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Which Way Wednesday – Expected Fed Cut Keeps us Above S&P 3,000 – for Now

Apple (AAPL) is up 3.5%, pre-market.

That's boosting the Nasdaq 0.7% but the Nasdaq (/NQ) is only up 0.4% pre-market and AAPL is up 8 points and that's 70 Dow points and the Dow (/YM) is only up 71 points so there's actually broad-market weakness in this morning's "rally" and the Fed is expected to cut rates by AT LEAST 0.25% this afternoon and, if they don't, there aren't enough Apples in the World to hold this market up.

But let's assume they do.  Then the question is:  Will it be enough to lift the markets higher or has all this Fed generosity already been priced in to the 2,500-point (10%) Dow rallly since June 1st?  AAPL is up (as of this morning's $215) $45 (26.5%) since June 1st so the market has not kept pace with its largest component by any measure.  That is, in large part, because earnings growth has slowed down tremendously since 2018 and would probably be negative if not for the continuation of the Trump Tax Cuts (and now they want to cut more Corporate Taxes!):

While there has been some improvement in Q2 earnings so far with 40% of the S&P 500 reporting – it's not the S&P 500 we're worried about but small-cap stocks that are facing cost pressures and companies that do more business overseas, where economies are definitely slowing.  In fact, the Eurozone's economy grew by just 0.2% in Q2 – just a tick above Recession and, adjusted for inflation – clearly in a recession.  Japan has made similar downward adjustments to their growth as well – and Singapore, and Hong Kong and – well, you get the picture…

Image result for trump fed rate cut cartoonThe ECB left their rates unchanged at last week's meeting but our beloved Commander in Chief has made it very clear that he will not tolerate any more responsible monetary decisions by our own Fed and he will get his rate cut or heads are gonna' roll

Meanwhile, while we wait for the Fed decision at 2pm and Powell's press conference at 2:30, we should reflect on the fact that the China Trade Negotiations took less than one day to blow up as our Negotiator-in-Chief took to Twitter and attacked China ahead of this morning's meeting, causing talks to end in just 4 hours with Mnuchin and Lighthizer heading straight to the airport afterwords – a totally wasted efford with zero progress and no further meetings scheduled until September.  

Image result for who pays for tariffsEventually, hopefully, Trump voters will wake up to the massive con the President is pulling with China trade as it's nothing more than a sneaky way to tax (tariffs) US consumers who buy Chinese goods.  China doesn't pay a penny of these tariffs, they are paid, ultimately, by the consumers and, even worse, by the poorest consumers who buy the most Chinese goods.

Even worse is that Trump, like Dooh Nibor ("Robin Hood" backwards) is robbing from the poor and giving to the rich through hs BS "farm bailout" that is giving $16Bn (10% of the tariffs Trump is collecting) back to farmers but the way he is doing it is per acre – so the biggest, richest industrial farmers are getting more than 50% of the bailout – despite the fact that they need them the least. 

And what will they do with that bailout money?  They will use it to buy up the struggling family farms Trump's Tariffs have been destroying.  In Missouri, for example, JUST the DeLine Farm Partnership got $2.8M while the bottom 80% of the Farmers got less than $5,000 each on average.  Overall, 82 (0.014%) farmers out of 563,000 farmers affected – which is very similar to how Trup distributed his tax cuts – just another benefit for Trump and his 0.014% buddies.

It would have been far cheaper for America to have just paid Trump $100Bn to go away in 2016.  His tax cuts for the Wealthy have run up over $2Tn ($200Bn) in debt that is being paid by all Americans (but mostly the poor ones) and his Trade Wars are costing well over $1Tn more to the economy and Consumers who have been fooled into thinking they'll get big tax refunds that never came have run up over $1Tn in Credit Card debt and Students have added $500Bn to student loans – that's a $4.5Tn burden placed on the American people after just two years of Donald Trump.

Can we afford the next 18 months – let alone 4 years after that?

 


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  1. It's Wednesday, and you know what that means!

    Phil!

    Live!

    1pm (Eastern).

    https://attendee.gotowebinar.com/register/2722809005323561227


  2. Good Morning!


  3. Good morning!

    It's Fed Day and AAPL is $218, which is up 4.25% and maybe we hit the 5% Rule at $220, adding $50Bn to the market cap for the morning.  

    CMG's revenues are 1/10th of AAPL's and their profits are 1/340th of AAPL's but they gained $75Bn in market cap off their earnings so – why not?

    NAK still has hoops to jump through but up 50% from where I pointed out yesterday that people weren't reacting to the news.  I'm feeling very good about my $5 target (a couple of years from now):

    We have 20,000 straight shares in the LTP at 0.59  for $11,800 so we're looking for $100,000 and an $88,200 profit when all is said and done.  In the OOP we bought 10,000 shares at $1.40 but sold 50 puts for 0.95 ($4,750) so our average is 0.925 looking to net a $40,750 profit at $5 which would be very nice for the much smaller portfolio.

    /NG finally making a move this morning – congrats to all who had patience and, if you doubled down – don't forget to get 1/2 out even as /NG be crazy!

    With AAPL giving us such a boost ($220 now), that we're not at all impressed with the rest of the market.  I think they are using AAPL to cover a broader sell-off ahead of what is very possibly going to be a disappointing Fed. 


  4. Sorry, no big chart today as I was on calls since early!


  5. I'll post one with today's numbers shortly!


  6. Broader indices have not done much in July! But the Dow could go 10,000 points if the Fed could help :-)


  7. Waiting for AAPL results to make adjustments .. LONG 20 AAPL Jan ’21 140c SHORT 20 AAPL June ’21 200c   As TD insists on treating the June short calls as naked and separate, so am I   Thinking to sell JAN ’21 240c (no extra mgn) Then wait to buy back the June ’21 200s on a dip   Any better ideas? I know I could sell some shorter term calls on the way to ’21 but AAPL has a way of catching up to them.   Also, as suggested  I’m ..  Long 20 AAPL Jan’20 150c Short 20 AAPL Jan ’20 160c   Interested in a new AAPL bcs …


  8. “dark psychic force”

    The best way to explain Tdumps charm…..


  9. AAPL/Wing – I'd be careful betting heavily against them as $60Bn x 20 is $1.2Tn so still 20% undervalued ($240) if things get more aggressive.  If you fix the time-frame, then you shouldn't have the margin issue but I would cash the 20 2021 $140 calls at $80 ($160,000) and add 30 June 2021 $200 ($38.50)/240 ($18.50) bull call spreads at $20 ($60,000) and roll the 20 short June 2021 $200 calls at $38.50 ($77,000) to 20 Jan $210 calls at $17.30 ($34,600) and sell 10 Jan 2021 $180 puts at $10 ($10,000) for net $67,600 in your pocket and you still have a $120,000 spread (the value of your current spread) and a much better chance that you can expire the short puts and calls worthless over time. 

    Of course, if the Jan $210s go worthless, you have 18 more months to sell and, if you bring it down to $10 and sell $10 calls per Q, that's another $60,000 of income potential while you wait.  As to the 20 Jan $150/160 spreads – well they should expire at $10 and no reason to take less.  

    Psychic Force/1020 – And people think she did the best in that debate! 

    Good report for oil:

    • EIA Petroleum Inventories: Crude -8.5M barrels vs. -2.6M consensus, -10.8M last week.
    • Gasoline -1.8M barrels vs. -1.5M consensus, -0.2M last week.
    • Distillates -0.9M barrels vs. +1.0M consensus, +0.6M last week.
    • Futures +0.59% to $58.39.

    /NG not stopping:

    /NGN20/Jeff – Those are the ones I like for now or /NGZ19 if you want to play it closer ($2.50).

    Submitted on 2019/07/29 at 12:00 pm

    /NG/Dawg – I think weak hands are being flushed ahead of possible China Trade deal.  One of the things they can easily do to "balance" trade is to buy more US Nat Gas as we currently supply just 2.28% of their needs. 

    CHK should get a little love as well:

    Dow is red.

    RUT doesn't care – so I like the short at 1,592.50

    • July Chicago PMI44.4 vs. 50.5 consensus, 49.7 prior.
    • The July print is the weakest read since December 2015, and the Production sub-index fell to a 10-year low.
    • The national ISM report for July is due tomorrow. It fell to a two-year low of 51.7 in June.
    • Q2 Employment Cost Index+0.6% Q/Q vs. +0.7% consensus, +0.7% in Q1.
    • Employment Benefits +0.90% vs. +1.00% in Q1.
    • Employment Wages +0.50% vs. +0.60% in Q1.

    • Adjusted Q2 EPS of $0.17, down 6% from the same period in 2018, but the figure beats low earnings expectations of $0.12.
    • Adjusted industrial free cash flow was negative $1B during the quarter, coming in at the strong end of company guidance. Investors are closely monitoring the outflow to gauge the health of the company, which is in the midst of a multi-year turnaround plan.
    • Costs associated with GE's industrial restructuring are also anticipated to come in less-than-expected. The company now sees the expenses for 2019 at $1.7B-$2B (vs. $2.4B-$2.7B). The revision was a result of "a combination of timing, attrition," and "executing projects at lower cost than projected."
    • Separately, CFO Jamie Miller said she will step down from her role but will remain with the company during the leadership transition.
    • Excluding a hit from the grounding of Boeing's 737 MAX, GE raised its full-year 2019 guidance "due to improvements at Power, lower restructuring and interest, higher earnings, and better visibility at the half."
    • Outlook for 2019: Adjusted EPS of between $0.55-$0.65 (up from $0.50-$0.60), while adjusted industrial FCF is forecast to be -$1B to $1B (vs. a prior target of flat to -$2B).
    • GE +4% premarket
    • Q2 results

    • "2019 remains a reset year for GE," says CEO Larry Culp at the start of an earnings conference call. "Our YTD performance is ahead of our outlook in many areas, but the restructuring trajectory may not be a straight line."
    • Strategic priorities: We monetized our 25% stake in Wabtec, are making progress with the BioPharma unit sale (which will deliver $20B in proceeds) and are on track for $10B in asset reductions at GE Capital in 2019.
    • Strengthening the business: Power orders were up 20%, Renewables were up double digits, Aviation won record wins at Paris Air Show and Healthcare profit margins expanded 80 bps.
    • Q&A has just begun with CEO Larry Culp and CFO Jamie Miller.
    • JPMorgan's Stephen Tusa: Now that the company is halfway through the year, what are we seeing around free cash flow guidance in Healthcare? No change in the outlook.
    • Bank of America: There's a free cash flow drag in Aviation projected for 2H19. What has gotten worse? LEAP volume is planned to ramp up in the second half.
    • Gordon Haskett: Will you get all the money back from the drag of the 737 MAX grounding? When the MAX starts getting delivered again, we will get paid for the engines. It's just a delay in timing.
    • RBC Capital: Macro questions… You would be one of the only industrials not to comment on short cycle pressures. Where are we on China and tariffs? We certainly saw bits of the business that didn't perform at the top line like Healthcare and the Gas Service business, but we look at this more as our own execution. We still felt good enough to pick up the revenue guidance. With regards to China, the embrace of GE is strong at the customer and government level. Trade tensions are still real and how that plays out is still a bit unclear.
    • Deutsche Bank: Regarding GE Capital, do you still expect a $500M-$800M loss for the entire 2019? We still expect to be on the higher end of that, but will update you in the third quarter.
    • Credit Suisse: Power you're clearly making good progress for what you can control. When I look at the market can you also play offense, not only defense – like battery storage to prepare for technology shifts and more R&D spend? We clearly see the transition from coal and nuclear to gas is a benficiary of that. We make sure we are plugged in country to country and customer to customer. That will shape are roadmap. With respect to storage, tucked away on the renwables page is a reference to hybrid, which are nascent efforts, but we see opportunities to leverage that technology in a broader way. Hopefully over time these will be more significant.
    • Goldman Sachs: You monetized your stake in Wabtec this quarter. What are your remaining restrictions for that and Baker Hughes? Wabtec are restrictions go into the fall. Baker Hughes we can sell that at any time.
    • GE +4% premarket
    • Baker Hughes (NYSE:BHGE+3.4% pre-market after edging past Q2 earnings and revenue expectations, helped by accelerating activity in liquefied natural gas markets and higher international demand for oilfield services.
    • BHGE says Q2 total revenues rose 8% Y/Y and 7% Q/Q to $5.99B, as revenue from the Oilfield Services segment, which comprises a majority of the company's operations, jumped 13% Y/Y and 9% Q/Q to $3.26B; elsewhere, Oilfield Equipment revenue rose 12% Y/Y but fell 6% Q/Q to $693M, Turbomachinery and Process Solutions added 1% Y/Y and 8% Q/Q to $1.4B, and Digital Solutions fell 5% Y/Y and gained 7% Q/Q to $632M.
    • Orders for the quarter totaled $6.554B, up 15% Q/Q and up 9% Y/Y, boosted by a 32% increase in orders in the Turbomachinery and Process Solutions business, which includes supply of equipment for LNG projects.
    • Q2 cash flows generated from operating activities totaled $593M, while free cash flow was $355M; both results were negative in Q1.
    • Molson Coors (NYSE:TAP) slides after the company's Q2 revenue and underlying profit miss the corresponding consensus estimates. Underlying EBITDA was down 12.8% in constant currency.
    • Worldwide brand volume was down 5.6% during the quarter and financial volume was off 7.0% due in part to unfavorable weather patterns and lapping the World Cup period from a year ago.
    • Molson's cost of goods sold per hectoliter increased 8.8% as unrealized mark-to-market losses on commodity positions, inflation, volume deleverage,and increased packaging costs only partially offset foreign currency movements and cost savings.
    • CEO update: "Encouragingly, we delivered strong constant currency net sales per hectoliter growth of 3.7% and our share trends improved in the U.S. and were stable in Europe. We also saw strong premium light share growth in the U.S. as Miller Lite and Coors Light each gained segment share. This was ahead of the newly launched Coors Light "Made to Chill" advertising, which is focused on new drinker recruitment by dramatizing Coors Light's purpose to refresh the spirit through its mountain cold refreshment credentials. We believe this creative platform is distinctive, disruptive and breakthrough. We also maintained our focus on cash flow, through cost savings and improving working capital."
    • Looking ahead, Molson anticipates full-year underlying free cash flow of $1.4B (+/- 10%).
    • Shares of Molson Coors are down 7.31% premarket to $52.76 vs. the 52-week range of $52.36 to $71.04.
    • Previously: Molson Coors Brewing EPS misses by $0.13, misses on revenue (July 31)


  10. TAP Phil so what shall we do with our plays drink more bier???



  11. India’s ‘Coffee King’ Found Dead Amid Financial Troubles


  12. TAP/Yodi – Well drinking more beer is always a good plan.  Unfortunately, TAP went from a winner to a loser in the Hemp Boca Portfolio and there's not much we can do but ride it out for now:

    TAP Long Call 2021 15-JAN 50.00 CALL [TAP @ $52.44 $-4.48] 20 6/18/2019 (534) $17,000 $8.50 $-1.45 $8.50     $7.05 $-2.65 $-2,900 -17.1% $14,100
    TAP Short Call 2021 15-JAN 60.00 CALL [TAP @ $52.44 $-4.48] -20 6/18/2019 (534) $-8,000 $4.00 $-1.00     $3.00 - $2,000 25.0% $-6,000
    TAP Short Put 2021 15-JAN 47.50 PUT [TAP @ $52.44 $-4.48] -10 6/18/2019 (534) $-4,250 $4.25 $0.45     $4.70 - $-450 -10.6% $-4,700

    Being a small portfolio (Hemp Boca), we don't want to just throw more money at it but they did make $1.52/share for the Q and last year they made $5 and this year they are projecting $4.65, which certainly supports $52.  Cost of goods sold increased 8.8% as unrealized mark-to-market losses on commodity positions, inflation, volume deleverage,and increased packaging costs only partially offset foreign currency movements and cost savings.  Also, last year had a World Cup in Q2 so the comps are unmatchable this year.   

    CEO update: "Encouragingly, we delivered strong constant currency net sales per hectoliter growth of 3.7% and our share trends improved in the U.S. and were stable in Europe. We also saw strong premium light share growth in the U.S. as Miller Lite and Coors Light each gained segment share. This was ahead of the newly launched Coors Light "Made to Chill" advertising, which is focused on new drinker recruitment by dramatizing Coors Light's purpose to refresh the spirit through its mountain cold refreshment credentials. We believe this creative platform is distinctive, disruptive and breakthrough. We also maintained our focus on cash flow, through cost savings and improving working capital."

    The re-val is not a mistake, they had a rough Q and are being repriced lower in their band but our targets are fine – we'll just have to wait to grind it back out.

    After a small pullback, RUT went the wrong way and tested 1,600 but back to 1,597 now. 

    • The U.S. Department of the Treasury keeps its long-term debt issuance at a record $84B for the third straight quarter.
    • That level of issuance exceeds previous records set in 2009 when the U.S. was recovering from the worst recession since the Great Depression.
    • This quarter's issuance will refund ~$57.3B of privately held Treasury notes and bonds maturing on Aug. 15, 2019.
    • "We anticipate that the increase in bill issuance through the end of September 2019 (in order to achieve the end-of-September cash balance estimate announced on July 29, 2019) will be comparable to the increase in bill issuance that occurred in the summer of 2018," the Treasury Department said in its statement.
    • Also the Treasury said it's announcing no increase to nominal coupon and FRN auction sizes over the upcoming quarter and currently sees no further changes in issuance sizes for nominal coupon and FRNs for the rest of calendar year 2019.
    • Ahead of the Fed's monetary policy decision this afternoon, the 10-year Treasury rallies, pushing yield down almost 3 basis points to 2.037%.

  13. Webinar start is delayed as Webinar computer is running an update.  Hopefully 15 mins.


  14. Thanks for the AAPL wisdom Phil!

    I assume I could do the same trick and sell short 20 Jan '21 $150cs instead of the $140's to defer my tax hit to '21 and still lock in $$.

    And if I roll the 20 June '21 $200cs to Jan '20 $210s they would probably still be ruled 'naked calls' once I sell either the Jan '21 $140's or cover them with short $150s.

    Wondering why you suggest to sell the 10 JAN '21 $180 puts (vs the June ones)?

    THX



  15. Wheeee, this is fun!  

    Federal Reserve Chair Jerome Powell says the FOMC's quarter-point cut the the federal funds target rate is intended to ensure a healthy economic outlook.

    Describes the move as a "mid-cycle adjustment to policy."

    3:16 PM: Press conference ends.

    3:13 PM: Powell also keeps options open for a rate hike at coming meetings, noting that there have been previous cycles where the FOMC has raised rates after a cut. He's not saying that it will be happening in this case — it "doesn't look particularly likely," he noted.

    3:07 PM: Regarding tariffs — "The mechanical effects are quite small, but "it's very hard to tease out" their effect on business confidence, and that effect can be large.

    3:04 PM: Powell doesn't rule out more rate cuts, but doesn't see today's action as the beginning of a long cycle of cuts.

    3:00 PM: Powell reinforces his previous statements that the Fed doesn't pay attention to political pressure — i.e., President Trump's tweets. "We conduct monetary policy to move as closely as possible to our statutory goals," not to "prove independence."

    2:56 PM: Nasdaq slumps 1.2%, S&P and Dow both down 1.1%.

    2.50 PM: Powell says this is not "the beginning of a lengthy cutting cycle."

    2:48 PM: Stocks extend their decline as investors seem disappointed that the Fed's not indicating further cuts. The S&P 500 and Nasdaq each fall 0.8%, the Dow slides 0.9% .

    2:45 PM: "Weak global growth and trade tensions are having a significant effect on the U.S. economy," Powell say, quickly adding, "We're not criticizing trade policy — that's not our job."

    2:43 PM ET: Part of the reason for the move is to "address the shortfall in inflation," which has been stubbornly below the Fed's 2% target.

    Powell points to negative and positive economic development since the last FOMC meeting — job growth remains strong and GDP growth came in close to expectations, but manufacturing output declined for two quarter, Powell observed.

    This is a developing story, check back for updates.

    Watch Powell's press conference webcast.

    Previously: Fed cuts rates for first time in over a decade (July 31)

    First he said it was a one-time cut but, as the Dow fell 500 he changed his tune and said 

    2.50 PM: Powell says this is not "the beginning of a lengthy cutting cycle."

    3:13 PM: Powell also keeps options open for a rate hike at coming meetings, noting that there have been previous cycles where the FOMC has raised rates after a cut. He's not saying that it will be happening in this case — it "doesn't look particularly likely," he noted.

    ROFL – I'm so glad we're in neutral!  


    • In another step back for Boeing (BA +0.1%), China Southern Airlines (ZNH +0.7%) says it has canceled its order for as many as 64 of the company's grounded 737 MAX 8 aircraft.
    • "The order is no longer there," U.K. and Ireland key account manager Dean Saxby said today, adding that the impact of the groundinghas had little impact on the carrier's current operations.
    • "With all the aircraft coming on and the A350s, those aircraft have plugged some of those holes and we’ve had very minimal disruption," according to Saxby

    Saxby?  That's the guy that was killed in Diamonds are Forever….

    Image result for bert saxby

    Did we ever think that was realistic blood?

    You know what's fun, watch Dirty Harry, which we remember as being a very violent movie.  If you haven't seen it in decades and you watch it now, it's less violent than any random cop show on TV.


  16. RUT back in the green but those puts paid $1,000/contract on that dip! 


  17. TWOU down 25% today.  Bought some at $11.70.  Looking to scalp a couple of points.


  18. Did people seriously expect the Fed to start cutting rates on a regular basis? On what basis – simply to support the markets and make Trump happy! Crazy reaction.


  19. TWOU – Sold 1/3 up $1.  Stops at entry on balance.


  20. Rates/StJ – Too much expectation build-up and way too much buying ahead of the news.  No China deal, no major Fed hikes – might get worse than this.

    TWOU/Albo – I don't follow them at all.  Good quick trade! 


  21. TWOU acquired Trilogy in April. That deal included a $350 mln cash component.

    The stock is now trading at a market cap equivalent to what they paid for Trilogy,

    Looks like a lot of margin call selling.





  22. Hamza bin Laden, Son of Qaeda Founder, Is Dead




  23. Good morning!

    Small recoveries but not even weak bounces.  

    Dollar still 98.7 though, so they can take the indexes up by weakening the Dollar if they want.