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Fallback Thursday – China Trade Deal Once Again in Doubt

Image result for china agricultural exports"Now China is saying they doubt there will be a Trade Deal.

China's agreement to buy $50Bn worth of farm products did not have a specified time frame in the first place.  They historically buy about $24Bn a year so there's little chance, even logistically, that they could buy another $50Bn in a single year or two years.  We do not, in fact, even have an extra $50Bn worth of products sitting around – we'd have to divert products we sell to other countries to China – which would be idiotic.  Of course, you can never get a straight answer out of the Trump Administration but analysts have noted that China's farm purchases have already dropped to $9.1Bn during the trade war so simply going back to the old levels lets Trump claim he "added" $15Bn a year to what they were buying – smart!

Image result for china agricultural exports"

The devil is clearly in the details and we were supposed to get details at the APEC Conference in Chile on Nov 17th but that's been cancelled due to riots (people like to eat) but it turns out China has been walking back the idea of signing a deal with Trump all of last week and, for their part, China never said anything about $50Bn in the first place – that was pure Trump fiction from a rally on the 11th, in which he told the crowd how his advisers wanted him to accept $20Bn but Trump heroically said "No, make it $50Bn!" and China immediately bent over and accepted his terms.  That's how it played out in Trump's head…

This renewed uncertainty is ruining Powell's Rate Party as the Fed did indeed cut rates another 0.25% yesterday, to 1.5% sending the Treasury ETF (TLT) back to our shorting zone above $140.  The last Fed Meeting of the Year is Dec 11th and it's doubtful they cut rates again but, more importantly, the minutes to this meeting should be out around Nov 21st  and we doubt the bond bulls will find much to love there.  In our Short-Term Portfolio (STP), we can add:

  • Buy 10 TLT Jan $148 puts at $8.75 ($8,750) 
  • Sell 10 TLT Jan $140 puts at $3 ($3,000) 
  • Sell 10 TLT June $145 calls at $3.50 ($3,500) 

That's net $2,250 on the $8,000 spread so $5,750 (255%) upside potential if TLT is back below $140 at the June expiration.  Our worst case is we end up short 1,000 shares of TLT at $145, which would be miles above the historical average of 85.  Rates in the US would have to go negative next year for us to sustain this level on TLT – it's not likely to happen as most countries are now pushing back on negative rates.

Still, we're at an all-time high on the S&P and we're likely to hold up into the weekend so things look bullish and the President yesterday called this "The Greatest Economy in American History":

Image

That was the day after the Atlanta Fed's GDP forecast was lowered to 1.7%:

Image

Thank goodness President Trump doesn't have Donald J. Trump to worry about because that guy would have called him out on his BS "growth":

Image

Take your pick!

 


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  1. Good morning, All!

    Check out the webinar replay, here:

    https://youtu.be/Vvt7lTxC-fI





  2. Good Morning!


  3. Good morning!


  4. .How many times can they go to the China well… At this point, the markets should only react when the ink is dry on a deal, But no, every single lying tweet or lying comment (99.99% of what comes out of the WH) is taken at face value!


  5. Adding $2T to the debt in 2 years is getting us an average growth of 2% over the past 4 quarters! I assume that adding another $2T over the next 2 years keeps us around 2%. These are truly historic growth numbers, not matched by any other president before in history </sarcasm>


  6. These guys are never right:

    https://www.bloomberg.com/news/articles/2019-10-30/obama-will-kill-stock-market-no-trump-will-no-warren-will

    The S&P 500 will plunge 25% if the Democrat becomes president, says Paul Tudor Jones, the hedge fund manager. Discovery Capital Management founder Rob Citrone says she’s “the single biggest risk for the market” and calculates the downside at up to 20%. Billionaire Leon Cooperman told CNBC earlier this month that the market would drop 25% if Warren or Bernie Sanders win.

    They said the same thing about Obama and even Trump! The one who caused a 50% drop was Bush of the Bush Boom story.




  7. Where does the GDP growth come from:

    https://econbrowser.com/archives/2019/10/growing-a-little-more-slowly

    The last 2 quarters – consumers and government spending:


  8. Added more AGNC back in the $14s (thanks Albo!) and considering some adjustment here







  9. Apple targets lifted on iPhone, Services strength

    Deutsche Bank (Hold) raises its Apple (NASDAQ:AAPL) target from $230 to $235, citing yesterday's earnings report and the acceleration of Services revenue growth, joined by improving margins. The bank sees some conservatism baked into the holiday quarter guidance, suggesting a modest Q/Q growth in iPhone revenue, which supports the belief that the iPhone 11 is selling better than last year's models.

    Piper Jaffray (Overweight) raises AAPL from $243 to $270, saying the company's position going into 2020 includes the current iPhone performing at or above plan, non-iPhone businesses like Wearables and Services trending better than expected, and growing exciting around the 5G iPhone expected next year.

    Wedbush (Outperform) raises the target from $265 to $300. The firm thinks Apple delivered a home run quarter in the face of multiple perceived headwinds, posting stronger China performance and with the iPhone 11 as the star. Wedbush now thinks AAPL could hit 190M iPhone units in FY20 with the 5G "super cycle" around the corner.

    Apple shares are up 1.8% to $247.74. The company has an Outperform average Sell Side rating.


  10. What is driving markets down?



  11. Good morning!

    Big Chart – Watch that NYSE for a breakout over 13,250 – that would be very significant though not looking good at the moment with sellers showing up at the bell.

    Good use of the sarcasm font, StJ!   Those Billionaires are freaking out about Warren.

    Down/Batman – Trade worries and stuff:

    • The major stock market benchmarks open slightly in the red following yesterday's Fed-induced gains, as investors parse the latest trade headlines, earnings reports and economic data; S&P and Dow both -0.2%, Nasdaq -0.1%.
    • Bloomberg reported overnight that Chinese officials are having doubts about the possibility of a long-term trade deal with the U.S.
    • But Apple (+1.8%) and Facebook (+3.7%) are providing support for the broader market after their Q3 earnings beat estimates.
    • In U.S. data news, jobless claims remained at historically low levels, Q3 wages and salaries for civilian workers rose 2.9% Y/Y, and the PCE Price index was unchanged in September.
    • European markets trade mostly lower, with U.K.'s FTSE -0.9%, France's CAC -0.2% and Germany's DAX flat; in Asia,Japan's Nikkei +0.4% and China's Shanghai Composite -0.4%.
    • In the U.S., most S&P 500 sectors are lower, led by industrials (-0.6%), financials (-0.5%) and energy (-0.5%), while communication services (+0.6%), information technology (+0.1%) and consumer discretionary (+0.1%) are the only groups in the green so far.
    • U.S. Treasury prices are rising, driving the two-year yield 3 bps lower to 1.69% and the 10-year yield down by 6 bps to 1.74%; U.S. Dollar Index -0.3% to 97.38.
    • WTI crude oil -1.1% to $54.44/bbl.
    • Oct. Chicago PMI43.2 vs. 48.3 consensus, 47.1 prior.
    • Checking the subindexes, New Orders fell at a faster pace than last month, as did Production. Prices Paid rose at a slower pace than previously.
    • Already lower on the session, the 10-year Treasury yield ticks down further, now off seven basis points for the day at 1.71%.
    • The Fed yesterday, more or less said it was done cutting rates until more data confirmed more of a slowdown. The first data since suggests maybe another rate cut might be on the table. The employment report comes tomorrow morning.

    • 30-year fixed-rate mortgage averages 3.78% for the week ending Oct. 31, 2019, up from 3.75% in the previous week and 4.83% at this time a year ago, according to the Freddie Mac Primary Mortgage Market Survey.
    • “This week marks the third consecutive week of rate increases, which hasn’t happened since April of this year. That said, purchase activity continues to show strength, indicating obvious homebuyer demand,” said Freddie Chief Economist Sam Khater.
    • Still, the lack of housing supply not only limits the housing market, but overall economic growth, Khater said.
    • 15-year FRM averages 3.19% vs. 3.18% in the prior week and 4.23% a year ago.
    • 5-year Treasury-indexed hybrid adjustable rate mortgage averages 3.43% up from 3.40% in the previous week and down from 4.04% at this time a year ago.
    • Deutsche Bank (Hold) raises its Apple (NASDAQ:AAPL) target from $230 to $235, citing yesterday's earnings report and the acceleration of Services revenue growth, joined by improving margins. The bank sees some conservatism baked into the holiday quarter guidance, suggesting a modest Q/Q growth in iPhone revenue, which supports the belief that the iPhone 11 is selling better than last year's models.
    • Piper Jaffray (Overweight) raises AAPL from $243 to $270, saying the company's position going into 2020 includes the current iPhone performing at or above plan, non-iPhone businesses like Wearables and Services trending better than expected, and growing exciting around the 5G iPhone expected next year.
    • Wedbush (Outperform) raises the target from $265 to $300. The firm thinks Apple delivered a home run quarter in the face of multiple perceived headwinds, posting stronger China performance and with the iPhone 11 as the star. Wedbush now thinks AAPL could hit 190M iPhone units in FY20 with the 5G "super cycle" around the corner.
    • Apple shares are up 1.8% to $247.74. The company has an Outperform average Sell Side rating.

    SunPower (NASDAQ:SPWR+13% on Q3 results

    The Kraft Heinz (NASDAQ:KHC+7% on Q3 results.

    • Royal Dutch Shell (RDS.ARDS.B-3% pre-market and trades nearly 4% lower in London despite beating Q3 earnings estimates, as the company warns global economic conditions could slow the timetable for its $25B share buyback program.
    • "Prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25% and completing the share buyback program within the 2020 time frame," CEO Ben van Beurden says.
    • Gearing – the ratio between debt and market cap – rose in the quarter to 27.9% from 23.1% a year earlier.
    • But free cash flow, which enables the company to pay for dividends and share buybacks, rose to $10.1B from $8B a year ago.
    • Shell last year began the $25B buyback program that was promised after its 2016 acquisition of BG Group; the company so far has bought back $12B in shares, with another $2.8B planned for the next three-month period.
    • "The lack of a dividend hike at BP and Shell management hinting at a possibly slower pace of share buybacks are suggesting companies are taking a more sober view on the outlook for oil and gas prices," Morgan Stanley analyst Martijn Rats says.

    • IMAX(NYSE:IMAX) reports revenue was up 5.2% in Q3 to $86.4M off a 9% increase in its commercial theatre network.
    • Adjusted net income rose 50% to $0.21 per share.
    • Adjusted EBITDA increased 26% to $32.4M vs. $30.8M consensus.
    • "We are on track for our best year ever at the global box office. In China our box office is up 27% in RMB through early October and we recently grew our box office by more than 160% during the pivotal National Day holiday. And we look forward to the highly anticipated Star Wars: The Rise of Skywalker, final installment of the Star Wars saga, in December," states IMAX CEO Richard Gelfond.
    • Shares of IMAX are up 0.10% premarket to $21.00.
    • Boeing (NYSE:BA) has grounded up to 50 planes globally over cracks, reads a tweet from Agence France Presse.
    • Reports yesterday suggested Qantas and Southwest Airlines stepped up their checks for structural cracks on 737 NGs after discovering problems with planes that did not require urgent inspections.
    • Kraft Heinz (NASDAQ:KHC) reports Q3 adjusted EBITDA of $1.47B to top the consensus mark of $1.39B.
    • The company's organic sales were down 1.1% vs. -1.6% consensus. Organic sales fell off 1.6% in the U.S. and 0.5% in Canada, while Europe and the rest of the world part of the business saw slight growth.
    • Pricing was up 1% during the quarter, reflecting higher pricing in the U.S., Rest of World and EMEA segments that more than offset lower pricing in Canada. Volume/mix was 2.1 percentage points below the prior year period as global growth in condiments and sauces was more than offset by lower shipments in the U.S.
    • "While our third-quarter results remain below our potential, we showed sequential improvement versus the first half, and I believe we are beginning to operate the business better," notes Kraft CEO Miguel Patricio.
    • Shares of Kraft are up 4.98% premarket to $29.92.
    • Previously: Kraft Heinz EPS beats by $0.15, misses on revenue (Oct. 31)

    Despite The Earnings Miss Texas Instruments: A 10-Year, Full-Cycle Analysis 

    • Fannie Mae (OTCQB:FNMAQ3 net income of $3.96B rises from $3.43B in Q2.
    • Net worth increases to $10.3B as of Sept. 30, 2019 up from $6.37B at June 30, 2019, as a result of the September agreement with the U.S. Treasury Department that allows it to retain up to $25B of capital vs. the previous cap of $3B.
    • As a result, the aggregate liquidation preference of its senior preferred stock increased from $123.8B as of June 30, 2019 to $127.2B as of Sept. 30, 2019 due to the $3.4B increase in the company’s net worth during Q2 2019.
    • Q3 net interest income of $5.23B increases from $5.15B in Q2 as an increase in income from the guaranty book of business was offset by a decrease in income from the company’s retained mortgage portfolio and other investments portfolio.
    • Q3 fee and other income of $402M rises from $246M in Q2 and $271M in Q3 2018.
    • Net fair value losses of $713M fell from $754M in Q2.
    • Previously: Fannie Mae beats on revenue (Oct. 31)
    • IMAX (NYSE:IMAX): Q3 Non-GAAP EPS of $0.21 beats by $0.01; GAAP EPS of $0.15 beats by $0.02.
    • Revenue of $86.4M (+5.2% Y/Y) misses by $0.83M.
    • Press Release

    I can't believe IMAX is not moving!  For the Earnings Portfolio, let's add this one:

    • Sell 5 IMAX June $23 puts for $3 ($1,500) 
    • Buy 20 IMAX June $18 calls for $4 ($8,000)
    • Sell 20 IMAX June $22 calls for $1.75 ($3,500) 

    That's net $3,000 on the $8,000 spread so $5,000 (160%) upside potential if IMAX is over $22 in June.  Downside risk is owning 500 shares at net $26 ($23 + $3,000 cost of the spread/500 shares) so it's aggressive on the put side but I decided it's better than selling 10 $20 puts for $1.50 ($3,000) as that obligates you to $40,000 vs $26,000 if assigned.  Obviously we'd roll the short puts along if they are a problem.


  12. Think or Swim seems to be down.


  13. Also, please note STP trade in above post:

     In our Short-Term Portfolio (STP), we can add:

    • Buy 10 TLT Jan $148 puts at $8.75 ($8,750) 
    • Sell 10 TLT Jan $140 puts at $3 ($3,000) 
    • Sell 10 TLT June $145 calls at $3.50 ($3,500) 

    That's net $2,250 on the $8,000 spread so $5,750 (255%) upside potential if TLT is back below $140 at the June expiration.  Our worst case is we end up short 1,000 shares of TLT at $145, which would be miles above the historical average of 85.  Rates in the US would have to go negative next year for us to sustain this level on TLT – it's not likely to happen as most countries are now pushing back on negative rates.

    We often play TLT short when it's high in the range.  Should get better prices on the entry as it's going higher now.


  14. take another shot at HBI ?


  15. Phil. / HBI – In line Qtr and outlook w/ concerns around store closures…..  down 10% at 14.7 w/  outlooks on Rev at 6.93 to 6.98B and EPS at 1.74 to 1.8….  Thoughts on this?



  16. M under 15 again !!!!


  17. Journalists are getting lazy and re-using previous articles:

    Stocks Drop as China Dents Hope for Long-Term Deal!

    Has been using 20 times over the last 6 months!


  18. we looked at F for a new trade, what about the all new FCAU paying a 4.15% Div. and the new amalgamation puts new life in to this stock. Jan 2022 6x 10/17 vertical for 3$, 3x Jan22  sell 12 puts for 1.20 and sell Jan20 3x 16.54 calls for .55 puts you into a 7000$ spread for 1275.00

    Or buy the stock at 15.60 and sell the Jan22 15/15 straddle for 5.30


  19. we're only down a lousy half a point? So much for my dreams!! 


  20. Newsletters/StJ – Well, in their defense we're including 2 financial melt-downs.  No single strategy works all the time – that's the problem when you start marketing certain strategies and get stuck with them. Of course it's amazing that the bottom 5 are still in business.  

    HBI/Stock, Batman – They are making $1.75/share, people are crazy to dump them.  Margins contracted and that's worrying people more than customer stores closing.  

    In our Earnings Portfolio, we can take advantage of the increased volatility today to sell 5 HBI 2022 $15 puts for $4.75 ($2,375) as it's only $653 in margin so very efficient.  In an LTP, I would buy 10 of the 2022 $13 calls for $3.70 and wait until I can get at least $2.50 selling the short $17s (now $2) for a net (hopefully) $1.20 ($1,200) entry on the $4,000 spread with an overall net $1,175 credit so + $5,175 if it all works out.  

    FCAU/Yodi – A lot of times there are transition costs that hurt the stock after a merger/acquisition so I don't like to jump right in and they already did pop – so a bit chasey for me but probably still a good long-term deal.

    Down/BDC – What is this "down" of which you speak?

    Image result for gravity coyote animated gif"



  21. Here comes the Brexit election


  22. Phil, how do you see the earnings and dividend portfolios evolving?  Are these going to be incorporated into the LTP eventually?  Or kept separate for the long run?


  23. Portfolios/Palotay – I don't know, I suppose Dividends will stay what they are as it's a category people are generally interested in while Earnings is a seasonal thing so we'll probably drop long-term ones we want to keep into the LTP and reset each Q.  

    1,550 holding up on the RUT so far but 27,000 wasn't much support on the Dow.

    /RB is a real mess:




  24. Phil, thanks for yesterday's thoughts on NOK


  25. You're welcome Alter.

    I wish I had thoughts on today's action but this market doesn't seem to know what it's doing.  Blowing 3,000 on /ES would be tragic but we're not there yet.  


  26. No panic at all – spot VIX still below 14! It was over 20 2 weeks ago.


  27. That is interesting while the market is down almost 1% – things are getting so weird…


  28. JO/Phil
    Hi Phil,
    Last month you made some recommendations about coffee.
    On Oct 11, 2019 I did this:
    Sell 5  JO 2020 March $30 puts @ $1.60
    Buy  10 JO 2020 March $30 calls @ $2.88
    Sell 10 JO 2020 March $32 calls @ $1.98

    Price of JO is now $3.90. Suggestions for what, if anything,
    I should do now would be appreciated. Thanks.


  29. Correction: I meant to say the price of JO is now about $33.90.


  30.  JO/Sag – It's just on track, not much to do but wait, really.  The short puts are 0.65 and the $30/32 spread is $4.75/3.40 so only $1.35 out of potential $2 and no reason to think it won't play out and double from here.


  31. Thanks once again!


  32. Sentiment Little Changed








  33. Impeach Trump. Then Move On.


  34. Trump’s audacious impeachment defense