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Whipsaw Wednesday – Hong Kong Capitulates and Johnson has a Coup

Hong Kong shares jump, with property subgauge up most since 2015What a night it's been!

The MSCI Hong Kong Index popped 5.4% – the biggest gain since a massive stimulus bill in October, 2011 led by Real Estate firms that almost hit the limit up 10% as the Government finally gave in to protesters and witdrew the extradition legislation that had started the protests over a month ago.  Hong Kong also declined to set up a comission to investigate the protesters – another point of contention

The index had fallen 8.6% in August as the protests raged and properties were down 20% as the real estate market ground to a halt and values began dropping.  It's not clear, however, that the protests will end as there are several more issues on the table but any sign of flexibility on the part of the Government is a huge step forward and, for now, the markets are thrilled.

Yesterday we also noted that, while Boris Johnson was talking on the floor of Parliament, one of his House Conservatives, Phillip Lee literally got up and walked across the aisle to join the opposition party, taking Johnson's one-vote lead with him. 

“I have reached the conclusion that it is not possible to serve my constituents’ and country’s best interests as a Conservative Member of Parliament,” Lee said in a statement.  “This Conservative government is aggressively pursuing a damaging Brexit in unprincipled ways. It is putting lives and livelihoods at risk unnecessarily and it is wantonly endangering the integrity of the United Kingdom.”

If only the Republicans in this country had the same level of integrity!  Lee's defection stops Johnson from forcing a "NO DEAL" Brexit next month and, of course, that's a massive relief to European markets.  Lee inspired 21 other Conservative politicians to defy the Prime Minister and vote to delay Brexit until 2020.  Johnson was, of course, outraged and called for a general election in an attempt to get the public to give him more Ministers but he's clearly lost control of his party already.

“Parliament is on the brink of wrecking any deal we might be able to strike in Brussels,” Johnson said. “Because tomorrow’s bill would hand control of the negotiations to the E.U. And that would mean more dither, more delay, more confusion.”

British politics are so much fun!  

Since Asia is up and Europe is up, our Futures are, of course up – even though no one has overthown Trump yet.  Until his next pronouncement, we're moving back to the top of the range we've been stuck in since August 1st, which tops out at 2,950, though the 50-day moving average has dropped to 2,944 – so that's a line we'll be watching now as failure there would indicate the index is weakening.

Remember, it's very easy to push the index around between the 50 and 200 dmas, the trick is which end it breaks out of.  So far, the strong bounce line of the greater drop (June) is holding up and that's actually a bullish signal in the big, big picture but it certainly doesn't mean we're going to be spared a drop – just an indication it's not as likely to get out of control.  

That's why we've been holding onto our long-term longs – like Brexit and Hong Kong, our economic wounds are primarily self-inflicted and can be resolved with Trump and Xi simply shaking hands and moving forward and we've just seen evidence that China knows how to be reasonable – now we'll see if Trump can do the same and, if not, maybe we can find enough Republicans to cross the aisle to stop our own "damaging and unprincipled" leader and, if not – well we do have a general election coming up where the people get a chance to throw them all out – with the President…


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  1. Brexit/ Phil – It's amazing what a little spine in politicians can do to help a country. Some conservatives saw that BoJo was putting their constituents at risk and acted. Here, people get killed in the street and the most they get is thoughts and prayers! 

  2. I guess we reverse direction today – until the next tweet!

  3. Morning All.

    Even though it's Wednesday, there will not be a webinar this week. We'll be back to our usual schedule next week!

  4. How can the middle class feel good about the economy:

    The bottom 50% are not even back to where they were before the recession and the the next 40% are simply where they were 10 years ago! Have not fear though, the top 1% are doing quite well.

  5. What Went Wrong at Uber

  6. Bahamians begin rescues as Dorian moves on toward US coast

  7. Good Morning!

  8. Good morning.  SIG earnings tomorrow.  Does anyone have any thoughts?  The stock keeps sinking and the implied volatility is really high.

  9. Good morning! 

    Oil making a hell of a comeback too – even though that had nothing to do with Brexit or Hong Kong. /NG really flying.


    /RB is very much lagging so that can be played long off $1.50 for a quick move higher.

    Big Dollar move down since yesterday.

    Spines/StJ – I think that's the thing that bothers me the most about the GOP.  All that talk about fiscal responsibility, morals, etc – all turned out to be BS as they elect AND back a guy who's a racist, misogynist, whoremonger who can't manage to tell the truth about anything AND spends the country into oblivion.  They just sit back and let it happen or, even worse, enable him! 

    As to the middle class – what middle class?  Saying middle class is a mis-categorization these days when 90% of the people have 30% of the wealth and really it's just 40% as the bottom 50% essentially have nothing at all.  Also, if you break out the 20-11% group – I think you'd see very little left for the next 30% too.

    SIG/Robert – Well here's the test for our premise – is SIG trading way too low or are there actually problems that are reflected in the price?  

    Year End 02nd Feb 2014 2015 2016 2017 2018 2019 TTM 2020E 2021E CAGR / Avg
    Revenue $m 4,209 5,736 6,550 6,408 6,253 6,247 6,198 6,002 5,947 +8.2%
    Operating Profit $m 570.5 576.6 703.7 763.2 579.9 -764.6 -193      
    Net Profit $m 368 381.3 467.9 543.2 519.3 -657.4 -170.8 154.8 159.3  
    EPS Reported $ 4.56 4.75 5.87 6.93 5.73 -12.6 -3.88      
    EPS Normalised $ 4.56 4.75 5.87 7.21 7.00 -2.38 1.48 2.91 2.91  
    EPS Growth % +4.9 +4.3 +23.5 +22.8 -2.9   +235.1   -0.27  
    PE Ratio x           n/a 7.50 3.80 3.81  
    PEG x           n/a n/a n/a n/a

    Last Q they lost $10M in $1.5Bn in sales and Q4 is usually 2x the usual sales, so pace of sales is strong and now we have to see earnings get on track as well.

    CLF/Pstas (from yesterday) – Good point that they still suffer from the slowdown hitting their US customers but I don't mind accumulating for a year or so waiting for the trade war to wind down and, since we never know when that will happen – I prefer to be in than out – especially at these prices.  

  10. Pstas & Phil – Thanks guys.  Good points by both of you on CLF.  I lean in Phil's direction, and that's why I put on a 1/2 size position yesterday.  Also, I've found in the past that following CFO purchases in stocks tends to work out better than CEO or other purchasers.

  11. ULTA/Phil

    It exploded my BCS  and decided to accept the assignation in the idea that it will recover in the next Q´s, but frankly, I´m amazed of the reaction of the market with the results that weren´t so far of consensus, so I´m holding 1000 shares now….any suggestion?. 

    • Google (GOOG +0.4%)(GOOGL +0.4%agrees to pay a record fine and to make changes to protect children's YouTube privacy.
    • The FTC had accused the tech giant of knowingly and illegally collecting personal data from young children, which was then used to target ads.
    • The settlement was part of a deal with the FTC and NY AG, which will receive $136M and $34M of the settlement, respectively.
    • YouTube will set up a system for channel owners to identify children's content posted so targeted ads aren't in those videos, and the platform has to obtain parental consent for any collected data.
    • The Canadian dollar gains 0.5% against the U.S. dollar after the Bank of Canada keeps its overnight target rate at 1.75%.
    • "Canada’s economy is operating close to potential and inflation is on target," the central bank says in a statement. "However, escalating trade conflicts and related uncertainty are taking a toll on the global and Canadian economies. In this context, the current degree of monetary policy stimulus remains appropriate."
    • The economy is in a "good place, but not without risk and uncertainty," New York Fed President John C. Williams said in prepared remarks at a conference in New York City.
    • That's why it's crucial to understand the data when making monetary policy decisions, he said.
    • Williams points to the recent downward revision for GDP growth covering last year and "sizable downward revision to payroll employment."
    • "One implication of these revisions is that the economy’s underlying momentum was already somewhat less robust than previously thought, even before recent developments pointed to a less rosy outlook," he said.
    • His number one goal is to keep the expansion on track. "We need to consider all of the information available and be flexible in our response," Williams said.
    • "As events unfold and conditions evolve, it’s critical we understand which developments are mere bumps in the road and those that will affect the outlook in a material way over the longer term," he said.
    • 10-year Treasury slips today, pushing yield up 3 basis points to 1.487%.
    • Select high-end retail stocks are gaining off some cooling off of tension in Hong Kong. The luxury sector has been rattled by the large protests in Hong Kong and resulting impact on tourism.
    • Gainers include Tiffany (TIF +2.7%), PVH (PVH +6.8%), Ralph Lauren (RL +2.3%), Tapestry (TPR +3.5%) and Capri Holdings (CPRI +2.7%).
    • Previously: Hong Kong +4% as extradition bill withdrawn (Sept. 4)
    • Micron (NASDAQ:MU) gains as Deutsche Bank analyst analyst Sidney Ho writes that shares should find a support near the current levels and possibly rally as the business improves.
    • Ho says the Q4 DRAM price action suggests a trough, and he thinks the Japan-Korea trade issues are unlikely to have a meaningful impact on supplies.
    • Deutsche has a Buy rating and $55 price target on Micron. The company has an Outperform average Sell Side rating.
    • MU shares are up 4.4% to $46.98.
    • Toyota (TM) unit sales +11.3% to 248,334 units vs. +9% forecast by Edmunds.
    • Hybrid sales up 68.3% for Toyota division and 44.2% for Lexus division.
    • YTD unit sales fell 0.7% to 1,609,646 units.
    • Toyota division sales up 12.3% to 218,403 units.
    • Lexus division sales increased 4.6% to 29,931 units.
    • Total YARIS sales down 63.7% to 831 units.
    • Total Corolla sales grew 15.2% to 30,121 units.
    • Camry sales up 6.1% to 31,986 units.
    • Prius sales +1.8% to 8,261 units.
    • On the SUV front, RAV4 sales +17.2%, Highlander sales +21.7% and Land Cruiser +3.7%.
    • Union Pacific (NYSE:UNP) CFO Robert Knight is presenting today at the Cowen & Company 12th Annual Global Transportation Conference.
    • In a SEC filing issued before the talk, Union Pacific confirms the expectation of a sub-sixty-one percent operating ratio result for the full year and says it now anticipates volume for the second half to be down mid-single digits from a year ago vs. a prior forecast for down 2%.
    • UNP noted the trade war between the U.S. and China has hurt Q3 volume due to softer soybean and international container demand in particular.
    • Shares of UNP are flat in premarket trading at $159.33.
    • Restaurant Brands International (NYSE:QSR) has priced 16,960,717 common shares commenced by HL1 17 LP, an affiliate of 3G Capital Partners Ltd.
    • The offering is expected to close on September 6.
    • HL1 17 LP entered into a forward sale agreement with Morgan Stanley with respect to 16,960,717 common shares.
    • The settlement of the forward sale agreement and the Exchange is expected to occur on or before September 23.
    • QSR -1.80% premarket.
    • Previously: Restaurant Brands -1.7% amid 17M-share offering (Sept. 3)

    Welcome To The Bank Of Apple 

    • Starbucks (NASDAQ:SBUX) trades lower in the premarket session after setting profit guidance below expectations ahead of a presentation today at the Goldman Sachs 26th Annual Global Retailing Conference in New York.
    • SBUX sees FY20 EPS falling below the ongoing growth model of +10%. FY19 EPS is reiterated at $2.80 to $2.82 vs. $2.82 consensus. More color could be forthcoming from the coffee chain when execs formally get to the microphone.
    • Looking down the road, the company plans to issue FY20 guidance on its Q2 earnings conference call scheduled for October 30.
    • SBUX presentation slides
    • Shares of Starbucks are down 3.07% premarket to $93.80. SBUX is still up over 50% YTD.
    • MBA Mortgage Applications
    • Composite Index: -3.1% vs. -6.2% (W/W).
    • Purchase Index: +4.0% vs. -4.0%.
    • Refinance Index: -7.0% vs. -8.0%.
    • 30 year mortgage rate remains at 3.87% vs. 3.94%.

  12. Tempted to sell some otm SIG puts, but I escaped last month when the stock  jumped over $13.  Will sit this one out.

  13. CEOs/Albo – When you look at that stuff, check whether or not it's significant compared to how many shares they already have and also what the net worth of the CEO is.  When Musk buys $200M worth of TSLA stock against the $20Bn he owns – it's a joke – nothing but market manipulation.  Goncalves, that I can see, bought 10,000 shares in June for $9.36 so $93,600 out of his $10M/yr salary isn't much of a commitment.   The good news is he bought about $3M in 2017, when they were at $7 so he has the same floor on the stock that I do!

    ULTA/Advill – This is why I just stay away from 40x stocks.  Now they are back at $240 and closer to 20x earnings as they expect to earn $12 this year so not too terrible.  Other than following a crash lower – I don't think they'll drop a lot more but I wouldn't bank on it.  I don't know what your net is but I wouldn't hold 1,000 shares at $300,000ish when I could cash them for $234,000 and sell 10 2021 $190 puts for $20 ($20,000) and buy 20 2021 $230 ($45)/300 ($20.50) bull call spreads for net $24.50 ($49,000) so net $165,000 in pocket and, if all goes well, it's a $140,000 spread.  Of course the plan is to roll the calls down $20-40 if we get a sell-off and then you could sell some short-term calls but, for now, you should be thrilled if just this amount.  

  14. Phil, good point on Goncalves.  I was specifically referring to the purchases of the recently appointed CFO, Koci.  42,000 by him is his largest purchase although he has purchased stock several times since coming on board in February.  I'm sure he also has a lot of stock options.  

  15. ULTA,   Yes it was a painful lesson, will follow the trade and keep the money in hand, thanks

  16. Accumulating CLF Jan21 $5 calls, hard to beleive it won't be trading over $10 in 24 months

  17. Pence patronizes, plugs Doonbeg

  18. Good point on ETFs, Pstas.  

    Purchases/Albo – Well, I was just saying you have to take that into account – sounds like you've certainly got that concept.  Makes following those things much more effective.

    Oil up and up and up.  5% Rule kicks in around $56.50 so maybe a pullback there and $61 on /BZ.

    /RB was a huge winner – nice way to start the week.

    CLF/Millard – China may not make a trade deal while Trump is in office.  It's only a year away, which is nothing to China and he's said things they may want to punish him over.  China had great service PMI growth and they feel they can find alternate trading partners and they certainly have no reason to give up on that any time soon.  Trump will have to give them something good at this point for them to make a deal ahead of November, 2020 – and that's only if he wins.  If he loses, then Jan 2021 is the start of negotiations with the Warren Administration.

    Beige Book not exciting enough to lift stocks further:

    • Concerns about tariffs and trade policy continued even as the U.S. economy expanded at a "modest pace through the end of August," the Federal Reserve observes in its latest Beige Book.
    • The "modest pace" matches with the pace described in the July report. Manufacturing activity, though, was down slightly from the previous report and agricultural conditions remained weak.
    • Employment also rose at a "modest pace, on par with the previous reporting period."
    • Also, on net, prices increases continued at (you guessed it) a "modest" pace since the last report.
    •  "Although firms in some Districts noted an ability to pass along price increases, manufacturers relayed limited ability to raise prices," the report said.

  19. India’s economy suffers car crash, pain spreads to villages

  20. " If he loses, then Jan 2021 is the start of negotiations with the Warren Administration."


    Hmmm.  Interesting prediction. 8-)

  21. Was Etsy too good to be true?

  22. The Original Evil Corporation