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Monday Market Momentum Fading Fast

And down we go again!

That's OK because last Monday we gapped down 200 points and spent the rest of the week gaining almost 1,000 points and April 27th opened down from the Futures but then we recovered and gained 1,000 points.

With all these 1,000-point gains you would think we'd have made huge progress but not really – we're still hanging around the same 2,850 line on the S&P 500 that we were at last April and the April before that.  There was no virus in April of 2018 or April of 2019 but there also wasn't $6.7Tn in stimulus floating around so, if we are to consider 2,850 the fair value for the S&P 500 – the question is will the stimulus be more or less or exactly enough to counter-act the economic damage of the virus?

Of course, it's not just the United State's $6,700,000,000,000 contribution that matters as the S&P 500 derives more than half its revenues from the rest of the World so their pain is our pain in these circumstances.  Europe has pledged to do whatever it takes and China will be having their delayed, annual People's Congress next week and the PBOC has already promised to provide more economic support (China at about $1Tn so far). 

https://www.zerohedge.com/s3/files/inline-images/TSY%20net%20issuance.jpg?itok=WFW02LosOf course, if we are going to be counting on a long-range recovery to justify paying pre-virus prices for stocks that will clearly NOT be making pre-virus money this year – then we should also be taking into account the damage that is being done by the US (and other nations) racking up a $4Tn Deficit in 2020 – and that's ignoring $4Tn added to the Fed's balance sheet and a very likely additional round of stimulus that's coming.

Does it matter that our Deficit has increased by $7Tn in 4 years (now over $25Tn!) and is projected to run another $3Tn in each 2021 and 2022, or does it really no longer matter how much money we print?  If it doesn't matter, then why aren't we fixing Social Security and Medicare, among others?  The CBO projects the Highway, Pension Benefit Guaranty Corporation Multi-Employer, Medicare Hospital Insurance, Social Security Disability Insurance, and Social Security Old-Age and Survivors Insurance trust funds will all be exhausted in the next 13 years (2033) without action to stabilize their finances. 

At $30Tn in 2022 and at 2% interest, the interest on the Debt will be $600Bn a year or 20% of Government Revenues.  If interest were to run up to 6%, 1/2 of the Government's Revenues would be needed just to not default on the debt we already have.  Do you know what that makes us?  I'll give you a hint: "Wop bop a loo bop a lop bam boom!"

30M Americans are unemployed and the reason the markets are down this morning is that the reality of re-opening is not matching the fantasy already with investors getting guidlines for their hometowns like restaurants will open at 1/4 capacity and retail stores will severely limit the number of people allowed to shop, etc.  These are all sensible guidlines to control the spread of the virus but how is this helping them make profits – or even just break even?

ImageWhile about half the companies have reported their earnings, most have pulled their guidance and, of those that have given guidance for Q2, a lot of it is not pretty.  These are the 30 worst projections (so far) of the S&P 500 but note that it's pretty much every sector – which means the ones that aren't giving us guidance won't likely be very pretty either.  

We have DIS, HBI and XOM in our portfolios and we THINK we bought them at the bottom but clearly it's going to be a rough year and, with losses in Q1 and more losses in Q2 – how can anyone possibly believe that 2020 earnings will come close to 2019 and, if that's the case – how can so many of these stocks be popping back to their pre-virus highs?  

I love DIS and I'm thrilled we got in below $100 but I'm under no delusion they should be going back to $150 and even $120 is a stretch given what we know about the virus so far.  Yet DIS has popped back from $80 to $110, which is 37.5% off the bottom, simply because they are going to TRY to reopen their parks.  Parks are 1/3 of Disney's revenues and, surprisingly, film is only 14% so 1/2 their business is closed and ESPN has no sports but the Disney Channel is getting a big workout during quarantine – along with ABC.  27% of their business is selling Disney Products and Liscensing – those are not terribly affected. 

So we like DIS but let's not be delusional about it – It's just a chance to get in on a good brand cheaply.  DIS was not, in fact, one of the 20 stocks we grabbed during the downturn (see this weekend's review) because we were concerned about their park, movie and sports exposure.  In our Butterfly Portfolio, we just have a long-term (June, 2022) bull call spread that we bought pretty much at the dead bottom:

Security Description Quantity Trans
Date
Age Net
Cost
Issue Price/
Total Change
Effective
Cost
/Shr
Lower
Stop
Limit
Upper
Stop
Limit
Curr. Price/
Change Today
Gain/Loss Market
Value
1 Bull Call Debit Spread
DIS Long Call 2022 17-JUN 85.00 CALL [DIS @ $109.16 $0.00] 50 3/23/2020 (767) $105,000 $21.00 $13.45 $26.85     $34.45 $0.00 $67,250 64.0% $172,250
DIS Short Call 2022 17-JUN 120.00 CALL [DIS @ $109.16 $0.00] -50 3/23/2020 (767) $-50,000 $10.00 $6.25     $16.25 $0.00 $-31,250 -62.5% $-81,250

As you can see, it's doing well as we entered the spread for net $55,000 and it's already at net $91,000 so up $36,000 (65%) in less than a month and bull call spreads require no margin – it's a very simple way to take advantage of a stock that's at a discount like DIS was near $80.  The spread has a potential, at $120 to be $175,000 so there's still $84,000 (92%) to be gained on this one – even if you missed our $55,000 entry.  

Anyway, my main point was that we had originally sold some short puts on DIS but now, back at $110, we cashed them out as they are too risky given the current environment and given their recent earnings notes and Q2 forecast.  

At least Disney has been honest enough to tell us they won't be making any money this quarter – be careful if the stocks you hold haven't made disclosures to you! 

 


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  1. Good Morning.


  2. Good morning. Sunny in No Wisc at least something to be glad about, but cool @ 34.


  3. Not sure how we go up from here when talk show guests this Sunday kept on saying that the worse as far as the economy is concerned might still be ahead – more unemployment, more bankruptcy, no V-shape recovery! I know $6T is a lot of money, but it might not go to the people who need it.


  4. In the meantime, the hardest working POTUS ever rage tweeted 126 times on Sunday (once every 7.5 minutes) while 80,000 people have died in this pandemic. Mostly conspiracy theories, Qanon stuff and advice from anti-vaxxer! But Obama played too much golf…


  5. Sounds like a desperate man….


  6. Good morning!

    It's rainy and cool in Florida so you guys aren't missing anything.  

    Bog chart still looking good, will take a few down days to threaten what is now a rising 50 dma on the Dow and the Nas.  Of course, a lot of that is AAPL at $310 again – still the World's greatest company.  Remember Tim Cook was their logistics coordinator before he became CEO – you couldn't possibly have a better guy for the job than he is.

    Worst/StJ – $6Tn (+) is still a lot of money.  Doesn't matter if it doesn't go to people who need it from a market perspective – as long as our Corporate Citizens get their cut.  To some extent, they are thrilled to drive 1/3 of small businesses into bankruptcy as the labor market was so tight they almost had to raise wages – what a disaster that would have been!

    Beginners/Saguaro (from the weekend post) – If you would like a variant on a trade idea – ASK!!! I am not going to provide multiple alternates for every trade we discuss and, of course, the best thing to do when you are learning is stick to nice, simple, bull call spreads without selling short puts and calls.  I very rarely pick a bull call spread that isn't going to make at least 60% over 2 years – there's nothing wrong with that while you are learning.  Paper trade the hard stuff until you get the hang of it.

    Most importantly, don't over-commit and scale into your positions so, when they do drop – you are HAPPY to make the adjustment or – take a small loss (see our Strategy Section above).  Also, DIVERSIFY – the worst thing you can do is overallocate to certain positions – especially in this market.

    Our first Top Trade Alert for this year was HRB:

    I guess it would be a good Butterfly candidate but it stays down too long so we generally just play it bullish into April.  March earnings are not likely to be exciting but, for the Earnings Portfolio, let's play HRB like this:

    • Sell 5 HRB 2022 $22 puts for $3.50 ($1,750) 
    • Buy 15 HRB July $20 calls for $4.10 ($6,150) 
    • Sell 15 HRB July $24 calls for $1.60 ($2,400) 

    That's net $2,000 on the $6,000 spread so $4,000 of upside potential at just $24 is a nice, conservative way to make 200% – though you have to wait a while on the put side.  

    The $22 puts are now $8.30 ($4,150) and the $20/24 spread is essentially worthless so -$8,300 without adjustments.  What we did do, however, is buy 30 of the 2022 $8 calls on 4/3 (the second dip to $12) and we cashed them in on 4/29 with an $11,400 profit – getting us to near even on the overall trade.  We were able to do that BECAUSE we had buying power on the sidelines and it was easy for us to DD as we spent $4,000 on the first set and our allocation blocks are $20,000.  If we did not have $16,000 (4x) on the side to adjust with, we would have had to limit our losses much more strictly.

    If you don't understand the money-management aspect of the trading – then what's the difference if you know how to roll and DD when you can't afford to do it?


  7. Phil – What would be a good way to play gold increasing further ($2000?)? Already own GOLD/miners, etc. - looking for an additional direct GLD or futures trade. 


  8. 2 x 85 degree days in Seattle this weekend. Broke records.

    Out of LABU. Watching GBTC again (got a pull back but I'm greedy and want to get in under 9). TLT weekly puts for no reason. Some bond bear I read over the weekend. 


  9. Hi Phil, I have the bull call part of your CAT trade mentioned over the weekend (15x 100/120 for net $9), but not the puts. What would you add here put-wise and size? Thx.


  10. biodieselchris

     

    I am in Vancouver Washington  57 now


  11. I was a beautiful weekend in Dallas-Fort Worth, and the amount of people out and about everywhere was downright scary.  restaurants, home improvement stores, hair and nail salons, some retail and just traffic on the street. Where was everyone going?  My wife remarked that I should fill up the car before all this activity increases the price of gas.




  12. New week brings new challenges for White House


  13. NYT claims airlines are losing $400M per day


  14. NY 161 RIP, lowest since March 26th I believe.


  15. It continues to amuse me that oil went to $0 and bitcoin didn't


  16. Gold/RN – Well, if GOLD is the BEST way to play the rise of gold, why look for not as good ways to play?  NEM is my 2nd favorite miner but not cheap and HMY is another one I like but also not cheap now and NAK is one we love to gamble on but we just sold half on their huge pop and they are still over 0.80.  FCX is too much copper and WPM isn't cheap and those are the only gold plays I've liked in the past decade.  I don't like gold or gold futures with gold back near its 35-year high.

    If I were going to play the Futures, I'd play Silver (/SI) to catch up:

    But watch the Dollar – it can drag both gold and silver if it's over 100 and, if the Euro collapses, we could see 110:

    TLT/BDC – What a ride!

    CAT/Lumber – CAT can be very volatile and could easily re-test $90 so make sure you can stand the pain and REALLY want to own them at the net price but I'd sell the $80 puts for $9.25 as that's net $70.75, which is 35% off the current price so, as long as you REALLY want to own CAT for $70.75 – it's free money and pays for your whole $20 spread, so net net $80 if you do actually get assigned (and you let the bull call spread go worthless).

    CAR/Stock – I haven't bought gas for 2 months!  There are too many people out and they are being less careful.  I went to Whole Foods and, unlike two weeks ago – people aren't being careful at all about 6 feet apart (though the store still has guidelines and the staff is following them, they seem to have gotten tired of yelling at the customers).  It made me realize I would freak out at the airport – so no travel for me for quite a while.

    Future Air Travel: Four-Hour Process, Self Check-In, Disinfection, Immunity Passes

    Airlines/BDC – $12Bn a month?  Is that just US airlines?   DAL takes in $45Bn a yr and they make $5Bn so 10% and let's say they are 1/5th of all travel so $225Bn with a $20Bn profit so $200Bn in expenses and 1/3 is fuel and 1/3 is labor but, stupidly, they are all still flying empty planes and those planes have to have crews so yep, I can see that being the right number.  Much as I hate the airlines, they are a vital service and the government should be making them whole as they are requiring them to fly.

    NY/Kustomz – That's good news.  

    BitCoin/BDC – Soon enough.  At least you won't have to pay people to take your BitCoins.  

    Speaking of gushers, CMG still heading higher.  

    Who knew locking their customers in the house would be the best thing that could happen to them?  


  17. biochris/ speaking of:  David finally meets his girlfriend Lana after seven years of chatting online and four attempts to see her on 90 Day Fiance

    https://www.dailymail.co.uk/tvshowbiz/article-8307785/David-finally-meets-girlfriend-Lana-seven-years-chatting-online.html

    Guess she needed a new technique to keep the scam going on a little longer


  18. FCX/Phil – didn't China buy up and warehouse copper a few years ago? Wonder what happened to that.


  19. stockbern – Lana is real!!! WE WERE LIKE WTF?!?!?! :)



  20. Bill Gates Has Regrets


  21. As I was saying this morning:

    https://talkingpointsmemo.com/news/the-bailout-is-working-for-the-rich

    Ten weeks into the worst crisis in 90 years, the government’s effort to save the economy has been both a spectacular success and a catastrophic failure.

    The clearest illustration of that came on Friday, when the government reported that 20.5 million people lost their jobs in April. It marked a period of unfathomable pain across the country not seen since the Great Depression. Also on Friday, the stock market rallied.

    The S&P 500 is now up 30% from its lows in mid-March and back to where it was last October, when the outlook for 2020 corporate earnings looked sunshiny. Companies have sold record amounts of debtin recent weeks for investment-grade companies. Junk bonds, historically dodgy during an economic swoon, have roared back.

    If you’re looking for investors’ verdict on who has won the bailout, consider these returns: Shares of Apollo Group, the giant private equity firm, have soared 80% from their lows. The stock of Blackstone, another private equity behemoth, has risen 50%.[...]

    What happens if the economy doesn’t come back soon? The Fed’s saddle-?em-with-more-debt approach is premised on a sharp and rapid recovery. The virus burns itself out, people go back to work, they buy and sell, and everything snaps back. Companies pay back their loans, and all is forgiven and forgotten.

    If the health crisis does not pass quickly, or if the economy does not roar back, the Fed’s actions might prove inadequate. But investors shouldn’t be too worried. They have been taught they can count on the government.


  22. FCX/Snow – China allowed companies to use copper as collateral, was sort of a scam as the companies would claim far more copper than they actually had and then they would sell the copper to builders, leaving the banks with no actual collateral – screwed up the whole market over there.  

    The Limited Archer GIF - Find & Share on GIPHY

    Bailout/StJ – When they say "it's working for the rich" I don't understand what they thought the bailout was supposed to do?  At best, we have an Oligarchy, assuming we haven't just voted in a Dictatorship, and the Oligarchy's definition of success is more for the Top 0.1% and less for everyone else.  I don't think they could have done a better job putting the people of the US $6Tn deeper into debt while targeting the benefits almost exclusively to those at the top.  It was… PERFECT!  

    RAMPELL: Trump, the perfect politician

    Okay Hand Gesture | Anti-Defamation League

    The Latest Whataboutism Trap - Aaron Loeb - Medium

    Just the way things are now – no sense in complaining….


  23. Oil rejected at $25 but what a ride!

    • According to Bloomberg sources, business intelligence platform ZoomInfo Technologies (ZI) could start its virtual roadshow in late May before going public as early as June.
    • ZoomInfo hopes to raise at least $500M in the offering, which would be one of the first tech IPOs since the coronavirus pandemic started.
    • Sources say ZoomInfo could update its IPO filing this week. The company reportedly brought in $100M in Q1 after its DiscoverOrg merger, and April's sales grew 80% Y/Y.
    • ZoomInfo would follow in the footsteps of last week's Kingsoft Cloud debut, which raised $510M for the Chinese cloud service provider.
    • The welcoming mat is out from Texas if Elon Musk and the board want to act on his weekend threat to move Tesla's (TSLA -0.8%) operations.
    • Dallas Mayor Eric Johnson tweeted his hope that Tesla would set up shop in South Dallas.
    • Texas Governor retweeted Musk's threat to leave California with the eyeball emoji speaking for him.
    • In Houston, Rice University professor C. Fred Higgs III highlighted to Musk and Tesla the very high ratio of engineers in the area.
    • Hidalgo County sent a letter to Musk saying the South Texas region is available for Tesla. Hidalgo County isn't far from SpaceX's launch site at Boca Chica Beach.
    • Meanwhile back in Alameda County, local media is reporting that Tesla's Fremont plant is filled with cars. Over the weekend, the company posted a 38-page handbook on the prevention and control of the COVID-19 virus within Tesla facilities.
    • Papa John's International (PZZA +3.2%) and Chipotle (CMG +1.5%) both carved out new 52-week highs today. It's been no secret that the restaurant concepts have done well during the pandemic period as they have pivoted to meet a new type of demand.
    • Shares of Papa John's are up 36.2% over the last month and Chipotle is +26.5% higher. Of the 51 publicly-traded restaurants stocks, only Papa John's, Chipotle, Wingstop, Domino's and Yum China are up for the year.
    • Cleveland-Cliffs (CLF -2.4%) slides after reporting a slightly larger than forecast Q1 loss while revenues of $324M were more than double the prior-year quarter but fell short of April 15 guidance of $345M-$375M.
    • Q1 adjusted EBITDA was $22.7M vs. April guidance of $15M-$25M and $21.2M a year ago.
    • Q1 mining and pelletizing pellet sales volume rose 38% Y/Y to 2.1M long tons, primarily related to increased intercompany sales.
    • As of May 5, the company says it had ~$1.25B in total liquidity, consisting of $430M in cash and $820M of availability under its ABL credit facility.
    • "Our decisive actions and low fixed cost position have enabled us to navigate through the worst parts of the crisis successfully," the company says, adding that it plans to restart HBI construction as soon as possible.

    • Cleveland-Cliffs (CLF -2%) has "way more" liquidity than needed to run the company through the coronavirus pandemic, CEO Lourenco Goncalves said on today's earnings conference call.
    • The company's best guess is a "neutral year" in working capital, the CEO said, noting the company is above minimum take-or-pay on supply.
    • Cliffs expects an average sell price for iron ore pellets in the low $90s and is looking for an expedited Section 232 case by the U.S. Commerce Department, Goncalves said.
    • Two of the three major U.S. stock averages reverse their declines, as strong gains in health care and tech overcome earlier jitters from a flare-up of COVID-19 infections in South Korea and other countries that were thought to be past the worst of the pandemic.
    • Nasdaq advances 0.6%, the S&P 500 is roughly flat, and the Dow is down 0.3%, paring its earlier 1.1% decline.
    • Treasurys retreat, pushing the 10-year yield 3 basis points higher to 0.72%.
    • The Cboe Volatility Index, also known as the fear index, is roughly flat at 27.99, and far below the 84.83 level it touched on March 17.
    • Crude oil slides 1.6% to $24.35 per barrel.
    • By S&P industry sector, health care (+1.1%) and information technology (+0.5%) provide the most upward momentum, with materials (-1.7%) and financials (-1.6%) weighing the most on the broader market.
    • In overseas markets, the Stoxx Europe 600 ended the session down 0.4%, the FTSE 100 closed up 0.1%, and the DAX fell 0.7%.
    • The U.S. Dollar Index gains 0.5% to 100.23.

    AMC Entertainment (NYSE:AMC+47%.

    • Gold prices could climb past $2,000/oz., AngloGold (AU -3.8%) CEO Kelvin Dushnisky said on today's earnings conference call, while stressing that the company is not reliant on the gold price reaching such heights.
    • "Given the quantitative easing we're seeing, the likelihood of interest rates being lower for longer and all of those factors coming together, I think there's every chance that the gold price could exceed $2,000/oz. That would not come as a surprise to me at all," Dushnisky said.
    • The company could increase dividends, as a windfall from higher gold prices offsets production losses from the pandemic, the CEO also said.
    • AngloGold has a dividend policy of paying 10% of free cash flow before growth capital, and margins are poised to increase as the company generates strong operating cash flows on a higher gold price.
    • Dushnisky also says the company's sale of its South African portfolio to Harmony Gold has made excellent progress, with unconditional competition approval received last week.
    • The company also has decided against selling its Cerro Vanguardia mine in Argentina, believing it can derive more value for shareholders by developing its remaining potential.
    • New York City, the epicenter of COVID-19 pandemic, is likely to stay in lockdown into June, Mayor Bill de Blasio said at a press briefing.
    • Though some parts of New York state will be able to reopen starting May 15, that's not likely to include NYC, said New York Governor Andrew Cuomo.
    • Hospital admissions and intensive-care admissions in the city have continued to decline, indicating progress is being made in slowing the spread of the virus. Still, the data on virus incidence shows that NYC is "clearly not ready yet" to reopen, de Blasio said.
    • That means the city's pools and beaches will remain closed on Memorial Day, which is traditionally the first day they open.
    • Even in the lockdown, there may be a glimmer of hope for an uptick in economic activity as there are "early signs of turnaround in daily and weekly indicators for NYC subway usage," according to Deutsche Bank.
    • Keep an eye on the data, though, to see if the increased subway usage then leads to an increase in virus cases.

     Gannett (NYSE:GCI+26%

     Under Armour (NYSE:UAA-10%

    • Barrick Gold (GOLD -4.7%) will look to take advantage of lower copper prices and higher gold prices to make an acquisition in the sector, CEO Mark Bristow tells Financial Times.
    • Gold prices have climbed 13% YTD at $1,695.49/oz., helping Barrick pay down its debt, while copper prices have pulled back 15%, reviving speculation that the company might try to make a deal for Freeport McMoRan (FCX -3.4%).
    • Bristow tells FT "there are no options off the table" when it comes to his interest in Freeport, which owns the Grasberg mine in Indonesia, the world's largest gold mine and second largest copper mine.
    • "We have a very solid balance sheet now, so we've got a lot more bench strength financially than Barrick had for a decade-and-a-half," Bristow says.
    • Bristow said on the company's earnings call last week that he expected a "dynamic M&A" environment this year and that Barrick was "not shy" about making deals.
    • Czech billionaire Daniel Kretinsky took a 5% stake in Macy's (M -1.3%), according to a new disclosure.
    • Kretinsky's Vesa Equity Investment took the position for strategic investment purposes and plan to engage with management.
    • SEC Form 13D
    • Treasury Secretary Steven Mnuchin is comfortable with the government's $3T in spending to blunt the impact of the coronavirus on the economy because the government can lock in very low interest rates over long durations, he told CNBC.
    • "Between 10 years, 20 years, and 30 years, we’re borrowing an awful lot of money long term so that we can lock in this $3T for a very, very long period of time," he said.
    • Mnuchin likens the issuance of low-interest-rate debt to a "refinancing" without actually repurchasing existing Treasury notes from the market.
    • "We obviously don’t want to disturb the markets too much, but we’re going to take advantage of refinancing all of our debt to make sure that we have very low rates. I think that’s something that’s a great opportunity for us," he said.
    • 10-year Treasury note yield is at 0.71% in trading today and 30-year yield is at 1.42%.
    • The office of House Majority Leader Steny Hoyer (D-MD) told representatives "that pending introduction of legislation, it is possible that the House may meet this week, no earlier than Friday," according to CNBC.
    • Democrats and Republicans are also discussing a rule change that would make it easier for lawmakers who aren't physically in the Capitol to vote on legislation.
    • For the next round of virus relief, House Speaker Nancy Pelosi has been reportedly been pushing for a package that would approach the $2T spent in the March legislation and would include aid for state and local governments, funding for testing, and another direct payment to Americans.
    • Republicans, though, are playing down the need to spend more money to mitigate the economic damage from the pandemic.  White House economic adviser Larry Kudlow doesn't expect any formal talks between the administration and Congress until late May or early June.
    • Separately, Treasury Secretary Steven Mnuchin said he's willing to look at a technical fix to the Paycheck Protection Program that would help restaurants, which are only now starting to re-open, qualify for loan forgiveness. The program dictates that businesses must spend 75% of the loan amount on payroll within eight weeks in order to get the loan forgiven.
    • KeyBanc data suggests that Apple's (AAPL +0.9%) iPhone sales fell sharply in April, with retail stores mostly closed and heavy pressure on consumer spending.
    • The phone's sales dropped 77% Y/Y and 56% from the previous month, KeyBanc says.
    • Online sales rose from March, but weren't able to offset the store closures, the firm says.
    • And a "modest bump" in phone sales in the second half of April is probably due to stimulus payments, but may not be sustainable, it says.
    • That's a negative for several Apple suppliers, analyst John Vinh writes, all of which the firm rates Sector Weight: Cirrus Logic (CRUS -2.6%), Qorvo (QRVO -0.6%), Qualcomm (QCOM +0.0%), Skyworks (SWKS -1.8%), and Synaptics (SYNA -2.0%). It's still Overweight on Broadcom (AVGO -0.7%).


    • Mosaic (MOS -8.9%) is one of the three worst performers on the S&P 500 after Bank of America downgrades the stock and three other agricultural companies, warning Q1 could mark the peak for the group in terms of volume growth.
    • BofA cuts Mosaic, CF Industries (CF -7.3%) and Nutrien (NTR -3.4%) by two notches to Underperform from Buy, while lowering Corteva (CTVA -5.1%) to Underperform from Neutral, saying optimism surrounding the group "has diminished greatly as record corn acres, lower fuel ethanol consumption, and record soybean production in Brazil could lead to the lowest cash prices for corn and soybeans in 14 years."
    • Analyst Steve Byrne expects the sector will "struggle in 2H20 and potentially into 2021."
    • MOS's average Wall Street analyst rating and Seeking Alpha Authors' Rating are Bullish, while its Quant Rating is Bearish.

    You know why Ag is getting killed?  Restaurants waste incredible amounts of food – not just the huge portions but all the food they cut away to make their presentations and food that gets old because they don't use it or make too much….  Restaurants closed is killing demand in that sector.  

    • Stifel drops Lyft (LYFT -5.1%) to a Hold rating after having it slotted at Buy.
    • The firm now sees a balanced risk-reward profile.
    • "In reviewing our investment case for Lyft, we are challenged to continue to recommend shares at this time given the likely slow and uncertain path to recovery for the domestic ridehailing market. We think Lyft is managing as best as possible through this current period and do believe the company can emerge on the other side of this environment as a stronger, leaner company. We continue to support the company given secular growth trends, profit generation potential, and an innovation-focused team, however, view shares are more fairly balanced on a risk/reward basis given significant near-term headwinds."
    • Stifel's price target of $35 on Lyft is below the average sell-side PT of $43.36.
    • Barclays warns on valuations in the transportation sector in a fresh note out this morning.
    • "While we suspect volume and demand outcomes are nearing a bottom this May, the pace of recovery remains a large debate in the market. The reopening of economies across Europe and the U.S. should drive some incremental demand in the global supply chain this summer, but we remain concerned that social distancing requirements, as well as unprecedented unemployment levels, will constrain the pace of recovery," writes analysts Brandon Oglenski, David Zazula and Matthew Wisniewski.
    • The team notes most large-cap railroad equities appear to be valued at or above mid-cycle levels, suggesting softer results in 2021 could lead to some contraction in multiples. On the other side, small-cap freight equities such as trucking firms are seen trading at more favorable trough valuations at present.
    • Last month, Barclays lowered UPS (NYSE:UPS), Canadian National Railway (NYSE:CNI), and Norfolk Southern (NYSE:NSC) to Underweight ratings.
    • The COVID-19 pandemic deflates consumer expectations in the New York Fed's Survey of Consumer Expectations, with many metrics reaching record lows (or highs) since the survey began in 2013.
    • Median household income growth expectations dropped to 1.9% in April, reaching a new series low; 21.9% of respondents expect household income to decline over the next year.
    • Median household spending growth expectations fell 0.1 percentage point to 2.2% last month, another new series low.
    • Consumers are also less hopeful about access to credit — 48.0% of respondents expect credit will be harder to access vs. 38.8% in March.
    • The perceived probability of losing one's job in the next year reached a new series high of 20.9% in April, up 2.4 pp from March, which notched the previous record high.
    • Conversely, the mean perceived probability of finding a job in the next three months (if the respondent lost their job) sank 6.1 pp to 47.0% in April, the largest M/M decline since the survey started.
    • For the first time since the survey began, the median one-year ahead expected change in home prices dropped to 0% in April, with 44.2% of respondents expecting home prices to decline over the coming year.
    • Median inflation expectations increased in April by 0.1 pp at the one-year horizon to 2.6% and by 0.2 pp at the three-year horizon to 2.6%.
    • Under Armour (UAUAA) is the leading decliner in the S&P 500 Index after a soft earnings report and a warning from management that Q2 revenue could be down 50% to 60% as the retail normalization process plays out slowly. The consensus view from analysts was for a 30% drop, although not every firm had an updated estimate on the books.
    • UA execs also warned during the firm's conference call on a promotional environment that lasts even beyond the summer and broad macro headwinds.
    • "With Under Armour having slower sales momentum than its competitors, we expect sales to be under greater pressure near-term and for its sales trend to take longer to recover," updates Telsey Advisory analyst Cristina Fernandez in a post-earnings update.
    • Shares of Under Armour are down 11.97% to $8.79.
    • Plugging in the data from Friday's jobs report, the Atlanta Fed's tracker now predicts a 34.9% decline in GDP in Q2 vs. -17.6% previously. Even real government spending growth is seen contracting, down 6.7% vs. down 4.8% previously.
    • The Blue Chip forecast remains at about -28%.

    BUYBUYBUY!!!


    • U.S. shipments of pork to China have soared over the last few months even as shortages have been seen in the U.S., according to USDA data.
    • Meat processors are now adjusting their production to supply more U.S. consumers amid the growing scrutiny.
    • While Tyson Foods (TSN -1.1%), Smithfield (OTCPK:WHGLY) and Hormel (HRL +1.2%) have all reopened plants during the last week that were closed due to COVID-19 outbreaks, sick outages and slower production rates are expected to limit output for the near term.
    • Nvidia (NASDAQ:NVDA) is up 2.3% to a record high, after Needham bumps it to a Street-high price target.
    • The firm's Ranvindra Gill and team raised its price target to $360, implying 12.7% further upside; the company's shares rose 47% since Needham's last upgrade and "have blown past" the prior price target, they say.
    • Needham is increasing gaming estimates, "driven by higher Nintendo Switch estimates and discrete GPU sales due to strong adoption of gaming titles."
    • It's also increasing data center estimates, specifically driven by increased spending by the hyperscalers, and adds that the Mellanox acquisition will be highly accretive.
    • Street analysts are Bullish on NVDA, while Seeking Alpha authors are Neutral. The stock has a Quant Rating of Neutral.

    • Waste Management (WM -1.1%) CFO Devina Rankin wants to charge cities and towns more to pick up their trash and recyclables, due to a surge in volumes with Americans stuck on home.
    • "We need to have conversations about the level of service we are required to provide because it is different than what we signed up for," she added.
    • The weight of residential waste has increased 15% to 25% since the beginning of widespread lockdowns, while the drop in commercial and industrial trash reduced Waste Management's revenue by about $40M in Q1.
    • Toyota (NYSE:TM) plans to cut North American production by nearly a third to ~800K vehicles through October of this year, according to Reuters.
    • The Japanese automaker is reported to be planning on the production level on its expectation that it will take some time for output to return to normal.
    • Toyota is gradually resuming output today at seven plants in North America.
    • ArcelorMittal (MT -12.9%) opens sharply lower after announcing a proposed offering of common shares and mandatorily convertible notes for a combined $2B.
    • The company says the capital raise is a proactive measure to accelerate the achievement of its $7B net debt target.
    • ArcelorMittal says its liquidity position stood at ~$10B as of March 31, supplemented by a new $3B equivalent credit facility fully executed on May 5.
    • On Friday, Moody's cut ArcelorMittal’s credit rating to junk, saying the steelmaker is vulnerable to demand loss due to coronavirus.

    • The Fed will continue exert downward pressure on rates, Guggenheim's CIO Scott Minerd wrote earlier, via its forward guidance and bond buying, which, in the intermediate term, may push the 10-year yield to 0.25% soon, and "possibly go negative in the intermediate term."
    • He says that Guggenheim's portfolios now reflect a "long period of repression" in the yield curve and that they will "opportunistically" build credit exposure amid market dislocations.
    • Tail risks in pricing credit risks have been reduced by the Fed and Treasury actions, pointing to many "fallen angels" like Ford and Kraft Heinz completing offerings even while being distressed just weeks ago.
    • The long bond could "ultimately reach 25 basis points," the outlook explains.
    • JPMorgan is out with positive comments on AutoNation's (NYSE:AN) Q1 earnings report.
    • "Overall, a solid set of results and in context of the stock's recent underperformance (~500bps over the last month), we could see outperformance today pending further detail on the call," writes analyst Ryan Brinkman.
    • "AN's results are also a continuation of strong auto dealerships results this season that is likely to drive upward forward revisions driven by multiple levers, including used vehicle retail, F&I and significantly lower floor plan expense."
    • Shares of AutoNation are up 9.08% premarket to $41.80.
    • Previously: AutoNation EPS beats by $0.20, beats on revenue (May 11)
    • Previously: AutoNation positive on earnings beat (May 11)
    • The team that gave us at the "Sell! Sell! Sell!" note at what turned out to be nearly the bottom of the March market panic, is now warning of the risks to the current rally.
    • Among the concerns from Goldman's David Kostin: $103B in expected bank loan losses over the next year, lack of buybacks, dividend cuts, and domestic and global political uncertainty.
    • There's also this minor issue of the virus, and why Kostin celebrates success in New York in bringing cases down, he notes cases are rising elsewhere in the country. This dynamic could accelerate further as folks slowly return to their lives, he worries.
    • The China Association of Automobile Manufacturers says it expects auto sales for the year to be down 15% to 25% depending upon the severity of the pandemic and supply chain issues.
    • The CAAM confirms April auto sales were up 4.4% to 2.07M vehicles to follow a 42% drop in Q1. The positive growth was the first in 21 months in China as some pent-up demand was unleashed.
    • The Baltic Dry Index fell 7.78% to 474 points in London to mark the 14th straight day of a decline.
    • The Baltic Dry Index bottomed out at 411 on February 10 and traded as high as 2,518 last September.
    • Capesize rates fell back 20.9% and Panamax rates were down 1.6%.
    • Related ETFs: Invesco Shipping ETF (NYSEARCA:SEA), Breakwave Dry Bulk Shipping ETF (NYSEARCA:BDRY).
    • Even though weekly net new orders have improved in recent weeks, PulteGroup (NYSE:PHMis cutting costs through layoffs, furloughs, and other measures as order rates for the month of April are still down about 50% Y/Y.
    • Sees Q2 charge of ~$10M for severance and related costs.
    • Expects to reduce overhead expenses by ~$100M on an annualized basis, of which $65M will be realized over the rest of 2020.
    • Weekly net new orders increased to almost 400 homes in the week ended May 3 vs. 140 homes in the last week of March.
    • General Mills (NYSE:GIS) says it experienced an unprecedented increase in consumer demand for food at home, particularly impacting its North America Retail and Europe & Australia segments
    • The food company says the magnitude of increased at-home food demand moderated in April, but is still significantly elevated compared to pre-COVID-19 levels. In contrast, the company has seen a substantial decline in away-from-home food demand since the onset of the pandemic. Globally, at-home food represents approximately 85% of General Mills sales and away-from-home food represents the remaining 15%.
    • General Mills lifts FQ4 expectations to reflect stronger than anticipated at-home food demand in March and April, with an expectation that trends will moderate in May but remain significantly ahead of pre-COVID-19 levels. The company guides for organic net sales to increase double digits during the quarter and adjusted operating profit is expected to grow faster than organic net sales reflecting benefits from operating leverage. As a result, General Mills expects to top prior full-year guidance for 1% to 2% organic sales growth and 4% to 6% constant-currency adjusted operating profit growth.
    • GIS +1.88% premarket to $60.88.
    • Source: Press Release
    • Virgin Group, through its subsidiary Vieco 10 Limited, may sell up to 25M of its shares of Virgin Galactic (NYSE:SPCE) in an at the market offering.
    • The company will use the proceeds to support its portfolio of global leisure, holiday and travel businesses that have been affected by the unprecedented impact of COVID-19.
    • SPCE -4.6% premarket

  24. Phil, Would it be possible to add the source for "News" links, in addition to, or instead of, the author's name, as WSJ and Bloomberg require a subscription in order to read article..


  25. I am comforted by the fact that Bezos is $14B richer than before the virus hit.  All is right with the universe.


  26. Source/Zten – The programmers are looking into it. Try opening in an incognito window. Also, not so terrible if you subscribe and support journalism!


  27. Not bad action for a Monday.  

    Of course it's all positive with the re-opening at the moment, will take two weeks to find out if it was a mistake.  What I'm more concerned with is how slowly we begin to recover though slowly is better from a safety standpoint.



  28. How we ‘Leeeeroy Jenkins’-ed the coronavirus reopening


  29. The China Virus (No, Not That One)



  30. Norway busts the spending cap on its wealth fund