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Wonderful Wednesday – Still at Record Highs – What Could Go Wrong?

Image result for S&P 3,100Another day near 3,100 on the S&P.

Kentucky seems to have voted Democrat Andy Bshaear to be the new Governor but current Governor, Matt Bevin refuses to concede, so that will drag on all day and maybe longer.  In Virginia, however, Democrats completely flipped the state blue, taking over the Senate and the House in a state that had been dependably Republican.  These are not good signs for the GOP in November or Trump now as Bevin was a huge Trump supporter and Trump personally flew down there and campaigned hard for him Monday night.

If GOP Senators, Congresspeople and Governors find no use for Trump's support – it's not a great leap to imagining they will find no use for Trump and his unbreakable wall of GOP impeachment blockers may begin to crumble.  Kentucky is Mitch McConnell's home state and "Moscow Mitch" only won 2014 56% to 40% against a throw-away candidate for the Dems (Alison Grimes).  Bevin won in 2015 52.5% to 43.8% and is out on his ass today – Mitch is getting nervous to say the least – as he hasn't had a real job since 1985.

China buys more from Brazil as tariffs biteMeanwhile, according to Bloomberg's excellent new "Terms of Trade" section (and according to me yesterday), China is insisting Trump drop all tariffs in order to move forward with the signing Trump is promising on Nov 17th.  In other words, there is no actual deal and Trump's lying to the American People and claiming there is one has now painted the US into a corner where Trump will be forced to concede to China in order to cover up his lies – that's why these things matter!

From the Chinese perspective, the argument is that if they are going to remove one big point of leverage and resume purchases of American farm goods and make new commitments to crack down on intellectual property theft — the key elements of the interim deal — then they want to see equivalent moves to remove tariffs by the U.S. rather than the simple lifting of the threat of future duties.

Also according to Bloomberg, the risk of a US Recession in 2020 has dropped from 50% to 26% in the past few months and that's a pretty consistent message we're getting in the MSM.  However, one has to wonder if it's just the manipulation of the Top 1% media owners who need bottom 99% bag-holders to come back and take these stocks off their hands at record highs.  

 As you can see from this chart, the Fed is in no position to save us and, according to the WSJ, investors (like us) have put $3.4Tn into CASH!!! and Wall Street is pulling out all the stops to convince us it's safe to get back in the water and buy those stocks at all-time highs because of course they are only going to go higher – tha'ts what stocks do – right?

Investors said the rising cash reserves reflect several worries that have become prevalent among money managers over recent months, as flare-ups in the trade war with China and uneven U.S. data sparked bouts of volatility in markets.  Many are concerned that stock prices have climbed to unsustainable levels relative to companies’ earnings at a time when the U.S. economy is slowing.

Sandy Villere, portfolio manager at the $2 billion Villere Balanced Fund, is keeping 17% of his portfolio as cash, up from the usual 10%. Mr. Villere believes valuations have become stretched and prefers to wait for another dip before jumping in again.  “We don’t have to swing at every pitch,” said Mr. Villere, who added two new stockholdings to his portfolio when markets slid last December. “Right now, we’re struggling to find high quality at reasonable prices.”

That's pretty much what I've been saying to our Members.

Be careful out there…

 


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  1. Good morning!  

    I'm still on the boat and heading home so should be back on-line at about 10:30.



  2. Analysis: Trump’s GOP has no answer for suburban slide





  3. Phil – I have contacted the StockChart support to ask about the Russell chart! Waiting for an answer now.


  4. Trump / Phil – In his Twitter account, Trump claims that bevin was down 15% until he showed up to help so no lesson for the base there… In fact, what we are seeing now is simply a preview of 2020. I see 2 cases:
    1. Trump loses the popular vote by even more than 2016 (5M maybe) but squeaks in in the electoral college (that's my prediction now). That would be 7 of 8 of the last elections that Dems win in the popular vote but hey, we the people have spoken right?
    2. Trump loses both the popular vote and the electoral college (by a slim margin) and will simply refuse to concede citing fraud and irregularities. Constitutional crisis and Putin wins again…


  5. Good morning, All!

    We will not be having our usual webinar this week!

    Back at it next week!


  6. CenturyLink (CTL) downgraded to Sell from Neutral at Guggenheim; tgt $10.

    Just as it was gaining momentum.  They report after the close today.


  7. Good Morning!


  8. Stj / Russell-

    Looks like $SML is still working on Stockcharts (S&P 600).  That would probably work best as a sub for the chart.  

    Stockcharts is in some dispute with the Russell people.  ALL of my charts that contained $RUT were removed without warning.  Very frustrating.


  9. Thanks Mike! Frustrating indeed… Once again, I think that the IWM ETF tracks closely as well. But not perfect. I'll look into $SML as well.


  10. Well, I'm back but I'm not home.  Got a note from Florida Power and Light that they are cutting off my building for construction today so I diverted to Mom's house.

    Election/StJ – I can only hope not.  

    CTL/Albo – Any reason?

     

    Guggenheim downgrades CenturyLink (NYSE:CTL) from Neutral to Sell ahead of today's Q3 report.

    Analyst Mike McCormack cites concerns with the wireline business after both AT&T and Verizon "showed significant weakness" in their wireline reports.

    McCormack says checks indicate pricing was still "under severe pressure" in Q3.

    Price target remains the Street-low $10.

    CTL shares are down 3.8% pre-market to $13.15. The company has a Neutral average Sell Side rating.

    Thanks EMike.


  11. STJ- not sure if this helps anything but TOS stopped the RUT quote some time ago and replaced it with /RTY.


  12. Thanks pstas! I had noticed that as well but didn't make the possible connection with StockCharts. These Russell guys are pissing off a lot of people it seems… 


  13. But doesn't have a corresponding match in StockCharts so back to something else…


  14. When did you move from NJ to FL Phil?


  15. Phil / FTR-

    I know you're not home yet so not sure if you can look into their earnings this afternoon.  If not I'll post you a reminder tomorrow.  Thanks!


  16.  

    Stocks moving lower on headlines that the planned Trump/Xi deal signing could be delayed until December.


  17. WTH – why is Corby Spirit & Wine causing the market to drop? I mean, okay, that's a bit of a problem, but that's the word as of 11:45 on TOS' newsline…..


  18. Was waiting for a drop in AAPL to set up the suggested new BCS but the drop never came (so far)!

    Bought back my short puts at a prev high (but not THIS high) and was going to sell the $165puts.

    Now with the big rally, thinking there should be a way to capture some of the new call premiums while they're still up there, and take advantage of my deep in the money longs by expanding the spreads I have, rolling the short calls.

    And presumably a drop WILL come ..  to sell some puts into.

     

    Still prefer to hang on to the ’20 long $150 calls until next year for taxes. 

    Any thoughts?

     

    Long   20 AAPL Jan ’20 150c @ $28.57 

    Short 20 AAPL Jan ’20 160c. @ $45.98  

     

    Long   30 AAPL June'21  $200c @ $29.12

    Short 30 AAPL June’21  $240c  @ $18.03

     

    Long  20 AAPL Jan’21   $140c  @ $57.45

    Short10 AAPL Mar’20  $220c  @$16.53

    Short10 AAPL Mar’20  $240c  @ $8.08 

     

    Phil, want you to know that we have snow, hail, rain and freezing temperatures here in Georgian Bay, Canada  ;-)    Good to hear your report from the warm place!


  19. Stockbern – Thanks !


  20. Florida/Tangled – This is year 2.  Not being able to deduct my insane NJ property taxes was the last straw.  

    FTR/Emike – I have actually started reading up.

    Lower/Albo – Not for long, bouncing already.  Silly markets…  Not like there was really a deal in the first place – just another layer of BS uncovered so they quickly make up the next lie…

    I miss it when /Si was cheap and was easy to play.

    Crude inventories build sharply

    • EIA Petroleum Inventories: Crude +7.9M barrels vs. +1.5M consensus, +5.7M last week.
    • Gasoline -2.8M barrels vs. -1.8M consensus, -3.0M last week.
    • Distillates -0.6M barrels vs. -0.9M consensus, -1.0M last week.
    • Futures +0.77% to $57.67.

    Damn, should have seen that one coming!

    Drop/Snow – More like China and weak oil numbers.

    AAPL/Wing – First things first.  We just did a Q so no down catalyst for a while and AAPL is very likely to make $60Bn in 2021 so 20x is $1.2Tn or about $275/share but MSFT s at 25x (not that they should be) so that's $345 at the high-end of stretched reality for AAPL in the next few years.  While not likely – it makes them a scary short.

    On the downside, 10% hit to earnings ($45Bn) and 15x is $675Bn is $120 at the floor – so make sure you are THRILLED to be doubling down at that level before over-committing.  I don't have a problem liquidating everything else to buy AAPL at $120 but you have to have a real plan to ride it out! 

    So I take it those are your current positions.  You say you want to keep the $150 calls but the loss from the $160 calls mitigates those gains (check with your accountant), so it's really not a huge deal but also it's just $20,000 sitting around – very unlikely you won't colect the full value so no need to touch it unless your use of $20,000 makes more money than the gain of $8,000 (ish) tax money you plan to save.

    Ignoring that you have 50 longs and 40 shorts but the 2021 $140 calls, now $118 ($236,000) seems like a wasteful tie-up of money to me.  I'd roll those and the 20 June 2021 $200s at $69 ($138,000) to 100 of the 2022 $220 at $58.50 ($438,750) and sell 100 of the 2022 $280s at $30 ($225,000) for a net $160,250 credit and you can leave the 30 short June 2021 $240 calls, now $42.50 but with stops on 10 at $45 and 10 at $50 and 10 at $55.  

    That leaves you with the 20 short March $220 ($39.50) and $240 ($24) calls for about $128,000, which you now have in pocket but I'd sell 10 2021 $200 puts for $9 ($18,000) and spend $5 ($10,000) rolling the 20 short-term short calls up $10 and, if AAPL crosses $160 – spend the other $8,000 rolling them up $10 more and then dig into your pocket and roll them again and again and hopefully AAPL stops going up but, if it doesn't, at least you have $450,000 worth of longs going in the money.  

    Of course this isn't static – you should check on this position any time AAPL moves $20 in either direction.


  21. Drop/Phil – China again? Corby Spirits and Wine makes more sense.   ;)


  22. Getting back to FTR:

    So our premise is they are not going to go BK and they are priced to go BK.  The company spent $10Bn buying VZ assets in CA, FL and TX and that put them massively in debt.  Meanwhile, they are losing a lot of customers but not all that much worse than normal telco bleed (cord-cutting) and the other telcos went aggressively after the VZ customers during the transition.  All this was foreseeable though I suppose the company didn't think they'd get hit so hard from all sides.  

    Those the Earnings (not sure they should be called that) for the last 3 years (incl 2019) were -$1.8Bn, -$643Bn and -$5.5Bn, the Cash Flow was -$8.8Bn in 2016 (buying the VZ assets) and then – $146M and + 28M last year.   Meanwhile, Operations dropped a pretty steady $1.8Bn in Cash Flow for the past 3 year (not 2019).

    When you are picking  up $1.8Bn from operations, a lot of things can be fixed over time.  The company has about $17Bn in debt and that's using up all the cash they are generating for the next decade or 15 years so the question is – can they improve cash flow over the next decade and pay off the debt AND make a profit or are profits heading lower, causing debt to become a problem that swallows the company?

    FTR has 3.6M broadband subscribers and lost net 71,000 (2%) of them last year.  That segment is about 1/2 their profits so we need to see some sign they can turn that around though 2% is about the norm for the industry and 5G is a scary wild-card as it could drastically shift what service providers end up with what share – so what is FTR doing on 5G?

    Really?  More Goodwill Impairments?  Way to restore confidence….

    Good asset sale but putting a lot more eggs in the ex-VZ basket.

    Consumer Broadband didn't drop (much) this Q.  If they go green we might have a chance but Commercial got worse.  The copper they WANT to get rid of (too much support cost).

    That has to stop going up.

    EVERY category is down – how can you spin that positive?

    So they have 3 years before it hits the fan and then, 2 years after that, there's a bigger IT and an even bigger one the year after that and more both years after that.  At this moment – this doesn't seem like a company that will breeze through recapitalizing $15Bn in debt over the next 8 years and they face a de-listing below $1 so, at the moment – I think they are scarier than they used to be.  


  23. Phil / FTR-

    Thank you for the in-depth review, definitely appreciated!  Though I was hoping for a happier conclusion LOL sigh…



  24. US productivity falls for first time in nearly 4 years







  25. FTR/EMike – I was too but I never know how it's going to end when I start.  

    Looks like we'll close just a little red – nice recovery.

    Back to full power tomorrow, hopefully.



  26. Lindsey Graham’s Ukraine explanation will blow your mind




  27. Trump, Um, Fails to Rally



  28. Brazil Had High Hopes for Its Big Oil Auction. They Went Bust.