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Monday Market Momentum – Still Going Up!

Image result for curiouser and curiouser"Curiouser and curiouser.

Now we're approaching 3,150 on the S&P 500 (/ES) and my prediction was 3,300 IF we got a trade deal (and then back below 3,000) but, if we're getting this simply on rumors of a partial trade deal maybe happening sometime – who knows what madness lies ahead?

"One pill makes you larger, and one pill makes you small
And the ones that mother gives you, don't do anything at all
Go ask Alice, when she's ten feet tall
And if you go chasing rabbits, and you know you're going to fall" – Jefferson Airplane

Image result for a very merry unbirthday animated gif"Uh oh!  The last time I started making Alice in Wonderland references about the stock market being ridiculous was back in the Summer of 2008 when, as it turned out – it was ridiculous and we crashed horribly soon after.  Today we are celebrating that crash's UnBirthday though the situation is a bit different this time and apparently traders have gotten older – simply not wiser… 

Back in 2008 oil was over $100 per barrel and most people thought it was a sign of a strong economy but I said "How can the Consumers afford to keep paying this?" and, lo and behold – they could not.  Now we have a rally that is fueled not by oil money but FREE MONEY and, while Consumers are spending at record levels – their debts are piling up at record levels as well.  How can the Consumers and the Government afford to keep paying this?

That, my friends, is a HELL of a thing to ignore – isn't it?  The National Debt was, in fact $11.5Tn at the start of 2009 so we're up almost exactly 100% since then but the statistic we should keep in mind was that our GDP (real), at the time, was $15.6Tn and now it's $18.6Tn – up just $3Tn after spending $11.5Tn to boost it – hardly an efficient use of the money, is it?  Also, the $1.15Tn/year we've spent in debt over 10 years has been 6.7% of our average $17Tn GDP but growth has NEVER been 6.7% (actually 2% avg growth) - what have we been buying then?   

Image result for trickle down reagan"The idea of debt spending is that we grow the economy sufficiently to make paying back the debt easier than it was when it began and then, the logic followed, that there would be no better way to grow the economy than by giving massive tax cuts to people who were already rich who would then, in turn, trickle down on the rest of us.  Boy are we stupid or what?  

Things should be "great again" by now as U.S. unemployment is as low as it’s been in nearly two decades (3.6% as of  the last report) and the nation’s private-sector employers have been adding jobs for 104 straight months – 19.5 Million since the Great Recession-related cuts finally abated in early 2010, and 1.8M just since the beginning of the year.

However, according to Pew Research, despite the strong labor market, wage growth has lagged economists’ expectations. In fact, despite some ups and downs over the past several decades, today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.

Americans' paychecks are bigger than 40 years ago, but their purchasing power has hardly budged

After adjusting for inflation, however, today’s average hourly wage has just about the same purchasing power it did in 1978, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms average hourly earnings peaked more than 45 years ago: The $4.03-an-hour rate recorded in January 1973 had the same purchasing power that $23.68 would today.  No wonder I felt so rich when I had my paper route – I was pulling down $25 a week!

Wage increases in the U.S. rise to the top earnersMeanwhile, Wage Gains have gone largely to the highest earners. Since 2000, usual weekly wages have risen 3% (in real terms) among workers in the lowest tenth of the earnings distribution and 4.3% among the lowest quarter. But among people in the top tenth of the distribution, Real Wages have risen a cumulative 15.7%, to $2,112 a week – nearly five times the usual weekly earnings of the bottom tenth ($426).

That's how we now have two very different Americas.  If you are in the Top 10% and even the Top 25% – you feel like things have improved quite a bit since the recession but the bottom 75% – 250M of our fellow countrymen – have a far different perspective on things but, in reality, how often do you really talk to those people in your daily life?

That's how we live in our bubbles and when your maid tells you her sister is in the hospital and can't afford an operation so they had to cut off her leg rather than save it – it's very easy to go "oh well" and think it's an unfortunate event but that is NORMAL for 75% of the country.  The guy washing your car doesn't get to add Disney Plus for his kids when it comes out – not without giving up some other monthly expense and the person bagging your groceries at the store has to pay the same $3 fee to use an ATM to withdraw $20 as you do to withdraw $200 – things are grossly unfair for the bottom 75% and they are getting less fair every day – where do you think our money is coming from?

Image result for household wealth declines"The Fed's latest figures on American household wealth paint a rosy picture (for now) -- in the aggregate. US households now own a record-breaking $107T worth of assets!  But drill into those figures and you'll notice that almost all of this new wealth has landed in the pockets of the top 1% of households. That's not unusual: America has been on a glide-path to oligarchy since the Reagan years. What's also not new is that the share of wealth owned by the bottom 50% of American households has continued to fall, while their debts have continued to rise: the bottom half own 6.1% of all US wealth, while they are burdened with 36% of America's debts. When you subtract debts from assets, the bottom half of US households account for only 1.9% of America's assets.

What that tells us is that the top 1%'s growth can no longer come from the bottom half, the people whose political woes and economic anxiety do not provoke regulators or lawmakers to actions.  And indeed, when you look at the Fed's quarterly figures, you see that the biggest decline in household wealth is now coming from the upper middle class, the 50%-99% of households, who are, basically, the last people left in America with piggybanks for oligarchs to empty – exactly as I predicted this decade would end way back in my 2010 outlook

Image result for household wealth declines"

There's lots of ways in which wealth-transfers from the upper-middles to the super-rich are effected: while upper-middles might own stocks, they don't get to buy into private equity funds or VC funds, where table-stakes are $5m. Meanwhile, the most common assets for the middles — CDs, savings accounts — have been stagnant for more than a decade, thanks to the Fed's low-interest policies.

Meanwhile, the things that define middle-class life — quality health care, post-secondary education, decent housing — have soared in costs, far, far ahead of the modest gains experienced by the 50-99%. Those increased costs are largely due to market-cornering and price-gouging by companies that have been bought up by the private equity sector whose beneficiaries are almost exclusively the super-rich.

  • The top 1%’s share of household wealth over those ten years increased by 5 percentage points to 32%. The 1% now own nearly one-third of total household wealth,
  • But over those 10 years, the share of household wealth owned by the next 9% fell by 3 percentage points to 37%.
  • And the share of the 50% to 90%, the upper middle class, also fell by 3 percentage points to 29%.
  • Today, the share of the 1% is nearly 4 percentage points higher than the share of the 50% to 90%.
  • Back in 2002, it was reverse: The share of the 1% was about 10 percentage points lower than the share of the 50% to 90%.
  • The first time that the 1% had a larger share of household wealth than the 50% to 90% was in 2013, and the gap has ballooned since.

Image result for warren 2%"As the wealth gap keeps expanding, either the Top 1% need to start giving back (as Sanders and Warren suggest) or they can keep taking from the Bottom 99% but, as you can see from the pyramid above, the bottom 50% (2.8Bn people with less than $10,000 in assets) literally have nothing left to give and neither does the rapidly shrinking middle class (1.6Bn people with $10,000-$100,000 in assets) and that leaves the 500M Global Citizens with $100,000 to $1M in assets who need to contribute to those 47M people who have $1M or more in order for the Top 1% to grow their wealth pile any further.  

If the Top 1% gave up 4% of their wealth, they would double the wealth of the bottom 2.8Bn people.  That's the simplicity of the Warren/Sanders Wealth Tax – take the money from 47M people who won't miss it and give it to the 3Bn people whose lives it would completely change.  If only this were a Democracy and those 3Bn people could vote for it.

 


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  1. Adding more lines! I imagine that in 1999 we would also have been adding lines on a regular basis, but that means that we also add no real support lines anywhere. I am sure it's simply because this time it's different.


  2. Promises not kept:

    https://www.nytimes.com/2019/11/17/business/how-fedex-cut-its-tax-bill-to-0.html

    Nearly two years after the tax law passed, the windfall to corporations like FedEx is becoming clear. A New York Times analysis of data compiled by Capital IQ shows no statistically meaningful relationship between the size of the tax cut that companies and industries received and the investments they made. If anything, the companies that received the biggest tax cuts increased their capital investment by less, on average, than companies that got smaller cuts.[...]

    Overall business investment during Mr. Trump’s tenure has now grown more slowly since the tax cuts were passed than before.

    Some conservative economists and business leaders say the effects of the tax cuts were undercut by uncertainty from Mr. Trump’s trade war, which is slowing global growth and prompting companies to freeze projects. Other economists say the fizzle is predictable because high tax rates were not holding back investment.

    “It did provide a short-term boost, but it wasn’t the big response that many people expected,” said Aparna Mathur, an economist at the conservative American Enterprise Institute, who recently concluded that the 2017 law has not meaningfully changed investment patterns in America.



  3. Hmmm – is that our experience:

    https://www.bloomberg.com/news/articles/2019-11-16/cannabis-flameout-rivals-dot-com-bust-as-legal-fears-curb-growth

    Wall Street’s exuberance over legal weed has quickly curdled into sober reality.

    In a matter of months, white-hot cannabis companies have flamed out in spectacular fashion. Many have lost two-thirds or more of their value.


  4. Good Morning!


  5. Good morning! 

    I have a CC at 10 and I still want to finish my thoughts in the post so it won't be done for a while.

    RUT coming down hard.  


  6. SunPower (SPWR) offering to sell 22 mln shares of its common stock through an underwritten public offering.


  7. Hi Phil, 

    I have this AAPL position,  its only 100 shares but purchased at 197 in 11/18 and when AAPL was down at 160 in Jan 19 I sold the Jan 2020 $190 call for 7.35. Of course, its gone crazy since then( Jan 2020 call price is $75) and I'm thinking just to let it get called away for basically break even in January and reestablish a position later. I have sold some puts against it along the way so have made a little but nothing like if it was uncovered. Obviously should have adjusted months ago but do you see any other way to deal with this?

    Its a retirement account so I can sell covered puts and calls but no spreads. Thanks…


  8. Big Chart – NYSE still under 13,500 but over the strict 5% line.

    Different/StJ – I think the Consumers are spending a lot of money they don't have and any kind of disruption would be devastating.  

    Oil down $1.  /RB shaping up for a buy into Thanksgiving, testing $1.60.

    Last time we played /RB long we were a bit early at $1.60 and we hit $1.585 before coming back up so be careful with the entry here.  On the other hand, I'd hate to miss a Thanksgiving bounce.  

    FDX/StJ – Sadly, it's very typical:

    Image result for fedex tax bill"

    Image result for fedex taxes"

    They went from paying $1Bn a year to $0 – that's just nuts – no wonder Trump doubled the debt!

    Weed/StJ – The public companies are mainly Canadian and most US companies are staying away from the public markets but, as I noted before,  Trulieve is a great example of the reality of a properly-run state-wide (FL) Cannabis Company:

    Symbol

    Price

    Market Cap

    Revenue3

    Earnings3

    Forward P/E2

    Forward P/S2

    Cash & ST Inv3

    TCNNF1

    $10.43

    $1.15B

    $58.9M

    $25.9M4

    14.42x

    2.92x

    $53.7M

    APHA1

    $5.13

    $1.30B

    $95.88M

    $12.5M

    36.6x

    2.04x

    $353.0M

    CRON1

    $8.08

    $2.73B

    $5.1M

    NA

    NA

    18.3x

    $1.76B

    TLRY

    $22.10

    $2.16B

    $45.9M

    NA

    NA

    6.38x

    $220.8M

    HEXO1

    $2.07

    $535.0M

    $11.72M

    NA

    NA

    2.66x

    $123.1M

    GWPH

    $136.16

    $4.19B

    $71.68M

    NA

    41.51x

    6.53x

    $583.7M

    CGC1

    $20.15

    $6.86B

    $68.8M

    NA

    NA

    11.24x

    $2.4BB

    NBEV

    $2.63

    $209.5M

    $66.35M

    NA

    NA

    0.70x

    $83.6M

    OGI1

    $3.26

    $532.6M

    $18.8M

    NA

    22.0x

    4.58x

    $66.7M

    CVSI

    $1.96

    $201.4M

    $16.85M

    $1.23M

    21.77x

    1.90x

    $15.7M

    Footnotes:

    1. Converted to USD, using 1 CAD = .76 USD
    2. Today's market capitalization vs. Zacks consensus estimates for the following fiscal year. For TCNNF, source is Trulieve Cannabis Corp. Earnings Estimates
    3. Most recent quarter, listed on Marketwatch. For consistency, some recent actuals have been excluded (for example, APHA)
    4. TCNNF reported earnings of $58.4M, which included some one-time items. I am normalizing the earnings by using a 55% profit margin and then subtracting 20% for tax

    I think the problem is that investors are as dumb now as they were in the dot com boom or the biotech boom and they just throw money at anything that has Cannabis in the business plan, without regard to whether or not the business is actually viable and run by people who know how to manage money and expand a multi-million Dollar company.  Those things matter!  

    Also, even for TCNNF, who I think are the best of the publics, it's not their fault that idiots bought their IPO up to $20 – miles before they were able to grow into it.  The actual IPO launched at a very realistic $9.50 but no one in the public was able to get in at that price and it went to $20 – but THEN went down to $6.66 in December and now back to $11.66 – and about where it should be valued. 

     

    SPWR/Albo – I like that better than borrowing.  There's $142M shares and $8.31 is $1.2Bn and this will raise $182M so 15% of market cap and we're diluting by 15% rather than taking on debt – fair trade. $8 held up well this morning as people panicked on the news.  


  9. AAPL/Sun – Not much you can do as it's miles in the money.  You can take your 100 @ $265 ($26,500) off the table and replace it with 1 2022 $265 call at $41 ($4,100) but maybe that's not considered "covered"?  If you could do that, then you could simply roll up the short June $190s at $78.50 to the 2021 $195s at $78 so you'd have your $22,400 in pocket and, assuming you can roll to the June 2021 $200s (now $77) and the 2022 $205s (now $76), you would pick up an extra $1,500 at the end of the cycle so $23,900 is like getting $239 for AAPL instead of $190.

    By the way, if you can't do that then you see the advantage of finding a more flexible account – it's a $49 (25.7%) difference in your returns in two years following a very conservative strategy to unlock the capital – not to mention the money you can make with your free $22,400 as well…






  10. Morning Phil. Looking for some advice on position adjustment. I have the following TNA spread:

    - Long 5 TNA Jan '20 $65 Puts (bought at $11.11, now $5.45)

    - Short 5 TNA Jan '20 $50 Puts (sold at $5.24, now $1.28).

    With TNA now at approximatey $63, it's $2 in the money but still looking to capture whatever value remains in the long puts and ideally extend the protection to July 2020 or so. 

    Any thoughts are appreciated.


  11. SPWR – Thanks Phil.


  12. Phil could you direct me to your spwr trade—thank you


  13. Thanks Phil.. Unfortunately as its a Schwab 401k, we are fortunate to be able to sell covered call and sell cash secured puts….I mention being able to trade spreads to the rep and he lectures me about how lucky I am that our company has a special agreement to be able to even do covered calls/puts!!

    Since I can't do those rolls, I'll probably just let it get called away and wait for some sort of a pullback in AAPL before getting back in…unless you think selling some 2022 puts would be a good initial re entry….


  14. One more question…What do you think of some of these small cap type REITs for income? IRM, SRC RESI?  Thanks…


  15. Phil:  I know that you put up a dividend play on CHL on Friday.  Do you think an option play might be warranted as an alternative or supplement to a dividend play?  We haven't seen this kind of price on CHL since the 2008/2009 crash.  You mentioned the Trade War as one reason for the weakness in the stock.  Slower growth, and higher capex as CHL builds out 5G seem to be other reasons.  Anything else going on?  Thank you.


  16. Comment content omitted because it is too long.


  17. TNA/Alter – Big comeback for them.  Best to get in a time machine and use stops.  devil  Failing that, it's not terrible as you spent net $6(ish) and now the long puts are $5.50 so I'd roll to the April $65 ($9)/55 ($4.80) bear put spread at $4.20 and leave the short Jan $50s to expire worthless (with a stop on 3 at $2) that wold raise the cost of your long puts by $1.40).  This time, BEFORE the April $65s drop below $6, roll the long puts out to the next set so you can capture some premium value and always try to roll a bit higher each time. 

    You're welcome Albo.

    SPWR/Savi – Was a Top Trade:

    Submitted on 2019/10/07 at 12:11 pm

    There's a trade:  We like Sunpower (SPWR) anyway and they went on sale since we got out and we'd LOVE to own them at $10 for the long run as $10/share is $1.4Bn and we know SPWR is capable of earning over $200M for the year and they did make $121M last Q though probably still a loss this year but, going forward – I think they'll do great.  

    Year End 30th Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 2,507 3,027 1,576 2,553 1,794 1,726 1,670 1,974 2,217 -7.2%
    Operating Profit $m 158.9 251.2 -206.3 -371.9 -1,025 -849 -288.5      
    Net Profit $m 95.6 245.9 -187 -448.6 -929.1 -811.1 -216.3 -53.9 28.2  
    EPS Reported $ 0.69 1.55 -1.39 -3.25 -4.49 -5.76 -1.66      
    EPS Normalised $ 0.70 1.62 -1.36 -2.57 -1.48 -3.15 -1.75 -0.34 0.19  
    EPS Growth %   +131.5                
    PE Ratio x           n/a n/a n/a 55.5  
    PEG x           n/a n/a n/a 0.58
    Profitability

    They can go lower, so we shouldn't go crazy but 2022 options are out so I'd say selling 10 2022 $10 puts at $3.90 ($3,900) is a no brainer and we can put 1/2 back to work on a spread like this:

    • Sell 10 SPWR 2022 $10 puts for $3.90 ($3,900)
    • Buy 15 SPWR 2022 $12 calls for $3.40 ($5,100) 
    • Sell 15 SPWR 2022 $17 calls for $2 ($3,000) 
    • Sell 5 SPWR Jan $12 calls for 0.85 ($425) 

    That's a net $2,225 credit on the $7,500 spread and, if it goes lower, we'd be happy to roll down the long calls at $2.50/$5 roll ($3,750), which would put us in a $10,000 $7/17 spread for $1,525.  If it's flat or down, we sell 8 more sets of short calls for $3,200 or more and that puts us back to a credit anyway so figure net $8 on 1,000 shares is our worst case.  If SPWR goes up, we roll the short calls but we'll be happy to buy more long spreads if that becomes a problem.  Lots of ways to win – not many ways to lose – that makes it a nice trade! 

    Think or Swim says ordinary margin is $3,889.62 on the short calls so not very efficient but it's a stock we'd REALLY like to own long term – certainly going on the Watch List!  Assuming no fancy stuff we could make $9,725 (437%) because of the credit PLUS whatever bonus money we make selling a few calls along the way.  

    Still a good price on them and a huge return potential – this one is in contention too.  The trick is not finding the 300% returns but how sure we are that we can make them?

    Schwab/Sun – My understanding is ToS has a more special arrangement and can do spreads.  At this height, I would not put more money into AAPL.

    Different brokers have different regulations when it comes to what options trades are permitted in a Roth IRA. Fidelity Investments permits the trading of vertical spreads in Roth IRA accounts while Charles Schwab Corp. (SCHW) does not. The brokers permitting some of these strategies have restricted margin accounts whereby some trades that traditionally require margin are permitted on a very limited basis.

    Since the IRA rules do not allow margin trading, the types of options strategies allowed in an IRA are limited to those that do not require margin coverage. The level 1 options strategy is covered call trading. The main level 2 strategies are buying call or put options and cash secured puts — an equivalent strategy to covered call writing. Level 3 authorization allows options spread strategies with defined risk profiles. Each broker sets its own limits on which options strategies are allowed in an IRA account. Check with your broker to see which strategies will be approved for your account.

    REITs/Sun – We have enough trouble with the large-cap ones!   IRM is one we've played and I like them when they are cheap but $34 is not cheap at $9.75Bn with $300M in earnings so 32.5x earnings for a company with limited growth outlook (and currently reducing staff) – no thanks!  


  18. Others/Sun - SRC is interesting as they focus on buying buildings essentially for single tenants that are willing to enter long-term (10-year +) lease arrangements so they carry low risk (aside from tenant BK) of occupancy issues – unless the whole economy turns south. $5.1Bn at $51.22 is also expensive on $132M in income – these things just don't appeal to me at these prices.  RESI doesn't even make money – not even close to something I'd buy for $582M at $10.80:

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 72.3 423.3 248.1 56.8 94.2 183 221.6 207.8 224.8 +20.4%
    Operating Profit $m 39.6 186.4 -49.5 -227.2 -185.4 -131.6 -104.2      
    Net Profit $m 39.6 188.9 -46.0 -228 -185.5 -130.8 -114.1 -99.5 -74.6  
    EPS Reported $ 1.61 3.34 -0.81 -4.18 -3.47 -2.44 -2.12      
    EPS Normalised $ 1.62 3.72 0.043 -3.38 -2.94 -1.88 -1.94 -1.81 -1.52  
    EPS Growth %   +130.4 -98.8              
    PE Ratio x           n/a n/a n/a n/a  
    PEG x           n/a n/a n/a n/a
    Profitability

    CHL/John – Sure, we just don't have an LTP though CHL doesn't have long-term options anyway but you could just

    • Sell 10 CHL June $40 puts for $2.60 ($2,600) 
    • Buy 20 CHL June $37.50 calls for $3.30 ($6,600) 
    • Sell 20 CHL June $42.50 calls for $1 ($2,000) 

    That's net $2,000 on the $10,000 spread that's $3,000 in the money to start at $39 so the upside is $8,000 (400%) – very nice for 7 months!  The downside is owning 1,000 shares of CHL for net $42 and the margin requirement is $7,823, which is not great but it's a blue-chip stock in China so I don't consider it too dangerous.


  19. We never looked at the week – not much going on actually and next week will be dead (Thanksgiving):

    Image


  20. Thanks, I knew most of those were overvalued but I just wanted your take….As for RESI, there was a Seeking Alpha article recently that was trying to make the case that buying RESI was equal to or better than actually buying a handful of single family homes in the Southeast(Atlanta, Memphis etc) and renting them out. Less risk, more liquidity, less overhead costs etc…That theory ignores the leverage you get with real estate ownership and other factors though……


  21. RESI/Sun – Well it sounds nice in theory but you are paying 100x earnings and they burned $450M in cash last year and $140M so far this year and they have $1.7Bn in debt – is that the housing partner you are looking to hitch your wagon to?  

    They are having a lot of trouble keeping /ES green into the close – going to come down to the wire.  RUT is a lost cause – still can't hold 1,600.


  22. What’s Happened To US Electric Vehicle Sales?


  23. Several wounded in shooting at Walmart in Duncan, Oklahoma


  24. F.B.I. Arrests Dennis Tyler, Mayor of Muncie, Indiana