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Which Way Wednesday – Fed Minutes and Fed Speak to Hold Us Up

What are they so afraid of? 

Gravity, I guess, as the S&P 500 is at 4,063 and the Dow is at 33,333, Nasdaq 13,561 and Russell 2,256.  This isn't just high, this is insanely high.  14,000 on the Nasdaq is 6,000 points higher than 8,000, which wasn't even the March low but it is where Billions of Transactions valued the Nasdaq stocks between late 2018 and early 2020 – two years worth of traders didn't want to pay more than 8,000 for these Nasdaq stocks yet now, after a year of a Global Pandemic – they are racing to pay 75% more money?

Yesterday we talked about the Fed and how they are manipulating the bond market to make it seem like there is demand for bonds and a side-effect of that is they are flooding the system with money.  How?  Well, in the old days, people used to EARN money and they would sometimes use it to buy bonds and the money would go out of circulation and be tied up in a T-Bill for 10 years – lowering the free money supply.  The Government, of course, would spend the money but it's money they were going to spend anyway, whether you lent it to them or not – the money you put into the bond just helped to balance the budget.

Now that's out the window and the Government spends and you spend and Corporations spend and no one seems to worry about paying debt back and, since no one is really buying US bonds, the Fed simply prints money and uses that new money to buy bonds.   That lowers the amounts of bonds in circulation, keeping their "value" up – which translates into low yields.  Since the Fed buys bonds effectively from people who are rolling it over, the money goes into circulation, replacing the bonds and, since investors are not too keen on bonds – where does the money go?  Stocks!  See how easy economics is?  

Some goes to Housing, some goes to Commodities and some actually goes into the Economy but mostly money is looking for a return and we're sure not getting it in the banks or from bonds, so stocks win!  The money going into the economy also causes inflation, of course, and that's still good for commodities and it's bad for bonds, which carry a fixed rate – so the cycle feeds itself – until it collapses.  

Still, we can enjoy the ride while it's still going.  We just reviewed our Money Talk Porfolio on March 19th and we don't touch the positions unless we're on the show so it's a good example of how much money we're making just sitting around and, in just 19 days since – we've made another $7,325 (10%)!  

Of course the economy seems fantastic to members of the Investing Class – we're making over 10% per month!  Who cares how many restaurnts are shut or how many retail stores are out of business when our portfolios are looking good?  And we're 75% in CASH!!! in that portfolio – we're not even trying and we're making 10% of the ENTIRE portfolio in a month, with only 25% of the money invested – how crazy is that?  

And we're not swinging for the stars here, it's IBM, INTC, M, PFE, SKT and SWPR – a nice, balanced collection of 6 stocks but everything is AWESOME in this market and they only go up every day.  Aren't you comfortable with that as an investing premise?  Our Long-Term Portfolio (LTP) has blasted up to $1,772,893 (up $70,950 since our March 18th review), which is up 254.6% in our aggressive long portfolio and our aggressively short, Short-Term Portfolio (STP) is down $26,771 and that's down 3.1% overall.    

In our March 18th Review, we determined that our STP positions were giving us $503,924 of downside protection against a 20% drop and, since we only have $644,293 invested in the LTP (the rest is CASH!!!), we're very comfortable with our balance at the moment.  If anything, we're looking for more long positions – though good ones are very hard to come by in such an overbought market so we'll have to pay close attention during earnings season to see what's still undervalued.  

Stocks we have already are still good like T, WBA, GILD, TOT, GOLD and WPM – we could just buy more of those but it's more fun to look for new stuff – so we'll be doing that – but cautiously….

Fed Minutes are out at 2pm but Powell doesn't speak until tomorrow at noon, which indicates they think they need to talk up the markets for some reason.  Jaimie Dimon of JPM is talking things up today, saying the economy is in a "Goldilocks" moment and telling Retail Investors to BUYBUYBUY what his clients are dumping – just like in 2008.

We'll check out the Fed Minutes at 2pm during our Live Trading Webinar – JOIN US HERE at 1pm, EST!

 


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  1. Is C still a play at 72.60 ? 
    If yes we could look at the following armchair trade.
    Buy the stock and sell the Jul 21 75/65 strangle at 5.33, which gives us a combined return of 2.28 % per month.
    The high of the stock was 76, I would have preferred to be in it at 59 even at 70 looked better.
    What do you think Phil???


  2. Good Morning.


  3. Yodi, that's an interesting one. I like C. What about selling the Jan2023 $60 Puts for $6.75. Using proceeds to buy 2x the $70-80 bull call spread for Jan2022 @ $4. That's net outlay of $1.25. Addmittedly a riskier trade. 


  4. yesterday someone sold 1000  JPM Jan23  $125 puts for $11.85       and

    1500 MS Jan23 $62.5 puts for $5.55


  5. I put orders in for both of those, but have not filled yet 


  6. Does universal basic income discourage work? Maybe not, new data says. – Marketplace


  7. rick2006 I like to see Phil's comment, before changing any thing, as I feel the stock is very much on the high side of the game. Question how high can you go. Obviouly further out play give higher premium, but we are on very thin ice.


  8. Good morning!

    C/Yodi – Fairly priced at 15x.  JPM 17x, GS 13x but I don't think GS can sustain those earnings.  They were down to $40 from March to November so no reason that can't happen again so don't get into anything you wouldn't be THRILLED to DD on and then wait PATIENTLY to get back to your $60ish average.

    As a new trade on C, I'd go with:

    • Sell 5 C 2023 $60 puts for $7 ($3,500) 
    • Buy 15 C 2023 $65 calls for $13.70 ($20,550)
    • Sell 15 C 2023 $80 calls for $7.50 ($11,250) 
    • Sell 5 C July $77.50 calls for $2.35 ($1,175)

    That's net $4,625 on the $18,750 spread and the short Julys use 100 of 653 days to sell so 5 more sales is another $6,000 off an it's a free spread with only committing to own 500 shares at $60 as the worst case.  

    And almost what Rick said!  

    JPM/Stock – Must be nice.


  9. Thank Phil but I think the spread is only 15 not 18.50. Still I feel a bit uncomfortable in my armchair to spend 72.25 for 100 shares


  10. Hard to find good plays now and these days. Still having an eye on T, div tomorrow, possible will go below 30 again possible 29, and here I have quite a few armchairs!!!!


  11. Just sell monthly puts in AAPL on pullbacks, 110s are a good place. Easy to manage.

    GLD is gonna run again….


  12. Pharm / GLD : Agree! Have increased positions in some miners as a result, and taken a smaller position in GLD itself. 




  13. Spread/Yodi – Actually 1,500 x $15 is $22,500, I have no idea where $18,750 came from.

    AAPL/Pharm – You can sell the 2023 $100 puts for $8.20 so that's free money and the 2023 $110 ($29.60)/130 ($20) bull call spread is $9.60 so you could just do that as an even spread or sell 5 puts ($4,100) and go with 15 of the spreads ($14,400) and sell 5 July $135 calls for $4.70 ($2,350).  Selling 5 short calls like that will give you a free $20,000 spread.

    Oil did not like the net build in supplies:

    • A strong economic rebound may push inflation to "well in excess" of 2.5% before it moderates, Federal Reserve Bank of Dallas President Robert Kaplan said during an online central banking panel hosted by UBS.
    • The Dallas Fed projects 2021 GDP growth at 6.5%. "If that forecast were achieved, we think that the unemployment rate would drift and trend down lower throughout the year an approach 4% by year end," he said.
    • That's lower than the median FOMC forecast of 4.5% by the end of this year.
    • Inflation will strengthen during the year "particularly when we get into the summer months of 2021 and you're going to see year-over-year comparisons that could be well in excess of 2.5%," Kaplan said.
    • That rate isn't likely to persist, though. The Dallas Fed expects trailing 12-month personal consumption expenditures, the Fed's preferred measure of inflation,  "moderately above 2%," he said.
    • Previously, Chicago Fed President Charles Evans also expects inflation to rise in the short term, but sees achieving 2% average inflation more challenging in the longer term.
    • The Federal Reserve's goal for maximum employment may prove easier to reach than its objective of inflation averaging at ~2%, Chicago Fed President Charles Evans said an in online speech.
    • "I am very optimistic about our economy’s growth prospects, and am hopeful that our employment goal will be in sight before too long," he said in prepared text. "Achieving our inflation goal, however, may prove more difficult."
    • Indeed, U.S. inflation has undershot the Fed's 2% inflation goal for years.
    • Vaccinations, fiscal aid, and monetary policy have helped to support the economy through the pandemic and set it up for a rapid recovery, he said. That will help bring the unemployment rate down.
    • The median FOMC participant sees unemployment declining to 4.5% by the end of 2021 (vs. 6.0% in the March jobs report) and then to 3.5% by the end of 2023, where it was before the pandemic.
    • For the short term, inflation is likely to increase, partly due to comparisons against low inflation readings from March and April of last year and partly as demand recovers for goods and services that were most affected by the pandemic.
    • For the longer term, though, inflation is likely more dependent on consumers' and businesses' expectations.
    • "Given the low inflation experienced over the past 15 years, it is highly likely that inflation expectations have drifted noticeably below 2%," Evans said. "If they stay there, then we will only see a temporary boost to inflation this year. If they move up, then we could make some real progress toward reaching our inflation target."
    • Echoing other Fed officials' comments in recent months, Evans expects monetary policy to remain accommodative for some time. That dovish policy includes not only near zero interest rates but continuing Treasury and MBS purchases by the Fed.
    • Last week Fed Vice Chair Randal Quarles discussed the central bank's commitment to achieving inflation above 2%.

    • Needham analyst N. Quinn Bolton maintains a Buy rating on Applied Materials (NASDAQ:AMAT) and raises the price target from $130 to $153 after yesterday's investor day event.
    • Bolton says the conservative FY24 forecast was prudent as it sets the stage for beat and raises. The analyst notes that, assuming AMAT shares stay consistent, the company expects a slight downturn to happen in CY23.
    • KeyBanc analyst Weston Twigg (Overweight) moves AMAT's target from $144 to $151, seeing strong semi equipment demand drivers over the past 10 years as production complexity grows and scaling production becomes more efficient.
    • Related: Credit Suisse also defended Applied Materials after the guidance-related pullback, saying the long-term forecast is likely conservative.
    • AMC Entertainment (NYSE:AMC) is 2.5% lower after Loop Capital reiterates its Sell rating even in the face of stock volatility that's been driven in part by bullish Reddit trading, and some recent recovery bullishness.
    • "We have no idea how long this will last, but firmly believe that in the long run the fundamentals will win out," analyst Alan Gould says.
    • And by those fundamentals, he means "The fundamentals of the exhibition industry have declined, AMC's competitive position, in our view, has not improved, its enterprise value has almost doubled while its closest competitor's value has declined."
    • Despite the cinema high driven by the weekend's results in Godzilla vs. Kong, Gould says he doesn't see the industry returning to pre-pandemic levels in the next few years.
    • Meanwhile, he notes the company's average at-the-market sale price was $3.13/share and "we question why it hasn't issued any more shares since late January."
    • And assuming pre-pandemic value, "which may be generous, implies little equity value barring successful financial engineering."
    • Frontline (FRO +2.6%) and Maersk (OTCPK:AMKBY +3.2%) are moving up after Cosco Shipping, China's largest container shipping company, said it expects Q1 net profit will hit 15.4B yuan (~$2.3B), compared with just $44M in the year-ago quarter.
    • Cosco says Q1 shipping rates rose 54% from Q4 levels, as shipping groups reap the benefits of earlier capacity cuts combined with stronger than expected demand.
    • "It will be another strong year for the container shipping industry after a robust 2020," as the industry benefits from tight shipping supply and healthy demand for goods underpinned by huge government spending, says Bank of Communications transportation analyst Maggie Wang.
    • Cosco was able to secure better than expected increases for its trans-Pacific annual contracts, which were expected to rise 25%, says Jefferies analyst Andrew Lee.
    • The recent Suez Canal blockage has created logistical headaches, but port backlogs have provided further support to freight rates.
    • Carnival (CCL +6.7%) trades higher after the company reports booking volume was up 90% in Q1 from the prior quarter. Notably, Carnival also says it has enough liquidity to resume full operations.
    • Bookings update: "Cumulative advanced bookings for full year 2022 are ahead of a very strong 2019 as of March 21, 2021. The company highlights this level of bookings was achieved with minimal advertising and marketing. (Due to the pause in guest cruise operations in 2020, the company's current booking trends will be compared to bookings trends for 2019 sailings.) Total customer deposits as of February 28, 2021 and November 30, 2020 were $2.2 billion, the majority of which are future cruise credits. During the quarter, customer deposits on new bookings essentially offset the impact of refunds provided. As of February 28, 2021, the current portion of customer deposits was $1.8 billion, of which $0.7 billion relates to bookings for the remainder of 2021."
    • Carnival traded at a new 52-week high of $30.62 earlier in the session. Shares started the day off with a tailwind after the CDC is said to be looking at a mid-summer cruise restart timeline.
    • Apple (NASDAQ:AAPL) will release its iOS 14.5 operating system in the coming weeks, and the iPhone maker says the update will include the privacy notification that requires users to consent to apps tracking their activities across apps and websites from other companies.
    • The privacy feature was first announced last year as slated to launch with iOS 14 in Fall 2020. But Apple delayed the requirement to give developers more time to comply with the new rule.
    • Apple says it has provided software developers with alternative ad tools to cope with the potential loss of tracking-based ads. One tool allows developers to track the clicks on ads within the app without divulging user data.
    • Recent news: During a podcast interview released on Monday, Apple CEO Tim Cook hinted at plans for the Apple Car.


  14. Honey badger don't care, thanks for the tip earlier this week Phil, got stung on two dips yesterday but third try is looking nicely profitable…


  15. The province on Ontario is not all of Canada.  There are other parts of Canada that have varying degrees of restrictions, though some western provinces are also going backward, though not to the same level as Ontario.  Eastern Canada is actually reducing restrictions.  Vaccine roll out has not been well managed……..partly due to supply issue and partly due to stupid decisions.