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Friday Federal Failure – Congress Takes a 3-Day Weekend Without Fixing Anything!

Political Cartoons - October 29,1929: The Great DepressionWTF?

The unemployment benefit boost ran out last Friday and, all week, we were told Congress was making progress towards a new stimulus bill and President Trump, who has never steered us wrong, said that if Congress couldn't agree to extend benefits he would sign and executive order but, last night, the whole thing blew up and we got – NOTHING!!! 

Democrats have introduced the HEROES Act which would provide $3 trillion of economic relief. The Republican plan, the HEALS Act, would only allocate $1 trillion dollars. Both sides have attempted to reach compromises in order to pass a cohesive bill, but that has yet to occur.

After a meeting between Democratic House Speaker Nancy Pelosi, House Minority Leader Chuck Schumer, White House Chief of Staff Mark Meadows and Treasury Secretary Steven Mnuchin, Pelosi said no progress had been made. "We're very far apart," Pelosi said. "It's very unfortunate."  Pelosi said Republicans "didn't take the virus seriously in the beginning, they're not taking the consequences of the virus seriously at this time. And that's why it's hard to come to terms."

As noted by Paul Krugman, employment has plunged, and real G.D.P. fell by around 10 percent. Almost all of that, however, reflected the direct effects of the pandemic, which forced much of the economy into lockdown.  What didn’t happen was a major second round of job losses driven by plunging consumer demand. Millions of workers lost their regular incomes; without federal aid, they would have been forced to slash spending, causing millions more to lose their jobs. Luckily Congress stepped up to the plate with special aid to the unemployed, which sustained consumer spending and kept the nonquarantined parts of the economy afloat.

The Democrats put up the HEROES act in JUNE and now it's AUGUST and we're still waiting on the Republican plan – even though they are well aware of the consequences of not moving forward.  Unlike affluent Americans, the mostly low-wage workers whose benefits have just been terminated can’t blunt the impact by drawing on savings or borrowing against assets. So their spending will fall by a lot – pretty much immediately.  

8:30 Update1.8M jobs were added in July, a much slower pace than June and we still have 12.9M more people out of work than we had in February and those people are falling off an economic cliff this week and keep in mind those people have families of 3.2 on the average so it's 41M Americans (13%) that are about to be drastically affected by the end of the unemployment boost.

We're shorting the Dow Futures (/YM) at 27,250 this morning with tight stops above that line but this jobs report does not give me a warm, fuzzy feeling into the weekend and there's no help from Congress and Trump doesn't really have the authority to do anything about this and the next Fed Meeting isn't until Sept 15th so who is going to save us?

Have a great weekend,

- Phil

 


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  1. Not trying to make sense of these markets anymore. Still, the NYSE is 10% away from its highs and the dollar is down 10% since the March drop! 

    But just this week, $600 x 20M was taken away from the economy and lots of people can't make rent. And Trump is starting new economic wars with China and now Canada. Not sure why, I thought that we had this beautiful new NAFTA treaty.

    Maybe markets are really pricing a Biden victory when the world wakes up from a 4 year nightmare.


  2. Good Morning.


  3. good morning


  4. Phil/MIDD you mentioned that the Midd position has some way to run. is it worth opening a position now? and if so what do you suggest? tnx


  5. The unemployment number really means nothing as in No Wis and Mn as we have very low rates. However, more and more businesses and restaurants are shutting down again after employees were diagnosed with covid. Our favorite, which has outside seating in Duluth, is shut down completely again after picking up business. We have mandatory face covering in any enclosed space in the state which the republicans haven't over rode (yet). which Tony Evers put into effect. Maybe they are catching on that people are not listening to anything they say or do anymore. It's the traveler"s that are doing anything they want wherever they want that are causing problems. And we are swamped with them.


  6. Phil,

    Would like your thoughts on the health insurer/benefits space (ANTM, HUM,UNH and your favorite, CVS) after strong Q results. Admittedly hard to like buying anything in this market environment , but…

    Thanks


  7. AAPL/Phil back when AAPL was a bit more reasonable on July 17 you suggested selling 10 (uncovered) short Sep $385calls. I can’t easily sell uncovered short calls (no PM) but If I had the big margin I could. At these levels wouldn’t it make sense to sell some short term close to the money calls just to catch the crazy premiums? What would you suggest now? (Bought back my 5 short Sep $370cs at a profit on a dip then later sold 5 Nov $400calls .. a staggered roll) 

    45  '22 $300c             @ $67

    -25 Jun '21 $320c     @$44

    -20 '22 $350c            @$36

    5 '22 $240c               @$49

    -5  Nov $400c           @$22

    -5 '22 $200p             @$21

    THX!


  8. Good morning!  

    No sense at all to this market, just have to sit back and enjoy the show.  

    MIDD/Stuart – Too high to jump in at the moment but I do think it's solid and should get back to $120 – I just prefer to wait for better bargains.  

      

    This is what we have watch lists for!

    Whatever/Pirate – This school thing is the most terrifying.  What a terrible, terrible idea.  

    Insurers/8800 – I would have thought they'd do worse during a crisis but what they pay out on covid they are saving in heart bypasses, etc. as people are scared to go to the hospitals.  None of those guys are cheap but WBA still is:


  9. Phil,

    Thanks for the perspective on the health insurers.  As a conservative bet that a CV relief pkge is arranged, looking at either selling CVS (PE of 10) '22 55s @ 5.60 or ANTM (PE of 12) '22 180s @414.5. CVS beat est last 3 qtrs and ANRM the previous 4. 

    TIA


  10. Correction, above: ANTM '22 puts should read $14.50 


  11. Kudlow says executive directed payroll tax reduction is in the works. Your right they never give up!! Amazing how totally out of touch they are!  A friend who spends summer up here and winters in Ga. has two children in education who were ordered back to the classroom in Ga. They are very worried. There is no  way to get the children to do the necessary steps to stay safe when their parents won't. The high school students have to show up for class or they are suspended, or expelled. They had sign-up for virtual classes that no one knew about so missed the deadline which was about 5 days long. What a plan!


  12. I wonder how the payroll tax reduction helps people who are not on a payroll. And since when does the president have the right to make unilateral tax changes!


  13. ST J- just some more kudlow hot air.


  14. Phil:  What do you think of CHL these days?  I am considering selling the Dec 30 or 32.5 puts before earnings on August 13 to help offset the cost of some hedges. 


  15. CVS/8800 – I think CVS is a good bet as they have those clinics and everyone will be going there for vaccines.  WBA is still a good bet though but I'm not going to bother banging the table because no one ever listens until 6 months later when the stock skyrockets and then they say "why didn't you tell us"? 

    Payroll/Pirate – Well, Trump said he'd have a plan.  He's going to spend that money before Congress can.  

    CHL/John – It's the AT&T of China.  Great long-term play but, like T, it's going to take a hit on revenues when people are cutting back (people missing their payments, etc.).  

    Contracts only go out to March so not that great to play but you can sell the Dec $35 puts for $2.65 to net in for $32.35, a very fair price and let's say we sold 10 of those for $2,650 and bought 20 of the March $27.50 ($7.50)/$32.50 ($3.65) bull call spreads for $3.85 ($7,700).  That would be net $5,050 on the $10,000 spread – not bad for 8 months "work". 

    Made $15.5Bn last year and they pay a 6.25% ($2.22) dividend.  T Made $14Bn last year and $7Bn so far this year so not very affected by virus and I doubt CHL will be either.


  16. Good call John.  I was thinking we would go all week without a Top Trade Alert but CHL is worthwhile.  


  17. Phil / CHL – are you worried about the new reporting requirements on Chinese stocks ?

      While not passed yet, they had bi partisan support in both houses


  18. CHL/Batman – Not for CHL, they are huge, they'll hit requirements.  As far as I know, this will more apply to new listings, not companies already on an exchange – that would be super-disruptive.  The bill just forces Chinese companies to undergo the same oversight that all US companies follow (and most foreign).  China had been exempt due to developing nation status.   This is all LKNCY's fault – a very public fraud.  

    This is just low-hanging fruit Trump can claim makes him look tough on China but it pretty much says "If you want to go public you have to have audited financials".  


  19. Pumped up yet again into the close.   Amazing stuff. 

    Have a great weekend, 

    - Phil


  20. Phil .. please don't stop banging the table!!  I've just started a new portfolio with table bangers and would sorely miss it if you stopped.


  21. Phil / CHL – The new rules will apply to all companies starting in 2022 – must submit to overview ( independent accounting audit) state they are not sovereign owned – all companies.   New IPOs whould need to start from the prior to listing.  Now this may change but this is where it's today…


  22. Phil / CHL – Accounting rules: WSJ

    White House Seeks Crackdown on U.S.-Listed Chinese Firms

    WASHINGTON—Chinese companies with shares traded on U.S. stock exchanges would be forced to give up their listings unless they comply with U.S. audit requirements under a plan recommended Thursday by the Trump administration.

    The proposal addresses a long-simmering dispute over U.S. regulators’ inability to inspect the financial audits of Chinese companies that sell shares in U.S. markets. It follows bipartisan legislation that passed the Senate in May, which would give Chinese companies that don’t comply three years to delist in the U.S. and find a new exchange.

    Under the plan, Chinese firms that are already listed on the New York Stock Exchange and Nasdaq Stock Market would have to comply by 2022—or give up their listings on those exchanges.

    To comply, Chinese auditors would have to share their work papers with the Public Company Accounting Oversight Board, a specialized audit regulator overseen by the U.S. government.

     

    Chinese firms that aren’t yet public—but which plan to do an initial public offering in the U.S.—would have to comply before they can go public on NYSE or Nasdaq, and wouldn’t get until 2022 to follow the rules, according to senior Treasury Department and Securities and Exchange Commission officials.





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