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Federally Fueled Tuesday – Stimulus Talks Advance and Fed Makes Nice Noises

Joe Biden and Kamala Harris: Political Cartoons – Daily NewsProductive!

That's what they are saying about yesterday's negotiations between Joe Biden and the GOP Senators yesterday and that means $1,900,000,000,000.00 of MORE FREE MONEY is still on the table, so of course the markets like that.  They also like that White House Press Secretary Jen Psaki said that, while Biden “is hopeful” that what he calls the American Rescue Plan “can pass with bipartisan support, a reconciliation package is a path to achieve that end.” That’s a reference to a procedure that would allow the legislation to pass the Senate with just 51 votes — potentially, all 50 Democrats plus the vote of Vice President Kamala Harris.

I was the first person to speak about a specific issue," related Sen Bill Cassiday of Louisiana.  "I said, ‘Mr. President, I don’t want to seem rude,”’ Cassidy recounted in an interview. “He said, ‘Listen, I’ve been in all these negotiations. We’re going to have a difference of viewpoints on some things. We’re going to agree on some things. And when we disagree, we’re not being rude.”  Isn't that crazy, discussing issues with a President who listens?  The World has surely gone mad! 

Cartoon of the Day: Fed Fortune-TellingMeanwhile, on the other side of DC, the Fed has been doing their best to pump things up with MN Fed President, Kashkari, saying “I’m not fazed by the fact that there’s speculation going on in the stock market,” Kashkari said he wouldn’t worry even if there was a stock market correction.  The dot-com bubble popped in 2000 and let to a “minor recession,” Kashkari said.

Atlanta Fed Presient, Bostic, continued the message, saying not only is he not worried about the U.S. economy overheating, but he thinks growth could happen faster than many expect.  He based that on his anticipation that the economy could recover from the Coivd-19 recession rapidly once vaccinations become more widespread and the stimulus being pumped begins to go to more people in need.  “A lot of the recent developments have been positive,” he added. “We should be open to the possibility that things might happen more strongly than they would otherwise.”

  • "Don't worry about the Economy"
  • "The market is not in a bubble"
  • "More Free Money is coming"
  • "The Economy is doing great"
  • "Rates will remain at near zero for a very long time" 

That summarizes what we're hearning and, of course, they are ridiculous when looked at together as it makes no sense to be acting like there's a massive crisis going on while saying how great everything is but traders are more than happy to hold those two thoughts in their heads at the same time and that will allow the rally to continue until logic finally prevails.

Reality came and bit poor GameStop (GME) in the ass and we're back to $136 this morning – down another 40% from yesterday's close and now those fortunes won stories will begin turning into fortune's lost stories and Reddit will be treated with a bit more caution by the traders there as anyone who bought it since it tested $500 on Friday is out a considerable amount of money already.  We made ours on Wednesday, when I put my valuation foot down in our Live Member Chat Room, saying:

GME Jan $300 puts are $190 and you can sell the March $160 puts for $75 so net $115 on the rollable $140 spread works for me as a fun play.

We'll see how that holds up with GME down around $130 this morning but, as of yesterday's close, the Jan (22) $300 puts were $232 and the March $160 puts were $78 for net $154, up $39 (33%) already.   It may not be as sexy as buying straight puts and calls and hitting the lottery on a volatile stock but playing for the volatility to calm down.  We can make bets like that this pay off regularly, rather than trying to guess which way the crowd stampedes on these manipulated stocks.

Today the focus is on Big Tech, with GOOGL and AMZN reporting this evening and all these big names reporting this morning:

Image

So far, of the 189 (37.8%) of the S&P 500 companies that have reported, 81% have beaten their earnings expectations.  That's why the S&P 500 is testing 3,800 this morning and, even though that's getting close to 40 TIMES the anticipated earnings of the group – investors are not letting that stop them from chasing the components even higher.  And why not?  40 times earnings is still a 2.5% annualized return and, at the moment, that's as good as it gets.

Speaking of returns, Municipal Bond downgrades have exceeded upgrades for the first time since 2014 with $215.2Bn worth of  bonds being cut while just $42.1Bn were raised.  Many municipal governments are facing budget shortfalls because of rising costs and falling revenue amid the pandemic. President Biden’s proposed relief package includes $350 billion of emergency aid to states and local governments, but the Republicans have outlined a stimulus package that omits that.  

The outcome of this will have a very profound impact on you, your family and your business at a local level and, of course, be careful if you have a pension plan of some sort that invests in Muni Bonds.  Despite the narratives – all may not be that well.

 


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  1. Good Morning.


  2. Phil/Earning beat,

    How come 81% companies beat earnings in this pandemic situation? Do we have low expectation of earnings or is it the free money given by the government?

    regards


  3. My guess would be with no travel/leisure going on, money was spent on everything else.

     

    The real tragedy we see unfold on TV is mainly the little guy whose business has been wiped out…..  :(





  4. IBM cuts back on blockchain



  5. Any one else having lag issues with E Trade? Seems like it mat be a good idea to have accounts at different platforms to be able to execute these days. It is another form of hedging and redundancy for these times. I used to like E Trade had an analytical function that you could do what if Scenarios and it would figure what would happen to your account if an index dropped, and you could input different amounts, say 15% in the next 90 days. It has not worked for months. I have given up after talking with programmers and having a few service tickets started. We will see what the JP Morgan/Stanley merger will bring. They paid $ 2,500. for each customer, I doubt my Roth account generates that kind of $. 


  6. Now quotes are working, It is like the wind. 


  7. Phil/BP/HOG/PFE

    PFE down on earnings. same with BP and HOG (20% down)

    regards


  8. CMG reporting today… $1543 now. predictions?


  9. Phil/SPOT/NOK,

    your views on Spotify and Nokia. They release tomorrow I guess.

    thanks & Regards


  10. Good morning!

    Dow is flying, AAPL up big but everything is up.

    81%/Pat – Low expectations and free money are a good combination.  Whether or not they "beat" isn't really the point when expectations were 2.3% below last year, right?

    ? Earnings Growth: For Q4 2020, the blended earnings decline for the S&P 500 is -2.3%. If -2.3% is the actual decline for the quarter, it will mark the fourth straight quarter in which the index has reported a year-over-year decline in earnings.  

    If -2.3% is the actual decline for the quarter, it will mark the fourth straight quarter and the seventh time in the past eight quarters in which the index has reported a year-over-year decline in earnings. Five sectors are reporting year-over-year earnings growth, led by the Materials, Information Technology, and Financials sectors. Six sectors are reporting a yearover-year decline in earnings, led by the Energy, Industrials, and Consumer Discretionary sectors.  

    ? Earnings Revisions: On December 31, the estimated earnings decline for Q4 2020 was -9.3%. Eight sectors have smaller earnings declines or higher earnings growth rates today (compared to December 31) due to positive EPS surprises

    Earnings Guidance: For Q1 2021, 11 S&P 500 companies have issued negative EPS guidance and 20 S&P 500 companies have issued positive EPS guidance

    $2,500/Randers – That's an insane amount of money.

    PFE/Pat – You know I like PFE at $35 (again), no love for BP and HOG is iffy.

    CMG/RN – Well we're short but who knows in this crazy market.

    NOK/Pat – Haven't made money in years but, in theory, that was due to 5G investment so now shuld come the payback but here's their "profits" (for lack of a better word) this decade:

    Essentially it's net zero and you are paying $25Bn for the privilege of making no money.   I guess if you want to take a flier on it, you can sell some 2023 $3 puts for 0.55 and use that money to buy the 2023 $3/4 spread for 0.40 and then your worst case is a net $2.85 entry (31% off) and your best case is making $1.15.

    SPOT also doesn't make money and I don't know that their business model is going to justify $65Bn with $7.5Bn in sales.  Maybe if they had 100% profit margins….


  11. Phil/Stocks,

    Thanks for your views on PFE, BP, HOG, NOK and SPOT. planning to do a couple PFE BCS Jan 22 – 35/40 for $1.54

    regards


  12. So now since the GME/SLV trades are going south, I suppose the pajama clad basement dwelling revolutionary trading mobsters are now holding the bags full of you know what and waiting for the ceremony handing out the participation trophies. Other than our click bait media, does anyone really give a damn? 


  13. no….


  14. They are trying to keep the story alive by things like this:

    Nina Carr gifted her 10-year-old son Jaydyn Carr 10 shares of GameStop stock after purchasing it back in 2019. Today, the child has made $3,200 after the stock incident last week involving Reddit users and amateur investors, NBC Washington reports. The mother gave her son the shares as a Kwanzaa gift.2 hours 

     

    Meet the 10-year-old who made $3,000 from GameStop stock

    http://www.today.com › news › meet-10-year-old-who-made…

     

    1 day ago — Get the best news, information and inspiration from TODAY, all day long. Carr and his mother, Nina, spoke to NBC business and technology …


  15. Phil/PFE trade

    The company reported $0.42/share on $11.68B in 4th Qtr revenue vs $0.51 and &12.1B expected.

    What do you think about 2023 $30 puts for $3.8, and buying the $35calls for $4.6? Wait to sell calls?

    Their vaccine revenue is being discounted in the fall of the stock.

    Good chance they make recurrent revenue on periodic boosters that may be necessary as this virus continues to mutate (unless we stop the virus dead in its tracks with mass planetary vaccinations) and I would bet my shirt that they are working on studies to ameliorate the low vaccine storage temperature that is currently required.


  16. Maya1 PFE The idea is not bad but You need a higher delta on the long call at least 30 not 35. Even the delta on 30 is only .67. better in the higher .70. So Jan 23 30 call @ 6.85 and sell the 30 put for 3.60. Remember PFE pays 4.5% div. so premiums are low. I just bought some more stock today. You can play the armchair trade with the stock.



  17. How Reddit Traders Are Using an ETF to Bet on Silver






  18. A portion of this country's population still believes there is no virus and it's a 'liberal left' conspiracy. The same population believes that the virus is no worse than the flu and vaccination is another conspiracy

    All that is fine….they are entitled to their flawed reasoning, up until the hospitals have to care for them for not wearing masks- stays in the ICU's for weeks and months..and some of their brethren are getting government aid!

    I cannot explain how anyone thinks like that…didn't go to primary school? Well, let's send them to school then. Make it mandatory! Haha, good luck!


  19. PFE/Maya – I'm baffled as clearly they spent a fortune in R&D to develop the vaccine and now they reap the rewards.  As a new trade, I'd go for:

    • Sell 10 PFE 2023 $33 puts for $5.15 ($5,150)
    • Buy 20 PFE 2023 $30 calls for $7 ($14,000) 
    • Sell 20 PFE 2023 $37 calls for $4 ($8,000) 

    That's net $850 on the $14,000 spread that's $10,000 in the money to start with $13,150 (1,547%) upside potential if PFE can manage to gain $2 from where it is now over the next two years.  I like those odds!   Worst case is, of course, owning 1,000 shares with a loss of the $8.50 so net $30.85 is still $4 (12%) off the current price.



  20. PFE/Phil/Yodi

    Thanks Yodi- yes, my trade is more speculative on the call side, but it PFE runs up back to 37-39 in next 6 months, I can then sell calls. On the put side, it's pretty conservative.

    Thanks Phil- of course, a very elegant and relatively safe spread.


  21. CMG taking a practice dive ahead of earnings:

    We'll see how earnings go tonight but it's time to re-invest in STP hedges, I think.


  22. PFE/Yodi

    just for fun, I did both trades, Phil's and mine.

    will let you know how each trade goes.