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32,000 Thursday – Dow Touches Another Record

Dow 36, 000: The New Strategy for Profiting from the Coming Rise in the  Stock Market: Glassman, James, Hassett, Kevin, Glassman, James K., Hassett,  Kevin A.: 9780812931457: Amazon.com: BooksDow 32,000!

I guess it's time to read that book by Glassman and Hassett from 1999 – as that was their prediction at the time for where we'd be in 5 years.  Sure it's 22 years later but, hey, better late than never, right?  At the time, with the Dow at 12,000, they said:

The single most important fact about stocks at the dawn of the twenty-first century: They are cheap….If you are worried about missing the market's big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average.

The Dow was pushed down by the bursting of the dot-com bubble as the NASDAQ peaked in 2000 and bottomed out in 2002, and by the September 11 attacks in 2001. The Dow fell below 8,000 in 2002, remained below 12,000 until 2006, and below 30,000 until later 2020 and now, here we are at 32,000 (for a moment), this morning.

At the time, the book was largely discredited as misstating the risk characteristics of equity securities as equivalent to U.S. Treasury fixed income securities, it is commonly believed discredited for predicting a grossly inflated stock market.

The point is, everyone sounds like a genius when telling you to follow a trend – for as long as the trend holds out.  When the trend reverses, however, it's more like "who could have seen that coming?"  Well, rational people for one thing.  Water boils at 212 degrees and you can put water on the stimulus of a 500 degree burner and it will heat up very quickly and the trend from 180 to 200 may suggest the water will be at 280 degrees in 10 minutes but it never will be, will it?  That's because, at a certain point, Physics takes over and limitations are reached.  

No matter how much stimulus you apply, you will never get the water over 212 degrees because it simply can't be water at 213 degrees.  The economy and the market may not be as rigidly constrained as hydrogen bonding but they too have their physical limits – as does, believe it or not, the stock market.  Even with the Fed printing $4Tn a year, there is only so much money in the World and, in December of 2019, the US Equity Market was $37.7Tn.  After a full year of stimulus arguably about $7Tn in total, the US Equity Market Cap is now $55.3Tn – up $17.6Tn.

How did the market grow $17.6Tn when only $7Tn in new money was created? Did the GDP grow $10Tn?  No, it shrank.  That $10Tn – 20% of the entire market cap – is empty speculation backed up by ZERO Dollars of actual cash.  You can see it in this chart that compares the Wilshire 5000 to GDP and you can see how high we are sitting compared to previous bubbles:

 That's pretty high, right?  You don't really have to do the math to see that a bubble like this is going to burst – the question is only when.  It's OK to participate in the rally (we are) but always keep one hand firmly on the exit door at all times because this is a very dangerous low-volume rally – which again is about physics – as there's only so many buyers so, when people do decide to sell, the whole market could look like GameStop (GME) – which is up again this morning.  

It's a really fun ride and even more fun when you catch it right but not fun at all if you get on the wrong side so DON'T play with money that you cannot afford to lose.  Out in the real World, money is very hard to make these days.  

Be careful out there!

 


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  1. Good Morning.


  2. look at LB   


  3. also rare earth miner stock I mentioned last week MP  up 10%   I think huckster Cramer mentioned it yesterday.   Earnings are March 18th 


  4. Good morning!

    LB/Stock – Another one we never got a chance to get back into.

    • Daily trading activity on the E*Trade self-directed online trading platform is "off the charts," Morgan Stanley (MS +0.5%) CFO Jonathan Pruzan said at a virtual conference.
    • Morgan Stanley acquired E*Trade in October 2020, and so far this year, the unit has had more new account openings than in all of H2 2020, he said.
    • Recall that E*Trade helped to bolster MS's Q4 earnings growth.
    • CME Group (NASDAQ:CME) stock gains 2.0% after Wells Fargo Securities analyst Christopher Harris upgrades the stock to Overweight from Equalweight on the potential for volume recovery in 2021 and beyond driven by accelerated economic growth and higher interest rates.
    • "We think this investors will increasingly rotate into CME as the interest rate volume recovery becomes more apparent (and we do not want to wait until that happens before moving into the stock)," Harris writes in a note to clients.
    • Views stock as "a good hedge on inflation."
    • Notes that interest rates comprise an important asset class for CME as it accounted for more than 25% of revenue in 2020.
    • Lifts price target to $230 from $185; compares with average price target of $192.
    • Boosts 2021 EPS estimate to $6.55 from $6.40 and 2022 EPS estimate to $7.35 from $6.80.
    • Harris's Overweight rating is more optimistic than the average Sell-Side analyst rating of Neutral (6 Very Bullish, 3 Bullish, 9 Neutral, 2 Bearish, 2 Very Bearish).
    • The major averages are down as the bond market selloff continues to push Treasury yields up, hitting the high-valuation stocks that have an outsize influence on indexes.
    • The Nasdaq (COMP) -0.3% is struggling the most, while the S&P (SP500) -0.2% is also lower. The Dow (DJI) is closer to the flatline, with Goldman helping.
    • The 10-year Treasury yield is up 6 basis points to 1.45%, while the 30-year is rising 4 basis points to 2.28%.
    • Durable goods orders for January rose more than twice as much as expected. Weekly jobless claims fell more than anticipated, back below 800K.
    • Facebook is the only one of the Big 6 megacaps in the green. Social media is getting some momentum, with Twitter jumping double digits after aiming to hit 315M users in three years.
    • Banks are rising on the pop in rates. Financials (NYSEARCA:XLF) are among the strongest performers. Info Tech (NYSEARCA:XLK) is brining up the year.
    • Meanwhile, the short and gamma squeeze stocks are back in the spotlight. With GameStop, Koss and AMC rallying again after a spike yesterday afternoon.
    • Despite the talk of lessons learned from the first time around, short interest in GME stayed around 40%.
    • T-Mobile (NASDAQ:TMUS) deploys Ultra Capacity 5G at the Miami Veterans Affairs Healthcare System, bringing 5G speed and performance to medical staff and patients with capable devices.
    • The company currently provides in-building 4G LTE wireless connectivity across more than 50 VA Healthcare Systems.
    • “We set out to do good with our 5G network and right now healthcare is more important than ever. T-Mobile’s Ultra Capacity 5G brings healthcare providers the fastest 5G network of any provider enabling them to deliver high quality medical care. We are proud to be a long-standing partner of the VA and now the medical teams at the Miami VA Healthcare System can tap into 5G. This is an exciting step towards the future of healthcare made possible by the T-Mobile network.”  said Mike Katz, EVP, T-Mobile for Business. 
    • Shares +3.6% pre market
    • Starwood Property Trust (NYSE:STWD) originated or acquired $1.2B of assets across its business lines in Q4, bringing the full-year amount to $4.68B.
    • That compares with $1.5B of assets originated or acquired in Q3 2020.
    • Q4 distributable earnings per share of 50 cents beats the average analyst estimate of 48 cents.
    • Undepreciated book value per share of $17.17, unchanged from Q3-end.
    • STWD edges up 0.1% in premarket trading.
    • In commercial lending segment, originated or acquired $454M of loans during the quarter.
    • Q4 fundings of $1.4B across business lines, bringing full year to $5.6B; decreased future funding exposure in 2020 by more than 50%.
    • Q4 revenue of $290.6M exceeds the consensus estimate of $279.7M and increased from $267.4M in Q3 2020.
    • Residential Lending segment reflects the bulk of revenue at $196.3M.
    • Property segment revenue was $64.1M and Investing and Servicing segment revenue was $45.4M.
    • Q4 results include credit loss reversal of $12.1M.
    • Total costs and expenses were $231.4M during the quarter.
    • Conference call at 10:00 AM ET.
    • Previously (Feb. 25): Starwood Property Trust EPS beats by $0.01, beats on revenue
    • HSBC upgrades Nike (NYSE:NKE) to Buy from Hold as it points to top-line growth and margin expansion.
    • "For a very long time, we have believed that Nike's business model was essentially to reinvest all excess profits to ensure the group would continue to take market share from peers. More recently however, given elements of scale and benefits of higher-margin channels (online, DTC, Asia), it has become clear that the debate around sales or EBIT is indeed no longer an either or – Nike can have both."
    • Nike is a popular pick on Wall Street, with 27 out of 33 firms covering the stock having a Buy-equivalent rating in place.
    • Twitter (NYSE:TWTR) has jumped 12.2% premarket after setting new long-term targets - including hitting at least 315M users by the end of 2023, and doubling its annual revenue by then.
    • In a filing, Twitter details those goals, along with doubling development velocity by the end of 2023 (which means doubling the number of features shipped per employee that directly drive either monetizable daily active users or revenue).
    • The news comes in conjunction with today's analyst day.
    • And it plans to "at least" double annual revenue from $3.7B in 2020 to $7.5B or more in 2023.
    • It also reiterated a long-term margin target of mid-teens GAAP operating margin, or 40-45% adjusted EBITDA margin.
    • Updated 9:15 a.m.: The company has offered related slides through its Investor Relations Twitter account.
    • Domino's Pizza (NYSE:DPZ) trades lower after the falling short with Q4 numbers and a slight revision to the mid-term forecast.
    • Cowen's Andrew Charles breaks down the new outlook from Domino's
    • "Domino's also issued a 2-3 year outlook for 6-8% global net restaurant growth and 6-10% global retail sales growth, which we infer implies ~1-3% global same store sales. Recall DPZ's pre-COVID-19 two to three-year outlook was global net unit growth of 6%-8% and global retail sales of 7-10%. Importantly the prior outlook included U.S. comps of 2%-5% & International comps 1%-4%. Given development was held constant in this update, we infer the 1% lowering of the low end of the retail sales growth range implies U.S. comps of 1%- 5% and International comps of Flat to 4%."
    • While U.S. comparable store sales were still strong in Q4 at +11.2%. That mark missed the consensus estimate and indicates there could be some cooling off the red-hot demand for pizza delivery during the pandemic.
    • Shares of DPZ are off 6.06% in premarket action after the double miss
    • Cleveland-Cliffs (NYSE:CLF) -4.5% pre-market after missing Q4 earnings expectations; revenues skyrocketed to $2.26B but results included acquisitions of AK Steel and ArcelorMittal USA.
    • Q4 EPS from continuing operations fell to $0.14 from $0.23 in the prior-year quarter.
    • Q4 adjusted EBITDA jumped to $286M, ahead of $268.8M analyst consensus estimate, from $111M a year ago.
    • Cleveland-Cliffs updated its segment structure, and now has one reportable segment, Steelmaking; the previous Mining and Pelletizing segment is included within Steelmaking, and all other remaining operating segments are classified as Other Businesses.
    • The company expects FY 2021 capital spending to stay in the $600M-$650M range.
    • "With the contribution of steel sales from Cleveland-Cliffs Steel LLC for a full quarter, we expect Q1 2021 steel product shipments of ~4M net tons, and a significant improvement in Q1 2021 adjusted EBITDA from Q4 2020," the company says
    • Wayfair (NYSE:W) is now higher in premarket trading after an early decline following the Q4 earnings report.
    • During the earnings call, Wayfair management stated quarter-to-date revenue is trending at a mid 50% pace to mark an acceleration from the 45% growth in Q4. The consensus estimate for Q1 revenue growth is +43%.
    • Shares of Wayfair are up 2.55% to $264.53. Wayfair was down 7% about an hour ago.


  5. phil what about LOW     housing is still hot and natural disasters not going away anytime soon

    as a side note, I just saw the first ad for a plaintiff attorney suing the electric companies 


  6. See, there's a good example.  W is a FURNITURE store.  Due to the pandemic and people's inability to go shopping and W being big on-line, they got a nice bump in 2020 from $9.1Bn to $14.2Bn in sales – very impressive.  "Profits" on the other hand, $500M and this is the first time they've ever made a profit and guidance for this year is $250M yet the stock has gone from $150 to $300, which is $25Bn in market cap or 50 times best earnings.  

    Year End 31st Dec 2014 2015 2016 2017 2018 2019 TTM 2020E 2021E CAGR / Avg
    Total Revenue
    $m

    1,319 2,250 3,380 4,721 6,779 9,127 13,008 14,219 16,009 47.2%
    Operating Profit
    $m

    -148 -81.3 -196 -235 -473 -930 -45.6      
    Net Profit
    $m

    -148 -77.4 -194 -245 -504 -985 -169 486 250  
    EPS Reported
    $

    -2.97 -0.925 -2.29 -1.99 -5.63 -10.7 -2.73      
    EPS Normalised
    $

    -2.97 -0.925 -2.29 -1.91 -5.64 -10.7 -2.70 4.44 2.40  
    EPS Growth
    %

                    -46.0  
    PE Ratio
    x

                  58.2 108  
    PEG
     

                    1.38  
    Profitability

    There is no possible way they can repeat this growth and it's very unlikely they can even sustain what they have once things get back to normal.  So, for the LTP, this is a good short play – our first one.

    • Sell 3 W Aug $300 calls at $45 ($13,500) 
    • Buy  5 W 2023 $340 puts for $134 ($67,000) 
    • Sell 5 W Jan ('22) $240 puts for $47.50 ($23,750)

    That's net $29,750 on the $50,000 spread but we have a year advantage and we'll roll the short puts to something much lower, hopefully.  We'll also have 3 more opportunities to sell short calls so, hopefully, by the next cycle, we'll be at net $15,000, etc.  The margin on the short Aug calls is $26,407 so not the most efficient trade but that will decrease if W goes lower and I really can't see $300 holding.


  7. any young people here?  I noticed you can sell BMBL Oct $40 puts for $4.15  net $35.85.  Thats cheaper than the IPO and less that what the founder paid.  Ive been married for a long time and dont know anything about dating apps  

    earning are March 10 


  8. LOW/Stock – It's the same thing, this is an unusual time and people have been stuck at home fixing things.  It doesn't justify this run but, unlike W, I won't short them as they are an excellent stock in the first place. 

    LOW has a $119Bn market cap at $162 but they made $4.3Bn last year and expect to do $6.5Bn this year so, if they pull that off – $119Bn is a very fair price but I think management is doing the same extrapolating investors are doing and good luck getting people to stay home and fix things once this pandemic is over.  

    BMBL/Stock – I may be old but I know a lot about dating aps (I wrote one pre-internet) but, more importantly, I know math and math says not to pay $8Bn for a company with $500M in revenues.

    Year End 31st Dec 2014 2015 2016 2017 2018 2019 2020E 2021E CAGR / Avg
    Total Revenue
    $m

            360 489     35.8%
    Operating Profit
    $m

            -16.2 93.3      
    Net Profit
    $m

            -21.5 66.1      
    EPS Reported
    $

    0.000 0.000 0.000 0.000 -0.197 0.604      
    EPS Normalised
    $

    0.000 0.000 0.000 0.000 0.253 0.604     139%
    EPS Growth
    %

              +139      
    PE Ratio
    x

              113      
    PEG
     

                     
     

    MTCH is the most successful and they are at $42Bn with $2Bn in revenues and $500M in profits – also a bit much, of course.  Match also owns Tinder and 45 other brands around the World and they went public (bought by IAC) in 2009 so 12 years to get this far and they were way bigger than Bumble in 2009.

    Like most things – their valuation has just gone insane in the past year.  


  9. W- am I missing something on this play? Why way out of the money 340 puts?


  10. W- sorry, in the money puts.


  11. W/Pstas – It's the same reason we take in the money calls on a spread, we pay less premium so it's effectively a short position with no premium cost as we sold the premium to others.  


  12. Dollar below 90!


  13. Water is still absorbing energy at 212 degrees, known phase change, and is becoming a gas (i.e. it's still water as in H2O, it's just no longer liquid), after which it can then become 213 degrees and beyond. These guys were right. They mistimed the "phase change" in this allegory, which I would define as the attempt to create more money in an economic system that no longer efficiently creates money. This began in earnest after the financial crises (which was a currency crisis). INterest rates go to 0 or even negative, governments create debt that has no limit of buyers regardless of the amount of debt, etc, and all that stuff we've talked endlessly about. That all happened from 2009-2019. Note that the Dow and Nasdaq went nowhere for 15 years (2000-2015) but were absorbing "energy" the whole time, where water doesn't go up in temperature but changes from a liquid to a gas. Now we have a super charged market fed by money printing, ZIRP, stimulus. We're in the gas phase now. Every little bit of energy increases the temperature.


  14. Phil any comment on what a wrote last night on CHL???


  15. can we have a national Thank-A-Nurse day?


  16. Coronavirus Vaccine Finder Aims to Help Americans Get Shots





  17. Amid COVID-19 pandemic, flu has disappeared in the US


  18. GME again? Seriously? LOL


  19. Gold, silver, copper, indexes, everything falling. Oh wait, oil is up again, crushing the shorts like me day after day. Amazing.


  20. GBTC owns 0.00094726 BTC per share, at BTC = 49,834 = 47.21 and its trading at 47.21. It finally reached 0% over NAV.


  21. The /YM looks like a giant rainbow in the last 24 hours on the 15 minute chart.  :)



  22. TQQQ calls


  23. Overheating/BDC – That's why cars overheat anyway. 

    CHL/Yodi – What did you write?  

    Oil/MrM – It's always the thing we do short that goes the other way.  OPEC meeting is coming up next week.  Not sure what they are going to do to support prices but, as with everything these days – hope springs eternal among the bulls.

    GBTC/BDC – And Bitcoin only had to rise 5x to get there.

    Dow/1020 – Fun ride.


  24. Phil I did not see the follow up of yours. I can not understand way TD Ameritrade can assign my call If I can not even trade it.????


  25. yodi – TD Ameritrade reached out to us a couple weeks ago letting us know they had a new route to sell CHL stock if we wanted to participate. To do it a person needs to call the trade desk directly. It can't be done on our brokerage but there is evidently still trading for it. We have elected to hold our shares though. 


  26. Willsons Thanks it is also my intention of not selling my shares, that is why they paid 2.50 more than the frozen price of the shares. 






  27. CHL/Yodi – I know, that's very strange.  They don't seem to know what's going on with CHL and I can't understand how your caller was able to take the stock, that's very annoying.  I'd be curious to know what they have to say about it.  I'd love to play CHL options at their stated prices.

    Ah, I guess what Willson's said.  They must be using a foreign trading desk.

    Wow, nice dip today.  

    STP Chugging along at $217,568 – not as good as Tuesday because the VIX is so high now it's rewarding the people we sold premium to.

    This too shall pass…


  28. Funny, I remembered that having more of over the rainbow in it…


  29. See, here's the problem with a bubble market based on maximum stimulus – when it crashes, what do you do to get it on track?