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Monday Market Movement – Waiting on China and then the Fed

Image result for china trade chartMostly, we're waiting.

This weekend, prospects for a China Trade Deal took a downturn (and I'm ignoring the fact that China has no incentive to make a deal with a President who may not last long enough to sign the deal because I'm just so sick of the whole thing already) as Chinese officials said a "broad pact" was off the table, completely contradicting all the happy talk that came out of the White House last week to boost the markets.  

As you can see from the chart above (and this one), China imports $4.5 TRILLION worth of merchandise of which, $100Bn comes from the US while China exports $2.5Tn worth of merchandise, of which $275Bn is with the US.  Of course the US would like China to buy more of our goods but they simply can't afford them and forcing them to buy stuff just because US Consumers like to buy inexpensive Chines merchandise is – well, you can see how that's working out so far. 

Image result for china us trade chartIs it easier for China to forces their citizens to buy 175% more US merchandise, whether it's good or not or should China make more of an effort to make up the 10% of their merchandise sales to the US by making their easier-to-get-along-with trading partners happy?  While it would be nice to "fix" the trade issues with the US – it certainly isn't the desperate situation for China that Trump paints it to be when talking to the very uncritical suckers who still support him.

Those people never check his facts, so he can make up anything he wants but the actual trade negotiations are held in a place called "reality" and that's why the average Fox viewer, Trump/GOP lackey or Conservative pundit are wrong, over and over and over again when they try to predict what China will do next.  If your are basing your analysis on Trump's BS – what hope do you have of making accurate predictions?

Vice Premier Liu He, who will lead negotiations for China, told dignitaries that his offer to the U.S. will not include commitments on reforming Chinese industrial policy or government subsidies, according to to Bloomberg. These are among the Trump administration’s main demands in the trade talks but Trump's back is against the wall and he may make a LOT of concessions, just to be able to say he got a deal done (and he'll tell you what a beautiful deal it was, no matter what).  

As trade negotiators prepare for this week, tensions have also grown after reports revealed that Trump officials were weighing some curbs on U.S. investments in China, including possibly blocking all U.S. financial investments in Chinese companies. White House trade policy director Peter Navarro, however, denied those reports and called them “fake news”, because he didn't like what it said.

Of course, if we want the Fed to launch QE4, we need the trade talks to fail so it's kind of a complicated game that won't be resolved until the end of the month, when the Fed has their next policy meeting but, even then, we may not get a proper resolultion – we sure didn't from the last few Fed meetings, did we?  So we're in CASH!!! and likely to stay that way until earnings season in November (11th) and, while we might make a few trades to pick up some bargains here and there – it's mostly going to be about honing our macro veiw this month and looking ahead to what we expect in the 2020s – which are just around the corner!  

Powell is speakking 3 times this week and Kashkari speaks 4 times so I'd guess whatever Kashkari says at 10:20 this morning will be the prevailing message from the Fed which, judging from last week's comments – is doveishness.  

Still, we wonder if it's doveish enough to hold the markets up – especially if we have another incident where China walks out of the trade talks early, with no deal and no follow-up scheduled.  With anti-China fanatic, Robert Lighthizer still leading the Trade Talks – anything can happen.

It's going to be a fun week – to watch from the sidelines!  


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  1. I am really wondering why it's only dictators who seem to be benefit from our foreign policy moves. I wonder what Erdogan gave Trump in exchange for the lives of our Kurd allies!

    Or maybe Trump was simply joking like when he asked China to investigate Biden! Must have also been joking when he said Mexico was going to pay for the wall or that China was paying for the tariffs!

  2. Makers and takers:

    The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income. This overall rate was 70 percent in 1950 and 47 percent in 1980.

    For middle-class and poor families, the picture is different. Federal income taxes have also declined modestly for these families, but they haven’t benefited much if at all from the decline in the corporate tax or estate tax. And they now pay more in payroll taxes (which finance Medicare and Social Security) than in the past. Over all, their taxes have remained fairly flat.

    Go to the page for interactive charts!

  3. That's an interesting take on the GM strike:

    UAW members’ anxieties and uncertainties are actually shared by GM GM, -1.03%  and most other automakers, which know that it’s no longer a question of when internal combustion engine cars will be replaced by electric vehicles, but how quickly the changeover will take place.

    The shift to electric means a fundamental transformation of what workers will do and how many are needed to do it.

    Electric cars have far fewer parts, which means far fewer people are needed to put them together. When one analyst took apart a Chevrolet Bolt and Volkswagen Golf, he found that the Golf had 125 more moving parts than its electric counterpart. What’s more, the electric vehicles’ parts are often easier to put in place using automated machines. The UAW’s own estimates that the move to electrification may cost 35,000 members to lose their jobs may not be the most scientific study ever done, but it’s also probably not far off.

  4. Good Morning!

  5. Turkey is a member of nato, article 1 of nato charter, "The Parties undertake, as set forth in the Charter of the United Nations, to settle any international dispute in which they may be involved by peaceful means in such a manner that international peace and security and justice are not endangered, and to refrain in their international relations from the threat or use of force in any manner inconsistent with the purposes of the United Nations."

  6. Good morning! 

    Another day, another whistleblower…

    Big Chart – Well we took those 50 dams back, didn't we?  Waiting for NYSE to confirm but that was quite the power-move on Friday.  Not looking good so far but it's Monday, so it doesn't matter until tomorrow.

    Trump/StJ – Yeah, such a kidder…

    Equities/StJ – I'd love to see how that's changed over the past 50 years.  I imagine we had more like 70% in the 90s.

    Image result for global equity market

    Hmm, we may be falling faster than I thought:

    Related image

    We're like England – it sucks when you used to rule the World and it all slips away…

    Cars/StJ – Very true, huge losses in those jobs over the next decade.  

    Turkey/Mike – NATO really needs them strategically so they end up being given a lot of slack.

  7. Best Apps for Finding Cheap Flights

  8. Amazon launches Kindle e-reader aimed at children

  9. Why do older people hate new music?

  10. Good Morning

  11. Phil, through a couple of changes/rolls I have profited on the following hedge position but wonder what you would do to it now, going forward. Thanks

    SQQQ +65 Jan 31 call

    SQQQ -45 Jan 38 call

    SQQQ -50 Jan 45 call

  12. SQQQ/JMD – Not sure why you have so many short calls if it's supposed to be a hedge.  I assume you recently cashed out some longs?  Anyway, At $32.23, if we assume a 10% drop in the Nas, that's 30% up in SQQQ so about $42, which means there's no sense in worrying about the short $50s ($1.50) but the short $38s ($2.85) can really burn you.  

    Do you still need the protection?  That matters a lot.  The 65 Jan $31s are $4.55 ($29,575) and, if you still want hedges going forward, I'd invest in rolling them out to 100 of the 2021 $25 ($11)/40 ($7) bull call spreads at net $4 ($40,000) and then you can let both the short Jans expire worthless and sell some more to make your $10,425 roll cost back with a much better spread ($150,000) to last you all of 2020. 

    The $38s ($2.85), however, should have stops on 1/3 at $3.15, 1/3 at $4 and 1/3 at $5, where you may be forced to do a 2x roll on the short $50s (but you'd be $100,000+ in the money on the longs) – so that's $4,725, $6,000 and $7,500 – make sure that budget makes sense but you wouldn't be spending the $7,500 unless the market was down more than 10% from here and then you'd be thrilled to have the hedges.

    Everything is "fixed" again:

    • U.S. stocks erase their earlier declines as traders await a new round of U.S.-China trade talks that are scheduled to start later this week and after White House economic adviser Larry Kudlow said the administration has no plans to delist Chinese companies.
    • The Nasdaq rises 0.2% in midday trading, wiping out a 0.5% decline early in the session; S&P 500 gains 0.1% and the Dow, also up 0.1%, compares with a 0.6% drop earlier.
    • Energy (+0.4%) and communication services (+0.4%) lead the S&P 500 industry sectors, while utilities and consumer staples lag the broader market.
    • Crude oil gains 2.0% to $53.85 per barrel.
    • Gold slips 0.4% to $1,506.70 per ounce.
    • Treasurys slip, pushing 2-year yield up 4 basis points to 1.436% and 10-year yield rises 1 basis point to 1.539%.
    • Dollar Index is little changed at 98.80.

  13. AAPL almost $230!  

    /KC back to $97, always fun to buy down there with a stop below $95.

    • China has added more than 100 metric tons of gold to its reserves since it resumed buying in December, as the country continues to buy gold to diversify its reserve assets away from the dollar amid strained relations with the U.S.
    • September's increase of 5.9 mt by the People's Bank of China follows the addition of 99.8 mt through August.
    • Russia also has been adding substantial quantities of bullion; central banks worldwide have snapped up more than 450 mt during the first eight months of 2019, helping push total gold demand to a three-year high, the World Gold Council has said.
    • Central banks have been major buyers of gold and likely will continue to do so as protectionist policies and geopolitical concerns add to demand, says Suki Cooper, precious metals analyst at Standard Chartered Bank.
    • December Comex gold edges lower, -0.3% to $1,509/oz.
    • The Trump administration says it will impose tariffs on bifacial solar panels (TAN -0.5%) beginning Oct. 28, the U.S. Trade Representative's office announces, eliminating a loophole granted in June for the product and will be subject to the 25% duties announced on imported equipment in early 2018.
    • Bifacial panels are gaining traction since their double-sided nature means they absorb more power and are thus more efficient, but they are in the early stages of development and a relatively small part of the ecosystem, with Bloomberg estimating the panels comprised ~3% of the global market in 2018.
    • "Most investors had expected some form of cap to be put in place and not an outright reversal of the policy," says Cowen analyst Jeffrey Osborne, and Goldman Sachs' Brian Lee warns to "expect significant volatility across solar equities near-term."
    • Lee says U.S.-based manufacturers such as First Solar (FSLR -1.2%) and SunPower (SPWR -0.3%) will be "key beneficiaries," while Chinese solar players with bifacial capacity expansion plans likely will be "the most negatively impacted from this unexpected development."
    • Chinese names including JinkoSolar (JKS -0.3%), Canadian Solar (CSIQ -2.2%), ReneSola (SOL) and Yingli Green Energy (OTCPK:YGEHY +6.2%) show mixed results in early trade.
    • Also: SEDG -1.5%ENPH -1.2%VSLR +2.2%RUN -0.1%.

    There's a trade:  We like Sunpower (SPWR) anyway and they went on sale since we got our and we'd LOVE to own them at $10 for the long run as $10/share is $1.4Bn and we know SPWR is capable of earning over $200M for the year and they did make $121M last Q though probably still a loss this year but, going forward – I think they'll do great.  

    Year End 30th Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 2,507 3,027 1,576 2,553 1,794 1,726 1,670 1,974 2,217 -7.2%
    Operating Profit $m 158.9 251.2 -206.3 -371.9 -1,025 -849 -288.5      
    Net Profit $m 95.6 245.9 -187 -448.6 -929.1 -811.1 -216.3 -53.9 28.2  
    EPS Reported $ 0.69 1.55 -1.39 -3.25 -4.49 -5.76 -1.66      
    EPS Normalised $ 0.70 1.62 -1.36 -2.57 -1.48 -3.15 -1.75 -0.34 0.19  
    EPS Growth %   +131.5                
    PE Ratio x           n/a n/a n/a 55.5  
    PEG x           n/a n/a n/a 0.58

    They can go lower, so we shouldn't go crazy but 2022 options are out so I'd say selling 10 2022 $10 puts at $3.90 ($3,900) is a no brainer and we can put 1/2 back to work on a spread like this:

    • Sell 10 SPWR 2022 $10 puts for $3.90 ($3,900)
    • Buy 15 SPWR 2022 $12 calls for $3.40 ($5,100) 
    • Sell 15 SPWR 2022 $17 calls for $2 ($3,000) 
    • Sell 5 SPWR Jan $12 calls for 0.85 ($425) 

    That's a net $2,225 credit on the $7,500 spread and, if it goes lower, we'd be happy to roll down the long calls at $2.50/$5 roll ($3,750), which would put us in a $10,000 $7/17 spread for $1,525.  If it's flat or down, we sell 8 more sets of short calls for $3,200 or more and that puts us back to a credit anyway so figure net $8 on 1,000 shares is our worst case.  If SPWR goes up, we roll the short calls but we'll be happy to buy more long spreads if that becomes a problem.  Lots of ways to win – not many ways to lose – that makes it a nice trade! 

    Think or Swim says ordinary margin is $3,889.62 on the short calls so not very efficient but it's a stock we'd REALLY like to own long term – certainly going on the Watch List!  Assuming no fancy stuff we could make $9,725 (437%) because of the credit PLUS whatever bonus money we make selling a few calls along the way.  

  14. This is nice:


  15. I don't know why I keep thinking earnings aren't until November – they pretty much kick off next week so our holiday may be shorter than I thought it would be!  

  16. Thanks Phil. In terms of hedges, which one do you currently favor?

  17. I still like SQQQ because there are so many grossly over-valued stocks in the Nasdaq.  If sentiment changes, there can be some serious pullback there due to multiple contraction - even if earnings continue on pace. 

  18. Wow, Trump's war on Science is really getting out of hand:

    Image may contain: text



    Are people still defending this guy?  

    A federal judge on Monday rejected a bold argument from President Trump that sitting presidents are immune from criminal investigations, allowing the Manhattan district attorney’s office to move forward with a subpoena seeking eight years of the president’s personal and corporate tax returns.

    The ruling issued by Judge Victor Marrero of Manhattan federal court does not mean that the president’s tax returns will be turned over immediately. Mr. Trump’s lawyers quickly appealed the decision, and the appeals court agreed to temporarily block the order.

    This is the problem with trying to uncover Trump's crap – he keeps appealing to higher courts until he finds a judge he either appointed or is friendly to the GOP and then he's off the hook again.  This is the ultimate power of all Billionaires and big corporations – they love to go to court as it bleeds their opponents to death and, in the end, even if they run out of appeals they can usually settle, getting a wrist-slap for their crimes.  

  19. Why the sudden bounce?

  20. I don't see anything other than trade rumors.  WH still saying they are in good shape.

  21. Here you go – same thing we already knew but the words are in a slightly different order:

    The Chinese Commerce Ministry tells us China is ready to do a deal on the parts of the negotiations both sides agree upon. The Ministry tells us they are prepared to set out a timetable for the harder issues to be worked out next year. #China #Trade

  22. Bounce/den – and now people figured out what China actually said so the market bounces down. lol.

  23. Haven't made a single trade today.  

    Only noteworthy stock on my screen is SIG, up 9%+.

  24. Yes, things are pretty silly at the moment.

    Trades/Albo – I've been doing a lot of reading – nothing conclusive.  So much depends on China, Trump and the Fed and they are all coin flips.  At least earnings should give us something to fall back on.

    • Any gains that stocks made in the early afternoon backtrack after Fox Business's Edward Lawrence follows up his earlier tweet that the Chinese are willing to make a trade deal with the U.S. on parts that they've already agreed upon.
    • The second tweet said the Chinese Commerce Ministry will never agree to "changes to their laws to protect intellectual property."
    • The Chinese ministry says they'll deal with IP theft through administrative regulations.
    • The Nasdaq slips 0.1%, while the S&P 500 and the Dow lose 0.2%.
    • Early in the session, stocks were weak after Chinese officials signaled that they're reluctant to reach a broad trade deal with President Trump, according to a Bloomberg News report.
    • All but two of the 11 S&P 500 industry sectors are in the red, with consumer staples (-0.6%) and energy (-0.4%) falling the most; communication services (+0.3%) and materials (+0.1%) are the only sectors registering gains.
    • 10-year Treasury is still down, lifting yield 3 basis points to 1.557%.
    • U.S. Dollar Index rises 0.2% to 98.96.
    • Federal Reserve Chair Jerome Powell, who has been the subject of numerous critical comments made by President Trump, emphasizes the importance of the U.S. central bank's independence in introducing a documentary about Marriner Eccles, who headed the Fed during Franklin Roosevelt's administration.
    • "Perhaps most importantly from my perspective as Fed Chair, he [Eccles] is responsible more than any other person for the fact that the United States today has an independent central bank — a central bank able to make decisions in the long-term best interest of the economy, without regard to the political pressures of the moment," Powell said in prepared remarks.
    • Powell ended the remarks with a quote inscribed at the Fed's Eccles Building in Washington, DC --  "The management of the central bank must be absolutely free from the dangers of control by politics and by private interests, singly or combined."
    • Minneapolis Fed President Neel Kashkari wants to see more data before making up his mind on whether the Fed should cut continue cutting.
    • "I'm happy that we're cutting interest rates. I don't think we should be raising them," he said at an event in Prior Lake, Minnesota.
    • "We should be supporting the economy, not tapping the brakes on the economy," Kashkari said. "So, I want to look at the data, how it evolves over the next few months."
    • Kashkari doesn't vote on the Federal Open Market Committee this year; however, the Fed district bank presidents get to participate in the discussions at FOMC meetings.
    • via Bloomberg First Word.
    • Robusta coffee prices fell another 2.8% today to reach the lowest price level since 2010. Higher coffee production in Colombia and a strong flowering of crops in Brazil has pressured the market.
    • So far this year the rate of both Robusta and Arabica bean production have outpaced the ~2% rise in global coffee consumption.
    • The iPath Series B Bloomberg Coffee Subindex Total Return ETN (NYSEARCA:JO) is down about ~14% YTD.

    SIG might actually break out finally:

  25. from TDAmeritrade


    Here are S3’s 10 best stock candidates for a short squeeze.

    Dillard's, Inc. (NYSE: DDS), $496.5 million short interest, 84.2% of float.

    GameStop Corp. (NYSE: GME), $273.1 million short interest, 74.7% of float.

    Health Insurance Innovations Inc (NASDAQ: HIIQ), $129.6 million short interest, 72.9% of float.

    Tanger Factory Outlet Centers Inc. (NYSE: SKT), $659.5 million short interest, 68.9% of float.

    Yeti Holdings Inc (NYSE: YETI), $510.3 million short interest, 64.8% of float.

    Pennsylvania R.E.I.T. (NYSE: PEI), $195.5 million short interest, 64.0% of float.

    Eidos Therapeutics Inc (NASDAQ: EIDX), $135.7 million short interest, 62.5% of float.

    Bed Bath & Beyond Inc. (NASDAQ: BBBY), $756.3 million short interest, 62.0% of float.

    Fastly Inc (NYSE: FSLY), $177.0 million short interest, 61.6% of float.

    Turning Point Therapeutics Inc (NASDAQ: TPTX), $92.7 million short interest, 58.1% of float.