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Fabulous Friday Finish

Wow.

I mean WOW!  Check out the headline on the front page of today's Wall Street Journal.  Is it really "news" to say the same thing, over and over again for month after month?  I guess it is news to traders because, once again, we're up in pre-market trading.  This is just what we were talking about yesterday, MADNESS!  

I guess it helps distract Conservative readers from the headline in the NY Times that says: "Impeachment Inquiry Tests Ties Between Barr and Trump" as it turns out Trump put pressure on Barr to make an official statement that his Ukraine call was "perfect" but Barr refused to say the President did not commit a crime when Trump demanded the Ukraine launch an investigation of Joe Biden and his son in exchange for the military aid Congress had already approved for our NATO allies in the Ukraine.  

Mr. Trump on Thursday angrily denied a report in The Washington Post, which was confirmed by The New York Times, that he wanted Mr. Barr to hold a news conference to say that the president had broken no laws, only to be rebuffed by the attorney general.  In a Twitter post, Mr. Trump called The Post’s article “pure fiction,” adding: “We both deny this story, which they knew before they wrote it. A garbage newspaper!” Mr. Barr, however, did not publicly deny the account.

Image result for trump obstruction impeachment"Perhaps if Trump hadn't already had Barr make a fool of himself attempting to exhonerate the President in the Meuller Report, Trump would still have some political capital to spend but the sheer volume of scandals surrounding the President makes it hard for Barr to be the point man defending every crime – lest he himself become an impeachable obstructor.  

Barr is getting into hot water as he's been in the loop as half the witnesses called by the House Committee investigating the matter have refused to testify.  Failure to answer a Congressional subpeona is a jailable offense but, so far, the House is just skipping ahead to the next witness and will re-call the dodgers next week in the public hearings so they can publically defy Congress and then there will be an investigation as to whether Barr and the President encouraged them to ignore the subpeonas – another impeachable charge of obstruction.  

I know none of this seems to matter to the stock market but, as I have warned before, the Watergate Hearings began in May of 1973, almost a year after the actual break-in and Nixon wasn't officially indicted until March of 1974 and the market thought it wouldn't actually happen and was back close to it's 1972 highs but once the hearings actually began – the market dropped 20% in short order.

Image result for watergate market timeline" 

It kept falling, all the way to 60 after Nixon finall resigned in Aug of 1974, 50% off the highs.  To distract America from the hearings, Nixon went so far as to end the war in Vietnam but it was too little, too late – much like the China Trade Deal – if it happens at all.  So far, our markets have completely ignored the political turmoil and have soared to new highs and maybe it doesn't matter if the President is indicted and removed from office and our Government is in turmoil heading into next year's election.  

But maybe it does matter and we should continue to be cautious – just in case….

Have a great weekend,

- Phil

 


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  1. Man, we might need new lines again soon! [said someone before the last 2 corrections]


  2. Good Morning!


  3. My quote for the day – so appropriate for our times as we learn nothing from history (we don't actually learn history)

    “Those who can make you believe absurdities can make you commit atrocities.” 
    Voltaire


  4. The case for dividends reinvestment:

    https://ritholtz.com/2019/11/total-return-versus-price/

    Looking at price-only indexes creates a potentially misleading understanding of how long it takes to get back to break even post-crash. It is also a reminder that dividends were (and in some sectors, still are) a big part of your total investment returns.

    We make a mistake if we take for granted the how easy, cheap and friction-free something as once complex as dividend reinvestment has become. Remember that the next time someone tells you how badly the markets are rigged . . .


  5. Good Morning



  6. Any thoughts on MDR after the earnings?  Down to 1.18 in pre-market.

    Thanks


  7. SA has an article that says sell Chk before reverse split? I got caught on MJ a long term holding. Instead of 10 options I have three. I don't know why I missed that.


  8. Good morning! 

    BKNG on a wild ride, back to $1,950!

    Booking Holdings (NASDAQ:BKNG) reports gross bookings were up 4.1% in Q2 to top the consensus estimate for a 3.8% increase. On a constant currency basis, bookings rose 7% during the quarter.

    Room nights sold were up 11.0%, while rental car days were 8.5% higher. Airline tickets were down 2.5% on an unit basis.

    The company reported adjusted EBITDA rose 5% during the quarter to $2.50B vs. $2.45B consensus. Adjusted EBITDA is expected to fall in a range of $1.21B to $1.235B for Q4.

    BKNG +3.73% AH to $1,918.99.

    Previously: Booking Holdings EPS beats by $0.93, misses on revenue (Nov. 7)

    Bottom line seems to be they are hurting their competition and holding up well as others decline.  Right in the range for us now.

    NDLS did well but a slight revenue miss.  No worries

    Noodles & Company (NASDAQ:NDLS): Q3 Non-GAAP EPS of $0.09 beats by $0.02; GAAP EPS of $0.09 beats by $0.01.

    Revenue of $118.3M (+1.3% Y/Y) misses by $2.4M.

    Press Release

    DIS was fantastic but not over $140 fantastic.

    Walt Disney (NYSE:DIS) is up 3.8% postmarket after easily clearing the Street's profit bar in fiscal Q4 earnings, paced by strong gains in its TV networks and film studio juiced by its Fox acquisitions.

    Revenues grew 34% Y/Y to $19.1B for the quarter. For the fiscal year, revenues were up 17% to $69.57B.

    Total segment operating income rose 5% to $3.44B. Net income from continuing operations was $785M.

    Revenue by segment: Media Networks, $6.51B (up 22%); Parks, Experiences and Products, $6.66B (up 8%); Studio Entertainment, $3.31B (up 52%); Direct-to-Consumer and International, $3.43B (up 316%).

    Broadcast was an unexpected strength in Media Networks revenues, coming in well ahead of schedule at $2.27B.

    Cash from continuing operations was $1.72B, and free cash flow $409M.

    Conference call to come at 4:30 p.m. ET.

    What a great company!  

    Good quote, StJ.  

    MDR/Jeff – That was a TERRIBLE quarter, lost twice as much as expected ($1.80/share) and Revenues missed by 15% too.  These guys have way too much debt to ignore the risk as they may get their credit junked off these numbers.  To some extent, they are just cleaning up the CBI mess they bought but, then again, they bought it so again – why should I pay for dumb management?

    McDermott (NYSE:MDR): Q3 Non-GAAP EPS of -$1.80 misses by $1.07; GAAP EPS of -$10.37 misses by $10.02.

    Revenue of $2.12B (-7.4% Y/Y) misses by $330M.

    Shares -1.73%.

    Press Release

    McDermott (NYSE:MDR) sinks after-hours following a sharper than expected Q3 loss and lower than expected revenues.

    MDR says its $1.9B net loss was due primarily to $1.5B in goodwill and intangible assets impairments and $256M of changes in project gross profit on specified projects.

    MDR says new awards in Q3 totaled $1.7B, lifting backlog to $20.1B and a revenue opportunity pipeline of a near-record $89.1B.

    "Our capital structure continues to be pressured by certain legacy CB&I projects," but the recently announced $1.7B financing agreement with its lenders "signals their confidence in our underlying business," the company says.

    MDR says it entered the 30-day grace period regarding the Nov. 1 interest payment on its 10.625% senior notes due in 2024 "in order to continue collaborative discussions with our lenders and noteholders to find a long-term balance sheet solution."

    IF I wanted to gamble with fun money (I don't), then maybe sell 50 2022 $1 puts for 0.60 ($3,000) and buy 50 Jan $1 calls for 0.60 for net $0.  If you get a chance to sell the $2s (now 0.40) for 0.60 or better – then I'd do that and buy back the puts for a net $0 (or less) entry on the $5,000 spread.  

    CHK/Pirate – Those splits often end up leading to sell-offs.  

    MJ/Pirate – I don't know of a split, the ETF only started in early 2018.  Maybe you were assigned?


  9.  

    S&P dropping in recent trade; President Trump tells reporters that he is not considering rolling back existing tariffs


  10. Yup only Dumpy can remove tariffs, but he isn't done with gouging the consumers! Food bank was yesterday and about 70% are over 60 out of 26 participants. Very sad, but we do our best to make it a good day for them.








  11. Who Will Betray Trump?






  12. Rare permit for Keystone oil pipeline in spotlight after spills




  13. S&P/Albo – Yet it doesn't last.  I strongly suspect these markets are being manipulated at the moment.

    • Stocks are off to a flattish start, as the market continues to pause after stabilizing near all-time highs; Dow -0.1%, S&P flat, Nasdaq +0.1%.
    • Early enthusiasm is held in check after White House trade advisor Peter Navarro repudiated yesterday's report that an agreement has been reached between the U.S. and China to roll back tariffs.
    • European bourses trade modestly lower, with U.K.'s FTSE -0.4%, Germany's DAX -0.3% and France's CAC -0.2%; in Asia, Japan's Nikkei +0.3% and China's Shanghai Composite -0.5%.
    • In U.S. corporate news, Walt Disney (+4.8%) jumps at the open after beating quarterly earnings estimates.
    • An early look at the S&P 500 sectors shows energy (-1.3%) and utilities (-0.6%) lagging the broader market, while the communication services (+0.4%) group leads on the back of the Disney report.
    • U.S. Treasury prices are little changed following yesterday's selloff, with both the two-year and 10-year yields flat at 1.67% and 1.93%, respectively; U.S. Dollar Index +0.2% to 98.34.
    • U.S. WTI crude oil -1.8% to $56.12/bbl.
    • Despite U.S. steel and aluminum tariffs on Europe, as well as $7.5B of duties on European goods, President Trump won't take the next step in imposing tariffs on European cars next week.
    • That's according to Jean-Claude Juncker, the outgoing president of the European Commission.
    • Trump has until November 14 to decide whether to apply new duties on European carmakers, after arguing in May that American imports of European autos pose a national security threat to the U.S.
    • A "green interest rate" is one of the topics on the calendar today as the San Francisco Fed convenes the U.S. central bank's first-ever conference on the "Economics of Climate Change."
    • The event is so oversubscribed a webcast has been created to meet demand.
    • "It's important for us from a monetary policy perspective to know what the potential growth rate of the economy is and if climate events or climate risk is going to shave that off, even if it's over the long term," San Fran Fed chief Mary Daly said earlier this week.
    • See the livestream here at 8:45 a.m. PT

    • While investors are reacting to the shock exit of Gap (NYSE:GPS) CEO Art Peck, analysts are puzzling over what the development means for the planned spinoff of Old Navy.
    • Citi thinks the Old Navy separation is likely to be pulled from the table when the Gap board meets next week.
    • Evercore ISI is of a like mind. "We have to think this new development will make the original timeline of the planned Old Navy separation extremely difficult," writes analyst Westcott Rochett.
    • More of the same from Morningstar. "We think the Old Navy spin should be scrapped … it makes little sense to spin Old Navy until, at least, its sales have stabilized," says analyst David Swartz. "We see little future for a Gap without Old Navy … it is difficult to see how Gap can attract a top-flight CEO to fix the company if it is going to be stripped of Old Navy, its best asset," he adds.
    • Shares of Gap are down 9.66% premarket to $16.36.
    • Previously: Gap -7% after slashing guidance and CEO exit (Nov. 7)
    • An internal committee at Wells Fargo (WFC -0.7%initially rejected lending $100M to WeWork (WE) in 2017 on concerns about the company's prospect and founder Adam Neumann's style.
    • But the WFC bankers agreed to the loan after WeWork set aside cash as collateral and after the head of the bank's Eastdil real-estate unit said he'd keep a close eye on Neumann, the Wall Street Journal reports, citing people familiar with the matter.
    • Banks, including JPMorgan Chase (JPM -0.4%) and Goldman Sachs Group (GS -0.8%), had significant doubts about We Co., WeWork's parent, even as they pitched its stock to potential investors, according to interviews and documents reviewed by the WSJ.
    • Because of concerns about WeWork's unproven business model and Neumann's unpredictable behavior, JPMorgan, Goldman, and other banks negotiated big fees and strict protections such as requiring We to set aside cash as collateral.
    • Still, both JPMorgan and Goldman had pitched multi-billion loan packages to We before it's failed initial public offering as they vied for top roles in the IPO that would have fetched hefty fees.
    • November Consumer Sentiment : 95.7 vs. 95.9 consensus and 95.5 prior.
    • Current economic conditions 110.9 vs. 112.5 consensus and 113.2prior.
    • Index of consumer expectations 85.9 vs. 84.9 consensus and 84.2 prior.
    • HP (HPQ -1%) held detailed talks to purchase Xerox (XRX +2.7%) within the past two months, according to CNBC's David Faber.
    • The talks ended when HP asked for more time to conduct due diligence.
    • HP's response to Xerox's combination bid could take a couple of weeks, according to Faber's sources.
    • Yesterday, CNBC sources said Xerox plans to offer $22/share in a combination of cash and stock.
    • Volkswagen (OTCPK:VWAGY) and state-owned SAIC Motor have initiated trial production runs at the partnership's $2.5B electric vehicle plant in Shanghai.
    • "The move goes in line with Volkswagen’s (electric) e-mobility initiative," says Volkswagen CEO Herbert Diess.
    • While Volkswagen's ID series EVs will be the first to roll off the Shanghai production line, the plant will also produce Audi EVs and other models.
    • Tesla (NASDAQ:TSLA) started trial production at its factory in China about two weeks ago
    • According to Bloomberg, AbbVie (NYSE:ABBV) is looking to raise as much as $28B in a bond offering to fund its Allergan takeover. If so, it would be the fourth largest corporate bond deal ever in the U.S. and the largest since CVS Health's $40B deal in March 2018 to fund the Aetna acquisition.
    • Planet Fitness (NYSE:PLNT) jumps in early trading after topping sales estimates and issuing solid guidance.
    • The company also detailed its jump into Australia during the earnings conference call (transcript), which could be accounting for some of the investor enthusiasm.
    • "Our entry into the Australian market is being led by a partnership between two existing U.S. franchise groups who joint forces with a local Australian fitness operator who own the trademark of the Planet Fitness in his name Australia and operated several locations in New South Wales."
    • PLNT +9.55% premarket to $68.70.
    • Previously: Planet Fitness +3% after strong comparable sales (Nov. 7)
    • Honda reports (NYSE:HMC) reports operating profit rose 2.6% to ¥220B in FQ2, even as revenue fell off 2.9% to ¥3.73T. A sharp focus on controlling costs and a reduced level of warranty spending helped offset a slight drop in volume.
    • Global sales fell 0.4% to 1.24M during the quarter.
    • Looking ahead, Honda cuts its operating profit for the full year to ¥690B vs. ¥770B prior and ¥748B consensus.
    • HMC +0.65% premarket to $28.10.
    • Previously: Honda Motor EPS beats by ¥12.61, beats on revenue (Nov. 8)
    • Reports overnight said Alibaba (NYSE:BABA) is planning to launch a Hong Kong share offering in the final week of November, a move that would raise $10B-$15B as the world's largest-ever cross-border secondary listing.
    • The e-commerce giant already holds the record for the world's largest IPO with a $25B float in New York in 2014.
    • Alibaba had been working on an August listing in Hong Kong, but the transaction was put on hold due to anti-government protests in the city.
    • "To speed up our recovery [from natural disasters], deal with risks from abroad and accelerate productivity growth, we are formulating an economic plan along the lines of a 15-month budget," said Yoshihide Suga, Japan's chief cabinet secretary.
    • It would be Japan's first economic stimulus package since 2016.
    • The BOJ has already cut overnight interest rates to -0.1% and purchased trillions of yen worth of government bonds but the flat yield curve now makes it hard for banks and insurers to turn a profit.
    • The New York attorney general's office today dropped part of its securities fraud case against Exxon Mobil (NYSE:XOM) that accuses the oil giant of misleading investors about how potential climate change regulations could affect its future business.
    • Lawyers for the state withdrew two fraud counts at the end of the nearly three-week trial, but the AG's office proceeded with two counts that require the elements of the Martin Act, a New York state anti-fraud law with a lower bar of proof.
    • Exxon lawyers, confident in their case, asked the judge not to drop the fraud counts, saying the claims had damaged the reputation of the company and its executives and thus had a right to receive a ruling.
    • Now it is up to State Supreme Court Justice Barry Ostrager: If the judge rules in favor of the AG, it could prompt further lawsuits or investigations into XOM and other oil companies, while a ruling in XOM's favor could insulate the company against such claims and perhaps improve its reputation on climate change issues.

  14. Thanks for helping out Pirate, much appreciated!  

    MDR/1020 – Yes, that's certainly a concern.

    McDermott has been facing liquidity problems as a result of some problem projects it took on as part of its acquisition of Chicago Bridge & Iron in 2018. The company and a group of lenders recently reached a new credit agreement that should stave off the issue in the short term, but it hasn’t yet satisfied all the conditions for full funding of the credit, according to the company’s latest quarterly financial report filed with the U.S. Securities and Exchange Commission.

    The company is in the midst of negotiations with third parties whose approval will be needed to satisfy those conditions, according to the filing. That and other factors raise a “substantial doubt” around the company’s ability to continue as a going concern, according to the filing.

    McDermott also decided not to make an interest payment due Nov. 1 and to use the 30-day grace period to "continue collaborative discussions with our lenders and note holders to find a long-term balance sheet solution,” the company said in a Nov. 4 press release. The release also notes that McDermott is still reviewing strategic alternatives for its Lummus Technology business and working to sell the remaining portion of its pipe fabrication business.

    In September, McDermott's stock plunged after news surfaced that the company had engaged AlixPartners — a consulting firm known for turnarounds — to help improve cash flow and stem net losses. Part of the new credit agreement requires McDermott to hire a chief transformation officer, and the company has appointed John Castellano, managing director of AlixPartners LLP, to fill the role, McDermott said in October.

    There are finding some support at $1, though.  Some of this may be simply moves to put pressure on creditors – more of a tactic than a genuine problem.


  15. Phil/GNC,

    What is your take at this price? I have 40 Jan 2.5 Calls at cost of 1 and they are at 0.80 now.

    regards


  16. WOW…what happened….no message after 11:30 am on this website. are the markets not interesting or some problem with the website?


  17. Look at QCOM – looks like an all-time high following that good earnings 2 days ago! Getting pretty expensive though. You could buy them for less than $50 earlier this year – amazing what an agreement with AAPL will do for you.

    Always liked them – their chips will be everywhere. Already in the latest Microsoft Surface and running Windows. Not great yet, but they will improve.


  18. GNC/Pat – I still like them down here but not as much as I liked them at $2!  

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 2,627 2,655 2,683 2,570 2,481 2,354 2,146 2,072 1,941 -2.2%
    Operating Profit $m 454.8 429.6 385.5 -187.4 -246.1 184 182.8     -16.6%
    Net Profit $m 265 255.9 219.3 -285.2 -150.3 69.8 57.2 38.7 43.1 -23.4%
    EPS Reported $ 2.72 2.81 2.60 -4.11 -3.45 0.76 0.56     -22.6%
    EPS Normalised $ 2.84 2.81 2.82 0.35 0.78 0.50 0.38 0.28 0.52 -29.3%
    EPS Growth % +23.1 -1.0 +0.2 -87.5 +119.4 -35.4 +549.4 -43.5 +82.7  
    PE Ratio x           6.27 8.27 11.1 6.07  
    PEG x           n/a n/a 0.13 n/a
    Profitability

    Even $3.27 is only $265M Market Cap and they seem on track to make $40M so p/e is about 6 and they used to drop 10% to the bottom line and even 5% would be $100M so I still like them long-term.  We had moved our calls to the Jan 2021 $1 calls in the LTP (and 10 short $5 puts) and did very well when they popped – you can't get into positions you aren't very happy to roll and DD on when they go against you – simply riding out a dip and HOPING it comes back is a strategy that simply ties up your money for a very long time just to get even.  Scaling in is really the key to everything in long-term investing.  

    No message/Pat – No one bothers to come Mondays or Fridays these days.  I get lost in my research if no one is asking questions and I thought I pushed submit on yours but forgot – so sorry about that.


  19. Phil/GNC

    Thanks for the info. Any advice for my open 40 Jan 2.5 calls with cost of $1?

    yes I know you would be doing research. in addition to my post I was expecting people asking more questions but guess you are correct.

    regards


  20. NO we are still here and wondering if this crazy market will ever correct. I'm whittled down to almost nothing right now. I get the feeling that  to drop though. So many negatives floating around.


  21. See Pat asked about GNC and then I started reading a bunch of articles on them and then I started looking at the whole Food and Drug Retail Sector to see what else seems undervalued and that took me back to WBA but IVFH is kind of interesting as you can buy the whole company for $18M at 0.55 yet they are a real company that actually makes money:

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 22.5 25.9 30.6 35.2 41.2 52.9 56.8     +18.6%
    Operating Profit $m 0.97 0.87 0.20 3.30 4.69 1.96 1.21     +15.2%
    Net Profit $m -1.49 -3.73 -27.2 6.39 4.53 1.70 1.10      
    EPS Reported $ -0.23 0.007 -0.016 0.088 0.15 0.050 0.032      
    EPS Normalised $ -0.23 0.007 -0.016 0.088 0.15 0.050 0.032      
    EPS Growth %         +71.6 -67.0 -68.7      
    PE Ratio x           11.0 17.0 n/a n/a  
    PEG x           n/a n/a n/a n/a
    Profitability

    Not enough people following them to have projections, unfortunately so I started looking back at their reports and…  well, that's what happened..

    This is why I don't have a Bloomberg terminal anymore – I end up spending hours and hours looking at data.

    QCOM/StJ – What a business!  I do miss BRCM though.  

    GNC/Pat – Well I'd give them time to play out and roll to the 2021 $2 ($1.60)/4 (0.70) bull call spreads at 0.90 so not much out of pocket but much better position to make money.

    And what Pirate said.  My fault for cashing out but it's a nice rest while this madness rages on around us.  

    Speaking of madness:

    I know – it's just all so tedious!  cheeky


  22. MO – This is what I had been looking at at several sites…. this is actually good news for MO.   From WSJ

    NEWS ALERT

     

    Investigators Find Clue to Mysterious Vaping Injuries

    Vitamin E oil was detected in all 29 samples taken from vaping patients tested by the Centers for Disease Control and Prevention, the federal agency said, a tantalizing clue in the investigation into the cause of the mysterious lung injuries.

    Researchers found the oil in fluid taken from the lungs of vaping patients from 10 different states, the CDC said. No other suspicious substances were detected aside from Vitamin E oil, or acetate.

    See More Coverage ›


  23. LUV just pushed 737 Max back to March!  

    Plus BA has cracks in other planes.  

    LUV is a good value actually. $58.27 is only $31Bn and they are making $2.5 even with their heavy dependence on the Max planes that has screwed up their year.

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 17,699 18,605 19,820 20,289 21,146 21,965 22,401 22,420 23,852 +4.4%
    Operating Profit $m 1,278 2,225 4,116 3,522 3,407 3,206 3,112     +20.2%
    Net Profit $m 754 1,136 2,181 2,183 3,357 2,465 2,441 2,392 2,557 +26.7%
    EPS Reported $ 1.05 1.64 3.27 3.45 3.46 4.29 4.47     +32.4%
    EPS Normalised $ 1.13 1.75 3.31 3.45 3.46 4.26 4.47 4.43 4.96 +30.4%
    EPS Growth % +59.3 +55.1 +88.8 +4.3 +0.4 +23.1 +14.5 +4.05 +12.0  
    PE Ratio x           13.7 13.0 13.1 11.7  
    PEG x           3.38 3.22 1.10 0.85
    Profitability

    I wish we had caught them below $50 – that was a great deal!  

    Still, you can sell the LUV 2022 $50 puts for $5.25 and buy the 2022 $45 ($17)/60 ($9) bull call spread for $8 so net $2.75 on the $15 spread that's pretty much starting out in the money.

    MO/Batman – Damn, Ken (from New Age) told me that was what it was two month ago!   It's very bad for you if you heat it and inhale it.

    Good reason to add MO to the Dividend Portfolio as they pay $3.36 so $46.20 is stupidly low for them.

    • Buy 500 MO at $46.20 ($23,100)
    • Sell 5 MO 2022 $47.50 calls at $5.50 ($2,750) 
    • Sell 5 MO 2022 $40 puts for $6.20 ($3,100)

    That's net $17,250 and we get called away at $23,750 with a lovely $6,500 (37.7%) gain and then $3,360 in dividends over 2 years adds another 19.5% return which is great for such a conservative spread.  

    In the STP, we can be a lot more aggressive.  Earnings should be early Feb and they are very likely to raise guidance (they massively wrote down JUUL this Q) so we can play for a spring pop:

    • Sell 5 MO March $47.50 puts for $4 ($2,000) 
    • Buy 15 MO March $42.50 calls for $4.70 ($7,050)
    • Sell 15 MO March $47.40 calls for $1.85 ($2,775)

    That's net $2,275 on the $7,500 spread so $5,225 (229%) upside potential in just 4 months is worthy of the STP.  


    • While more data points came in lower than expected this week vs. those that surprised on the upside, the misses, for the most part, weren't big ones.
    • And when it came to the University of Michigan consumer sentiment report, overall sentiment was fairly close to the consensus, the index of consumers expectations came in rosier than expected, and current economic index was markedly lower than consensus.
    • Weaker-than-expected: University of Michigan’s November consumer sentiment at 95.7 came in slightly worse than the 95.9 consensus and improved from 95.5 in October. Consumer index on current economic conditions of 110.9 failed to meet the 112.5 consensus and weakened from 113.2 in October.
    1. The October U.S. PMI services index came in at 50.6, vs. 51.0 consensus and down slightly from 50.9 in September; the composite number also disappointed — 50.9 vs. 51.2 consensus.
    2. Continuous jobless claims fell by 3K W/W to 1.689M, slightly more than the 1.683M expected.
    3. September wholesale inventories fell 0.4% to $676.7B, more than the 0.3% decline expected; sales were flat at $498.6B.
    4. September job openings, at 7.024M, were just slightly lower than the 7.028M expected and down from 7.310M in August (which was revised from 7.051M).
    5. September factory orders fell a bit more than expected — down 0.6% vs. estimate of -0.5%
    6. Productivity unexpectedly fell in Q3; the 0.3% dip compares with the estimate of +1.0%.
    • In-line: September international trade deficit at $52.5B matches consensus and narrows from $55.0B in August. Imports fell 1.7% M/M and exports fell 0.9%.
    • Stronger-than-expected: The University of Michigan index of consumer expectations at 85.9 exceeds the 84.9 consensus and strengthens from 84.2 in October, however consumers’ overall sentiment was roughly in line with consensus and their take on current conditions fell short of expectations.
    1. Jobless claims fell more than expected to 211K vs consensus of 215K.
    2. October ISM non-manufacturing index, at 54.7, showed surprising strength vs. 53.5 expected and rose from 52.6 in September; business activity, new orders, and employment metrics all improved from the prior month.
    3. Unit labor costs came in higher than expected in Q3, rising 3.6% vs. consensus of +2.2%.
    • Coming up next week: On Wednesday, October consumer price index figures and Fed Chair Jerome Powell testifies in Congress; on Thursday, October producer price index figures; on Friday, October retail sales, October industrial production, and the November Empire State manufacturing index.
    • Three district Federal Reserve Banks each estimate Q4 real GDP growth under 2%, so at this point none of their models forecast growth over Q3's 1.9%.
    • The New York Fed Nowcast model estimates 0.7% real GDP growth in Q4, down from its prior estimate of 0.8%, citing lower-than-expected exports and imports data.
    • The St. Louis Fed estimates Q4 real GDP growth at 1.87%.
    • The Atlanta Fed's GDPNow model estimates 1.0% growth in Q4, unchanged from Nov. 5.
    • All three models are running estimates that become more refined as more economic data is entered.

    • "Can you point to at least one sentence that is false and refute it with facts," asks David Einhorn, responding on Twitter to Tesla (NASDAQ:TSLA) CEO Elon Musk's taunt issued earlier today.
    • Einhorn politely observes that Greenlight has generated real profit for investors since 1996, while Tesla has racked up over $6B in losses despite taxpayer subsidies.
    • He also delves into a very specific question on the manner that Tesla has reported accounts receivable.
    • "We are much more interested in, and have many questions about, your financial statements. Perhaps, we could spend time together with your CFO, Zach Kirkhorn," concludes Einhorn.
    • It feels like Musk vs. Einhorn isn't over.
    • Previously: Elon Musk takes shot at Greenlight Capital (Nov. 8)
    • McDermott (MDR -26.4%) shares dive to new lows in the wake of a report that work on the company's Houston headquarters building has been stopped after MDR allegedly fell behind on payments to its general contractor.
    • MDR allegedly was $14.2M behind on its payments for work performed on the building as of Oct. 30, according to a lien filed by the builder, which told its subcontractors to stop work at the site due to the non-payment.
    • MDR is working with the contractor to finalize the remaining schedule for the construction and buildout of the space, a company spokesperson says.
    • Investigating the causes of a growing number of lung injuries in people using tetrahydrocannabinol (THC)-containing vaping liquids, the Centers for Disease Control and Prevention (CDC) has found toxic substances in fluid samples taken from stricken users, additives such as vitamin E acetate, medium chain triglyceride oil and other fats, that are apparently used as thickening agents.
    • Vitamin E acetate, which can impair lung function if inhaled, was found in all 29 lung fluid samples analyzed. The CDC cautions, though, that more testing needs to be done to determine if there is a definite causal link between it and lung injury.
    • The public health watchdog also re-emphasizes its recommendation to avoid using vaping products containing THC, especially from "informal" sources.
    • Occidental Petroleum (OXY +2.2%) spikes higher after activist investor Carl Icahn cut his stake in the company by nearly a third while vowing to launch a proxy fight against the board next year.
    • In a letter to shareholders, Icahn reaffirms his fierce opposition to OXY's $38B deal for Anadarko Petroleum, calling it "one of the worst I've ever seen."
    • "The Oxy/Anadarko merger made no sense for stockholders, but perhaps it made sense for Vicki Hollub… and certain board members who, we believe, were concerned that OXY would be a takeover target, and therefore grossly overpaid to acquire Anadarko in order to protect themselves and their jobs," Icahn wrote.
    • "Although OXY has dropped 42% since April, oil has only dropped 12%," Icahn said. "We believe this is because Wall Street has completely lost faith in Hollub and her board and has concluded, in my view, that Hollub and her board will put their interests far above the best interests of OXY's stockholders."
    • Icahn says he has sold 10M shares in OXY and now holds 23M shares, valued at ~$900M; he had owned a $1.6B stake as of May 30.
    • The total count of U.S. active drilling rigs posts the 10th decline in 11 weeks, falling by another 5 rigs to 817, Baker Hughes reports in its new weekly survey.
    • The oil rig count slides by 7 to 684 while gas rigs remained unchanged at 130 and 3 rigs are classified as miscellaneous.
    • The total rig count is 264 rigs lower than the 1,081 a year ago at this time, with oil rigs down 202 and gas rigs down 65.
    • WTI December crude oil trades flat at $57.16/bbl.
    • Bargain hunters are moving into cannabis stocks today on no apparent news. Yesterday, Canopy Growth (CGC +9.3%) announced a venture with rapper Drake.
    • Selected tickers: Horizons Marijuana Life Sciences Index ETF (HMLSF +5.2%), Tilray (TLRY +4.9%), Aurora Cannabis (ACB +3.1%), Cronos Group (CRON +3.5%), Aphria (APHA +3.5%)
    • Chesapeake Energy (CHK +1%) tries to rebound from 20-year lows, as the company's CEO and Chairman bought a combined 125K shares on the stock's dip below $1/share.
    • CEO Doug Lawler paid $45,740 to buy 50K CHK shares at an average price of ~$0.91 each, which leaves the CEO with ~5.13M shares in the company, or a 0.3% stake.
    • Meanwhile, non-executive chairman Brad Martin paid $213K to buy 250K shares at an average price of ~$0.85, leaving him with ~1.22M CHK shares plus another 75K shares owned indirectly through a trust.
    • The purchases were made on Wednesday after CHK issued a "going concern" warning and reported its consecutive quarterly earnings miss.
    • Aimed at rolling over three series of outstanding debt due in 2021, Teva Pharmaceutical Industries (TEVA +4.5%) launches a $1.5B private offering Euro-denominated Senior Notes.
    • Pricing and terms have yet to be announced.
    • The Baltic Dry Index fell 3.5% to 1,378 points in London as the downtrend with rates extends.
    • The BDI has now fallen for 9 straight sessions.
    • Capesize rates were down 3.02% on weaker demand for China-Brazil transport and Panamax rates fell 3.72%.
    • UBS analyst Timothy Arcuri cuts his Micron (NASDAQ:MU) earnings and revenue estimates for FY20 and FY21.
    • Arcuri is taking "a more cautious view on NAND pricing" through next year, and the "reality of another step-down could still be a hurdle the stock needs to clear."
    • UBS has a Neutral rating and $47 target on Micron. The company has a Bullish average Sell Side rating.
    • Micron shares are down 1.5% to $47.66.
    • Albemarle (ALB -5.9%) surrenders yesterday's gains as J.P. Morgan downgrades shares to Underweight from Neutral with a $60 price target, cut from $68, with analyst Jeffrey Zekauskas saying ALB is overvalued trading at 11.2x estimated FY 2020 EBITDA.
    • Zekauskas believes the growth rate of global electric vehicles is slowing and lithium supply is accelerating, noting that prices in the lithium industry have declined sharply due to oversupply conditions.
    • The analyst also thinks ALB's long-term contracts likely will be renegotiated downward.
    • ALB's average Sell Side Rating and Seeking Alpha Authors Rating both are Bullish, while its Quant Rating is Bearish.
    • An $11B settlement of insurance claims tied to PG&E's (PCG +4.7%) alleged responsibility for California wildfires is emerging as a barrier to a potentially broader deal to end the utility's bankruptcy, as wildfire victims seek better treatment by PG&E, WSJ reports.
    • If approved by the court overseeing PG&E's bankruptcy, the deal could tie up much of the free cash the company will have as it exits bankruptcy; some of the cash would go directly to insurance carriers, and some would go to hedge funds that bought insurers' claims against PG&E at discounts.
    • Meanwhile, wildfire victims would be more likely to receive shares in the restructured company as compensation rather than cash.
    • According to the report, that prospect is not sitting well with lawyers for fire victims, who already are being pressured to take less than the $54B they believe their clients are owed.
    • Market participants also are said to question whether PG&E can afford to stick with the cash payout for claims when the utility may be swamped with yet more wildfire damages.
     

  24. Phil / CBS-

    Can I get your thoughts on CBS.  Looks like the price is bottoming out but I thought the same thing $10 ago.  Thanks!


  25. Got caught up on a conference call w/Thailand.

    Have a great weekend folks, 

    - Phil

    CBS/EMike – I think you were right $10 ago but it might take some time to get back to $50.  Still, $38 is a ridiculous $14.25Bn valuation for these revenues:

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 14,005 13,806 12,671 13,166 13,692 14,514 15,263 15,576 16,246 +0.7%
    Operating Profit $m 3,025 2,544 2,658 2,691 2,460 2,768 3,260     -1.8%
    Net Profit $m 1,879 2,959 1,413 1,261 357 1,960 3,072 1,889 2,012 +0.8%
    EPS Reported $ 2.79 2.41 3.18 3.46 3.53 5.00 8.01     +12.4%
    EPS Normalised $ 2.81 2.91 3.24 3.86 4.38 5.44 7.55 5.00 5.44 +14.2%
    EPS Growth % +19.4 +3.7 +11.4 +19.1 +13.4 +24.1 +52.2 -8.15 +8.84  
    PE Ratio x           6.95 5.01 7.56 6.95  
    PEG x           n/a n/a 0.86 0.45
    Profitability

    Call it a p/e of 7 and they even pay 0.72 in dividends.  Though it's been up and down, the company is changing with the times and adjusting.  In their 2nd year, CBS All Access has 10M subscribers and NFLX has 100M and 12 valued at $125Bn.  Not that NFLX is worth that but consider that that small, new part of CBS is worth $12.5Bn according to that valuation.

    I think, in the STP, we should at least sell some puts – the 2022 $40 puts are $8 so 5 short gives us $4,000 to play with – remind me on Monday.


  26. MO – possibly too risky for a classic long/long approach using a debit call spread and short puts. We still need to get to the bottom of the aborted PM/MO merger – (the merger of weaklings some say, but not I). But Altria is too reliant on the conventional combustible cigarette business and JUUL was an accident waiting to happen – and now remains a potential litigation nightmare all too apparent on the horizon. You just can't have tobacco products with a prevalence of youth consumers. The former combined MO (equivalent to today's MO+PM) spent mega billions of $$$$, and untold management time to extricate itself from a legal shitstorm. Can't think why wanting to entering the lions den again made any compelling sense.

    So MO is a long term gamble any would benefit from a cautionary approach. I prefer buying synthetic stock for zero (long 2022 $45 call / short 2022 $45 puts for a CREDIT of $1.70.

    I'll then buy 2 years + of downside protection buy purchasing the long 2022 $42.5 puts for $6.70.

    The trading strategy on MO over the next 2 years is to pay off the cost of the protection of $5 (debit of $6.70 minus the credit from the purchase of the synthetic stock of $1.70) Add to that the difference in strikes between the short puts and  long puts ($45 – $42.5) = $2.5, means I need to pay off $7.5 ($5 + $2.5) over the next 800 days.

    I'll kick that off with the sale of the 20th Dec 2019 $45 straddle for $3. A couple of more sales like that and the protection is paid for. 

    Consequences are:

    Unlimited upside (that's a whole lot of uncertainty, but worth a punt)

    Once the protection has been paid for you get a 100% protection – (I fear that may be needed). At this point, the trade becomes a income generating machine by selling straddles/strangles on a monthly basis.

    JUUL was the great hope for MO to replace the one thing that is certain in their business – the conventional cigarette business is going away and is not coming back. There are too many question marks on their replacement strategy. 

    However, if MO can make a success of IQOS (a result of the joint development and commercialization agreement signed at the time of the demerger back in 2008!!!) then even if that hastened the demise of the conventional cigarette business it may be worth it. The a re-fusioning of the two businesses (MO and PM) may have a certain logic.

    Conclusion is: PM is the stock in play, so I'll be looking to go long PM on further weakness. 



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