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Thrilling Thursday – Back to Test S&P 3,000 – Again

"Come easy, go easy
All right until the rising sun
I'm calling all the shots tonight
I'm like a loaded gun
I'm back in the saddle again"
- Aerosmith

And we're back.

Right back to S&P 3,000 as the S&P gains 7 points in pre-market trading – more so on China Trade Progress than Trump's Impeachment, which is a truly quantum political event as he is at the same time guilty and not guilty – depending on who is observing his exact same actions.  Here's some stuff we've been reading on the subject:

I threw that last one in there to remind us that the planet is dying and we're wasting time worrying about whether or not Trump might be lying about his phone call to the Ukraine.  What, Trump lie?  Do we really need an investigation when it's pretty much his defualt setting?  It's kind of like conducting an extensive investigation into your entire family when "somebody" peed on the rug.  Sure you could just blame the dog – but where would the justice be in that?

As you can see from the poll, "only" about 1/3 of the voters think Trump should be impeached but only 15% of the voters though Nixon should be impeached when Watergate started – it was 68% by the time he left office in total disgrace but, SURPRISE, most Republicans still thought he should remain in office.  Keep that in mind when you see these polls – 66% is the new 100% because 1/3 of the country is never going to be convinced about anything that goes against their pre-concieved notions.  This "Democracy" is now all about convincing the middle 1/3 to swing one way or the other. 

The Impeach-O-Meter is set to 75 percent.What does that mean for the markets?  UNCERTAINTY – and lots of it.  As you can see from the official Impeach-O-Meter, we're at a new high of 75% – higher than it was during the Mueller investigation

Impeachments can get very ugly and the market dropped 50% during Watergate, despite the Vietnam War ending (for US) in Jan of 1973, which should have been rally fuel but was instead the beginning of a 2-year slide that didn't really bottom out until 1982 – taking the Dow from 6,150 to 2,125 (down 65%) over that period of time.  The S&P 500 followed a similar path:

Image

As I said to our Members during yesterday's Live Trading Webinar, that doesn't mean we won't be able to trade but it does mean we'll have to trade differently over the next couple of years than we did for the last couple of years.  For example, on Tuesday we discussed some commodity plays that seemed obvious and I suggested the following trade idea for Coffee (/KCH20) at $102:

There's no ETF for Orange Juice but there is for Coffee (/KC) and we always love it below $100 and /KCH20 (March) is down to $102 and that makes for a fun play but you have to be willing to Double Down at $98 to average 2x at $100 with a stop at $95, which would be a loss of $375 per $1 or $1,875 per contract.  So the risk is $3,750 but the reward, even at just $122 would be $7,500 on a single contract and /KC has been very good to us for two years now.  

Coffee does have an ETF (JO) and, like SOYB above, we can pick up a spread that can give us a nice return.  We think $100 (though it can dip below) is a good floor for Coffee as it's a point below which the farmers simply can't make money selling it.  For the ETF, which is at $32.50, we can do the following spread:

  • Sell 5 JO March $30 puts for $1.40 ($800) 
  • Buy 10 JO March $30 calls for $4.40 ($4,400)
  • Sell 10 JO March $32 calls for $3.20 ($3,200) 

That's net $400 on the $2,000 spread so $1,600 (400%) upside potential if JO holds $32 into March.  As long as /KC stays above $98, you should get paid in full.  The downside to this trade is that, below $30, you would be forced to buy 500 shares of JO at $30 ($15,000) but we like that price and you can turn right around and sell calls against it to lower the basis further.

As you can see from the charts, we've already had nice pops on /KC and the ETF with /KCH20 testing $106 this morning and that's already good for gains of $1,500 per contract (you're welcome) and the short JO puts are now 0.90 ($450) and the $30 ($4.80)/32 ($3.55) spread is net $125 ($1,250) for net net $800 – already a double and well on our way to our $1,600 profit goal.  That's pretty good for 48 hours, right?

We're still waiting for Soybeans and Orange Juice to pop but, most importanly, we just keep watching the news for investing signals – hopefully ones that don't depend on a stable political atmosphere (or a stable planetary atmosphere!).  Soybeans should be next to move as Bloomberg just reported this morning that China indeed will be boosting their Soybean Purchases during the October Trade Talks – just as we expected they would!  

Remember – I can only tell you what is likely to happen and how to make money trading it – the rest is up to you!  

We're still not warming up to stocks, however, as we're already seeing a lot of profit warnings in Europe (where CEOs tend to be more forthcoming with such things) while a BEA report shows that Corporate Profits, after adjusting for Inventory Valuation and Capital Consumption, are 3.6% LOWER than they were 5 years ago, in 2014.  According to the BEA, the difference between earnings that are released and GAAP (Generally Accepted Accounting Principles) Earnings has rarely been wider stating "The implication is that companies are pulling levers up and down the income statement to (falsely) sustain earnings growth."  

And, of course, Corporate Share Repurchases are driving EPS down – even when the earnings are flat.  In the last 4 quarters along, companies repurchased $750 BILLION of their own stock, comprising one out of every 4 stock transactions.  Markets simply don't get more artificial than this!  

 


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  1. Good morning, All! 

    The webinar replay is up!

    https://youtu.be/XJiesarQ8x4


  2. Good Morning!



  3. Joe Sixpack – "Don Corleone, I would appreciate it if you could give little Joey a job in the organization"
    Don Corleone – "I would like you to do me a favor though!"

    See, no quid pro quo either!



  4. Economic indicators: Here's the future in some interesting places – https://marker.medium.com/what-champagne-rvs-and-underwear-can-predict-about-the-next-recession-6889e939a50d


  5. Biden: fire the prosecutor or no billion dollars

    See, no quid pro quo either!


  6. Will people wake up:

    https://www.vox.com/recode/2019/9/24/20882174/wework-adam-neumann-softbank-ipo

    Matt Kennedy, an expert on IPOs at Renaissance Capital, said that while WeWork’s drama has proven to be “embarrassing” for SoftBank, it should not cast shadows over the world of tech.

    “There [are] still plenty of IPOs coming out of Silicon Valley that are successful,” Kennedy told Recode. “Just this whole model of giving a company a $20 billion-plus valuation — when it’s losing $1 billion a year — just won’t fly in public markets.”


  7. LOL Mikezuela – of course this has been debunked outside the Giuliani and Hannity  fantasy world!


  8. Or maybe people are not waking up:

    https://ritholtz.com/2019/09/unprofitable-companies-ipo/

    “Unprofitable companies are raising money in initial public offerings at the fastest pace since the dot-com bubble when a revolution in the banking industry sparked a rush to risk…


  9. StJ, how can it be debunked when he said it and it was recorded? He bragged about it, you may agree with his actions but those were Biden's words, quid pro quo, no ambiguity to me


  10. MikeZ-why don't you post the WHOLE video of Biden's exchange so we can all see It? Then there is something to talk about. Until it is just more "fake news" as our POTUS is constantly telling us about everything that comes out of his mouth.



  11. He (and the rest of Europe) wanted that prosecutor gone for being TOO soft on corruption! You need some context and more information. Done for me!


  12. If Biden is guilty of crimes then prosecute him right after impeaching Trump.  I thought that was what draining the swamp was all about.  


  13. Not to mention that foreign aid to Ukraine was cut BEFORE the conversation with Zalensky because potus sure wouldn't want to cross his friend in Russia!


  14. Politics is all about compromise, so let's impeach Trump & Pence and start an investigation into Biden.  That way President Pelosi can get a head start on the Warren Administration's agenda.  Perfect!!!


  15. Good morning!

    CNBC is such a joke.  Trump is being impeached and they are covering the Pelaton IPO.

    Maguire digging himself a deep hole as he held up what was very clearly a valid whistleblower complaint on a technicality.  "It was urgent and important but my job is to comply with the Whistleblower Act…"  What a load of crap! 

    This is so absurd – now he's claiming he waited because the WH was considering reserving executive privilege – so he failed to perform his duty to notify Congress of the President's actions – in case it would upset the President.  WOW!!! We need to seriously overhaul the rules of our "Democracy".

    Big Chart – So close to turning ugly.

    Quid pro quo/StJ:

    1. Congress approves aid to Ukraine
    2. Trump orders aid to Ukraine held up
    3. Trump asks President of Ukraine for favor gathering evidence against his political opponent
    4. 5 Ukraine President agrees to help Trump and communicate with Trump's personal attorney 
    5. Trump releases aid to Ukraine

    I don't think it can really be less complicated than that!  

    Indicators/Snow – I like that!

    LOL Mike – Nothing you said in that 9:35 comment is actually true.  You sound like the GOP talking points memo.  Take that brain out of the wash – it's done!  

     

     

    https://www.nbcnews.com › politics › 2020-election › there-s-no-evidence…

    1 day ago - President Donald Trump said former Vice President Joe Biden had corruptly used his power to benefit his son in UkraineDid he? … Biden has taken credit for getting the prosecutor removed, boasting about it as a win for …

     

     

    https://theintercept.com › 2019/09/25 › i-wrote-about-the-bidens-and-ukra…

    1 day ago - Then-Vice President Joe Biden, right, and his son Hunter Biden at a street … “Biden went around bragging that he stopped the prosecution so if …

     

     

    https://fox2now.com › 2019/09/25 › trump-made-false-claim-to-ukrainian…

    16 hours ago - Facts First: Joe Biden did not brag that he stopped any prosecution. Rather, he bragged that he had successfully pressured the Ukrainian …

    The middle article is very good as it's the actual author who broke the Biden story in 2015 talking about how it's been completely perverted by right-wing nutbars:

    In 2015, I wrote a story for the New York Times about Joe Biden, Hunter Biden, and Ukraine. Many observers now seem to think this suddenly hot story came out of nowhere this year, but that is not true.

    The truth behind that story has been lost in a swamp of right-wing opposition research, White House lies, and bizarre follow-up stories. Now it appears that the Biden-Ukraine story will play a role in a new impeachment inquiry against Trump, amid evidence that he sought to pressure Ukrainian President Volodymyr Zelensky by withholding U.S. aid unless Zelensky agreed to investigate the Bidens.

     When Joe Biden went to Ukraine, he was not trying to protect his son — quite the reverse.

    The then-vice president issued his demands for greater anti-corruption measures by the Ukrainian government despite the possibility that those demands would actually increase – not lessen — the chances that Hunter Biden and Burisma would face legal trouble in Ukraine.

    In May, when this issue began to surface, The Intercept’s Robert Mackey wrote an excellent piece debunking the lies in the new pro-Trump version of the Biden story.

    Biden did threaten to withhold $1 billion in U.S. loan guarantees unless Shokin was ousted. But that was because Shokin had blocked serious anti-corruption investigations, not because he was investigating Burisma.

    Image result for the force weak minded

    Yes Mike, your video "proves" Biden cracked down on corruption in the Ukraine – how does that then morph into this fantasy you have that he did it to stop his son's company from being investigated – the next prosecutor immediately investigated that company.

    And, by the way, who wins when Trump withholds aid to the Ukraine (that they need to fight off Russian-backed separatists)?  Who wins when Trump embroils the Ukraine President in a scandal AND makes him look foolish by releasing a phone conversation in which he disparages Germany and France?  It all works for Putin, doesn't it?  Who's the bigger dupe – Trump or the people who excuse Trump's behavior when it undermines US interests?

    Good compromise EMike.  


  16. Phil, when did I reference anyone's son?



  17. The Cost of Selling Your Home





  18. Republicans in house not too happy


  19. Wow, Mike Conaway (R – Texas) says "I don't see how the law can be clear if people on both sides have different opinions – the law must be flawed."  This is truly Orwellian at this point…

    WE have a whole year of this to look forward to.

    Son/Mike – Well then what is the quid pro quo you are referring to?  Are you saying that Biden demanded a corrupt prosecutor be fired or the US would withhold aid?  Yes, he did that.  Did Biden recount that he did that on TV – yes, he did.  Is that the quid pro quo you are referring to – Vice President Joe Biden conducting US foreign policy?  Gosh, you got us – I guess that actually happened!  

    Image result for we got him oliver animated gif


  20. Glad we found agreement


  21. Meanwhile, GDP was 2% (weak) and unemployment ticked up.  

    Q2 GDP estimate stays at +2.0%

    • Q2 GDP+2.0% vs. +2.0% consensus and +2.0% prior estimate.
    • Initial Jobless Claims +3K to 213K vs. +211K consensus, 210K prior (revised).
    • Continuous Claims: -15K to 1.650M vs. 1.665M consensus, 1.665M prior (revised).

    • New York Fed reports that this morning's term repo operations were oversubscribed with $72.75B submitted and $60.0B accepted.
    • By collateral type, $35.75B of $43.0B Treasurys accepted, no agency debt accepted ($0.5B submitted); $24.25B of $29.25B of mortgage-backed securities accepted.

    • 30-year fixed-rate mortgage averages 3.64% for the week ending Sept. 26, 2019, down from 3.73% in the prior week and 4.72% at this time last year, according to the Freddie Mac Primary Mortgage Market Survey.
    • That means the 30-year FRM rate gave back 9 basis points of the 17-bp increase that occurred a week ago.
    • September has been the most volatile month since March, in terms of the 30-year fixed-rate mortgage, averaging a weekly movement of 11 bps, according to Freddie.
    • “With both the unemployment rate and mortgage rate below four percent and near historic lows, it is no surprise that the housing market regained momentum with home sales and construction at or near decade highs," said Freddie Chief Economist Sam Khater.
    • 15-year FRM averages 3.16% vs. 32.1% in the prior week and 4.16% at this time a year ago.
    • 5-year Treasury-indexed  hybrid adjustable rate mortgage averages 3.38% vs. 3.49% a week ago and 3.97% a year ago.
    • Royal Caribbean (RCL -2%) and Norwegian Cruise Line Holdings (NCLH -2.7%) fall after Carnival (CCL -7.7%) surprises with Q4 and full-year guidance below expectations.
    • Carnival management pointed to hurricane disruptions in the Caribbean, as well as broader macroeconomic factors in the Europe and Asia segments. The recent volatility with fuel prices is also a factor with the reduced outlook on net yields and EPS.
    • Previously: Carnival slides after profit warning (Sept. 26)
    • The U.S. Securities and Exchange Commission votes to adopt a rule that that will allow all issuers to gauge market interest in a possible initial public offering or other registered securities offering through discussions with certain institutional investors before or after filing a registration statement.
    • Previously, this "test the waters" accommodations was only available to emerging growth companies, under the Jumpstart Our Business Startups Act.
    • “Investors and companies alike will benefit from test-the-waters communications, including increasing the likelihood of successful public securities offerings," said SEC Chairman Jay Clayton.
    • JPMorgan says valuation on Whirlpool (WHR +5.7%) looks attractive at its current level.
    • "We expect U.S. industry shipments to be more stable YOY through the end of 2019 and show modest growth in 2020, point to steel prices remaining at bay, expect Europe to finally turn a small profit in 2H19, and lastly, view its valuation as inexpensive," updates the firm.
    • JP upgrades Whirlpool to an Overweight rating from Neutral. The average sell-side rating on Whirlpool is Hold and the Quant Rating is Neutral.
    • Nestle (OTCPK:NSRGY) officially launches its Awesome vegan burgers in the U.S. today.
    • The company is launching plant-based burgers and grounds in the U.S. and Switzerland, with ingredients and recipes customized to meet local tastes. Nestle says the yellow pea protein products look and cook like raw beef and provide a juicy, meat-like taste and texture.
    • KeyBanc analyst Andy Hargreaves says an Apple (NASDAQ:AAPL) investment is no longer attractive due to slow user growth.
    • Hargreaves thinks the "Services narrative is largely priced in" and notes that "user growth is decelerating due to market saturation and its gross profit per user has been declining," which aren't "particularly attractive metrics for a services business."
    • The analyst forecasts Apple's FY20 EPS at $12.50, below the $12.68 consensus.
    • Hargreaves maintains a Sector-Weight rating. Apple has an Outperform average Sell Side rating.
    • Apple shares are down 0.4% pre-market to $220.20.
    • Pearson (NYSE:PSO) down 15.4% in pre-market as the company issued a profit warning after seeing weaker trading in US higher education courseware business.
    • The company said that Q3 was "significantly weaker than expected" in this area.
    • Expects adjusted operating profit to be at the bottom of the guidance range of £590M – £640M, with adjusted EPS at the bottom of the guidance range of 57.5p to 63.0p.
    • The proportion of revenue from digital courseware is seen rising to 65% of this from 55% last year, providing some encouragement of management’s digital-first strategy coming though.
    • Furthermore, Pearson said it remained “on track” to cut £330M of costs on an annualized basis
    • The House passed the SAFE Banking Act by a vote of 321-103 that shields banks from federal prosecution if they conduct business with cannabis companies in states allowing legal weed. 229 Dems, 91 Republicans and one independent voted in favor.
    • Next up is the Republican-controlled Senate although the bill should pass there as well, albeit with possible amendments.
    • Selected tickers: ETFMG Alternative Harvest ETF (NYSEARCA:MJ) (+2%); Cronos Group (NASDAQ:CRON) (+4%), Tilray (NASDAQ:TLRY) (+2%), Canopy Growth (NYSE:CGC) (+3%), Aurora Cannabis (NYSE:ACB) (+4%)
    • Saudi Aramco (ARMCO) has approached Abu Dhabi Investment Authority, Singapore's GIC and other sovereign wealth funds to invest in the domestic leg of its upcoming IPO, seeking to achieve a $2T valuation, Reuters reports.
    • A meeting between Aramco management and a team from Abu Dhabi's ADIA, the world's third biggest sovereign wealth fund, is set up for October, and Abu Dhabi state investor Mubadala Investment also has been approached by Aramco's advisors, according to the report.
    • To achieve the $2T valuation, Aramco would need the initial listing of a 1% stake on the Saudi market to raise at least $20B, but some see the valuation as ambitious, considering the weak outlook for oil prices, the potential for climate change activism to dampen investor interest, and risks raised by this month's drone strikes that knocked out more than half of Aramco's production.
    • Stephens weighs in on the small test by McDonald's (NYSE:MCD) of Beyond Meat products in Canada.
    • The Arkansas-based firm thinks McDonald's is more likely to test an alternative chicken product in the U.S. than a beef product. That thought could bring Tyson Foods (NYSE:TSN) into the discussion, with the company's new Raised & Rooted meat alternative brand expected to debut shortly.
    • Shares of Beyond Meat are up 15.83% in premarket trading to $160.00 to track back to where they stood about ten days ago. McDonald's is up 0.36% to $213.39.


    • The Baltic Dry Index was down 4.38% in London to settle at 1,963.
    • It's the first time the BDI fell below 2K in September.
    • Capesize rates were down 6.36% and Panamax rates were off 2.79%. Supramax and Handysize rates were down just  slightly.
    • Activity in the market for repurchase agreements, or repos, where banks seek more than 1T in cash loans each day, has increasingly concentrated at large banks.
    • That's a challenge the Fed faces as it tries to get funds flowing through the financial system after last week's surge in overnight interest rates, which climbed as high as 10%, the Wall Street Journal reports.
    • As the Fed boosts lending in the repo market, it's relying on a small group of bond dealers to redistributed that money through the financial system, raising the likelihood that those channels will clog.
    • However, there's the risk that dealers decide to hold on to funds for their own needs, analysts said. At the end of last year, larger banks cut back on lending, boosting repo rates over 6%. That may have occurred because regulators usually examine banks' balance sheets at the end of fiscal quarters to ensure they're following rules that safeguard the banking system.
    • Indeed, the Federal Reserve Bank of New York is looking into why banks with excess cash failed to lend to the overnight money market last week, the Financial Times reported last week.
    • Additionally, a number of smaller firms that borrow from the larger dealers through the repo market and distribute money more widely has declined. CRT Group LLC closed in 2017, KGS-Alpha Capital Markets LP was acquired last year by BMO Capital Markes and the repo operations of Rosenthal Collins Group was shut in February after it was bought by commodities brokerage Marex Spectron.
    • As with many industries, it boils down to large companies having more advantages in accessing funding than smaller firms.
    • Ericsson (NASDAQ:ERIC-2.1% after-hours after saying its Q3 results will be affected by a 12B Swedish krona ($1.23B) provision for investigations by the U.S. Securities and Exchange Commission and the Department of Justice over the company's compliance with the U.S. Foreign Corrupt Practices Act.
    • The company says it estimates $1B in combined monetary sanctions plus additional related costs to resolve the U.S. probes.
    • Ericsson says it has identified breaches of its code of business Ethics and the FCPA in the course of the investigations, and that breaches were the result of several deficiencies, including a failure to react to red flags and inadequate internal controls which enabled some employees to actively circumvent internal controls.

    Here's another "subtle" threat ahead of the elections:

    • The Justice Dept. is set to investigate Facebook (NASDAQ:FB) for antitrust at the prodding of U.S. Attorney General William Barr, Bloomberg reports.
    • That would add to the existing FTC antitrust probe, making the company the target of two cases at once.
    • The DOJ will examine conduct separate from what the FTC is examining, according to the report.
    • Facebook also faces investigations by state attorneys general and the House Judiciary Committee.
    • Shares are down 0.2% after hours.

    "That's a nice company you have there – would be a shame if anything were to happen to it…"

    Image result for zuckerberg trump  cartoon










  22. Seem to have firmed up a little, now we'll see how bouncy.  Dollar still strong at 98.75. 

    I guess the RUT (/RTY) would be the way to go bullish – 1,537 at the moment but only if we break over 26,850 on /YM and 2,972.50 on /NQ with /ES at 2,972.50 as well.  Just like /RTY as it tends to make wild swings but, if the others aren't over – there's no sense in risking it.

    • Peloton (PTON) has opened for trading at $27 per share, 7% below its $29/share IPO pricing.
    • The price is still within the range of $26-$29/share marketed before the company priced at the top of its range last night.
    • Peloton's IPO raised $1.16B, making it the eighth U.S. offering this year to crest $1B.
    • The three major U.S. stock averages extend their decline, with energy and telecom weighing on the market.
    • Chip stocks fall after reports that the Trump administration is unlikely to extend a temporary waiver allowing some U.S. companies to buy equipment from China-based Huawei.
    • Tech-heavy Nasdaq falls 0.9%, the S&P 500 slips 0.6%, and the Dow falls 0.5%.
    • Among the S&P 500 sectors, energy (-1.8%) and communications services (-1.5%) lag the broader market, while real estate (+0.4%) and consumer staples (+0.3%) outperform.
    • 10-year Treasury strengthens, pushing yield down 4 basis points to 1.691%.
    • Dollar Index is little changed at 99.05.
    • Boeing (BA -0.3%underestimated the effect that a failure of new automated software in its 737 MAX aircraft could have on the environment in the cockpit, and should consider making changes to flight deck alerts, pilot procedures and training, the National Transportation Safety Board says in its review of potential lapses in the design and approval of the plane.
    • The NTSB issued seven safety recommendations to the Federal Aviation Administration related to the two 737 MAX crashes that killed 346 people and led to the plane's grounding.
    • The review says the FAA should address assumptions Boeing and other manufacturers make in designing software systems to address emergencies and whether the systems should be revised to account for varying pilot reactions to cockpit alarms and alerts.
    • Crude oil prices (USO -1.6%slide for the third straight day, with WTI crude returning below its 50-day moving average ($56.06/bbl) and now just $1/bbl above the level seen on Sept. 13, the day before the attacks on Saudi Arabia's oil installations; November WTI -1.7% to $55.54/bbl, Brent -1.3% to $61.57/bbl.
    • The energy sector (XLE -1.7%) is following in crude's footsteps, dragging along the bottom of today's sector standings and also near its 50-day moving average.
    • "There has been not much joy for oil bulls in recent days as either sluggish stock market performance, recovering Saudi oil production or unexpectedly disappointing U.S. inventory data hindered any attempt to push prices higher," says Tamas Varga of oil brokerage PVM.
    • Today's energy weakness is paced by energy equipment and services names (OIH -2.5%) including NOV -1.7%HAL -1.7%SLB -1.8% and BHGE -2.9%; as well as oil and gas producers (XOP -3%) such as CXO -2.4%HES -2.7%MRO -2.4% and COP -3.2%.
    • Chip stocks are leading another leg down for markets, as U.S. officials are saying the administration is unlikely to extend a temporary waiver to supply Chinese equipment maker Huawei.
    • The news on Huawei coming this close to early-October trade talks may be putting a damper on overall trade sentiment.
    • The Tech Select Sector SPDR (NYSEARCA:XLK) has slipped to -0.4%.
    • The Dow is down 0.4%, and Nasdaq down 0.8%.
    • Amid semiconductor ETFs, SMH is -0.3%SOXX -0.6%XSD -0.4%.
    • September Kansas City Fed Composite Index-2 vs. -3 consensus, -6 in August.
    • Manufacturing Index +11 vs. -2 prior.
    • “Regional factory activity continued to decline in September, though not as much as last month,” said Wilkerson. “Although the employment index dropped further this month, firms as a whole indicated 2019 employment expectations have increased slightly since the beginning of the year.”
    • Morgan Stanley strategists say the Fed will likely buy $315B of Treasurys, including bills and coupons over six months, starting Nov. 1 to rebuild reserves as it continues to run temporary open market operations.
    • The Fed will need to permanently boost the size of its balance sheet as temporary repo operations won't be enough to relieve recent funding pressures, they write.
    • They see two options — one would be a standing repo facility and extending the eligible counterparty list to all banks; the other is a more permanent solution of purchasing securities in the secondary market to increase reserves to $1.45T initially vs. current level of $1.32T excluding temporary operations.
    • The Morgan Stanley strategists include Kelcie Gerson, Matthew Hornbach, and Guneet Dhingra.
    • via Bloomberg First Word.
    • Previously: Fed needs to spend at least $200B to rebuild buffer – BMO (Sept. 25)
    • The U.S. has been granted approval by the World Trade Organization to impose tariffs on European Union goods with a ~$7.5B annual trade value after some government support for Airbus (OTCPK:EADSY) was ruled illegal, Reuters reports.
    • The decision brings the U.S. and EU closer to a tit-for-tat tariff war after 15 years in which both sides have won partial WTO backing over claims of illegal support to Airbus and its U.S. rival Boeing (NYSE:BA).
    • The Trump administration has compiled a list of various goods worth $25B from which it could choose items to target if it goes ahead with the tariffs.
    • In a counter-case, the EU is pursuing tariffs against the U.S. after the WTO ruled against some U.S. support for Boeing, but the procedure is running six months behind the U.S. case.


    • While the Fed, for more than a year, had consistently said inflation has lagged its target rate of 2%, Federal Reserve Vice Chair Richard Clarida considers the current inflation rate generally in line with its goal.
    • "Let me emphasize that, based on the evidence I have reviewed, I judge that U.S. inflation expectations today do reside in a range I consider consistent with our price?stability mandate," he said in prepared remarks at the San Francisco "Fed Listens" even.
    • Generally, when the unemployment rate falls below 4%, inflation rises, so at this point, with unemployment at about 3.7%, economists would expect inflation to accelerate.
    • One reason that may not be happening is the labor participation rate is increasing, Clarida said.
    • The August participation rate rose to a cycle high of 82.6% and there may be room to pull in more workers who had stopped seeking employment as "prime-age participation still remains below levels seen in previous business cycle expansions," he said.
    • As a member of the Fed's Board of Governors, Clarida is a voting member of the monetary policy-setting Federal Open Market Committee.

  23. Peloton (PTON) is interesting.  Valuation is about $8Bn and they are selling about 14% of the company for $1.1Bn.  Obviously not for me but they've been going it it for 6 years now and have hit $1Bn in sales and I wouldn't expect them to be profitable but they don't lose much either.  

    Other Highlights

    • 577,000 hardware units sold to date
    • 511,000 Connected Fitness subscribers and 102,000 Digital subscribers
    • 95% subscriber retention rate in last 12 months
    • 55M workouts completed in FY19

    There are 110M households in the US and 189M people can afford IPhones so divide by 3 and let's say there are 60M households that can afford a Peloton but that's probably high as the IPhone is like $50/month but people NEED a phone for $20/month anyway so marginally it's $30/month vs financing the $2,500 bike for 3 years at $75/month PLUS $39/month for the actual membership.  

    They have a very impressive retention rate but that's among true fans and half of them just bought the machines this year – so they may not be sick of them yet.  So $1Bn new sales this year added about 200,000 users (obviously a lot of financing) and let's say the addressable market is 30M households – allowing for people who don't have room or flat out don't have that kind of cash or even the interest in exercise.  That's still tons of room to grow and there's apparently 25M home gym users so the numbers line up.  

    So figure 3M subscribers pay them $400/yr is $1.2Bn while they are selling 500,000 units for another $2Bn and they have AAPL-like 35% margins so that should get them to $800M in profits in 5 years or less and, if it were my business, I'd hook up with an insurance company and arrange to get people discounts for maintaining certain fitness levels that would offset the cost of memberships.  There's another 2-3M memberships you can sell.  

    $8Bn is way ahead of themselves at the moment but, one day, they'll be worth it so we should keep our eyes on these guys and look to jump in if they go on sale.


  24. Hey StJ – This would be fun to attend:  https://www.njdems.org/2019-njdsc-conference/


  25. Not a very impressive bounce so far. 


  26. Phil – was the chart of CMG in the write up of Peloton a Freudian slip? You've got to stop thinking about those burritos!


  27. Dems / Phil – What makes you think that I am a liberal :-)  

    Something I said? Unfortunatelty, got work to do otherwise I might have taken the ride there.


  28. Damn, Trump looks like an orange angry Hulk now… Smash everything!


  29. CMG/Winston – Not just keeping track.  I doubt I have to tell people why I care anymore.  Just one day left and we book a fantastic month for the HF.

    Dems/StJ – I'd love to go hear what Pelosi has to say (Sat Night) and you know I'm not adverse to casinos.   cool

    Image result for trump hulk

    Related image

    Image result for trump hulk


    • Tesla (TSLA +4.7%) "has a shot" at delivering 100K cars in Q3 to set a new record, according to an e-mail from Elon Musk to employees seen by Electrek.
    • In what has become a fairly typical late-month tradition, Musk is prodding employees to push deliveries higher. This time around, Tesla could hit six figures with its quarterly tally for the first time ever.
    • "The challenge is making sure that we have the right car variants in the right locations and rallying as much as our company resources as possible to help with the end of the quarter deliveries," notes Musk.
    • Bloomberg sources say the U.S. isn't likely to extend a waiver allowing domestic companies to supply Huawei.
    • The Philadelphia Semiconductor Index is down 0.3% compared to the 0.1% for the tech sector (NYSEARCA:XLK).
    • Top semi movers include Huawei-exposed companies Qualcomm (QCOM -0.2%), Xilinx (XLNX -0.5%), Intel (INTC -0.5%), and Micron (MU -2.4%), which reports earnings after the bell.
    • Related: Earlier today, Susquehanna said Huawei orders from U.S. suppliers could remain low even if the ban was reversed. The firm cut its targets for Qorvo and Skyworks.
    • Ferrari N.V. (RACE +0.9%) says it signed a performance bonus agreement with trade unions in Italy. The agreement will be in force from 2020 to 2023.
    • The company says the agreement improves the economic conditions and places a strong focus on training, parenting and sustainability.
    • Source: Press Release

    I'm sure both workers were overjoyed! 

    Image result for workers building a ferrari

    • Costco (COST) says it will start selling alternative meat products privately-held from Don Lee Farms in about three weeks.
    • The products will include a Better Than Beef Burger line.
    • Don Lee Farms is a long-time vendor for Costco and is also currently in a legal tussle with Beyond Meat (BYND +12.6%) over trade secrets.
    • Energy Recovery (ERII -1.1%) has received a $6M award to supply its PX® Pressure Exchanger® devices along with related equipment and services to seawater reverse osmosis desalination facilities in the Middle East.
    • Energy Recovery estimates the PXs supplied will reduce power consumption for all projects by more than 40 megawatts, saving over 350 gigawatt hours of energy and more than 200,000 metric tons of carbon dioxide per year.
    • The devices are expected to ship in Q3 and Q4 of 2019.
    • Imperial Brands (OTCQX:IMBBYOTCQX:IMBBFfell 12.92% in London today after issuing a warning on the impact of the crackdown on vaping marketing in the U.S.
    • The tobacco company expects full-year sales growth of 2% vs. a prior range of growth at the upper end of a 1% to 4% range. EPS growth is expected to be flat, compared with medium-term guidance of 4% to 8%.
    • Shares of Imperial Brands are down 40% from their 52-week high.
    • WeWork (WE) head of global security Zvika Shachar and director of development Roni Bahar are leaving the company, according to Business Insider sources.
    • The two were long-time members of ex-CEO Adam Neumann's inner circle. Earlier this week, Neumann stepped out of his role and into a chairman position to thwart a board challenge.

  30. Phil/HF – congrats on the stellar performance! Very impressive in this environment.


  31. Yeah – good job with the HF! Looking forward to hearing more about it in the PSWI report. 


  32. Thanks Winston – Going for 60% into the end of the year.  We'll open up for new Members next year.

    I like this list – Top 10 concerns:

    1. China US trade continues to be top for the market’s sentiment. It’s good that both sides are talking and there is a higher level meeting scheduled in October. Deescalation and a “truce” is thawing the ice with some tariff’s likely to be postponed. A mini deal is likely as both sides are far apart on some major issues. The hope for trade resolution has helped keep a bid under the markets.
    2. Iran, Saudi Arabia, and the US still have some serious tensions with the US adding more sanctions and Iran saying they are ready for war. Any further harassment in the Strait of Hormuz or attacking oil fields in Saudi Arabia would increase the risk of military action.
    3. Trump impeachment talk is ramping up again with reports Trump asked Ukraine’s President for dirt on Biden and his son while holding back some military aid. Democrats have wanted to impeach Trump since he was elected yet Speaker Pelosi has resisted. If she allows this to move forward, this would be negative for the markets with uncertainty.
    4. The Fed continues to be in the conversation after they have cut the Fed Fund Rate by 50bps since July. Further rate cuts discussion is on the back burner as the REPO rate dollar funding has not settled down with an oversubscribed submission today of $80 billion.
    5. Brexit continues the epic drawn out saga with Boris Johnson faced a defeat with the UK Supreme Court ruling his suspension of parliament was unlawful. More delays.
    6. Tesla has a lot of issues with slowing sales, continued losses, lack of progress with promised cars, trucks, and roadster sports car. Tesla rushed cars to the market, lacking proper adequate testing, while under-investing in service. Complaints are rampant on Twitter with #teslaserviceissues damaging the brand. There is also a shareholder lawsuit regarding the Solar City acquisition. There is now unredacted testimony with Elon Musk that is very damaging for him. This was sold as a synergy with Tesla but now it’s clear it was a bailout for him and his family as Solar City was deemed insolvent and a “going concern.” Plainsite on twitter has been all over this
    7. Wework is an incredible story that is quickly unfolding into a major corporate disaster. As the largest tenant in NYC, London, and many other cities they could face major funding issues in the coming year. They will have to downsize to survive and that will cause a lot of losses with the commercial real estate markets. The drama with Softbank wanting to replace CEO and Founder Adam Neumann will only accelerate the downsizing of Wework and perhaps Softbank too.
    8. Earnings for Q3 are a few weeks away and will be the most important factor on S&P 3000 17x and $178 EPS number. 3200 is doable if there is a multiple expansion to 18x. Company guidance will be watched closely with fears of more Fedex guide downs.
    9. Slowing global economy. Europe is clearly slowing with Germany, the most important country in the EU moving towards recession. China continues to slow while the US has slowed but still remains the best house on the worst block. If the US starts to show pronounced weakness with unemployment rising and consumer confidence/spending slowing, then a recession in 2020 ahead of the election is probable.
    10. 2020 US election. The Democrats are moving more left as Elizabeth Warren has passed moderate Joe Biden in Iowa polls (the first primary state) Bernie Sanders still has strong support but it’s unlikely he can expand his numbers. Others still have not had a breakout moment and many are dropping out. October 15th is the next debate.

    /RTY still going nowhere.  Dow up almost 100 from the lows – that was a better play.

    Didn't realize this about semis:

    And Trump just said they can't even sell to Huawei!  

    Huawei Technologies Co Ltd’s [HWT.UL] founder and CEO Ren Zhengfei said on Thursday the company is already producing 5G base stations that are free of U.S. components and plans to more than double production next year.

    It may be a temporary trade war but it's causing permanent changes in the supply chain that are doing permanent damage to US companies – Putin wins!

    TXN might be a good short into earnings:

    P/E for TXN is 23.5 at $120Bn at $128.50 – that's historically high for them.  They are pegged to make less money than they did last year but they are up 40% and earnings expectations for Q3 ($1.42) haven't come down since last Q even though chip prices have crashed.   Of course TI sold most of their DRAM biz to MU ages ago and 75% of their business is analog semiconductors now but revenues were down 9% last Q and will be down 9% (from last year) again this Q with no end in sight so $130 is silly for them.

    As a short on TXN, I'd go for:

    • Sell 3 TXN Jan $130 calls for $6.25 ($1,875) 
    • Buy 5 TXN Jan $140 puts for $14.50 ($7,250) 
    • Sell 5 TXN Jan $125 puts for $6 ($3,000) 

    That's net $2,375 on the $7,500 spread so $5,125 (215%) upside potential if TXN is below $125 into Jan.   Ordinary margin is $7,179 but hopefully short-term and a nice return either way.


  33. Just had a CC re. joining up with The Street – I think we're going to do a portfolio for them next year.  

    Here's the action of a defeated guy:

    WeWork CEO voted for his own ousting

    • Earlier this week, WeWork (WE) directors voted to oust Adam Neumann as CEO after a failed IPO attempt.
    • Reuters sources say Neumann cast a vote against himself, reportedly because he was convinced the move was in the best interest of the company.
    • Neumann remains a non-executive chairman and still owns about a quarter of WeWork.

    I feel bad for him.  He built a hell of a thing but got greedy and stupid and listened to greedy VCs and let the pressure get to him and went off the rails.  Could have happened to anyone with that much pressure.  

    This Fed thing does NOT sound like it's improving.  Keep in mind they went from $75Bn to $100Bn after 1 week and this is AFTER they floated 2-week money too.

    • To help maintain the federal funds rate within the Fed's target range, the Fed's Open Market Trading Desk keeps Friday's overnight repo operations at $100B and term repo operations at $60B.
    • In today's repo ooperations the New York Fed took up $110.1B of Treasurys and securities to ensure liquidity in the money market system. This morning's term repo operation was oversubscribed, but the overnight repo operation was $50.1B, less than the $100B limit.
    • Under such repurchase agreements — or repos-- financial institutions agree to sell securities, usually Treasurys or other government debt, to get cash, and then buy them back at a later date, often overnight, at a higher price. The security acts as collateral for the buyer until the seller can pay back the amount owed.
    • The upcoming retreat by Southwest Airlines (LUV -0.2%) from Newark Liberty International Airport in November has other carriers scrambling to add slots.
    • Spirit Airlines (SAVE) and JetBlue (JBLU +0.7%) are both reportedly interesting in adding flights to Newark.
    • DOT and FAA officials are evaluating whether to approve new flights or keep the schedule open to ease the strain on the congested airport.

    And this is very very bad for tech:

    • Cloud IT infrastructure revenue dropped 10.2% Y/Y in Q2 to $14.1B, according to new IDC data. The decline was due to an overall slowdown in the industry.
    • IDC lowers its forecast for total cloud IT infrastructure spending for 2019 to $63.6B, down 5% from last quarter's forecast and changing from the expected growth to a 2.1% Y/Y decline.
    • Dell (DELL -3%) led the cloud IT vendors in market share in Q2 with $2.5B in revenue and a nearly 17% share, but sales were down 8% Y/Y. HPE (HPE +0.5%) came second with $1.75B and a 12% share with sales up 0.1%. Cisco (CSCO -1.6%) rounded out the top three with $1.1B (+8% Y/Y) and an 8% share.

    AMZN does not need bad news like that now:

    We have a June 2021 $1,800/2,200 bull call spread left over as covers from our shorting AMZN in May and in July we were almost counting our money on those!  Not looking good now at all! 

    • Verizon (VZ +0.6%) has turned on its 5G Ultra Wideband service in New York City and two other locations.
    • The network is live in parts of NYC; Panama City, Fla.; and Boise, Idaho.
    • That brings the service to parts of 13 cities; Verizon plans to turn on the service in more than 30 cities by year-end.
    • It offers seven 5G-enabled devices that can tap the new network.
    • Fox (FOX -1.6%FOXA -1.5%) channels have gone dark on Dish Network (DISH -2.4%) in the latest network/distributor contract dispute.
    • Dish's customers have lost access this afternoon to local channels in 17 markets across 23 states and D.C., as well as Fox's cable nets FS1, FS2, Big Ten Network, Fox Soccer Plus and Fox Deportes.
    • At issue as usual are factors including price for carriage and bundling arrangements for the group of channels.


  34. Weakness into the close – not good!  


  35. I like this:

    No alt text provided for this image


  36. Schitt, Swallow-well, and Nadlicker went full on Three Stooges this morning. If we accept the theory that Trump is a moron, how perfectly stupid do these guys have to be to let a moron make them look like retards? My impression is that the Dems are in full panic mode, grasping at straws. It makes one wonder if they’re all worried about ending up in jail if they can’t impeach The Donald. I have to say that while Trump was pretty much my last choice in 2016 – just ahead of Sanders and Clinton – I think I’m going to contribute to his campaign for 2020. I think it’s obvious that Biden is corrupt, just like Hillary was. Warren and Sanders are red buffoons. As much as I can’t stand to see or hear Trump, the sight or sound of him makes me want to vomit, he’s still better than the alternative. 


  37. God save us!! Warren and Sanders are buffoons!!! If that's not insane nothing is!!! And Cheeto with 22 tweets today!! Beam me up Scotty!



  38. Quid pro quo: What it means