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Wednesday, June 7, 2023



Pre-Trade Tuesday – Markets Appear Untroubled But Weakening

No one seems worried.

The Volatility Index (VIX) is back around 13 after a brief spike to 17 when we bombed Iran and Iran bombed our bases in Iraq but that was so last week and now no one is worried about anything as we look forward to tomorrow's signing of the Phase 1 China Trade Pact, which accomplishes nothing in particular after two years of waiting.

The deal leaves out the fundamental changes to Chinese economic policy sought by many U.S. leaders and prioritized by President Trump, who has promised further negotiations. Chinese officials, though, feel they have little to gain from a second deal forcing Beijing to ease state control of the economy, and Trump has already said that a phase-two agreement probably wouldn’t conclude until after the November election.

Image result for china trade deal cartoonU.S. Trade Representative Robert Lighthizer defended the deal Monday, saying on Fox Propaganda Network that it would include “a variety of real structural changes.” He then named only one, commitments to refrain from competitive currency devaluation, which Treasury Secretary Steven Mnuchin announced earlier in the day, already  dropping Treasury’s designation of China as a currency manipulator based soley on their thin promise to behave in the Future.

By giving away leverage with a temporary deal…these structural issues will only become more challenging to address in future negotiations,” Senator Schumer wrote. “China pledging to make short-term purchases of American goods will not address the fundamental problems that undermine long-term U.S. economic opportunity, prosperity, and security.”

Image result for i'll remove the cause but not the symptom animated gifTariffs remain in place that will still cover the same $360 billion in Chinese goods that the Administration taxed before the signing. Nearly two-thirds of everything Americans buy from China are still tariffed, compared with less than 1% before Trump began his anti-China campaign, according to calculations by economist Chad Bown of the Peterson Institute for International Economics.  The deal eases — but does not eliminate the trade-related uncertainty that Federal Chair Powell has blamed for weak business investment and a manufacturing slump.

The "Phase One" Trade Deal was announced back on December 12th and, since then the Dow has gained 1,000 points, or about 3.5%, putting a huge cherry on top of what had already been a 21% rally from 24,000 in January of last year.  Of course there were promises of a trade resolution all fall and the Dow rose from 26,000, where it had stagnated all Summer. 

That was up a realistic 8.3% from the start of the year but it's all distorted from last Winter's market collaspse that cost us 22.5%, albeit briefly.  The Dow was actually at 27,000 at the start of 2018, fell to 22,500 at the end of 2019 and now we're back at 29,000 but the key metric to me is we're up from 17,500 at the 2016 elections and that's 65% in 3 years – historically a bit extreme for market growth.

Image result for corporate taxes 2019If we're going to pay 65% more for stocks, they should be earning 65% more money, right?  Forget the fact that most of the earnings boost has come from paying less taxes – silly as that is, it does still drop money to the bottom line so we'll count it like it's real earnings and can't be taken away. 

Still, it took a 70% reduction in Corporate Taxes to boost Corporate Earnings 20% so it's simply not possible for that to be repeated in the next few years but analysts tend to extrapolate earnings growth to continue at the pace it has for the last few years.  And, if corporate profits are up just 20% but we're paying 65% more for those profits – at what point can investors no longer afford those relatively meager profit returns?

We'll see how well profits are holding up as we begin tallying Q4 earnings.  JP Morgan (JPM), Citigroup (C) and First Republic (FRC) all beat this morning but, as we expected, Wells Fargo missed by 120%, putting up an 0.17 loss vs an 0.93 profit expected by clueless analysts.  WFC noted a $1.9Bn Operating Loss that included an impact from litigation accruals totaling $1.5Bn, or 0.33 per share.

That's right in-line with the expectations we had in yesterday morning's PSW Report (which you can subscribe to here) and the trade set-up in our Earnings Portfolio ended up looking like this:

WFC Long Put 2020 20-MAR 52.50 PUT [WFC @ $52.11 $0.00] 10 1/13/2020 (66) $2,130 $2.13 $-0.09 $2.13     $2.04 $0.00 $-90 -4.2% $2,040
WFC Short Put 2020 20-MAR 50.00 PUT [WFC @ $52.11 $0.00] -10 1/13/2020 (66) $-1,050 $1.05 $-0.06     $0.99 $0.00 $60 5.7% $-990
WFC Short Call 2020 20-MAR 52.50 CALL [WFC @ $52.11 $0.00] -5 1/13/2020 (66) $-625 $1.25 $0.10     $1.35 $0.00 $-50 -8.0% $-675

So we're well on-track to getting $2,500 back from our net $455 investment in 67 days (March options expiration) and all we have to do is keep taking advantage of lazy analysts and we'll have a very nice earnings season indeed.  

More importantly though, let's keep our eye on the macro-picture and make sure companies are growing into these +65% valuations because, if they are not, we're going to be heading into a correction where nothing is likely to be spared – not even Tesla (TSLA) – which is reaching peak idiocy at $550!  



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I am old enough (sadly) to remembers days when these parabolic moves didn't end well! Being told that this time it is different, looking at fundamentals, questioning models was so old fashion! Maybe this time it is different. We'll see.

In the meantime, it's just so hard to wade through all the misrepresentations and lies being peddled each day on matters small and big! They even lie about the weather in DC when everybody can verify the facts for crying out loud! It's mentally draining!

In the meantime, who benefits from the rising markets? 

StJ – It's never different ! ! !

Good Morning!

Yes extremely mentally taxing always having to VMware through all the BS.  Make you want to turn everything off and drop out

Any one entered the CBRL PoorMT,  the Jan20 157 caller has to be rolled. I am rolling to Feb 160. The stock is 1/16 ex div and pays 1.30!!!!! I will wait to sell the new putter after 1/16.

SPCE/W – has now doubled.  Still resisting the temptation to sell some.  Instead, sold some SPCE Jul 18 calls.  SPCE is now trading at $14.13.  If they expire worthless, they would lower the cost of those warrants by 1/2.  Correlation between SPCE and SPCE/W appears tp be about 80%.

You can sell the June $900 calls on Tesla for $29 right now.  So absurd.

Scratch that.  Those were the 2021's.  Sorry guys.  Need more coffee.

Phil / WBE

Apologies if I missed this before – what was the consensus on this.  I'm still on the hook for the April BCS and short puts


The latest estimate is for VXX to reverse split by August (unless we have a big correction in the meantime). This would be the longest time (36 months) between 2 reverse splits. The big correction at the end of 2018 is the main culprit. It does happen every time we get close to $10. It's been 1-4 each time so VXX would trade around $40 or so. 

AIMT – From Briefing:

 "Palfozia on track to be approved this month  (31.31 +0.31)

The presentation at JPM last night didn't reveal much new information. Palforzia is on track for approval by the end of month. The REMS (patient safety/certification measures) includes a convenient online system. The company is ready to launch. Many allergists are already on board and payers (insurance) won't be an issue."

Not sure if anyone is interested in ZYNE any longer, but it's down in the $5 range. I've been out since $15. Starting to dabble in some since the other pot stocks are starting to get some activity. Decent premium in the options as usual.

Phil HLIX – Any thoughts on this company. They provide multiple services to the cannibis industry. Here is their profile.  Thanks

Helix TCS, Inc. engages in the provision of infrastructure solutions to the cannabis industry. It operates through the following segments: Security and Guarding; Systems Installation; and Software. The company was founded in 2003 and is headquartered in Denver, CO

Albo / SPCE

such a great pick! can you give you thoughts on my spread and if i should adjust?

30 x July $10/$15 BCS

10 x July $9 short puts

I got in for net $3000  –  up to 6k, 9k to go.

of course doing well but a little nervous about volatility


Phil / WBA (NOT WBE!!) sorry

Apologies if I missed this before – what was the consensus on this.

I'm still on the hook for the April 55/60 BCS and 57.50 short puts


NLS at new recovery high.  Stock has doubled from when I posted on it in less than 3 months. 

Sold 1/3.

WBA / Potter, Phil –

I'm also interested in what to do about WBA.

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