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Tremendous Tuesday – Markets Remain at All-Time Highs

The rally continues

We've been promised a trade deal and we've been promised tax cuts and the S&P has soared over the 3,000 level and is testing 3,100 with the Dow at 27,500, Nasdaq (100) 8,236 and the Russell is dragging behind at 1,603 as it was over 1,700 a year ago but no sense picking nits – this is a Hell of a rally!

Of course the Dollar has been pushed down 2% since the Fed last Wednesday and 2% of 3,000 is 60 and we're 60 points over the previous high so it would be nice to see the S&P and the other indexes REALLY make new highs without the help of a weak Dollar or trade or tax promises but these are not the kind of parents that are willing to let their children succeed or fail on their own merits – are they?

It’s very clear we’re seeing lots of celebration in the market, not just in stocks, but in emerging market assets such as the Yuan and coming out of havens like the Japanese Yen,” said Jane Foley, head of foreign exchange strategy at Rabobank. The cut in interest rates by the Federal Reserve last week has added to investors’ optimism, she said. “The rally can extend for a one to three month view.”

Image result for trump xi trade war cartoonPer Bloomberg: China is seeking the roll back of U.S. tariffs on as much as $360Bn worth of Chinese imports before President Xi Jinping agrees to go to the U.S. to sign a partial trade deal with President Donald Trump, according to people familiar with the matter. 

Negotiators asked the Trump administration to eliminate tariffs on about $110Bn in goods that were imposed in September and lower the 25% tariff rate on about $250Bn that began last year.  China has also previously demanded that Trump cancel plans to impose duties on roughly $160Bn in imports, scheduled for Dec. 15th, which would hit consumer favorites like smart-phones and laptops. At the very least, those tariffs have to be taken off the table for Xi to get on a plane to meet Trump.

Nonetheless, Trump and all the White House dwarves have been out talking up a trade deal and I think it will happen because Trump NEEDS a win — especially one that can come right in the middle of the impeachment hearings – so it's very possible the Administration will punt on issues like Intellectual Property, Censorship and Foreign Investment, which were once supposed to be the whole point of the tariffs.  President Xi reiterated China’s commitment to economic openness and the global trading order at a speech in Shanghai, striking a somewhat softer tone than his address to the same conference a year ago, where he took some veiled swipes at Trump’s “America First” polices

All this is supposed to happen a week from Sunday (Nov 17th), which was the date of the now-defunct APEC Conference in Chile.  We are still very much in CASH!!! and betting carefully in our Member Portfolios and we should all be concerned about Gold holding $1,500.  If things are so great – what are gold hoarders worried about?

I mentioned yesterday that it does feel a bit like 1999 but 1999 was a great year in the market, 2000 – not so much…  I was going to pull up a 1999 chart to illustrate but then I saw this chart that shows where our housing prices are compared to the over-inflated bubble that led to the last major market crash 11 years ago – just another very scary data-point we so easily ignore:

Image result for case shiller home price index

Image result for 1999 market crash chart


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  1. Phil – Looking for replacement for the Russell Index chart in StockCharts. They have removed the $RUT symbol I was using. I'll check to see if I can find something else later today. The table is correct though as Google still track the index and I am auto-updating the spreadsheet.

  2. US trade deficit falls to $52.5 billion in September

  3. Factbox: SoftBank’s ever-growing mountain of debt

  4. Good Morning!

  5. Good morning!

    I'm not here today – I'm in Coco Cay having a family day.  

    RUT/StJ – I can still put $RUT in stockcharts but it doesn't show up in search anymore.  NYSE would be just as good, I suppose. 

  6. Have a great time, Phil, we just did that last month and it was awesome.

    I find spending the money almost as enjoyable as making it.

  7. Crazy story of the day:

    GREENVILLE, Ky. — Parents and students trickled into the Muhlenberg County High School gym on a hot Saturday night as the sounds of cheers and a referee’s whistle carried from an athletic field nearby. Inside the “Home of the Mustangs,” Friends of NRA was raffling off guns: semiautomatic rifles and handguns, guns with high-capacity magazines and pump-action shotguns.

    In the past two years, the NRA Foundation’s fundraising program had displayed actual guns along the wooden bleachers in the gym. This time organizers showed only pictures, bowing to objections from parents who pointed to a shooting at another western Kentucky high school last year that left two students dead and more than a dozen wounded.

  8. Phil / CHK,

    What are your thoughts on CHK with energy stocks doing well CHK seems to be moving in a different direction may be due to earnings miss. Is there an opportunity to initiate a position here? 

    Thanks as always


  9. Hi Phil,  I would appreciate your thoughts on BABA.  The Amazon of China seems to have quite a lot going for it and an attractive valuation. 

  10. Russell / Phil – IWM tracks the Russell pretty close as well. It's an ETF but it seems to be relatively well correlated. 

  11. Russell quintuple top. It made all of its gains over the last year (from the 12/24 lows) by late February. 26% in 2 months is a wild ride (over 300% APY!), but it has gone nowhere since then.

  12. Pat -This came out today.

    Chesapeake Energy in 10-Q warns that if "continued depressed prices persist,

    combined with the scheduled reductions in the leverage ratio covenant, 

    our ability to comply with the leverage ratio covenant during the next 12 months 

    will be adversely affected.







  13. Thanks Albo 

    Sounds very scary to go long on CHK 

  14. As energy companies and utilities transition from companies that sell energy, to companies that sell complex carbon management:

    stick a fork in CHK. If anything, get into the 1 puts whenever there's a headfake up.

  15. A company that looks to be slightly ahead of the curve in this respect is OXY. I think they're getting punished for the Andarko deal disaster and the stock is at a 5-year low.

    The US has released 400 gigatonnes of CO2 aggregate, and we have an estimated 100,000 gigatonnes of basalt CO2 storage capability. Oxy knows how to pump CO2 underground (they do it for EOR). So they really in a position to lead something like this occurring. Assuming the 2020's become the "real" climate change decade, looking at investments like this is probably warranted.

  16. I think that anyone that will be involved in CO2 capture, storage or conversion should do well in the years to come. Although there will probably be many cons tried by unscrupulous people.

  17. Silence – odd, I see no posts after musicman5strng at 1:41pm – did Phil's boat go down? Was the island taken over by Rupert Murdoch? And where is everybody else?

  18. Maybe they are enjoying a nice, long lunch on WBA earnings!

  19. Phil / FTR-

    When you get a chance can you give us your take on FTR earnings report.  They look ok, not good but finally not bad.  Hopefully turning the corner.  Thanks!

  20.  My boat day was so much fun that I just got back.   I will hopefully catch up early in the morning. My boat docks tomorrow morning so I will put up a quick post and resume when I get home around 10:30     

  21. Climate crisis: 11,000 scientists warn of ‘untold suffering’

  22. Mormon Family Massacre Stuns Mexico, Laying Bare Government’s Helplessness

  23. Good morning!

    A bit of a dip yesterday and flat this morning.

    CHK/Pat – They just issued a warning that they may not be able to continue as a going concern if oil and gas prices don't move higher.  While tempting, it's not the kind of market environment I want to take risks in – this is why we cashed out ahead of earnings – we only want very strong companies in our portfolios – CHK is certainly not one of them and is depending on forces (oil and gas prices) that are out of their control to make money and that's not the same as GOLD, for example, who have the lowest production costs in their sector – that's the kind of company I like to get behind. 

    In its 10-Q statement, CHK warns "If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern."

    CHK says it is pursuing various transactions and cost-cutting measures, including a reduction in corporate discretionary expenditures, refinancing transactions, capital exchange transactions, asset divestitures, 30% lower capital spending in 2020 and operational efficiencies, and believes "it is probable that these measures, as we continue to implement them, will enable us to comply with our leverage ratio covenant."

    “With massive debt, leverage is not going down every quarter you continue to outspend,” SunTrust analyst Neal Dingmann tells Bloomberg. “What is leverage going to look like next year and how are you going to address it internally or externally? That’s the story.”

    As a speculation in a portfolio that was already up over 100% in two years, I didn't mind a flyer long on CHK but, in a new portfolio – it's not a risk I'm willing to take.  Also, my bullish Nat Gas premise has pretty much run its course as LNG exports have built up considerably and we're already back near $3 and CHK still can't make money?  That's not good.

    And what Albo said!

    BABA/John – I love them long-term and, like AMZN, they are making a lot of money in Cloud Revenues but Q2 is up 40% over last year so who cares how they did it?    I'm not sure, however, that $182 is a bargain as that's $470Bn and Revenues  are $57Bn and earnings are $12.5Bn so you are paying 37.6x earnings – I liked them a lot more at $150 in June than 20% higher in November.  

    Still, in this case it's a company I would love to own for the long haul and we don't pay retail for stocks anyway so perhaps take advantage of the volatility and sell 2022 $150 puts for $17 and buy 2x the 2022 $160 ($50)/190 ($37.50) bull call spreads for $12.50 for net $4  per long $30 spread so the worst thing is owning BABA at $154 and, if they go higher, you pick up $26 (650%) per long if BABA just gets to $190 in two years and, if they look weak, you can sell, FOR EXAMPLE, 1x the April $190s for $12 – so there's all your outlay back on a single sale using 163 out of 807 days you have to sell.    

    I guess, on the whole, I'd be more comfortable with 2 short puts, 4 long calls and 1 short call for net $4/share cash outlay but make sure you REALLY want to own BABA for net $151 – as it could easily happen.

    IWM/StJ – I guess but I find it hard to believe Stock Charts will no longer tell us how the Russell is doing – seems really odd.

    OXY/BDC – That is worth looking into.  Remind me later today, please. 

    WBA/Music – That's the problem with these bargain stocks I love – they are often so good they get bought or go private on us.

    Thrilling Thursday – 5 Trade Ideas to Make $25,000 in 5 Months

    Our second trade idea was later the same morning (8/20) and is in contention for our Trade of the Year for 2020 (we will finalize on Thanksgiving) and that's Walgreens (WBA), which I cannot believe is at $50:

    When a stock has been as volatile as WBA, we don't have to play them to win – they just need to not go lower so we're going to engineer a spread that pays us if the stock simply holds $50 into January options expiration (17th):

    • Sell 10 WBA Jan $50 puts for $3.70 ($3,700) 
    • Buy 30 WBA Jan $47.50 calls for $5 ($15,000) 
    • Sell 30 WBA Jan $50 calls for $3.60 ($10,800) 

    The net cost of the spread is $500 in cash and the ordinary margin requirement for the short puts is $8,918 and, if WBA is over $50 on Jan 17th, the short puts expire worthless and the spread would be $7,500 in the money for a $7,000 (1,400%) gain in 5 months.  

    We are already long WBA in our Long-Term and Options Opportunity Portfolios and make sure you REALLY want to own 1,000 shares of WBA if the market turns down – because it's not likely they'll be exempt from a downturn – despite the great value.  The 2021 $42.50 puts are $3.70, so assume that would be the roll and that's another 15% lower – so not too bad as a worst case.

    I love these kinds of trades as the worst case is owning 1,000 shares of WBA for net $42.50 (assuming our roll works out) plus the 0.20 per share cash we put in, so $3 is still almost $7 below the current price.  If we don't get to own WBA that cheaply, our consolation prize is making $7,000 – and then we can do it again and again and again – as long as they want to keep paying us NOT to buy a stock – we are happy to keep taking their money, right?


    From scratch on WBA, I would sell 5 2021 $50 puts for $4.20 ($2,100) and buy 10 of the 2021 $50 ($11)/60 ($5.75) bull call spreads for net $5.25 ($5,250) so that's net $3,150 on the $10,000 spread and you have $6,850 (217%) upside potential at $60.  That's a nice, conservative way to play them. 

    Submitted on 2019/09/14 at 3:55 pm

    WBA – Also finding a floor at $50.  We already went heavy on this one but let's buy back the 2021 $65 calls at $1.70 as that's up 64% already and hopefully we get back over $60 and we can sell calls again.

    Not much of a move but those calls are $3.40 already.  Same logic as the rest – we're up 64% and it will take 18 months to make the last 36% at a rate of 2% a month so there's really almost no risk to taking it off the table and giving it a quarter to see what happens (assuming you are inclined to think things will improve this particular quarter).  

    As it turns out, we knew the risk was about 0.30 of ordinary decay and maybe another 0.30 if WBA went lower but, if it did, we'd have to sell lower calls and roll down anyway.  Meanwhile, the reward is already $1.70 per short call we won't have to pay AND we have the flexibility to sell more calls (or at least some) at $60+


    Submitted on 2019/09/18 at 11:17 am

    WBA – I say keeper.  I'll certainly have this in a new portfolio and every portfolio going forward until they are back over $70.

    FTR/EMike – A lot of studying on that one so please remind me when I'm back in the Command Center after 10:30 this morning.

    Certainly the earnings are not being taken well.

  24. Barrick CEO sees long-term potential for Freeport tie-up – Bloomberg

    Barrick Gold (GOLD +3.7%) CEO Mark Bristow finds some logic to the notion of combining with Freeport McMoran (FCX -2.4%) as a way to expand into copper and bolster its U.S. presence, but he is not committing to any deals.

    "Everyone has been fingered as a potential suitor of Freeport," Bristow tells Bloomberg when asked if he was interested in a combination. "There's a bit of work for us to do before we can get our head around broadening our scope."

    Bristow previously has expressed interest in buying copper assets because the two metals often are mined together; the company already owns some copper assets but they are lower in quality compared with other major mining companies.

    Barrick trades sharply higher today after reporting stronger than expected Q3 earningsand raising its dividend.