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Which Way Wednesday – Is $6Tn Not Enough to Boost the Markets?

Image result for money printing animated gif$6,000,000,000,000!  

That's right, Larry Kudlow announced this morning that the US Government's stimulus package "will come to roughly $6 Trillion."  That's in the form of $2Tn of direct CASH!!! to businesses and individuals and $4Tn from the Federal Reserve or, in other words, given to the Banksters.  If they just gave the $6Tn directly to our 300M US Citizens, that would be $20,000 for every man, woman and child or about $70,000 per household.  I think that would do a Hell of a lot more to stimulate the economy than giving it to Goldman Sachs, don't you?

NONETHELESS, $6Tn is about 1/3 of our entire GDP – the entire output of the United States over a 4-month period and, so far, we're in week 2 of the virus shutdown and, so far, there's no evidence that economic activity is down more than 30% – or about $500Bn for the month.  Granted the virus may be around for longer then 4 months but, as I pointed out yesterday – it's not likely to kill more people than cancer (6M) or even Aids (1M) and, horrible though it is – life will, eventually, go on regardless.

Another reason the Futures dropped 600 points this morning (still green though) is our beloved leader is still sticking to his idiocy of ending the quarantine by Easter (April 12th) despite every expert, including his own, saying that it's a terrible idea to set arbitrary dates this early in the process and, of course, China's quarantine lasted 50 days – how are we going to be done in less than 30 days?  

Also this morning, because our President is an idiot, the World Health Organization (WHO) warned the rest of the World that the United States could become the new hub for the viral outbreak as we are THE WORST country on the planet Earth in terms of preparedness, prevention and containment.  Chad looks organized compared to us – CHAD!  

“This cure is worse than the problem,” Trump said. “In my opinion, more people are going to die if we allow this to continue.”

Kind of like the cure to Obamacare?  Kind of like the cure to politics as usual?  Kind of like the cure to high taxes?  Kind of like the cure to the Washington swamp?  Yes, I guess I can see the Presidents' point – some "cures" are far worse than the problems people think they are going to fix – BUT NOT THIS ONE YOU MORON!!! 

738 people died in Spain in the past 24 hours from the coronavirus.  Spain now has more deaths (3,434) than China with 8,000 new cases today bringing their total infections to 47,610.  Spain also has one of the highest proportion of healthcare workers affected by coronavirus, with over 5,400 confirmed cases, according to data from Tuesday.  Spain has asked NATO for urgent help with material, requesting 1.5 million surgical masks, 150,000 protective suits and 450,000 ventilators.  That last number is chilling as it indicates they are assuming millions of infections in Spain alone.  

The U.S. is showing a large acceleration in the number of infections and has the potential to become a new epicenter of the outbreak, said Margaret Harris, a spokeswoman for the Geneva-based WHO. Over the 24 hours through 10 a.m. Geneva time Monday, 40% of new cases were in the U.S., more than any other country.  “This is a time for scientific, evidence-based decision making,” Nancy Pelosi said in an MSNBC interview Monday, adding that the cost to the economy of more deaths would be greater than the economic consequences of social isolation.

Economically, China’s government is facing the worst fiscal situation since the global financial crisis more than a decade ago, with revenue falling after the government shut down economic activity in February to curb the spread of the coronavirus. The income of central and local governments contracted 9.9% in the first two months of the year compared to a year ago. That was the deepest fall since February 2009. Tax revenue declined more than 11%, with drops in value-added taxes, corporate income taxes and car purchase taxes undercutting the government’s coffers just as it needs to find extra money to stimulate the economy. Spending also dropped, but a surge in outlays on health-care and social security kept the decline to 2.9% from a year ago. The tight fiscal conditions add to the urgency for the government to raise money from bond sales and allow a higher deficit in 2020. 

Still, 9.9% contraction is not 50% contraction or even 30% contraction – that's what's being priced into the US economy and China REALLY shut down their country and enforced it harshly.  As I said yesterday – you can't simply stomp out economic activity if you don't kill the humans – they will find a way to generate GDP and that is why we flipped bullish last week – 40% down is too low and we are able to sell puts that put us into positions 20-40% lower than that!   

In fact, we just got our Durable Goods Report for February and it was UP 1.2% vs -0.7% expected and Uber Eats (UBER) just repored a 10% increease in sales last week and a 30% increase in driver sign-ups.  Boeing is a big part of Durable Goods and they, along with the airlines, are getting a $50Bn relief package as part of our $6Tn giveaway.  Target (TGT) says comp store sales are up 20% from last year this month and Nike (NKE) just announced great earnings and are up about 10% pre-market.  

We get Investor Confidence readings at 10am and a Business Confidence Survey at 11am but these are the readings from a lot of scared, irrational people who are suffering from a lack of leadership and a shortage of clear facts – so take it with a grain of salt.

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  1. Good Morning.

  2. Good morning, All!

    Join Phil at 1pm (eastern) for this week's webinar!

  3. Good Morning

    Phil would you advise buying NLY or CIM or stay clear for now

  4. A little more green to match the green falling from the Fed helicopters hovering in the sky!

  5. Totally normal words from a great leader:

    In his Fox News town hall this afternoon President Trump said he needs good treatment or favors in return if states want the federal governments assistance as hospitals are overwhelmed with COVID-19 patients. Read the words and then watch them.

    “Usually we’ll have 50 governors that will call it the same time. I think we are doing very well. But it’s a two-way street. They have to treat us well, also."

    So they basically have to call and say nice things about Trump to get the help they need! During hurricane Sandy, did Obama tell Christie – "Yo, Chris, you have said some bad stuff about me the last few years. No help for you fool!"

  6. I believe thats called Quid Pro Quo.

  7. Another metric to watch will be the unemployment insurance claims release ( somethings can measured and monitored). I think that comes out at 8:30 Eastern tomorrow morning. It will be a number that most can not imagine. The state jobless is up 150,000 in Minnesota alone. This reflects the people that have carved out the time to fill out long forms at a difficult time for them. Many more to come, unfortunately. 

  8. Thx for comments yesterday Phil.

    To confirm (IBM), do you mean:

    Sell 8 $110 calls and roll to $90s (as written) about $8K

    Roll 8 $140 short CALLS ($4.3)  to $110 CALLS ($13)  -$8,700)  

    Roll 8 $120 calls ($9) to $90s ($22) (not stated) (~$10,400)



    IBM – So you have 16 longs and 8 shorts and the puts.  I would not worry about the put target but the $135 puts are $46 and the $105 puts are $25 and it MIGHT be margin-efficient to roll down to 8 of those but make sure with your broker.  I would sell the $110s ($11.50) to another sucker and roll down to the $90s at $21.50 and roll the $140 puts to the $110 puts (+$6) so you'd be in 16 $90/110 spreads for the same(ish) money.


    (TD) I see what you mean about the mgn for 10 short $52.5 vs 20 short $40 puts and also the short timeline. In my case TD is holding $53k for the 15 $55puts and $49.4k for the $52.5ps. Are you thinking to bail out of TD completely ..  buy back all the puts and close all the positions?

    What about rolling the July $52.5puts to Oct $40s, maybe just buy back the $55s?


    The problem with TD is you don't have a lot of time to turn around and you may be throwing good money after bad so maybe you are better off with more IBM at a much more realistic target to double your money on the spread.  



  9. I believe unemployment #'s will be released April 3…..

  10. will see what happens but with the deal done if that only gets a 1 day bounce trouble ahead – so if Trump listens to world experts then we are going to slow down further and if he ignores them it could be even worse – not a rosy scenario – and growth was slowing BEFORE the virus so that will still be there whenever we get through the virus

  11. Russia just announced that next week would be a week off for every Russian! On a call with Russian colleagues and they just got the news.

  12. And the government will pay everybody apparently! Not sure how that's going to work with the current oil prices! Maybe Putin will be less worried about other people's elections.

  13. Good morning!

    Off to the races again at the bell, that was very strange action this morning.

    Signs of life on the Big Chart but 40% drops mean 8% weak and 16% strong bounces so nothing impressive unless we finish the weak around the -10% lines and Must Hold (2,600) on /ES.  

    They really don't want retailers participating in the upside on the Futures, they keep raising the margins despite the VIX calming down.  They were happy to let you lose money and then margin call you however!  

    NLY/Savi – If you have sideline money and a couple of years to wait, I love them.  CIM too.  All they do is buy mortgage assets and collect the interest.  Unless people are defaulting – it's not like they lose money.  The issue is that the rates are so low that the people they hold papers on are refinancing them out of the game and, though they can now borrow for less too – it takes them time to adjust to the new rate cycle.  It's also a problem because they raise capital with 7.5% bonds and such – they have to refinance those or face a cash crunch.  

    It's not apples to apples but look how crazzy this sell-off is compared to 2008:

    $5.50 is $8Bn and they were going to make $1.6Bn this year for a p/e of 8 after a big writedown year last year (they need to do purges once in a while).  There are certainly those who think the while Commercial Mortgage market is going to collapse so I wouldn't make it a major play but a 1/20th holding – sure.  

    Tom Barrack warns on collapse of commercial mortgage market

    Annaly Capital's BV, Dividend, And Valuation Versus 20 mREIT Peers (Post Q4 2019 Earnings – Attractive Valuation)

    If you have a $100,000 portfolio, you can have $5,000 worth of NLY, right?  So you can buy 1,000 shares for $5,500 and sell 10 2022 $5 puts for $2.25 ($2,250) and 10 2022 $5 calls for $1.45 ($1,450) and that's net $1,800 so $1.80/share called away at $5 with a $3.20 profit (177% plus dividends, if any) or assigned 1,000 more at $5 to average $3.40 on 2,000 ($6,800).  Clearly if you aren't going to be THRILLED to own 2,000 shares for $3.40, you shouldn't even be considering buying 1,000 shares for $5.40, right?

    Trump/StJ, Kinki - This guy's whole life is quid pro quo.  The sickest thing is not one Republican stands up to say that's wrong.  Zero moral fiber in that party. 

    IBM/Wing – Let's see, you said you have 8 2022 $120s at $21.70 AND 8 2022 $110s at $21.50 and 8 short 2022 $140 at $11.40 and 4 short $135 puts at $21.20 and I suggested rolling both long calls to the 2022 $90s and rolling the 8 short $140s to 16 short $110s and rolling the puts down to the $110 puts and it wasn't supposed to cost much.  

    Unemployment/1020 – I believe Randers is talking about the normal weekly numbers, not the NFP.   We generally ignore the weeklies but they will give us a clue this week.

    Markets turning sour again.  Going to need another $6Tn tomorrow, I guess…

  14. Phil – You've been channeling your inner Die Hard, I'd guess…. :)

  15. Unemployment, That's right weekly claims it is. The last # on 3/19 was 281,000 , up from 70,000. Highest since 9/2017.

    Here is that report.

  16. US 3-month T bill is -0.03%

    Negative interest rates are here!

  17. Speaking of REITS for the long term – I sold off my IYR $75 puts over the past couple days and used the proceeds to establish a position in WY. Long toilet paper! Dividend is near 10% at these levels.

  18. I'm going to follow in on the WY play. Looking to sell some options for entry as well. I think WY is "safe" down here. Also, rabid environmentalists are weakening their eco-terror stance in WA.

  19. SQQQ June $28 ($5.50)/$36 ($4.50) bull call spreads pay $8 back on $1 and make very nice hedges if you are worried you don't have enough.  $5,000 pays $40,000 if we have another drop and it lasts 86 days so should get us through the cycle.

    Keep in mind, we don't have a separate hedging portfolio for every portfolio we track as it would be redundant to the STP but you SHOULD have some hedges in any portfolio so, if you were down $40,000 and now you are down $20,000 – why not invest $2,000 so the next time you're down $40,000 you'll have a $16,000 hedge?  

    And, since you are paying $1 for the spread and the $26s are $5, when they get to $2 you can roll them out to a Sept spread and preserve the money you put in – so it works very well as rolling insurance.

    Or Jaws, 1020.

    Image result for we're going to need a bigger boat animated gif

    Negative rates/BDC – Yay!  If you lend me $10Bn, I will gladly pay you back $9,997,000,000 back at the end of the year.  Of course the trick is, where do I keep the money for a year?  

    WY/Ati – Haven't been making much money lately and I'm not sure they are going to ramp up TP production to meet demand as it's a silly shortage so it doesn't pay to invest in making more – there will just be a glut down the road.  Still, it's a good price for them long-term.

    NKE crushed it:

  20. Phil/college money

    Yesterday you said you were thinking of putting some of the kids' college money back in if the government doesn't screw this up. What would you want to see to convince you they didn't screw up? Over what time frame are you considering that?

    I have little faith in this whole thing from what I am seeing/reading/discussing with colleagues. We have a ways to go. So, curious what you'd want to see.   

  21. Thank you

  22. Just wondering if beans and broccoli are good for "zero moral fiber"?

    Seriously, not anxious to jump back in. This market drawdown was inevitable. The virus panic was the trigger for repricing a way over priced market. Earnings estimates way back then stood at $174 which was a 19+ p/e. At the current 2470, that $174 translates to a 14 p/e – a bit under historical "norm" of 15. But of course, $174 is not going to hold up and there is no one I have read or heard hazarding a guess at what the new earning number will be. We can speculate, however. A 20% haircut to $140 @ a normal 15 p/e nets an S&P of 2100. Not uncommon in actual bear market to overshoot to the downside of fair value. Nobody knows. Hope I am wrong but I have to think it is a least 50/50 odds we could go much lower. 

  23. pstas - A couple of the big guys, like goldman for example, are predicting S&P around 2000 or 2100 in December, so you're probably not far off with those calcs.

    Good points on 1) an overshoot, which is more likely than not, and also 2) the extent of the virus lock down and economic impact is an on-going and very fluid situation which has little precedent.

  24. College/Jeff – Next week if we don't go flying up 20%.  I'd like to see us consolidating around the strong bounce line so 3,400 to 2,200 is 1,200 so 250 bounces is 2,700 for strong (really 1,680).  If we're consolidating between weak (2,450) and strong and the macros are not deteriorating – then I'm comfortable getting back in with 1/2 the kids' money (about $300,000 each).  If we drop another 40%, that's a $60,000 loss on $150,000 but then we can put the other $150,000 to work (if the World isn't actually ending at 80% off the top) and I can be reasonably assured that that $240,000 will spit out a solid eductation's worth of profits over the next 4 years.  

    Absent of stimulus, I agree with you, Pstas – but we are clearly not absent of stimulus.

    Without precedent/BDC – Welllll, there was one precedent:

    Image result for stock market during spanish flu

    The difference is the mass media panic we're experiencing that has everyone extrapolating doomsday scenarios from very little data.  Then there was the pandemic of 1968, which killed 1M and infected maybe 500M or about 25% of the world at the time. 

    Image result for stock market during spanish flu

    So it's only unprecedented to people who have no notion of history and don't put things in perspective which, unfortunately, is pretty much everybody in these dark ages, where we ignore the words of wise men in favor of whatever nonsense comes out of our magic boxes…

  25. Flu outbreaks/Phil – excellent points. The 1957 pandemic was even worse than '68, IIRC. I think perhaps because we didn't have the widespread vaccinating of elders yet.

  26. speaking of precedent I did point out from 1965 to 1982 the stock market went down from 7900 to 2100, a period of 17 years. So, we might want to make sure that wasn't caused by, or at accelerated by, the 1M deaths in 1968 or 500M infected.

    In this day and age it seems we are annoyed if the market goes down a month without returning to our usual and customary market-only-goes-up mentality.

  27. Phil// What is your thought on AAPL Jan 21 220/230 BCS?


  28. Fauci introduces life-saving face mask:

    Image result for life saving face mask fauci

  29. Phil / IBM – I'm looking at selling some short erm callers on IBM – earnings are coming up on 4/20 and they have a new CEO, but still looking for. them to be consistent on outlook ( in the past they tend to be aggressive early in the year and bring it down later.  

    I'm looking at selling the selling the 15X May 15 120 callers for 5 ish .  This would go against 40 naked Jan '22 110 callers and 10X '22 100 puts.   What do you think?

  30. I think that stimulus is a bit of a misnomer. I admit to not knowing all the details but the bill(s) strike me as mostly a once and done stopgap aimed at filling the hole created by shutdowns. Small business comprise something like 50% of GDP if memory serves and a very large percentage of those have fewer that 20 employees with relatively small revenue- essentially what I call "lifestyle business" where running a small retail shop earns a modest living. As shutdowns extend, there will be doors being closed which will be permanent employment losses (at least in the near term) . I don't do economic models but an additional $6T in debt may well be a drag on employment & growth – another millstone to carry. So, getting small businesses back open as soon as practical makes a lot of sense to me and there is a moral hazard in that trade off. Easy to dismiss that notion but my first hand experience reminds me of just how devastating It is to see one's hard won gains go poof.  Short of a miraculous short term virus cure we will face that dilemma. There is some middle ground and we are smart enough to find it. 

  31. AAPL/Rookie – I think you can do better than that but it's:

    Webinar time!  

    IBM/Batman – I don't see that the virus will have derailed them much this Q though guidance may be sketchy so I would not do a full cover either – 15/40 seems about right.

    Stopgap/Pstas – This is just the stimulus they come up with in month 1.   They'll double down if things don't improve.  What's another $12Tn in debt between friends?  We were going to get there eventually anyway…

  32. CVX still sells oil right? Just curious.

    This sounds nice:

    In Italy they are using jockey rinks, so that'll be happening here soon. The NHL doesn't need them.

  33. Sadly, dropping another nuclear debt bomb on the US economy will be most likely as it is the easier path – the very essence of kicking it down the road. All the bad stuff comes later; lots of  preening opportunities up front. Denigrating alternatives provides plenty of political cover and avoids having to face up to the very hard choices. Once again I maintain we are better than this and the time to step up is nigh. 

  34. FGEN….buying a few short dated call spreads….$35/40 Apr for $1.10.  Just a few.  

  35. pstas….look at Japan.  They have been dropping debt bombs for years…and they are still around.  

  36. the DOW is up 20.2% from it's monday 3:30 PM low

  37. BDC…forget the DOW.  Look at BA!

  38. I bought short calls this week at $120 ($2.53) and sold them yesterday…..

  39. maybe Boeing is going to sell more aircraft to airlines that want to put more in cold storage?

  40. pstas – is it debt or currency?

  41. The nasdaq has only retraced to where it was Feb 2019, or 13 months ago. TSLA is back to where it was on January 20th… of this year.

    This is NOT a crash. The market has barely moved at all. This type of retrace would be expected in a run-of-the-mill bear market, where P/E's simply re-adjust close to their long term averages. There is barely an indication priced in that we're facing a worldwide pandemic at all. The pricing is simply not there. Maybe it's stock/currency inflation. The top 0.01% will be the big winners of this thing no matter what. We're taking the idea of producing free money for the top 0.01%, that was started in 2008/2009 (and that has continued unabated for 11 years), and pumping it up on both steroids and crack simultaneously.

  42. BA is like 1/3 of the Dow move now it seems!

  43. Biodiesel, agreed   

  44. Morgues/BDC – Yikes!

    Step up/Pstas – We need to fix the virus, not the economy.  Why can't they get that?

    BA/Pharm – Damn, should have been more aggressive with them.

    They say they are targeting May for 737 deliveries to start again – but no one is flying….

    Fertitta/1020 – The problem is he took a very nice, profitable restaurant business and turned it into casinos with huge leverage – just like Trump did and that exposed him to this.  Golden Nugget was barely surviving before this body blow.  

    BA/StJ – And another 150 points to go would be another 10% for the Dow if they recover to $300.  

    TSLA back to $550

  45. Seems like BA has as much chance to rocket up as to crash and burn.  At least looking at the implied vol on their options

  46. Nikkei, who often manipulate AAPL down, says 5G IPhones may be delayed for months.  That sent us down sharply with AAPL.  

    Would be very bad if we fail to hold most of the gains.  

  47. Trump says he'll stop saying "Chinese Virus" after EVERYONE tells him he's wrong but still excusing it because China said it was an American virus but, in reality, one Chinese official saying it was an American Virus and Trump read that on his twitter feed and he can't discern the difference between the opinion of one Chinese guy expressing his opinion and the official policy of the Chinese Government. 

    Shit – down we go!

  48. Language Phil

  49. There go all my Futures longs…

    That's OK, as long as we hold 2,450 (weak bounce) on /ES, it's a  constructive day.  Goal is 2,700 by Friday and still now actual passage in Congress so closing tantrum to be expected. 

  50. That was nasty….

  51. Shutdown Spotlights Economic Cost of Saving Lives

  52. /ES/Phil – are you out of your longs?

  53. Could this be the reason why the market fell off the cliff during final hours?

    Lindsey Graham and Tim Scott of South Carolina, Ben Sasse of Nebraska and Rick Scott of Florida — threatened not to support the chamber’s push to pass the rescue package through fast-track procedures. They argued a plan to add $600 per week to unemployment insurance for up to four months, a core provision of the near-final legislation, could encourage companies to lay off workers and Americans to stay unemployed. 

  54. two days straight days of absolutely unrestrained garbage and finally 30 minutes of beautiful reprieve. I feel like normalcy returned to collective heads in the last half hour. Kumbaya. My current brain status.

    In other news, I'm one hell of a Kindergarten teacher! I had no idea!

  55. rookie – I'm sure it wasn't just AAPL….

  56. I'm now predicting a US peak of 1,994,000 cases with a peak date of 4/21. With a CFR of 6% that's 120,000 deaths.

    Yesterday it was 775k on 4/16. Every day we continue to not take this seriously we move out the peak number and date accordingly.

  57. Local hospital (NNJ) just had two covid patients die-18 and 30.  Some of the nurses are wearing garbage bags because they don't have enough gowns.  Hard to see how this doesn't have a unexpectedly large impact that takes the market back  down.  

  58. As long as Trump keeps us his happy talk, a good 30-40% of the population will not take the virus seriously, and thats enough to keep it spreading. 

    As long as the virus keeps spreading there can be no recovery for the economy and the longer the economy is shut-down the greater the long-term damage will be.  Does anyone seriously believe the U.S. economy can function properly while New York and California are hobbled?

    Does anyone think that smart New Yorkers aren't already anticipating a state-wide lockdown and have packed their bags to flee to other less impacted states and possibly bringing the virus with them? This is simply a replay of Wuhan and Lombardy. We've seen this movie before.

  59. I bought some garbage bags in preparation…learning from colleagues in NYC. 

    Today we heard from a friend (surgeon) at NYU, they are nearly overrun with patients. Now, allowed 1 n95 mask per week – those are supposed to be 1 per patient interaction. At the most one per day. 

    Also learning that fluids aersolized in the OR are leading to multiple healthcare worker infections at once. Cleaning the rooms is nearly impossible bringing into question their use for non-infected patients. 

    At the moment it looks as though we are screwed. 

  60. Of course we don't know if someone isn't infected since we have no tests still…maybe that's part of the plan? 

  61. My wife is a surgery nurse in a Ohio Hospital they get one mask per day and a brown paper bag to carry it in when they dont have it on. she took some of my M95 construction mask to work  and actually had give one to a doctor sucks cause she only has 4 masks left

  62. WHO Issues a Rare Public Scolding, Saying Countries Wasting Time

  63. 13 Deaths in a Day: An ‘Apocalyptic’ Coronavirus Surge at an N.Y.C. Hospital

  64. A Cruel Motive for a Costly Delay

  65. Reading this morning. 

    Before being put on a ventilator for difficulty with breathing, some doctors are helping their patients FaceTime family/loved ones to say goodbye. That's the last communication for them for weeks, they can't be visited due to lockdowns in the units. For some it's the last contact they'll ever have.  

    Think hard about what you REALLY need to do in public.  Remind your kids that they could get ill, and that you or someone you know could be the reason others die.