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Toppy Tuesday – Again?

Last weeks was: "Toppy Tuesday – What More Can Powell Say or Do at this Point?"

Today I can take the day off becuase here we are again, back at S&P 3,900 along with Dow 31,500, Nasdaq 13,250 and Russell 2,270 all trending lower than their previous two Tuesday's.  Why Tuesday?  Because Monday markets are very low-volume and easily manipulated with M&A Rumors and Analyst Upgrades along with Government Happy Talk and, of course, a healthy dose of 401K deposits rolling in from Friday's Payrolls.  

That allows "THEM" to take advantage on a weekly basis and overcharge long-term savers for their positions as they drip-feed their retirement accounts,  In fact, Randers pointed out last week that the weekend performance of the S&P 500 (when no one is trading) accounted for about 25% of all gains over the past 10 years.  

Even "better", overnight trading (when no one is looking) accounted for OVER 50% of the total market gains.  So nights and weekends are when all the real money is being made, apparently.

That's why shorting on Tuesdays has been good to us – by Tuesday people are trading and, when there is volume in the market, it usually turns lower because there aren't that many real buyers out there – certainly not at these elevated prices!  Guo Shuquing agrees with me and he's the Communist Party Boss at the People's Bank of China.  Guo (last name) said this morning: "We are really afraid the bubble for foreign financial assets will burst someday."  Guo is also the Chairman of China's Banking and Insurance Regulatory Commission – kind of a right wing Elizabeth Warren...

Investors, hedge fund managers and former central banking officials have all expressed concerns too, as Wall Street trades near record highs even as the United States continues to grapple with the effects of the coronavirus pandemic.  Guo echoed such fears, adding that the rallies in US and European markets don't reflect the underlying economic challenges facing both regions as they try to recover from the brutal pandemic recession.

Guo's remarks shook markets in the region. The Shanghai Composite (SHCOM) and Hong Kong's Hang Seng Index (HSI) were both trending upward before Guo's speech, building on Wall Street's rally Monday. But both indexes reversed course soon after. Shanghai's benchmark was down 1.2%, while the Hang Seng fell 1.3%.  Of course, it was Tuesday for them too!  

Mr. Guo’s chief worry concerned the possibility of a steep drop in home prices in the world’s second-largest economy. In recent decades, buying an apartment in a big city has come to be regarded as a surefire investment by many Chinese people.  Roughly one-fifth of Chinese banks’ loan books consist of home loans, according to calculations based on central bank data. And most bank credit in China—even beyond the housing market—is collateralized by real estate, making stable property prices an underpinning of the nation’s financial stability.  Chinese banks had disposed of 3.02 trillion yuan, equivalent to $470 billion, in bad debt last year and a total of 8.8 trillion yuan between 2017 and 2020, roughly equivalent to the total for the 12 previous years combined.

You think we don't have these problems in the US but, one year later, where has $9 TRILLION of the Fed's money gone?   Our own Fed has very quietly been bailing out our own banks and they are doing it without any Congressional oversight at all.  Beginning on September 17, 2019 – months before there was any report of a COVID-19 case anywhere in the world – the Federal Reserve turned on its money spigot to the trading houses on Wall Street. By October 23, 2019 the Fed announced that it was upping these loans to $690 billion PER WEEK.  Again, this was months before any report of COVID-19 anywhere in the world.

Within a span of six months, the Fed had pumped out a cumulative $9 trillion in loans to Wall Street’s trading houses, according to its own spread sheets, with no peep as to which Wall Street firms were getting the bulk of that money. It’s more than a year later and the American people still have no idea what triggered that so-called “repo loan crisis” or which Wall Street firms were in trouble or remain in trouble.

The only difference is, we don't have any Communist Party Chairmen honest enough to actually warn us there's a crisis, do we?  

  • The Federal Reserve, as is typical, outsourced this money spigot to the New York Fed, which is literally owned by some of the largest banks on Wall Street. We wrote at the time the New York Fed was making these massive repo loans that this action was unprecedented in Federal Reserve history for the following reasons:
  • No Wall Street crisis has been announced to the public to explain these massive loans and Treasury buybacks;
  • Not one hearing has been held by Congress on the matter;
  • Not one official elected by the American people has authorized these loans;
  • The loans are not being made to commercial banks (which could re-loan the money to stimulate the U.S. economy). The loans are going to the New York Fed’s primary dealers, which are stock and bond trading houses on Wall Street who count hedge funds among their largest borrowers; (See list below. There is only one bank among the 24 primary dealers.)
  • Many of the primary dealers are units of foreign banks whose share prices have been in freefall. The Fed is making these loans at approximately 2 percent interest – an interest rate these firms could not come anywhere close to obtaining in the open market;
  • These same foreign banks are counterparties to mega U.S. banks’ derivative trades – raising the suggestion that this is another bailout of Wall Street’s derivatives mess as occurred in 2008;
  • The Dodd-Frank financial reform legislation of 2010 was supposed to rein in this exact type of abuse by the New York Fed and, in fact, it states that Congress must be informed as to which banks are receiving the money to be sure it’s not going, once again, to failing financial institutions as happened in the last crisis;
  • The Government Accountability Office (GAO), when it released its audit of the Fed’s bailout programs of 2007 to 2010 chastised the Fed for failing to document the reasons it was flinging trillions of dollars to Wall Street and foreign banks. Notwithstanding the GAO’s report, the New York Fed is back to its old tricks again;
  • The New York Fed is owned by its members banks in its region. Representatives of these banks sit on its Board of Directors. It is thus too conflicted to be in charge of this bailout money spigot which is ultimately backstopped by the U.S. taxpayer if the New York Fed fails;
  • The New York Fed is the regulator of the largest bank holding companies in the U.S. But its failure as a regulator is why these same banks needed to be massively bailed out in 2008 and, apparently, again now. This system lacks any semblance of checks and balances;
  • The parent organizations of five of its primary dealers have admitted to criminal felony counts brought by the U.S. Department of Justice for frauds against the investing public. Bailing out felons and Wall Street firms with serial histories of wrongdoing perpetuates moral hazard and, thus, more wrongdoing and bailouts.

The House Financial Services Committee has announced that it will hold a hearing on March 23 titled: “Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response.

Warrensworld - Elizabeth Warren's many plans would reshape American  capitalism | Briefing | The Economist

 


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  1. Good morning!


  2. Looks like we got a reverse split on TZA. What a mess!


  3. Good morning!

    MRK is helping JNJ make vaccines – that's interesting.  

    TZA/Dave – That always happens when they get close to $5.

    10:44 ET – The world won't be able to meet the goals of the Paris climate
    accord if the oil industry can't provide oil that has a net-zero carbon
    footprint, Occidental Petroleum Chief Executive Vicki Hollub says at the
    virtual CERAWeek energy conference. "We should not be talking about
    eliminating fossil fuels," but rather their carbon emissions, Hollub says,
    highlighting her company's carbon capture and sequestration efforts in the
    Permian Basin of West Texas and New Mexico. The company plans to build the
    largest direct air-capture facility in the region and has also recently
    signed up industrial companies to take carbon from their plants and
    sequester it in the Permian. Hollub says the Biden administration has a
    "huge opportunity" to take steps to address carbon capture as part of its
    efforts to mitigate climate change. (collin.eaton@wsj.com; @collineatonHC)

     

    1026 ET – Occidental chief executive Vicki Hollub says the US oil and gas
    industry is set to recover from the effects of coronavirus, but says that
    won't include a full rebound in crude-oil production from the US shale
    industry. "The recovery is looking really good … things will be pretty
    good for us over the next couple years," Hollub says at the virtual energy
    conference IHS CERAWeek. "But shale [production] will not get back to where
    it was." She says US oil production that reached above 13M bpd pre-Covid has
    fallen to about 11M now, and probably stays around there for a while,
    "That's going to aid in getting the market back into supply-demand balance."
    (dan.molinski@wsj.com)

     

    1002 ET – Biden administration climate envoy John Kerry says oil companies
    need to get hopping in terms of becoming greener energy companies and moving
    away from fossil fuels, both to save the planet and their bottom line. "If
    you're a chieftain of an oil and gas company you can't help but read the tea
    leaves in front of you as to where the market is going," Kerry says at the
    virtual energy conference IHS CERAWeek. People want electric cars over
    gasoline-powered cars, he adds. "Where's the revenue going to come from? You
    [oil companies] don't want to be sitting there with stranded assets. That
    fight is useless. You're gonna end up on the wrong side of this battle."
    (dan.molinski@wsj.com)

     

    TGT with a good Q but no guidance drops hard.  It was too high anyway.

    *Hovnanian Enterprises Q1 Total Revenues Increase 16.3% To $574.7 Mln From $494.1 Mln Last Year

    Hovnanian Enterprises Q1 EPS $2.75 Vs Loss $1.49 Last Year


  4. TZA split 1 for 8.  We'll have to wait for new options to come out to adjust.

    In the STP, we had 200 June 4s so those are now 25 June $32s and they are covered by 25 June $64s (were $8s) and also 100 short April $25s, that are now $200s – so we're not too worried about them!  

    So the 2000 $4/8 bull call spreads had $80,000 potential at $8 and now the 25 $32/64 spreads have $80,000 potential at $64 so no real difference to us on the hedge.


  5. Nice write up today Phil. I can not remember the last time I was mentioned with a Communist Party Chairman. ;)

    Re TZA, I am tempted to move to TNA. With my luck they will declare a forward split then.



  6. Global coronavirus numbers edging back up after weeks of decline, says WHO



  7. TNA/Randers – TNA isn't out of control so no need for them to split and, as noted above, there's no harm done to our position.  There is the decay advantage on TNA, however, so something like the Jan (22) $110 ($36.50)/80 ($20) bear put spread at $16.50.  10 would give you $30,000 protection for $16,500 and you could whittle that down carefully by selling 3 short March $100 calls for $4.50 ($1,350).  That's only a 17-day sale and we have 325 days to sell.  


  8. Phil / ETSY (Reposting from Friday)

    Would like to hear your thoughts on Etsy after reporting a 111% growth in revenue in 2020 to $ 1.73 billion. Is it similar to Wayfair or do you see Etsy as a long term play in the e-commerce segment?



  9. ETSY/Jij – Hard to tell how much of that growth is circumstantial from the pandemic.  $240/share is $31Bn in market cap and even 111% growth isn't enough to get you from $349M to $1.5Bn quick enough to justify the cap.  Then there's the question of do they ever get there?   Ebay hit $8.5Bn in sales in 2015 and last year was $10.2Bn and 2 years from now maybe $12Bn – that's 10% growth at best.  It's easy to have exciting growth when you are starting close to zero and just went public and spent X Billions on advertising and such.  What happens next is what matters so I'd be cautious about chasing this unicorn.

    Year End 31st Dec 2015 2016 2017 2018 2019 2020 2021E 2022E CAGR / Avg
    Total Revenue
    $m

    273 365 441 604 818 1,726 1,822 2,200 44.5%
    Operating Profit
    $m

    -1.88 17.6 11.9 74.8 88.8 407      
    Net Profit
    $m

    -54.1 -29.9 81.8 77.5 95.9 349 299 404  
    EPS Reported
    $

    -0.593 -0.263 0.421 0.640 0.729 2.59      
    EPS Normalised
    $

    -0.593 -0.260 0.512 0.639 0.750 2.72 2.17 2.92  
    EPS Growth
    %

          +24.9 +17.3 +263 -20.3 +34.5  
    PE Ratio
    x

              89.9 113 83.8  
    PEG
     

                3.27 1.77  
     

  10. TROX is a specialty chemical/metals maker that should be good for $200M/yr but you can buy the whole thing for $2.6Bn at $18.17.  I like them for infrastructure.  Options only go out to Dec but we can sell 10 of the Dec $20 puts in the LTP for $5.40 ($5,400) to remind ourselves to keep an eye on them and to net in for $14.60, which is 20% off the current price.  If they do come down, I'll be happy to add a bull call spread and roll the short puts along and, if not, then we keep the money.

    MFGP is familiar to anyone who's worked Corporate IT but there isn't anymore Corporate IT so they lost $3Bn last year, along with 75% of their valuation.  It's not like they've been displaced and somehow people still need enterprise solutions.  They bought HPE back in 2017 for $2.5Bn so the money keeps flowing from contracts but they will have to retool but  $6 is only $2Bn and they bought HPE for $2.5Bn and they should be good for $500M/year if we get back to work.  Another one that doesn't have long-term options but, in the LTP, we can sell 20 of the Oct $7.50 puts for $2.65 ($5,300) to plant a flag.  The $5 ($2)/7.50 ($1) bull call spread is also very interesting but not yet. 



  11. Good morning everyone….

    Here is the link to today's webinar

    https://attendee.gotowebinar.com/register/3355211822588712206