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Monday Market Movement – Still Not Really a Trade Deal?

Related imageHappy Indigenous People's Day!

China is already warning that there is no substantial trade deal and, in an opinion piece entitled “Let’s nail down ‘phase one’ before moving to the next,” the official Chinese state-owned English newspaper pointed fingers at the Trump administration’s unpredictability when it comes to foreign policy.  According to China Daily:

“As based on its past practice, there is always the possibility that Washington may decide to cancel the deal if it thinks that doing so will better serve its interests, the US should avoid backpedaling, as it has in the past, and instead cherish what has been achieved as a manifestation of a healthy and steady China-US relationship that serves the interests of both countries and the world.”

China received scant relief from U.S. tariff pressure in the accord other than the waiving of a small increase in duties that had been scheduled for this week, a far cry from the complete removal of extra duties that had been their previous negotiating position.  In return though, China hasn’t had to give much away other than vague commitments on its currency and intellectual property-practices, plus the purchase of agricultural commodities that it needs anyway. 

Meanwhile, with a pause in the Trade War in the works, President Xi has turned his attention back to Hong Kong and warned over the weekend that "Any Attempt To Divide China Will End In "Shattered Bones" and the police have come down harder on protesters who have, in turn, stepped up the violence with a pipe bomb being used for the first time this weekend and, once again this morning, protesters have shut down the airport.

It's a pretty light data week with a lot of Fed Speak as we kick off Q3 Earnings Reports tomorrow with too many major players to mention.  Our portfolios are nice and empty so, hopefully, it will be a good time to make some earnings plays – we already discussed a coulple last week.

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  1. At what point does someone get indicted for market manipulation? How many of Trump's friends got advance notice of the China deal? And they walk it back this weekend like Mnuchin on Sunday… 

    And let's keep in mind that no matter what deal we make, we will be worse off than when Trump started – the tariffs have been paid, no one is getting that money back. Markets have been lost, it ain't coming back and the trade deficit will be higher moving forward. Sounds like one of these deals Trump made in Atlantic City where the little guys lost out!



  2. Good Morning!


  3. Good morning – a bit quiet  here today.  


  4. Columbus Day quiet?


  5. Good morning from smokey California.

    Smelled like a bonfire when I flew in on Friday and the Valley was full of smoke until yesterday morning but seems to be getting better now.  

    Indexes on shaky ground as well with the S&P back close to 3,000 and no real catalyst to get it over.

    Big Chart will matter as the week goes on so it's how we finish that matters but the trend is no friend to the RUT over the last 6 months.

    As StJ notes – China is getting concessions FROM US – not the other way around.  We just gave away the one thing they need and they can blackmail us with heavy metals any time they want to (among other things they have on Trump). 

    Quiet/Batman – Well it's Monday and a holiday and I'm in California so quiet is to be expected.

    I just had a morning meeting with some hedge fund guys about investing in our Cannabis Fund – so many projects in so many states – it's like the wild west out there.   These companies that went public too early are generally a disaster but the real business on the ground is fantastic.  

    Also, it's amazing that last year, no one said a word about CBD but this year it dominates the conversation.  MJ market is nice and will serve about 20% of all Americans but CBD is expected to go mainstream – just ask your parents and either they or their dog are probably already taking it! 


  6. EU asks U.S. to refrain from tariffs over Airbus aid, seeks further talks

    • The European Union makes a last-ditch appeal to the U.S. to hold off on implementing retaliatory tariffs over illegal subsidies to Airbus (OTCPK:EADSY -0.5%), warning of economic harm to both sides and repeating a call for a negotiated solution.
    • European Trade Commissioner Malmstrom has told U.S. counterpart Robert Lighthizer that the U.S. plan to slap tariffs on $7.5B of EU goods would compel the EU to apply countermeasures in a parallel lawsuit over market-distorting aid to Boeing (BA +0.9%), and U.S. levies would make a negotiated settlement harder to reach, Bloomberg reported over the weekend.
    • "We are ready to negotiate a settlement for both the Airbus and the Boeing case addressing remaining compliance obligations on both sides, putting these cases behind us," Malmstrom reportedly said in a letter to Lighthizer.
    • The World Trade Organization today formally authorized the U.S. to impose the retaliatory tariffs.

    Deere ramps up leases amid slowing sales – WSJ

    • Deere (DE -0.1%) is spending billions of dollars annually to buy its own farm equipment for a leasing program, which lifts sales but adds financial complexity and weighs on the used-equipment market, WSJ reports.
    • More than a third of the financed purchases of Deere high-horsepower tractors and construction equipment is being leased to farmers and builders, and leasing levels are ~2x the rate in 2012, when the U.S. farm equipment market was booming because of high crop prices, according to the report.
    • Leases allow Deere to bump up sales by delivering machinery to customers who might not be willing to buy in a soft market, but the longer-term risk to the company is that many customers will continue to prefer leasing when the farm economy rebounds, and leasing offers less reliable profit and more complexity than lending customers money with interest to pay for their equipment purchases, WSJ's Bob Tita explains.
    • Deere rival CNH Industrial (CNHI -0.5%) also is relying more on leasing to support sales; more than 40% of the high-horsepower tractors CNH has sold annually in the U.S. since 2014 have been leased, up from 25% in 2012, according to the Uniform Commercial Code data on financed purchases.

    Ford holds market share in Europe

    • Ford (F +0.2%) reports Q3 sales in Europe rose 3.1% to 313,400 units.
    • The automaker's total market share in the 20-nation region stayed level at 7.5%.
    • The top five markets for Ford on the continent during the quarter were Britain, Germany, Italy, France and Spain.
    • Both the Ford Kuga and Ford EcoSport set Q3 sales records.

    UPS starts valet storage bin service

    • UPS (UPS) announces the launch of a valet storage concept called Storage on Demand.
    • The company says the new innovation allows customers to request delivery of empty storage bins directly to their home or business to then fill with their belongings and schedule for pickup to be driven to a UPS facility for storage.
    • UPS says Storage On Demand makes it easier for consumers and small businesses to enjoy and better utilize their space, manage their belongings and de-stress their lives.
    • A team of four UPS employees conceived the idea and pitched it at an internal innovation competition where employees from various UPS departments are invited to pitch new, innovative ideas directly to senior executive leadership.
    • Source: Press Release

    Gladstone Land sees China deal making Midwest growers stronger

    • Gladstone Land (NASDAQ:LAND) says it's hopeful that the recently announced agreement for China to buy $40B-$50B of agricultural products from the U.S. --chiefly, grains such as soybeans, corn, and wheat — will make Midwest growers stronger.
    • Though Gladstone owns more than $835M of farmland, less than 5% of its revenue is derived from farms growing grain crops expected to be part of the U.S.-China agreement.
    • "While we do not expect China to pay more than market price for these agricultural products, having a large buyer in the U.S. market should lift the sales of many of the crops grown by Midwest farmers and perhaps bring better profitability to the region as a whole," Gladstone said.

    Wells Fargo cautious on Beyond Meat

    • Beyond Meat (BYND -2.5%) falls after Wells Fargo show up to the ratings party with coolish initiation.
    • WF analyst John Baumgartner starts off coverage with a Market Perform rating and price target of $125 vs. the sell-side average PT of $152.57 and 52-week high of $239.71.
    • "We see a company well positioned to grow in the nascent plant-based meat alternatives space; a category strongly suited to benefit from generational change as consumers’ concerns pertaining to dietary health, environmental degradation, and animal welfare increasingly drive food purchase decisions. That said, we think BYND’s growth potential is fully discounted into current valuation and advocate waiting for increased visibility pertaining to competitive entrants and marketplace adoption before owning the name," notes Baumgartner.
    • Baumgartner and team expect a substantial push by private label and challenger brands given the likelihood that new discoveries pertaining to plant structures and processing introduce products superior to those in the market today.

    China wants more talks before signing 'phase one' deal – Bloomberg

    • China wants more talks as soon as the end of this month to iron out details of the "phase one" trade deal announced by Donald Trump on Friday before Xi Jinping agrees to sign it, Bloomberg reports, citing people familiar with the matter.
    • The three major stock index futures are red; Nasdaq, S&P, and Dow futures each slip 0.2%.
    • China may send negotiators led by Vice Premier Liu He to finalize a written deal that could be signed by the presidents of the world's two largest economies at the Asia-Pacific Economic Cooperation summit in Chile next month, one of the people said.
    • Beijing also wants the U.S. to scuttle a planned tariff increase in December as well as the hike scheduled for this week, something the administration hasn't yet agreed to, according to another person.
    • Previously: Trump says U.S., China reach a phase one deal (Oct. 11)

    Chinese auto sales stay in reverse

    • Auto sales fell 6.6% in China to 1.81M units in September despite efforts by Beijing to prop up the market.
    • Chinese auto sales have now been down for 15 months out of the last 16 months, according to data from the China Passenger Car Association. Those weak numbers have coincided with more automakers investing in Chinese joint ventures and looking for a slice of the China EV market.
    • Auto names rose briskly on Friday amid the trade deal relief and could be set for more gains when further tariffs are off the table.

    Citi turns bear on TD Ameritrade

    • TD Ameritrade (NASDAQ:AMTDslides 2.4% in premarket trading after Citigroup analyst William Katz downgrades the stock to sell from neutral, as the recent e-brokers' price war adds risk to its earnings.
    • Price target cut to $27, a Street low, from $35.50; compares with average price target of $37.00.
    • Katz sees "another leg down" as byproduct of the commission wars "that we do not yet believe is fully factored into the stock."
    • "AMTD's business model now has greater cyclicality," which implies the need to re-set to a lower long-term P/E multiple, he writes.
    • Katz's recommendation contrasts with Quant rating of Neutral; before this action, the Sell-Side average rating was Hold (4 Buy, 2 Outperform, 9 Hold, 3 Underperform, 1 Sell).
    • In the past three months, AMTD has declined 30% vs. financial sector median performance of -1.9%.

  7. "CBD is expected to go mainstream"

    I was in Vegas last month and looked around at some of the dispensaries – it is amazing to me that CBD is as pricey as it is without any of the mind-altering effects. 

    If you get any photos of New Age II operations consider showing them off during the webinar!



  8. Syrian army moves to confront Turkish forces as US withdraws



  9. Photos/Ati – No webinar this week but I'll post some pics if I can.


  10. Charts still not too encouraging:


  11. RH/Phil – I could use some help with adjusting an RH position and some Monday morning quarterback based on what I've already done.  I imagine it to be similar to what you've done with CMG this year, and would like your perspective.  Back in May I:

    Sold 1 RH 2021 $100 puts @ $27.25 ($2,725)

    Bought 3 RH 2021 85/120 BCS @12.75 ($3,825)

    So I was net $1,100 on a $10,500 spread back when RH was $95.  By July when RH reached 120, I started selling near term calls waiting for it to stall/pullback and collect some premium.  Well, it kept rising, and 3 months of rolls later, I also now have:

    Sold 3 RH Oct $150 calls @ 21.40 ($6,420)

    In September when it looked like it was topping at 170, I bought back the 1 short put at $10.50.

    Now with RH over 180, is there an adjustment to make?


  12. RH/Buckeye – Well, the difference with CMG is that we feel it's past it's value potential (in the reasonable future), not so much with RH.

    The good news is the 3 spreads should be good for $10,500 and, at the moment, you'll owe $9,000 back on the spread but the good news is the Oct $150 calls are now $32.50, and the May $180s are $28.50 ($8,850) so I'd look towards rolling there and rolling the 3 2021 $85s at $102 ($61,200)to 6 2022 $150s at $68 ($40,800) and the short $120s at $76 ($45,600) to 6 of the $190s at $47.50 ($28,500).   That net's $3,300 on the 2021 to 2022 roll and, if the May $180s expire worthess, you have the $24,000 spread to play with.  I'd sell a few short puts too, like maybe 2 2021 $110 puts for $11 ($2,200) .  


  13. Buck,

    First let me point out your mistakes. You bought back a Jan21 put and paid 10.50 premium for what?

    You hold 3 Jan 21 BCS and sold 3 short term calls against the BCS you should have sold only 1 normally you sell cherry calls only half of the BCS..

    Well I see Phil explained the rest so take it from there


  14. RH/Phil – Thanks!

    RH/Yodi – Thank you too!  I bought back the Put when we were closing out portfolios and I was closing a bunch of positions too.  Being behind on the calls, I didn't close the whole thing.  But at the point where I knew I was going to hold on to this one, I should have kept the put too.

    With the cherry calls, I was aggressive starting with 2, but this was 3 months ago with a 120 strike.   I was only going out to the next month, so to keep up with a $30 rise, I went from 2 to 3 to increase the strike to $150.  Now it's up another $30 to $180.  Insert that quote about market outlasting an investor here…

    How would you have handled this?


  15. Buck I explained you can always roll but do not out run your BCS, as the Bull call as well the short put in this case is your friend. But it is difficult to out rum the 3 short calls you should have doubled on the BCS.

    Now Phil gave you the answer of what to do. I did not close my positions eather, Phil runs a demo portfolio, I find it is always different to the real thing.


  16. I have to go to a meeting, looks like we're a little red but not much.

    I'll catch up later.


  17. Southeastern Asset Management comments on CTL :

    We expect the sales force now being fully integrated after the Level 3 acquisition and faster pace of new installations to drive accelerated growth in the key Enterprise business in the coming quarters. CEO Jeff Storey and CFO Neel Dev continue to make progress in improving the cost structure, with a further $200-300 million per year of additional cost savings identified and a focus on increasing cash flow. CenturyLink’s management has intentionally run off non-core, unprofitable businesses, like low-speed consumer internet and voice, while intelligently investing to expand the network’s Enterprise fiber coverage and growing high-margin revenues over the long term. As CenturyLink’s Enterprise growth inflects to outweigh the legacy declines later this year and next, we expect both the company’s top line and consolidated EBITDA per share to grow. The company trades at a roughly 65% discount to our appraisal today and a multiple of 4-4.5x free-cash flow. We are engaged with management to explore additional options to close the price-value gap, as there continues to be a healthy amount of M&A in the industry at multiples above where we appraise CenturyLink’s parts.





  18. China wants tariffs cut to enable $50 billion imports from U.S.: Bloomberg


  19. Worried about the economy? Watch US bank earnings