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Whipsaw Wednesday – Trade Talks Back On!

Image result for trump china screwed cartoonOf course China wants to make a deal.

Trump is so weak right now they can shove almost any crap down his throat and he'll be happy to sign the papers just to get a "win".  As we all know, it doesn't matter how awful the trade deal is for the US, Trump will still say it's "the best deal ever" over and over again until you can't even remember why he's lying anymore and isn't that good enough for US these days?

While Team Trump is ducking subpeonas like the Road Runner ducks anything you throw at him, the Dems keep blowing themselves up like Wile E. Coyote – the plans always look so good on paper but they tend to fall apart in the actual execution.  Sure the impeachment inquiry is moving along but, as long as the GOP manages to delay things, Team Trump, Fox, et al manage to repeat their message another 1,000 times and, like a catchy commercial jingle – it doesn't matter whether or not the catch-phrase is true – you start to hum the tune and, eventually, you can't get it out of your head…

So it's "trade on" at the moment as China says they are still willing to make a trade deal though traders are ignoring the fact that China actually said they are prepared to accept a "PARTIAL" trade deal – as long as no more tariffs are imposed and they will only offer "non-core" concessions, like purchases of agricultural products – which they need to buy anyway.  China said they will not budge on the other sticking points which would be a total humilation for Trump but, well – Trump.

I guess it's cool to have a President who always wins – even though it's only because he doesn't admit it when he's lost and that allows the whole country to pretend we've won – even when we've clearly lost, but at least we all feel good, right?  The market is trading up on feelings as there's certainly no evidence that things are any better and the Dow may be up 200 points this morning but the VIX is still near 20 – so let's not get hurt patting ourselves on the back just yet.  

The market is up $1Tn this morning because China said they would buy $10Bn worth of agricultural products.  Keep in mind that, as we noted in Monday's PSW Report, that's out of $275Bn worth of imports or about 3%.  I'd call it an over-reaction but, on the whole, we don't care because we cashed out and we didn't care yesterday when the market dropped 300 points and we don't care this morning when it's back up 150.  All that only takes us to 26,300 on the Dow, 2,915 on the S&P, 7,689 on the Nasdaq 100 and 1,486 on the Russell and our bounce lines still are:

  • Dow 25,000 is the mid-point and bounce lines are 25,550 (weak) and 26,100 (strong)
  • S&P 2,850 is the mid-point and bounce lines are 2,880 (weak) and 2,910 (strong)
  • Nasdaq 7,200 is the mid-point and bounce lines are 7,360 (weak) and 7,520 (strong)
  • Russell 1,440 is the mid-point and bounce lines are 1,472 (weak) and 1,504 (strong) 

So we still need the Russell and the S&P to confirm their strong bounce lines and that means CLOSING above them today and tomorrow.  Powell speaks again today at 11am and we get the Fed Minutes at 2pm, after the 1pm 10-year note auction - which could spook the markets if it doesn't go well.  Not much else going on that's likely to spook the market until Friday morning's Consumer Sentiment Report and we'll need to watch those Forward Expectations, which have been in a downtrend and I doubt all the recent political uncertainty is helping:

If all we're going to do with all this positive Trade Talk and positive Fed Speak is get back to our strong bounce lines – then I'm going to be VERY CONCERNED about how the market reacts to Q3 earnings and, more importantly, Q4 guidance.  Earnings are, so far, down 5% from last year but that hasn't stopped the markets from reaching all-time highs as price multiples have jumped to cover the gap.  As you can see, there was that one time in 20 years that we had a small slump in earnings that quickly reversed (only 3 years) so – fingers crossed!  

Image

Not much to do but sit back and see how it all plays out.  We have a Live Trading Webinar today at 1pm and I'll be on when they release the Fed Minutes at 2pm – should be an interesting day.  

 


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  1. Good morning, All!

    It's Wednesday! Which means webinar! Join Phil at 1pm (Eastern), here:

    https://attendee.gotowebinar.com/register/3912344248683701259


  2. Everything is awesome again!


  3. Can't be investigated, can't be indicted, can't be impeached! Your majesty, King Donald the First!


  4. Interesting:

    They also have lower costs! I work from home, don't need a second car and work in jeans and t-shirts!


  5. Phil/NG

    There is a .21 cent difference in the current Nov contract and the December contract and even greater .35 out to January.  Excuse my ignorance — but how does this work?  Does the price jump .20 on expiration day or do they usually start trending closer together as expiration nears?  

    Just trying to gain some insights.

    Thanks


  6. These guys are adding more pressure:

    https://techcrunch.com/2019/10/08/robinhood-cash-management/

    This time it actually has insurance. Zero-fee stock-trading app Robinhood  is launching Cash Management, a new feature that earns users 2.05% APY interest on uninvested money in their account with the ability to spend it through a special Mastercard debit card. The waitlist opens today in the U.S. with the first users to be admitted soon. “If you have $5,000 in your account while you’re thinking about what to invest in, you’d have an extra $105 at the end of the year” thanks to Robinhood Cash Management’s interest, co-CEO Baiju Bhatt tells me.


  7. You guys must love King Donald, as you constantly talk about him. Here in Europe he is the laughing stock of every comdian and people in Government do not take him serious, only that he is considered a very dangerous dump clown!!!!


  8. Good Morning!


  9. Possible a bit too late but I set up an armchair trade on PACW March20 strangle 30/35 for 3.60 and buy the stock I offer for 34.75 but as I said possible already a bit higher.Combined Expected return 2.45% monthly


  10. Yodi – We ALL have clowns to talk about. "Welcome to the party Pal!"

    https://www.youtube.com/watch?v=9OpIbiFmY60


  11. 1020, yes I agree, but you need to differentiate them!


  12. Yodi – What we have is an angry, dangerous clown that needs constant supervision…. :(


  13. For people who trade VXX, I have tried to chart a relationship between VIX and VXX using my observations. It cannot be perfect and needs to be updated on a regular basis because of the VXX decay. But should give you some idea of what to trade:

    So for example, I have been selling 40, 45 and 50 calls across different expirations – depending on the price I can get. I usually go for at least $2.50. But basically, I am betting that the VIX will stay below 40 but for the majority of my short calls, under 50/60. Obviously I can roll if needed, but we have been over 50 3 times (on a monthly chart) since 1990 (although twice in the past 5 years). And you can roll to the Jan 21 90 calls and the VIX would need to be at 160! I am sure I would not be worried about my short VXX calls then. In any case, many investments strategies are build around weaker premises.


  14. Good morning! 

    Oil is up on a mixed API report with Oil up 4.1Mb but Gasoline down 5.9Mb.  We'll see what EIA shows at 10:30.  Everything is low in the channel so China trade progress beats inventory builds as there's hope we get draws in the future. 

    Dollar is also high so everything can get a boost if the Fed knocks it down:

    Big Chart – What's the point when you can pop 200 points pre-market and erase a day's worth of losses?

    King/StJ – Following his logic, the Democrats are a criminal party and it's his duty to purge the Government of them so any election that says they won must, by definition, be illegitimate.  I think China's going to look like an enclave of freedom and Democracy by the time Trump is done with this country.  

    President Donald Trump once again targeted House Democrats who are conducting a formal impeachment inquiry over the Ukraine whistleblower scandal in tweets accusing them of treason on Sunday, calling for the impeachment of House Speaker Nancy Pelosi and Intelligence Committee Chairman Adam Schiff.

    "This makes Nervous Nancy every bit as guilty as Liddle’ Adam Schiff for High Crimes and Misdemeanors, and even Treason. I guess that means that they, along with all of those that evilly “Colluded” with them, must all be immediately Impeached!" Trump said.

    Image result for trump dictator cartoon

    Image result for trump dictator cartoon

    /NG/Jeff – I see $2.29 and $2.48 but still a big gap.  Prices don't "jump" the Nov contract expires wherever it is (for people who want gas delivered in Nov) and the Dec contract stays where it is.  Essentially, this time of year, the Dec contracts have 30 more days to win the hurricane lottery – which is a big driver of bullish /NG betting this time of year.  

    Donald/Yodi – Imagine that guy actually having power over your daily life!  

    Almost a 50% fade of the "rally" already.  What's going to happen if China happy talk and Fed speak can no longer boost the market?


  15. Net draw in oil keeping us over $52.50 but not all that exciting.  $58.50 on /BZ and $1.59 on /RB.

    • EIA Petroleum Inventories: Crude +2.9M barrels vs. +1.4M consensus, +3.1M last week.
    • Gasoline -1.2M barrels vs. -0.3M consensus, -0.2M last week.
    • Distillates -3.9M barrels vs. -2.1M consensus, -2.4M last week.
    • Futures +1.06% to $53.19.

    Distillates saved the day though, not Gasoline so I doubt we see $1.60.


  16. Thanks for sharing STJ.  This is in line with observations as well.  The trade war has been wonderful for my VXX trading.  Risk on, off, on, off, on, off, on etc.  As I think I have mentioned in the past, the account I'm using is conservatively and passively invested in various ETFs (including TLT, SPY, REITS, etc), and I'm looking to augment that (boring) portfolio's returns with 5-10% from VXX.  So far so good.


  17. Waiting for Trump's tweet that he will not accept Partial Deal with China and that October 15th tariffs are on.  He does not like to be appear like he is losing.  He may even throw in some more new stuff just to show how he will destroy China's economy if they don't give him what he wants!


  18. So far, so good for me as well Palotay! Over 10% of account in premium sold and decaying quickly. And using a max of 15% of account margin (under 10% now) although this can spike quickly. Works in up, down and sideways markets. The chart I posted also helps me evaluate the risks. 


  19. King / Phil – And there you have it:

    Former U.S. attorney Joseph diGenova, who was once reported to be joining President Donald Trump’s legal team before his Ukrainian ties created “conflicts,” went on Fox News Tuesday night to call impeachment “regicide.”


  20. stjeanluc

     

    Thanks for VIX


  21. STJ – A few quick questions.  Do you keep updating your chart as VXX decays?  Or have you setup a formula in Excel that adjusts based on the current VXX/VIX ratio? (This would be cool!).  In this market environment, and  considering the fact that my account is holding risk assets (which have significant positive delta), I am treating 4% of my account in sold premium as my max.  I'm targeting expirations 6 months out, and I haven't been selling until the VIX is above 19. 

    Considering the large increase in short volatility strategies that the big institutions are using lately, I want to be very conservative, just in case there is some kind of shock, where /VX is bid up dramatically. If too much money is short volatility, and they all try to cover at the same time due to some shock, it could snowball exponentially, and we should respect the possibility that VIX, /VX, VXX et al may not behave like they have historically, so extra cushion is nice peace of mind insurance.  Just a word of caution.  


  22. Trump/RB – Don't be so sure.  He needs some kind of win and China might be it.  As seen with NAFTAII, trade deals are too complicated for the public to digest so he knows he can call it a huge accomplishment and run on it next year – no matter how bad it actually is.  

    VIX/Palotay, StJ – While that kind of swing trading is not my thing, Doug has been doing something similar in the Hedge Fund for us, but mostly to add extra hedges during the downturns, rather than betting on upside moves.  

    Regicide/StJ – I'll take it!

    /SI rejected at $18 – might be weakening.  If gold fails $1,500, that's a bearish signal.

    • Stocks hold their gains in midday trading amid hopes that China and the U.S. will reach a limited deal as talks are set to start again on Thursday.
    • The Nasdaq advances 1.0%, S&P 500 gains 0.9%, and the Dow rises 0.7%.
    • All 11 S&P 500 industry sectors stay in the green, with information technology (+1.4%) and energy (+1.2%) leading the field; utilities (+0.2%) and real estate (+0.3%) lag.
    • Crude oil rises 1.5% to $53.43 per barrel.
    • With the rising stock market, the Cboe Volatility Index recedes 6.3% to 18.98.
    • Treasurys slip as well, pushing 10-year yield up 4 basis points to 1.573%.
    • Dollar Index ticks down 0.1% to 99.08.
    • Across the Atlantic, the Stoxx Europe 600 closed up 0.4%, FTSE 100 rose 0.3%, Germany's DAX surged 1.0%, and France's CAC AllShares Index increased 0.7%.
    • Coming up at 2:00 PM ET is the release of Fed's minutes for the FOMC's September meeting, which may give investors more insight on the discussions that took place among the central bank's decision-makers.
    • Consumer Reports says it tested Tesla's (TSLA +2.4%) Smart summon feature after seeing anecdotal reports criticizing the functionality on the Model 3.
    • "We found that the automation was glitchy and at times worked intermittently, without a lot of obvious benefits for consumers," notes CR.
    • "In tests at one lot and at the Consumer Reports Auto Test Center, the vehicle drove in the middle of the traffic lane, not on the side closer to the parked cars, as a human driver would. It would wander left and right as it drove—erratically, like a drunken or distracted driver. In another instance, the Model 3 drove itself the wrong way on a one-way lane. The tester had to run out to the car to move it to allow traffic to begin flowing again."
    • The publication maintains that Tesla owners are being used as beta testers of the not-yet-ready technology.
    • Tesla hasn't issued any official response to the report.
    • Consumer Reports has issued positive reports on Tesla in the past, including giving the Model S a perfect score back in 2015.
    • Smaller credit card issuers in the U.S. are seeing a higher rate of delinquencies than are the 100 largest banks, and the gap is growing, according to data from the Federal Reserve.
    • The 100 largest banks had a credit card delinquency rate of 2.44% in Q2 2019 compared with 6.34% for all other banks.
    • In the year ago quarter, the biggest banks' delinquency rate was 2.42% vs. 6.02% for the rest.
    • And while the U.S. prime lending rate — the rate that commercial banks charge their most credit-worthy customers — has fallen due to the Fed's recent rate cuts, the spread between the prime rate and the average annualized rate on credit cards widened to a record at the end of August, Bloomberg reports.
    • Issuers, it seems, would rather lure customers with rewards programs than lower rates. They may also be hesitant to reduce credit card interest rates as risks increase.
    • Related tickers: American Express (AXP +1.6%), Bank of America (BAC +1.1%), Capital One (COF +1.8%), Citigroup (C +1.3%), JPMorgan Chase (JPM +0.8%), Wells Fargo (WFC +0.9%), Alliance Data Systems (ADS -1.3%), Synchrony Financial (SYF +2.1%), Discover Financial (DFS +2%).
    • UPS (NYSE:UPS) says it will purchase more than 6K natural gas-powered trucks as part of a $450M investment in alternative fuel technology.
    • The purchases will begin in 2020 and run through 2022.
    • The new vehicles will be equipped with compressed natural gas fuel systems provided under an exclusive agreement with Agility Fuel Solutions. The company says the investment in CNG fuel systems expands its relationship with Agility Fuel Solutions and supports fleet sustainability efforts.
    • UPS +0.52% premarket to $113.33.
    • Source: Press Release
    • Chesapeake Utilities (NYSE:CPK) says it will sell most of the assets of its Peninsula Energy Services Co. natural gas marketing subsidiary, marking its exit from the business.
    • CPK says it has executed three separate transactions to sell Pesco's assets and contracts: Florida retail operations will be sold to Gas South LLC, non-Florida retail operations and contracts were sold to United Energy Trading LLC, and various wholesale contracts in Delaware and Maryland were sold to NJR Energy Services.
    • CPK says it expects to recognize a gain from the sale of the assets in 2019 upon the closing of the deals.
    • Apple (NASDAQ:AAPLgains 1.0% in premarket trading after one analyst boosts his price target for the tech giant and another talks about product introductions scheduled for next year.
    • Canaccord Genuity's T. Michael Walkley raises price target to $260 from $240, citing "stronger than anticipated initial sales" for its newest iPhones.
    • Walkely writes that management could boost share repurchases and dividends given strong Q3 results and debt that was recently raised.
    • Separately, a note from TF Securities analyst Ming-Chi Kuo said Apple is planning new hardware for H2 2020, including new augmented reality glasses that it will build with third-party brands.
    • Also expected are new MacBooks, new iPad Pros, and a lower-cost iPhone SE2.
    • Saudi Arabia will recover its full oil production by the end of November, Saudi Aramco (ARMCO) CEO Amin Nasser said at the Oil & Money Conference in London today.
    • Aramco's maximum production capacity is 12M barrels per day, though the kingdom has been pumping significantly less that that under its agreement with OPEC and non-OPEC producers.
    • Still, the CEO of the world's largest oil company said he's concerned about the "absence of international resolve" against the perpetrators of the Sept. 14 drone attacks on Aramco facilities that forced the oil producer to shut down half of its production.
    • “An absence of international resolve to take concrete action may embolden the attackers and indeed put the world’s energy security at greater risk,” Nasser said.
    • Aramco (ARMCO) is set to put out its initial public offering prospectus by the end of the monthThe Wall Street Journal reports, re-setting the stage for a massive offering that could yet come by year-end.
    • The listing, already delayed from last year, was set to be delayed again after an attack on company installations, though Aramco has since said output has stabilized.
    • The prospectus will come out in Arabic on Oct. 25 and English two days later, according to the report — a precursor to book-building in November, with a final decision on go-ahead to come shortly thereafter.
    • Crown Prince Mohammed bin Salman wants to list 5% of the state-owned company through a domestic and later international listing to raise billions of dollars; he wants the company valued at $2T, while analysts and company execs value it closer to $1.5T.

    • China is planning visa restrictions for U.S. nationals with ties to "anti-China" groups, Reuters reports citing people with knowledge of the matter.
    • That would follow the U.S.'s move yesterday to restrict U.S. visas for Chinese officials linked to the repression of Muslim minorities in China.
    • The Chinese rules would require the drafting of a visa blacklist made up of U.S. military- and CIA-linked institutions and rights groups and their employees.
    • U.K. Prime Minister Boris Johnson faces a rebellion in his cabinet, as a group of ministers are poised to quit due to concerns that he's leading the country towards a no-deal Brexit, The Times newspaper reports, citing an unnamed cabinet member.
    • British Minister for Northern Ireland Julian Smith, Culture Secretary Nicky Morgan, Justice Secretary Robert Buckland, Attorney General Geoffrey Cox, and Health Minister Matt Hancock are on a "resignation watch list," according to the newspaper.
    • Ministers at a cabinet meeting raised concerns about the "grave" risk of direct rule returning to Northern Ireland and about Johnson's top adviser, Dominic Cummings.
    • The British pound is down 0.1% against the euro.
    • Auto industry analysts say the strike by auto workers at General Motors (NYSE:GM), which has entered its fourth week, has cost production of 165K cars and trucks and passed the point where the GM can make up lost volume.
    • Fifteen of GM's 18 North American assembly plants have been shut down by the strike, including everything in the U.S. and one plant each in Mexico and Canada, according to LMC Automotive's Bill Rinna, adding "it may still take up to a week to get the parts pipeline going again [once the strike ends]. So we are likely looking at a loss of well over 200,000 vehicles."
    • Much of that production cannot be made up, especially at factories that make popular pickup trucks and large SUVs that already were on three shifts per day before the strike, says Kristin Dziczek of the Center for Automotive Research.
    • 75K employees of auto parts suppliers have been either temporarily laid off or have seen their wages shrink due to the slump in demand from GM, according to the Anderson Economic Group consulting firm.
    • GM's share price has lost 9% since the strike began on Sept. 16, chopping more than $4B from the stock's market cap.
    • Johnson & Johnson (NYSE:JNJ-1.9% after-hours following a Philadelphia jury ruling that it must pay $8B billion in punitive damages to a man who previously won $680K over his claims that it failed to warn that men using its Risperdal anti-psychotic drug could grow breasts.
    • The Philadelphia verdict is the first case in which a Pennsylvania jury was able to consider awarding punitive damages in one of thousands of Risperdal cases pending in the state.
    • If the track record for similarly large punitive damage awards holds up, this award likely will be reduced on the grounds that it violates due process.
    • PG&E (NYSE:PCG) says it expects to proactively turn off power to nearly 800K customers starting shortly after midnight on Wednesday, as severe winds are expected to hit northern and central California, increasing the risk that its equipment could start fires.
    • Outages could last for multiple days and cover parts of 34 of California’s 58 counties, PG&E says.
    • While the outages likely will hit hardest in rural areas such as the Sierra Nevada foothills and California's wine country, they could also affect the San Francisco Bay Area, including portions of Oakland, Berkeley and San Jose.
    • "It's absolutely unprecedented," says a Sonoma County spokesperson, as officials say they are bracing for nearly half of the area's 500K residents to potentially lose power, darkening large parts of Santa Rosa, Petaluma and other major cities in the area north of San Francisco.
    • The state's other large utilities, Southern California Edison (NYSE:EIX) and San Diego Gas & Electric (NYSE:SRE), also have plans in place to shut off electricity elsewhere in the state to reduce wildfire risk.

  23. Webinar time! 


  24. Spike – looks like the treasury auction went well.


  25. VXX / Palotay – I actually generated a formula in Excel (not an exact correlation either) but as I mentioned, this chart does need to be updated from time to time to take the decay into account. This was created over the weekend based on Friday's numbers. Maybe every 3-6 months! 

    I think that you are right as far as volatility swings are concerned. The reason that we had spikes over 50 the last 5 years stems mostly from the fact that so many people were short volatility and had to cover when we had big scares, in effect jacking up the VIX as it was already going up! So I have been staying below 10% on average, but when the VIX spikes, margin spikes as well. You just have to ride the moves! Which is why I created the chart – to help me assess possible risks.


  26. VXX / Phil – If you have plenty of cash and understand when to roll and when to hold (no problem with you), you can really generate some extra income on any portfolio this way with very understandable risk. As you said many times, 10%/year adds up quickly!

    Heck, Bernie Maddoff would probably still be out of jail if he has used something like that instead of scamming investors!


  27. Auction might have gone OK but TBills all over the place today:

    Madoff/StJ – True, what a waste to have all that money and do nothing with it! 

    Well, nothing new in the Fed minutes but all being taken well so far so now it's up to US/China into Friday to keep us above our lines.

     

    The Turkish military began an offensive in Syria to seize territory held by U.S.-backed Kurdish forces, opening a new front in the war-ravaged country. President Trump had ordered U.S. troops to withdraw from the Syrian side of the border.78640 minutes ago

    PG&E began cutting power to nearly a million households and businesses across California, an unprecedented move to help lower the region’s wildfire threat in the face of the kind of windstorm that previously fueled infernos.

    Fed Officials Last Month Worried Trade War Could Curb Hiring, Consumer Spending

    Federal Reserve officials worried that slowing global growth and rising trade-policy uncertainty could exert a drag on hiring and the U.S. economy when they cut interest rates last month.35 minutes ago

    What Rising Temperatures Mean for Coffee-Bean Farming

    Greece, Once in Crisis, Joins Negative-Rates Club

    Elizabeth Warren Vows to Remake Capitalism. Businesses Are Bracing.

    Inside America's First Cannabis Cafe

    Inside America's First Cannabis Cafe

    Crazy!


  28. Well we're bucking up and down into the close but holding up well.  

    Bullard was just on Bloomberg saying he expects at least another cut this year so….

    • Two U.S. senators urged the CEOs of Visa (V +1.7%), Mastercard (MA +2.2%), and Stripe (STRIP) to carefully consider the risks before proceeding with Facebook's (FB +1.6%) Libra Association.
    • "We are concerned because key questions remain unanswered about the risks the project poses to consumers, regulated financial institutions, and the global financial system," wrote Senator Sherrod Brown (D-OH) and Senator Brian Schatz (D-HI) in a letter to the three CEOs.
    • "Facebook has not yet demonstrated to Congress, financial regulators — and perhaps not even to your companies — that it is taking these risks seriously," they said.
    • Facebook hasn't provided a plan for how it will prevent Libra from facilitating criminal or terrorist financing, destabilizing the global financial system, interfering with monetary policy, or exposing consumers to risks currently limited to accredited investors, the senators wrote.
    • PayPal withdrew from the Libra group on Monday.
    • U.S. Steel (X -8.1%) slumps to its lowest in more than three years after unveiling plans for further cost cuts and the resignation of its CFO.
    • U.S. Steel said it will kick-start an enhanced operating model starting next year that it hopes will save $200M in annual fixed costs by 2022.
    • Turnover within executive roles involved in the execution of the company's long-term strategy is "unnerving, however large strategic shifts post redefining acquisitions (i.e. Big River) rarely come without some turnover," says Cowen analyst Tyler Kenyon, who maintains his Market Perform rating and $10 price target.
    • The broader steel sector (SLX -0.5%) trades mixed: NUE +0.8%AKS -1.1%CMC +1.1%STLD +2.3%.
    • The Federal Reserve's September meeting minutes suggest that odds for another rate cut in October are increasing based on inflation trends, Brown Brothers Harriman's Win Thin said.
    • "Given this apparent focus on inflation to justify the cut last month, the odds are rising for an October cut, too," he wrote in an email after the FOMC meeting minutes were released. "Especially if September CPI misses on the downside tomorrow."
    • via Bloomberg.
    • As Fed Chair Jerome Powell had expressed after the September FOMC meeting, the baseline outlook for the U.S. economy is continued growth, but downside risks to the outlook have increased since the previous meeting.
    • Of course, slowing global growth and trade uncertainty loomed large among those risks, but also "weakness in investment spending, manufacturing production, and exports had emerged," according to the minutes of the FOMC meeting.
    • "Several participants" commented that the weakness in business spending, manufacturing, and exports could "give rise to slower hiring, a development hat would likely weigh on consumption and the overall economic outlook."
    • In other words, if hiring slows too much, the U.S. consumer spending won't be able to support U.S. economic growth.
    • Some of the participants also noted that statistical models, including those based on the yield curve, suggested that the probability of a recession in the medium term had increased.
    • The minutes of the Fed's September meeting show that "several participants" wanted the FOMC's post-meeting statement to give more guidance on when they expected the monetary policy rate adjustments to end.
    • Since the meeting, Fed officials standard line is "there's no preset course," and incoming data will help determine any further actions.
    • As was already disclosed, there were some officials that wanted to keep rates unchanged and a couple that wanted to cut rates by 50 basis points instead of the 25-bp cut that was taken.
    • The issue of the Fed's balance sheet arose when discussing In  money market turmoil that occurred about the same time as the Sept. 17-18 meeting. "A few participants noted the possibility of resuming trend growth of the balance sheet to help stabilize the level of reserves in the banking system," according to the minutes.
    • Participants agreed that any asset purchases needed to be maintain an appropriate level of reserve balances "should be clearly distinguished from past large-scale asset purchase programs" that were aimed at monetary policy accommodation in the wake of the financial crisis.
    • 10-year Treasury rises almost 5 basis points to 1.579%; at about noon ET yield had been at 1.573%; (TLT -0.8%), (TBT +1.5%).
    • Since the minutes were released, stocks haven't veered from their upward path; Nasdaq +1.1%, S&P 500 +1.0%, Dow +0.8%.

    • Fitch Ratings says it expects slower growth in the tobacco industry due to the recent regulatory scrutiny of next generation products, including vaping bans in several countries and some U.S. states and cities. The ratings agency also has a few thoughts on each of the major players.
    • On Philip Morris International (NYSE:PM): "We believe that Philip Morris International is likely to be less affected by the current regulatory scrutiny as it focuses on a heat-not-burn NGP rather than e-cigarettes. It has obtained approvals for this product, including in the US where it will be marketed by Altria under licence. So far it sells outside of the US. However, we view PMI's decision not to pursue its merger with Altria as a reflection of unpredictable growth in the sector."
    • On British American Tobacco (NYSE:BTI): "We view British American Tobacco as significantly exposed to vaping and the US market generally. Still, the company confirmed in September that it expected to generate GBP5 billion of revenue by 2024 from NGPs despite pressures in the vaping segment. Given its deleveraging trajectory its financial headroom should be restored by end-2022."
    • On Imperial Brands (OTCQX:IMBBY): "Imperial Brands issued a profit warning in late September, principally because of the expected underperformance of NGPs in the US. This led to the announced departure of the company's CEO. Historically, the company's NGP push lagged behind its peers and only accelerated in 2018-2019. The company may benefit from a lower price point of its myblu products compared to BAT's Vype, especially if price-sensitive customers start switching from unbranded open systems. Our deleveraging assumptions for the company remain unchanged and assets disposals would be crucial in achieving that."
    • On Altria (NYSE:MO): "Altria is exposed to the US vaping market indirectly via its 35% stake in e-cigarettes producer JUUL. The links between the two companies have strengthened after two Altria executives became JUUL's CEO and chief regulatory officer… The probability Altria impairs the value of its 35% investment in Juul has increased materially due to considerably diminished and uncertain e-vaping growth prospects."
    • "Turkey is now responsible" for making sure all captive ISIS fighters remain imprisoned and that "ISIS does not reconstitute in any way, shape, or form," President Trump said in a statement in response to Turkey's military operation in Syria.
    • "The U.S. does not endorse this attack and has made it clear to Turkey that this operation is a bad idea," he said.
    • iShares MSCI Turkey ETF (NASDAQ:TURfalls 2.6%.
    • Meanwhile, European Commission President Jean-Claude Juncker calls on Turkey to show restraint and stop its operation in Syria.
    • On Monday, Trump vowed to "destroy and obliterate" Turkey's economy if it did anything that Trump considers "off limits."
    • Airline stocks are back in favor today with investors, driven higher by a positive read from American Airlines management.
    • American Airlines (AAL +3.2%) says it expects Q3 unit revenue to increase 1.5% to 2.5%, despite the impact during the period from Hurricane Dorian. The prior unit revenue range from AAL was +1.0% to +3.0%.
    • The company continues to expect Q3 cost per available seat mile (ex-fuel) to be up approximately 4.0% to 6.0%.
    • The airline sector is also reacting to a price target bump from Goldman Sachs on United Airlines (UAL +2.7%) to $128 from $114.
    • Also in the mix, the latest U.S.-China trade news has steered toward the positive side today.
    • Delta Air Line (DAL +1.3%), Alaska Air (ALK +2.1%), Hawaiian Holdings (HA +1.4%), Allegiant Travel (ALGT +1.3%), Southwest Airlines (LUV +0.8%) and SkyWest (SKYW +0.8%) are all higher on the day.

    • Nomura Instinet backs up a positive view on Marriott Vacations Worldwide (VAC +1.2%) after taking in the company's analyst day.
    • "VAC’s 2022 outlook met the Street’s positive expectations. Revenues are expected to increase at ~7% and EBITDA at ~9%. EBITDA growth is boosted by a higher synergy outlook of $125mn, up from $100mn previously," sums up analyst Brian Dobson.
    • Dobson also notes that the recent deceleration at Hilton Grand Vacations is company specific.
    • Nomura keeps a Buy rating and price target of $136 on VAC (+34% upside potential).
    • Google (GOOG +1%GOOGL +1%) has started test production of a 5G version of its Pixel smartphone, Nikkei reports, a move that could beat Apple (AAPL +0.8%) to the punch on the new networking standard.
    • The company could announce the phone at its Oct. 15 launch event, according to the report.
    • That move would further cement Google's Apple-like push into branded hardware to build stronger ties with its software and services.
    • Two new Pixel 4 phones are headed into mass production and will be ready to ship after the unveiling, the report says, and test builds of the 5G version are under way.
    • Pixel's market share is still small, at less than 0.5%, but Google plans to more than double last year's shipments to as many as 10M phones this year.

  29. Phil must be away from his computer again after hours. Whoops!

    Closed my corn positions yesterday and joined in on the long coffee idea today. Not much else going on…


  30.  Wow, the Dow just dropped 300 points as China said there was no progress in the trade talks (as I predicted in the Webinar).

    Have I mentioned how much I like CASH!!! lately? 



  31. The 2019 federal deficit is almost $1 trillion. No one seems to care.



  32. In Syria, Russia’s big moment may have arrived


  33. And now futures recovering. Crazy market. 

    I have a few SPX puts on for fun. 



  34. When China Comes for Pooh Bear …