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Federally Funded 3,000 Thursday

Here we are again! 

As we expected, the Fed cut rates another 0.25% yesterday after changing just 15 words from their last statement, essentially indicating that Business Spending has slowed down to justify the completely unneccessary cut.  “We took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks,” Powell told reporters. So, apparently, we've gone from a "data-dependent" Fed to one that now uses psychic powers to react to trouble before it even happens?  

Powell said “Weakness in global growth and trade policy have weighed on the economy” but does that mean he will RAISE rates if Trump makes a deal with China?  Powell can't win so he shouldn't try to please Trump, who immediately tweeted about the Fed Chairman:  “No ‘guts,’ no sense, no vision!” for not giving the President the negative rates he demanded just last week.

Powell left the door open to “a more extensive sequences of cuts” if needed, but stressed this was not what officials expect. Instead, he described the situation as one “which can be addressed and should be addressed with moderate adjustments to the federal funds rate.”  Updated quarterly forecasts showed officials split over the need for rate cuts this year. Five didn’t want to move. Five saw a quarter-point reduction warranted, while seven saw 50 basis points of easing needed by year-end — half of which was delivered on Wednesday.

As you can see from the Fed's projections, we're wrapping up Trump's Presidency (hopefully!) with barely 2% GDP growth and an uptick in unemployment while the fiction of low inflation is being maintained and keep in mind that if inflation is 2% and the economy is growing 2% – then the economy isn't growing at all – things are just getting more expensive while we produce the same amount of stuff.  To some extent, that's to be expected in a mature economy but we do have 1% population growth so really 3% growth with 2% inflation should be the minimum we shoot for.

I discussed the Fed and the overall economy with Kim Parlee on Money Talk last night, so here's that segment:

Given all those concerns, as we noted in yesterday's PSW Report, we are moving to CASH!!! in 4 of our 6 Member Portfolios, including the Money Talk Portfolio we tracked on that BNN show for 2 years, our Options Opportunity Portfolio which we tracked over at Seeking Alpha and our main, paired Long-Term and Short-Term Portfolios.  Our Hemp Boca Portfolio is very new so we're keeping that one active and our Butterfly Portfolio is like the Honey Badger – it could care less what the market does – it just keeps making money!

You can view the Money Talk Portfolio HERE, as we did our final review yesterday and, to summarize, the IBM trade we like into Jan, 2021 is (adjusted for today's prices):

  • Buy 50 IBM 2021 $120 calls at $25.60 ($128,000)
  • Sell 50 IBM 2021 $135 calls at $16.50 ($82,500) 
  • Sell 20 IBM 2021 $130 puts at $11 ($22,000) 

That's net $23,500 on the $75,000 spread so $51,500 upside potential on our 2019 Trade of the Year and yes, we originally took the position at net (if it were 50/20) $1,750 so we're already up $21,750 (1,242%) on cash but $51,500 is still up another 219% gain on $23,500 – so it's still a good trade and, more importantly, we have CONFIDENCE that IBM will hit it's mark.  The ordinary margin requirement of the 20 short puts is $32,469 so we're using just a little of our cash and a little of our margin to pop our entire $124,000 cashed out portfolio another 41% by Jan 2021 if all goes well.  We could take the whole year off and still make good money!

Meanwhile, though the market is getting a little lift today thanks to low rates, the Organization for Economic Cooperation and Development (OECD) has dropped its global growth forecast from 3.6% to 2.9% in 2019 and is predicting only 3% next year as well as the damage from the Trade War begins to show up in the Global Economy.  The OECD said that the global economy risked entering a new, lasting low-growth phase if governments continued to dither over how to respond.  

What looked like temporary trade tensions are turning into a long-lasting new state of trade relationships,” OECD chief economist Laurence Boone told Reuters.  “The global order that regulated trade is gone and we are in a new era of less certain, more bilateral and sometimes assertive trade relations,” they added.

As I said in yesterday's Live Trading Webinar, if we don't complete a trade deal with China in October (doubtful), then even the positions I deemed "keepable" from our portfolios should be treated with great cautions.  On the whole – I'm very glad to be sitting this one out!  

 


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  1. Morning All!

    The webinar replay is now available! 

    https://youtu.be/bQVgMcgDbOA


  2. Good Morning!



  3. Waiting to hear what Trump promised to Putin in exchange for election help…


  4. Waiting for the Chinese check to clear:


  5. We should see a big rally now:


  6. any thoughts on eia report phil 

    is the minus 3.5 million barrels in other oils of any significance

     

    thanks


  7. Added back MDR I sold in pre-market at $1.92.


  8. Good morning!

    Indexes popping at the open, we'll see what sticks.

    Farm Aid/StJ – So the mega-farms get a huge handout while farmers with "small" 100-acre lots get at little as $1,500 to offset the damage Trump has caused.  That forces them to sell to the mega-farms, who buy their farm with the money Trump gave them.  Smart!  

    EIA/Tommy – Not sure what you are looking at, yesterday's report was:

    Crude inventories rise in the last week

    • EIA Petroleum Inventories: Crude +1.1M barrels vs. -2.5M consensus, -6.9M last week.
    • Gasoline +0.8M barrels vs. -0.5M consensus, -0.7M last week.
    • Distillates +0.4M barrels vs. +0.5M consensus, +2.7M last week.
    • Futures -1.25% to $58.36.

    That's a nothing report, tiny build across the board is less than the margin of error.  Certainly nothing actionable.  

    MDR is very interesting, Albo played it right yesterday and here we are again.  They are restructuring, not going BK but people are acting like they are.  

    The 2021 $1 ($1.50)/2 ($1.25) bull call spread is 0.25 or maybe 0.40 at the most – that's a fun way to play.


  9. Hi Phil:

    Trying to follow your lead and tighten things up. Have bought back some puts that had done well.

    Thinking to sell some calls in my AAPL setup, mainly to cover the long Jan21 $140cs:

    ——

    Short 4 Jan21 170p at $22.17 and 10 Jan21 180p at $13.98

    30 Jun21 $200/240 bcs at $29/$18

    20 Jan20 $150/160 bcs at $29/46  (for tax delay, should I roll the $160s at a some point?)

    Long 20 Jan21 $140c at $28.72 and thinking to sell maybe Jan21 $240calls while the premium is still relatively good?

    THX!


  10. Added a little more MDR at $1.76.



  11. 2 out 10 of the MDR 1 / 2 spreads filled  at .28


  12. U.S. Steel's dismal guidance underscores fading sector optimism

    First, FDX warns;  now X.

    The "fat lady" is getting restless. 



  13. SOFR/BDC – I think it was just a technical issue as Treasury asked for a lot of debt this month and Corporate Taxes came due but overnight rates shot up to 10% for a while – that is crazy – Greece-like crazy!   

    MDR/DC – Fortunately, we got out of ours a long time ago as we never wanted them, we just liked CBI, who they merged with.  Needless to say, the merger has not gone well (which is why we didn't want to ride it out) and now they are calling in restructuring experts.  MDR says it "is taking positive and proactive measures, as we have done in the past, intended to improve its capital structure and the long-term health of its balance sheet."   You can take them at their word (as no one is) or you can imagine this is a sort of cover-up for their emergency measures to stave off some sort of disaster that's looming.

    I do watch them (because they took away my CBI) and last year they took a $2.7Bn hit on write-offs and such and this year they lost about $190M in the first two Qs and it's doubtful they turn that around by the end of the year but they have $455M in cash and I bet they end up down less than $100M for the year with a profit in Q4.  

    Assuming that's true – then $1.65/share is just a $300M valuation for a company doing $10Bn in business but $7Bn of that is CBI's biz and people are extrapolating MDR's poor performance to CBI's $7Bn – that's not likely to be the case but this year, as we expected, is a transition year and numbers look like crap and, if the economy tanks, then their timing is likely to kill them but, if we keep things together, they just got $4.5Bn worth of contracts from Aramco and another one from Qatar but probably just $100M for that one.  Still, that's business for the next 6 months on top of the normal stuff they have going on – there are possibilities so I like them as a flyer. 

    At the moment, I'd buy the 2021 $1 calls (now $1.35) and wait on selling the $2 calls (now $1.05) as long as we hold $1.50 on the stock.  Hopefully we pop back over $2 and we can get $1.25 for the $2.50 calls (now 0.95 with a 0.75 delta).


  14. Phil I looked at your IBM play, your quotes are way off even Jan 21 125/150 vertical is already at 14.10 and the 130 put only 9.93 Possible one has to wait a bit as they up 2.50 up by now.


  15. Sold some MDR Oct 1.5 puts for .$45 to lower cost.

    Phil, thanks for your view of MDR.  I'm playing it primarily as scalp/swing trade.  It's obviously very speculative, but I listened to their last earnings call from late July, and they didn't sound pessimistic.  So unless an awful of bad things  have happened since then, it looks like a good like a good spec to me.


  16. Other oils/Tommy – Sorry missed that part.  No, it's not significant because no one pays attention to it.  

    AAPL/Wing – Generally, it's a keeper.  New cameras on IPhone 11 getting rave reviews.  If anything, on AAPL, I'd clean up the mess and consolidate.  

    4 short 2021 $170 puts at $8 ($3,200) and 10 short (I assume) 2021 $180 puts at $10.25 ($10,250) can be rolled to 10 short 2021 $165 puts at $12.50 ($12.500) so for $950 you cut your exposure 30% and roll to a lower strike.

    While the 30 June 2021 $200s are $44 and the $240s are $23 for net $21, you could cash the 30 $200s for $44 ($132,000) and buy 30 2022 $200 ($49)/260 ($21.50) bull call spreads for $27.50 ($82,500) and roll the 30 short $240s at $23 ($69,000) to 20 short Jan $220 calls at $18 ($36,000) and 10 more of the 2021 $165 puts at $12.50 ($12,500) so you are taking net $29,000 off the table and you have a 50% wider spread (with more time to win) only 2/3 covered by the short Jan $220 calls offset by 10 more puts and lots of time to roll them all along and, hopefully, sell a lot more premium.  

    That last leg – given the 2021 $140s are now $86 ($172,000) I would just take off the table as you have the $180,000 spread to work with and maybe you'll have to add to that or roll down at some point so why not play it safe for now?  I know it's hard but gaining the discipline to SELL stocks – even when you like them – at the top of a channel and then to wait, PATIENTLY, for them to come down again before you buy back in can greatly enhance your returns over time.  

    The 20 short calls are at the money so all premium using 120 of 855 days of your spread so potential for 6 more sales (but only one more put sale) and the 2022 $270s are $18 so that's how much rolling you can do in-between but hopefully, you collect $30,000 6 more times for $180,000 while you wait for your $180,000 spread to pay off AND you have $201,000 in your pocket.  

    There you go Winston – a more complicated spread set-up for you! 

    X/Pstas – Yep, too many warning signs to ignore.

    IBM/Yodi – Yes, $2 makes a big difference on the in-the-money contracts.  I see 2021 $120s at $27.87 on last and that makes sense and $135s are $17.68 last and the 2021 $130 puts fell to $10, so it took a $1 hit on both ends – that's a lot when you are doing 50 contracts.  There are 2022s now so you could pick up 50 2022 $120s for $29 ($145,000) and sell 50 2021 $140s for $15 ($75,000) and sell 20 2022 $130 puts for $16 ($32,000) and that's net $38,000 so you are spending $14,500 more on a $25,000 wider spread but, when the short calls expire (or maybe you'll roll them to a higher strike) you get to sell another $75,000 in 2022 covers so you're really investing the $14,500 for a chance to sell another $75,000 in 16 months – that's not a bad adjustment.

    MDR/Albo – I thought they were fine, just the integration issues. Backlog getting huge:

    That last Q is very important in understanding MDR's model (which most people don't).


  17. Phil/MDR

    THANKS!


  18. Thanks Phil re IBM


  19. Looking at MDR – I like the idea of getting into a $1.50 spread (maybe) for 25 cents, but it seems one could buy the 2021 $1 calls and sell the Nov $2 calls now. You're then into the spread for 65 cents, if it goes over $2 before November then that would kinda suck as you'd be stuck with a 35 cent profit, but if not then you could, at that point, sell the 2021 $2.50 calls and you probably will have gotten paid to take the spread at that point.

    The other thing is the underlying is trading for $1.69 right this second. Maybe instead of buying the $1 calls, buy the stock itself and sell the Nov $2 calls and then you're at $1.05 and if it pops over $2 by November, you make 95 cents on $1.05 invested. If not then you could sell the 2021 $2.50 calls and probably be in for net nothing but instead of making $1.50 on expiration, you make $2.50, assuming it gets back to $2.50 by expiration, and the potential to make a fast 95 cents if it makes a quick pop over 2 is nice. It seems MRD would pretty much have to BK to break this trade, because as long as they stay alive, you can always grind the basis down selling calls until you've mitigated the loss.


  20. Went ahead and pulled the trigger on the MDR covered call trade, got in 10,000 shares for $1.02 net. We'll see how it goes… 


  21. Dawgdaddy – I like the thought of an extended option play as you suggested.  

    Added the following:

    Bought the 2022 $2 calls for $1.20.  Sold the Jan 2020 $3  calls for average of $.73.  Only risking $.47 and have the opportunity to sell more calls quite a few times in the 28 months.  Could be a good income provider for little exposure.


  22. Correction – Those were the Jul 2020 calls not the Jan.


  23. Short-Term Portfolio Review (STP): $881,976 is up 782% in less than two years so this is the performance we are least likely to be able to replicate in the next round because the $100,000 STP is SUPPOSED to lose money when the $500,000 LTP is making it.  However, in the past two years, there has not been a dip we didn't recover from but there have also been 6 major corrections and, each time, our hedges have paid us $100,000+ and each time we have cashed them in at what we guessed was the bottom and each time we've been right so we end up keeping our $100,000+ gains AND then, since the market quickly recovers – we never needed to put the money in the LTP as it kept making money too.  

    Between that and our occasional side bets, we've racked up some substantial gains.  The primary purpose of the STP, however, is to protect the LTP.  The more longs we have there the more shorts we need here and, to protect the LTP now needs about $400,000 worth of short bets and there's a danger that we get a China deal that pops the S&P up 10% and wipes those out.  That's just too much risk just to protect an LTP we should also be cashing out so – CASH!!! 

    • TLT – The Fed killed us on this one.  
    • Short puts – They are a great offset to our hedges.  We are up $24,196 on this set of hedges but we've rolled through dozens more.  Usually, if one of our short puts goes against us, we like the stock enough to send it to the LTP anyway.  
    • CMG – All that's left is this bull spread and the short puts above but we're out.
    • BKNG – We just put this one on and it went the wrong way on us but earnings aren't until Nov 4th and, as far as I can tell, trade slowed down travel – especially in China where they are very big.  Note that we sold the short Jan $2,100 calls and the short Jan $1,800 calls for $171.50, which means anything between $1,628.50 and $2,271.50 is a profit and, at $2,055, it's a $116.50 ($23,300) profit in waiting.  So it's a keeper for the portfolio and we'll see how it plays out.  I'm still going to want to clear the decks so we have a proper fresh start next year.

    • DXD – A hedge but now we have nothing to hedge.  Not much of a loss considering. 
    • MJ – What a disappointment!  I'm going to stick to owning companies directly in the MJ space because clearly the guys running the public ones haven't got a clue as to what they are doing.  Can't wait to go public though so we can blow through Billions of OPM
    • SDS – Also a small loss, great time to quit.
    • SQQQ – Amazingly, we're ahead on this one.   That's because we left the short-term call premium in play to decay away – another reason we do so well with our hedges – we hedge them!

  24. Phil; questions about Money Talk portfolio IBM position.  I understand you are cashing out $124,000  and spending $24,000 to add the single position.  Why not use 2022?  According to my broker to create that exact position would cost $75,000 in margin.  I recognize that you are probably working with $250,000 in margin but why use a third on one position?   Is there room to adjust if it goes against you?  If things in the world go sideways and volatility takes off won't you get crushed in this position.  I'm just trying to learn. Thanks


  25. Good way to play Dawg.  

    • Stocks gains fade after a report in state-backed Chinese media said that Trump adviser Michael Pillsbury warned that the U.S. is prepared to escalate the trade war if a deal isn't reached soon.
    • The Nasdaq, up 0.2%, had risen as much as 0.7% earlier; the S&P's 0.5% gain receded to +0.2%; the Dow rises 0.1% vs. its earlier 0.5% increase.
    • Among S&P 500 industry sectors, health care (+0.8%) and materials (+0.7%) lead the climb, while energy (-0.1%) and consumer staples (flat) trail the broader market.
    • The 10-year Treasury gains, pushing yield down almost 3 basis points to 1.772%; 2-year yield falls almost 2 bps to 1.742%.
    • U.S. Vice President Mike Pence says other leaders, who express envy over the U.S.'s growth, "ought to be emulating our policies."
    • Meanwhile, he's urging the U.S. central bank to lower interest rates to zero, according to a tweet by CNBC's Jeff Cox.
    • Asked if he would support zero or negative interest rates, Pence replied "I support the President."
    • Still, he describes the U.S. economy as "booming."
    • The European Central Bank offered banks cheap loans but banks weren't biting, with only 28 of the region's lenders bidding for €3.4B ($3.8B) of the loans.
    • That compares with 514 banks bidding for €233.5B of loans in the last targeted longer-term refinancing operation (TLTRO) auction in March of 2017.
    • Last-minute changes to the terms of the loans and expected advantages from waiting until the next round are likely the reasons for the cool reception, analysts said.
    • The ECB improved the terms of the third TLTRO loans at last week's governing council meeting, cutting the potential interest rate to -0.5% and extending the maturity to three years from two; as a result, banks may not have had time to respond to the better terms before the deadline.
    • Pictet Wealth Management strategist Frederik Ducrozet said "most banks are likely to wait for the next operation in December."
    • Banks may be waiting for the ECB to introduce a tiering system at the end of October.
    • Tiering exempts part of lenders' excess reserves from negative interest rates charged on deposits at the central bank. The system would allow banks to benefit by earning 0.5% on money borrowed at negative interest rates from the ECB and deposit the money back at the central bank for free.

    • JPMorgan, UBS, Credit Suisse are seeking changes to the $500M credit line extended to WeWork (WE) CEO Adam Neumann, according to Bloomberg sources.
    • The lower valuation surrounding WeWork's delayed IPO has raised concerns about the shares Neumann pledged as collateral.
    • Sources say it's not clear what changes the consortium want, or what right they have to make any demands.
    • Related: If you haven't read yesterday's WSJ profile on Neumann, it's a must read and a wild ride.
    • Investors are reacting to the FDA and CDC warning once again on the risks of vaping as part of a teleconference on 530 cases of lung disease that are linked to electronic cigarettes.
    • It appears the additional focus on lung disease is even swaying sentiment on companies without a stake in vaping.
    • Decliners include Turning Points Brands (TPB -4.3%), British American Tobacco (BTI -0.7%), Universal (UVV -0.1%), Canopy Growth (CGC -5.9%), Cronos Group (CRON -4.8%), Aphria (APHA -1.3%) and Vector Group (VGR -3.3%).
    • Altria (NYSE:MO) is down 2.05%. but Philip Morris International (PM) is holding up pretty well.
    • U.S. interest-rate strategists expect the Fed to start secondary-market purchases of Treasurys after its Oct. 30 meeting to deal with the increase in repo-rate volatility, according to a compilation of strategist notes by Bloomberg First Word.
    • Purchases could occur earlier depending on how quarter-end funding shakes out.
    • Barclays's Joseph Abate says the Fed "might want to consider a one-time coupon pass" of ~$150B "to boost the level of bank reserves permanently."
    • Morgan Stanley's Matthew Hornbach notes that the decline in reserves of $100B-$125B in the past few days "is reason to believe that larger banks reduced the amount in repo intermediation that they were doing, which led to the spike in repo rates."
    • "The only way to permanently alleviate the funding stress is to rebuild the buffer of reserves in the system" by $100B-$150B and maintain the level via permanent open market operations, Hornbach adds.
    • NatWest's Blake Gwinn, though, wrote that Powell's comments indicate that the Fed "will be reluctant to provide support until they are essentially forced to by markets."
    • Altria (MO -2.2%) has fallen to a session low alongside a new update on vaping from the Centers for Disease Control and Prevention and the Food and Drug Administration.
    • The CDC, FDA and state partners held a brief teleconference discussing the probe into cases of lung injury associated with the use of the e-cigarettes.
    • A week ago, the CDC posted a major update saying that as of Sept. 11, 380 confirmed and probably cases of lung disease associated with vaping had been reported by 36 states and the U.S. Virgin Islands.
    • Six total deaths had been confirmed in six states.
    • Now the figures have risen to 530 cases and seven deaths, a severe week-over-week jump. The cases have spread across 38 states and the Virgin Islands.
    • More than half of those sickened are younger than 25, and 16% of them are under 18.
    • Update: The FDA announced that it has launched a criminal investigation into the matter.
    • Selected tickers: (PM -0.1%), (BTI -0.6%), (VGR -2.9%), (OTCQX:IMBBY +1.4%), (JUUL)
    Image result for drone attack animated gif
    • Walgreens (NASDAQ:WBA) and FedEx (NYSE:FDX) are partnering with Alphabet's (NASDAQ:GOOG) Wing drone business in a new test delivery program.
    • The program will see food and beverage, over-the-counter medications and other household items be eligible to be delivered by drones in Christiansburg, Virginia this October. 
    • Christiansburg was selected as the test market as Wing has been working closely with nearby Virginia Tech in Blacksburg to test drone delivery as part of a DOT test program. Eligible customers in the Christiansburg area will have access to more than 100 products and six convenient "packs" via the Wing app that include many of Walgreens most sought-after products in store. The drone delivery option is said to meet use cases where customers may want health and wellness or food and beverage items immediately, but leaving home is not ideal.
    • Source: Press Release
    • McDermott (MDR -20.8%) shares continue their free-fall, topping all NYSE decliners for a second straight day on fears that the company may be weighing a bankruptcy after reports that it hired Alix Partners as a turnaround consultant.
    • Shares are the most actively traded on major U.S.exchanges, with volume soaring to 65M shares vs. the 9.8M-share full-day average.
    • Citi analyst Andrew Kaplowitz says he does not know what has causing MDR to turn to AlixPartners, seeing a "wide range of possibilities with little visibility to near-term outcomes," but MDR has plenty of good assets that are saleable and customers have an incentive to see the company succeed.
    • But a working capital unwind is now a "legitimate risk," Kaplowitz says, adding it may be harder for MDR to win work at this point.
    • Update: RBC analyst Mitch Steves says the "operating margin guide suggests there is minimal operating leverage" but calls the revenue outlook "solid."
    • Original: During its analyst day event, Seagate (STX -4.8%) guides 2-6% long-term revenue growth and an operating margin of 13-16%.
    • Western Digital (WDC -0.8%) is moving with the STX news.
    • "The consumer is the bright spot in the U.S. economy, but capex and the manufacturing sector are already in recession," said Pimco CEO Emmanuel Roman at a financial conference in New York today.
    • "We see the economy slowing down," he said, adding that Pimco sees U.S. economic growth at slightly above 1% for H1 2020.
    • "Obviously the big elephant in the room is the trade war with China and how it will resolve itself,” he added.
    • Other issues around the world are also adding to uncertainty, among them Brexit and increasing geopolitical tensions in Saudi Arabia.
    • Investors are losing out by focusing on the short-term, says Mary Callahan Erdoes, CEO of JPMorgan Asset & Wealth Management.
    • “People are so afraid of what they hear everyday that they don’t keep their eyes on the long term. The short term-ism of investors is what kills the long-term ability to compound,” Erdoes said.
    • Morgan Stanley sees the potential for more auto M&A amid the slowing down of global auto production, margin compression and heavy capex burdens.
    • "Deep into the cycle, global production has turned ex-growth, margins & multiples are compressing, and the auto industry has to find ways to invest in the transition from Auto 1.0 to Auto 2.0. These factors combined are leading to many alliances between global auto manufacturers, to share development costs in EVs and AVs, and we expect that the global auto suppliers, who have enjoyed superior margins & multiples, will be under pressure in the short-term and inevitably share in the transition. For the powertrain suppliers, multiple compression could drive consolidation, as suppliers look to offset investment cost pressures, although, in North America, leverage is a potential obstacle. We don't believe the FCA-RNO story is over at this stage," writes analyst Adam Jonas and team.
    • Crude oil prices rebound after a sharp two-day pullback, as emphasis shifts to supply risks resulting from the drone attacks on Saudi oil infrastructure; WTI October crude +1% to $58.62/bbl, Brent +1.5% to $64.56/bbl.
    • "Global available spare capacity is extremely low at present following the weekend attacks, leaving little room for additional outages, which tends to be price supportive," says UBS oil analyst Giovanni Staunovo.
    • Crude prices (NYSEARCA:USO) fell as Saudi Arabia said it would restore its lost production by the end of this month and bring output capacity back to 12M bbl/day by the end of November, but "these plans suggest Saudi Arabia will have no spare capacity for at least the next two and a half months and therefore no way to absorb any further shocks," according to consultancy Energy Aspects.
    • Bernstein seems to be talking up and talking down Netflix (NFLX -0.2%) in the same note today.
    • The firm backs its Outperform rating on Netflix and price target of $450, but lays out a scenario where shares fall sharply.
    • "The Q2 miss, coupled with the upcoming Disney+ launch in the US (and Apple as well, and more to come), has come together to make investors reevaluate their confidence in Netflix’s subs and pricing growth," writes analyst Todd Juenger.
    • Juenger sees a "floor price" of $230 on Netflix, which is 21% below the current share price and a tad lower than the 52-week low of $231.23. In the end, he thinks Netflix's vast content library will give it a pricing edge and keep its subscriber growth strong.
    • August Leading Indicatorsflat at 112.1 in-line with consensus, +0.4% prior (revised).
    • Coincident Economic Index +0.3% to 106.4.
    • Lagging Economic Index -0.3% at 108.2.
    • Impossible Burgers (IMPSBL) will have products in grocery stores for the first time tomorrow when they arrive at 27 Gelson's Markers stores in Southern California.
    • The company plans to introduce the next-gen meat products at some East Coast stores later this month and across the U.S. in 2020.
    • Eventually, Impossible Burgers could compete with Beyond Meat (BYND +1.5%) on grocery aisles.
    • U.S. Steel (NYSE:X-12.2% pre-market following weak guidance issued after yesterday's close, after Nucor (NYSE:NUE) and Steel Dynamics (NASDAQ:STLD) issued similar warnings earlier this week (III).
    • "This speaks to the emerging weakness in the energy sector in U.S., it speaks to pervasive weakness in Europe as well," Keybanc analyst Phil Gibbs tells Bloomberg. "They're not getting help anywhere right now."
    • Steelmakers (NYSEARCA:SLX) raised some prices earlier this quarter, but buyers have been slow to accept the increases; U.S. hot-rolled coil prices fell to an average of $577/st ex-works Midwest so far in Q3, down from $630/st in Q2, according to Argus.
    • U.S. Steel now expects flat-rolled product shipments to total 10.7M tons this year, down from a prior outlook of 11M tons, and it expects to keep its three idled blast furnaces offline through the rest of 2019.

  26. IBM/Options – Note above we talk about adjusting it to 2022.  ThinkorSwim says selling the 2021 $130 puts for $11 costs $30,693.95, nowhere near $75,000.  Yes, it would add margin if IBM went down and the delta on the puts is 0.34 so you'd lose $3.40 per contract ($6,800) if IBM dropped $10 to $133 and another $6,800 at $123 so you COULD just stop out and take the loss if you are worried about margin and, with your broker – I would be!  Or you can just do the $75,000 spread without selling puts for net $45,500 and that's still 29,500 left to gain – not terrible. 

    And why not 2022?  Because I think $130 is a very reasonable target for 2021 so why wait another year for the premium to burn off?  If I'm wrong, the 2022 $115 puts are $11 so we could roll to those and, if we get to roll down $15 every year – then in just 7 more years we'll be at $0 anyway! cool

    As I said, IBM is our Stock of the Year so we're pretty confident it's not failing $130 and, if it does, we'd be THRILLED to own IBM at net $119 but we won't because we'll roll to the 2022 $115 puts and own it for net $104 (even more thrilled) and then we could sell the 2024 $100 calls for $12ish and our net is down to $92 so, if you don't want to own IBM at $92 – then of course don't sell the 2021 $130 puts for $11 but, otherwise, it's a very nice way to reduce your basis on the spread.  


  27. Phil/IBM; my broker (TOS) shows the same margin for the puts but you also would hold $45,000 (cash cost for the CS) in margin so total margin requirement is $75,000.    I thought you've said that you should always have 50% of your net liquidity value in option buying power.  In the MT portfolio if the buying power is $250,000 and this position holds $75,000 that would only leave $50,000 for additional positions.  I know I'm missing something so thanks for explaining.


  28. IBM/Options – I'm just saying if you WANT to not cash out and keep one position.  To be clear – we are NOT doing that in the MTP – I'm just saying if I were going to keep one trade on – that would be it.  You don't have to worry about other buying power because it's your only position.  I'm not clear how $75,000 uses 1/2 of $250,000 but, either way, the point is I was saying "if I were going to keep one trade active".  We are not, we are going to CASH!!! CASH!!! requires NO margin (until the Fed goes to negative rates).  


  29. Sorry.  I thought you were actually doing it.


  30. Slow liquidation throughout day.


  31. I am a little disappointed that I let Phil talk me out of shorting the Russell at 1590 earlier in the week.


  32. The number of birds in the United States and Canada has fallen by 29 percent since 1970, scientists reported on Thursday. There are 2.9 billion fewer birds taking wing now than there were 50 years ago.

     

    In a statement on Thursday, David Yarnold, president and chief executive of the National Audubon Society, called the findings “a full-blown crisis.”

    Experts have long known that some bird species have become vulnerable to extinction. But the new study, based on a broad survey of more than 500 species, reveals steep losses even among such traditionally abundant birds as robins and sparrows.

     

    Common bird species are vital to ecosystems, controlling pests, pollinating flowers, spreading seeds and regenerating forests. When these birds disappear, their former habitats often are not the same.

    Wow, humans are just the worst…

    N.Y. FED TO CONDUCT REPO OPERATIONS FOR FOURTH STRAIGHT DAY

    Justin Trudeau in big trouble:

    Image

    I don't know how anyone will be able to be elected anymore in the age of being on camera your whole life.  

    TRUDEAU: 'WARY OF BEING DEFINITIVE' ON NUMBER OF INCIDENTS

    While there's lots of capital available for early-stage cannabis companies, later-stage startups often have trouble finding investors willing to write them large enough checks — without tapping into the public markets.

    "The capital markets for cannabis are totally broken. Period, full stop," Sedlin said in a recent interview with Business Insider. "There is very little true venture investing in our space."

    "There's a lot of interest in series A and seed rounds," says Sedlin. "But growth capital — that traditional later stage, B, C, D series capital — where the check sizes are anywhere from $25 to $150 million bucks? Good luck in cannabis. That doesn't exist."

    That's what we're seeing and that's why all these companies are doing IPOs way too early.

    1. What’s the repo market?

    Thursday’s T-bill auctions show "no one has any confidence that repo is going to remain below 2% for more than 15 minutes”

    Disappointed/Den – I said:

    Sugar/Ati – Thanks for noticing!  

    RUT/Den – Yes, on a huge roll now.  I wouldn't call the RUT a flee to safety but the strong Dollar is good for the RUT and momentum was on their side.  I certainly wouldn't short them ahead of the Fed. 

    They were at 1,582 on Monday and 1,581.35 at 11:30 this morning (post Fed) so, if you want to blame me for missing a point – go ahead!  devil

    Not a good turnaround for the indexes this afternoon.


  33. Sticking with MDR although the stock continues to slide.  Their bonds are still selling off and paint a pretty dismal picture.  That's why the stock is very speculative.  


  34. Phil you know I love you. But my feeling was the RUT was at 1590 at 11:14 am on the 16th and they would be rejected again as they approached 1600. But with the Fed decision on Wed approaching it was wise to wait. Every new day presents new trading opportunities so I don't lose sleep over a missed opportunity.













  35. Phil/Complicated. I can handle complicated, but complicated added on top of date mashup is pushing it too far! (I jest). Those prices that you have used for the Jan 2021 puts appear to be for the Jan 2022 puts. My brain seized up after that point :)

    I fully understand why there is a need to close down the virtual portfolios – they have spun somewhat out of control from a management point of view in terms of number of underlyings and multiple positions on each underlying. There's always a risk of mixing up dates and strikes. But I applaud your ability to analyze and adjust  and really appreciate the time you spend on reviewing the portfolios – it's a great value learning tool. 

    And I don't really mind double checking stuff because it helps me check my understanding (maybe that's why you throw in the odd typo?)


  36. Phil / Portfolio reviews – at the risk of adding to your work load – I think it would be a worthwhile analysis to review all the historical trades in the portfolios to analysis what individual trades were the biggest winners and those that were the biggest losers. You could start with the MoneyTalk portfolio first because that has had the lowest activity (and stop with that if the task if too onerous – if you send me the data dump from PowerOpt I would be happy to do the analysis myself).

    I am sure there are fantastic learnings and insights from seeing the contribution of each individual trade to the overall performance of the portfolio, the skew (e.g. a small number of big winners? – small losses spread across a large number of trades? etc.

    The snapshot reviews are very good – but compiling the historical context is difficult without seeing all the trades. The complete body of work tells a story of its own.


  37. Phil/AAPL Consolidation

    Wow … had to read that about 100 times -  brain cell still spinning  .. 

    Amazing that you can produce such a work of art so quickly! Love all of it but when you say:

     

    ‘ .. roll the 30 short JUNE (’21) $240s at $23 ($69,000) to 20 short JAN $220 calls at $18 ($36,000).’  

     

    Assume you mean 2020 Jan $220calls at $18 but I couldn’t find them.

    And do you remember I’m stuck with this  ‘pre-existing condition' (being Canadian ;-) so they won’t let me hold two sets of short calls against a single set of longs (the $200/260bcs). Well I probably could but they would be margined as naked calls – unless I hold on to the ’21 $140calls.

     

    Do you have a comment about the 20 Jan'20  $150/160 spread? Should I roll the short $160's at some point?

     

    THX!

     


  38. Good morning!

    Futures pointing up a bit but it's a crazy Quad Witching Day so could be violent moves as people close out the quarter.  

    This new Trump scandal is kind of a big deal but, in the history of Trump scandals, when has anything mattered?

    There's 3 Fed speakers today and all 3 are "moderate" (neither hawk nor dove) but we'll need to pay attention to which way they swing in a divided Fed though these days, even the moderates are what we used to call doves as they are going along with the current madness.

    • Officials from the United Auto Workers Union are saying talks with General Motors (NYSE:GM) aimed at ending a four-day nationwide strike are likely to extend into the weekend.
    • The walkout of 48,000 UAW members has rippled through GM's supply chain, triggering temporary layoffs at its assembly plant in Oshawa, Ontario, as well as the carmaker shifting healthcare insurance costs to the UAW.
    • GM shares are off 0.3% premarket to $37.68/share on the news, extending the stock's decline since the strike action began last week to around 3%.
    • U.S. natural gas futures posted the biggest daily percentage drop since mid-July, settling -3.8% to $2.538/MMBtu, following a bigger than expected storage build and forecasts for less cooling demand next week.
    • The U.S. Energy Information Administration reported utilities added a greater than expected 84B cf of gas to storage, raising stockpiles to 3.1T cf, still 2.4% below the five-year average of 3.178T cf for this time of year.
    • But with production near a record high, analysts believe stockpiles should reach a near-normal 3.7T cf by the end of the summer injection season on Oct. 31.
    • Prices had been rising over the past two weeks as warmer weather boosted air conditioning demand and power generators burned more gas than usual.
    • But traders note warmer than normal weather in late September is a lot cooler than in the summer, and continued warmer weather would reduce the need for heat, which could hurt gas demand.
    • Gasoline futures rallied amid reports of massive flooding in Texas, leading to concerns of a slowdown in refining activity and lower demand for crude oil.
    • October gasoline futures (NYSEARCA:UGA) settled +2.6% to $1.7007/gal, while front-month crude oil futures finished flat at $58.13/bbl after reaching as high as $59.54/bbl.
    • The Sabine Ship Channel, a major Texas waterway for transporting crude oil and natural gas, was closed early today because of flooding from Tropical Storm Imelda.
    • The flooding also forced Exxon to shut down units at its Beaumont, Tex., petrochemical plant, and the company reportedly was preparing to shut its Beaumont oil refinery.
    • Shutdowns would lead to lost power demand and lower crude runs, says Phil Flynn, senior market analyst at Price Futures Group.
    • Apparently the repo market hasn't calmed down enough for the Fed's taste.
    • The New York Fed will conduct another overnight repurchase operation, its fourth in as many days, tomorrow morning from 8:15 AM to 8:30 AM to help maintain the federal funds rate within the target range of 1.75%-2.00%.
    • Again it will be conducted with primary dealers for up to an aggregate amount of $75B.
    • At this morning's operation, the NY Fed took up $75B of Treasurys and securities after $83.9B of securities were submitted.
    • Previously: Interest-rate strategists see Fed buying Treasurys after October meeting (Sept. 19)
    • The British pound rises 0.5% against the U.S. dollar after European Commission President Jean-Claude Juncker tells Sky News that he thinks "we can have a deal" on Brexit and that a no-deal split between the U.K. and EU would "have catastrophic consequences for at least a year."
    • Further, he said he's prepared to remove the Irish backstop from the deal as along as "alternative arrangements" are in place "that achieve the main objectives of the backstop."
    • Still, the EC is prepared for a no-deal, and "I hope Britain is prepared as well, he said.
    • Invesco CurrencyShares British Pound Sterling Trust ETF (NYSEARCA:FXBrises 0.5% and the iShares MSCI United Kingdom ETF (NYSEARCA:EWUgains 0.6%.
    • Previously: Brexit talks shift to Irish solutions (Sept. 19)
    • U.S. Steel (X -10%) maintains sharp losses after guiding for a much larger than expected Q3 loss, citing lower scrap prices, a continuing deterioration of market conditions in Europe and anticipated weakness in its tubular segment.
    • In reaction, Macquarie analysts double downgraded X to Underperform from Outperform and slashed its stock price target to $9 from $18, expecting steel prices as well as the company's cash flow will remain under pressure in a weak pricing environment.
    • U.S. Steel could burn $1B-plus of cash unless the steel market supply demand dynamics significantly improve, and steel price momentum has reversed on lack of demand growth and the fact that scrap prices are expected to stay weak at the end of the year, Macquarie says.
    • X's average Sell Side RatingSeeking Alpha Authors Rating and Quant Rating all are Neutral or Hold.

  39. MDR spiked up over $3 pre-market, currently holding $2.70 :)


  40. MDR – Received unsolicited approaches for Lummus Technologies with valuation exceeding 2.5 billion.


  41. At yesterday's closing price of $1.58, MDR's market cap was about 300 million !


  42. MDR/Ati – Well that was worth a chance then.  See, we can always find fun things to trade.

    Portfolios/Winston – I don't think the MTP was too complicated, our big gainers were AAPL, CAT, GOLD, GIS, IMAX, MU and WPM and the big losers were the hedges (of course) and LB.  I don't see a lot of benefit to looking back on trades like that as it tells you nothing about what's going to happen next (LB, for example, is a trade I'll still make in the future) – which is why I don't like keeping portfolios in the first place as I prefer to spend my time looking for new opportunities, rather than dwelling on things that happened ages ago in different market conditions. 

    As much as you may think I'm on vacation simply because I have 100 less positions to review now, it's more like I'm back to doing what I really enjoy, which is focusing on the next 100 opportunities.  I already started the new portfolios (that's how I build a Watch List and a Buy List) and PowerOpt doesn't seem to save the old data but I'll be happy to put you in charge of it in the new cycle, maybe every month when I do the reviews if you think it's something you want to work on?

    AAPL/Wing – You have 30 short June 2021 $240 calls (at $23), those are the ones I meant.  I'm saying that rolling them to 20 short Jan (2020) $220 calls but those are $13.50, not $18 so those are probably not the ones I was looking at, must have been looking at March and I'd go there for the extra $4.50.  I wouldn't hold the 2021 $140s but you could sell less of the 2022 short $260s if the margin is an issue.   On the Jan $150/160 spread, I don't think it helps on taxes (it wouldn't in the US) if you roll as you still profit on the current spread but you'd have to ask an accountant, not me.  I think just be happy it's a winner though you said $29/46, which indicates you paid $15 for a $10 spread?

    $300M/Albo – Yeah, I said that was silly.  Too bad we didn't have any portfolios to put them in! 


  43. Yeah, glad I dipped a toe into MDR. Hopefully it'll hold some of the move until open & the $4 calls have some good premium.


  44. Phil/AAPL

    Good on the MARCH 2020 $220 short calls – thanks.

    My cap gains will trigger when I sell the 20 Jan '20 $150cs which is why we sold the $160's to get cash out. So prefer to keep $150's until 2020 (esp if I sell the '21 $140s) but could roll the $160's. Is it better to roll in the money shorts sooner or later .. or no difference? My cost on the $150s was actually $26 as they were a roll and I thought the spread paid me $20 as I collected 46 on the shorts.