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Friday Follies – America Heads to the Beaches

Show Me The Way To Go Home Jaws Gif - Decorating Ideas"Come sleep on the beach

Keep within my reach

I just want to die with you near

I'm feeling so high with you here

I'm wet and I'm cold


But thank God I ain't old

Nothing is planned, by the sea and the sand"Who

It is, as noted by Linette Lopez "The Perfect Storm of Stupid" in which, for purely economic reasons, we are risking the lives of Millions of Americans to get business back up and running for Memorial Day Weekend.  She notes that China's economic rebound has been led by manufacturing and industrial sectors while the country's service sector, especially when it comes to transportation and leisure, is still pretty dormant.  That is bad news for the US.  Most of our economy is made up of small and midsize businesses in the service sector.  Consumption is what we do.

Manufacturing will not lead America out of this economic malaise; it simply isn't big enough.  The coronavirus pandemic has hit our economy exactly where it counts: in services.  we have in the market is an unholy mess. We have bored, unseasoned, emotionally conflicted investors playing around in a murky pool where one of the most opaque sectors has the ability to make the biggest waves. It's very stupid — people are going to drown.

Meanwhile, I've been discussing my own experiences in Florida this week as you are hard-pressed to find people wearing masks down here and the hotel my daughter is staying at (she drove down) is now about 1/3 full and the restaurant we ate at last night (I know!) was half full with the staff wearing masks but none of the customers doing so.    

This has been going on since last weekend and every day people get braver and braver but, meanwhile, do you see that spike in new infections.  Well, spike is an understatement because it's a 100% increase in new cases over the prior few days.  I don't want to jump to conclusions so we'll check back on Tuesday but let's say we add 1,200 a day for the next 3 days – that would be 4,800 in 4 days or a 10% increase in cases just a week after we open up.  How would that be going?

Texas is also back in the 1,000 case per day club after opening back up as is Georgia (a much smaller state).  Wisconsin only has 6M people yet they've managed to jump from 100 back to 300 infections a day in just a week since opening – and they are one of Trump's main success stories!

North Carolina and North Dakota are both states with inferiority complexes to their southern sister states and both of them rushed to re-open and both of them are on disastrous tracks.  It's very, very clear that reopening leads to more cases – just how many cases remains to be seen and then we'll get to see how many people do have to die for the economy – if it even ends up being enough to help.

Best moments from Jaws | FilmsNonetheless, the market should have a bit of a boost this morning as the beaches are, indeed open and, so far, only a few kids have been eaten by sharks so why ruin everyone else's fun, right?  Mnuchin and Trump are pushing the GOP to move forward with another stimulus package and we have dozens of potential cures and vaccines people are already counting on to fix everything but it reminds me of 30 years of Jerry Lewis telethons for Muscular Dystrophy when he always talked about the promising cures they were working on and that it was always "just around the corner".  

I'm not saying we shouldn't work on cures for these things – I think it's urgent that we do so – I just think that we should be realistic about the problem, how badly it will affect us and how long it will take to fix so people can do ACCURATE assessments of the situation.  False hopes can cause as much damage as the disease….

?False hopes are very much driving this rally at the moment and we did well (again) shorting the S&P (/ES) at 2,950 yesterday so that's still going to be our line and 1,350 on the Russell (/RTY) has also been hard to cross.  I can't believe we're going to go into the weekend without a sell-off – there must be some rational traders out there – somewhere.  

Have a great weekend – enjoy the beaches, 

- Phil


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  1. It looks like a tale of 2 markets – I assume that most companies listed in the Nasdaq are much less affected than the ones on the NYSE or Russell and it shows in the charts. But the Russell and possibly the NYSE have been lifted with the rest of the indices although many of their components are in big trouble since most of their sales are domestic. But hey, $6T and going although that money is not going where it's needed.


  2. The war on science worked:

    https://arstechnica.com/science/2020/05/survey-shows-rising-trust-in-scientists-politicization-of-basic-facts/

    Over the past four years, trust in researchers has grown among Democrats, but not Republicans.

    At least with the target audience! These numbers in the red bars have not moved since Galileo it seems.


  3. Tales of 2 markets confirmed:


  4. Good Morning.


  5. Interesting study of the European response:

    https://www.bloomberg.com/graphics/2020-opinion-coronavirus-europe-lockdown-excess-deaths-recession/

    There is some correlation but not exact between tough measures and economic impact. Sweden basically tried herd immunity and hardly suffered but Denmark, Norway and Finland went into lockdown and are doing well. One factor might also be the reliance of the economy on tourism – clearly France, Spain and Italy are popular destinations so that impact would be larger.



  6. Friday follies indeed – but we don't want to bail out these blue states who didn't spend the money necessary to prepare. Oh wait….

    https://gizmodo.com/alabama-running-out-of-icu-beds-for-coronavirus-patient-1843602321

    Alabama is running out of ICU beds to treat coronavirus patients, according to the mayor of Montgomery, the second largest city in the state. The dire news comes as Alabama’s governor, Kay Ivey, continues to lift restrictions put in place last month to slow the spread of covid-19.

    “Right now, if you are from Montgomery and you need an ICU bed, you are in trouble,” Montgomery Mayor Steven Reed said at a press conference on Thursday.“If you’re from central Alabama, and you need an ICU bed, you may not be able to get one because our health care system has been maxed out.”

    Mayor Reed went on to say that coronavirus patients in Montgomery are being diverted to Birmingham where there are still some ICU beds available. Part of the problem is that Montgomery is being overwhelmed with patients from rural parts of Alabama where ICU beds don’t exist.


  7. Goldman says buy EWZ


  8. I think Goldman is a little early on that call…….i'd wait to see how the Covid mess shakes out there first..


  9. Phil,

    Any thoughts on the storage space REIT space – specifically EXR and PSA?

    Thanks


  10. Good morning!

    Big Chart – Still waiting. Not good to spend a week failing the 200 dma (3,000 on /ES).

    See the failures.  When you are going to get over resistance – you just do it.  When you falter at resistance, you probably need another pullback before you can get there.  

    Nas also a good example:

    Not going where it's needed/StJ – As long as SOME of the money goes where it's needed – that's a lot.  TARP was $700Bn and that was huge, this is 10x TARP and, though a lot of it is going to the Oligarchs (and I'm sure Trump is pulling a Putin somehow and enriching himself), enough should spill onto businesses to avoid a Depression though, eventually, it's the unemployment that gets you.

    These guys don't get that, the market runs on relative performance so flattening things out during a virus when things may get worse down the road is only going to lead to worse comps going forward – all we're buying for $6.7Tn is kicking the can down the road unless we also address the underlying issues of the virus itself and the jobs it's destroying. 

    This Debt Kicks Can – Grrr Graphics

    That was earlier this year, we're at $25.369Tn now.  

    Alabama/StJ – And they are lifting restrictions at the same time.  We are truly lemmings…

    Lemmings GIFs - Get the best GIF on GIPHY

    Hole GIF - Find on GIFER

    EWZ/BDC – I think not!

    As Brazil solidifies its status as the world’s new coronavirus hotspot with another record day for infections and deaths, the nation’s disjointed response is fueling concern that the worst is yet to come.

    There’s no health minister after two officials who occupied the top post left following clashes with President Jair Bolsonaro, who has dismissed efforts to slow the disease’s spread. Only about 800 of the 15,000 ventilators bought by the federal government have been distributed due to problems with logistics. Sao Paulo, the epicenter of cases and the country’s financial hub, announced a last-minute, six-day public holiday after plans to restrict traffic flopped, sowing confusion among businesses and workers. On Tuesday, U.S. President Donald Trump said he’s considering a ban on Brazilians traveling to the U.S.

    Investors are growing increasingly concerned that leaders aren’t up to the task at hand as cases soar. In the past few days, Brazil has overtaken Spain, Italy and the U.K. and now trails only Russia and the U.S. in confirmed Covid-19 infections. The latest data show 271,628 people have tested positive, and almost 18,000 deaths from the disease — numbers that don’t reflect the true scope of the outbreak given a widespread lack of testing. Meanwhile, Brazilian stocks and its currency are the world’s worst performers.


  11. Banana disease poses threat to $25bn industry


  12. PSA/8800 – We've invested in PSA in the past but I don't see clearly how public storage will be affected.  This may lead to a housing crisis – especially if the government abandons homeowners – as it seems they are doing and last crisis PSA dropped 50% (when we became interested) to $50 from $100 so $184, which is $32.25Bn on $1.5Bn in earnings last year is still over 20x and way more than I'd pay for it.   EXR no different, they both ran up to ridiculous levels and have now pulled back to silly levels but that's no reason to buy them.

    PSA pays and $8 dividend (4.4%) but you can sell the Jan $150 puts for $8 so, if you want to play for dividends – I'd do that instead of messing around with the stock but you'd better REALLY want to own them, even if they are at $100 (where I'd love to own them).

    Fauci/Pstas – He's been cheerleading any potential cure, I take it with a grain of salt.

    The nation's top infectious disease expert, Dr. Anthony Fauci, has been conspicuously absent from national television interviews over the last two weeks, as the White House moves ahead with reopening the economy.

    Fauci was present at Trump's "Operation Warp Speed" briefing last Friday, when the administration detailed a plan to roll out an eventual vaccine. He was wearing a mask and standing behind the President. But he didn't make any comments, unlike at other briefings and events where he was front and center.

    I think he's been ordered to play ball and inspire confidence or else.







  13. Ah, here you go:

    Anthony S. Fauci, the top U.S. infectious disease expert, said he’s hopeful that Americans will begin hearing directly from him and Dr. Deborah Birx, the White House coronavirus task force coordinator, on a more regular basis. Since Trump ended his daily briefings, the public hasn’t heard nearly as frequently from Fauci or Birx.

    "I think you’re probably going to be seeing a little bit more of me & my colleagues,” Fauci told CNN. “They realize we need to get some of this information out … Hopefully you’ll be seeing more of us.”

    I said a few weeks ago he would have been better off publicly breaking with Trump and he would have gotten all the airtime he wanted to speak the unvarnished truth.  

    Experts warned that the push to reopen the United States could lead to a second wave of infections across parts of the South and Midwest.

    More evidence has emerged on why covid-19 is so much worse than the flu. Researchers found evidence the coronavirus attacks the lining of blood vessels there, a critical difference from the lungs of people who died of the flu, according to a report published Thursday.


  14. And this one is for Tucker Carlson, may he burn in Hell!

    A new study from Columbia University epidemiologists suggests that enacting social distancing measures a week earlier in the United States could have saved 36,000 lives.


  15. Phil,

    Thanks for the valuation perspective on the storage space.


  16. Any thoughts on Foot Locker earnings?  Does it change your outlook?


  17. Your welcome, 1020 – we have to focus more on reliable trends that are shaping up:

    • Videogame sales surged higher for the second straight month of year-over-year gains – marking a new April record in the process, as consumers responded to widespread lockdowns by staying in and playing.
    • Industry sales rose 73% overall from April 2019, to $1.5B, according to NPD Group; easily the best April on record. It passed the $1.2B generated in April 2008.
    • Year-to-date spending – which was down slightly as of last month - is now up 12% vs. 2019, to $4.5B.
    • Gains were again broad, with hardware sales providing another positive shock in the late stages of a console refresh cycle. Hardware spending rose 163% to $420M from a year-ago $160M; meanwhile, accessories/game cards spending rose 49%, to $384M, and software sales rose 55%, to $662M.
    • Hardware sales were predictably led by Nintendo Switch (OTCPK:NTDOY), the month's best-seller in both unit and dollar sales. The year-to-date sales of the Switch are the highest of any platform in U.S. history, topping the run of the Nintendo Wii in January-April 2009, analyst Mat Piscatella notes.
    • Accessories spending rose 49% and is up 8% YTD (to $1.3B); the best-selling gamepad was an old standby, the PS4 DualShock 4 Wireless Controller Black, while the best-selling headset/headphone was Turtle Beach's (NASDAQ:HEAR) Xbox One Ear Force Recon 70.
    • Software saw another strong month from Call of Duty: Modern Warfare (NASDAQ:ATVI) topped by the debut of Final Fantasy VII: Remake (OTCPK:SQNNY), which took the top spot and becomes 2020's No. 3 seller overall. Both those titles topped another strong pandemic-era player, Animal Crossing: New Horizons (OTCPK:NTDOY).
    • Rounding out the top 10 in software dollar sales: No. 4, NBA 2K20 (NASDAQ:TTWO); No. 5, Grand Theft Auto V (TTWO); No. 6, Resident Evil 3 (OTCPK:CCOEY); No. 7, Call of Duty: Modern Warfare 2: Remastered (ATVI); No. 8, MLB: The Show 20 (NYSE:SNE); No. 9, Madden NFL 20 (NASDAQ:EA); No. 10, Red Dead Redemption II (TTWO).
    • Related tickers: (OTCPK:NTDOY +0.1%), (SNE +0.4%), (MSFT -0.3%), (HEAR +4.9%), (EA +0.9%), (ATVI +0.8%), (TTWO +2.0%), (T -0.6%), (OTCPK:UBSFY +0.4%), (OTCPK:NCBDY), (OTCPK:SQNNY), (OTCPK:CCOEY +5.0%), (OTCPK:SGAMY). Retail stock: (GME -5.0%).
    • ETFs: (GAMR -0.1%), (ESPO -0.0%), (NERD -1.3%)

    So we don't know when the lockdown will end or if there will be a second wave and I'd say that most of these guys are pre-selling what would have sold in Christmas so nothing to jump on as they are not cheap.

    • Arconic (ARNC +6.1%) marches higher after multiple insiders bought shares this week.
    • On May 20, CEO Tim Myers bought ~13K shares at an average $10.37/share, CFO Erick Asmussen purchased 20K shares at an average $9.94, Chief Legal Officer Diana Toman acquired ~10K shares at an average $10.49, and two board members also bought shares during the week.
    • Shares spurted higher after Credit Suisse began research coverage with an Outperform rating and $22 price target, saying the company faces a "major inflection point" in Q3 as Ford and GM accelerate production.

    That's more reliable as GM and F are certainly moving to more electrics and need lighter cars.   They made $60M last Q and $144M in Q4 and should be good for about $160M in earnings and you can buy the whole thing for $1.3Bn at $12 so I'd say it's really undervalued as people haven't seen enough after the AA spin-off to value it properly and the virus disrupted their story getting out.

    So, ARNC is a great addition for our Future is Now Portfolio and we can start with:

    • Sell 10 ARNC Jan $10 puts for $1.55 ($1,550)
    • Buy 20 ARNC Jan $8 calls for $5 ($10,000) 
    • Sell 20 ARNC Jan $12 calls for $2.60 ($5,200)

    That's net $3,250 on the $8,000 spread that's currently 100% in the money with a $4,750 (146%) potential gain in 8 months if ARNC simply stays above $12.  Downside risk is owning 1,000 shares at net $13.25 (if the bull call spread is wiped out), so it's a little aggressive but the net margin on the puts is only $617 – so we can easily double down if we get in trouble.  

    FL/Jeff – We know this Q would suck – hard to sell when you are closed.  Half the stores are still closed so next Q will suck too. They dropped EPS expectations from $1.54 to 0.36 but that's not a loss and they RAISED 2021 from to $3.90 from $3.28 so, as long as you are a long-term INVESTOR and not a trader – you should be hoping they drop back to $20 so you can add more.  

    FL Long Call 2022 21-JAN 25.00 CALL [FL @ $25.89 $-3.43] 30 5/20/2020 (609) $28,500 $9.50 $-1.35 $9.50     $8.15 $-1.67 $-4,050 -14.2% $24,450
    FL Short Call 2022 21-JAN 37.50 CALL [FL @ $25.89 $-3.43] -30 5/20/2020 (609) $-17,250 $5.75 $-1.95     $3.80 $-1.75 $5,850 33.9% $-11,400
    FL Short Put 2022 21-JAN 25.00 PUT [FL @ $25.89 $-3.43] -10 5/20/2020 (609) $-7,200 $7.20 $0.20     $7.40 - $-200 -2.8% $-7,400

    In the LTP, we're about net even and not enough price move to jump in and make adjustments.  Buying back the short calls so early would be drastic but at 50% I'd strongly consider it and the 2022 $20 calls are $9.80/11 so let's say $10.50 and the $25s are $7.40/8.70 so let's say $8 and that's right on the cusp of where I'd want to roll lower but there's nothing so compelling that I'm dying to throw $7,500 more at this trade.  It's not that off target and they should rebound so the best thing to do is wait, PATIENTLY, for Q2 earnings and THEN see about making an adjustment based on 3 months and 2 days worth of information since we initiated the 2-year trade rather than just the 2 days.  cheeky


  18. Julia Roberts and other celebs team with Dr. Fauci for #PassTheMic campaign

    https://www.cnn.com/2020/05/20/entertainment/julia-roberts-fauci-passthemic/index.html


  19. The Bug/all – Probably a good time to introduce this paper. It's modeling, but based on good data. Summary: the bug is happiest between 4 °C and 12 °C, so the epidemic will go away in the summer. It may well come back in the fall, though. Plan accordingly. https://www.mdpi.com/1660-4601/17/10/3493


  20. The Bug/vaccines. The Oxford trials are starting phase II & III studies. Fingers crossed, but it looks very encouraging. https://www.reddit.com/r/COVID19/comments/gofoxk/oxford_covid19_vaccine_to_begin_phase_iiiii_human/


  21. Snow /Oxford

     

    Astra Zeneca is partnering with Oxford and  U.S government however stock is not reflecting the potential of the favorite bet in comparison with Moderna or others.


  22. 4-12/Snow – Then why are Brazil and Florida having infections.  Barely got below 70 all winter in Florida.   Might explain why we are not worse, given how lax the lockdown has been.  Texas bad too and they are warm as well but much drier than Florida.  

    I like this state by state map which tells you the infection rate in your county (or where you are thinking of going).  It's 1/300 around me and 1/165 in Miami.  Needless to say, I don't go South!  Philadelphia, where Maddie is at the moment, has 1/76 – she's not leaving the house!   Boston much worse, 1/46!   May as well get it over with at that level.  Amherst 1/85 but worst of all is my old county of Passaic, NJ with 1/33 people infected!   NYC is "only" 1/42.

    How people think this thing is over is beyond me! 


  23. In fact, here's the infection trend for the whole World:

    It's so crazy that we're acting like this is contained!


  24. If that were a stock chart – you'd invest in it…


  25. Phil / MU / Risk

    here's where i'm thinking of going with my MU trade 

    Sell 3 MU 2022 $30 puts for $4.10 ($1,230)

    Buy 6 MU 2022 $40/$55 BCS for $10 ($6,000)

    Sell 3 MU JULY $42/$50 strangles for $10 ($3,000)

    This nets me in for $1665 and total margin is $3590. 

    I suppose my real question is about risk on the strangles. I'm reasonably well hedged but i'm right in thinking my strangles break even at the strike plus or minus the premium total ? So on a 42/50 strangle for net credit of $10, im good down to 32 or up to 60?  if this is correct, what the real world application of this in terms of VIX / market selloff in two weeks? 

    thanks!


  26. CMG at 1050 now… was 990 at the beginning of the week. 


  27. Oops – sold some CMG 1050/1060 call spreads yesterday. Liked this position better yesterday!

    Also bought back the NLY $5 puts that I sold back in March during the big spike down. Averaged around $2 on the sales, could've done much better, but bought them all back for $1. Feels nice to have some more dry powder. 


  28. people want the virus to be over so trump gets to play pied piper pityfully it really looks like he will pull it off.


  29. MU/Potter – Well, to some extent the short puts and short calls hedge each other as they can't both be in the money so, as a separate event, the short strangle has a $32/60 range of success but you also have the net $7,335 upside potential in the $40/55 spread as upside cover which, to me, means you have very little risk to the upside and the real risk of this spread is below $32, where you are assigned 600 MU at $31 avg (+$1,665 lost on the spread if you net back $0).  That's the only thing I'd worry about, not that MU blasts $24 over $60 and ruins your short calls and your profit on the spread.  If you can live with that risk – then it's fine.  

    As to the VIX, yes, if the market drops a lot and MU drops, that margin can climb very quickly so you should never sell more puts than you can afford to buy shares and no single position should end up being more than 10% of your buying power (allocation blocks) – 5% being better but unrealistic under $100,000 with 2x margin.  

    If you can afford to own 600 shares of MU for about $34 ($20,400) - then it's a good trade and, if not, then drop to a level you can live with because this spread returns 440% in 18 months so no matter how small of a portfolio you are starting with, you don't need many successes like this to double up so do that sensibly until you have enough money to play more aggressively with.

    Risking the assignment of 600 shares indicates you have a $100,000 portfolio and can own $200,000 worth of stock with margin and, if that's the case, 10 trades like this one give you an upside potential of $70,000, which is PLENTY of money to make on $100,000 over 18 months (and maybe more with more short strangle sales).

    If we use the trusty compound rate calculator and apply 35% a year for 3 years (2 cycles), that's $246,037 by June 2023 and $605,344 in June 2026 and $1,489,474 by June 2029 so your goal should be to trade sensibly within your means rather than overly risk losses because slow and steady really does win this race!  

    CMG/Rn – Crazy!

    NLY/Ati – Always fees better to have some liquidity sitting around.  Funny how people forget that so easily.

    Well, we're drifting into the close and now we'll see how the Holiday Weekend holds up. 

    I'm not going anywhere but I will be at my daughter's hotel having a nice swim.

    I'll be contacting everyone who let Greg know they are interested in the Hedge Fund as that's my main weekend project!

    Have a great weekend,

    - Phil


  30. Virus key temps: that's 39 to 54 F for the rest of us.


  31. Virus temps – and to be very, very clear – that doesn't mean it can't happen in warm places, that doesn't mean it will totally vanish – but it is a happier bug in that, ahem, 39 to 54 deg F range. So you may hear lots of celebrations, and cries of "we beat it" as the weather warms up.


  32. Regardless of outdoor temps, I'll be celebrating when someone can explain why some countries, like Taiwan, have 0.3 deaths per 1M people and The US and some of us have 291 per 1M and up.

    I mean, 3 orders of magnitude kinda pops off the page. It seems to me a lot of wiggle room there for epidemiologists to give, at the very least, plausible explanations as to the reasons for this difference. It's not like we're trying to differentiate between 10 and 20% here, it's 100,000%….

    If we could be enjoying the same viral impact Taiwan is enjoying, I would be ready to celebrate accordingly…


  33. BDC – Even smaller differences are tough to explain – Finland 50 – USA 295! That's 600% more. Clearly many factors are at work besides total incompetence at the top which is a big factor in the USA. I am confident that books and studies will be written one day to explain these numbers.


  34. The Bug – Part of it is simply starting earlier. You put in quarantine measures earlier in the game, it prevents a ton more illness. I saw a paper recently comparing California and New York – San Francisco and NYC in particular – and a huge disparity was the result of coordination between the mayor and the governor, and putting measures in place faster. A week or two is huge in these outbreaks.


  35. If you'd like some good reading of the current research and reasonably informed discussions, I recommend https://www.reddit.com/r/COVID19/

     


  36. StJ – good high level overview of Turmp voters and what I wa saying before about anxiety:

    https://www.electoral-vote.com/evp2020/Pres/Maps/May23.html#item-1

    Use CTRL-F and "what am" to get to the question and answer that goes a job of explaining this. Then move on to defence mechanism wiki.

    "a defence mechanism is an unconscious psychological mechanism that reduces anxiety arising from unacceptable or potentially harmful stimuli."

    That is right. on.




  37. Good link BDC and great explanation on the thought mechanism of the Trump voters!











  38. How to Respond to “Take It or Leave It”