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TGIF – The ECB Takes a Turn at the Stimulus Wheel

Image result for ecb stimulusMore free money!  

That's what's got the markets rebounding this morning as the European Central Bank says they are preparing a "very strong package" of stimulus measures for its next policy meeting in September.  Speaking in his offices in Finland’s capital on Thursday, Olli Rehn said the slowing global economy would see the ECB rolling out fresh stimulus measures that should include “substantial and sufficient” bond purchases as well as cuts to the bank’s key interest rate.

“It’s important that we come up with a significant and impactful policy package in September.  When you’re working with financial markets, it’s often better to overshoot than undershoot, and better to have a very strong package of policy measures than to tinker.”   

ECB President Mario Draghi last month raised the prospect of fresh ECB action in September, but the new comments from Mr. Rehn indicate that the level of stimulus is likely to be at the upper end of analysts’ expectations.  By raising market expectations for the ECB’s September meeting, Mr Rehn’s comments could put pressure on any ECB policy makers critical of a large stimulus package to fall into line.

In my view, there is a certain weakening of the economic outlook for Europe in the last couple of months,” Mr. Rehn said. That worsening economic backdrop “justifies taking further action in monetary policy, as we intend to do in September,” Mr. Rehn said.  Investors are now expecting the ECB to cut their rate to MINUS 0.7% and keep them that low through 2024.  Additionally, the ECB is expected to expand it's already massive bond-buying program – all very bullish for the market but it brings to mind the phrase "desperate times call for desperate measures." 

As we expected, the Central Banksters are teriffied to allow even a 10% correction and the moment the Euro Stoxx 50 Index fell to 3,240 (down 10% from 3,600) the ECB Governors start talking stimulus – just like our own Fed Heads tend to do.  Next week we have the Fed Conference in Jackson Hole and we expected action then but this quick save by the ECB is a surprise.

Still, the question is how much of a boost is stimulus talk – or even actual stimulus – going to give us and what kind of madness is it that you have to PAY the ECB to have them hold your money now?  This is radical economics being tried for the first time on a global scale and, just yesterday, we saw GE being hammered because holding $35Bn in anticipation of $2.8Bn a year in expenses was considered to be nowhere near enough to fund a pension plan in this low-rate environment.  

That's the same hole that is being blown in all pension plans including Social Security and Medicare, which can't generate the bond revenues they need to stay solvent – not to mention the savings put aside from the retirees themselves.  No wonder people are running into the markets – it's the only place left that has returns that keep pace with inflation! 

Yes stocks are clearly overpriced and overbought – but they are also the only game in town worth playing and Europeans, especially, HAVE to find something to do with their money because, even if they don't give it to the ECB and pay a 0.7% toll, the ECB's insane stimulus policies are debasing the Euros they have under their matress anyway – at a reat of 5% per year!

This is what Donald Trump wants our Federal Reserve to start doing – to devalue the Dollar in order to make the economy LOOK better simply because it will then cost more Dollars to buy things but the catch is that it's a stealth tax on your ENTIRE WEALTH – every single Dollar you own will start losing it's buying power and your effective wages will go down and your savings will lose their value – that's an "experiment" we can't afford! 

Meanwhile, we'll see what kind of bounces we get – watch the 200-day moving average at 12,522 on the NYSE for a sign the stimulus action is working and God help us all if it isn't because this is probably the last gasp for the Central Banksters as they have literally pulled every trick in the book to boost the Global economy and it's difficult to see where they'd get fresh ammunition to fight off another recessionary turn.

Have a great weekend,

- Phil

 


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  1. Really fascinating to see that the only thing really sustaining the markets is rate cuts and more stimulus! Capitalism at its best I guess…


  2. Good Morning!


  3. Good morning!

    Thanks for the rundown on SoKo, Snow.  The way we are going into Thailand is directly through Government contacts – I wouldn't waste time otherwise.

    Bunnies/1020 – I find it to be an unbelievable cosmic coincidence of an apocalyptic nature that ANTIOCH, California is overrun with rabbits when it was the "Holy Hand Grenade of Antioch" that was used to defeat the killer rabbit in "Monty Python and the Holy Grail".  It's either proof that God does exist and he has a sense of humor or that Rabbits watch movies but don't separate fact from fiction and are truly vengeful creatures.  Sadly, the 2nd is more likely…

    Image result for holy hand grenade of antioch


  4. Consumer Sentiment fell off a cliff at 92.1 vs 97 expected.  

    That should take some steam out of the rally.


  5. Antioch/Phil  My immigrant fearing sister lives in Antioch…. I think I'll send her the killer rabbit clip so she'll be prepared….
    https://www.youtube.com/watch?v=cCI18qAoKq4
    :)


  6. Long-Term Portfolio Review (LTP) – Part 1:  $1,227,774 (up 145.6%) is down $319,238 since our 7/19 review and that erases the $227,779 we made that month and then some.  That's a huge hit but a lot of it is just bad timing as we're comparing the dead top to a pretty big dip but that's why I said it would be easier to cash out than to try to protect those insane gains in the LTP.  Our STP hedges are mostly longer-term and don't respond to short-term fluctuations and we lightened up on our hedges last Friday, anticipating the Central Bankster's talking up the markets again.  

    The NEXT time we fail – I don't think they'll be able to save us but we assumed they had one more in the chamber and it was obvious Trump was pushing them to do it and now the ECB is adding pressure as well – seems kind of inevitable at this point.

    So, we're going to follow- through with our plan and deploy some more cash but next time we peak out – I will be wanting to purge a lot of positions and get back to CASH!!! as the risk into the end of the year will be extreme (unless we get a China deal, of course).  

    • HMNY – Dead money.
    • NAK – Hit 0.95 on the run-up but back to 0.68 now – really not worth watching as this will take years to play out.
    • CDE – Earnings were a disappointment and we have SLW and GOLD so let's pull the plug on this one. 
    • Short Puts -  BA is down but well out of the money so it should recover.  CAH we wouldn't mind turning into a full position and the same for DAN but SIG is not too realistic to recover to $20 so let's roll our 10 short 2021 $20 puts at $10.75 to 20 of the 2021 $13 puts at $5.30.  We're only increasing our net obligation from $15,500 (we sold them for $5,500) to $20,650 and, of course, that would be twice as many shares for 33% more – so not terrible.

    • FTR – Some would say this is also dead money but, like NAK, I think this is a fun gamble and could be a 10-bagger one day.
    • ARR – Only a bit under our target on the calls and then the short puts would just re-assign us after we make $1.05 being called away plus the dividends from our first $22.50 entry.  Not ideal but not a disaster for the first year. 
    • BNS – A bit below target and I think too low in the channel so let's sell 5 of the March $55 puts for $5.80 and hopefully we can buy back the 5 short Sept $55 puts for $2 or less into next month's expiration.  
    • ETM – Got crushed recently.  Let's roll the 20 short Jan $8 puts at $4.30 ($4,300) to 40 short March $5 puts at $1.75 ($3,500) and let's double down on the stock at $3.60 to average $5.625 on 4,000 shares ($22,500) less $6,800 we sold against it plus $800 on the put roll and now we'll sell 20 (1/2 cover) of the March $4 calls for 0.60 ($1,200) and we collected $180 in dividends so far so net net = $15,120 on 4,000 shares is $3.78/share but the dividends have been cut to 0.08/yr now  and we hope that's temporary.  

    We have this discussion once in a while and here's a good example:  When you are scaling into a position (LTP has $100,000 allocation blocks) then even a 50% drop in price after you buy the first round can be more of a blessing than a curse and here it's allowing us to load up at what we hope will end up being a very cheap price for ETM.  While they did cut their dividend they are a company that likes paying a dividend and we're hoping that, in the future, they bump it back up against our low basis.

    • NRZ – Not too far off target.  
    • T – Already blasted higher on us.  Amazing 6% dividend for such a reliable stock.  We netted in for $23.95 in May and we're collecting $3.50 in dividends over 20 months so, assuming we get called away at $30, that's about the easiest $9.55 (40%) you can make in the markets – and we've been running this same play for decades (it's even the example in our "Be the House" video).

      


  7. Big pop now, I guess bad news is still good news.  

    If the Dollar fails 98, that should give us more of a boost.  

    GE/Albo – Big recovery already.  CEO bought $2M worth yesterday, made a quick $130,000.

    Rabbits/1020 – If those things start killing people I will laugh my ass off…


  8. Long-Term Portfolio Review (LTP) – Part 2:  

    • AAPL – Very fast recovery, looking good for our $220 target next year and we're only net $30,887 out of a potential $120,000.
    • ALB – China trade victim but I'm not worried about the $75 put target but we can roll our 2021 $65 calls at $9.80 to the 2021 $55 calls at $14.70 for $4.90 and that's our magic number so we'll do that.

    • ALK – On track
    • BBBY – We have to assume this is the bottom and roll our 20 2021 $15 puts at $8.75 ($17,500) to 40 of the 2021 $10 puts at $4.50 ($18,000) as it's a more realistic target and we should be able to roll to 2022 $7.50s when they come out.   As it's an even(ish) roll, keep in mind that's net $8 per long (1/2 the original sale as we're doubling down), which is about where the stock is now and we could sell 2021 $7.50 calls for $2.15 to cover those and drop the basis to $5.85, which is why this roll doesn't worry us.
    • BHC – Let's buy back the 2021 short $35 calls to make room for another sale when they pop back.
    • C – Though I doubt we get there, we may as well buy back the Jan $77.50 calls for 0.37 and we'll wait for a move up to sell more short calls (this position could be in the Butterfly Portfolio as it's pretty reliable).  

    • CAKE – Holy crap did they take a dive!   And they had a nice beat (0.82 vs 0.81 expected).  The did two acquisitions (Northern Italia and Fox Restaurant Concepts)  that people hated but it was "just" $440M and CAKE is making $120M/yr and can certainly finance the acquisitions easily.   I think $4.75 for the 25 long 2021 $35 calls is ridiculously cheap so let's double down and see what happens.  
    • CELG – Well over our target on both now, just waiting for the deal to close. 
    • CHK – We have a net 0.15 credit on the 0.50 calls – I think I like this one!  
    • CLF – Was doing great but China trade killed it (again) so now we have to wait (again).  Great for a new trade!

    • CMG – I mentioned last month, if CAKE had CMG's valuation, they'd be a $400 stock and if CMG had CAKE's valuation, they'd be an $80 stock – MADNESS!  We added the $700/800 spread to give us more protection to the upside on the short Jan $740 calls and they are now $112 but only $72 in the money so $40 of premium and the June 2020 $800s are $110 so there's one roll and the 2021 $860s are $110 but there should be premium decay and the 2021 $1,000s are $65 – so that's pretty much where we see an eventual roll. 
    • If, at any time between now and then, CMG goes down instead of up – we'll cash in a $170,000 gain.  If that never happens and CMG goes up and up, we have $100,000 worth of gains to apply from our longs to rolling them higher but, of course, we'd add more bull spreads along the way too.   

    • CPRI – Hopefully they found a bottom and we can roll the 2021 $30 calls at $5.45 to the 2021 $25 calls at $7.75 for net $2.30.
    • CZR – At goal already.  We sold aggressive puts and got lucky so let's buy back the 20 short 2021 $12 puts for $1.35 ($2,700) and that lowers our need to hedge it and opens up the opportunity to sell more puts if CZR goes lower again.
    • DAL – On track.
    • DIS – I think we got lucky so let's buy back the short Sept $130 calls while we can.


  9. GLUU – wow, while I was travelling this one dumped back to where I bought it years ago, what a chart, buy and hold is for suckers…


  10. CBL / Advill – I followed you into this one - hold, dd, or bail? TIA.


  11. Long-Term Portfolio (LTP) Review – Part 3:  FYI, we're up $70,000 since I started the review, just to show you how crazy intra-day changes can be when you have this much leverage in a portfolio.  That is, of course, not including the changes, which were all bullish.

    • F – Back on track and another nice dividend-payer.  If the puts and calls are uneven to the stock, they end up in this section and not above.  
    • FCX – A huge drop since last month as the trade wars continue.  The roll to the $5 calls is $2.80 so I'd rather double down for $1.55 and drop the average cost of the calls to $2.80 and then we can lower those by eventually selling $15 calls for $1.50ish (now 0.50).  The 20 short puts I'm not worried about as that's still our target.

    • GILD – Very strangely right on track but showing a loss, great for a new trade.  
    • GIS – Exploded higher but more or less on track.
    • GNC – They are closing half their stores but it's a good restructuring – just frustrating to hold.  There's no point doing anything with the $2.50 calls but let's buy 100 of the 2021 $1 calls for 0.95 ($9,500) and we'll eventually pay for it by selling, for example 50 of the Jan $2.50 calls, now 0.20 for 0.50.  4 sales like that and we drop the entire cost of the longs.  
    • GOLD – We had a stop on 20 of the 40 remaining Jan $10s but way over it now and I think we should just cash all 40 out at $8.50.  

    • GPRO – Another one that fell from grace.  They burned $66M of cash last Q and only have $91.3M left so people think they are going to have to dilute to raise money.  We were aggressively long  and took a $12,000 hit on this position – I think we'll just give them another quarter and see if they start executing.
    • GS – At our target already.
    • HBI – Got knocked down again so we'll buy back the short 2021 $22 calls for 0.35 to make room for another sale later on.  
    • IBM – On track despite the big pullback as we came in cheaply last year.  Let's buy back 10 of the 25 short 2021 $140 calls at $9.80 to give ourselves more upside as well as a better position to sell short-term calls next time they hit $145+.   Also, let's buy 15 of the 2021 $130 calls for $14.40 ($21,600) and that way, next time we get a good pop, we can cash in the $110 calls as they hit $100,000+.   

    • IMAX – Another one we've been playing in the same channel for years.  
    • IP – Got knocked down as sales missed estimates but earnings were a beat so let's take advantage and buy back the short 2021 $47.50 calls for $1.95 and let's roll our 15 2021 $40 calls at $4.30 ($6,450) to 20 of the 2021 $35 calls at $6.80 ($13,600) so, cash-wise, we're doubling down.

    • KHC – It's getting very silly at $25 but was silly at $30 too.  Let's roll our 2021 $30 calls at $1.95 to the 2021 $20 calls at $6.60 for net $4.65 as those are $5.50 in the money – so it would be silly not to take advantage of that.  That way, if there ever is a pop, we can safely sell some calls to help defer the cost of this roll.  We can also roll the 20 short 2021 $40 puts at $15 ($30,000) to 40 short 2021 $27.50 puts at $5.30 ($21,200).  That costs us $8,800 of the $18,000 we collected so still a $9,200 credit is $2.30 per contract and that's a much easier to hit break-even at $25.20.

    • LB – Another huge dive and earnings aren't even until next week (21st).  I don't think people can be more negative but we'll see.  At this point, the stock is getting attractive as they just re-affirmed their 0.30 quarterly dividend so $1.20 a year is 6% of $20.41.  We have 50 of the 2021 $20 calls at $4.35 and the $15 calls are $6.90 so $2.60 to roll but I'd rather double down and buy 50 more of the $20 calls and sell 50 of the 2021 $30 calls for $1.70 for net $2.65 so it's the same cost but we have 50 more longs and we're only 1/2 covered so, if LB bounces higher, we can make back a lot of money selling short-calls without risk.  Let's also sell 20 of the 2021 $22.50 puts for $6.75 as that's $13,500 for something we'd like to own anyway.  
    • LMT is my Stock of the Next Decade and looking like it at $377 but that's only $106Bn, so still a long way to go to my $1Tn target (I'm assuming they win the commercial fusion race in about 2025).  Unfortunately, we only have a very modest position as they don't even pull back.

      


  12. By the way, on LB, I forgot to mention that I prefer the DD to the roll as the roll will get cheaper if they miss earnings while the calls would get more expensive if they have good earnings so game theory suggests it's wiser to buy the rollable calls (covered without overspending) and see what happens before getting more aggressive.  


  13. Long-Term Portfolio (LTP) Review – Part 4:

    • M – Boy do we have a lot of retail stocks that are getting killed!   The short puts no longer seem like good targets so let's roll the 10 short 2021 $30 puts at $15 ($15,000) and the 10 short 2021 $25 puts at $10.75 ($10,750) to 40 of the 2021 $18 puts at $5.10 ($20,400).  The net cost is $5,350 and we collected $11,150 so net on 40 puts is now $5,800 or $1.45 so our net on 4,000 (if assigned) is $16.55  with M currently at $16.13 – so not terrible at all – especially considering our terrible timing.  
    • From an allocation standpoint, owning 4,000 shares at net $16.55 is $66,200 so a bit over half an allocation block and the 2021 $15 calls can be sold for $3 to knock our net down to $13.55 (if we were assigned) and, of course, we'll have 2022 to roll to (and sell calls for) soon.  As long as they don't go BK, we should be fine…
    • MJ – Let's buy back the short 2021 $40 calls at $1.25.   This is a gift as a new trade!  

    • MO – Forming a nice bottom at $45 and right on track for us but let's buy back the short 2021 $55 calls for $1.50 as they are already up 60%.
    • MT – I'm excited to buy more of this one as we started small, expecting continuing rough times.  It is worth it for us to roll the 20 2021 $15 calls at $1.90 ($3,800) to 40 of the 2021 $10 calls at $4.30 ($17,200) so now we're getting a little bit serious but still a small allocation we wouldn't mind building into if they go lower (but the profits sure wouldn't suck if they don't).  

    Notice what we did is take a very small position around May 20th and we weren't sure it was the bottom but we didn't want to miss out if it was.  Essentially, it put MT on our Watch Closely List and now we're feeling good enough to work up to a 1/4 position but, if they dropped to $7, for example, we'd just spend $2.50 to roll down to the $5s (there are no $5s yet because no one believes it's possible) and that's another $12,000 which would finally take us to $29,200 and an actual quarter position.  

    The thing is, when MT was at $16 and we came is, would we have liked to buy 40 $5 calls for net $7.30 each?  Of course we would have! If MT comes back to just $18, they'd be $13 each for $52,000 and a very nice profit.  $13/share is $13Bn for MT (so easy to keep track of value with 1Bn shares outstanding) and, even in this downturn, they are projecting about $2Bn a year for the next two years.  

    •  MU – We got a quick win on the short Sept $45 calls so let's take them off the table.  
    • NLY – REITs are getting killed because, if rates go negative, they'll have to PAY people to borrow money from them!  Well, not quite but it is getting close and that makes it hard to make a profit for Mortgage REITs especially.  We'll roll the puts when the time comes but they just paid an 0.25 dividend on 6/27 and, as long as they keep doing that – we still love them.

    • NYCB – Moving up in the channel but still too early to sell calls.
    • PLAY – Good bottom forming here and a light position so let's roll our 10 2021 $35 calls at $9 ($9,000) to 20 of the 2021 $25 calls at $15.50 ($31,000) and we sold puts for $7,800 so we're right about a 1/4 allocation now, 9 months after we started!  Why?  Because we know how to be PATIENT!

    • RH – Wow did we nail that entry!  Unfortunately though, that means we only have our small, initial allocation that's already in the money on the $50,000 spread we paid net $5,000 for.  How annoying…
    • SKT – Another one I'm sore from banging the table on.  We have 40 short puts so that's effectively our intent to triple down if they stay down here and there's not much else to do but wait as it's not worth selling calls  but they just paid us 0.355 ($710) on 7/30 and, as long as they keep doing that against our net $34,500 position (2% per quarter) – it's a lovely place to park our cash.  
    • SPWR – Another one that already hit our target but only net $18,820 out of a potential $40,000 so more than a double still to come if they just stay over $12.  

    • STMP – I think we nailed the bottom on this one too!  We played very conservative as we weren't sure and the trade was a $13,830 credit and now it's positive $2,100 but still a $25,000 spread so miles to go if we can hold $55.

    • STT – And sometimes they don't work!  WTF on this one?  This is a huge bank that's making $2Bn a year VERY CONSISTENTLY but, at $50, you can buy it for $18.6Bn.  Nothing to do but DD on this one so we'll roll our 20 2021 $50 calls at $6.40 ($12,800) to 40 of the 2021 $45 calls at $8.90 ($35,600) and now we're $20,000 in the money after spending $22,800 on the roll plus our original $27,700 puts us in 40 of the 2021 $45 calls for net $50,500 ($12.625 each) but the puts are a problem too so let's roll the 10 short 2021 $60 puts at $14.20 to 20 of the 2021 $50 puts at $7.80 – a bit better than even and we'll sell some calls when they bounce, like 20 of the Jan $57.50s, now $1 for hopefully $3.50 (the price of the Jan $50s) while we wait for STT to get back to 12x earnings (about $65/share).
    • T – Old reliable.  Right on target with the short Jans too! 
    • TGT – Over our target on this $43,750 potential spread we paid net $4,275 for and currently net $20,875 so over 100% left to gain and all they have to do is hold $82.50.

    Notice that, in these at-target positions, we're waiting for $20,000 here and $40,000 there and $100,000 there – these things really add up over time and they are nice, conservative entries (mostly). 

    • THC – No changes but what an opportunity as a new trade.  
    • UCTT – Big set-back but earnings were good (small loss) so I'm happy with our position – even the aggressive short puts.  
    • WBA – Also finding a floor at $50.  We already went heavy on this one but let's buy back the 2021 $65 calls at $1.70 as that's up 64% already and hopefully we get back over $60 and we can sell calls again.

    • WHR – Let's buy back those Sept short $140 calls as they are up 85% in a month (because we weren't greedy and sold covers to lock in our gains).   Keep in mind this was only a net $150 cash outlay on the spread and we just made $4,280 in 30 days selling short calls – not to mention the spread is $45,000 in the money but "only" net $16,800 at the moment, so yet another one where we just sit and wait to make 100% on a spread that's already in the money.  
    • WPM – Miles in the money but only net $6,375 out of a potential $37,500.  Yes, that's right, all WPM has to do is hold $22.50 (down 20%) into Jan 2021 and this spread gains another $31.125 (488%).  Who says trading is hard?  8-) 

    While I don't mind gambling on MoMo stocks and small cap stocks, you have to keep it in perspective as the majority of our trades are these kinds of solid-citizen bets on stable, large-cap companies.  BECAUSE we have a very good chance of making money on those, we can afford to gamble on things like FTR and NAK but you can't do the gambling without the backstop of a more reliable income.  If you have to only do one or the other – please choose the "boring" stuff!  


  14. OMG that is exhausting!  

    Have a great weekend folks, 

    - Phil


  15. By the way, especially in the LTP, none of these things are urgent, this is just when I'm doing the review – totally arbitrary.  If you don't get a good price – don't do it!  When you are trading even $5 options and you give up 0.25 in and out because you're not patient – you're knocking 10% off your performance.  As a rule of thumb, I ask for at least 0.05 per $1 better than the mid-point price (between bid and ask) to see if it fills and I never go more than 0.10 per $1 over – I'd rather wait otherwise.  

    Also, you have to use common sense, if the momentum is up, buy long calls first and sell short calls 2nd – hopefully you get better prices on both.  





  16. Debunking Donald Trump’s latest voter fraud claim about New Hampshire





  17. Mike Huckabee’s Trump interview was ridiculous


  18. Hi, Mr. Mocha/CBL

    Bail….

    They got some lawsuits from lawyers specialists in class action trials, it will be difficult for them to survive the financial situation and the legal costs, I went out a weeks ago with strong losses  in the position.



  19. Phil – Great series of portfolio reviews with insightful analysis and lots of strategy and tactics to absorb. It's worth the time and effort. Thanks.


  20. Good summary on Macy's from Morningstar:

    https://www.morningstar.com/articles/942666/article






  21. Thanks Deano for sharing. Not sure I would rush out and buy MACY's stock after reading this report.


  22. Reading  for summer time  The Art of Contrary Thinking, of Humphrey B Neill original edition 1954.

    In this massive communication and fake news  times is a fresh reading, just as when Mr. Neill wrote it 70 years ago….maybe more.


  23. President Trump Says U.S. Is ‘Doing Very Well With China’ Amid Continuing Trade Talks




  24. 3 nights of tear gas-free protests as Hong Kong’s anti-government movement gives peace a chance