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Non-Farm Friday – Is America Working and Do the Markets Care?

We'll see how the trend is going today.

On the whole, job growth has been weaker than expected, especially since the US population grows by 2M people each year so we need 166,000 new jobs per month just to stay even.  That's just about been Trump's average since he was elected, a far cry from the 10.2M jobs (212,500 per month) Obama added in his second term.

In fact, we generally average 200,000 jobs per month under Democrats:  Clinton added 23.5M new jobs in two terms and even Carter added 10.3M jobs in a single term and Kennedy/Johnson put up 15.6M jobs in 8 years.  Even Ronald Reagan managed to add 15M jobs in his 8 years so Trump will be a real outlier if he continues at this anemic pace but, fortunately, he can always point to the Bushes, who added a total of 3.3M jobs in 12 combined years at the helm, leaving 32M new Americans with very little opportunity to work.  

It would seem amazing that Americans would want to return to those days yet they voted for a guy who espoused the same policies the Bushes used to run this country into the ground (S&L Crisis from Poppa, Great Recession from Junior) but that's where we are at the moment and now the question is whether we WANT a strong job number or not because a strong jobs number (over 200,000) could take the Fed off the table at the next meeting (18th) as this is the last major data-point before they make their decision.  

Total private industries employment.png

With China "fixed" and strong jobs and record-high market levels – what possible justification would the Fed have in two weeks to lower rates?  Inflation is clearly climbing and wages are rising – these are generally reasons the Fed would RAISE rates, not lower them so, if you are a big fan of FREE MONEY – you'd better hope this job report is another disaster – like last month was!  

8:30 Update:  Disaster it is!  Only 130,000 jobs were added in August and July, which was already a weak 148,000, has been revised down to 131,000 so, even with that – we're worse than last month!  Hourly earnings, on the other hand, jumped 0.4% – double what was expected by leading Economorons and that simply means employers are paying the same workers more money for the same output – something we already knew from the Productivity and Payroll Reports earlier in the week – that can't possibly be good for Corporate Profits! 

That shold take some steam out of the index runs and we're topping out at 26,850 on the Dow (/YM), 2,990 on the S&P (/ES), 7,900 on the Nasdaq (/NQ) and 1,525 on the Russell (/RTY) which would be a shame as we had predicted 27,000, 3,000 and 8,000 as the shortable tops (with the Russell too crazy to predict).  

Still, it's been a fantastic 2-week run and most likely we drift along up here, into the Fed, just like we did into the July 31st announcement, when they gave us a 0.25% rate cut and the markets promptly fell off a cliff.  Anything but another 0.25% cut on Sept 18th will send us right back to the lows and I'm not sure even a quarter-point cut will save us from another correction in any case.  

We had a good, technical week and I doubt today's number will do too much damage as it keeps the Fed on the table so we're back to waiting on the Fed – again.

Have a great weekend, 

- Phil


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  1. Everything is awesome – except for Brexit, the trade wars, the EU economy, climate change and the mental sanity of POTUS!

  2. Trading with Trump has been tough:

    “I used to tell people trading credit derivatives through 2008 was crazy, but this is way weirder,” said Gokhman. Back then, “the liquidity is what made it challenging to put on or take off your positions. Now every part of the market has its own idiosyncrasy, and at the top you have Trump, who can wreak havoc in really creative ways nobody’s thought of before.”

  3. 2000 to 2009 was really the lost decade for the market:

    Total returns for the S&P500 during the last two decades.

    Annualised returns across the "lost decade" of the 2000s.

  4. If you diversified, you could have done OK. The next decade has been better for the overall market:

    Annualised returns across the last decade.

  5. Good Morning!

  6. AAPL – Announcement next week – has already climbed into this.   They should launch the new phone and start relatively quickly – they had a pretty good inventory trade down already, and the early ship should help the quarter rev and profit.   Also they should help from shipping into India as well….  

  7. Phil, 

    What are your thoughts on USO? what would be the best way to play it. I was thinking as Feds are getting ready to cut rates. This may be bullish for oil. 



  8. Good morning!

    Not much of a pullback at all from the NFP report. 

    Big Chart shows, nice, bullish breakouts except the RUT so anything green is a great way to close the week.

    Kudlow in CNBC saying 130,000 jobs is a "solid" number and "America is Working!"  I guess he reads my posts before going on…

    If it's such a great number, why does he have to run around to every TV station trying to spin it?

    Lost decade/StJ – They often are under Republican rule.  

    Gold and silver bouncing with bonds as those jobs numbers put the Fed back on the table:

    You don't need these to pay workers.  That's holding up the indexes at the moment.

    Oil holding $55 and that's now $60 on /BZ (was a $10 gap recently) so good line to play off for the bounce, getting out if either fails support.

    AAPL/Batman – Not that I'm worried but they will not have 5G on this line so I think people are going to put off upgrading IPhones until 5G, so maybe a rough year ahead for them.  If I were Cook, I'd put out 5G ready phones and promise a free upgrade when 5G is officially deployed.

    AAPL sold 50M IPhones last year and let's say they all need a $50 5G chip in the future – that's a $2.5Bn expense out of over $50Bn in sales on the phones – well worth it.  Don't forget they spent $1Bn to buy INTC's 5G unit so it may be a lot cheaper than $50 when all is said and done.

  9. Kudlow / Phil – You mean the same Kuldow who used to over analyze the job numbers when Obama was president and complain that 200K jobs was not enough in a recovery and always pointed out that the labor participation rate was horrible? Even though it's pretty much the same now than 5 years ago!

  10. 5G / Phil – Not sure that you would be able to upgrade existing phones. The trend is to have everything in one chip. Look at QCOM, their processor will also have the 5G modem integrated so no way to upgrade that system. Same with Samsung and I am guessing Apple will do the same. 

    At this point, 5G is not rolling out that fast anyway so I would not be worried about not having a 5G phone until next year. And most people don't even need the 5G speed difference with 4G – YouTube videos and Facebook already load fast enough :-) . I guess it's more a marketing ploy than anything else.

  11. Phosphate fertiliser ‘crisis’ threatens world food supply

  12. Phil / AAPL – the cost of the 5G chip is probably in the 25 to 35 dollar range + lots of antenna's and DSPs- The design is not trivial around the antennas 20 some antennas vs 40 some on 5G this is the big technical hurdle…..  Wold be great if they did it, but I think it would be a long shot

  13. Phil – just in case anything of interest

  14. SIG – Impressive turn around.  Still yielding over 10 %.

  15. You do love these dumpster fires Albo! I got to say, you are often right! 

  16. WeWork might see a revaluation:

    According to a series of reports on Thursday, WeWork, which was most recently valued by venture capitalists at $47 billion, is currently considering selling shares at a price that values itself at as low as $20 billion. This isn’t a nip and a tuck. That’s a dramatic slash in value that speaks to a more fundamental concern about what this company even is.[...]

    But the problem for WeWork is that many observers and investors do see it as a real estate company. Despite using the word “tech” 123 times in its IPO filing, WeWork’s fundamental business model isn’t any different from IWG, its biggest rival. IWG is generally considered a real estate company.

    So it’s possible that public-market investors aren’t buying the messaging that they’ve been sold (well, at least not as much as venture capitalists did).

    Some VC are going to be unhappy! These are large commitments.

  17. USO/Pat – I don't see a big catalyst for oil in the fall though, with the Aramco IPO coming, we can expect all possible tricks to be played to drive up prices.  USO way down at $11.62 if you want to play it bullish, I'd go long to catch next July with the 2021 $9 ($3.25)/11 ($2) bull call spread at $1.25 and sell the April $11.50 puts for $1.10 so net 0.15 on the $2 spread can make up to $1.85 (1,233%) if oil is over $55 next year so it's a lot of leverage you can play with a small cash outlay.

    /CL hitting $56 for a quick $1,000 gain on the Futures – that's how I like to play!  

    Kudlow/StJ – It just blows my mind he's in Trump's cabinet!  

    Integrated/StJ – That's a good point, I guess it would be too expensive to swap out the whole thing.  Still, it's going to get a lot of hype as a marketing tool in the very least and no, not ready next year but will be good to go in 2021, which is just around the corner (it's like we're living in the future!).

    5G/Batman – Another vote against.  Not seeming likely with the technical hurdles.

    Thanks Tangled.  Here's one from the medical side.  Hemp Boca is working with Grinspoon, in fact. 

    SIG/Albo – Very nice that they held those gains.

    WeWork/StJ – It's like the days when they used to slap ".com" on everything to boost the valuations.

  18. STJ- Only sometimes.  Still waiting for CTL to move up.  But at least we're getting a nice dividend while we wait.

    • Digging into the jobs report numbers, not only did August jobs growth of 130K fall short of the 160K consensus, but the July number was revised down to 159K from the prior print of 164K.
    • Job growth is clearly slowing from a year ago. Nonfarm payroll employment growth averaged 158K per month so far this year compared with the average monthly gain of 223K in 2018.
    • That's not surprising, considering that uncertainty, especially about tariffs and trade policy were cited as concerns in the Fed's Beige Book report.
    • Average hourly earnings rose 0.4% M/M to $28.11 and up 3.2% Y/Y.
    • The unemployment rate was 3.7% for the third month in a row.
    • Job gains were noted in the federal government, up 34K, largely due to hiring temporary workers for the 2020 census.
    • Private sector employment rose by 96K with notable job gains in health care and financial activities.
    • The labor participation rate increased to 63.2% in August from 63.0% in July and 62.7% a year ago.
    • The Chinese yuan rises 0.4% to 7.1179 per U.S. dollar after the People's Bank of China reducedthe amount of funds banks have to hold in reserve.
    • The move releases another 900B yuan ($126.4B) of liquidity into the world's second-largest economy.
    • The VanEck Vectors Chinese Renminbi/USD ETN (NYSEARCA:CNYrises 1.7%.
    • White House economic adviser Larry Kudlow tells CNBC that a phone call with China earlier this week "went very well."
    • Kudlow was referring to a call Wednesday night between Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer, and Chinese Vice Premier Liu He. During the call, they agreed to meet in early October for another round of talks.
    • "The phone lines have been open during this period and the negotiations have been proceeding," he said.
    • Major oil and gas companies have invested $50B in fossil fuel projects that undermine global efforts to flight climate change, according to a new Carbon Tracker report.
    • Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), Royal Dutch Shell (RDS.ARDS.B) and BPeach spent at least 30% of their 2018 investments on projects that are inconsistent with climate targets and would be "deep out of the money in a low-carbon world," the report says.
    • The projects include Shell's $13B Canada LNG project, a $4.3B oilfield expansion project in Azerbaijan owned by BP, Exxon, Chevron and Equinor (NYSE:EQNR), and a $1.3B deepwater project in Angola operated by BP, Exxon, Chevron, Total (NYSE:TOT) and Equinor.
    • "Every oil major is betting heavily against a 1.5 degree Celsius world and investing in projects that are contrary to the Paris goals," says report co-author Andrew Grant, a former natural resources analyst at Barclays, referring to the 2015 Paris Agreement.
    • The Carbon Tracker report says none of the largest listed oil and gas companies are making investment decisions that are in line with global climate goals, and risk wasting $2.2T by 2030 if governments apply stricter cuts to carbon emissions.
    • Equinor's (EQNR -0.7%) South Riding Point oil storage terminal in the Bahamas was damaged by Hurricane Dorian, which local media is calling an "environmental disaster" in the making.
    • Coral Vita, an environmental agency that focuses on preserving coral reefs, posted a video from the scene, showing oil on the ground and calling the spill "catastrophic."
    • EQNR says it is "too early to indicate any volumes" of the spill from the terminal, which can hold 6.75M barrels of crude oil.
    • The other major oil hub on Grand Bahama, Buckeye Partners' Bahamas Hub, sustained no significant damage.
    • A Chinese oil contractor affiliated with China National Petroleum Corp. (PTR -0.3%) has halted work on an expansion project in Venezuela because it was owed more than $52M dating back to last year, Bloomberg reports, underscoring the difficulties for the Maduro regime even at energy ventures backed by allies.
    • The contractor notified the Sinovensa joint venture it has suspended work to expand a crude blending facility to 165K bbl/day, according to the report.
    • CNPC's JV with Venezuela's PDVSA is a key project in Venezuela's Orinoco region which contains the world's largest oil reserves and currently accounts for about half of the country's remaining production.
    • Fannie Mae (OTCQB:FNMAsinks 13% and Freddie Mac (OTCQB:FMCCslides 12% as the U.S. Treasury Department's proposal to release the two government-sponsored enterprises from federal conservatorship, which may eventually lead to a windfall for hedge fund managers, will be anything but quick.
    • The plan outlines legislative and administrative reforms.
    • "Treasury’s preference and recommendation is that Congress enact comprehensive housing finance reform legislation," the report says. That, of course, implies years of political wrangling.
    • The plan also implied that there might not be a payout to hedge fund managers unless President Trump is re-elected next year.

    • The Trump administration's proposal for housing finance reform contain some positives for private mortgage insurers and mortgage REITs, write Keefe, Bruyette & Woods equity researchers in note.
    • One is the Treasury's recommendation for additional taxpayer protections through expanding the use of credit risk transfers.
    • Another positive for mortgage insurers is the Department of Housing and Urban Development's (HUD) recommendation that the Federal Housing Administration should focus on its core mission, which, according to KBW, implies that FHA premiums are unlikely to be reduced.
    • There could be an opportunity for banks, too. HUD recommends that the FHA and the Department of Justice  clarify the False Claims Act, which, "if successful, could lure some banks back to the FHA market as it could decrease the risk of large monetary settlements," the analysts wrote.
    • Overall, the analysts say little new information was included in the government reports and there were no clear timelines for achieving the reforms.
    • "We can envision a scenario where the sweep and the conservatorships last into 2020 and possibly beyond," they wrote.
    • Previously: Fannie, Freddie drop as reform plan still to take years (Sept. 6)
    • Mortgage insurer tickers: RDNMTGESNTNMIHACGL
    • Mortgage REIT tickers: NLYAGNCCIMTWOARR
    • Apparel stocks head higher again as the threat of tariff escalation remains diminished with calm rhetoric coming out of Washington and Beijing. Strong earnings reports from Lululemon (LULU+8.4%) and Genesco (GCO +13.9%) are helping to tip sentiment as well.
    • Gainers include Ascena Retail Group (ASNA +21%), Tailored Brands (TLRD +8%), Designer Brands (DBI +1.2%), American Eagle Outfitters (AEO +2.6%), Express (EXPR +3.1%), Vera Bradley (VRA +5.4%), Francesca's (FRAN +4.5%), Macy's (M +1.6%) and J.C. Penney (JCP+4%).
    • Shares of Cheesecake Factory (NASDAQ:CAKE) move higher after Wells Fargo checks in on the restaurant stock with a strong upgrade.
    • "For those investors with an appetite for exposure to the U.S. consumer, strong visibility into cash flows and seeking out a business with an inflection in top-line growth, we suggest you make room for CAKE," writes analyst Jon Tower.
    • Tower and team see upside from the Fox Restaurant Concepts initiative and national marketing campaigns. Sales growth potential is also outside of the chain's stores.  "Further, off-premise has been the primary driver of comp growth over the past year-plus (16% sales mix today) and we see this channel continuing to contribute 1-2% to SSS over the next several years as consumer awareness grows, CAKE potentially expands partnerships and as more transactions move digitally (still only 50% of off-premise is done online)," they note.
    • WF lifts Cheesecake Factory to an Outperform rating and price target of $50. The sell-side consensus rating and Quant rating are both equivalent to Neutral.
    • CAKE +1.94% premarket to $40.41.

    August 16th, 2019 at 12:01 pm | (Unlocked) | Permalink

    • 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.  

    Boo ya!

  19. Looking to make 18% in two weeks ?

    Am currently long a full position in AIMT

    I believe the company offers a good trading opportunity ahead of next Friday's

    FDA Advisory Committee for Palforzia (AR101, a biologic oral immunotherapy designed to reduce the frequency and severity of allergic reactions in case children/adolescents are accidentally exposed to peanuts). Mgmt remains confident that it will be a positive event given "unquestionable efficacy" and benign safety profile.

    AIMT has produced excellent results in pivotal trials for AR101 in peanut allergy.

    Bought stock at $21.40 and sold the 9/20 22.5 calls for $2.85.

    If the stock doesn't appreciate after the Committee meets, I'm happy to  buy more stock at a cost of $18.55.

    Obviously there is a lot of positive speculation since the two week OTM calls are expecting the stock to be above $25 in just two weeks.

    I'm willing to book their bets for the chance to make 18% in two weeks.

    I think either way it's a win.  We'll see.

    • Talking about inflation moving back up and a stabilizing economy, Fed Chair Jay Powell doesn't sound like he's considering a 50-basis point rate cut later this month.
    • He does speak of the risks to the economy from trade policy, taking note of a strong service sector, but softening manufacturing.
    • The Fed, he says, isn't forecasting a recession for the U.S. or the globe (when has it ever).
    • As with his Jackson Hole speech last week, Powell's comments lean a bit less dovish than some had hoped. Stocks are giving back some gains, the dollar (UUPUDN) has turned higher, and gold (NYSEARCA:GLD) has lost about $10 per ounce.
    • The heavy betting remains on a 25-basis point rate cut in a couple of weeks, but beyond that – markets have priced in two more rate cuts later this year – who knows.
    • Federal Reserve Chairman Jerome Powell repeats his usual talking points that the U.S. economy is "in a good place" and the "outlook is good as well," in a panel discussion at the University of Zurich.
    • While a number of risks are increasing and "trade policy will be weighing" on business investment decisions, Powell sees "the most likely case for the U.S., and the world, as continued moderate growth."
    • For the U.S., he sees strong labor market and inflation to continue to move up and notes that "the consumer is in good shape."
    • Fed isn't forecasting a recession, but is aware of the risks and monitoring them closely, Powell added.
    • With the shift in the global macroeconomic picture to "slower growth, lower interest rates, and lower inflation," the Fed considered now a good time to review its tools, strategies, and communications. The results of that review will be released sometime next year.
    • In an environment with persistently low interest rates, "central banks will have less ability to counteract downturns by cutting interest rates — one implication is that we'll need other tools," he said.
    • Because interest rates have stayed so low, the Fed "remains very committed to defending the 2% inflation target," Powell said.
    • "The answer is a hard no," he says when asked if the elections or politics play a role in the Fed's decision-making. Powell said he and his colleagues at the Fed wouldn't allow political considerations to become part of the process.
    • Facebook's proposed Libra digital currency would have to meet a burden of proof. "Our expectations have to be very, very high," he said.
    • Live webcast.

    Hovnanian Enterprises (NYSE:HOV+20%.

    If anything, we're moving up a bit off Powell's comments.

    AIMT/Albo – Well, if you are happy to own them on the downside, you could also sell the Sept $17.50 puts for $2.15, that's a nice 2-week return and nets you in for $15.35, worst case so a 33% cushion.  You could pair that with March $20 ($5.80)/22.50 ($4.90) bull call spreads for 0.90 so still a net $1.25 credit and $3.75 (300%) upside potential if they go up.

  20. Great ideas, Phil.  Thanks !

  21. sold a few 9/20 $20 puts at $3.03.   Obviously there is a great deal of speculation on both sides

    • Stocks continue their climb after Fed Chair Jerome Powell assures that the central bank will support U.S. economic expansion while stressing that he sees the most likely outlook ascontinued moderate growth.
    • The Nasdaq, which dipped into the red twice this session, is up 0.1%, the S&P 500 rises 0.2% and the Dow gains 0.4%.
    • Among S&P 500 industry sectors, materials (+0.6%) and consumer staples (+0.5%) lead the advance, while utilities (-0.2%) and communications services (-0.2%) are the only sectors declining.
    • The 10-year Treasury yield falls a basis point to 1.554%, while the 2-year yield is little changed at 1.532%.
    • Crude oil rises 0.7% to $56.70 per barrel.
    • U.S. Dollar Index is roughly flat at 98.39.
    • Texas AG Ken Paxton's office says a group of bipartisan state AGs will announce on Monday a probe into unnamed large tech companies for antitrust violations.
    • Earlier today, New York's AG launched a widespread probe into Facebook. A WSJ report before the bell suggested a Google (GOOG -0.2%)(GOOGL -0.2%) probe involving three dozen states would be announced Monday, matching up with Paxton's vague details.
    • The Justice Department and FTC are investigating Apple and Amazon for potential violations.
    • The Lumber Liquidators Value Committee led by activist investor Mario Rizzi says it strongly supports the effort by Thomas Sullivan's to reform Lumber Liquidators (LL +1.3%) management and to explore strategic alternatives for the company he founded.
    • LLVC members hold about 5.7% of Lumber Liquidators' outstanding shares in the aggregate.
    • "We support the exploration of strategic options to ensure the future viability of the company and its return to a position of growth, profits and competitive leadership within the home improvement industry," says the group.
    • Source: Press Release
    • The total count of U.S. active drilling rigs posts its third consecutive weekly decline, falling by 6 to 898 after dropping by 12 a week earlier, according to the latest weekly survey from Baker Hughes.
    • Oil rigs fell by 4 to 738 while gas rigs slipped by 2 to 160.
    • WTI crude oil ticks higher following the report, now +0.8% to $56.76/bbl.
    • LTP chugging along at +187% up $15,000 from yesterday afternoon (still untouched – will log changes over the weekend).  STP strangely is up as well, also up $15,000 so a very good day and I'm not too worried about the weekend.  On the STP, it looks like a huge change in price on the 100 short SDS 2021 $40 calls is the gain – yesterday it said $4.03 and today it says $2.80 so + $12,000 right there.  The $2.80 seems right but it shows you how drastically these things can fluctuate day-to-day.  
    • Butterfly Portfolio is banging thanks to a massive improvement in OIH (which we got more aggressive on) and, of course, AAPL, with the 25 2021 $160 calls jumping from $53.78 to $63.25 – that's a big help!
    • OOP is cranking – up about 10% since the review at $339,736.
    • Hemp Boca is still down 8% but better than 14%.
    • Money Talk up a bit at $118,623 (up $4,000) and I have no idea when they are going to reschedule me yet.  

    So I guess we're in pretty good shape for the weekend – good steady progress across the board as the market has gained about 100 points since expiration week.  

    Not bad considering we upped our hedges.  If we make more money ahead of the Fed – we can press them again!  

  22. Not a good move into the close but a powerful week.

    Have a great weekend, 

    - Phil