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400 Point Friday – Another Week, Another Record High

Will this rally ever stop – or even pause?

We've already added 400 points this week and, as you can see from the chart, almost the entire move came at the open yesterday and Wednesday and this morning the Dow (/YM) Futures are up another 66.6 points (0.25%), capping off a 1.5% move higher for the week (if we hold it).  It's a bold move into earnings season, as it will be very hard to justify these price increases for the average component but we'll just have to wait and see as this rally shows no signs of slowing – despite all logic

I know no one wants to hear about boring old macros but, while we were sleeping, China announced that their economy was growing at a 30-year low 6.1% as Trade, Investment, Consumer Spending and Business Confidence all come under pressure.  The country also faces longer-term stresses like an aging population, which was highlighted by Friday data showing births had fallen to their lowest level since 1961.  Nomura economists calculate the trade war, coupled with slower global growth, shaved one percentage point off China’s 2019 GDP figure. 

Nontrade factors, too, weighed on sentiment, including mass protests that roiled next-door Hong Kong for more than half a year, clouding the business outlook and drawing global attention to the risk of social unrest in the authoritarian nation. Shenzhen’s celebrated technology sector, including hometown companies like telecommunications equipment maker Huawei Technologies Co. and drone maker SZ DJI Technology Co., is facing new scrutiny from the U.S. and elsewhere.

Despite the slowing growth, trade issues and 6 months of protests in Hong Kong, the Shanghai Composite Index rose 22% last year because – why not? – everyone else is ignoring the macros, why shouldn't Chinese Traders too?

Increasingly, Chinese industrial prices have also headed downhill in a sign of weak demand, and producer prices overall last year fell 0.3%. Car sales slumped 8.2% in 2019, while consumers – whose incomes expanded slower than the economy at 5.8% – were squeezed by pricey pork and an upward creep in crude oil.  In cities like Shenzhen and Shanghai, office vacancy rates are solidly in the double-digit percentage points as companies quietly downsize. Property is a risk that could pose a major drag on the economy, potentially by the second half of 2020 as is the growing Debt Bomb that's approaching crisis levels.  

Of course, China isn't the only nation sitting on a debt bomb as Trump has added over $3Tn to our National Debt in less than 3 years, now $23,190,231,163,827.  Oops, make that $23,190,232,465,318 – it went up $1.3M while I was writing out the number.  Oops, $2M more.  Oops, make that $6M more (I looked away for a moment….).  

There's only 330M of us so adding over $2M/minute to the Nationa Debt really does effect each of us every day as 60×24 is 1,440 minutes or $2.8Bn PER DAY of additional debt.  Even dividing that by 330M is still $8.50 PER DAY of additional debt for every man, woman and child in the US – just to keep the lights on.  There's this fantasy we all engage in that debts don't matter and we will just be able to keep borrowing $8.50/day but that's $3,100/year for every single person in the country.  We are now 106.7% of our GDP in debt.  Eventually, those chickens will come home to roost.

$22M more since I looked up the debt now and check out Corporate Tax Revenue at just $233Bn vs $1,728Bn paid by the workers PLUS anoter $1,257Bn in Payroll Taxes PLUS $68Bn in tariffs still being paid by our citizens which are being doled out by Trump to his constituents in the World's largest slush fund.  

Have a great weekend,

- Phil


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  1. Full green board for the first time in a very long time. NYSE had been lagging, but turned green yesterday. Everything is awesome.

  2. China/Phil – Ooogh! Lowest birth rate since 1961? Does the WSJ know that China was suffering through a famine so severe that there were confirmed reports of people killing and eating each other, deaths u to 55 million.

  3. Good Morning!

  4. I mean wow, just freaking wow! It's just insane that any of these guys have any respect for him.

    Mattis and the newly confirmed deputy defense secretary, Patrick Shanahan, sat to the president’s left, with Vice President Pence and Tillerson to his right. Down the table sat the leaders of the military branches, along with Cohn and Treasury Secretary Steven Mnuchin. [...]

    “I wouldn’t go to war with you people,” Trump told the assembled brass.

    Addressing the room, the commander in chief barked, “You’re a bunch of dopes and babies.”

    And the best line coming from Mr. Bankrupcy and Deadbeat himself:

    Trump proceeded to explain that NATO, too, was worthless. U.S. generals were letting the allied member countries get away with murder, he said, and they owed the United States a lot of money after not living up to their promise of paying their dues.

    “We are owed money you haven’t been collecting!” Trump told them. “You would totally go bankrupt if you had to run your own business.”

  5. Shareholder value is now killing a business:

    Of course that’s exactly what happened: the 737 Max failed big — at a cost of 346 lives. Shareholder value has caused much harm in the three decades since it became the core value of American capitalism: diabetics who can’t afford insulin; students ripped off by for-profit universities; patients gouged by hospital chains; and so much else. But none worse than this.

  6. Interesting debate:

    I think you can divide problematic companies into two basic camps. In one, you have companies like Amazon, where it actually provides a good and useful service that we want in the world but goes about it in a sometimes-horrifying way (see: the peeing in bottles, which we’ll get to). And then you have companies like Facebook, where its actual service—basically acting as an addictive disinformation and propaganda engine that turbocharges all of our most damaging communication habits—is flat-out bad and probably shouldn’t exist. To me, the latter is evil. The former is redeemable with some hefty regulations and union organizing.

  7. Phil/Mortgage refinance,

    My 5 ARM mortgage is nearing refinance now. 6 months away. I guess the mortgage rates are tied to the 10 year bonds yield? So if the markets falls and people move in bonds, the yield will go down and the rates will go lower…is that understanding correct?

    I know it is very local for the rates but what would you do when you have to refinance your mortgage. my original rate was 2.85%


  8. Good morning!

    A little selling pressure at the bell, we'll see what sticks. 

    Big Chart is off the charts!   We've been doing this for a decade and this has never happened.

    China/Snow – That's some lovely history.  surprise

    Great point on shareholder value, StJ.  As to AMZN, I'm not sure it's redeemable since hefty regulations, unions, etc. will destroy their advantage over retail.  They barely make money now, if they had to pay fair wages and follow rules (and pay taxes), then it would cost more to buy from AMZN than from a store and people wouldn't be so quick to do it.  Not to mention the environmental cost of their business – which is absurd.

    Bonds/Pat – If people move into bonds the demand for bonds goes up and rates go lower (they offer less interest to eager lenders).  That's an immediate effect on short-term rates but long-term bonds can go higher (not in rate, but in value) as the higher rates of older long-term bonds become more desirable.  I guess your 2.85% is over and a new 5-year is 3.44% but a 20-year fixed is 3.57% and works out better as you keep hitting yourself with origination fees and risk higher rates when you roll over.  A 15-year fixed is 3.24% – that's also worth considering.  

  9. CTL – Comments from Longleaf Funds who have 16% of their assets in CTL.

     "CenturyLink has been a global leader in consolidating the fragmented fiber and telecom industry through valueaccretive acquisitions and mergers over time. CenturyLink is a prime example of a “rule-out” stock, as its price has been severely punished due to uncertainty over its dividend, which became a self-fulfilling prophecy, as management ultimately cut it earlier in 2019. We filed a 13D to discuss strategic options with the company, and we recently suggested a new board member, Hal Jones, who we believe brings unique industry insight and capital allocation discipline. Today, over 75% of CenturyLink’s value is in fiber, which is a growing, high margin infrastructure asset with high barriers to entry. We expect to see management and the board explore ways to monetize this value in the near term.

  10. Phil I’m trying to take your suggestions and still work with my limits on short calls so how about this for a new target position (having sold most of my AAPL ’21 $200/240 bcs):

    Buy 15 June’22 $280calls ($67)

    Sell 10 June ’22 $350c ($41)

    Sell 5 June’22 $250puts at $20

    Sell 5 Apr $320calls ($13.75) and roll them out or re-sell etc.


    Meanwhile I have to get there from here with my current holdings:

    10 June’21 $200 ($29) (I kept 10 to help cover short term short calls, could sell them)

    15 Jan’22 $240  ($53.5)

    30 Jan’22 $270. ($61)

    -25 June’20 $270 ($17.6)

    -10 Mar’20 $220. ($16.5)


    I could roll the 10 short Mar’20 220 calls to 20 June $270s?



  11. Albo/CTL- fiber is data and data is the future. Seems like a good plan. 


  12. Pstas – Think (hope) that's true.

  13. Apparently Nat Gas is not that valuable anymore. Gonna be below $2 soon! That has been a good support line for the last 20 years (except briefly in 2016 where we dipped lower). That still has to be painful for a lot of producers.

  14. AAPL/Wing – I like the long set-up, why not just cash out what you have and re-establish?  That's all rolling is, shorthand for cashing out one position and starting another.  AAPL may be at a peak so cashing in 45 long calls is not a bad thing and the 35 short calls simply limit the gains but I'm sure that's still up from the original spread – just not as much as you wish.  All you can do is set up the new spread and hope it comes closer to your target next time but trying to bend over backwards to "save" a spread that's $50 (20%) in the money when you have restrictions is just forcing you to make non-optimized decisions for no good reason.

    Nomura questions Apple's 5G supercycle

    • Nomura raises its Apple (AAPL +0.4%) target from $225 to $280 on evidence that the iPhone 11 cycle will continue through 2020.
    • The firm is less optimistic about this year's 5G iPhone, seeing the expected $40-80 incremental bill of materials cost to be a barrier to adoption.
    • Nomura notes that upgrade rates dropped during the 3G to 4G transition and that Apple has already ordered 75-85M iPhone 12 units for H2.
    • Related: Morgan Stanley was out today with an Apple PT boost and a more positive take on the iPhone cycle.

    OK, I think this news item is actionable as I really like MIDD anyway, they make my beloved Viking ranges but only $2.7Bn in sales and $320M in profit so this deal can really move the needle on the $6.3Bn valuation at $112:

    Middleby said to be on McDonald's radar

    • Shares of Middleby (MIDD +1.3%) are on watch after Buckingham Research suggests the company could land oven business from McDonald's in front of the fast-food chain's launch of a crispy chicken sandwich.
    • Middleby trades on the low end of its 52-week range of $105.77 to $142.98.

    For the Long-Term Portfolio (LTP), let's:

    • Sell 10 MIDD Dec $110 puts for $10.70 ($10,700) 
    • Buy 10 MIDD Dec $100 calls for $19 ($19,000)
    • Sell 10 MIDD Dec $120 calls for $9 ($9,000) 

    That's a net $700 credit on the $20,000 spread that's $10,000 in the money at the moment.  Upside potential is $20,700 in less than a year and our worst case is owning 1,000 shares of MILL at $110, but then we can sell the next year's $100 calls for $20 and drop our net to $90 so not much downside there

    Year End 29th Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Total Revenue

    1,429 1,637 1,827 2,268 2,336 2,723 2,896 2,938 3,038 13.8%
    Operating Profit

    244 300 303 419 379 446 483     12.8%
    Net Profit

    154 193 192 284 298 317 325 354 401 15.6%
    EPS Reported

    2.74 3.40 3.36 4.98 5.26 5.70 5.84     15.8%
    EPS Normalised

    2.74 3.64 4.07 5.10 6.16 5.96 6.13 6.66 7.33 16.9%
    EPS Growth

    +26.4 +33.2 +11.8 +25.3 +20.7 -3.17 +2.86 +11.7 +10.1  
    PE Ratio

              18.4 17.9 16.5 15.0  

              1.58 1.53 1.63 2.44  

  15. SPCE -Started a new trade  in SPCE and the warrants.

    Bought the warrants at $5.75 and sold the April 17.5 calls on SPCE  for $1.85.

    If called away return would be 32% on the $1.85 received as premium plus approximately 8-10% from the warrant appreciation in 3 months. .( SPCE common going from $15.60 to $17.5 equals 12% and there is a high correlation between the two).

    Since SPCE is a new company in a new industry the stock could sell at any price, but I believe the ability to keep selling premium over the next 4 1/2 years could be quite profitable.

    If SPCE is below $17.50, you keep the $1.85, which reduces the cost on the warrants to $3.90 and you sell premium against SPCE 3 months out.  By the way, the intrinsic value of the warrants with SPCE at $15.60 is $4.10.

    As you guys know, I'm not the sharpest knife in the drawer, so please tell me how I am wrong.  Thanks.

  16. albo/SPCE

    Here's a dumb question.  How do you buy a warrant?

  17. dclark41: SPCE/WS is the ticker

  18. Dclark – Most platforms use SPCE/WS as Dawgy said.  Some use the symbol SPCE/W.

  19. Albo/SPCE – Can you dumb down the $18 conversion price piece of the SPCE/WS puzzle for me? I don't really understand how that works, or if it's even important to the valuation of the warrants.

  20. Albo – one other question, with the warrants, does that cover the margin on the short calls, same as a long call option or covered call would?

  21. Dawgdaddy – Not sure what you mean by the $18 conversion price,  The warrants are exercisable into SPCE stock at$11.50 until October of 2024.  No, the SPCE calls are treated as naked.  I tried to make a trade in one of my IRAs and was told the options would be treated as naked.

  22. What to do with the TLT position that has 2 legs expiring?

  23. AMD – if anyone is interested in AMD, the 2022 60 calls have shot up today and yesterday in a ridiculous manner and it is possible to get the 2022 40/60 BCS for $8. Shares are at $50.45 right now. It's very possible that a better price can be had on long calls after earnings because expectation are probably way too high right now, so it might be an interesting play to sell the short calls going into earnings and buy the longs after. They are reporting on 1/28. And if the stock drops on soft revenues or soft guidance… of course it could go the other way as well. The market seems to think it will but AMD has a bad habit of repeatedly failing to deliver on the hype. However they seem to be stealing Intel's lunch money right now and they're on board as the supplier for the next generation of the Xbox and PS5, and simply running away with the x86 market in terms of technology. 75% of retail chip sales are supposedly AMD chips right now, so high penetration into the amateur computer-building market segment, not as good with OEMs. It's rumored that Microsoft Surface product line may be switching to AMD chipsets however, and they've come out with a mobile combined graphics and processing solution that promises to dramatically increase battery life and / or reduce weight. 

  24. Dawg/Albo


  25. Phil;  MIDD does not seem like a good option trading candidate. The December puts and calls are really wide.  Total volume today in all options is 1500 but in December only 78.  And those may be attributable to your trade alert.  IMHO

  26. OA/MIDD – I found the same thing, that entering the trade would result in a $700 cost, not a credit. I think PSW members hosed it up, but going to look at it again later today and Monday and see if I can get into the trade leg by leg for the right price.

    Albo/SPCE – I read something on Yahoo Finance and SA about an $18 redemption price but cannot find it in the filing so not sure it's real.

  27. SIG – Jumped to $30 yesterday.  A huge win in the Dividend Portfolio

  28. Albo/SPCE – from Stock Gumshoe

    "it’s almost unheard of to get five-year warrants on a big growth “story” stock, and we can daydream about Virgin Galactic taking its first customers into space in the next year or so and perhaps even being profitable in a few years, driving the shares up by hundreds of percent and making warrant-holders drown in cash, but that $18 redemption right that SPCE has on the warrants would mean that any gains above that level would effectively reset and be the same for equity and warrant holders." 

  29. I'm going to lose my internet soon, hopefully back on by 2pm.

    TLT/Tangled – I'm trying to get the STP Review finished now.  We're closing out the whole TLT position in the STP as we hit our goals

    AMD/Dawg – It's a 150% payoff on the straight spread and 25% in the money to start so I'd just take the Bull call spread into earnings and consider selling puts if they miss but, otherwise, you don't need to.

    MIDD/Options – You just have to put in your offers and wait PATIENTLY.  We often make the market in things (MIDD shot up to $114 now).  If we can't fill, we'll simply move on to something else.  

    And what Dawg said – you can't expect to fill a thinly-traded stock right away – sometimes it takes days to get a fill but I know for sure I want to sell the puts and I know I don't mind paying $700 for a $20,000 spread either.  If they are not filling next week, we might adjust or just move along.

    SIG/Buckey – So funny how a year's worth of people can trade it below $30 and then, suddenly…

  30. StJ / NG – "painful for a lot of producers" – and also "painful for PSW members who bought at 2.15" like me! 

  31. /NG – Seems /NGG20 is a goner but I wonder if something like /NGX20 for $2.357 might be a good play?

  32. Short-Term Portfolio Review (STP):  This is now the Long-Term Portfolio (LTP) and we'll make a new STP to cover these positions.  Mechanically, we're moving $400,000 into this portfolio and making a new $100,000 STP whose main function is to protect the new LTP (so looking more for bearish opportunities than bullish ones).  

    The STP is at $144,380 and that's down $9,118 from our last review, pretty much entirely due to TSLA going off the rails on our short calls.  We'll deal with that and decide which positions stay and which ones go in our new LTP:

    • CBS – Keeper 
    • CSCO – Keeper 
    • M – Keeper 
    • CMG – We're on track so far and I doubt CMG goes over $900 so this will be TRANSFERRED TO THE STP.

    • FCX – Keeper 
    • IMAX – Keeper (brand new) 
    • MJ – Keeper.  The short $17.50 puts are expiring worthless and the $18 calls are 0.666 in the money and we'll pay those off and sell 10 April $19 calls for $1.50 ($1,500) and 10 April $18 puts for $1.50 ($1,500) and that's another $3,000 collected against our net $7,400 long position and we have 7 more quarters to sell for $21,000 and we kept $2,034 of the $2,700 we sold in November – if we keep that up, that's $16,000 in pocket from put and call sales and the potential $45,000 on the spread is just a bonus.  

    • MO – Looking good for a full March payout.  We're at $6,600 out of $7,500 potential but I see no reason we won't make the last $900.  
    • SQQQ – TRANSFER TO THE STP.  Also, we're going to roll the 10 March $25 puts at $6 ($6,000) to 15 2021 $20 puts at $4.60 ($6,900) and we'll roll 40 June $20 calls at $2.30 ($9,200) to 60 2021 $17 ($4.85)/$30 ($2.40) bull call spreads at $2.45 ($14,700) so that's $78,000 worth of protection that's $18,000 in the money for net $4,600.
    • TD – Keeper
    • TLT – We are cashing this in.  
    • TOL – Keeper, already deep in the money. 
    • TSLA – TRANSFER TO THE STP.  We're going to absorb the loss here, in the new LTP, as we can afford it so essentially we're cashing it out and making a fresh position in the new STP which will be:  Sell 5 TSLA 2022 $300 puts at $33 ($9,900) and sell 5 June $550 calls at $49 ($24,500) and we'll see how that goes.  We're down net $26,000 so easy enough to make it back.

    VALE – Keeper – on track.  

    So, even though we were very hesitant to commit capital, we still ended up with an LTP that's up 8% ($44,000) for the new year.  Our STP often makes money very quickly so I'm not worried about it catching back up but our main goal is always making 30-40% with our main portfolio and we're right on track – despite "missing" the big rally. 

  33. /NG all the way down to $2!  

    /NG/MrM – Ouch indeed if you didn't stop out at $2.10 or $2.05 but, if you are still in at $2 with a $1,500 loss per contract, I'd go for 3x at a $2.05 avg but don't forget to get back to 1x when you get even and not turn greedy.  

    /NG/Dawg – I'd go for May (/NGK20) at $2.11 as you get more time but not the big jump in premium you're paying for later in the year.  

    If we are going to save this planet we must have the courage to take on the fossil fuel industry and Wall Street's endless greed. We will: -End offshore drilling -Stop pipeline projects -Ban fracking -Stop exports of liquefied natural gas and crude oil

    He's the front-runner.  

  34. Phil / MRM / /NG1!

    Also seems like a tasty place for a fresh low risk long?  Stop under $2 ?  Lowest price of the year.  

    What am i missing?

  35. /NG / MrM – Ouch! I know that Phil is not a fan of TA but you might want to still keep an eye on momentum indicators that might tell you when it's time to bail if you don't have stops in place. 

  36. Dawgdaddy -  I didn't know about that redemption provision.  Still that's 300% from here.  

    One should stop selling premium,when and if, the warrants get close to that price,  Thanks !

  37. Albo -I think the redemption is at $18 share price not $18 warrant price.

  38. Phil on TSLA don't forget you had taken a $14,000 loss in December on the original short calls which you bought back for $40.  Therefore the total loss on the position is about $40,000.

  39. Why Are Companies Sitting on So Much Cash?

  40. Dawgdaddy – You are right !  It seemed like there had to be a catch.

     "If something seems to be too good to be true, it usually is."

    That sets a maximum value of the warrants at $6.50.  Will continue to play until stock hits $18, if it does.

    And of course , you could always convert into stock and continue to sell premium, but you've lost the leverage.  .Thanks again.

  41. /NG/Potter – Sure, I think worth the risk at $2.  Not even sure why it's down so much. 

    TSLA/Options – Well that's already baked into the net of the portfolio – I'm just talking about the position that's left (and that $25,000 loss is baked in too).  

    Good news/bad news: Consumer wavers, housing starts jump

    • It was a week chock full of economic data, with more of it on the disappointing side. Consumer sentiment appeared to waver with consumers tempering their expectations and small business optimism also dimmed some.
    • On the bright side, the Philly Fed business outlook started the year off on a high note, housing starts surged in December and December core retail sales beat expectations.
    • From a broader perspective, the U.S. economy continued to grow "modestly", according to Fed's Beige Book report, with the consumer spending at a "modest to moderate" pace.
    • Weaker-than-expected: January consumer sentiment of 99.1 falls short of the 99.3 consensus and slips from 99.3 in December; current economic condition index strengthened while the index of consumer expectations fell.

      1. Continuous jobless claims fell 37K to 1.767M, more than the 1.720M expected.
      2. December building permits slipped to 1.416M vs. 1.474M in November and trailed the consensus of 1.458M.
      3. December industrial capacity utilization of 77.0% came in a hair shy of the 77.1% consensus and weakened from 77.4% in November.
      4. Even though import prices rose more than expected, export prices unexpectedly fell -0.2% in December vs. the +0.3% consensus.
      5. December consumer price index increased 0.2% M/M, but didn't reach the +0.3% consensus; core CPI, up 0.1%, also fell short of the +0.2% estimate.
      6. The headline retail sales figure in December rose 0.3% M/M, just under the 0.4% increase expected and the same as November's increase.
      7. The NFIB small business optimism index lost some luster in December, slipping to 102.7 vs. 104.7 in November and missing the consensus of 104.4.
      8. Job openings of 6.8M in November falls short of the 7.233M expected and fell from 7.361M in October; job opening rate fell to 4.3% from 4.6%.
      9. November business inventories fell 0.2% to $2.037.4B vs. consensus of -0.1%, and reversing a  0.1% gain in October.
    1. January's Empire State manufacturing survey reading of 4.8 beat the estimate of 3.55 and came in stronger than 3.3 in December.
    2. Though builders' confidence in January slipped slightly to 75 vs. 76 in December, it still exceeded the consensus of 74.
    3. Initial jobless claims fell by 10K to 204K, fewer than the 215K expected.
    4. Housing starts surged in December, up 16.9% M/M to 1.608M vs. the 1.373M expected, its fastest pace since December 2006.
    5. Core producer price index increased 0.1% in December, trailing the +0.2% consensus, and the headline PPI number also rose 0.1% from November and missed the +0.2% consensus.
    6. December core retail sales rose 0.5% M/M, beating +0.4% expected and erasing the 0.2% decline in November; retail sales excluding autos rose 0.7%, exceeding the 0.5% increase expected.
    • Coming up next week: On Monday, markets closed for Martin Luther King Jr. holiday; on Wednesday, December existing home sales; on Friday, January manufacturing and services PMI and January Markit Composite PMI.

    Big jump in U.S. rig count, Baker Hughes reports

    • The weekly count of active drilling rigs in the U.S. surges by 15 to 796, wiping out last week's increase of 15, Baker Hughes says in its latest survey.
    • Oil rigs jumped by 14 to 673, with one additional gas rig to 120 and 3 rigs remaining classified as miscellaneous.
    • WTI February crude oil ticks lower following the data, -0.3% to $58.31/bbl vs. $58.50 before the report.

    Disney removes Fox name from film studios

    • Marking the end of an era, Disney (DIS -0.1%) is evicting the Fox from the Mouse House.
    • Disney is rebranding acquired studios to remove the Fox name from studios it acquired: The Twentieth Century Fox film studio will become 20th Century Studios, and Fox Searchlight (a specialist in smaller and independent films) will become Searchlight Pictures.
    • The symbolic (but unsurprising) move will help to avoid some confusion, since Fox Corp. (FOX +1%FOXA +1%) still brands and operates its TV network operations in broadcast and cable.
    • Meanwhile, Disney's decisions apply only to the film units so far. A final decision hasn't been made on the TV side of Disney's purchase: Twentieth Century Fox Television and Fox 21 Television Studios.

    Seneca Biopharma rockets 129% on cell therapy promise

    • Thinly traded nano cap Seneca Biopharma (SNCA +129%) (formerly Neuralstem) has annihilated short sellers on a whopping 90x surge in volume.
    • Investors are reacting to its presentation at the Biotech Showcase and Sachs Associates Neuroscience Innovation Forum, both held in San Francisco this week.
    • The presentation focused on three potential indications of lead candidate NSI-566, a spinal cord-derived stem cell therapy, for amyotrophic lateral sclerosis (ALS), chronic stroke and chronic spinal cord injury.
    • ALS: Phase 1&2 results showed preliminary clinical benefit versus historical data. A pivotal trial is next up.
    • Stroke: Phase 1 data showed improvement in motor function from baseline.
    • Spinal cord injury: Phase 1 results showed some gain in voluntary muscle movement below the injury site.

    Boeing seen taking 'substantial charge' on 737 MAX, Canaccord says

    • Mounting costs of the 737 MAX grounding likely will force Boeing (BA -0.9%) to take a "substantial charge" in Q4 related to the mounting costs of the 737 MAX grounding, Canaccord Genuity says in lowering its stock price target to $350 from $370 as well as earnings and sales estimates.
    • "We are surprised the stock has held up as well as it has considering the company is perhaps facing the most severe crisis in its 100-year history, but we continue to see the financial risk as not fully reflected in the stock," the firm writes.
    • Canaccord also cuts its price target for Spirit AeroSystems (SPR +0.3%) to $74 from $88 to reflect the MAX production suspension, as visibility on Q1 and FY 2020 earnings and free cash flow is challenged.
    • While BA and SPR are working to minimize risk to the supply chain, the production pause clearly has increased risks and costs, the firm says.

    Palladium passes $2,500/oz. in biggest one-day surge since 2008

    • Spot palladium soars as much as 9.3% to $2,528.51/oz. amid the metal's best weekly performance since 2001, even as some analysts caution about a bubble.
    • Supply constraints in South Africa, where producers are grappling with an uncertain electricity system, have been one the main drivers for the price rally, says ABN Amro Bank's Georgette Boele.
    • Palladium's surge has been a boon for miners in South Africa, which accounts for 38% of global supply; shares of top producer Sibanye Gold (SBGL +6.8%) have surged nearly 4x over the past 12 months.
    • Other top South African producers include Anglo American Platinum (OTCPK:AGPPY) and Impala Platinum (OTCQX:IMPUY).
    • While palladium's rally has been driven by supply deficits and surging demand, the increases have exceeded market forecasts, says Noah Capital's Rene Hochreiter.
    • "Prices do not go up forever and the recent run should see a correction, though the fundamental shortfalls will not go away anytime soon," Hochreiter says.

    Big three oilfield services firms start year with asset sale plans – Reuters

    • Schlumberger (SLB +1.7%), Halliburton (HAL +1.3%) and Baker Hughes (BKR +0.6%) have started the new year by putting ~$800M worth of assets up for sale, as the three leading oilfield services names seek to adjust to reduced spending by oil and gas producers.
    • The trio, which hold roughly a quarter of the global oilfield services market, recently disclosed plans to review operations in light of declining demand for their services.
    • HAL tells Reuters it is marketing its pipeline and process services business, and hopes to close a sale by mid-year.
    • SLB and BKR separately have hired advisors to sell units that improve production from wells using rod lift gear,and that latter has hired an investment bank to sell its wellhead services operations, according to the report.
    • While the planned divestments are small pieces of the large companies, analysts and investment bankers believe larger asset sales are likely in 2020.

    Heavy mall exposure called a threat to Cheesecake Factory

    • Morgan Stanley downgrades Cheesecake Factory (CAKE -2.9%) to an Underweight rating from Equal-weight due to concerns on traffic trends with the restaurant operator 85% exposed to malls.
    • The firm lowers its price target to $38 from $44. The average sell-side rating on CAKE is still up at $45.56.

    Bitcoin fires through $9K, but falls back

    • The crypto earlier this morning took another leg up in its bull run, rising to as high as $9,009. The last time Bitcoin (BTC-USD) was at $9K was in November, and it was on the way down then.
    • At current pixel time, it's pulled back to $8,791, roughly unchanged on the session.
    • As has been the case for most of 2020, Bitcoin's run higher is lagging the larger moves of other cryptos like Ether (ETH-USD), Bitcoin Cash (BCH-USD), and Litecoin (LTC-USD).
    • The Grayscale Bitcoin Trust (GBTC) is up 1.2% today.

    Consumer sentiment trails estimate

    • January Consumer Sentiment (Prelim): 99.1 vs. 99.3 consensus and 99.3 prior.
    • Current economic conditions 115.8 vs. 115.0 consensus and 115.5 prior.
    • Index of consumer expectations 88.3 vs. 89.0 consensus and 88.9 prior.

    JOLTS declined in November

    • 6.8M November job openings vs. 7.233M consensus and 7.361M prior (revised from 7.267).
    • November job opening rate 4.3%.

    Credit Suisse lifts estimates on Beyond Meat

    • Credit Suisse takes a crack at Beyond Meat (BYND -1.7%) after factoring in the most recent developments, including the company's accelerated plans for production capacity expansion.
    • "We are raising our 2020 and 2021 sales estimates to $470M (from $380M) and $681M (from $535M) and EBITDA to $44M (from $28M) and $78M (from $44M)," advises analyst Robert Moskow.
    • The firm is now in-line with consensus estimates for both sales and EBITDA.
    • The CS price target on Neutral-rated BYND goes to $125 from $115 as the firm assigns a 5.5X multiple to its 2026 sales forecast of $2.3B. The average sell-side PT on Beyond Meat is $101.86.

    Fed's Bullard is content to pause policy for up to a year

    • More than a year ago, St. Louis Fed President James Bullard warned that the U.S. bond market's yield curve indicated that investors were wary about the economy, a risky environment for the central banks to implement planned rate hikes.
    • He voted against two of the the Fed's three 25-basis point rate cuts last year, wanting deeper cuts instead.
    • Now Bullard is ready to leave policy where it is for up to a year, he told Reuters in an interview.
    • “We will see how much impact we have in the first half of 2020 and probably all the way through 2020, and then we will see where we are,” Bullard said.
    • Since his warnings, the yield curve has steepened somewhat — to a quarter percentage point spread between the 10-year and 2-year Treasurys — but still isn't exactly where Bullard would like it to be — at least a half a percent.
    • He sees the potential for positive surprises in 2020 as businesses finish readjusting to a less predictable trade environment and start implementing new strategies and supply chains to cope.
    • The tight labor market could motivate businesses to boost capital investment to increase productivity, Bullard said.
    • And if there's less trade uncertainty, the U.S. economy "might grow faster than 2019, and it is that kind of dynamic that would lead us back to a better expected inflation environment,” that meets or exceeds the Fed’s 2% inflation target, he commented.

  42. Utilities drag industrial production lower in December

    • December Industrial Production: -0.3% M/M to 109.4 in-line with consensus, +0.8% prior (revised).
    • Capacity Utilization 77.0% vs. 77.1% consensus, 77.4% prior (revised).

    Coeur Mining dips as production data disappoints

    • Coeur Mining (NYSE:CDE-2.9% pre-market after announcing Q4 production of 94.7K gold oz., 3.2M silver oz., 3.9M lbs. of zinc and 4M lbs. of lead.
    • FY 2019 production totaled 359.4K oz. of gold, 11.75M oz. of silver, 17.1M lbs. of zinc and 16.6M lbs. of lead.
    • Full-year gold production came in within company guidance of 334K-372K oz. but silver output was below the 12.2K-14.7K oz. forecast.
    • Full-year gold production at the Palmarejo mine of 111.9K oz. topped guidance of 95K-105K oz., gold output from Kensington of 127.9K oz. and Wharf of 84.1K oz. was within respective guidance of 117K-130K oz. and 82K-87K oz., while 35.4K gold oz. from Rochester was below 40K-50K oz. guidance.
    • Coeur says its key priorities for 2020 are to advance efforts to further expand Rochester, continue to stabilize and begin to optimize the Silvertip operation, and invest in exploration at top prospective sites including the Sterling and Crown projects in Nevada.

    Big end-of-year surge in housing starts

    • December Housing Starts+16.9% M/M to 1.608M vs. 1.373M expected, 1.375M prior (revised from 1.365M).
    • Building permits 1.416M vs. 1.458M expected and 1.474M prior (revised).
    • The 1.608M annualized pace of starts would be the perkiest level since December 2006. Much of the late-year surge is attributable to multi-family starts, which rose to 553K – the quickest pace since December 1986.

    Vail Resorts reports slow skiing action

    • Vail Resorts (NYSE:MTN) discloses season-to-date total lift ticket revenue was up 0.4% through January 5.
    • Season-to-date ski school revenue was up 2.0% and dining revenue was down 3.6%. Retail/rental revenue for North American resort and ski area store locations was down 1.8%.
    • Season-to-date total skier visits were down 7.8%.
    • CEO Rob Katz notes results at Whistler Blackcomb and Stevens Pass were below expectations, driven by the poor early season conditions that continued through the holiday period. In particular, season to date snowfall at Whistler Blackcomb was 60% below the 30-year average through December 31.
    • While challenging results at Whistler Blackcomb and Stevens Pass have put downward pressure on overall results, the company still expects resort EBITDA for FY20 to fall within the guidance range.
    • Source: Press Release

    State Street Q4 crushes estimate as fee revenue rises, costs fall

    • State Street (NYSE:STT) gains 2.3% in premarket trading after Q4 non-GAAP EPS of $1.98 blows past the consensus estimate of $1.69 as fee revenue Y/Y and expenses fell.
    • Compares with $1.51 in Q3 and $1.87 in Q4 2018.
    • Sees 2020 fee revenue up 1%-3%, net interest income down 5%-7% and effective tax rate at 17%-19%; 2019's effective tax rate was 16.5%.
    • Sees 2020 expenses ex-notable items down 1% Y/Y.
    • Q4 total fee revenue of $2.37B rose 4.8% Q/Q and 1.8% Y/Y, while net interest income of $636M fell 1.2% Q/Q and 8.8% Y/Y.
    • Q4 net interest margin of 1.36% declined from 1.42% in Q3 and 1.55% in Q4 2018.
    • Q4 total expenses of $2.27B rose 4.0% Q/Q and fell 8.8% Y/Y, with compensation and employee benefits expenses falling 12% Y/Y.
    • Assets under custody/administration of $34.4T increased 4.4% from Q3; assets under management of $3.12T rose 5.5%.
    • Conference call at 10:00 AM ET.
    • Previously: State Street EPS beats by $0.29, beats on revenue (Jan. 17)

    Dave & Buster's +13% after KKR takes activist stake

    • KKR (NYSE:KKR) reports holding a 6.3% stake in Dave & Buster's Entertainment (NASDAQ:PLAY).
    • KKR says it has held talks with D&B management about strategy and is considering further talks with shareholders about transactions and board changes.
    • SEC Form 13D
    • Shares of PLAY are up 12.58% premarket to $47.33 vs. the 52-week trading range of $37.20 to $59.60.

    Intel target raised ahead of earnings

    • Citi raises its Intel (NASDAQ:INTC) price target from $53 to $60, expecting "short-term outperformance driven by upside to Consensus estimates when Intel reports" on January 23.
    • Part of the upside will come from double ordering since CPU supplies remain tight.
    • Citi maintains a Neutral rating and names Intel to its positive catalyst watch. The company has a Neutral average Sell Side rating.
    • Intel shares are up 0.3% pre-market to $59.85.

    Bayer could settle Roundup claims within weeks, mediator says

    • Bayer's (OTCPK:BAYRY) settlement of cancer litigation related to its Roundup herbicide may be just weeks away and likely will cover more than 75K claims, nearly double the number disclosed by the company in October, court-appointed mediator Ken Feinberg tells Bloomberg.
    • Feinberg is "cautiously optimistic" that a deal will be reached in about a month and that the pact would be comprehensive, according to the report.
    • In response, Bayer says the number reported by Bloomberg "includes potential plaintiffs with unserved cases and is a speculative estimate about the numbers of plaintiffs who might be included in a potential settlement."

    Canopy Growth not quite there with market launch of cannabis beverages

    • Saying the scaling process is not yet completed, Canopy Growth (NYSE:CGC) has extended the market launch date of its cannabis beverages, adding that the delay should not have a material impact on fiscal 2020 revenues.
    • Management will provide further details with its FQ3 financial results.
    • Shares up 2% premarket on light volume.

    MCig receives purchase order for CBD-based products

    • MCig (OTCPK:MCIG) subsidiary, BareRoots Rx Inc., the consumer products division, has entered into an agreement to distribute 10,000 monthly boxes of the CBD-based products to select tribal communities.
    • The company anticipates revenue of ~$1.1M in its first year of operation under the agreement and has also entered into a white labeling agreement with the cannabis company to supply ~$200,000 of CBD derivative products.

  43. Chicago ag futures thumped in trade deal fallout

    • Corn for March delivery settled -3.1% to $3.75 1/2 per bushel in CBOT trading today, with March wheat -1.4% to $5.65 1/4 per bushel and March soybeans -0.5% to $9.24 per bushel, its lowest in nearly a month.
    • There's discontent with the terms of the U.S.-China trade deal signed yesterday, as China's pledge to buy U.S. farm goods based on "market conditions" add to doubts among farmers and commodity traders over China's lingering tariffs on U.S. exports.
    • "Specific clauses proved problematic for a skeptical grain trade, with Chinese buying of U.S. soybeans mostly hinging on 'market conditions,'" said Arlan Suderman of INTL FCStone. "China will buy our soybeans when they need them and when the price is right, and not much has changed on that front."
    • "China's market conditions might not be favorable for soybeans, given the number pigs left after African swine fever," said National Australia Bank economist Phin Ziebell. "Soybean purchases are unlikely to be strong. There is not much upside potential for prices."

    Videogame sales wrap down year with 15% December drop

    • Videogame sales fell year-over-year for the fifth straight month in December, wrapping up the last full year before a 2020 console refresh promises a boost.
    • Sales fell 15% overall in December, to $2.98B, and had declined 19% in November, according to NPD Group.
    • December declines were across the board: Hardware sales fell 17%, to $973M. Software sales dropped 13%, to $1.14B. And sales of accessories and game cards fell 14%, to $869M.
    • For the full year, overall spending fell 13% from 2018, to $14.6B. Hardware was down 22% to $3.9B; software fell 9% to $6.6B; and accessories/game cards dropped 7%, to $4.1B.
    • For December, Nintendo Switch (OTCPK:NTDOY) was again the best-selling hardware platform (and it led the year as well).
    • Call of Duty: Modern Warfare (NASDAQ:ATVI) topped the software dollar sales chart for the third straight month, and closed out as 2019's top seller overall. That makes 11 straight years that the Call of Duty franchise was the year's best seller, analyst Mat Piscatella notes.
    • Meanwhile, still at No. 2 from November is Star Wars Jedi: Fallen Order (NASDAQ:EA), ahead of No. 3 Madden NFL 20 (EA) and No. 4 NBA 2K20 (NASDAQ:TTWO).
    • Rounding out the December software top 10 are largely Nintendo releases: No. 5, Luigi's Mansion 3 (OTCPK:NTDOY); No. 6, Pokemon Sword (OTCPK:NTDOY); No. 7, Mario Kart 8 (OTCPK:NTDOY); No. 8, Super Smash Bros. Ultimate (OTCPK:NTDOY); No. 9, Pokemon Shield (OTCPK:NTDOY); No. 10, Minecraft.

    Range Resources told to fix Pennsylvania methane leak 'once and for all'

    • Range Resources (NYSE:RRC) is continuing its decade-long dispute with Pennsylvania regulators over whether a natural gas well in the Marcellus Shale is responsible for fouled water nearby.
    • The state's Department of Environmental Protection issued an order this week for Range to fix the well in Lycoming County "once and for all," which it says is polluting water because of defective cement.
    • The DEP's order issued gives the company two months to submit a plan to reduce the gas migration and, after the department approves the plan, four months to submit a plan to plug the well and a bore hole next to it.
    • Range says it strongly disagrees with the order, pointing to "extensive third-party studies and analysis that determined the methane in the groundwater is naturally occurring."

    Fiat Chrysler, Foxconn plan Chinese electric vehicle JV

    • Fiat Chrysler (NYSE:FCAU) and Foxconn parent Hon Hai plan to set up a joint venture to manufacture electric vehicles that also are wirelessly connected.
    • The joint venture will produce vehicles for the Chinese market, but many details of the JV reportedly still must be worked out, although the companies are aiming for a final deal to be signed in the coming months.
    • The tie-up with Foxconn would be one of Fiat Chrysler's most significant efforts at selling electric vehicles in China, where automakers are investing in battery powered cars to meet government regulations.

  44. StJ / NG – I've had terrible luck with stops on futures, the bots always seem to run to my stop no matter where it is and then turn, like clockwork. I just lost track of position one during a busy week, so I'll DD and see if I can drive it down to 1.6 to give everyone here a great entry :)

  45. Natural gas futures log lowest finish since May 2016

    • Ample U.S. supplies and forecasts for milder weather conditions sent natural gas prices (NYSEARCA:UNG) to their lowest in more than three and a half years.
    • February nat gas momentarily broke below the $2 level before settling -3.6%, or 7.4 cents, to $2.003/MMBTU, down ~9% for the week.
    • Prices tumbled on news that the weather that had been heading towards the northeastern U.S. may not be hitting the area, perhaps drifting higher into Canada.
    • "The losses come down to a lack of winter, notwithstanding the chill in the consuming regions presently," according to IHS Market energy analyst Marshall Steeves.
    • U.S. government data released yesterday showed a decline of 109B cf in domestic nat gas supplies for the week ended Jan. 10, although working gas in storage at 3.04T cf were 494B cf above the year-ago level and 149B cf higher than the five-year average.
    • Gas-focused equities trade deeply in the red: RRC -8.1%GPOR -6.8%EQT -2.8%CHK -3.6%SWN -4.1%AR -3.9%COG -2.8%CRK -1.7%.

  46. Now that they are actually testing the thing:

    Boeing discovers another MAX software issue

    • Boeing (BA -2.4%) shares slump to their lowest levels of the day after the company says it is working to address a new 737 MAX software issue.
    • Boeing officials say the problem relates to a software power-up monitoring function that verifies system monitors are operating correctly.
    • During a technical review last week of the proposed update to the MAX software, one of the monitors was not being initiated correctly.
    • It is not clear how long it will take to fix the latest issue.

    Apple signs deal with Julia Louis-Dreyfus

    • Julia Louis-Dreyfus signs a multiyear overall deal with Apple's (AAPL +0.5%) new streaming platform and will develop exclusive content as both an executive producer and a star.
    • Financial terms weren't disclosed.
    • Former HBO CEO Richard Plepler recently inked a five-year production pact with Apple TV+. Plepler greenlit Louis-Dreyfus' acclaimed Veep series while he was heading the premium cable network.
    • Sources say the Louis-Dreyfus deal was already in negotiations while Plepler was finalizing his deal.

    Tesla unintended acceleration complaints to come under NHTSA scrutiny

    • The National Highway Traffic Safety Administration says it will review a petition asking it to formally investigate complaints of sudden unintended acceleration in ~500K Telsa (TSLA -0.9%) vehicles.
    • The petition – which covers 2012-19 model year Model S, 2016-19 Model X and 2018-19 Model 3 vehicles – cites "127 consumer complaints to NHTSA involving 123 unique vehicles, [including] 110 crashes and 52 injuries," the NHTSA says.
    • Many of the complaints report sudden acceleration incidents when attempting to park vehicles in a garage or at a curb, while others claimed the incidents happened while in traffic or when using driver assistance systems and led to crashes.

  47. ssi – Up 27% today.

  48. /NG / MrM – You can also set alerts on TOS. Bots do gobble up these stops! And once again, using a simple indicator like MACD (one of the basics) might be enough to tell you the direction where the price is going. It's obviously backward looking but you can still read sentiments and avoid big mistakes.

  49. Stops/MrM – it's that the bots "seem" to hit your stops – they really are doing just that. Phil's talked about this, and those bots have so much time, because they're so fast, that they can go around hitting your stops.

  50. Small uptick into the close (big one for /NQ) ends the week like it began, I suppose.

    Have a great weekend folks!

    - Phil

    Don't forget, Monday is a holiday.

  51. I doubled down on my /NGV20 to average price of 2.30.  I will sell half when it gets back to that price.

  52. Nothing To Fear But Nothing To Fear

    Valuations Soaring. In my analysis above, I focused on the forward P/E. It’s at a cyclical high, though still well below the tech bubble high of 25.7 on 4/12/99. Nevertheless, if you are looking for trouble, then you’ll find it in the S&P 500 forward price-to-sales ratio (P/S) (Fig. 12). It is simply the S&P 500 stock price index divided by forward revenues. Previously, I demonstrated that it very closely tracks the Buffett Ratio, which is the US equity market capitalization excluding foreign issues divided by nominal GNP (Fig. 13).

    The forward P/S rose to a record high of 2.2 during the 1/2 week. That exceeds the tech-bubble peak in the Buffett Ratio at 1.9 during Q1-2000. Here’s another outlier: The PEG ratio—which is the forward P/E of the S&P 500 divided by analysts’ consensus expectations for long-term earnings growth at an annual rate over the next five years—also soared to a record high during the 1/2 week (Fig. 14).

    Again: We have nothing to fear but nothing to fear other than high valuation multiples

  53. Venezuela’s Only Choice Left

  54. CDC to screen at three US airports for signs of new virus from China

  55. STJ/VXX, I've been doing some weekend reading on volatility.  I came across a Meb Faber podcast with a guy from Artemis Capital, who runs a long volatility fund, which is designed to break even during normal times, but offer an asymmetric return during times of extreme volatility (think 2008).  They have put out a number of interesting research papers, that I think you will find interesting. You can find them at  After reading a few of them, it made me realize that I wasn't adequately protecting myself from an extremely unusual volatility event with my VXX call selling strategy.  In may backtests I was making sure I would have enough margin room for a VIX spike to 70, based on my understanding of what has happened in the past 20 years.  

    The problem that I now see with this approach is there is a huge amount of AUM devoted to short-vol strategies now, and I should not assume that the past history of VIX moves encompasses everything that is possible, considering the changed landscape. In the paper "Volatility and the Alchemy of Risk", the Artemis discusses Black Monday 1987, which saw volatility spike to 150%(!!) fueled by electronic trading by "Portfolio insurance" strategies.  I didn't even know this was possible (oops!).  However unlikely, I'm not comfortable trusting that in the era of high frequency trading, less liquid markets, trillions in short vol strategies, and flash crashes, that this is not possible. I don't know about you, but my trading plan (and my account) would get blown out by a spike over 100-150 on the VIX.  

    Fortunately, it is relatively cheap to hedge against this tail risk, and I intend to do so from now on.  For example, you can buy $50 calls on the VIX for 5-10 cents each month when you have a short VXX position on. I have some more testing to do, but at first glance this seems like it would effectively limit my downside exposure. This should only slightly eat into our profits, and will allow at least me to sleep much better at night.

    Just wanted to put this on your radar.

  56. Very interesting palotay, thanks for putting that up. I wonder if ETF's could be the something of a black swan sometime in the 2020's, the amount of money in those strategies is staggering.  

  57. The Agitated M.L.K. I Came to Love

  58. VXX / Palotay – Interesting. I will have a look. On the other hand, this is not a surprise, I have been saying that this crowded volatility trade is what drove the VIX higher than what it would have been otherwise the past few years. For example, February 2018 when you could see the VIX spike from 30 to 50 AH when all these short volatility ETF (the leveraged ones) had to cover and ended up driving the VIX futures higher. A lot of these ETF are now less leveraged so the risk is lower. At the same time, if the VIX goes to 100, I assume that the rest of the market will be toast as well. VXX will not be the only thing blowing up your account. But cheap insurance is good!