is only profitable once a decade 8)




  22. Here’s One More Political Assault on Public Health




  23. Fact-checking Trump’s ABC interview


  24. Trump tells supporters to ignore polls that say he’s losing


  25. Juan Williams: Trump’s incredible shrinking GOP


  26. ARRY/MrM – Congrats on that one!  That's the joy of biotech – when it does actually pay off.  

    OIH/Alter – SLB is 20% of the ETF, HAL is 14%, FTI 6%, BHGE 5%, HP 5% and then various E&P companies that are sucking it but, obviously really it's about whether or not SLB and HAL are buyable and SLB at $36.66 is $50Bn and they drop $2Bn to the bottom line so 25x not that cheap but I think the cycle is turning up and they made $6Bn in 2013 and $5.5Bn in 2014 and should make $3Bn next year and they pay a $2 (5.77%) dividend while people wait – it's a good cyclical.

    HAL at $22 is $19Bn and they are crazy undervalued as they made $1.6Bn last year and should do about $1.2Bn this year and $1.8Bn next year (earnings on these companies are very predictable due to long-term contracts) so I look at the two of them and simply think this should be a good overall bottom and the whole sector is in a down cycle that's got to change by 2021 – or oil production will decline, which would drive up the price and still revive the sector!  

    So, with NO expectations of making money this year and HIGH expectations of having to DD at least once if the economy tanks – I do like owning Oil Services for the long-term. 

    We own OIH by proxy, of course, but it's now 100 2021 $15 calls with various short puts and a 1/2 cover with the Jan calls.  From scratch, I'd buy the 2021 $13 calls for $2.35 and sell the $13 puts for $2.05 for net 0.30 at $13.  Maybe like this in a $100K portfolio:

    • Sell 10 OIH 2021 $13 puts for $2.05 ($2,050) 
    • Buy 20 OIH 2021 $13 calls for $2.35 ($4,700) 
    • Sell 10 OIH 2020 $14 calls for $1.15 ($1,150) 

    That's net $1,500 and you have $2,000 at $14 and then 1/2 uncovered but the 2021 $17 calls are 0.95 so figure that's your 2x rolling target and then you'd be in an $8,000 spread for $1,500 but we're not expecting a big recovery soon so I'd rather have the conservative short calls (but only 1/2 covered – just in case it takes off).   TOS says margin on the puts is $2,214 so it's a nice trade – even if you have to DD the short puts but it's really hard to imagine it will go lower than this.


  27. Options Opportunity Portfolio Review (OOP): $276,735 is up $9,737 from our 5/16 review and up 176.7% overall so we weathered the storm quite well though we have less cash now as we deployed a lot adding to positions so I'll be looking to take something off the table if I can and get our cash back over $100,000 – as I'd rather be more flexible – just in case…

    As I said last time, we WANTED to take advantage of oversold stocks and, hopefully, we made good calls and we doubled down on a few of our positions.

    • FTR – Earnings were good but outlook still choppy – we just need to be patient.
    • HMNY – Dead money really.
    • HOV – After Q2 earnings they sold down to $7.50 but we'll wait for Q3.
    • TZA – Hedge is holding up well considering the rebound. 

    • LB – Not worried about the puts.
    • PLAY – Took a huge hit and only 5 so let's sell 5 more for $10.50 and raise $5,250.  
    • THC – Brand new and good for a new trade.  
    • SQQQ – We rolled to this longer spread after cashing in the old $32 calls.  A very good hedge.
    • TLT – We'll see what the Fed has to say on Wednesday.  

    • AAPL – Good money coming in from this one.
    • ALK – On track.
    • AXL – Off to a poor start but I'm not ready to cover.  

    • BBBY – Down and down they go but I still like them.  Down to $1.5Bn at $12 but Operating Income last Q was $213M and they took some one-time restructuring charges, which tanked their whole year but the year before, on the same $12Bn in sales, they made $424M and I think they can get back to it.
    • BHC – On track.
    • C – On track
    • CDE – Finally coming back a bit as gold improves.  Too soon to sell calls.

    • CLF – Brand new and good for a new trade.
    • DXD – I guess we didn't need the extra hedge.
    • FCX – We need the trade deal with China to see a real improvement.
    • FNSR – Holding up better than most semis. 

    • GNC – Looks sad but I still like them.
    • GOLD – Back on track.
    • HBI – Already at our goal but too soon to cash in as it's net $6,175 on the $14,000 spread so still over 100% left to gain.  

    • INTC – New trade, still good.

    • JO – Holding up better than coffee futures (so far).  
    • KHC – We doubled down on the 30th and our timing was great.  

    • LB – Hopefully it follows HBI at some point.
    • M – Still in the doldrums.  
    • MJ – It's squeezing into a wedge and hopefully breaks up but we need some news like NY or NJ legalizing.  

    • MU – We took a big hit on this one but the company is still strong – just the sentiment changed.  
    • NAK – We just need the GOP to strip a few more environmental regs and then we can strip mine Alaska and dump the sludge into the river where those annoying salmon like to swim – can't wait!  (if you can't beat 'em…)
    • NLY – We're collecting dividends, not profits so on track.
    • OIH – We pressed this one and it's pressing back – ouch!  
    • SEE – On track.

    • SPWR – Well over our goal at $11,470 but it's a $20,000 spread so we'll wait. 
    • T – On track. 
    • UNG – Good for a new trade.  
    • WBA – I never thought this one would hurt us.  Still love them.  Fear of price regulations is killing them.  At $52.80 their market cap is $48Bn and they made $5Bn last year, which ended in Aug so this fiscal year they are about $2.2Bn for Qs 1 and 2 so pretty much on track for another $4.5-5Bn – a real bargain down here.  Let's buy back the 10 short 2021 $62.50 calls for $3.45 ($3,450).  

    • WPM – My precious!  Much as I'd like the cash, I'm not inclined to cover here.  

    Looks like we'll have to sell more puts as we're still $25,000 short.


  28. Good morning!

    Indexes up nicely as Draghi said bank could cut interest rates or expand its giant bond-buying program as soon as its next meeting in July which, of course, is making everyone now "sure" the Fed will cut as well.

    And Europe is flying, of course:

    • ECB President Mario Draghi is ready to launch another round of stimulus, saying the central bank could cut interest rates again or provide further asset purchases if inflation doesn’t reach its target.
    • The Stoxx 600 (NYSEARCA:FEZ) is up 0.8%, led by Italy's (NYSEARCA:EWI) CAC 40, with a 1.1% advance. S&P 500 futures are up 0.25%, and Nasdaq futures up 0.5%. The Fed, of course, is meeting this week. While only a few expect an actual rate cut, most will be looking for a shift in the policy statement indicating easing at perhaps the next meeting.
    • The euro sank 0.3% to $1.1183 following the comments at the ECB Forum.
    • "If the crisis has shown anything, it is that we will use all the flexibility within our mandate to fulfill our mandate – and we will do so again to answer any challenges to price stability in the future," he told the audience in Sintra, Portugal.
    • Worries over the Middle East appeared to put slight pressure on U.S. stock index futures overnight, but stimulus talk from Mario Draghi has turned markets around.
    • DJIA futures are now ahead by 100 points, while the S&P 500 is up 0.5% and the Nasdaq is 0.8% higher.
    • More easy monetary policies from the world’s biggest central banks may be in store as the Fed begins a key two-day meeting that many expect will clear the way for a cut in interest rates.
    • Oil is up 0.2% at $52.01/bbl, gold is 0.5% higher at $1350/ounce and the 10-year Treasury yield is down 3 bps to 2.06%.

    ECB Signals Possible Rate Cut, Bond-Buying Extension

    • Boeing (NYSE:BAdid not announce a single new order on the first day of the Paris Air Show, while rival Airbus (OTCPK:EADSF) recorded orders and options for 123 planes, CNBC reports, citing aviation consulting firm IBA.iQ.
    • The report reinforces Boeing CEO Dennis Muilenburg's comments to CNBC that this year's air show would be less about orders and more about reassuring customers and suppliers that the company is making progress getting the grounded 737 MAX back in the air.
    • Meanwhile, a Boeing spokesperson says it has no plans to change the name of the 737 MAX, following news reports that it was prepared to do to improve its future marketing of the aircraft.
    • Bloomberg earlier quoted CFO Greg Smith as saying that if Boeing needed to change the brand, it would "address" the issue.
    • IBA.iQ forecasts overall orders at this year's air show to come in at their lowest since 2016.
    • #ParisAirShow2019