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Whipsaw Wednesday – Merkel and Oil Reverse Course

German Chancellor Angela Merkel takes down her face mask as she arrives for the weekly cabinet meeting of the German government at the chancellery in Berlin, Wednesday, March 24, 2021. In the background left Finance Minister and Vice Chancellor Olaf Scholz. (Kay Nietfeld/Pool via AP)Reverse course!

German Chancellor, Angela Merkel, has apologized for calling for a lockdown in Germany over Easter after her people FREAKED OUT (Easter is a very big 4-day holiday there).  During a press conference, Merkel said the Easter lockdown was formed "with the best of intentions.  We must try to slow down the third wave of the pandemic. Nevertheless it was a mistake," Merkel said, adding: "Because at the end of the day, I carry the last responsibility. It's now important for me to say so here. A mistake should be called a mistake and above all it should be corrected, preferably in good time," she stressed, asking citizens for forgiveness.

Merkel said that on closer analysis, the planned shutdown risked doing more harm than good. She also said there was not enough time to adequately offset some of the problems that would come with it, such as lost earnings and working hours.  "It was well reasoned, but was not really doable in such a short time," Merkel said of the Easter measures. "Many too many questions, from missing wages through to the loss of time in factories and facilities, could not be adequately answered in time."

Mayor Larry Vaughn GIFs - Get the best GIF on GIPHYIn short, proper public health policy is taking a back-seat to Economic Policy in what, the day before, Merkel had described as an attempt to "break the exponential growth of the third wave."  Yesterday, Germany had 15,813  new cases and 248 deaths.  Here in the US, we had 58,764 new cases and 892 deaths, which is about right as we have 4x as many people as Germany – so we're in the same situation.  

In other reverals of fortune that never happen when oil prices are high, a container ship has "crashed" sideways in the Suez Canal, blocking off the waterway that transports 1/3 of the World's oil.  The cause of the accident, according to people in the know, was Oil prices slipping below $57.50 per barrel after night's weak API Report, which showed another 3M barrel build in US stockpiles.  A day of ships have already been delayed and it may take a full week to catch up on the backlog and that has sent Oil back up from the low of $57.25 up to $59.50 this morning but failure at $60 (assuming they clear the canal today) could just be another shorting opportunity.  The EIA reports at 10:30 this morning – we'll see how that goes.

A total of 29 oil, products and liquefied natural gas tankers were waiting on the south side and 15 to the north, according to ship tracker FleetMon.  Suez Canal maritime services provider Leth Agencies said seven tugs have been dispatched so far, along with a dredger to dig out and refloat the vessel. “If it doesn’t work, then the ship must get partly unloaded so it becomes lighter,” said Fotis Pagoulatos, an Athens based naval architect, who has participated in past salvage operations. “This could take days.”

About 52 ships per day go through the Suez Canal, which runs 24 hours a day and it's not very easy to shove more ships into the schedule so it will take a very long-time to reduce what is likely to be a 100-ship backlog.  This will add greatly to the already bad Global supply disruptions in chips and other goods – we even have a global shortage of shipping containers and keeping 100 ship's worth of them (2M) at sea for an extra week isn't going to help.  

Auto chip shortage driving $61B in lost sales faces complicated recovery  (NYSE:TSM) | Seeking AlphaToyota (TM), Ford (F) and GM (GM) have each curtailed production and closed plants due to supply shortages with the 2 US car-makers estimating this costing them about $2Bn in profits in 2021 – about 1/2 for Ford and 1/3 for GM.  Since they have over $140Bn in sales to make those profits, even a $28Bn (20%) sales cut to each of them would have some very nasty economic impacts as the automakers consume less steel and parts and require less labor, etc.  We wanted to bring the manufacturing home so a manufacturing slowdown hits us harder – at home…

Speaking of which, we just got our Durable Goods Report and, not surprisingly, it was down 1.1%.  Well, when I say "not surprisingly", I mean to rational, thinking people as Bloomberg's Survey of Leading Economorons had forecast Durable Goods to be UP 1% – so they were off by 210%. 

And speaking of rational, thinking people – those are not words Trump Lawyer, Sidney (the Kraken) Powell would use to describe Trump's supporters.  She is being sued for all the false and misleading statements she made regarding election fraud on behalf of her client a few months ago and her defense is – get this – that she didn't do anything wrong because "NO REASONABLE PERSON WOULD HAVE BELIEVED THEM".  That's righ, Ms. Powell is attempting to characterize lying under oath as COMEDY – she never expected anyone to believe what she and the President were saying – so how can you prosecute them?

Powell's  defense is, essentially, that Donald Trump is such a known liar that any assertion made on his behalf in an election can’t be taken as remotely plausible by a rational human being.  Colorado libel and slander law (where Dominion is located) requires the statements to be recognized as factual by a reasonable person.

The brief also shows screenshots of Powell on Fox News — as if to suggest that nothing said on Fox could be susceptible of being considered fact.

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  1. Good morning, everyone. Here is the link to today's webinar.

  2. "The cause of the accident, according to people in the know, was Oil prices slipping below $57.50 per barrel…"

    My literal LOL of the day!!

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  3. Mike it always helps to get things moving, but it will take a lot for a captain of such a ship to do this on intentionally. .

  4. Good morning!

    "it will take a lot"/Yodi – Like $10M? 

  5. Thanks Phil for your affirmation on the P trade. I had 2 calls on fcel long as I had already bought back the shorts. When it was assigned it was 200 shares short. I couldn't fathom how that happened but said fine this sucker is going down more I'll hold it as a short. Low and behold a trade was placed BUT not by me and of course was bought back higher than I paid. This is the second time in a month they pulled these shenanagans but I made copies and will be sending them out to various agencies for review.

  6. GME all over the place after earnings.  Now down to $152.  Reality is such a bitch…

    • Popeyes announces new plans to develop and open hundreds of restaurants across India, Bangladesh, Nepal and Bhutan in the coming years.
    • The chain inked a multi-country licensing agreement with Jubilant Foodworks Limited to open Popeyes locations in India and neighboring countries.
    • Chicken is noted to be one of the largest and fastest growing categories in India and is expected to grow rapidly in years to come.
    • Source: Press Release
    • Popeyes has been a positive contributor to the Restaurant Brands International (NYSE:QSR) bottom line, while Tim Hortons has been a drag.

    These guys are not terribly expensive here.  I do believe in their Asian expansion and I love Popeyes and Horton's can be fixed – it's just not playing well in the US (huge in Canada).  They also own Burger King.  $65 is $20Bn and they made $500M last year but should make $1.2Bn this year so nothing crazy about $65 with good growth potential.  In the LTP:

    • Sell 10 QSR 2023 $50 puts for $5 ($5,000)
    • Buy 15 QSR 2023 $60 calls for $11.50 ($17,250)
    • Sell 15 QSR 2023 $72.50 calls for $6.50 ($9,750)

    That's net $2,500 for the $18,750 spread that's $7,500 in the money to start so the upside potential is $16,250 (650%) and our worst case is owning 1,000 shares at net $52.50 – about 20% below the current price.  Margin is just $2,426 so it's an efficient way to make money but it will increase if QSR drops – so don't take it lightly.

    As with any short put – as long as you REALLY want to own 1,000 shares of QSR for $52.50 – there's no harm in selling the puts.    

  7. So tempted to short oil at $60!  

    Too dangerous with the report coming.

  8. QSR/Phil – there are good burger kings all over Korea, even in the rural tech-boom town where I lived. More popular than McDonalds, especially since there was a food poisoning outbreak and rumors of nasty ingredients from China a couple of years back.

    Popeye might not do so well. Something called chi-mek – fried chicken and beer shops – are very popular in Korea, and you can get fried chicken by the piece in any convenience store.

  9. GIS down today might be worth putting a reminder on it to sell a Jan 23 55 put for some 7$ if possible.

  10. Popeye's/Snow – It's a bit better than store-fried chicken.  Also spicy – I think it will play well in Asia.   KFC does well and they suck.

    EIA pretty close to API – not supportive of $60.

  11. Anyone else get assigned on their short MO Jun $40 calls? Ex-div today and I forgot to check the premium remaining yesterday. $0.86 dividend with about $0.61 of premium left. Not a bad $0.25 profit for paying attention ;)

  12. daveo I explained the calculation on remaining premium and div. often enough!!!!!!!

  13. Chicken/Phil – some day I'll have to take you to Korea for some chi-mek – it's fine stuff, and really good variety of seasonings. Also there's ginseng-chicken stew, a fine traditional dish, very tasty,

  14. Here again a typical example CM I am holding the Sep 95 call against the stock. stock is trading for 100.59. the Sep 95 call at market is 6.65. So still 1.06 premium!!! But there div is 1.17 3/26/21 So you are .11 cents in hot water. Better roll Yodi if you wish to hold the stock and get the div. or lose the stock!!!

  15. Seeing that no one talks to me I tell you a little more how I feel about CM. I did buy that stock at 81 and I have always liked to owe that stock below 80. At present I feel the stock is very high and getting assigned receiving 95 dollar and getting relieved of the 6.65 call obligation is not to bad at all. On top of it CM is a foreign company and the US tax deduction for me is 25% on the div. So in this case I might leave all as is and collect the cash. So as you can see there are many options on option trading. Normally the stock will even be lower to buy back after div. So for me wait and see  attitude.

  16. Oil popped over $60.  

    GIS/Yodi – I liked them at $40 when no one else did, so hard for me to be excited about $58 but still a reasonable price.

    MO/Dave – If you buy them right back you might still get the dividend.  

    Chimek/Snow – I've had it here – appetizer at a Korean BBQ near my house.  What I really love is the soup pot place, where you get a pot of soup base and put in your own ingredients.  Is that in Korea or just here?  

    Losing the stock/Yodi – Sometimes the stock drops ex-dividend so I'm not so upset to be called away and buy it back for less.

    What a crazy stock:

    • Piper Sandler says the next six to twelve months will be crucial for Tesla (TSLA -0.6%) in regard to the company's prospects in truck-related markets.
    • Analyst Alexander Potter warns that "temporary selloffs" could be seen if the truck initiative sees production delays.
    • Potter and team still have Tesla slotted as one of its highest-conviction long ideas, but note that better entry points could lie ahead.
    • In other Tesla news today, Electrek reports that the price of the Model Y was increased in China and Tesla is tied even close to Bitcoin.

    • Some Chinese tech names are seeing their biggest decline in months in the wake of news that China is reportedly proposing a joint venture to oversee data collection from e-commerce and digital payment companies.
    • Tencent Music (NYSE:TME) has slid 20.4% in NYSE trading, a record decline for the stock. Parent Tencent (OTCPK:TCEHY) is down 3.4%. And Alibaba (NYSE:BABA), frequently in China's crosshairs as of late, is off 2.4%.
    • Others are seeing their worst declines in months. IQiyi (NASDAQ:IQ) is -20.6%. Vipshop Holdings (NYSE:VIPS) is -18.4%. (NASDAQ:JD) -3.2%. Bilibili (NASDAQ:BILI) -7.6%. Pinduoduo (NASDAQ:PDD) -6.9%.
    • The tech enthusiasm at the market open has faded, but the rotation to cyclicals is back and lifting the Dow (DJI) +0.9%.
    • The price-weighted index is getting a lift from industrial components, with Caterpillar, Honeywell and Boeing among the top price gainers.
    • The S&P (SP500) +0.6% is up, with all but one sector in the green. Communications Services (NYSEARCA:XLC) is hampered by ViacomCBS' slump from its share offering.
    • The Nasdaq (COMP) -0.1% is struggling. Intel has lost its early gains and, although chip and chip equipment stocks are still seeing strong gains, megacaps are mixed.
    • Tesla is up, though, with its decision to accept Bitcoin called a seminal moment for crypto.
    • Bitcoin is up 2%.
    • The 10-year Treasury yield is flat at 1.64% as Treasury Secretary Janet Yellen and Fed Chairman Jay Powell testify before the Senate Banking Committee.
    • Yellen says there will be a need for the U.S. to raise revenue longer term.
    • Amid individual shares, Carnival is among the top S&P gainers as some recovery worries eased after Germany decided to backtrack on its hard lockdown plans.
    • Discovery is the biggest decliner, retreating further from its strong rally following a sell call from UBS.
    • Cruise line stocks are higher after an industry trade group calls on the CDC to allow for the planning of a phased resumption of cruise operations from U.S. ports by the beginning of July.
    • "Over the past eight months, a highly-controlled resumption of cruising has continued in Europe, Asia, and the South Pacific—with nearly 400,000 passengers sailing to date in more than 10 major cruise markets. These voyages were successfully completed with industry-leading protocols that have effectively mitigated the spread of COVID-19. Additional sailings are planned in the Mediterranean and Caribbean later this spring and summer," notes Cruise Lines International Association CEO Kelly Craighead.
    • The July date isn't far off from expectations over the last six months for when U.S. ports would be busy again.
    • Carnival (CCL +5.5%), Norwegian Cruise Line Holdings (NCLH +4.5%), Royal Caribbean (RCL +4.2%) and Lindblad Expeditions (LIND +3.9%) are all showing strong gains.
    • Most investors are playing the long game on cruise line stocks

    • Treasury Secretary Janet Yellen said she believes in increasing spending temporarily to respond to a crisis, but to do so responsibly, in her testimony to the Senate Banking, Housing, and Urban Affairs Committee.
    • "Longer run, we need to raise revenue to support outlays," she said.
    • Last week, it was reported that the Biden administration will propose raising the personal income tax rate on individuals earning more than $400K per year, expanding state tax's reach, and boosting the capital gains tax rate; the corporate tax rate may be raised to 28% from 21%.
    • On Tuesday's testimony to the House Financial Services Committee, Yellen said that the administration wouldn't propose any tax changes that would hurt American firms, especially small ones.
    • Today, she said she'd support an extension of the Paycheck Protection Program, which is intended to help small businesses survive the pandemic.
    • Schlumberger (SLB +4.3%) won a $480M deal to drill 96 oil wells in southern Iraq for the country's Basra Oil Co. and Exxon Mobil (XOM +3.3%), Iraq's cabinet announces.
    • Schlumberger has worked at the West Qurna-1 field where Exxon is the lead operator, but Iraqi authorities did not specify where the new drilling will take place.
    • West Qurna-1 is one of the world's largest oil fields with more than 20B barrels of expected recoverable reserves, and its development is a priority given that Iraq relies on oil exports for nearly all its state revenue.
    • Schlumberger's margins remained high in 2020, indicating that it has maintained its competitive position, The Value Portfolio writes in a bullish analysis posted on Seeking Alpha.

    Yep, that was the whole point of that war!

  17. Thanks Phil and Yodi

    Reading about KL today seems like a levered play on future gold price. Thought this analysis was interesting: Should gold average $1,850/oz. for the next 4 years, its free cash flow forecast comes in higher at $5.66 billion, which equals 70% of its current enterprise value.

  18. Thanks for the QSR trade! Did people get filled? Mine is still open 

  19. MO – The funny thing is that I was waiting for the dividend and then I was going to close out the position anyway.

  20. Rick// I waited for some time and then canceled it.  Didn't get my fill for the QSR.  Thanks.

  21. Soup pot/Phil – yup, a very popular Korean thing, it may be originally Japanese, as the Korean word for it is (can't write Korean script here, so won't) is "shaboo-shaboo". Good stuff; you can really get your veggies and mushrooms.

  22. CVS very strong today! That's nice to see. 

    I added some GS too (stock not options), any thoughts on them? 

  23. Phil – INTC,

    Great news yesterday about expanding the Foundry side of INTC.  The US has slipped from nearly 30% to 9% today for chip mfg, so I feel this is really a smart move for them. Also, appears this will get their foot in the door with RISC where there seems to be a big shift in RISK adoption.  The new CEO is playing the long game.  I sold 1/2 my position in the runup to $65 prior to this news.  Would you pause here to wait for a better entry or do you have a recommendation on any new positions?

  24. Shaboo/Snow – The Japanese do not let you make your own!  I have so much fun adding things to my soup at the place I go to.

    CVS/Rick – Soon the shots will move there – lots of traffic.

    WBA still cheap.

    INTC/Jeddah – Well, I had faith in the long-term.  Paid off early.  A little chasey at the moment after moving up 40% since we picked them as our Stock of the Year.  I'd wait for a pullback or at least a consolidated mover over $65.  


    I was looking for our GIS play – it was a while ago:

    Submitted on 2018/09/18 at 9:53 am

    GIS/Jabob – Yikes, down 6%.  This was their Q1 and they actually beat (sales up 8.6%) but North America was surprisingly weak (down 2.1%).  Pet food (Blue Buffalo) up 14% and that's the acquisition people were worried about so I'm happy with the report.  Profits were down 3.1% due to interest charges on the Buffalo acquisition but they were already estimated at 0.64 and the company put up 0.71 after adjustments and 0.65 before so, once again, traders are just idiots. 

    In the LTP, we have:

    Long Call 2020 17-JAN 40.00 CALL [GIS @ $47.77 $0.00] 20 4/18/2018 (486) $14,700 $7.35 $1.60 $7.35     $8.95 $-0.12 $3,200 21.8% $17,900
    Short Call 2020 17-JAN 52.50 CALL [GIS @ $47.77 $0.00] -20 4/18/2018 (486) $-4,000 $2.00 $0.52     $2.52 $0.16 $-1,030 -25.8% $-5,030
    Short Put 2020 17-JAN 45.00 PUT [GIS @ $47.77 $0.00] -10 4/18/2018 (486) $-5,250 $5.25 $-1.68     $3.58 $-0.02 $1,675 31.9% $-3,575

    Nothing to worry about there as this is about where we came in but, since we sold more premium than we bought, 6 months is taking a toll on the shorts we sold.

    We were on the nose with our target in Jan but we didn't renew it as they never really had a pullback.