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Tuesday, August 9, 2022

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Turnaround Tuesday – Yes, $3Tn is a LOT of Money!

Image result for oligarch virusMORE FREE MONEY!!!

We're closer to it today than yesterday so the markets have gotten over their temper tantrum about yesterday's delay and now counting the uncountable riches that are about to be thrown around by our Government and our Federal Reserve as well as all the other Central Banksters around the World and we're even having an emergency G20 meeting to discuss even more bailouts for our Top 1% Corporate Citizens because they should never ever suffer the consequences of their bad decisions – like letting the Oligarchs run the World, leaving us totally unprepared to handle a Humanitarian crisis (I know, so many big words to look up!). 

“Sentiment has improved, but to call it a turning point is too strong a word for now,” said James McCormick, global head of desk strategy at NatWest Markets. “It is more of a tug-of-war. Policy bazooka is in place, but will be fighting against very weak data and still worrying trends on Covid-19 data. We are more neutral on risk assets now.”

There's a great article in Bloomberg comparing this sell-off to other market sell-offs but the primary take-away on this thing is IT'S ONLY BEEN 6 WEEKS SINCE THE TOP OF THE MARKET!!!  In that way, the market collapse is most like 1987, when we were in the middle of a rally that had the Dow going from 2,250 in May to 2,750 (22%) in August after already rallying from 1,300 in 1985 and it was all based on Reagan's tax cuts and trickle down BS that masked the "sudden" S&L crisis that exploded and finally popped the bubble and we tested the lows in early October, about 60 days after the top, firmed up around 1,750-2,000 and didn't really get back on track until Aug 1988 and it was a year after that before we were back at our highs.

That's was with MASSIVE intervention by the Government as well.  Government intervention is not a magic wand that will fix everything tomorrow or next month or even next year so those of your sitting around starting at your portfolios with your fingers crossed are NOT likely to be very happy about the outcome in the foreseeable future.  

These things play out over time but, what we can do – is QUANTIFY the known elements (which we discussed yesterday) and REPOSITION ourselves to take advantage of the eventual bounce.  And we will bounce – this is the Dow we are looking at from 1987 – it's at 19,260 now – even after the massive sell-off it's still up 1,000% from where it was 33 years ago – that's 30% average growth per year!  

The reason it's 30% per year is because of compounding and the worst thing you can do to miss out on compounding returns is skip a year and that is what you will be doing if you don't adjust your positions.  We don't call a bottom because of a chart – we call a bottom because this virus is like a neutron bomb – it doesn't destroy the buildings or the factories – just the people and, as soon as the danger has passed – the people who are left can go right back to work and right back to the movies and shopping malls, etc.  This is a temporary problem yet the market is trading like it's a permanent one.  

Also, since it's not specific to the US, the World is all in this together so it doesn't really matter how much we spend to fix it as we're all in the same boat and all countries will have more relative debt on their books and the same relative deficits – that does not advantage or disadvantage the US so it's not a major factor in our decision-making. 

What matters is whether or not we have an appropriate response.  As I have pointed out to our Members, Europe routinely shuts down for the month of August every year and somehow they survive.  The US hasn't even been shut down for 2 weeks and people act like the World is ending.  Even the President is freaking out and  saying this nightmare has to end on day 10 the "lockdown" – which is barely being obeyed.  

Almost 400,000 people around the World have now contracted COVID-19 with the US rocketing up to 3rd place thanks to our completely inept "leadership" and Italy is about to pass China in number of cases and has already passed China in deaths, with 6,077 people dead from Coronavirus – and China had a 60-day head start! 

In order not to freak out Americans, you'll notice that US deaths are broken down by cities – so we don't hit the top of that chart and alarm the voters.  They did that with China too but not Japan or India or even Greenland, where all 4 people who have the virus are grouped together and the other 6 people are avoiding them.  

Image result for causes of death usSo yes, people have the virus and people are going to die, perhaps 2M people in the US if this thing gets out of control but 2M people die of Dementia each year and 3M from Diabetes and 9M from Cancer and 17M from Heart Conditions… 1M people die of Aids, 400,000 are murdered, 800,000 kill themselves 1.3M are killed while driving.  

These are all horrible numbers but it happens every year and we all get up and go to work the next day and the economy doesn't fall apart because, each year 96M babies are born and we have 8Bn people on this planet and the poorest countries in this World like Burundi, Niger, Liberia, Malawi, Congo STILL have GDP per capitas of $1,000 per person and they don't have internet, electricity or even running water and they don't drive to work or stream videos or cry about how bored they are at home while waiting for McDonalds to deliver dinner and EVEN THEY have a GDP that would place the World GDP at $8Tn.

So, assuming we don't all become ox herders who have to carry well water with jugs on our heads (no offense, poor countries – just illustrating a point), what GDP level do you think the Virus will brink us down to?  The current per capital GDP of the US is $65,111 and that sucks compared to Luxembourg at $113,196 or even Switzerland at $83,716 or Macau at $81,151 or Norway at $77,975 or Ireland at $77,771 but we've almost caught up to Iceland at $67,037 – so we have that to look forward to when we are great again...

Anyway, past economic policy failures aside (and every one of those coutnries is Socialist with Universal Health Care), lets say we lose 50M jobs (1/3) and stores and businesses go bankrutpt and it takes us years to recover.  What economy would we be like?  Will we be like Puero Rico ($31,538), which was devastated by a hurricane?  Will we be like Slovenia ($26,234), where our First Lady is from?  Will we be like the Bahamas ($33,749) where they always have 30% unemployment?  

Image result for global gdpThe average Per Capita GDP for the planet Earth is $11,297 x 8Bn people = $90Tn.  Having 1-2Bn people from developed nations drop half of their economic activity would only lower the bar about 10% overall because it's 25% of the people (not even) dropping 50% of their economic activity (not even) = 12.5% total effect.  If, on the other hand, you fill up your tank with gas to go hunt and gather food at the supermarket – you have already blown right past the economic output of Melania's family in Slovenia.

Why then, would you be selling Global Stocks down below 50% of their typical prices when Global GDP is not likely to fall more than 12.5%?  That seems like pretty irrational investing yet we're seeing it all over the world because traders trade on fear – not logic and those of us who can remain logical in a crisis have a World of opportunities available to us.  

But you won't be able to take advantage of those opportunities by remaining passive.  AT&T, for example, fell from $39 in Janauary to $26.77 at yesterday's close (-31%) and they probably won't cut the dividend because it's not like you are cutting off your phone or cable due to the crisis, is it?  So $26.77 is probably irrationally low.  It's $192Bn in market cap and T made $20Bn in 2018 and $15Bn last year as they merged with Time Warner – and you are not cancelling your HBO subscription either – are you?   

So $26.77 is too low as it's only 10x probable earnings but $39 is too much for this environment so, if you are sitting on $39,000 of T stock (1,000 shares) that is now worth $26,770 – what can you do to fix it?  Surprisingly, the answer is to selll it and switch to options:

Your premise is T goes back to $39, right?  Well we can cash the stock for $26,770 and your plan was to make $13,000 and it might take 2 years to make it back.  You were going to hold onto the stock so there's no harm in promising to buy 500 shares at $25 by selling 10 2022 $25 puts for $5.30 ($5,300), that obligates us to buy 1,000 shares of T for $25 – about the price you have them for now.  

You can then use that money to buy 20 of the 2022 $23 ($5.50)/30 ($2.85) bull call spreads for $2.65 ($5,300) so now you've spent net $0 to be in the $14,000 spread that pays off if T is just over $30, not $39 in Jan, 2022.  Meanwhile, you still have the $26,770 you cashed out and once T is back on track, you can put that money to work on other opportunities rather than having it all tied up in one trade or, if T falls further, now you have plenty of money on the sidelines to adjust your options spread with.

That is the kind of adjustments we did in our Long-Term Portfolio and Butterfly Portfolio yesterday for our Members as well as our 6 other Member Portfolios last week.  If you are not going to add to your positions when stocks are 50% off their usual price (not the peak price – the NORMAL price!), when the Hell are you going to buy?  

There WILL be stimulus and it will be enough to push our GDP back to normal (ish) in the very near future as long as the virus doesn't plague us for more than 90 days.  After that – we'll need more stimulus and a long-term Recession becomes a bigger concern but, as of this moment – if they sounded the "all clear" – you would get up, get dressed and go to the office and all your papers would still be there to shuffle so no lasting damage has yet been done

You will KNOW when that changes – and that's why we still have our hedges – just in case.

 

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If we knew that it only took $2T to move the Dow 8%, we could it every year and be open only one day the entire year!

Phil-can't believe Jackie passed on MIT?! I'm back in school to make a career shift and have been using their online coursework to review some prereqs.   The videos really demonstrate the quality of the professors and their ability to actually teach (IMHO).  My cousin got his Phd there and is now provost.  I am always impressed when  he tells me what they are doing.  It's restoring my faith in the educational system.  Now if we could only be so forward looking with our public schools (at all levels).

Leveraged is where the growth has been in the market and 50% or more of the spreads are based on opinions on credit.  I'm not sure the Fed can control that.  We'll see what happens near-term, but it does seem that credit investors are expecting a recession and related shakeout of the excess.  A lot of those loans are energy related or LBO, but it can become a self-fulfilling prophecy if sentiment remains negative.

Futures margins for my TOS account is 13,200 for es  and 7,700 for CL and RB per contract. Are you getting different pricing?

Market up and oil up but not ET.  That's just mean.

Wonder why the big difference 

/Bertll- IB is charging me 25k for ES long. Used to 3500. 🙁

BDC/Roubini- MMT in not mainstream; no workers in CA to pick fruit? Dystopian view of supply chain; and getting arrested for leaving my house. Enough?

Thanks for the laughs eveyone! Waiting for my flight at Tampa airport which is basically empty! There are a few people waiting for his flight to Mpls after they bumped and changed the flight 4X! They are coming around spraying the seats and arms of the waiting area. Wow will be glad to get back to Lake Superior!~ Only 3-4 covid up there!

Roubini- on the plus side, however, at least he did not call anyone a criminal or sociopath 🙂

Ravi  I closed my IB account last week and moved everything to TD

it's annoying I have to wait a whole day for this fake market to drop back to reality.

France is only 1 week ahead of us. Enough?

If we think that dept stores will skip paying their rent for the next few months, in order to survive the crisis.  What does that do to the mall REITs like SKT, MAC, Etc?  

VIX isn't buying the rally here

Roubini / pstas – He might be thinking worse… I am trying to only use characterizations that can be easily proven 🙂 (see the Texas example this morning)

truth to the CA fruit pickers though. Republicans trying to ram "relaxed visa rules" (i.e. the wall built for illegals is to KEEP THEM HERE, as I always knew) through with the multi-$T giveaway to the 0.01% And of all the world's ironies, this one is the most precious:

https://www.fginsight.com/news/news/farming-industry-welcomes-key-workers-status–106990

And now Manu Dibango has died of Covid-19 (for jazz fans)

"Modern Money Theory (MMT) is a heterodox macroeconomic theory that describes currency as a public monopoly for the government and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires.

MMT's main tenets are that a government that issues its own money:

1) Can pay for goods, services, and financial assets without a need to collect money in the form of taxes or debt issuance in advance of such purchases;
2) Cannot be forced to default on debt denominated in its own currency;
3) Is only limited in its money creation and purchases by inflation, which accelerates once the real resources (labor, capital and natural resources) of the economy are utilized at full employment;
4) Can control demand-pull inflation by taxation and bond issuance, which remove excess money from circulation (although the political will to do so may not always exist);
5) Does not need to compete with the private sector for scarce savings by issuing bonds."

If you're saying this somehow does not describe exactly where we are in currency evolution right now I am at a loss for words. Not only is MMT "mainstream", incumbent and dominate, it's actually evolutionarily necessary at this point to see what system of transactions deprecates this currently dominate mechanism.

Is trump going to "sign" this stock market day again? Idiot.

Apr VXX 50/60 call spread was $1.50 this morning, thought I'd get cute and offer $1.35 for some as a hedge. The price has only gone up all day, currently $2.50… guess I'm not the only one nervous about the market reaction to the stimulus.

MMT sounds like Zimbabwe to me!

Not just ready to go long yet! Plenty can still go bad in the coming weeks! 

MMT should be called modern wealth confiscation theory whereby the government funds fraud, waste, and abuse by effectively confiscating the wealth of its citizens at the rate of inflation. 

ET – another chance to buy cheap. If they don't cut the dividend it's yielding 25.4% on cost. Crazy! But we thought that about Macy's right before they suspended the dividend, so there ya go.

Not much faith in the Fed it seems:

Update: Drawing on revolvers – 33 facilities, $31.3B added to list

The coronavirus pandemic has had swift and severe economic repercussions, as government restrictions and containment efforts have curtailed business activity. Uncertainty over how long this might persist and the ultimate toll it will take has many companies scrambling to shore up cash positions by tapping the capacity on existing credit facilities.

The attached Excel file lists corporate debt issuers who announced recently they would be drawing down on existing, undrawn credit facilities. More detailed information and links are also included. The information is sourced from public SEC filings. The below table shows drawdowns that were added to the list today.

Note that roughly $31.3 billion in RC draws were captured today. About $105.5 billion has been captured since March 5.  

Looks like the list didn't post, but there are highly rated companies in there not just HY.

 We don't have PM in Canada, margin on one ES contract is $47,000 Cdn.

How much faith do you have in the numbers from China?  I am not saying they are significantly wrong, I just do not know if they should be believed.

Phil / MMT – that was very well put! Stop it with the facts and data! I'm an emotions-only trader… 😉

Anything can happen overnight, up or down on any given day of course, but keep in mind 4 months ago nobody had ever heard of COVID19 and as little as 1 month ago it was an "over there" problem while we basked in the glory of market ATH's after an 11 year bull run. It is very difficult to say that in 3 to 4 months from now the picture will look like anything anyone is predicting right now. I would take that with a big grain of salt.

not that stock chart reading is the least bit useful but today's green hammer looks a lot like March 4th's

tangled – speaking for me alone, my faith in China's numbers is non-existent. In fact, I believe they're total fabrications from the very beginning. Look at the curve for China of deaths vs recoveries. It is two perfectly smooth diverging curves. If you look at that same graph for every other country in the world, it jumps all over the place, often with the two lines crossing each other more than once. So I don't buy China's numbers at all. They've been cooking those numbers like Betty Crocker.

You want to see some cooking, look at Russia's numbers. My colleagues there were telling me that no one is getting tested and when people show up sick, it's categorized as pneumonia! And besides, they have only one lab who can do the testing now from what I was told. But pneumonia stats are way high this year… But hey, no test, no virus, right?

And old people are getting $25/month to stay home and this is not the old Russia. $25 gets you nowhere in Moscow or St. Pete! It's a total joke. And Putin is sending supplies to Italy buying goodwill while his hospitals have nothing! Not going to end well.

On the other hand, spoke to someone whose best friend works for Lockheed and apparently they are tooling up to make ventilators. 

Who gives a shit about China. Are we going to stop dying here because we pour over their BS data? Maybe we should focus on what's going on over here? Our data is immediately observable and trustworthy (until trump hides unemployment figures, that is).

The stock market's (DOW) percentage gain today was the 5th largest ever. The four biggest gains, and #6, occurred between 1929 and 1933. The next two (#7 and 8) were in October 2018 (see chart in link). Do we need to revisit what happened then? I don't know about the 30's, a bunch of Silent generation whiners picking through grocery store dumpsters to feed themselves and their families or whatever whiney nonsense! Feeloaders I say! Welfare-ers! Nickelodeons! However, I do recall November 2008 through March 2009 still feels vaguely familiar….

In other words, look out below. 

The younger generation (anyone younger than a fairly old boomer) hasn't really experienced it, but markets can go down for a very long time. From 1965 to 1982 the Dow went from 7900 to 2100. That's 17 years!

https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

The three largest gain periods, by far, are the Eisenhower, Clinton and Obama era's. Everything else is utter shit. Now we're in the era of trump and his minions. The worst of the worst. The guy openly described, with quite a bit of pride and cheer I might add, the particular way he enjoys sexually assaulting women. Yes, that is our President of the United States. The Genius that won't show us his transcripts, the Billionaire that won't show us his taxes, the Healthiest President Ever that won't release his medical records (or a fake doctor letter even written by a real doctor and not by himself).

In other words, LOOK OUT WAYYYYY BELOW

anyone know whats up with the big deal

One E.R. doctor's description of his day's work: 

https://twitter.com/Craig_A_Spencer/status/1242302400762908685

"For the rest of your shift, nearly every hour, you get paged:

Stat notification: Very sick patient, short of breath, fever. Oxygen 88%.

Stat notification: Low blood pressure, short of breath, low oxygen.

Stat notification: Low oxygen, can't breath. Fever. 

All day…

Nearly everyone you see today is the same. We assume everyone is #COVID?19. We wear gowns, goggles, and masks at every encounter. All day. It's the only way to be safe. Where did all the heart attacks and appendicitis patients go? Its all COVID.

When your shift ends, you sign out to the oncoming team. It's all #COVID?19. Over the past week, we've all learned the signs – low oxygen, lymphopenia, elevated D-dimer. 

You share concerns of friends throughout the city without PPE. Hospitals running out of ventilators."

As long as this is the reality in our hospitals then all efforts should be focused on bolstering the healthcare system and protecting and equipping healthcare workers and first responders.

All this talk about restarting businesses, schools and ending lockdowns at this point in time is counterproductive because it creates a false sense of security which leads people to just shirk self-quarantine/social distancing measures and go about their normal lives, and businesses to start forcing their employees to come into work, which will only increase the spread and prolong the epidemic.

As long as those coronavirus stastistics keep going up, then there is no basis for the markets to stop going down, because we know the only way to keep Trump invested in taking this pandemic seriously is for the stock market to keep falling.

good news updates

one funny tidbit: even though COVID may kill 75k Americans, it may also save 75k from lung disease caused by pollution. 

A bit of "Gallo's" humor

Heard a Dr. on TV saying in this time of Coronavirus staying at home we should focus on inner peace. To achieve this we should always finish things we start and we all could use more calm in our lives. I looked through my house to find things i'd started and hadn't finished, so I finished off a bottle of Merlot, a bottle of Chardonnay, a bodle of Baileys, a butle of wum, tha mainder of Valiumun srciptuns, an a box a chocletz. Yu haf no idr how feckin fablus I feel rite now. Sned this to all who need inner piss. An telum u luvum. And two hash yer wands, stafe day avrybobby!!!

LOL pstas…

Based on some calculations I've been running, I predict the united states will have 715,744 cases and will peak on April 17th.

Prince Charles caught it.

pstas – Brilliant!

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