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Testy Tuesday – Trouble at S&P 3,000 – Again

Here we are again.

We re-tested our highs to close last week but they didn't last and we've already failed the 3,000 line – gapping below it with no support.  That is, as they say in the chart schools – not good.  Still, anyhing over the strong bounce line at 2,920 is still long-term bullish and that's still 77 points away or EXACTLY a 2.5% correction from here.  That's at least what we'll see if the Fed disappoints tomorrow.  

Meanwhile, what is the Fed supposed to do since they have no idea what's going on with China Trade, which goes from getting worse to "all fixed" overnight?  Brexit is still up in the air and now we have this additional trouble in the Middle East – these are not things the Fed has control of but they are all things that have serious impacts on the economy.

Wages are rising in the US, Prices are going up – these are reasons the Fed should be raising rates, not lowering them.  The Fed Fund Rate stands at 2-2.25% and dropping it to 1.75-2% isn't going to change people's spending habits or economic decisions.  It won't even do much for Trump, who wants to save money on the interest he pays on $22.5 TRILLION in debt he's run us up to but, even at 2% that's $450 BILLION a year in debt payments and the 1/4-point rate cut saves him $50Bn in interest but it's not savings if Trump turns right around and spends it on something else.

Trunp has added over 10% to the entire National Debt of the United States in just 2 years (the 2016.5-2017.5 budget was still Obama's).  You can see the way the budget explodes higher as Trump's tax cuts take effect and he's boosted Government spending, almost all of it military, at the same time – pretty much everything the Republican's used to run against…  

You can like or not like his reasons but the math says that if Trump continues at this pace, we'll be $24.8Tn in debt by the time his 2020.5-2021.5 budget runs it's course and 4 more years of Trump's policies would take us to $30.2Tn – 150% of our GDP in debt.  Trying to force the Fed to cut rates to zero allows Trump to pretend that debt doesn't matter – but it will matter A LOT to whoever has to clean up this mess, after he's finally gone.

And, of course, if we start a war with Iran, that will pump up the military budget even further or, if we slip into another recession, then the Government might spend Trillions more like they did in the last one – either way that debt pile is likely to keep growing as long as we pretend we don't need to collect taxes from the people who have money to pay for all this spending and yes, that is exactly as ridiculous as it sounds.

We're pretty set on taking advantage of this re-visit to the Top to cash out our Member Portfolios – it's just not worth the downside risk at this point.


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  1. Russell on a tear… 

  2. I guess we need a new average:

    Maybe we need to go back to the 50's and 60's when the top tax bracket was over 50% (and much higher) and CEOs didn't make 1000x more than their employees. Somehow, that didn't seem to hurt growth.

  3. Buy Annaly Capital Management’s Preferred Shares

  4. The Rise of the Zombie Mall

  5. House Judiciary Committee to hold 1st impeachment hearing

  6. Good Morning

  7. Good Morning!


    Saudi Arabia oil output could return to normal quicker than expected – CNBC,

  9. Good morning!

    Oil slipping back fast as production only off-line for 2-3 weeks at most.  This is why we ALWAYS sell into the initial excitement.

    That includes this Fed-induced run-up and I'm still leaning towards cashing in the portfolios.

    Growth/StJ – Growth comes from the PEOPLE having money and spending it in the economy.  What creates more jobs, on rich man building a $100M home or 200 normal people building $500,000 homes?  It's the same $100M but the rich make very economically inefficient use of their money from a growth standpoint. 

    I was just contemplating that this weekend at the beach as I was walking past mansion after mansion (in Trump's neighborhood) right on empty beaches while THE PEOPLE are packed into public areas.  If you took away those houses and put the apartments in town at the water – everyone in town could have beachfront property – including the rich people who could still have penthouses in the buildings – they just wouldn't be using ALL the beach for themselves.  

    And, although the rich people have 90% of the beachfront, all of our tax money has to pay to maintain it – that's ridiculous.  Then when we want to have a concert on the public beach, the rich people show up at the town meeting to file noise complaints!  

    This is all going to hit the fan one day…

    Image result for guillotine french revolution art

  10. Saudi Arabia / Albo – Don't want go into conspiracy theories but it seems that a lot of the information we get on that topic has a lot of holes!

  11. STJ -Probably right.

    Chipotle Mexican Grill (CMG) is introducing a brand-new steak option, Carne Asada, nationally on September 19. This premium protein is cut into tender slices, seasoned with fresh squeezed lime, and finished with hand-chopped cilantro and a blend of signature spices. Chipotle's Carne Asada has been officially approved for the Whole30 program and is compliant with a Paleo diet

  12. Good thing Winston reminded us to close those CMG short calls yesterday! 

  13. A very smart plan from CMG – make sure there is a steady pipeline of menu ideas which are sure to resonate with their target audience – then release to the market when there is a need to generate excitement around the stock (e.g. a month in advance of the quarterly earnings conf. call). Bill Ackman leveraging the synergies of marketing ideas between his two top performers; CMG & SBUX.

  14. OK, so let's see if I can actually bring myself to shut down the portfolios.  We'll start with the Hemp Boca Portfolio as it's small and I should go on the show this afternoon (haven't decided yet).  

    Hemp Boca Portfolio Review:  This portfolio is not as constrained as Money Talk as there's a show every Tuesday and I can go on when I want (PSW Investments owns 20% of Hemp Boca).  We started back on May 21st so it's 4 months old and we're up 8.2% but we were down about 20% at one point (same positions) so I'm not sure I want to risk Q4 in such a small and new portfolio.

    The question is, as it will be with EVERY position in EVERY portfolio this month – do we, right now, want to be in this position if the market drops 20%?

    • IMAX – Worst case is owning IMAX for $20 and I'm generally fine with that but you have to keep in mind it's a $50,000 portfolio with $100,000 in ordinary buying power (we're assuming not IB as those guys are crazy!).  It's a conservative position that's in the money and we should have good support at $21 and $20.50 held on the last dip so hard to kill – especially as I expect Q4 to be huge box office for IMAX.  Max possible on the spread is $4,000 and now net $2,325 so $1,675 (72%) left to gain by Jan seems like one we should keep.  Damn it!  This is hard…

    • M – We are ahead so we're going to kill it.  Not actually ahead, down $900 on the overall position but too risky for the small portfolio in an uncertain market.  

    • MJ – Back to the lows on this one but I want to stick with them.  

    • TAP – Had a nice pop and we're on track at net $7,500 out of a potential $20,000 but, if we spend $3,200 to buy back the short puts, we reduce our risk and still have a $20,000 spread – it only increases our net cost from $4,750 to $7,750 but, since that will make us net $10,700 (no more short puts to subtract), then we're in the spread for a very good price without so much downside risk and we still have $9,300 (87%) upside potential.    

    • THC – We just added these and they blasted higher and we have a 20% cushion to STILL be in the money – what's not to love?  The net is now $3,762 out of a potential $7,000 so $3,238 (86%) left to gain – another keeper.  

    Well, that went terribly.  It's very hard to shut down good positions.  At least I feel less risky without those high Macy's puts and the big TAP obligation.  If all goes well, we have $14,213 of upside potential that we're confident in plus whatever MJ makes and we're up $4,110 already and $18,313 would be 36.6% over 2 years in a $50,000 portfolio we started 4 months ago – that's not a bad start! 

    Best of all, we are still mainly in CASH!!! so we can DD on any or all of our positions if the market does turn lower.  

  15. Butterfly Portfolio Review:  How can I shut down my baby?  While we've had fluctuations, the Butterfly Portfolio has never been off track in this cycle ("on track" being 30-40% annual gains) so how can I close it?  Especially now, when it's a rockin' $228,201, which is up 128.2% and up $49,900 since our 8/15 review.  

    In that review, the only change we made was a super-aggressive move on OIH, which paid off very well but the other positions just improved on their own.

    • AAPL – Popped over our target so the short calls are hurting us but we're well over-covered on our longs.  Keep in mind the theme of the month is "how do I reduce exposure" and that applies to the June 2021 $160 calls so let's take them off the table at $68.50 ($171,250) and keep in mind this was only a $100,000 portfolio on Jan 2nd of last year so THAT'S A LOT OF CASH!!!  We can't leave all those obligations out there, however so we'll have to cover with 40 of the 2022 $200 ($46.50)/260 ($21) bull call spreads for $25.50 ($102,000) and we'll roll the 10 short Sept $200 calls at $20.40 ($20,400) to 20 short March $210 calls at $22.50 ($45,000) and we'll buy back the short 2021 $210 calls for $32.70 ($32,700) so now we have just the March short call premium to burn off.  
    • The net of the adjustments was a credit of $61,150 in our pocket (nice!) and now we have a $240,000 spread, up from our $150,000 (at $220) position and we have another year to make money!  That's 857 days on the 2022 spread and the short March calls are using 185 (1/5th) of those days to make up to $45,000.  That means we can make another $180,000 or so selling short puts and calls while we wait for our $240,000.  Notice how we keep re-investing our profits  to grow this position.

    • DIS – Settled down nicely, right in our trading range.  We sold the Sept $145 puts and those are in the money at $8.50 ($8,500) and we'll roll them along to 10 of the 2022 $110 puts at $8.60 ($8,600) for about even and there's that can kicked way down the road!  Otherwise, we're well balanced with $27,000 more to gain if the Jan $130 calls drop out of the money and, if they don't, we have a $62,500 $100/135 spread covering them – hard to lose….

    • MDLZ – Let's not take a chance ahead of the Fed and buy back the short Sept $55 calls for 0.30 ($300) and the short Sept $52.50 puts for 0.05 ($50) and we'll roll the 10 short Sept $50 calls at $4.70 ($4,700) to 10 short Jan $52.50 calls at $3.70 ($3,700) and 10 short Jan $52.50 puts at $1.60 ($1,600).

    • MJ – Down the road, this will be a great one to sell short calls against.  Our 30 2021 $35 calls at $1.75 ($5,250) can be rolled to 50 of the 2022 $25 ($5.40)/$35 ($3) bull call spreads at $2.40 ($12,000) and let's sell 10 of the 2022 $25 puts for $6.50 ($6,500) so the whole roll only costs net $250 in cash and the ordinary margin on the short puts is just $4,908 – not bad!

    • OIH – When you double down on a position, you need to look to take 1/2 back of the table once you are back in the green.  Then you've effectively lowered your basis without increasing your commitment.  I think the recent Saudi attack will be good for oil services going forward – perhaps they will get security contracts too.  Still, this position has been too volatile for the Butterfly Portfolio and I don't see that changing so we're going to close it out rather than keep playing.  Having a position you are always scrambling to adjust prevents you from having well-behaved positions that make you money.

    • WHR – Now this one is well-behaved!  We sold our Sept contracts for $8,200 and we have to pay $4,000 back – that's a nice 4-month, $4,200 winner on a 22-month spread that cost us net $1,850.  The short puts will expire worthless and we'll roll the 5 Sept $140 calls at $8 ($4,000) to 5 short Jan $150 calls at $9 ($4,500) and sell 5 short Jan $135 puts for $6 ($3,000).

  16. Phil – what would be of very high value to me, and I wonder if anyone else agrees, is if we had an IRA portfolio that assumed no margin/cash covers, with a goal to return say 30-40% per year with a $1M starting balance, and assumes that futures trading is in bounds when it makes sense. 

  17. dawgydaddy – I agree with you! 

  18. MJ Oct BCS $25/26 — should we roll the $25 calls to January is down to .75?

  19. IRA/Dawg, Tshroy – We did one once and had little interest.  Also, the margin restrictions mean you're not going to make 30-40% a year and not many people have $1M to throw at a portfolio like that – sounds like you need custom assistance!  Our hedge fund seems to be able to take IRA money, actually, you might want to look into that.  

    Meanwhile, always feel free to ask how we could adjust a trade for an IRA – I don't think it's worth tracking one but the main difference is going to be on the short put side.  

    Look at the new AAPL spread, $22.50 on a $60 spread that's $20 in the money now – that makes $37.50 (166%) at AAPL $260 in 2022 – what more could you want from an IRA.  The new 2022 options have a lot of mis-priced combos like that you can take advantage of until more people start buying them.

    MJ/Den – That's in the STP, right?  Oct is still 31 days to close so the better move is to just buy back the short Oct $26 calls at 0.40 and then see if $24 holds(ish) like it did at the end of Aug.  We're in for net 0.60 and adding 0.40 puts us in for $1 but the Jan $23s are $2.80 and the Jan $25s are $1.90 so we could roll down to those for 0.90 and we'd be in the $2 spread for 0.90.  Hopefully though, we get lucky and get a bounce – maybe we could float a rumor that China will balance trade with the US by buying 10Mt of marijuana!  

    The most cannabis-friendly Congress in history is back from its August recess, and lawmakers are already making key moves to advance marijuana reform legislation. The immediate focus is on a proposal to let banks serve cannabis companies without fear of being punished by federal regulators—with House leaders announcing that a floor vote is expected by the end of the month.

    On Monday, the Senate version of the marijuana financial services bill got its 33rd cosponsor—Sen. Tina Smith (D-MN)—meaning that virtually a third of the chamber is now formally signed onto the legislation, counting its main sponsor Sen. Jeff Merkley (D-OR).

    ICBA and 43 state banking associations urged House leaders to vote on the SAFE Banking Act, which creates a safe harbor for financial institutions that serve cannabis-related businesses in states where it is legal. Read more =>

    It is expected that the House will consider the marijuana banking bill next week under a procedure known as suspension of the rules, which will require a two-thirds majority to pass the legislation. Currently there are 207 representatives who have signed their names onto the bill as cosponsors.

  20. Back to normal – finishing the day with a spike into the close.  

    I'm trying to at least get the Money Talk and OOP done by tomorrow AM – then we'll have a handle on what we're doing but Money Talk is definitely closing as I can't do a mid-stream adjustment to it and a December like last year would kill it.

    • U.K. Prime Minister Boris Johnson will hold talks with German chancellor Angela Merkel and other EU leaders on Brexit policy next week as his government develops plans for an all-Ireland economic zone that would replace the Irish backstop that's been the stumbling block for his predecessor's Brexit deal, the Financial Times reports.
    • The British pound rises 0.6% against the U.S. dollar and the iShares MSCI United Kingdom ETF (NYSEARCA:EWUgains 0.4%.
    • In recent weeks, Johnson has been promoting the idea of a common zone across Northern Ireland and the Irish Republic for agriculture and foodstuffs, a common electricity market, and maintaining a common travel area.
    • Now U.K. officials want to extend talks on how to form an "all-island" economic relationship in trickier areas such as customs, value-added tax, industrial goods, and the remit of the European Court of Justice, the FT reports.
    • Mujtaba Rahman, managing director of the Eurasia Group consulting firm describes the all-Irish concept is "a vision" in which the Northern Ireland-EU relationship will be "very different" from the U.K.-EU relationship.
    • For the U.K. and EU to reach an agreement before the Oct. 31st deadline is still daunting.
    • “There’s been a lot of activity but the difficulties are greater than people think,” one official told the FT.
    • Citing non-compliance with certain Cannabis Act regulations, Health Canada has suspended CannTrust's (CTST -3.3%) license to produce and sell cannabis.
    • Management is reviewing the Notice of License Suspension with counsel and advisors to determine next steps.
    • The company has been dealing with a range of issues since the summer when it fired CEO Peter Aceto after a negative audit by government inspectors.
    • U.S. WTI October crude oil (NYSEARCA:USO) settled -5.7% to $59.34/bbl, near its lows of the day following news that Saudi energy minister bin Salman said oil production capabilities were fully restored and that oil output will return to pre-attack levels by the end of this month.
    • Half of the oil production loss from the attack has been restored, bin Salman says, adding that production capacity would reach 10M bbl/day by the end of September and 12M bbl/day by the end of November.
    • "Geopolitical events have a historic tendency of exaggerated initial impact in markets, with a smaller economic and market impact emerging over a short period of time," says Citigroup chief investment strategist Steven Wieting. "The degree of any escalation with Iran is the more critical issue for longer-lasting supply risks."
    • Oil and gas exploration and production stocks are retracing much of yesterday's big gains, for example: APA -8%MRO -7.4%DVN -4.5%HES -3.2%COP -2.5%HAL -6.7%CHK -13.8%XEC -4.9%CLR -14%WLL -17%.
    • Department store stocks are lower once again after Cleveland Research says QTD trends are below expectations. The observation from the research firm was also confirmed last week when the August retail sales report showed a large decline in the department store category amid generally solid sales across retail.
    • Tariffs, soft traffic and promotional activity are naturally the biggest headwinds facing the mall names.
    • Notable decliners include Kohl's (KSS -3.7%), Nordstrom (JWN -8.9%), Macy's (M -4.8%), Dillard's (DDS -6.5%) and J.C. Penney (JCP -6.7%).
    • Barrick Gold (GOLD +5.3%) is higher after reporting a new discovery hole near the best-ever drilling intercept at its Fourmile project in Nevada, which it says points to the delivery of at least one additional Tier 1 gold mine through the combination of Fourmile with the nearby Goldrush development project.
    • Speaking at the Denver Gold Forum Americas, Barrick President and CEO Mark Bristow said diligent exploration and detailed geological modelling had led to effective targeting at Fourmile.
    • Bristow says FY 2019 gold production is trending toward the top end of the company guidance range of 5.1M-5.6M oz, while costs likely will come in at the lower end of forecasts.
    • The CEO also says Barrick is on track to achieve half of expected $450M-$500M of cost savings by the end of this year at its Nevada joint venture with Newmont Goldcorp.
    • Also, Barrick says its Acacia Mining scheme has become effective.
    • Bausch Health Companies (BHC -0.7%) is under modest pressure in apparent response to UnitedHealthcare's decision to drop coverage of plaque psoriasis med Siliq (brodalumab) effective January 1, 2020.
    • Cascend Securities raises its Micron (MU +0.8%) price target from $55 to $65.
    • The firm's industry measurements for DRAM chips "saw meaningfully smaller declines again" in August, which implies June was the "low-tide" mark for the cycle.
    • Cascend reiterates a Buy rating, saying Micron "represents a good value play." Micron has an Outperform average Sell Side rating.
    • More action: RBC expects DRAM prices to "bottom over the next couple of months" and says the trend "creates attractive entry points for both Micron and Western Digital (WDC +1%)."
    • VLCC rates jumped more than 10% yesterday and continue to rise today in the wake of the attacks on Saudi oil installations that have knocked out 5.7M bbl/day of oil from global supplies.
    • Most of the increase reflects higher bunker prices, but there also is an element of risk management, according to analysts at Poten & Partners.
    • Very Large Crude Carriers will be hurt by a sudden lack of cargo volumes out of the Arabian Gulf, as VLCC cargoes account for 89% of all Saudi crude exports, says Brokers Affinity, which anticipates reduced demand of 2-3 VLCCs each day.
    • "The VLCC market was tightening before [the strikes] happened,” a shipowner tells S&P Global Platts. “There is a good 20M barrels in tanks in the [U.S. Gulf Coast] and whoever owns it is looking for a profit now that supply in the Arab Gulf is down."
    • You can't kill MoviePass. Just days after the movie subscription service was shut down, Helios and Matheson Analytics (OTCPK:HMNY) CEO Theodore Farnsworth is reported to be looking to lead a group of investor to buy the assets from the trash bin. The Farnsworth bid is said to include a play for MoviePass' production arm MoviePass Films, film co-acquisition arm MoviePass Ventures and Moviefone.
    • The company still has a long list of subscribers and potentially valuable data on their movie habits that could prompt bids from other parties.
    • While MoviePass was a bust for investors, it changed the landscape for theater chains like AMC Entertainment (AMC -4.2%), Cinemark (CNK -2.2%) and Marcus (MCS -0.1%) by nearly forcing them to adapt.
    • Boeing (BA +0.4%) predicts China will soon become the world's largest aviation market and need 8,090 new planes over the next 20 years, worth nearly $1.3T based on current list prices.
    • Associated services to maintain fleets will be even larger at $1.6T, meaning nearly $3T worth of business could be up for grabs.
    • Broken down, Boeing projects China will need 5,960 new single-aisle airplanes through 2038, representing 74% of total new deliveries, while China's widebody fleet will need 1,780 new planes, tripling the country's current widebody fleet size.
    • Globally, Boeing forecasts $6.8T worth of airplane sales by 2038 with another $9.1T in services.
    • Corning (NYSE:GLW) is 7.2% lower after cutting forecasts in its optical and display segments, on share volume that has nearly tripled daily averages at midmorning.
    • Macro conditions have gotten worse for the company over the past couple of weeks, Citigroup notes, and it will review its own numbers after talking with Corning. It notes that still-significant benefits from 5G investment "have not kicked off yet in full force to offset declines in fiber."
    • It's the second cut in expectations in the display area, Jefferies' George Notter says, and yet "we see scope for further fundamental pressure on the business as the implementation of tariffs create a drag in the industry." He's cut his price target to $27 from $29.50, vs. current price of $27.88.
    • Cross Research cut its recommendation to Hold from a previous Buy.
    • Sell-side analysts overall rate it an Outperform, and Seeking Alpha authors are Bullish, while Corning has a Quant Rating of Neutral.
    • Sempra Energy (SRE +1.1%) says its Cameron LNG export terminal in Louisiana is loading cargoes according to schedule despite finding a technical fault at its facilities.
    • Cameron LNG says its contractors found "an issue related to an electrical component and the teams are working expeditiously to bring the matter to a resolution."
    • Liquefied natural gas traders said last Friday that Cameron had declared force majeure due to technical issues at the export terminal but that the impact on volumes was not yet clear.
    • Airline stocks gain on news that Saudi oil output will be recovered in just a few weeks. The development is hardly a surprise to many analysts covering the airline sector.
    • American Airlines Group (AAL +4.8%), Azul (AZUL +3.4%), United Airlines (UAL +2.6%), Spirit Airline (SAVE +1.8%), Gol Linhas (GOL +4.4%), Copa Holdings (CPA +2.7%), Delta Air Lines (DAL +1.1%) and JetBlue (JBLU +2.1%) are some of the gainers.
    • Crude oil plunges suddenly in reaction to a Reuters report that says Saudi Aramco is close to restoring 70% of the 5.7M bbl/day of production knocked offline by the weekend attacks, and output likely will be fully back online in the next 2-3 weeks.
    • U.S. WTI October crude -4.4% to $60.11/bbl; Brent -5% to $65.52/bbl.
    • The impact on Saudi oil exports has been "minimal" following the attack because of ample storage, according to the report, citing top Saudi sources briefed on the oil operations.

  21.                                                                     NYSE       NAS   

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  22. SPY volume 42,864,489  plus negative NYSE volume above not supportive of green indexes.