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$2,000,000,000,000 Tuesday – Now What?

Free Money Friday – Biden Pledges Another $1.9Tn for the Bonfire - Phil  Davis

"Out of college, money spent

See no future, pay no rent

All the money's gone, nowhere to go" – Beatles 

Well, we got our $1.9Tn – that should hold us over for a month or two, but then what?  

Hopefully most of us will have been vaccinated by the end of May and, according to the new CDC guidelines – it's party time!  The new CDC guidance says fully vaccinated people ( those who are two weeks past their second dose of the Moderna and Pfizer Covid-19 vaccines or two weeks past a single dose of the Johnson & Johnson vaccine) can:

  • Visit other vaccinated people indoors without masks or physical distancing
  • Visit indoors with unvaccinated people from a single household without masks or physical distancing, if the unvaccinated people are at low risk for severe disease.
  • Skip quarantine and testing if exposed to someone who has Covid-19 but are asymptomatic, but should monitor for symptoms for 14 days
  • Wear a mask and keep good physical distance around the unvaccinated who are at increased risk for severe Covid-19, or if the unvaccinated person has a household member who is at higher risk

    Wear masks and physically distance when visiting unvaccinated people who are from multiple households.

The Orgy at Lil's Place (USA, 1963) US One Sheet Movie Poster at Amazon's  Entertainment Collectibles StoreSo yes, you can have an orgy, just be careful who you invite.  This is great news, on the whole but you know no one who is vaccinated is going to worry about infecting unvaccinated people so there will be some chaos during the transition but, overall, it does sound like America should be back to normal by the end of summer at the latest.  

And now we have $1.9Tn from Uncle Joe to hold us over until then.  Our quarterly GDP is $5Tn so that's 40% of a Quarter in FREE MONEY!!! – so I think that SHOULD be enough for the moment but is it going to be enough to keep the markets are all-time highs when, going forward?  It may be hard to justify giving them another $2Tn.  Well, there's always infrastructure, right?  

Even China thinks we are going overboard with our stimulus with the Chinese perspective on our stimulus being:

One of the takeaways from the annual National People’s Congress under way in Beijing is a conservative growth goal, with a tighter fiscal-deficit target and restrained monetary settings. That’s a big contrast with Washington, where President Joe Biden is preparing a second major fiscal package after he gets final approval for his $1.9 trillion stimulus.

The widening policy divergence is putting strains on exchange rates and could potentially reshape global capital flows. It stems, in part, from different policy lessons from the 2007-09 crisis with the US pursuing a "Go big or go home" policy towards stimulus while China overdid their stimulus back in 2009 and that left them with unused airports and railways built around ghost towns and massive excess Industrial Capacity and the unpayable debt that goes with it.

And, of course, keep in mind that China moved quickly to rapidly contain their pandemic so their economy wasn't as destroyed as our was thanks to Trump's denial of the virus and the problems it was causing.  China still hasn't had their 100,000th infection despite hitting 80,000 last June while the US had 50,237 new cases yesterday. 

Globally, 312,051,418 of our 8,000,000,000 people have been vaccinated or, less than that – since that's the number of DOSES that have been administered, not the actual number of people.  That's only about 3% for those of you keeping score (or planning on sending out orgy invitations).  

There's another few Trillion Dollars that have to be spent.  Figure at least $100 x 8Bn people is $800Bn right there and, since it's a Government project, triple that cost at least but it has to be done and it has to be done globally or all we will end up doing is wiping out the easy to kill strains of Corona and leaving the super-strains to fester in other parts of the World until they come back here to infect us again.   No one's even talking about the next stage of the vaccination program because we don't have enough doses for our own orgies yet but it does need to be done – and soon!  

That's why Pfizer (PFE) is still a bargain at $34.35 – the WHOLE WORLD needs to be vaccinated, not just the US.  And we'll probably need to be re-vaccinated next year too.  Yes, JNJ and MRNA are good too but it's PFE that's stupidly cheap at $34.35, which is a market cap of $191.5Bn for a company that made $16Bn in 2019 and $9.6Bn last year and projects $18Bn in earnings this year – and that doesn't even take into account the massive vaccine sales that are still a wild card.  

We already have a play on PFE in our Long-Term Portfolio and, frankly, it's not doing well so far:

PFE Long Call 2023 20-JAN 30.00 CALL [PFE @ $34.35 $-0.04] 50 9/28/2020 (682) $40,000 $8.00 $-1.95 $8.00     $6.05 $0.38 $-9,750 -24.4% $30,250
PFE Short Call 2023 20-JAN 37.00 CALL [PFE @ $34.35 $-0.04] -50 9/28/2020 (682) $-23,000 $4.60 $-1.25     $3.35 $0.37 $6,250 27.2% $-16,750
PFE Short Put 2022 16-SEP 35.00 PUT [PFE @ $34.35 $-0.04] -15 9/28/2020 (556) $-9,900 $6.60 $-0.85     $5.75 - $1,275 12.9% $-8,625

We invested net $7,100 in that $35,000 spread and we're down $2,225 but that means, as a new trade, it's only net $4,875 for the $35,000 spead with $31,125 (638%) upside potential if PFE can get back to $37 by 2023 and the worst case is you end up owning 1,500 shares at $35 ($52,500) plust the $4,875 invested comes out to about $38/share but those are only Sepember puts and they are now $5.75 and mostly premium and the 2023 $33 puts are $4.50 so we'd lower our basis by rolling them if we have to.   The margin on the short puts is just $5,379, so it's a very efficient way to make $31,125.  

We have a similar spread in our Money Talk Portfolio and, like the LTP, we're going to leave it alone for now but, in our Dividends Portfolio, we don't have PFE – even though they pay a nice $1.56 (4.54%) dividend – and we know how to enhance that with a simple options strategy.  So, for the Dividend Portfolio, let's add:  

  • Buy 1,000 Shares of PFE for $34.35 ($34,500) 
  • Sell 10 PFE 2023 $30 calls for $6 ($6,000)
  • Sell 10 PFE 2023 $33 puts for $4.50 ($4,500) 

That drops our net entry to $24,000 or just $24 per share.  If we are assigned 1,000 more at $33, our average cost per share would be $28.50, still 17% below the current price.  That makes the $1,560 dividend we expect to collect a very nice 6.5% dividend while we wait to be called away with a $6,000 (25% profit) but, of course, we intend to roll our short puts and calls and keep the stock for the long run.  

It's not very sexy with "just" an anticipated return of $9,120 (38%) against our $24,000 investment in two years but, if PFE is safely over $37 early next year, we can then release the allocation block for another trade.  That's why, even with conservative targets like these, our Dividend Portfolio is up 70.2% since Oct 25, 2019.  As we discussed in last week's Live Trading Webinar, you don't have to swing for the fences to make very nice returns and, if you keep getting hits – some of them are going to be home runs anyway.

 


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  1. Good Morning.


  2. Good morning!

    Look at that Nasdaq fly.  2.5% Rule already and the day just started.   

    13,800 to 12,300 is a nice 1,500-point drop so 300 points is a weak bounce – as impressive as it seems.   You can't short here but 12,900 would be the strong bounce line and that is a 600-point (5%) move back up and that is sure to be rejected by 100-points – so it's a great shorting line when we hit it (with tight stops above). 

    If you want to see happy – look at Europe:

    A collapsing currency will do that for you:

    That's down 5% for the year – ouch!


  3. Looks like we picked the right day to end our TSLA short yesterday…

    Hit our $600 target on the nose too!


  4. Biden hopes to boost offshore wind as Mass. project advances


  5. PBR is cheap enough now that I don't want to ignore it.  Great bet on global growth coming back and a hedge against inflation.  $7.46 is just under $50Bn and they made $7Bn last year after making $40Bn in 2019 and expect $20Bn this year and back to $40Bn next year so you are getting 100% of your investment back in the next 24 months!  

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

    321,638 282,589 283,695 310,255 302,245 272,069 343,174 396,354 -3.29%
    Operating Profit
    BRLm

    -13,188 17,111 37,773 62,465 81,701 49,621      
    Net Profit
    BRLm

    -34,836 -14,824 -446 25,779 40,137 7,108 19,887 36,524  
    EPS Reported
    BRL

    -5.34 -2.27 -0.068 3.46 4.60 1.09      
    EPS Normalised
    BRL

    0.152 0.325 0.118 4.85 3.98 4.50 6.14 11.2 96.9%
    EPS Growth
    %

    -87.3 +114 -63.6 +4,008 -18.0 +13.0 +36.6 +82.1  
    PE Ratio
    x

              9.42 6.90 3.79  
    PEG
     

              0.258 0.084    
     

     

    The do pay a nice 4% dividend but let's just set up a spread for the LTP.  We don't mind owning 3,000 shares at $7 so, for the LTP, let's: 

    • Sell 30 PBR 2023 $7 puts for $2 ($6,000) 
    • Buy 50 PBR 2023 $5 calls for $3 ($15,000)
    • Sell 50 PBR 2023 $10 calls for $1.25 ($6,250) 

    That's net $2,750 on the $25,000 spread that's half in the money ($12,250) to start.  The upside potential at $10 is $22,250 (809%) and our worst-case is having 3,000 shares assigned at $23,750 or $7.92/share and, of course, if that happened today, we'd sell the 2023 $7 calls for $2.50 and the $5 puts for 0.90 and that would lower our basis to $4.52/4.76 – not so terrible on potentially 6,000 shares and still only 1/4 of an allocation block.  


  6. LYG is also still cheap at $2.27 but starting to take off and it diversifies us nicely in the LTP so let's add that.  This is just $41Bn in market cap and yes, 2020 was a bad year but bad years are always when we buy LYG, right?  

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

    24,840 41,662 35,798 28,469 43,814 30,637 15,099 15,239 4.28%
    Operating Profit
    £m

    1,644 4,238 5,275 5,960 4,393 1,226     -5.70%
    Net Profit
    £m

    860 2,413 3,559 4,408 2,925 1,318 2,877 3,463 8.91%
    EPS Reported
    £

    0.030 0.116 0.174 0.220 0.138 0.049     9.96%
    EPS Normalised
    £

    0.084 0.142 0.198 0.257 0.156 0.049 0.159 0.192 -10.5%
    EPS Growth
    %

    -43.6 +68.5 +38.9 +29.8 -39.2 -68.9 +228 +20.8  
    PE Ratio
    x

              34.0 10.4 8.58  
    PEG
     

              0.149 0.497 1.05  
     

    Options don't go too far out so let's just buy 50 LYG Oct $2 calls for 0.45 ($2,250) in the STP and sell 50 LYG Oct $3 puts in the LTP for 0.92 ($4,600) just to remind us to keep an eye on them.


  7. One car company we all forget about is Isuzu, as they have little presence in the US but they sold $19Bn worth of cars last year and made $9.4Bn (a bit less than usual) yet you can buy the whole company for $7.75Bn at $10.61/share – that's silly.  There's nothing wrong with them and nothing exciting about them, they make a niche amount of cars for a nice 5% profit year after year yet they are about 1/10th the price of TSLA, who sold $31Bn worth of cars and made $862M.  

    There's no options so we're not going to play them but a good bargain at $10.61.


  8. Hi Phil,

    Wanted your thoughts on U (unity software). They provide a platform for game developers. Also, community gaming ecosystem entirely when you have time. 

    Thanks




  9. Phil,

    Regarding TLT, you had mentioned 145 as a possible shorting point. From a macro standpoint, I am trying to understand what could possibly make bonds rally enough to jeopardize  April or June short calls (@145 or so ) trade? Surely some ECB buying wouldn't be enough. Seems like a reverse coupon clipper, relaxed trade as a place to employ capital. Would appreciate your insights on what could go wrong.

    Thanks


  10. U/Harip – They have had quite the roller coaster since going public.  Still at $27Bn with less than $1Bn in sales – you are putting a lot of expectations on the line.  As you say, they provide "A" platform for game developers, not "THE" platform and I don't know of any other development software makers trading at 100x 5-year forward earnings, do you?  I'm not against them but I certainly don't have a compelling reason to be for them either.

    A lot of these development tools flame out because they start out as freeware or very cheap and, if they are useful, everyone uses it to shortcut their development so the company can say impressive things like "90% of the top 100 game-makers use our software" – but that doesn't mean they would use it if you jacked up the licensing fees, does it?  This is one of those cases where the company's specialty is outside of my area of expertise so it's simply a "no play" stock for me.

    TLT/8800 – You could have said the same thing last February and you'd have been painfully wrong.  Like betting against a higher VIX – it makes perfect sense – except for the couple of time you time it wrong and it rips your face off.  Now you want to play in the bottom of a 2-year channel instead of the top of one – also not for me…


  11. Nasdaq up 534 – sure, that's normal…


  12. do u think they will push it to nq 12900 phil 


  13. Phil,

    Re TLT, thanks for the reality check. Logic doesn't always rule.


  14. U

    Phil is kinda right but… this is what their CEO said:

     “We’ve said that we’re aiming to be free cash flow positive by the end of 2023. We were free cash flow positive in Q2, Q3, and Q4 of 2020, but that was largely because of the COVID tailwinds. That said, it’s a very good proof point of where we can go. For us, it’s more a choice. It’s a matter of how much we want to keep investing in growth versus driving profitability. One of our most important initiatives in the company is very carefully managing our gross margin. With our nice high gross margins, we can both invest in growth and move toward a path to profitability. Our goal is to do both. If you look at our operating margins last year, if you take out the COVID effect, we’re still–if you look at our guidance for next year, we’re clearly still moving on that path toward profitability. We thought carefully in 2021 about how much of those COVID savings, which we are still enjoying–travel, facilities, marketing events, we still have a lot of savings in 2021, but we decided that rather than get to free cash flow positive again next year, let’s invest in the business. Let’s invest in growth. It’s still so early for all of these opportunities, whether it’s create or operate, whether it’s gaming or other verticals. There’s so much green field open opportunity. We’re doing both.” 


  15. It gets harder and harder as they get closer because more and more selling programs kick in as we approach the strong bounce line.  Keep in mind, we throw out the spike below but not every system is going to do that so some of the algos kick in at lower levels.  12,900 is just a number humans care about – machines do not.  The 5% Rule tells us that around here is the point where we are likely to be rejected and now knocked back 20% of the 600-point run from 12,300 so those are going to be 120-point retraces to 12,780 and 12,660 so now the trick is to see if those lines were significant on the way up:  

    It's hard to tell for sure on a 5-min chart but it's no coincidence the lines are working so I'd say the 5% Rule is in effect so we just keep watching until we feel confident enough to jump in with a bet.

    Logic/8800 – In this market?  

    I Made Money Grow On Trees - YouTube


  16. 12,788 on /NQ – The 5% Rule can be creepy sometimes!