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Trade Talk Thursday – China Negotiations Back On!

Wheeeeeeeee – this is fun!

We're up another 1% this morning as Trade Talks between the US and China are now officially scheduled to resume – in "early October" and if that isn't worth another 300 Dow points – I just don't know what is?  According to the WSJ: 

Expectations for a breakthrough in trade talks are low, as tensions have risen between the two countries. Neither Beijing nor Washington specified a start date for the talks, which would be the 13th round in a series of on-and-off negotiations that began in January, after the U.S. initially agreed to hold off on further tariffs to try to reach a trade deal.

“The path to even a modest deal is strewn with many obstacles, as neither side is likely to pull back any of the existing trade sanctions without substantial concessions from the other side,” said Eswar Prasad, a China expert and economist at Cornell University.

Hell, that's got to be worth 1,000 points – doesn't it?  We're up 600 points on they Dow since Friday and up 1,200 points off our August 23rd low at 25,400.  Correct me if I'm wrong but isn't the trade war the ONLY reason the Fed was considering raising rates and isn't a good part of this last 1,200 point rally based on expectations the Fed will lower rates?  So are we now expecting the Fed to lower rates AND to get a China Trade Deal?  It's like Santa Clause AND the Tooth Fairy will come on our birthday!  I'm sure it has happened to some kid, somewhere – but it's got to be pretty rare – not the sort of thing you should bet your portfolio on…

Not only that, but didn't we have a rally in June when trade talks were scheduled for September?  That never happened and then we crashed from S&P (/ES) 3,020 back to 2,800 in August and then we began the "Fed will save us" narrative that took us back to 2,950 and now we're going to rally again on trade hopes but, meanwhile, no one seems to have noticed what a disappointment Q2 earnings actually were and how can Q3 possibly be better in the midst of all this turmoil?

Q2 2019 year-over-year growth by sector: S&P 500

I know I'm just a silly Fundamentalist who thinks how much money a company actually makes and how much money a company is likely to make should determine the VALUE of the company and that the PRICE should, at least once in a while, be somewhat in-line with the VALUE but, even as I say it – I realize I sound like an old man sitting on a porch who just doesn't understand the "new" economy, where companies don't need to make money anymore – as long as they have an exciting-sounding idea to disrupt companies that do make money.  Once everyone is broke – I'm sure it will all make perfect sense.  

Q2 Productivity came in this morning at 2.3%, which is good except Unit Labor Costs went up 2.6% which means, in effect, it's costing more money per unit of productivity so corporations can no longer expect productivity gains to offset the rising cost of labor – that's a pretty big negative to ignore.  On the bright side, Unit Labor Costs were up 5.5% in Q1 vs a 3.5% gain in productivity so at least it's not getting that much worse.  

We have Factory Orders and ISM Services at 10 and China had huge service growth yesterday so we'll see if the US is keeping up or falling further behind.  Why are services outpacing?  No tariffs, that's why!  That's why Government interference gives you a lot of false data readings which makes it a lot harder to plan your investments – assuming you believe such things matter.  We'll be closing in on Nasdaq 8,000, Dow 27,000 and S&P 3,000 this week – so we'll see if the technical matter either. 

Fundamentals seem to matter on Signet Jewelers, who I've been banging the table on for quite a while and we just doubled down on our position last week in our Long-Term Portfolio, where we just had 10 short 2021 $20 puts we had sold on 1/24 for $5.50 ($5,500) and they had run up to $10.75 ($10,750) for nearly 100% loss so we rolled them to 20 of the 2021 $13 puts at $5.30 ($10,600) which means we now sold the 20 puts for net $5,350 or $2.675/share so our net entry is now $10.32 – not bad for something that moved so harshly against us but earnings were a blowout and they are up 30%, which is silly but we'll take it.

It's even better news for our Options Opportunity Portolio, where we initiated the trade for Seeking Alpha back on 1/24 and our 8/13 adjustment was:

SIG – Ridiculously under-priced at just $700M at $13.40.  We can roll the 5 2021 $20 puts at $10.05 ($10,500) down to 10 of the 2021 $13 puts at $4.70 ($9,400) for net $1,100 but we originally collected $5,850 so still net $4,750 or net $8.25 per long.  On the long side, let's roll our 10 2021 $15 calls at $3.40 ($3,400) to 20 of the 2021 $13 ($4.10)/22.50 ($1.80) bull call spreads at $2.30 ($4,600) so spending just $1,200 more to move into a $19,000 spread that's at the money.

We're not there yet ($14.26) but off to a good start now that this sell-off idiocy is over with!

Just when I'm thinking of giving up on Fundamentalism – they pull me back in…

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  1. Good Morning!

  2. good morning too

  3. We are in a premium melting zone now!

  4. Tall/stjean   Thanks for the :)

  5. Good morning! 

    This was up on Seeking Alpha but then they took it down – I wonder if they had it early and accidentally published it?  I wonder if the market would pull back on that number or just ignore?

    Wheee on SIG:

    Signet (NYSE:SIG): Q2 Non-GAAP EPS of $0.51 beats by $0.27; GAAP EPS of -$0.86.

    Revenue of $1.36B (-4.2% Y/Y) beats by $20M.

    Shares +2.09% PM.

    Press Release

    Shows you how insanely undervalued these retail stocks can get.  They were selling off right up until the announcement.  

    Big Chart – All over the 50 dmas but the RUT so we'll see if they hold up for the week but technically a very strong move that firms up rising 200 dmas – that's not at all bearish.

    Trump/StJ – It's not the height, it's the width!  He's at least 50% more man than Obama! 

  6. this computerized artificial representation of a stock market is acting insano

  7. ISM way higher at 56.4!  No idea what SA was doing there though it said PMI, not ISM so someone just hit the wrong thing entirely I guess.   That's a good number.

    Factory Orders up 1.4% is also BTE.  Shipments down 0.6 though, so they are making stuff but it's piling up.

    • July Factory Orders+1.4% to 500.3$B vs. +1.0% consensus and +0.5% prior (revised from +0.6%).

    Tomorrow is NFP but, if we get past that – there's no significant bumps likely ahead of the Fed (18th).

    I guess we might be glad we didn't cash out – especially those LTP bets we pressed but, keep in mind, only because we could hedge were we brave enough to put more money to work – otherwise, like my kids' college accounts – we would have had to cash out rather than risk it all.

  8. I'm heading home today so I'll only be here until about 2pm – back to normal at the Command Center tomorrow.  

    Uncharted/Pstas – You said it!  All we can do is ride the wave as long as it lasts and keep one hand firmly on the exit door at all times.

    • 30-year fixed-rate mortgage averages 3.49% for the week ending Sept. 5, 2019, its lowest since October 2016, according to the Freddie Mac Primary Mortgage Market Survey.
    • That's down 9 basis points from 3.58% in the prior week and more than a full percentage point from 4.54% at this time a year ago.
    • "While economic growth is clearly slowing due to rising manufacturing and trade headwinds, economic fundamentals are still solid for U.S. consumers," said Freddie Chief Economist Sam Khater.
    • 15-year FRM averaged 3.00% vs. 3.06% in the prior week and 3.99% at this time a year ago.
    • 5-year Treasury-indexed hybrid adjustable rate mortgage averaged 3.30% vs. 3.31% in the prior week and 3.93% at this time a year ago.
    • Shares of most homebuilders and mortgage REITs are gaining; the iShares U.S. Home Construction ETF (BATS:ITB) rises 0.7% and the iShares Mortgage Real Estate Capped ETF (BATS:REM) is up 0.9%.
    • By name, Toll Brothers (TOL +1.4%), KB Home (KBH +0.9%), William Lyon Homes (WLH+2.7%), Hovnanian (HOV +7.1%), Beazer Homes (BZH +1.4%) are among the gainers in the homebuilder sector.
    • For mortgage REITs: Annaly Capital Management (NLY +1.9%), AGNC Investment (AGNC+1.7%), Two Harbors Investment (TWO +1.5%),  Orchid Island Capital (ORC +1.7%), Arlington Asset Investment (AI +1.4%), and Anworth Mortgage Asset (ANH +1.6%).

  9. any word on  shorting the futures phil

    • Copper prices are rallying amid renewed optimism for trade progress between the U.S. and China, bringing the metal's two-day gain above 4%.
    • December Comex copper recently was +1.5% to $2.633/lb., extending its rebound from yesterday after hitting a new multi-year low earlier in the week.
    • Some analysts remain skeptical that prices will maintain their bounce because the U.S. and China have continued to ramp up tariffs on the other side's imports and previous rounds of talks have failed to yield a trade deal; meanwhile, manufacturing data around the world show factory activity contracting.
    • Global miners are higher: FCX +4.6%TECK +3.6%SCCO +3.4%RIO +0.6%BHP +0.5%.
    • Netflix (NFLX -1%) is down slightly after data tracker 7Park indicated that the streamer's international subscriber growth is trailing the guidance range.
    • It's possible that a price increase in the U.K. by Netflix could be a factor.
    • Netflix is likely to report Q3 earnings in the middle part of October.
    • Russia's Novatek takes a final investment decision on its $21B Arctic LNG 2 project and signs new cooperation deals with Asian partners at a ceremony in Vladivostok.
    • Plans include three trains each with a capacity of 6.6M mt/year, or a total of 19.8M mt/year, with the first train to be commissioned in 2023 and reaching full capacity in 2026.
    • Arctic LNG 2 will help Russia reach its goal of producing 120M-130M mt/year of liquefied natural gas in the coming years and raise its share in the global LNG market to ~20%, and will benefit from low cost gas, helping it compete against LNG from the U.S. and Canada, Wood Mackenzie analysts say.
    • The project's equity partners include France's Total (NYSE:TOT), China's National Petroleum Corp. (NYSE:PTR) and Cnooc (NYSE:CEO), and a Japanese consortium consisting of Mitsui (OTCPK:MITSY) and state-owned JOGMEC.
    • Meredith (NYSE:MDP) is 26.9% lower in early trading after posting its fiscal Q4 numbers, where it topped expectations but "reset" guidance for the coming quarter and year.
    • Notwithstanding the success of the Time Inc. acquisition, "we begin fiscal 2020 at a lower profit point than originally expected," says CEO Tom Harty.
    • "In addition, we are planning strategic investments to further strengthen our performance and maximize shareholder value over time. Both of these factors contribute to a reset of our financial expectations in the outlook we're providing," he adds.
    • For Q1, it sees revenues of $730M-$76M and EPS of $0.88-$0.93, vs. consensus EPS of $1.45. For the full year, it's forecasting revenues of $3B-$3.2B and EPS of $5.75-$6.20, light of consensus for $6.95.
    • In Q4, revenues dipped to $786M from $799M but topped expectations, and the company swung to an operating loss of $4M from a year-ago gain of $17M.
    • EBITDA grew 6% to $169M and EPS grew to $179 from $1.31.
    • Press release
    • Target (TGT +1.2%) has an edge over Walmart in attracting shoppers from households making over $100K per year, according to data from
    • The foot traffic analytics firm cites two reasons the trend is important. "Firstly, Target has launched over 100 mini-stores with plans to produce hundreds more. This new format provides tremendous flexibility in terms of locations, including allowing stores to be placed in environments where rents are high, but average household incomes are also high. Secondly, this data make partnerships with a brand like Disney make more sense as high-cost, branded products may find a strong connection with Target’s audience," notes
    • Target's small stores were given some credit for the boost in full-year profit guidance by the company a few weeks ago.
    • Macau casino stocks open with modest gains as the latest trade news swings to the positive side with a meeting between U.S. and China reps set for October.
    • While a comprehensive trade deal is still viewed as a long shot over the next month, the risk of further escalation has been pared back.
    • Gainers include Las Vegas Sands (LVS +1%), Wynn Resorts (WYNN +2.5%), MGM Resorts (MGM +1.6%) and Melco Resorts & Entertainment (MLCO +1.5%).
    • Following its downgrade of Argentina's foreign and local currency long-term rating in its global and national scales, the ratings company is also downgrading assessments of 24 Argentine financial institutions, including 22 banks, 1 finance company and Mercado a Término de Buenos Aires.
    • In addition, all long-term ratings have been placed on review for further downgrade; Not Prime short-term global local and foreign currency deposit ratings of these banks and finance companies are affirmed.
    • Revises Macro Profile for Argentina's banking system to "very weak" from "weak."
    • Buffalo Wild Wings and MGM Resorts (NYSE:MGM) announce a ground-breaking sports betting pact. The initiative is being called the first alignment between a national sports bar and a gaming leader.
    • The partnership will deliver sports gaming experiences at a national scale inside Buffalo Wild Wings through MGM’s BetMGM digital gaming platform. In addition, the deal is expected to spawn collaborations inside MGM properties and sports books, including a new Buffalo Wild Wings sports bar slated to open at Mandalay Bay in 2020.
    • The sports betting platform is being run through Roar Digital, the 50-50 venture established last year between MGM and GVC Holdings (OTCPK:GMVHF).
    • While the strategic alignment is aimed at capitalizing on future opportunities as states continue to pass sports betting legislation, consumers will begin to experience BetMGM at Buffalo Wild Wings as early as this week with a free-to-play football game available nationwide.
    • Buffalo Wild Wings is part of the Inspire Brands portfolio. Inspire is majority owned by affiliates of Roark Capital Group.
    • MGM +1.16% premarket to $27.80.
    • Source: Press Release
    • August ADP Jobs Report: +195K vs. +150K consensus, 142K prior (revised).
    • The print continues an uptrend in place since May, when jobs gained bottomed out at just 46K; June was 107K, and July 142K.
    • In the first four months of 2019, jobs gained averaged well over 200K per month.

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    Recession Fears Are Creating A Buying Opportunity In The S&P 500 

    • Morgan Stanley reinstated coverage on General Electric (NYSE:GE) with a recommendation of Equal Weight, and PT of $10, implying 14% upside from yesterday's close.
    • The stock's valuation "appears reasonable," but comes with "unfavorable catalyst timing" and unresolved risks outside the core business, like long-term care, analyst Joshua Pokrzywinski wrote in a note.
    • GE +1.7% premarket
    • Signet (NYSE:SIG) shoots higher in early trading after topping sales and profit estimates.
    • Comparable sales fell 1.5% during the quarter vs. -3.1% consensus and the company's guidance range of -3.5% to -2.5%. Positive comps at Zales (+2.0%) and Piercing Pagoda (+11.4%) offset in part negative comps at Kay (-2.7%), Jared (-3.5%), James Allen (-1.5%) and Peoples (-0.9%).
    • Gross margin fell 60 bps to 33.9% of sales vs. 33.9% consensus. Operating margin was 3.9% of sales vs. 2.7% consensus.
    • Operating income in the North America segment was up 5.9% to $73.6M, while OI in the international segment fell 0.9% to -$1.0M.
    • "We continue to gain traction on our transformation initiatives and delivered Q2 results that exceeded our same store sales, non-GAAP operating profit, and non-GAAP EPS expectations. Our continuing cost control and disciplined inventory management also led to improved adjusted free cash flow generation in both Q2 as well as year to date. We remain on track to deliver our full year non-GAAP financial guidance," says Signet CEO Virginia Drosos on the quarter.
    • Looking ahead, Signet sees full-year revenue of $6.0B to $6.03B vs. $6.01B consensus and EPS of $2.91 to $3.23 vs. $2.90 consensus.
    • Signet (NYSE:SIG) declares $0.37/share quarterly dividend, in line with previous.
    • Payable Nov. 29; for shareholders of record Nov. 1; ex-div Oct. 31.
    • SIG +10.35% premarket to $12.15.
    • Previously: Signet EPS beats by $0.27, beats on revenue (Sept. 5)
    • New York City is suing T-Mobile (NASDAQ:TMUS), accusing the company of engaging in "rampant" sales abuses of customers for its lower-priced, prepaid wireless brand, Metro by T-Mobile.
    • In a complaint filed in the state supreme court in Manhattan, the city said it had identified more than 2,200 violations by T-Mobile, whose "pervasive" illegal activity spanned 56 Metro stores in all five boroughs, including authorized dealers and stores run by its MetroPCS NY unit.
    • It comes as T-Mobile tries to win necessary approvals to merge with Sprint, the No. 3 U.S. mobile phone company.
    • At least a dozen Goldman Sachs (NYSE:GS) partners are negotiating their exits from the firm that are likely to be announced in coming weeks, WSJ reports.
    • Elisha Wiesel, Goldman's chief technology executive, and Steven Strongin, who runs the firm's research operation, are among those who are discussing stepping down.
    • In all, up to 15% of Goldman’s partners may leave this year, far higher than typical turnover. Fewer are rising to take their place: Goldman last year named 69 new partners, its smallest partner class in two decades.
    • German factory orders fell 2.7% in July, intensifying an industrial slump that has pushed Europe's largest economy to the brink of recession.
    • In light of ongoing international trade conflicts and modest business expectations in manufacturing, no fundamental improvement in momentum is in sight for the coming months," according to the country's economy ministry.
    • The ECB is expected next week to unveil fresh stimulus measures as it looks to steady the bloc's economy.
    • Shortly before fresh U.S. duties on $112B of Chinese goods went into effect last weekend, Target (NYSE:TGTsent a memo to hundreds of its suppliers, warning them that it would refuse to "accept any cost increases related to tariffs."
    • "Our expectation is that you will develop the appropriate contingency plans so that we don't have to pass price increases along" to customers, wrote Mark Tritton, chief merchandising officer.
    • Target's shares are trading just shy of an all-time high, giving the S&P 500 company a $54.9B market capitalization.

  10. Futures/Tommy – Well it's a bit of a squeeze at the moment but those lines I mentioned above should provide some resistance:





    The RUT is still miles away from rallying back so we'll see how 1,550 holds up.  Big test for Euro Stoxx too at 3,500

    12,500 is recovery for the DAX but, as noted in article above, Germany is in trouble.

    21,500 for /NKD

  11. Oil with a nice draw and we'll see if they can take $57.50 back.

    • EIA Petroleum Inventories: Crude -4.8M barrels vs. -2.5M consensus, -10.0M last week.
    • Gasoline -2.4M barrels vs. -1.5M consensus, -2.1M last week.
    • Distillates -2.5M barrels vs. +0.5M consensus, -2.1M last week.
    • Futures +1.26% to $56.97.

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  14. We're back over $2.2M on our LTP/STP combo so all going to plan, gains far outpacing the losses on the hedges so far.  

    I only wish I had more faith in the rally but still have a strong urge to cash out the LTP.

  15. Phil;  I have said this before when you have considered cashing portfolios.  This is an educational service and I'd like to think it's not purely about $/% returns.  You've have always stated that you advocate long term investing not short term risky transactions.  I would prefer the approach of reducing size or eliminating positions but not incurring the trade cost of cashing all positions.  I would image if you cashed the LTP and STP it would cost thousands in commissions.  Would your hedge fund cash out their portfolios?  Two other thoughts for you to consider; first instead of talking about portfolio returns from inception, look at it on an annual basis.  I assume you members come and go and only a percentage were here at inception of the portfolio.  Secondly; I use the approach to trading that you suggest but do not see the returns that your portfolio generates.  I know you like to leg into trades to optimize your positions.  I sense that is a big factor in the return difference.  Is it true that you do not actually trade these portfolios and just pick up prices based on fills recorded the day of the addition to the portfolio?  Is that realistic?  Thx

  16. Cashing/Options – Cashing out is a valid strategy, especially when we end up with too many positions and are well ahead.  Would I pay a few thousand dollars in commissions to GUARANTEE that I keep $800,000 in gains – ABSOLUTELY!   If you could just flip a switch and cash out at any moment – I wouldn't be worried but, as the market falls, the prices change drastically.  For example the LTP was at $1,227,774 on 8/16, when the S&P was at 3,020.  We're 50 points lower now but those same positions are up to $1,421,466 – up $193,692 with the S&P lower at 2,975. 

    Why?  Because the VIX calmed down and we're getting better deals on our short puts and calls.  


    Of course the adjustments we made boosted us to well over $1.5M now, but when I look at my "returns" – all I care about is how the portfolio is performing NOW, under the current market conditions.  Whether you look back a year or two years or 6 months – it's all arbitrary and a strategy that works on time may be a disaster to pursue the next so you HAVE to be willing to go to CASH!!! and start from scratch and you'll get better cash for your positions when the market is going up than when it's going down so all this is part of a strategy I also have to teach people.

    As to whether we would do this in the fund?  Well Doug is a professional trader and sits there all day staring at those positions and he has  a dozen potential hedges ready to drop the second he sees a change (in scenarios we constantly prepare for) so no, I don't feel the need to cash out the fund BECAUSE we can flip more bearish on the fly but that would be very unrealistic of me to expect from the average Member.  

    The fund is actually more cautious than the LTP/STP and certainly doesn't have as many open positions but it still managed to gain 40% in the first half and those are audited results and not all that different than the LTP/STP strategy it tends to track.  Of course I make sure there are actually fills at our prices that we picked – not sure how that's not realistic but again, same trades are often in the fund and yes, scaling in is VITAL, as is scaling out and also PATIENTLY waiting to get good prices on fills.  I'd rather not have a position at all than take fills at bad entries. 

    As to the STP, we did log all those changes and, it's up a tiny bit at the moment, from $797,688 on the 14th (also S&P 3,000) to $837,380 this afternoon and I'm thrilled to be up a penny given we got a lot more aggressive with our shorts so being up 5% in 3 weeks is fantastic for our hedges. 

    So the short answer to your multi-part question is that I'm constantly checking the overall performance and, when we get to a point where I don't feel we can effectively hedge to protect what we have – I think going to CASH!!! and starting again from scratch is a very valid option.  Certainly there's a lot more stocks I'd like to short than go long on at the moment – that would be a radically different strategy for a radically different market than we have now and I would slowly scale into that as well.

  17. We're slipping off the highs but nothing too drastic so I'm going to pack up and hit the road.  

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