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Friday Follies – The Empire Strikes Back with New Tariffs

Wheee, what a fun ride this is! 

Things were going along nicely for a while but, this morning, China announced they will be retaliating against Trump's tariffs (as opposed to some fantasy World people live in where China takes Trump's crap lying down?) with tariffs on $75Bn worth of US Goods (which the US will pay for, of course) AND a 25% tariff on US autos beginning Dec 15th.  

Don't worry though, Powell is making a speech at 10am from Jackso Hole and it's widely expected he will wave the money wand and "fix" things so we'lll take this pre-market dip about as seriously as we took the pre-market rallies this week – just more nonsens to make the Futures trades money.  Like this morning, we can go long on the S&P (/ES) at 2,900 as it should at least be bouncy and tight stops below the line, of course.  S&P Futures pay $50 per point, so it could easily be good for a quick $500 per contract. 

The same goes for the Russell (/RTY) if it gets back over the 1,500 line – that makes for a good long bet too but only with tight stops below and only looking for a quick gain as it's too risky to hold into Powell's speech as there's little he can do but disappoint as the expectations are widely held now that the Fed will drop rates 0.5% when they next meet on Sept 18th and I don't think that's realistic.

The theme of this year's Fed Conference in Jackson Hole is "Challenges for Monetary Policy" and that seems like a bit of an understatement at the moment and Powelll's speech has the same title so there's not much to do but get ready for 10am and see how things shake out after his speech.  

Have a great weekend, 

- Phil

 


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  1. I don't know how strong this market is, really. If we are back to hoping for free money speeches from the Fed to rally, not a good indicator that we have the best economy ever…  I don't recall past presidents leaning on the Fed to lower rates when the economy was growing. In the meantime, the broader indices like NYSE and Russell are lower than they were on January 2018, almost 20 months ago. The Dow, S&P and Nasdaq are boosted by less than  stocks so not really that representative.


  2. Good Morning!


  3. Divided G-7 Leaders Headed for Clashes at Tense Summit




  4. Tired of Robocalls? You May Be Free of Them Soon






  5. Putin orders ‘symmetric’ measures after US missile test


  6. Bought some WLL.


  7. @ 7.56


  8. Also bought some MAT @9.61.


  9. Good morning!

    Should be a more interesting than usual kind of Friday.  

    /ES bounced off 2,900 but /RTY hasn't gone back over 1,500 yet.

    Right at the strong bounce lines again – except the Nas at 7,665.

    • Dow 25,000 is the mid-point and bounce lines are 25,550 (weak) and 26,100 (strong)
    • S&P 2,850 is the mid-point and bounce lines are 2,880 (weak) and 2,910 (strong)
    • Nasdaq 7,200 is the mid-point and bounce lines are 7,360 (weak) and 7,520 (strong)
    • Russell 1,440 is the mid-point and bounce lines are 1,472 (weak) and 1,504 (strong) 

    Strong/StJ – See the char above, lots of selling going on, not usually a rally indicator.  

    As to past Presidents, my recollection is that Presidents generally reacted to the Fed and didn't try to set their policy – they treated the Fed as an organization that simply did their job.  I'm sure the Banksters don't like Trump interfering with the Fed either – could be one of the reasons Fox is turning on him.  Poor Koch just died from the stress (or maybe guilt over what he's done to this country).  Sadly, that was the "nice" brother who gave to charity (though mostly arts buildings with his name on them), now we're left with Charlie, who is the key backer of the Ayn Rand Institute and the nefarious Cato Institute, which used to be called the Charles Koch Foundation until they decided to pretend they were a politically neutral "think tank".  

    Cato, by the way, is a reference to the Republican foe of Caesar (who believed in Democracy. while the Republicans wanted to maintain the status quo of the elitist society) The Republicans got together and stabbed Caesar to death and seized power – eventually leading to the downfall of the empire as it became more elitist and more corrupt.  

    Image result for caesar stabbing

    WLL/Albo – They've done a good job trimming expenses but oil prices have not cooperated at all for them.  MAT is getting interesting again.


  10. Nice pop on Powell's comments already.  

    • WE WILL ACT AS APPROPRIATE TO SUSTAIN THE EXPANSION
    • ECONOMY IN FAVORABLE PLACE, FACES `SIGNIFICANT RISKS'
    • EVENTS SINCE THE JULY FOMC HAVE BEEN `EVENTFUL'
    • INFLATION SEEMS TO BE MOVING CLOSER TO 2% GOAL
    • WE'VE SEEN FURTHER EVIDENCE OF A GLOBAL SLOWDOWN

    I still don't think it's enough but we'll see what kind of bounce we get – watch the strong bounce lines of course. 


  11. From the WSJ:

    Federal Reserve Chairman Jerome Powell said the central bank was prepared to provide more stimulus if a global economic slowdown, aggravated in recent weeks by geopolitical events and trade policy uncertainty, hurts the U.S. economy.

    But he stopped short of signaling the start of a more aggressive easing campaign. Instead, the Fed chairman used a widely anticipated speech Friday to warn about the limits that monetary stimulus faced in comprehensively addressing business-confidence woes and market turbulence stemming from rising trade-policy uncertainty.

    “In principle, anything that affects the outlook for employment and inflation could also affect the appropriate stance of monetary policy, and that could include uncertainty about trade policy,” Mr. Powell said in remarks prepared for delivery at the Kansas City Fed’s annual symposium in Jackson Hole, Wyo.

    “There are, however, no recent precedents to guide any policy response to the current situation. Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment and public confidence, it cannot provide a settled rulebook for international trade,” he said.

     

    Instead, Mr. Powell said the Fed should try to “look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives.”

    Mr. Powell has been frequently criticized in recent weeks by Mr. Trump, who has called for the Fed to deploy stimulus measures typically reserved for periods when the economy is falling into a recession. Mr. Powell, who was named by Mr. Trump to a four-year term that began last year, has been careful not to engage in a back-and-forth boxing match.

    But his speech on Friday offered the most forceful warning of the risks emanating from the administration’s trade policy. “We have much experience in addressing typical macroeconomic developments under” its policy-making framework, he said. “But fitting trade policy uncertainty into this framework is a new challenge.”


  12. That's strange, my time-stamps seem to be off.  Not sure how that would even be possible as I'm under the impression we all get stamped by the same server.  I've never seen anything like that before.


  13. It's stamping me about 10 mins before I write something, now 10:10


  14. From Briefing:

    Fed Funds Futures ahead of Powell show a 95% chance of a rate cut in September; 59% chance of two cuts by October (82% by December).


  15. If anyone needs a prediction about what's going to happen in 10 mins – I'm your guy!

    Oops, took a bit but indexes now back towards the lows – Powell did not say anything helpful enough to counter-act China but plenty more Fed Speak today and over the weekend, plus the G7.

    Image

    Getting ready for a rough 2020!


  16. I am looking at three div stocks worth having a second look. Like your comments Please Phil.

    OLN 4.8% div MSM 4.36% dive and one of our favors WHR at 3.5% little down today.


  17. Wow, we can't just read what Powell says, we have to take the spin into account and he's being spun very doveish.  Big recovery from the lows.


  18. Phil Time:

    Ch-ch-changes

    Pretty soon now you're gonna get older
    Time may change me
    But I can't trace time
    I said that time may change me
    But I can't trace time
     

    David Bowie 
     


  19. Very appropriate, Randers!


  20. 5 trades $25K – I see trades for THC and LB yest. Did you describe the other 2 trades anywhere – I can't seem to find them. Thx.


  21. Oof… Precious metals/bonds were moving right before that dump. 


  22. Comment content omitted because it is too long.


  23. ROLF – And down the indexes go again – so silly.  Thank goodness we're well-hedged though I'm more and more preferring CASH!!! every day.  

    Trump is back on a rampage:

    Donald J. Trump @realDonaldTrump 18m

    As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the U.S. will do great…


    Donald J. Trump @realDonaldTrump 18m

    ….My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?
    Donald J. Trump @realDonaldTrump 17m

    Our Country has lost, stupidly, Trillions of Dollars with China over many years. They have stolen our Intellectual Property at a rate of Hundreds of Billions of Dollars a year, & they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far….

    Donald J. Trump @realDonaldTrump  17m

    ….better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..
    Donald J. Trump @realDonaldTrump 17m

    ….your companies HOME and making your products in the USA. I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States. Also, I am ordering all carriers, including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE,….
    Donald J. Trump @realDonaldTrump 17m

    ….all deliveries of Fentanyl from China (or anywhere else!). Fentanyl kills 100,000 Americans a year. President Xi said this would stop – it didn’t. Our Economy, because of our gains in the last 2 1/2 years, is MUCH larger than that of China. We will keep it that way!

    Wow, now he's issuing proclamations!  

    Image result for proclamation of 1763

    And he will "respond" to China's response to his tariffs?  This is getting way out of control!

    Making me work on a Friday, Yodi?  Well fine:

    OLN – Nice specialty chemical company that will go up and down with the global economy but a nice long-term hold, especially at $2.6Bn ($15.75).  They pay an 0.80 dividend so tempting to own the stock but in 1999 and 2009 the plunged to $10 – so keep that in mind as the business is no different now, so this may not be the bottom but it's a nice place to start scaling in.   

    Unfortunately, they don't have long-term options but you can sell Feb $15 puts for $1.60 and I'd just do that until assigned and then turn it into a position.  If you got assigned at $15, the Feb $15 calls are $2.10 and then you could sell the $13 puts for 0.80 and that would drop the net to $12.10/12.55 if assigned again and then you could sell $12 calls and $10 puts to drop to $9/9.50 and that's a 4x position I wouldn't mind having.

    As to WHR, We came in around $100 and sold the $100 puts for $15.90 – that's what made it attractive at the time – one of those ones where I didn't know that they'd go higher (we had the $100/130 bull call spread too) but I sure thought we'd hit a bottom.  Sales haven't gone up since we played but profits are turning around and should be around $1Bn and $135 is only $8.5Bn so they are still a good deal – just not the no-brainer they were.  

    To me it's more of a watch list item that hopefully gets hit on the trade wars and comes back down 


  24. ARCTIC: Trump’s ANWR push: Will it really yield much oil?





  25. 5 Trades/RS – There was VAC and WBA on Tuesday.  Will figure out #5 today but losing faith in the whole concept the way Trump is spouting off.


  26. The Trump economy: A chaotic, contradictory response to a slowdown


  27. The U.S.-Japan Security Alliance


  28. Gold and silver flying:


  29. Just that tweet from Trump:

    My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?

    That would normally get a reaction from the entire political system. It's impossible to even qualify this statement. Imagine if Obama had even uttered these words. Would have been impeached. But now it's just another Friday in the Trump White House. 


  30. If I were Powell right now, I would talk about raising rates!


  31. Sorry but thanks Phil you left out MSM. At least keeps you off you chair. Not much to trade these days but just sit put.


  32. Changing fields…

    SQM revelled an  incredible 40% reduction in lithium prices, that is directly going to bottom line in some companies but with special impact in one of Phil “favourites “ .https://seekingalpha.com/article/4286382-tesla-energy-storage-potential-given-boost-company-industry-levels

    China war will also benefit them, selling American markets with American product ….and selling Chinese market with Chinese product

    https://www.bloomberg.com/news/articles/2019-08-23/tesla-said-to-agree-to-buy-batteries-from-lg-for-china-factory


  33. Also,for summer weekend readings, my daughter sent me this….specially interesting the first note.

     

    https://goldschmidt.info/2019/pressReleasesView


  34. "My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?"

    That is unbelievable ! ! !

    Calling them both enemies ?


  35. I could use another hedge.  A little short and would like some more weekend protection.  Anyone have any ideas?  


  36. Enemies/StJ – Things have gone totally insane.  People get upset when I talk about politics but the President is a lunatic and it makes for a poor investing climate – how can I not talk about it?  

    Both/Albo – Albo makes a good point too – you don't call Xi your enemy.  Trump may think it's fine to just say stuff like this but he just effectively declared war on China and what he's actually done is given the Chinese anti-American contingent a lot more strength in the party so, what he's really done with that tweet is potentially set us up for a new cold war that could entangle this nation for generations to come.  Isn't that fun? 

    Aren't people glad they voted for a guy who speaks his mind and shoots from the hip?  And, of course, Putin wins again but there's no collusion – just an astounding string of coincidences in which Trump's behavior lines up with Putin's interests in destabilizing and dividing America and isolating us from our allies.  

    And he couldn't possibly do it if there were actual checks and balances in the Government to reign in a bad President but they packed the Congress and Congress is packing the courts and now we are being driven off the rails on a crazy train.  

    "I've listened to preachers, I've listened to fools

    I've watched all the dropouts who make their own rules

    One person conditioned to rule and control

    The media sells it and you live the role

    I know that things are going wrong for me
    You gotta listen to my words
    Heirs of a cold war, that's what we've become
    Inheriting troubles, I'm mentally numb
    Crazy, I just cannot bear
    I'm living with something that just isn't fair
    Mental wounds stop healing
    Who and what's to blame
    I'm going off the rails on a crazy train"- Ozzy 

    The guy was kind of profound…

    I mean, when ARE we going to do something about Trump or, really, when are YOU (Republican voters) going to do something about him?  Will you write your Congresspeople and let them know you don't find his actions acceptable or do we wait for him to order a nuclear strike against whoever pisses him off next?  If he does that, there's still 30% of America who would still go: "Oh that Trump, what a scamp!"  Sadly, those are the people who are currently controlling the Senate…  

    MSM/Yodi – Sorry, the day got exciting.  Another company that supplies industry and very dependent on the global economy, though they only fell from $55 to $30 in 2008 – not too bad considering.  Revenues and profits very steady normally so about $300M to the bottom line and $67.50 is only $3.7Bn in market cap so p/e of 12 is a very fair entry.  Again though, short-term overall market risk is 20% down from here so $50 is where I'd like to buy them.  Options only go out to March with a $3 (4%) dividend so I'd just sell the March $60 puts at $3 as that's half a dividend in 210 days or you get in 15% cheaper than it is now and THEN you could establish a position.  

    TSLA/Advill – While the Mega-Pack is nice, TSLA is not far ahead of other offerings from other companies though this is one of the reasons I don't want to be too bearish on TSLA (our floor is $150 in the Fund) as even a small part of this industry going forward could be huge.  We just have to hope they don't burst into flames when they are delivered (like their cars and solar panels sometimes do)!  

    Hedge/Rperi – I like the one I talked about with Palotay yesterday:

    Real estate hedging/Palotay – Well IYR was $91.40 on Jan 1, 2007 and was $25.14 on Feb 1st, 2009 so a 72% drop was more than homes dropped, which makes it a good hedge and it's very liquid with liquid options.  I guess the fact that it's back over $90 should be warning sign – but it's one people are certainly ignoring.  

    Since you want a hedge and you're a long-term investor, I assume a 10% drop isn't what you are worried about so there's no sense in over-hedging.  You can hedge against a major disaster by just buying the 2021 $75 puts for $2.20 as those would pay back $25 at $50 so 10x on a big crash and then you can put, let's say $25,000 per $1M potential loss (I'd assume a 50% drop as worst-case) to protect yourself from half the damage.  

    Meanwhile, you could sell Jan $75 puts for 0.55 and that should generate enough to pay for your rolls to 2022 and 2023 etc as you keep selling 0.50 per Q.

    It's meant to be a hedge for his real estate but it's a good general hedge and IYR is way too high again, so it makes a nice short.  

    As a short-term hedge with IYR, you could go with:

    • Buy 50 IYR March $90 puts at $4 ($20,000)
    • Sell 50 IYR March $84 puts at $2 ($10,000) 
    • Sell 25 IYR Jan $80 puts at 0.85 ($2,125) 

    That's net $7,875 on the $30,000 spread and you can roll the March $90s to the 2021 $90s (now $7.25) for $5 ($25,000) or less when they get to $2 and that gives you 3 more Qs to sell $4,250 in short calls PLUS another $10,000 for selling something in 2021 (the $80 puts are $3) and the only danger is IYR drops so fast that you owe money to the short putters but a stop on 10 at $1.15 ($1,150) and 10 more at $1.50 ($1,500) and the last $5 at $2 ($1,000) which would up your cost to net $11,525 and you'd still make $18,475 (160%) on a steeper-than expected drop but, otherwise, you are setting up IYR to be nice long-term protection.


  37. Silly time thing – I'm not responding, I'm PREsponding!  cool


  38. You're welcome Rperi.


  39. Oh, and BTW, the President doesn't have the authority to order private companies to do anything !


  40. Image result for trump respect my authoritah


  41. IYR – perfect, thank you






  42. Nas and RUT as 2.5% declines and Dow and S&P about 2%.   Europe finished down 1.25%, also at lows.

    We lost a quick $50K in the LTP but not too terrible.

    Turns out one of our PSW servers is, in fact, 10 mins behind so they're going to fix that issue. 

    #5 of our 5 Trades to Make $25,000 in 5 months is going to be Tanger Factory Outlets (SKT), which took a deeper hit today to $14.29.  I just did a whole Top Trade write-up on them on Aug 1st - $1 higher, so no need to get into that but, for the purposes of this series, the trade idea will be:

    • Buy 50 SKT Jan $12.50 calls for $2.15 ($10,750) 
    • Sell 50 SKT Jan $14 calls for $1.20 ($6,000) 
    • Sell 20 SKT Jan $15 puts for $1.70 ($3,400) 

    That's net $1,350 on the $7,500 spread so $6,150 (455%) of upside potential if SKT is over $15 on Jan 17th.  Since we're selling puts over the current price, the ordinary margin is $5,741, so more than we'd like but, as noted on Aug 1st, I think SKT is ridiculously under-priced.  

    Retailers rallied this week on good news and SKT rents to retailers and the CEO has been buying shares at $14.50 and the company just beat expectations and raised guidance and is simply caught up in a rate-drive REIT sell-off that doesn't really apply to their type of business.  I think one more quarter is enough time for buyers to step in on this one.    


  43. Hey Phil – advice for the weekend and Monday? I just noticed that Trump's going to a posh resort town in France for the G6 +1 idiot meeting.


  44. Just because someone is acting insane doesn’t necessarily mean they are acting.

    Do you think the dip buyers will learn their lesson this time?

    Related image

    Advice/Snow – My advice came in the Webinar on Wednesday when I said it wasn't worth not going to cash and that no one should be risking money they can't afford to lose into the end of this year.  The LTP is at $1.3M and I'm pulling the plug at $1.2M (and the rest of the portfolios) because the Fed can't lower rates enough to keep up with Captain Crazypants.  

    Hedges can only protect you so far – it's like deciding you will risk jumping off a 5-story building for $100,000 because you can buy life insurance for $60,000.  The higher you go, the more the insurance costs and, at a certain point, someone might point out to you that the insurance doesn't matter – you could just not jump at all.

    Down 3% on the Nas now, AAPL down almost 5%.

    Image


  45. Thanks, Phil, and as you know, I was listening to the webinar. So here's a bit in return…..the abrogation of the intel sharing thing by Korea is aimed at the US, not Japan. The fact is, the sharing is 90% going to the US – Korean gets very little intel, Japan gets a bit more. So President Moon is taking a swipe at the US for slapping sanctions on, and for blocking the peace process – and a side swipe at Abe for basically being a US lackey. This will, of course, make the pro-US/Japan anti-commie crowd in Korea unhappy, but Moon's fed up with them.


  46. KHC holding up well


  47. Amazon Fires Prompt Alarm in Europe, and Anger at Brazil’s Government


  48. Image

    zero hedge:

    Powell: "Standard estimates of r* have declined between 2 and 3 percentage points over the past two decades. Some argue that the effective decline is even larger."

    Almost as if the decline follows the increase in debt

    Justice Ruth Bader Ginsburg has been treated for pancreatic cancer in New York, the Supreme Court said cnn.it/2ZmS6aS

    In its August 2019 Short-Term Energy Outlook, EIA reported that monthly average #gasoline prices peaked for the year in May at an average of $2.86 per gallon (gal) and forecasts that the average price will fall to $2.64/gal in September. go.usa.gov/xUKUV

    Image

    In 2018, majorities of Americans said the federal gov't was doing too little to protect key aspects of the #environment – water (69%), air quality (64%), animals and their habitats (63%) and nature preserves (57%).

    pewresearch.org/science/2018/0

    Image

    Image

    The terrifying legacy of David Koch dlvr.it/RBmPSD

    Image

    SoKo/Snow – Scary stuff, we could spiral into a new Cold War the way things are going.

    KHC/Coulter – I like to see who's done going down when the markets start getting choppy.


  49. Have been expecting a further announcement from the White House this afternoon.  It's getting late.  Maybe not.


  50. Is AAPL looking for factory locations in the US already?


  51. Hurricane season is here (and, for me, that means literally)!

    Meanwhile:

    Image

    Announcement/Albo – Maybe Trump is saving it for the weekend so we can open down another 500 on Monday?

    AAPL/StJ – Down 4.5% today.  I'm sure they've been looking and today they push out the story to make Trump happy.


  52. I know we joke about it but it's actually frightening that our economy is basically hanging on the tweets of an insane person. Not just the markets – people around the world react to it and act accordingly. 

    I said it before, history will be very unkind to Moscow Mitch and the rest of the GOP. And 20 years from now people will pretend that they didn't vote for Trump or never liked him. Like we had 99% resistance in France in 1945!


  53. Resistance/StJean – yes, this is still a very sore point in Korea. Some fortunes were built, and some companies built off those fortunes, made during the Japanese Occupation. But talk about it? Never! Everyone was a brave resistance fighter. This is a huge silent political problem.


  54. And you'll see, 20 years from now all these GOP guys will be Never-Trumpers!


  55. and on the lows it is


  56. That's 3 huge drops in 3 weeks in August – not a good trend.

    Viva la Resistance!  Better late than never.

    Have a great weekend, 

    - Phil


  57. SPY volume heavy on down day 145,894,722





  58. How’s That Recession Coming?