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Mid-April Monday – Earnings Season Begins

GDP estimates are down 40%.

They never should have been at 10% in the first place but we can take the Fed's complete inability to accurately predict what will happen in the economy as a given and just focus on the trends.  Other leading Economorons have been bringing their estimates down as well as the grand re-opening is not going as smoothly as first thought. 

The range of predictions is staggering – from 2% to 7% among those surveyed – leaving a gap the size of Canada's entire economy in-between.  Speaking of Canada, our neighbor to the North has re-locked down their most populous province (and, if you can name 3 you are a leading Canada expert) as their re-opening led to a disastrous resurgence of the virus – particularly the more contageous new strains.  "That's just science" said the mayor of 100 towns and cities as their citizens drove past them on the way in and out of Canada for beer.

Hopefully we'll do better though that's like back last April when we HOPED the virus would stay in China and then we HOPED it would only be a few cases in the US, etc.  Reality can be a real bitch sometimes – good thing we're ignoring it again.  It's the timing of the virus that is killing us – it's too close to Summer to close the beaches again.  Just a few kids eaten by sharks so far – nothing to worry about…

Five states: Michigan, New York, Florida, Pennsylvania and New Jersey account for some 42% of newly reported casesIn Michigan, adults aged 20 to 39 have the highest daily case rates, new data show. Case rates for children aged 19 and under are at a record, more than quadruple from a month ago. There were 301 reported school outbreaks as of early last week, up from 248 the week prior, according to state data.  In addition to school sports, large outbreaks have been tied to the recent Easter holiday and spring breaks.

Driving the overall uptick among younger people in Michigan, and more broadly, is a confluence of fatigue from the pandemic, which is leading some people to engage in more close contact, and the spread of the more transmissible U.K. variant, known as B.1.1.7.  “It used to be that we had clusters of the variant. The cases were in fairly contained situations. Now, we’re definitely seeing cases of the variant arise in the general community,” said Emily Toth Martin, an infectious-disease epidemiologist at University of Michigan School of Public Health. “It’s concerning that we see big explosive rises in groups where we can’t use the vaccine.”

Speaking of concerns, the Dollar is down 1.5% in April from 93.4 to 92 and the S&P has climbed from 3,950 to 4,114, which is up 164 points and that's 4%.  We'll see what happens to the S&P when and if the Dollar starts to bounce but, who knows, maybe we'll get lucky and it will collapse completely…  

Money supply (M2) in the U.S. has skyrocketed over the last two decades, up from $4.6 Trillion in 2000 to $19.5 Trillion in 2021.  The effects of the rise in money supply were amplified by the financial crisis of 2008 and more recently by the COVID-19 pandemic. In fact, around 20% of all U.S. dollars in the money supply, $3.4 Trillion, were created in 2020 alone.  A roll of toilet paper used to cost a dime, as did a bottle of beer – coke was a nickel!  

We are likely at the beginning of another long-term inflationary surge and, as I discussed in a recent interview, we need to be as it's the only logical way to reduce our Debt ($30Tn) to GDP ($20Tn), which is now 150% of GDP – not including entitlements (because that would make it look very, VERY bad).  Adding $2Tn per year to our debt for 10 years would double it to $60Tn but 10% annual inflation (like we had in the 70s) would bring our GDP up to $52Tn – a much better ratio.  Going the other way would, of course, be catastrophic.  The debt will grow to $60Tn no matter what you try to do – so getting the economy to keep up is the only logical choice.  

All this is great for the market, as long as things don't go too terribly wrong.  Powell was on TV last night saying the Economic Outlook is "substantially brighter."    "We feel like we're at a place where the economy's about to start growing much more quickly and job creation coming in much more quickly. The outlook has brightened substantially." The main risk to the outlook, Powell stressed, is a new spread of the disease.  That last part will be basically ignored as the media chooses to accentuate the positive.  

11 Fed speakers will back Powell up this week with very little Economic Data until the Atlanta Fed on Wednesday along with the Beige Book.  There's CPI and Business Optimisim tomorrow, Philly & NY Fed Thursday and Consumer Sentiment and Housing Starts on Friday.

As you can see here, earnings season gets going on Wednesday and by Thursday we're already packed with big names and lots of banks.  The Banking Sector is the only sector with EVERY SINGLE STOCK higher than last quarter.  If they can hold it together – it bodes well for the rest of the S&P 500 as well and 20% of the XLF reports this week:

Image

Things are going to heat up fast – I hope Q1 earnigns will not disappoint but, if they do – we do have our hedges (see Friday's Report).

 


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  1. Good Morning.


  2. Good morning


  3. CHL/All-is the consensus here convert to HK and sell?  Anybody holding for a potential reversal before the November date?  Thanks.


  4. BABA is flying higher this morning after the news on the fine and Ant group…. nice overall resolution. 


  5. In canada we have lost the race between variant spread and vaccine deployment our inadequate health system is quickly being overwhelmed.

    Hopefully the rapid vaccine rollout in us will save you from having a similar experience.


  6. Alibaba antitrust fine removes overhang and returns fundamentals focus, says HSBC

    HSBC says Alibaba's (NYSE:BABA) "Sword of Damocles" has been lifted with regulatory risks priced in and antitrust concerns largely put to rest.

    The firm says BABA's antitrust penalty has "no fundamental impact on the business or GMV" since the case "affects only a number of Tmall flagship stores that are directly operated by brands."

    HSBC does note that the internet sector is still subject to merger control review by Chinese regulators but says Alibaba isn't under any other current antitrust scrutiny.

    The earnings impact from the antitrust fine is "manageable," representing 19% of FCF as of December 2020

    The firm says the focus can now return to Alibaba's fundamentals.

    HSBC maintains a Buy rating and $300 price target on Alibaba.


  7. Alibaba antitrust fine removes overhang and returns fundamentals focus, says HSBC

    Apr. 12, 2021 9:30 AM ETAlibaba Group Holding Limited (BABA)By: Brandy Betz, SA News Editor6 Comments

    HSBC says Alibaba's (NYSE:BABA) "Sword of Damocles" has been lifted with regulatory risks priced in and antitrust concerns largely put to rest.

    The firm says BABA's antitrust penalty has "no fundamental impact on the business or GMV" since the case "affects only a number of Tmall flagship stores that are directly operated by brands."

    HSBC does note that the internet sector is still subject to merger control review by Chinese regulators but says Alibaba isn't under any other current antitrust scrutiny.

    The earnings impact from the antitrust fine is "manageable," representing 19% of FCF as of December 2020

    The firm says the focus can now return to Alibaba's fundamentals.

    HSBC maintains a Buy rating and $300 price target on Alibaba.


  8. Phil/VIAC – I'm considering the following trade, any thoughts:

    Buy 20 Jan 23 VIAC $37 Calls $12.30

    Sell 20 Jan 23 VIAC $60 Calls $5.35

    Sell 10 Jan 23 VIAC $37 Calls $7.25

    That should be $5900 on the $39,000 spread if I'm calculating this correctly. Any thoughts? See anything better?


  9. Good morning!

    CHL/Seer – You have until November but it seems like a month-long process at least to transfer the ADR so I'd say do that so at least you are semi-liquid and then consider selling.  If Biden reverses the order, this thing could explode higher.  

    BABA/Rick – Well he caved but it keeps the company intact, which is great for the shareholders, which includes us in the LTP:

    BABA Long Call 2023 20-JAN 250.00 CALL [BABA @ $237.52 $14.21] 15 2/3/2021 (648) $106,500 $71.00 $-26.75 $71.00     $44.25 $8.33 $-40,125 -37.7% $66,375
    BABA Short Call 2023 20-JAN 300.00 CALL [BABA @ $237.52 $14.21] -15 2/3/2021 (648) $-78,000 $52.00 $-24.85     $27.15 $5.05 $37,275 47.8% $-40,725
    BABA Short Put 2023 20-JAN 200.00 PUT [BABA @ $237.52 $14.21] -5 2/3/2021 (648) $-15,500 $31.00 $-3.95     $27.05 $-4.45 $1,975 12.7% $-13,525

    Nice net $13,000 entry on the $75,000 spread.  Still playable at $12,125 as our entry wasn't the best.  

    Let's talk Fundamentals.

    Our guest today in our 1pm (EST) Live Trading Webinar will be Bill Olsen of Newsware and he's going to show us lots of tricks to get the most out of his platform, which is better than a Bloomberg Terminal for bringing you the headlines before they become headlines.  While I'm mostly a Fundamental, Long-Term Trader, who doesn't like to get a jump on a quick trade because you know something that's not generally known yet?  

    As Gordon Gekko said in "Wall Street": "I don't throw darts at a board, I bet on sure things."  Information is power and we're living in the information age but, unfortunately, like everything else, you have to learn to read and filter the news and, while Bill has many pre-set filters you are going to love – you are still going to have to put your 10,000 hours in if you want to get your Gekko on.

    Just this morning, for example, the following alert popped up at 6:14:

    Ant Said to Reach Agreement with Regulators on Overhaul – Bloomberg
    (Street Insider 02/03 06:14:06)

    Perhaps that headline by itself isn't helpful but we know that Jack Ma has been out of favor with the Chinese Government and that AliBaba's (BABA) stock price has suffered because of it.  We also know Amazon (AMZN) just knocked it out of the park on earnings so BABA should also do well and that means we BUYBUYBUY on that news.

    BABA is already up $10 pre-market at $264 but that's down from $319 in October and the best way to play it is to say we WOULD like to own it for $200, so we can sell 5 2023 $200 puts for $33 (perhaps $30 if we open higher, so call it a $15,000 credit) and then we can buy 15 of the 2023 $250 ($70)/300 ($50) bull call spreads for net $20 ($30,000) in our Long-Term Portfolio (LTP) and that's net $15,000 on the $75,000 spread so there's $60,000 (400%) of upside potential at $300 and, as our Members know, we can look forward to selling short calls like (but NOT YET) 5 March $290s for $5 to collect $2,500 using 44 of the 716 days we have to play.

    If we pay net $15,000 for the spread, we only have to sell $2,500 worth of premium every 100 days to more than pay for the whole thing and then we have a free 2023 $250/300 bull call spread on BABA.  Our downside risk is being assigned 500 shares of BABA at net $200 ($100,000) but, fortunately, we already have an FXP spread in our Short-Term Portfolio so we already have a downside hedge on the Chinese market.  That coupled with the fact that we recover our investment making just 1/3 sales against our long position makes me REALLY like this trade idea!  You know who else is liking my trade idea?  Analysts – who are running in like sheep to upgrade BABA this morning – also very easy to find on NewsWatch (part of NewsWare):

    INFORMATION – That is how we trade.  We don't need to follow the sheep who run into momentum stocks on Reddit boards.  We can make good money (400% is good money, right?) by simply using the proper tools (which we PRACTICE using until we are experts) and putting in the real work it takes to consistently make money in the market.  

    Reading Is Fundamental (RIF) | Brooklyn Public Library

    Canada/Tommy – 15% of your population is vaccinated (one dose) and only about 2% have gotten both so far.  

    VIAC/Swamp – We were going to add them back in to the LTP, actually.  I imagine you mean the $37 puts (see how hard my job is!) and that's a great spread.  I'm going to be a little more aggressive as we REALLY want to own them in the LTP:

    For the LTP, lets:

    • Sell 10 VIAC 2023 $40 puts for $9.30 ($9,300) 
    • Buy 30 VIAC 2023 $40 calls at $10.80 ($32,400) 
    • Sell 20 VIAC 2023 $55 calls for $6.20 ($12,400) 

    That's net $10,700 on the $45,000 spread and if VIAC goes higher, we'll probably sell some short-term puts to begin working off that $10,700 (the June $45 calls are $2.90 so 10 fetches $2,900, for example) and, if it goes lower, the June $40 calls are $4.75 and $4,750 pays for most of the $6,000 roll to the June $35 calls ($12.75) and that's how we'll take advantage of further downside so we'd almost rather see it go lower first but, if not – $34,300 (320%) is all we'll get a a consolation over $55.


  10. Viac/Phil – Is there a typo with the number of 55 calls or this intentional? 

    Also think you mean sell calls. 



  11. CHL, Thanks guys you all have been a great help to the matter, much appreciated. I am trying at present to set up an acc with IB hard t learn a new platform for an old man. Will have some question for some of you who have mastered this platform.
    Going through IB answering machine, you really get no answer to what you actually need to know.
    Like I wanted to transfer some short option with the stock I did set up, made the excel CVS as they gave the example but boy each time after 30 tries it says the first column shows no asset value. They want to have options written in the first column so what asset value?
    here it is any advice welcome

     

    option BX 2 short CALL 200 BX210618C80

    option MO 2 short CALL 200 MO210917C50

    option T 2 short CALL 200 T220121C33

    cash 10000 cash balance usa




  12. Microsoft to Buy Nuance for $16 Billion to Focus on Health Care Tech


  13. VIAC/Ravi – I want room to sell short-term calls, possibly more than 10 at a time on spikes higher.  We are taking a 30/20 spread $40/55 and selling the short 2023 puts, not calls.  Calls may be sold later if VIAC has a nice run we want to protect.

    IB/Yodi – I can relate, I dread moving platforms.

    This is getting crazy:

    • MicroStrategy (NASDAQ:MSTR) shares are largely unchanged after a report that HSBC (NYSE:HSBC) has banned customers on its online trading platform from buying shares of the company.
    • HSBC is blocking customers from the MicroStrategy shares, describing them as a "virtual currency product," according to a Reuters report.
    • HSBC won't facilitate the buying or exchange or products related to or referencing the performance of virtual currencies, Reuters said, citing a message sent to an HSBC InvestDirect client.
    • Earlier, MicroStrategy said its board has modified the compensation of non-employee directors, who will receive all of their service fees in bitcoin instead of cash going forward.
    • Last week,  Canaccord Genunity came out bullish on MicroStrategy, citing the company's "innovative thinking" of using bitcoin to drive investor value, initiating the stock with a Buy rating and a $920 price target.

    They are arbitrarily banning tickers for dabbling in Crypto?  Will SQ and TSLA be next?  How do they allow pot stocks when it's Federally illegal?  The lack of oversight is letting these brokers run rampant over their clients.

    • Intel (NASDAQ:INTC) is in talks to manufacture automotive chips to help alleviate the global chip shortage.
    • According to a Reuters interview with CEO Pat Gelsinger, Intel is talking to automotive chipmakers to produce those chips within Intel's factory network with the goal of reaching chip production within six to nine months.
    • Earlier today, Gelsinger was among the semiconductor and automotive executives meeting with the Biden administration to discuss domestic production and the global shortage.
    • Gelsinger didn't name names but the majority of auto chipmakers outsource at least some of their fabrication to foundry giant TSMC, which is running at over 100% capacity. Auto chipmakers include NXP Semiconductor (NXPI -1.1%), ON Semi (ON -1.6%), Infineon (OTCQX:IFNNY), and Renesas (OTCPK:RNECF), which recently experienced a fab fire that paused those production lines for up to three months.
    • Last month, Intel revealed plans to invest $20B in two new American chip fabs with the goal to become a global foundry player.
    • Intel shares are down 5% after Nvidia announced its first data center-focused CPU.
    • KKR (KKR +1.4%) add three industry veterans to its Global Infrastructure team, as part of the private equity's firm focus on sourcing renewable energy and energy transition investments in North America.
    • Tim Short and Benoit Allehaut join as managing directors and Benjamin Droz as a principal. All three come from Capital Dynamics where Short and Allehaut were part of its Clean Energy Infrastructure team.
    • KKR has executed ~$19.5B in investments in renewable assets with a power generation capacity of 12.5 GW.
    • With more attention being paid to climate change, investment firms have been increasing their activity in renewable energy projects.
    • Last month, Reuters reported that KKR is targeting a $12B raise for a fund to invest in infrastructure assets, including some renewable energy projects.
    • Earlier this month, BlackRock announced raising $4.8B to invest in renewable power.

    Buh-buy jobs:

    • Domino's (DPZ -0.7%) and Nuro are starting to deliver pizzas by autonomous vehicles this week in Houston.
    • Select customers who place a prepaid order on on certain days and times from a Domino's location can choose to have their pizza delivered by Nuro's R2 robot.
    • Nuro's R2 is described as the first completely autonomous, occupantless on-road delivery vehicle with a regulatory approval from the U.S. Department of Transportation
    • Domino's thinks the program will help the brand learn about the autonomous delivery space and better understand how customers respond to the deliveries, how they interact with the robot and how it affects store operations.
    • Source: Press Release
    • Chipotle is an investor in Nuro and thinks the company could change the delivery model.

    Buh Bye Snl GIFs | Tenor

    • Nasdaq's earlier 0.8% dip narrows to a 0.3% slip as investors wait for Q1 earnings kickoff on Wednesday and a key consumer inflation report on Tuesday.
    • The S&P 500 edges down 0.1% vs an earlier decline of 0.3%.
    • The Dow Jones Industrial Average falls 0.3% as Boeing and Salesforce's declines more than offset UnitedHealth, Home Depot, and Microsoft's gains.
    • "We’re just kind of digesting," Marc Odo, client portfolio manager at Swan Global Investments, told Bloomberg. "This quiet period is just everyone digesting the first quarter and all of the news coming out of Washington about fiscal policy and monetary policy."
    • With investors concerned about the potential for inflation, the March consumer price index is expected to rise 0.5%, or 2.5% Y/Y, vs. February's 0.4%, or 1.7% Y/Y, when it's released tomorrow.
    • Communication Services (XLC -0.6%) and Energy (XLE -0.8%) lead the decline, while Consumer Discretionary (XLY +0.4%) and Consumer Staples (XLP +0.3%) provide some upward movement.
    • Crude oil rises 0.7% to $59.72 per barrel; gold dips 0.7% to $1,732.70 per ounce.
    • 10-year Treasury yield rises 1 basis point to 1.67% as the U.S. Treasury sold $38B of 10-year securities in auction this afternoon; an auction of 30-year bonds is set for tomorrow.
    • The U.S. dollar index slips 0.1% to 92.07.

    All must be great over here:

    Getting out before it all hits the fan!  


  14. dominos-nuro-autonomous-pizza-delivery

    Nuro’s pizza delivery partnership with Domino’s follows the Mountain View, California-based company’s previous pilot projects with Walmart, Kroger and CVS. Founded by two former members of Google’s self-driving car project, Nuro is also among the best-funded autonomous tech developers, securing $500 million in a funding round announced last month on top of a $940 million round led by Softbank and Greylock Management. 

    Unlike competing self-driving tech programs at Alphabet’s Waymo and GM-backed Cruise, Nuro focuses solely on deliveries and logistics, rather than robotaxis. Its electric R2 vehicle, designed to haul packages, groceries and food orders, is about half the size of a conventional car and travels at relatively low speed. It was the first driverless vehicle to receive U.S. approval to operate on public streets without conventional driving controls, such as a steering wheel and brake and accelerator pedals.