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Turn Back Tuesday – Virus Fears Heat Up over the Weekend

Now Apple (AAPL) has warned they will miss on revenues.

We went from 64,456, 1,384 and 7,115 Friday morning to 73,336, 1,874, 13,054 so that's 13.7% more infected (that ship is a nightmare), 35.4% more dead (we knew that was coming) and 83.4% more recovered – there's a bright spot but almost 2,000 dead is certainly not.  SARS killed only 744 in a much longer period of time.  

At some point, investors are going to start taking this seriously, I think.  130+ S&P 500 companies have mentioned Coronavirus as affecting them somehow but only 40 guided down over the issue but now AAPL is one of them so it's making things interesting.  Fortunately, in Friday morning's PSW Report (which you can subscribe to here), we shorted the index futures over the weekend and that was good for a total gain of $6,622.50 – a great way to start the week! 

We're done with them for now as we expected the indexes to snap back a bit into the open (I called that in this morning's Live Member Chat Room) but we'll either look to re-load or add some more index shorts to our options portfolios later today as there's no reasn not to have protection in this volatile evironment.

Germany looks like they are heading into a Recession and now Japan is at the brink with 9 out of 14 Economists seeing the economy shrinking in Q1, after already shrinking sharply in Q4.  As we were discussing last week, Japan is about 300% of their GDP in debt and if we combine that with a shrinking economy, we can get Greece 2008 on steroids.  

Economists now see the virus preventing a rebound this quarter and keeping the economy in reverse. The immediate impact of the epidemic has been to stop hundreds of thousands of Chinese visitors to Japan, the biggest source of tourist income. The outbreak could also further curtail dismal spending by Japanese consumers, as they avoid crowded places after reports of some infections in Japan’s biggest cities.

Japan, in fact, had a huge jump in infections over the past week, from 28 last Wednesday to 66 this morning – that's up 135% in a week – NOT under control!  Japan’s exporters, already suffering after a long stretch of weak global demand, could be hit even harder, as the outbreak disrupts production and domestic demand in China, Japan’s biggest trading partner. The longer the outbreak continues, the more likely some parts supplies from China for Japanese manufacturers may also dry up.

Image result for cramer buy buy buyAs usual, MORE FREE MONEY for the Top 1% is the answer to everything and China, Hong Kong and Singapore all pleded extra fiscal stimulus over the weekend into the upcoming G20 conference.  China will lower Corproate taxes despite a widening fiscal gap and Hong Kong has a record budget deficit while Singapore has the biggest budget deficit in two years.  BUYBUYBUY???  

The head of the International Monetary Fund said the lack of deeper improvements in the global economic system is hindering what’s already an “anemic” outlook for growth, especially as the shock caused by the coronavirus further dims prospects for a pickup this year. “The monetary policy space is shrinking and the reliance on fiscal measures as well as on structural reforms to boost growth ought to be stronger,” IMF Managing Director Kristalina Georgieva said Sunday in a Bloomberg Television interview in Dubai. What’s missing is “a more aggressive swing in structural reforms.” As the virus’s impact raises the threat of disruption across supply chains, most major central banks are on alert but have yet to indicate that they plan monetary easing.

Our own Fed will be on the warparth this week with the Fed Minutes out tomorrow surrounded by 5 (five) Fed speakers and 5 more on Friday and Barkin on Thursday and Kashkari today could be a new record (12) for a short week.  Just some housing data until Thursday Philly Fed and Leading Indicators and PMI on Friday is a very slow data week otherwise:

And we're still packing in those earnings reports but, as I said last week, I'm much more interested in the Chinese earnings reports though it's possible they will be instructed by the state not to mention negative impacts from the virus because, as we all know, if you ignore a problem it might go away…

Image

Be careful out there!

 


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  1. How long before AAPL goes green


  2. Good Morning!


  3. coulter,

    I think you should take Phil's comments a bit more serious.



  4. Phil / ng 

    Good morning! welcome back.   Been watching this uptrend looking for a place to hop on when things are a bit more stable.. thoughts?  Thanks! 

     

     


  5. Good morning!

    AAPL/Coulter – In the grand scheme of things, AAPL will deal with their issues over time and, most importantly, it's not like their competitors are unaffected.  It's a good test of their stretched valuation as lower sales can push them near 30x earnings for a short while.

    TSLA off to the races again, back at $850 and up 6% 

    Tesla's Bull Case Price Target Raised to $1,200 at  Morgan Stanley

    Morgan Stanley analyst Adam Jonas now has a $1,200 price target on the stock, up from the firm's previous view of $650 a share and about 50% higher than the company's closing price on Friday of just above $800. Jonas' price target would give Tesla a market cap of $220 billion.

    Sure, why not?

    Big Chart – No technical danger for now.

    /NG/Potter – Strong Dollar hasn't been helpful and, as I've been saying, it's been a good time to get in at $1.80 all month, now you are chasing.  If you want to go long, I'd wait PATIENTLY to play over $2 with tight stops below or, hopefully, back at $1.80 

    /NG/Potter – A bit scary after they hit $1.76 on Tuesday but sure, I'd play $1.82 bullish with tight stops below.

    Gold doesn't care how strong the Dollar is.  Can really pop up if the Dollar weakens but virus and stimulus (money printing), killing Asia and Brexit killing Europe so I wouldn't count on the Dollar weakening soon.


  6. TSLA always put a safety valve with these guys. Play 820/825 They just stopped the plant construction in Berlin Germany, but as you can see the sky is the limit.

     



  7. The Bug – excellent piece in the NYT today by John Allen Paulos. Says exactly what I'm thinking (that makes it particularly excellent). The author even gets the denominator problem right, and understands the huge problem with false positives.


  8. Phil,

    What do you think of SIX. I know not the best time to invest in theme park, but it seems quite undervalued

    Thanks


  9. Bug/Snow – Good article.  Of course we know these things are vague, however – that's why I watch the trending deltas more so than the base statistics – it smoothes out a lot of false readings.  

    SIX/Kgab – Nice little business and on sale.  I'd play it when it finds a proper bottom.  Weak bounce off $35 so far.


  10. SIX/Kgab – Have to look into why earnings are trending down.  Maybe they are in a renovation cycle:

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Total Revenue
    $m

    1,110 1,176 1,264 1,319 1,359 1,464 1,496 1,487 1,493 5.69%
    Operating Profit
    $m

    288 229 349 319 432 524 533     12.7%
    Net Profit
    $m

    119 76.0 155 118 274 276 270 204 205 18.4%
    EPS Reported
    $

    1.18 0.769 1.58 1.25 2.14 3.23 3.16     22.4%
    EPS Normalised
    $

    1.25 0.811 1.70 1.29 2.46 3.25 3.24 2.39 2.41 21.1%
    EPS Growth
    %

    -61.0 -34.9 +110 -24.4 +91.0 +32.0 -0.298 -26.4 +0.627  
    PE Ratio
    x

              12.1 12.1 16.4 16.3  
    PEG
     

                  26.1 3.06  
     

  11. WHR is on sale again today!!!! 145


  12. SIX, Earning tomorrow.


  13. CMG/Phil – Question about repositioning my ongoing CMG play.  I currently have the following:

    -3 June $800 calls. Basis 80, currently 151

    +4 2021 700/800 call spreads, basis 41, currently 78

    -2 2022 $600 puts, basis $41, currently 21.

    This has been rolled a few times, and I was close to even after the last earnings report. Now down about $12k.  

    I'm thinking about buying 2 or 4 2021 $800/900 call spreads, and putting a stop on 2 or 4 of my existing spreads.  That way I get a bit more overhead room.

    What do you think?






  14. Wheeeee!  

    Down to 5 Index shorts but it's still fun…  Still, this was a nice drop so cashing all in (going flat) and see how we bounce in the afternoon. 

    WHR/Yodi – Always nice when they go on sale.  

    SIX/Kgab – Hopefully they miss but shouldn't be impacted by virus as they are US-based. 

    CMG/Palotay – Up and up they go!  The spread is $40,000 and the short calls are $39,000 if they finish here and the short puts are $8,200 if that happens.  The thing is, when do you run into trouble?  They already had earnings so you can't assume they'll pull back very soon and the short calls have no premium so you really should do something with them.  I agree with more spreads but I'd also move things around.

    The 3 short June $800 calls are $147 ($44,100) and the Jan $900s are $123 ($36,900) so almost an even roll and you push up $100 that's 75% premium.  The short 2022 $600 puts at $21 ($4,200) aren't doing you any good but 2 short Jan $800 puts at $42 ($8,400) would pay to roll your longs up another $50 if CMG keeps going higher and, if not, you can roll them back to the 2022 $600 puts while you make money on the short calls.  At $78 out of $100 ($31,200) there's not much left to gain on the Jan $700/800 spread so I'd flip to 4 2022 $900 ($170)/1,100 ($87) bull call spreads at $83 ($33,200).

    So if you are down $12K and these rolls are net $5,000 then you in for $17,000 and you started with a net $15,800 credit so if CMG is below $900 and over $800, both sides go worthless and, if not, you can roll them but you have $80,000 of upside protection on the longs this way.  

    Virus/BDC – Well, I'm not actually sure it's a great idea to get 30,000 people from all over the world to breathe and sweat on each other for 4 hours, potentially carrying the virus through a city of 700,000.  It has all the makings of another Dustin Hoffman movie…

    Image result for virus transmission range

    620 Chinese citizens ran the Boston Marathon last year.  Not saying it's likely but, in the unlikely event that a carrier ended up in the marathon and infected even 300 people who then returned to various parts of the World (through airports) – well that would be pretty friggin' stupid of us, wouldn't it?

    Still, they ran Indy and I don't think Trump rallies have too many Wuhan residents at them…  cheeky


  15. I believe volume on TSLA was below average Friday as well as today






  16. Phil

    Would you go long TLT   ?

    Thanks
     


  17. So Phil, how would construct a new CMG position?


  18. SPCE -Pirate, I hope you got in.  The next TSLA ?


  19. Albo/ SPCE

    It´s exactly the question I have, so few information of them


  20. STMP  has a huge premium in comparison with other stocks of the same price, don´t know why


  21. TSLA/Coulter – So ridiculous, back to $850 already.

    TLT/QC – No, this is where we usually short it.  I don't see $145 (1.5% on a 10-year) as being sustainable over the long-term but, as we're back here again after only a small dip – I am not inclined to bet against a breakout this time. 

    CMG/JMD – We have CMG in the STP, running like a butterfly play.  I'm happy with that, even though it's over our target at the moment.

    CMG Long Put 2021 15-JAN 920.00 PUT [CMG @ $921.94 $0.00] 2 12/6/2019 (332) $30,000 $150.00 $-60.00 $150.00     $90.00 $0.00 $-12,000 -40.0% $18,000
    CMG Short Put 2021 15-JAN 820.00 PUT [CMG @ $921.94 $0.00] -2 12/10/2019 (332) $-19,200 $96.00 $-47.50     $48.50 $0.00 $9,500 49.5% $-9,700
    CMG Short Call 2020 06-MAR 900.00 CALL [CMG @ $921.94 $0.00] -2 12/6/2019 (17) $-4,400 $22.00 $10.15     $32.15 $0.00 $-2,030 -46.1% $-6,430
    CMG Short Put 2020 20-MAR 750.00 PUT [CMG @ $921.94 $0.00] -2 12/10/2019 (31) $-4,400 $22.00 $-21.28     $0.73 $0.00 $4,255 96.7% $-145

    We went in for net $2,000 and we sold $8,800 worth of puts and calls in round one and, if we finish between $750 and $900, we take our net $2,000 spread and sell $8,800 more 3 more times.  If not, we just roll the losing side and sell more of the opposite and, hopefully, we hit it one day but, even if not, our put spread is worth up to $20,000.

    $930 is $26Bn for CMG.  They made $350M last year (75x) and project $520 this year (50x) and $644 next year (40x) – that leaves no possible room for a mistake and it's highly unlikely CMG has an "extra good" year as their earnings are very predictable so it's much more likely they are impacted down than up at some point.

    SPCE/Albo – Traders are so irrational.

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Total Revenue
    $m

            0.000 0.000 0.000 4.50 6.94  
    Operating Profit
    $m

            -0.611 -1.34 -7.14      
    Net Profit
    $m

            1.33 11.0 9.05 -175 -65.4 724%
    EPS Reported
    $

    0.000 0.000 0.000 0.000 0.021 -0.041 -0.311      
    EPS Normalised
    $

    0.000 0.000 0.000 0.000 0.021 -0.041 -0.311 -0.823 -0.379  
    EPS Growth
    %

                       
    PE Ratio
    x

                       
    PEG
     

                       
     

    $30 is $2.3Bn for not even $5M in revenues and $175M in losses.  This year, they hope to lose only $65M on $7M in revenues.   

    At the moment, Virgin has one "Space Ship" (goes up and comes down) and they are supposedly building two more but they only have $462M, so they'll need capital to do it (they've spent $1Bn to have the one ship they had with 9 flights and 4 deaths so far.  They might get that from more reservations but, even with 3 ships, they only expect to fly 500 people a year at $250,000 per flight ($125M) so it's a stretch to think that's going to be a source of funding at a 1 year wait per $125M.

    So far, they have 600 reservationsIn 2017 they said they had 650 reservations.  

    Also, it's not like there aren't competitors:  SPACE, BORGN, BA and LMT are all working on projects to put people into space as well, with BA flying people to the ISS for $20M per 10-day trip.  That wouldn't work for me as I don't think they have WiFi…  

    But hey – I didn't like TSLA either, so you never know.

    STMP/Advill – We liked them when they were cheap but crazy now

    Submitted on 2019/05/17 at 12:04 pm

    STMP – Fortunately we only sold 5 of the 2021 $80 puts, now $42 and the $55 puts are $22 so we would have had 500 at net $60 ($30,000) or we have 1,000 at net $33 ($33,000) so there's no reason not to make that roll, as we risk losing just $3,000 more but have a much better chance of winning so let's roll our 5 short 2021 $80 puts at $42 ($21,000) to 10 short 2021 $55 puts at $22 ($22,000) and we'll buy 10 of the 2021 $25 calls for $21 and sell 10 of the 2021 $50 calls for $10.50 for net $10.50 ($10,500) on that spread.  So we're spending net $9,500 and originally we had a $10,100 credit so this whole spread is still a net $600 credit and, if we get back over $55, it's going to pay $25,000 so we've added risk (now net $54,400 for 1,000 shares if assigned and down $15,400 at the current $40 vs. $10,000 if we just give up now) but the upside potential has gone from $10,100 at $80 to $25,600 at $55.  

    That was a nice, patient play – we sold puts when it got interesting and then,  months later, we took advantage of an earnings dip we felt was coming off things we already knew about.  


  22. Jeepers, why the hell do I short anything. /NQ shorts were up big while I slept, now I'm getting roasted again. CMG, NFLX, all the momos roaring. Pure insanity, my PTSD from 2000 is in full swing!


  23. /NQ/MrM – That's why I went flat earlier but time to short 2 /NQ again at 9,638.  We fell from 9,675 on Friday and I'm happy to DD if we test 9,700 to average around 9,660 on 4 short.

    But yes, shorting is a fool's game in this market.


  24. Thanks, Phil, I know they are expensive my question is why they have so fat margins ( pardon my ignorance), you see WMT $ 120 and STMP $92 and the differences in a BCS (any) are huge.


  25. From Briefing:

    SPCE exploded to all-time highs this morning, now up 27.4%, after news out Friday evening that the company would offer ~31 mln shares including warrants at $11.50/share. Specifically, Virgin Galactic disclosed it may issue up to 30,998,625 shares of common stock, issuable upon the exercise of 30,998,625 issued and outstanding warrants to purchase our common stock at an exercise price of $11.50 per share that were initially issued in connection with its initial public offering and a concurrent private placement. The company said, it would not receive any proceeds from the sale of shares of common stock underlying the warrants pursuant to this prospectus, except with respect to amounts received by the company upon the exercise of the warrants for cash.


  26. NQ actually went green  this market is crazy.Does it have anything to do with fed injecting money every night ?


  27. So I love this the reason tesla is up because an analyst said there's no downside catalyst

    I guess earnings don't count 


  28. Tom Cotton is playing a dangerous game with his coronavirus speculation



  29. STMP/Advill – Because STMP is way more volatile than WMT, so it gets huge premiums and huge spreads.  

    SPCE/Albo – So they are up 27% BECAUSE they are diluting current shareholders by 15%?   Wow, I officially do not understand the stock market anymore…  Are they giving the warrants to the shareholders?   This really makes no sense!

    Fed/Bert – Of course it does.  Infinite money is being pushed into the markets.

    No downside/Coulter – That's what I was saying in last week's Webinar (and above to Bert) – the default setting of this market is up.  Unless there is bad news actively pushing it down – it just goes back up.


  30. Fed/Bert – but it's okay because the Fed takes the money back the next morning – so, as Phil says, it's infinite!


  31. Wow, this market doesn't worry about anything for more than an hour or two…

    As the number of coronavirus cases rises, epidemiologists around the world look at maps, flight bookings and population data to estimate the size of the outbreak and explain why their results are higher than China’s official tally.

    Nothing to see here:

    Europe’s biggest bank said it plans to scale back its operations in the U.S. and mainland Europe, as well as its investment bank, as it reported a sharp fall in net profit.54



  32. Holland is the 2nd food exporter after U.S. ( 442 x smaller), I was really shocked!

    https://dutchreview.com/news/innovation/second-largest-agriculture-exporter/


  33. TSLA 880 after hours — hoping this is another meaningless Monday

    TSLA up on light volume

    AAPL down (though not much) on heavy volume


  34. Holland/Advill – That's why food scarcity is not one of the macros I worry about.  Holland proves we can be a lot smarter about farming than we have been and feed a lot more people – if we ever get the will to do so.

    TSLA/Coulter – The madness continues:

    Tesla (ticker: TSLA) stock was up more than 7% in trading on Tuesday, to about $858.40 a share at the close, after three bearish Wall Street analysts increased their price targets. None, however, upgraded the stock. Still, the price changes are a small sign that even the bears acknowledge things are looking up for the electric vehicle pioneer.

    Bernstein analyst Toni Sacconaghi raised his price target from $325 to $730, a 120% jump. Still, his rating remains the equivalent of Hold. His price target is about 13% below where shares are trading Monday morning.

    Morgan Stanley analyst Adam Jonas is more bearish than Sacconaghi. He rates Tesla shares the equivalent of Sell. In his research reports, Jonas outlines bull, bear and base case price scenarios to help his clients understand what could happen. His prior best-case scenario valued Tesla at about $650 a share. He upped it to $1,200 on Monday, an increase of about 80% and above recent trading levels. His official price target for Tesla shares, however, went from $360 to $500.

    Cowen’s Jeffrey Osborne, another bearish analyst, also increased his price target. He isn’t buying the Tesla rally though. Osborn’s target went from $280 to $290 a share, up only $10 or 3.6%. That leaves Osborne with one of the lowest target prices on Wall Street.

    When did Adam Jonas become "the bear"?

    Speaking of madness – 75,199 infected, 2,010 dead, 14,532 recovered.  So 1,500 people recovered since this morning but 2,000 more were infected – still losing ground.  150 dead today so 10% of the people who have a final outcome as the virus runs it's course are dying vs 90% recovering on a daily basis.  

    Futures are up though.


  35. Physician and Head Infectious Disease Specialist at Kobe University Hospital Dr. Iwata talks about his experience inside the Diamond Princess Cruise Ship and its not pretty.  Actually it sounds like a debacle.  He went to Africa during Ebola and China during SARS and he claims the only time he ever feared catching something was on that ship.  So he is currently self-quarantining.

    Today the Japanese government allowed the disembarking of 500 passengers who tested negative.  Based on what Dr. Iwata said about the conditions as well as the preparedness of the medical and emergency staff on the ship — one of whom has tested positive AFTER returning to his hometown of Wakayama -- this does not bode well for the third largest economy in the world.

    https://www.youtube.com/watch?v=vtHYZkLuKcI


  36. Was the $1200 bast case scenario for this week? Maybe today's open