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Faltering Friday – Weak Week Ends in a Whimper

What happened to our highs?

We had a nice rally Wednesday and Thursday, after the Fed Minutes but that's gone now and we're back where we were on the 10th – two wasted weeks in the market.  You can blame the virus or blame Bernie Sanders (who Leon Cooperman says is worse than the virus) or blame Donald Trump (the list is endless) but, for whatever reason, we're having trouble going significantly higher than we were on Jan 15th (3,320), before we fell back to 3,200 when the virus first broke out.

NOW we have some guidance and, generally, it's not good.  Obviously, no one is saying the virus is going to be a boon to business – outside of mask makers and a few Pharmecutical Companies hoping to have a treatment of vaccine.  BUT, on the other hand, the Coronavirus is costing the Airline Sector $30Bn and $30Bn is A LOT of money – even these days.  In 2003, SARS cost the Airlines $7Bn so – inflation.  Losing $30Bn, however, when you are trading at 15x earnings means you are losing $450Bn in market cap or 0.5% of the entire global market.  

The 5 Biggest Automotive Companies In The World’s Largest Car Market 2And, while we don't have the exact figures, I know when I go on a trip, the airfare is generally less than 1/3 of what I spend overall so we can assume another $1Tn of capitalization damage to the travel, entertainment and restaurant sectors so now we're chopping 1.5% off the Global Markets.  China's auto sales dropped 92% in the first half of February in the World's largest car market, accounting for 25% of global sales.  

We're getting horror stories from manufacturers all over the World, including Apple (AAPL) and Proctor and Gamble (PG), the World's two largest consumer products companies. 

"China is our second largest market – sales and profit," PG's COO Moeller said in a statement that was also included in an 8-K filing. "Store traffic is down considerably, with many stores closed or operating with reduced hours."

Moeller said that while some of the demand has shifted online, supply of delivery operators and labor is limited. He added that there were also impacts outside of China, including travel retail, a significant reduction in department store traffic in many Asian metro areas, and global supply.

Procter & Gamble accesses 387 suppliers in China that ship more than 9,000 different materials to the company globally, affecting about 17,600 different finished product items. Each of these suppliers faces their own challenges in resuming operations, he said.

"The operating challenges change with the hour, and of course the path of the virus is unknown, making it very difficult to provide precise estimates of impact," Moeller said.

He added that results for the January to March quarter in China and for the total company will be "materially impacted on both the top and bottom line by these dynamics."

And what PG's stock do yesterday?  It went up, of course.  And why not?  $126.50 per share is only $312.5Bn in market cap for PG and they did make $3.9Bn last year so that's not even 100 times earnings.  To be fair, there were restructuring charges and this year they did expect to make $13Bn, which would have been just 1/24th of what they earned (p/e 24) but now they've warned and it's likely going to be closer to a 30x valuation at this price.  BUYBUYBUY?

Seriously, WTF is wrong with people these days?  Are the markets just broken and only capable of going higher?  If so, is that a good thing?  It's great for us in the Top 1% as we own 90% of the stocks so money is just flying into our accounts but where is it coming from?  When the Global markets go up 1%, that's $1Tn in valuation added and the entire Global GDP only grows about 3.5% a year (not this year!) so let's say there's 3.5% available to add but last year the markets went up 20% so 3.5% of that was accounted for by actual growth and 16.5% came from where?  

Image result for money machine animated gifFrom Debt and Devaluation!  As I've mentioned before, the Global Economy is running on Government Debt and Consumer Debt that is adding 10% a year to "growth" (yes, to net 3.5% growth) on borrowed money and the Central Banksters are running the presses 24/7/365 to push as much new money as possible into circulation.

Then why doesn't this cause inflation?  Because essentially ALL of that money is going into the markets and enriching ONLY the Top 1% – the Bottom 99% get, NOTHING!  Sorry, not nothing, our Top 1% leader is busy taking away what little they have with $200Bn in Tariffs (a tax on the poor) and the gutting of the Social Safety Net, including even their Social Security and Medicare Benefits – all to sustain the idiocy of tax cuts for Millionaires, Billionaires and our beloved Corporate Citizens

The biggest corporations enjoyed an average effective tax rate of 11.3% – the taxes a company ends up actually paying – according to a new study from the Institute on Taxation & Economic Policy (ITEP). The low rate is one of the reasons deficit spending soared from $666 billion in the federal government's 2017 fiscal year to $779 billion in 2018 and $984 billion in 2019.

The report identified 379 companies that were profitable and provided enough information to allow for a calculation of their effective tax rates. More than half of those 379 companies paid less than half of the 21% rate. Fifty-six paid an average effective rate of 2.2% while 91 companies paid no federal income taxes at all, or got money back.

Corporations, once upon a time (when America was great, ironically) used to pay a 50% tax rate, as did wealthy individuals.  Effectively, because of deductions, the Corporate Tax Rates were more like 40% but then they piled on more and more deductions, loopholes and allowances and, by 1982, the effective tax rate was below 20% but then the Government cracked down on loopholes so the Corporations cracked down on Government and put in a Congress that would lower the tax rate and that dropped from 50% to 40% and now to 21% but, while the taxes have dropped to 21% – the deductions, loopholes and allowances are back too.

According to the Government Accountability Office found in a 2016 study, "at least two-thirds (2/3) of ALL active corporations had no federal income tax liability" in each of the years from 2006 to 2012.  By the way, there is no GAO study for 2017, 2018 or 2019 as the Trump Administration has decided that's not something we need to study anymore – how convenient!   And you wonder why the people want to elect Bernie Sanders?  

After refunds, the IRS collected about $93 Billion more from individual American taxpayers than it did in 2017 – primarilly those in the bottom 80%.  Interestingly, that number stands close to the tax break amount that corporations received from the Tax Cuts and Jobs Act (TCJA) in 2018. In 2018, big businesses paid $91 Billion less in taxes than they had in 2017, prior to the new law’s passage.

The center noted: “The lowest income households (those making less than about $25,000) got an average tax cut of about $40. Middle-income households (who made between about $48,000 and $86,000) paid about $800 less. Those in the top 1%, who made $733,000 or more, got an average tax cut of about $33,000.”  I would graph it but $33,000 makes $800 look like zero on a graph – the scale of the injustice is literrally unchartable!  

Have a great weekend, 

- Phil


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  1. Phil, you asked for a reminder re: VIAC after yesterday's tumble. Thanks as always.

  2. Good Morning futures were lower over night appearing to tick up now…    Is this more a response to the FED saying they don't see a need for lower rates or something changing with the virus?  

  3. wingwalker
    February 20th, 2020 at 11:03 am | Permalink | Tweet thisIgnore this user

    Is it time to think about selling some short calls agains the SPWR bcs (40 Jan'22 $5c, -20 Jan'22 $8p, up about $4k) while the bubble continues?


    SPWR/Wing – We sold some short puts already in the MTP, I don't remember having a spread but sure, I'd sell 10/40 for now and another 10 if rejected at $11 or, if not rejected, then $12,etc. 


    Phil could you please translate your newspeak for this ancient foreigner  .. 

    Do you mean sell 40  2022 $10 short calls?

    What do you mean by rejected at 11?


    Tanks eh .. 

  4. Good Morning!

  5. Good morning and wheeeeee!

    Oddly enough, our PMI contracted even though Europe was stronger than expected.  Very odd for services to drop like that.

    PMI composite flash hits 6-year low

    • February U.S. PMI Composite Flash49.6 vs. 52.5 consensus, 53.1 prior.
    • Manufacturing PMI 50.8 vs. 51.4 consensus, 51.7 prior.
    • Services PMI 49.4 vs. 53.3 consensus, 53.2 prior.

    Back to yesterday's lows already and we'll see if the buy bots are still active down there or if they are a bit more nervous into the weekend.

    Taking the money and running on 1/2 at 9,500 on /NQ.

    1/2 out of /RTY shorts at 1,675

    VIX sure got more nervous so I think lower:

    Big drop for oil.  Virus growth not that bad really (76,775, 2,248, 18,858) but spreading outside China is freaking people out as well as the very slow recovery time.   South Korea doubled overnight (204) but Japan didn't and, as I said last week – if we're under 100,000 infections by Monday - then things are improving and I doubt we'll cross that line. 

    Fed's back on the table (and lots of speakers today):

    Panic is in the air:

    Kudlow on TV talking about GDP Now predicting 2.6% for Q1 but that would mean the Fed is off the table – they are trying to have it both ways.  Of course Economists think the Fed is crazy by about 1%:

  6. Sorry didn't post the Big Chart today. Been fighting the flu all week…

  7. Stjeanluc – hope you feel better – rest is always good

  8. Stjeanluc – Chicken Soup – Hope you get well soon!

  9. StJ – Rest and lots of liquids.

  10. StJ    My son took Xofluza and said he started feeling much better the next day.  I think you need to take it shortly after you get the flu.  

  11. No bounce yet.  

    /RTY got all the way to 1,670 but back to 1,680 now.  /NQ drifting along at 9,500.  Seems like we're ready to bounce though so done with shorts.   EU closing so that downward pressure comes off in 5 mins. 

    Flu/Patient Zero – Feel better.  cool  For me it's herbal tea, honey and Emergen-C.

    I put 3 or 4 mixed (depending on symptoms) in a 4-cup Pyrex and just nuke it for 5 mins (takes too long to boil water).  That way it gets stronger with each cup.  I mix it with good honey (the thick kind) and drink it until I feel better. 

    Image result for winnie the pooh honey

  12. Thinking the house probably makes the most closing TSLA at 900 with puts and calls 

  13. Flu/Stjean – take care, and, umm, supporting your immune system maybe not the best idea, sometimes it can really do a number on you –

  14. Future is Now Portfolio Review:  Well we finally added a trade and it's doing well already.  Portfolio is now up 9% in it's 3rd month at $109,040 so off to a good start and I do love the premise of this one.  

    • BYND – Wow, that was easy money.

    • SPWR – This is what I love about Fundamental Investing – while others were sellsellselling, we were buybuybuying!

    All you need to know about trading is in this clip:

    TSLA/Coulter – Even now, with 4 hours to close, the Feb $900 calls are $6 and the puts are $5.  Too risky for me though…

    Ships/Ati – Doesn't bode well for the Olympics (July 24th).  Those guys are walking away from hundreds of Millions in revenues rather than take the risk.  I'd say the risk must be pretty extreme…

    RCL I do like down here but we can wait for them to settle down. 

    Cytokine/Snow – It's always something…

  15. I got out of NCLH option plays only with a 900$ profit, no stock. I expect there will be much more down to come, if part of their ships are in Harbor.
    Still holding CCL stock at 59 now 42 but no short puts only short calls possible all going worthless April and July 52.50. I look at it this way paper loss only. I will look further out in conjunction with the virus and possible buy more stock at bottom.

  16. RAD – With all of the craziness in SPCE, I investigated the link to the reddit posts of r/wallstreetbets yesterday which is gaining some notoriety.  SPCE traded about 2.5 times its float yesterday and is a fav of this subreddit.  Yesterday, someone on the wallstreetbets sub suggested the next stock to target should be Rite-Aid RAD.  Stock is up 15% since open yesterday.  It's something to watch.  I placed a few bets on it yesterday.  The post had some fair points on the 36% short interest and low market cap at now $900 million for a $22 billion revenue company.  With only 55M shares, with options they can probably really push this thing around.  Sizable options activity in last 2 days vs historical for March and April.  Not investing advice. 

  17. Hemp Boca Portfolio Review:  The Hemp Boca team has been running back and forth to Thailand too much to do their radio show so we haven't added any trades but the 5 we have left (IMAX expired) are now at $55,355 (up 10.7%), which is down $3,760 from our 1/16 review.  All of our positions took a hit so let's see if we still like them:

    • TAP – Certainly I'm not worried about owning TAP at net $42.40.

    • M – Actually, not going back to the bottom is a very good sign given the current headwinds but, as with most stocks, if the virus hits the US – nothing will be safe.

    • MJ – Nothing we can do about the old losses – we're just trying to make it up with the new $14,000 spread that gave us a net $5,980 credit so the profit potential is $19,980 less the presumed $10,500 loss on the 2021 $25s would still be a $9,480 profit over 2.5 years but $22 seems pretty far away at the moment.

    • THC – We're miles in the money.  I love this stock.  It's a $7,000 spread netting $5,700 so still $1,300 (22.8%) to go between now and Jan.  Most people would be happy to make that money in a year – especially where the worse case is owning 500 shares of THC for net $29.40 (the current net + $18 on the put side).  

    So still like all of them and still on track for $33,388 (66%) in gains over 2 years.  

  18. Bought back the mispriced LL puts for $1.35, a 25% gain.   Small quantity.

  19. PTON – I just read an article that the lockup period has been moved up to this Monday.  Could be some pressure on the stock next week.  

  20. Long-Term Portfolio (LTP) Review:  $527,138 is up $27,138 (5.4%) but nothing to crow about as the STP is losing more than that at the moment.  At least we are well-hedged.  We went on a buying spree early in the month but nothing since as the virus has made us cautious – but at least we have 21 positions to work with now.  

    Remember, this was the old STP but we ended up with a lot of longs so we turned it into the new LTP and started a new STP, which promptly got killed by TSLA.  All caught up?

    • AVGO – Not worried about net $223.40, happy to add a bull spread if they go lower.  
    • CSCO – Caught up in the same China issues but here we should add the bull spread as they are cheap.  Let's buy 20 2022 $40 calls for $9 ($18,000) and sell 10 2022 $50 calls for $4.25 ($4,250) and see how things go from there.  

    • M – Why did we not add a bull spread?  I guess because those were just old STP offsets and weren't meant to be full spreads but now, we can add 40 2022 $13 calls for $4.30 ($17,200) and sell 20 2022 $20 calls for $1.55 ($3,100) and we'll see how that goes.  Keep in mind we have $1M in buying power so 20 $50,000 allocation blocks and we sold puts for $9,000 so we're in this spread now for net $5,100 with $44,900 left to commit – not a big risk and our assignment risk is $30,000, which would tap $15,000 of our $1M buying power. 

    • PAA – They paid us $720 in dividends on 1/30 but, otherwise, not doing well as energy prices collapse.  
    • SKT – We missed the 0.355 dividend on 1/30 but hopefully we caught the bottom.  

    •  DFS – On track
    • FCX – Copper priced back down gave them a hit but we were nice and conservative in our entry so all good.  

    • GILD – We jumped on them right before they blasted off – very nice!   It was a very simple premise – they had a SARS treatment (Remdesivir) and Coronavirus is very similar so it made sense GILD would be in the running to come up with a treatment first for this new virus.  Plus they were a good company trading cheaply anyway…

    • GM – Holding up well considering China is closed.  I'm inclined to stick with them as I'm happy to roll the calls lower and DD on puts if they get cheaper.  This too shall pass…

    • IMAX – They beat on the top and bottom but still investors are freaked out about China being closed.  I'm thrilled to own them this cheaply.  Let's invest net $  in rolling the 50 June $17 calls at $1.55 ($7,750) to 50 Sept $14 calls at $4 ($20,000) and we'll hold off on selling more calls – hoping for a bounce.  

    • JO – Apparently people still drink coffee when they have the flu. 
    • LB – Hard to lose when they were so cheap when we went in ($20) and we were pretty conservative.  They are taking Victoria Secret private and giving up 1/2 ownership for $500M but that's 2.5 years of VS income so an overall good deal for us.  We're only at net $13,500 out of a possible $25,000 at $22.50 on the spread (plus $7,700 for the puts) if they hold $22.50 – I think that's worth sticking with.  

    • MIDD – On track.
    • MJ – We'll see how our April shorts do before adjusting.
    • MO – Let's buy back the March $47.50 calls at 0.50 as I think this is too cheap and it opens up a slot for us to sell more.

    • SPWR – On track. 
    • TD – On track.
    • TOL – Crushing it.

    • TXT – Good for a new trade.
    • VALE – Taking a hit on China stuff but no reason to panic – or adjust.  
    • VIAC – Got killed on earnings.  Revenues in film were way off ($532M vs $621M) and earnings were a miss due to the merger (so they say).  They still made $1.16Bn and maintain outlook for $3.2Bn in 2020 earnings and $28.50 values them at just $20.7Bn so very very cheap so let's buy back the 30 short 2022 $42.50 calls for $1.50 ($4,500) and roll our 10 short 2022 $32.50 puts at $8 ($8,000) to 15 short 2022 $27.50 puts at $5.10 ($7,650) and hope we find a bottom here.  

  21. Phil – hi, any thoughts on CDE?

  22. RCL/CCL perhaps could be played for outright bankruptcy, e.g., RCL Jan 2021 65 puts for $2

  23. Thanks everybody! The best thing seems to be getting some rest which is hard with work and other stuff… The weekend could not come fast enough. 

    But I see that things are quiet on the markets today :-)

  24. VIAC/Jasu – Sorry I took so long to get to them but I knew I'd have to look for the LTP at some point.  So, as above, I think this is an over-reaction so we're taking advantage for now. 

    LL/Albo – Nicely played!  

    PTON/Tshroy – Looks like plenty of pressure already:

    Silly traders…

    CDE/Rtews – We used to like them (at $3) but they failed to make money on $1,500+ gold so I wouldn't touch them.  I really don't like that they blamed Zinc in the CC but they only sold 4.1M pounds of Zinc at 0.62 vs 0.80 last year but 0.18 x 4.1M is only $783,000, which is BS compared to 955,000 oz of gold at $1,407 ($1,343,685,000).  When I hear CEOs make excuses like 3 year-olds, I tend not to invest! 

    GOLD, on the other hand:

    That's why they were my Stock of the Year!  

    RCL/BDC – I don't know about CCL but every time I go on RCL it's packed, the bars are packed, the premium restaurants are packed, the tours are sold out.  Wouldn't bet against them.

    And we're back to the lows again.  Smart trading into the weekend for a change.  

  25. I did all the portfolios, right?

  26. Still holding some 50 puts on CCL, Bio, it's house money at this point so just waiting around. Maybe my only good short of the year.

    Also still trading ETH (unfortunately not ETHE, wow) and doing OK there. Offering some at just over $300… I haven't touched it since the upper 80s over a year ago. Easy to be impartial in there for some reason – it feels almost like a paper trading account.

  27. A little uptick at the close but not much.

    Have a great weekend, 

    - Phil

  28. ETH/Ati – Good attitude to have with that stuff. 

  29. CCL/BD & Phil – CCL is well-known to epidemiologists – far more norovirus outbreaks than any other line.

  30. CCL/Snow – Not my type of cruise, more like a drunken party boat.  Norwegian was surprisingly full of drunks too.  RCL is much more family and, of course I still like DIS because it's mostly families and no out of control parties at all (I know, I'm old and dull).  Went on Celebrity and that was too old and dull for me!


  31. TSLA 900.03 close

    house wins again 

  32. Switzerland of the Middle East unravels

  33. How One Singapore Sales Conference Spread Coronavirus Around the World

  34. Intel officials say Russia is boosting Trump candidacy

  35. US COVID cases just jumped to 35.

  36. Coronavirus T cell exhaustion.

    Note that CD4+ counts below 200/uL is considered to be the level where HIV is diagnosed as AIDS.

  37. Italy towns close down amid virus case clusters, 2 deaths

  38. Bernie Sanders Just Won Nevada

  39. Looks like I should have kept at least 1 short future open from Friday 

  40. I’m with ya Bertll. Now what. :)

  41. Not chasing could pop back up and after last week having to double down to because of the relentless upward movement

  42. Good morning!

    I’m in Miami for the Cannabis Investing Conference, so I’ll be in and out today.  It’s a real mess so far as Italy had a big spike in cases so Europe is freaking out and SoKo still bad but, as I kept warning (did anyone listen), these things can start vectoring again in other places.  

    it’s OK, we were certainly due for a nice correction anyway – hopefully this is it.  

  43. Don’t Doubt Bernie

  44. Italy imposes draconian rules to stop spread of coronavirus

  45. Asian shares take hit as new virus cases jump outside China

  46. We only weak bounced off the -2.5% lines – that's not good!

  47. Picked up 2 long/YM at 28,200 for the bounce (tight stops below) – 2.5% rule (with the overshoot and good support).

  48. Might just be another weak bounce, so be careful!

  49. Phil,

    Good Morning. Where is the Fed "plunge protection" team…..? At what level do they kick in?

  50. PPT – probably out playing golf