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Faltering Thursday – Jobs Disappear and Take Market Highs With Them

695,000.

That was the most people ever laid off in a single week in the US, way back in 1982.  In March, layoffs peaked out at 6.9M in a single week and, for the month of July, they've been around 1.3M – each week – double our worst week in history 4 weeks in a row.  And this is what President Trump calls a recovery?

As you can see from the Unemployment Chart, we still have about 17M jobless Americans (officially) and it's getting worse again.  Temporarilly laid off workers went back to work but the jobs thate are being lost now are the permanent kind, due to store closing, restaurant closings, etc. – jobs that aren't going to bounce back quickly and can't be "fixed" with a small stimulus loan.  

And, don't forget, the Government supplemented businesses NOT to lay off workers through July but now that those supplements have run out, a lot of companies have to make hard choices to either pay the rent or pay the workers and many are just giving up and doing neither and, when the landlords can't pay the bank – that's when the Fed leaps into action!  A good example of reality from the Wall Street Journal this morning:

Shana O’Mara has been receiving unemployment benefits since early July, after the expiration of a government loan that was sustaining her Tempe, Ariz., travel agency. She stopped drawing a salary from her business to keep it alive, but has continued to work without pay helping customers rebook and cancel trips.

She said her most recent weekly unemployment benefit payment fell to $214 after taxes, from $748 the preceding week, reflecting the July 31 expiration of an additional $600 in pretax federal benefits.  “I don’t think anyone can live on $800 a month,” she said. Her family has stopped ordering takeout, and she called her auto lender and credit-card issuers asking for deferrals. She said the enhanced benefits allowed her to keep serving her clients, rather than seek out a job.

That's happening to 30M people this week – how is that going to be good for the economy?  Despite the record levels of Federal Aid ($33Bn so far this year), 4 farmers a day are going bankrupt this year as the virus affects their workers along with Trump's idiot tariffs and the virus is also hitting food prices as restaurants are mostly closed and consumer spending is way down.  

Before the pandemic, a global grain glut and foreign competition had pushed down agricultural prices. Trade disputes deepened the pain, drawing retaliatory tariffs from top buyers of U.S. farm commodities, such as China and Mexico.  Then the coronavirus hit, upending the U.S. food-supply chain. As restaurants closed, farmers plowed under thousands of acres of vegetables and dumped milk into manure lagoons. Corn prices plummeted as Americans stopped driving, cutting demand for ethanol, a corn-based biofuel blended into gasoline. Prices for slaughter-ready cattle and hogs dropped as meatpacking plants that became virus hot spots slowed or halted production.

Hog farmers have lost nearly $5 billion in actual and potential profits for 2020, according to the National Pork Producers Council, a trade group. In California alone, agricultural businesses stand to lose as much as $8.6 billion, according to a study commissioned by the California Farm Bureau Federation.  U.S. farm debt has grown steadily since then to more than $425 billion this year, the U.S. Department of Agriculture estimates. That is the largest sum since a farm crisis in the 1980s that pushed many farmers and lenders out of business.

If more aid isn’t extended, farm income is expected to fall 12% to $79.4 billion in 2021, according to the Food and Agricultural Policy Research Institute. Government payments would drop by half to less than $17 billion.  “It’s hard to pinpoint the damage when you’re in the middle of the hurricane,” said John Newton, chief economist at the American Farm Bureau Federation. “Sure, half the house is still standing, but this thing is not past us yet.”

Is this our past or our Future?  Sadly, it's hard to tell at the moment…

What happens in the next few months will be critical to America's Future History but, unfortunately, we will have the same "leaders" for another 5 months and I'm not sure we have that long before Depression becomes inevitable.  As you can see from the chart below, our re-opening around Memorial Day led to a 250% increase in virus cases, from 20,000 a day to 70,0000 a day and now our base is 50,000 a day and we're about to send our children back to school, where they will mix with all the other kids and then come back home to you and you can then mix with your co-workers and so on and so on and so on – good luck to us all!  

If the school opening goes as badly as the Memorial Day opening, we're looking at 175,000 new cases per day and that will be game over for the economy.  Even a massive, total shutdown with China-like precautions would take 3-6 months to become effective and our health care system will be quickly overwhelmed.  Even worse, we won't know it for at least a month, that's how long after Memorial Day we began to spike higher – as these infections are very stealthy, which is why they spread so easily.

Be careful out there.

 


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  1. Good Morning.


  2. The Truth Behind A Viral Picture Of A Reopening School Is Worse Than It Looked


  3. Phil, Thanks for the /ngv20 analysis yesterday. Spot on as usual!


  4. MU/ Phil, 

    just to follow up on that trade;  when we took the position a few months back we discussed selling quarterly puts and calls over the course of the spread.   I'm happy to dip back into 45/55s but wondered what time frame you thought?

     

    best


  5. Sorry for those of you without power in the east coast ( including my son and relatives). I forgot to but GNRC in the spring, usually reliable spike in hurricane season.


  6. But should be buy in previous post.


  7. i cant imagine there is any question now that trump is fudging at least the new daily virus cases why else would he put an organization in charge of collecting data that he has long term ties with. Some day he will be an exhibit in a wax museum with the caption pure evil on the base.


  8. Strategy Question for anyone…

    If I wanted to enter a position in HT (beat up hospitality REIT) that I will eventually hope will return in the future to paying dividends – meaning I eventually would like to own the stock

    Would you just buy the stock at these levels?

    Would call options make more sense (less $$ but I can exercise if the dividend returns)?

    Mix of both? — Options only go to FEB so it might limit the choices.

    Thanks





  9. Toyota’s profit plunges as pandemic halves vehicle sales


  10. jeffl, My favorit check 3/19/20 stock was 2.29 you can start by selling the Feb 21 2.5 put for .55.

    I feel it could be to risky at this time to sell the 5 put for 1.00


  11. Good morning!

    Indexes flip-flopping all over the place.  

    /NG/Jasu – You know me, I like to play when it's obvious at the bottom or top of a channel so I can be right half the time.   Playing in the middle is just too dangerous.

    Speaking of being right half the time, I've got a couple of /YM shorts t 27,032 – just so I don't miss out if we get a nice crash.   /NQ is failing 1,100 – that's a good shorting spot too and will be confirmed by 3,300 on /ES and 1,545 on /RTY.

    MU/Potter – Is that spread in a portfolio?  I don't remember having it in, we have 10 short 2022 $30 puts from 5/1 in the LTP but I can't remember adding a bull call spread and you said you had the $40/55 bull call spread and didn't mention the puts, which is how we bring down the cost basis.  Based on what you said you had, with MU at $50 – I'd say it's just an on track position and I said:

    MU/Potter – It's on track, why do anything?  You can sell $55 calls and $45 puts if you are bored but I wouldn't go to crazy.  

    So now I'm just confused as you're saying happy to dip BACK into the $45/55 spread, etc. so I don't know if you have them or don't or what you are asking at this point.  I assumed you had the $40/55 spread because you said:

    current spread 2022 $40/$55.   I had sold a short strangle a couple of months back that expired worthless in my favor but haven't added anything else yet. 

    And my "thoughts" were that it wasn't worth the risk selling puts and calls in the middle of the channel with all this uncertainty because you might get burned but, if you really wanted to, perhaps a 1/2 sale of the Sept $55 calls for 0.85 and the Sept $45 puts for $1.25 to make a little money while you wait but the stock just went up $15 and then down $25 so you could get so badly burned that you turn your perfectly good bull call spread into a loss – so I'm not thrilled with the idea.  

    Power (or lack thereof)/Randers – That sucks, how widespread is it?  GNRC is great.   Another good hurricane stock.

    HT/Jeff – They haven't actually made any money in the past two years so you have to be careful as to their financial situation through the crisis.  These guys have 12x Debt to EBITDA – that's huge and clearly they are going to have trouble making payments in this environment.   Labor is a small part of a Hotel's operating expenses – it's like having a Mansion and firing the servants – you don't save much money and the place gets run down quickly.  I'd be very careful with them.

    The American Hotel & Lodging Association has recently published a short article on "COVID-19's impact on the hotel industry". These are some of the most interesting facts / statements:

    • Impact to the travel industry is expected to be 9x worse than 9/11.
    • 2020 is projected to be the worst year ever for the hotel industry.
    • The forecasted occupancy rates for 2020 are worse than those in 1933.
    • As of April 29, about 8 out of 10 hotel rooms were unoccupied.

    NAK about to get an approval!  Trump family pretending the care about fish:

    Trump says he’ll listen to both sides on Alaska mine project

    I love this:


  12. Hi Andy, 

    Can you please provide the link to yesterday's webinar (8/5) within the Member Chat today when it becomes available. I was unable to listen yesterday. Thank you.


  13. Power outages – I have seen more than 3mm without power. The hard thing is that power companies are giving very wide windows for power to be restored. Could be 1 day to 1 week. 


  14. Phil

     

    Do we have M in any portfolio ?

     

    Thanks


  15. M/QC – Yes, a couple of those.  In the LTP, it's:

    M Short Call 2022 21-JAN 20.00 CALL [M @ $6.41 $0.01] -20 2/24/2020 (533) $-2,800 $1.40 $-1.08 $9.50     $0.32 $-0.01 $2,160 77.1% $-640
    M Short Put 2022 21-JAN 8.00 PUT [M @ $6.41 $0.01] -40 3/23/2020 (533) $-18,400 $4.60 $-0.93     $3.68 $0.06 $3,700 20.1% $-14,700
    M Long Call 2022 21-JAN 5.00 CALL [M @ $6.41 $0.01] 60 3/24/2020 (533) $14,700 $2.45 $0.28     $2.73 $-0.02 $1,650 11.2% $16,350

    We initially doubled down from the earlier play but it's been disappointing on the recovery so we left it alone.  

    We're aggressively long though.  Earnings next week.


  16. Keeping the indexes up single-handedly:


  17. Hello everyone,

    Here is the link to yesterday's Webinar.

     https://youtu.be/Zkr3_9tKI5Y 

    FYI… you can access most of our past webinars by subscribing to our YouTube channel Simply go to YouTube.com and search PhilStockWorld and subscribe for free. All webinars are posted there, as a replay, on Thursday morning.


  18. Phil

    Would you buy AAPL now or before the split ?

    Thank


  19. MU / Phil,

    thanks for the info and guidance. Makes sense.  Just for reference, here's what was said back when we initiated : 

     

    Submitted on 2020/05/20 at 3:49 pm

    Webinar Trade Idea on MU (from Batman) for the Butterfly Portfolio:

    Sell 10 MU 2022 $40 puts for $8 ($8,000)

    Buy 20 MU 2022 $40 calls for $14.75 ($29,500)

    Sell 20 MU 2022 $55 calls for $8.25 ($16,500) 

    Sell 10 MU July $50 calls for $2.20 ($2,200) 

    Sell 10 MU July $42 puts for $2.10 ($2,100) 

    That's net $700 on the $30,000 spread that's $12,000 in the money to start and we're doing a 1/2 sale to generate income which, in the first 2 months out of 18, is a $4,300 return on our $700 investment.  The put sale is aggressive but only net $2,197 in margin and MU is a fantastic company to own for the long-term

    I'm very excited about this trade as the upside potential on the spread alone is $29,700 and if we sell 8 more sets of puts and calls, that's another potential $34,400 – that's a very nice return on a $700 outlay!  

     


  20. Markets plowing higher again.   Why not, nothing matters:

    • CFRA increases its price target to $15 on Hold-rated Norwegian Cruise Line Holdings <<NCLH> >after taking in the company's Q2 earnings report.
    • "We widen our '20 loss per share estimate by $0.60 to $7.54 and cut '21 EPS of $1.38 to $2.41 loss. NCLH said its '21 bookings and pricing are within its historic norms, with $1.2B in advance ticket sales by end of Q2. Still, we see continued near-term uncertainties on the resumption of NCLH's global cruise operations (currently scheduled for October 30, 2020 after earlier postponements), against a backdrop of Covid-19 resurgence and ongoing cross-border travel restrictions."
    • Analyst Tuna Amobi says the firm sees some specter of a potential liquidity squeeze even as NCLH sees sufficient buffer to withstand prolonged voyage suspensions after a $1.5B capital raise in July.
    • Previously: Norwegian Cruise Line Holdings EPS misses by $0.50, misses on revenue (Aug. 6)

    • After a session of mostly indecision, stocks are now climbing as megacaps started to rally, led by Facebook.
    • The S&P is up 0.4%, the Dow is rising 0.4% and the Nasdaq is up 0.7%
    • Facebook is up 6%. Instagram's Reels feature is getting attention amid all this TikTok chatter. It's pushing the Communication Services sector to outsize gains, up 2.4%. Twitter is gaining, as is Disney, with Daniel Loeb's Third Point taking a new position in the stock, calling streaming the company's "biggest market opportunity ever".
    • The rest of the sectors more evenly split between gains and losses.
    • Apple is rising 2.5%, pushing closer to that $2T market cap.
    • Gold (XAUUSD:CUR) is keeping its positive correlation with stocks, up 1%.
    • Rates were under pressure earlier, but are now just slightly lower, with the 10-year yield at 0.54%.
    • Shares of Carvana (CVNA +22.3%) have completely flipped around after an initial post-earnings dip.
    • Carvana reached a new all-time high of $214.85 earlier in the session.
    • "It's a combination of overall e-commerce strength, including the structural shift in consumer shopping habits," says Baird analyst Colin Sebastian on the CVNA surge.
    • The strong post-earnings reaction for Carvana has carried over to Vroom (VRM +8.0%) as well.
    • Compare value grades for Carvana and Vroom.
    • Previously: Carvana EPS beats by $0.15, misses on revenue (Aug. 5)
    • Potbelly (PBPB +21.1%) management estimates that the company removed over $25M in expenditures in the business to help lower its weekly year-ago cash burn from $2M a week in week 13 to roughly $500K per week by the end of Q2.
    • "Our assumptions that support this forecast are fairly conservative and include the following. First, no substantial recovery in same-store sales in the third quarter and slightly improving comps in the fourth quarter. Two, relatively stable expenses from where we stand today and the inclusion of full rents in the second half of 2020. And third, current and projected lease termination costs that will primarily hit the third quarter. Under those assumptions, we would have total cash usage of approximately $14 million for the back half of 2020. It's worth noting that without these lease termination costs, our projected burn rate would fall to approximately $200,000 per week. Now the intent of providing our investors with this information is not to offer guidance. Rather, we wanted to show that even under today's still muted conditions with nearly $46 million in liquidity, which includes $29 million in cash. We have the ability to self fund our path forward."
    • Earnings call transcript
    • Previously: Potbelly EPS misses by $0.17, misses on revenue (Aug. 5)
    • In a note, SVB Leerink warns that the current $115B aggregate valuation for COVID-19 vaccine developers is, unsurprisingly, overly optimistic.
    • Analysts, led by Daina Graybosch, claim that the lofty estimates assume vaccines will be administered every two years in perpetuity at a price north of $37 per American and that global vaccination rates will exceed those for influenza. Current valuations also reflect more government contracts for excess supply and profits similar to branded medicines.
    • Ms. Graybosch adds, "The initial coronavirus vaccination campaign will need to be 86% larger than global influenza vaccination and much more profitable just to support the current valuation, by our estimates." Any shortfall on these assumptions "materially lowers the expected value of this portfolio of products."
    • She is not totally bearish on the group, raising her price target on BioNTech (BNTX -5.1%) to $69 (from $42) after "reassessing" its chances of success. The U.S. government's decision on its option to purchase 500M more doses of its vaccine could swing shares by $10 in either direction.
    • Analyst Mani Foroohar trimmed his peak sales estimate for Moderna's (MRNA -3.2%) vaccine to $2.9B from $5.0B citing expected intense competition and risks to its premium pricing strategy.
    • Selected tickers: AstraZeneca (AZN -0.3%), GlaxoSmithKline (GSK -1.0%), Pfizer (PFE -0.6%), Sanofi (SNY -0.8%), Merck (MRK -0.6%), Inovio Pharmaceuticals (INO -7.1%), iBio (IBIO -4.4%), VBI Vaccines (VBIV -4.2%), Novavax (NVAX -7.0%), Dynavax (DVAX -2.0%); Altimmune (ALT -0.4%)
    • The Federal Reserve Board unveils details of the FedNow Service, a new 24x7x365 interbank settlement service with clearing functionality to support instant payments in the U.S.
    • The features and functionality are set out in a Federal Register notice based on input it received from the public after the Fed's 2019 request for comment.
    • The service will start up in phases, with the first providing core clearing and settlement features to support market needs and help banks manage the transition to a 24-hour, 7-day-a-wee, 365-day-a-year services.
    • Based on ongoing stakeholder engagement, additional features and service enhancements will be introduced over time. 
    • Target launch date remains 2023 or 2024.
    • "The rapid expenditure of COVID emergency relief payments highlighted the critical importance of having a resilient instant payments infrastructure with nationwide reach, especially for households and small businesses with cash flow constraints," said Federal Reserve Board Governor Lael Brainard.
    • Previously: Fed's Brainard talks about forging a faster payment system (Oct. 3, 2018)
    • Jobless claims numbers this morning calmed a lot of nerves, showing a drop in initial and continuing claims.
    • A tick up in both in the previous week raised concerns that the labor market may be going the other way. Weekly claims will provide a little cushion if tomorrow's July payrolls, not as recent, are alarmingly low.
    • In addition to the state numbers, federal claims for Pandemic Unemployment Assistance (PUA) benefits dropped sharply, to 656K from 909K. Such a large drop may be in part due to all the headlines and discussion about those benefits ending.
    • A couple of areas of concern remain, apart from the big one that numbers are still so high historically.
    • The number of people receiving some kind of unemployment assistance is still well above 31M. And 13M of them are receiving PUA benefits, which have not been extended.
    • The number of those out of the workforce due to temporary layoffs is falling, while the number of permanent job losses are rising.
    • There is some extra volatility in the firearms sector today after the New York Attorney General sues the NRA and seeks to close it due to years of corruption.
    • Top NRA execs are accused of spending millions of members dues on themselves and associates, while running up a large deficit at the organization.
    • Sector watch: Smith & Wesson Brands (SWBI -0.1%), Sturm, Ruger & Company (RGR +1.3%), Olin Corporation (OLN -7.7%), Visto Outdoor (VSTO +15.7%) and Sportsman's Warehouse (SPWH -1.0%).
    • As the COVID-19 pandemic triggers a wave of retailer bankruptcies, some landlords are left with little recourse when the tenants in bankruptcy proceedings want to get out of or renegotiate leases.
    • "Sometimes a bankruptcy is the most advantageous way to get out of those leases," said Navin Nagrani, an executive vice president at Hilco Real Estate.
    • "This is now black-letter law — a debtor can cram down a landlord,” said Melanie Cyganowski, a former bankruptcy judge now a partner at law firm Otterbourg PC, told Bloomberg News. “If this becomes a tsunami of retailers rejecting their leases, it’s going to trigger another part of the sea change — the mortgages held by the landlords.”
    • One landlord, CBL & Associates (CBL +43.9%) is itself preparing to file for bankruptcy after rent collections plummeted, Bloomberg reports.
    • Starwood Capital Group skipped payments on securitized debt tied to five shopping malls and Hudson's Bay (OTCPK:HBAYF), owner of Saks, missed interest due on certain CMBS.
    • And the retailer retrenchments reach into securities markets as well. Some 16% of retail property loans bundled into commercial mortgage-backed securities were delinquent in July, up from 3.8% in January, according to Trepp, a research firm.
    • At least 25 major retail chains have filed for bankruptcy this year, according to Bloomberg data, with the most recent including Tailored Brands, and Lord & Taylor parent Le Tote.
    • Tailored, which owns Men's Wearhouse and Jos. A Bank, wants to close about a third of its over 1,200 stores, and Lord & Taylor could shut all of its remaining locations.
    • As many as 25,000 stores are expected to close in the U.S. this year, with most of them in shopping malls, said Coresight Research.
    • In some cases, though, retailers have been able to reach rent abatement agreements and other lease modifications without filing for bankruptcy. But that's a formidable task for a large retail chain with hundreds of landlords, Nagrani said.
    • See how CBL's stock momentum stacks up against the broader real estate sector:
    • Mall REITs: Tanger Factory Outlet Centers (SKT -5.8%), Simon Property Group (SPG -1.3%), Pennsylvania REIT (PEI +1.4%), Macerich (MAC -2.4%), Taubman Centers (TCO +0.4%), Washington Prime Group (WPG -1.2%), Kimco (KIM +1.3%).

  21. AAPL/QC – Much as I love them, I think this is overpriced.  I would only buy them if they dipped at some point.

    MU/Potter – Well it's too late now, I guess I forgot to log them into the Butterfly Portfolio for some reason.  What a brilliant play that was, perfect targeting!    We did think the crisis would end smoothly but it hasn't, that's what's changed since.  


  22. Is it too late to get into UNG. If not, could you recommend a trade? Thanks.


  23. Markets seem to believe there will be no vac just more gov and fed stim.


  24. UNG/Sag – Well it's already up a lot.  No idea which way it goes now.  I just liked it when it was way too cheap but demand is still down a lot.

    Stimulus/Kustomz – The best kind of vaccine.  

    Pretty strong finish overall, Nas 11,250 with AAPL $455 – crazy.





  25. Trump Reinstates Tariff on Canadian Aluminum