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Monday Monetary Meltdown – Velocity of Money Crosses a Dangerous Threshold

How is this a good thing?

Clearly, it's not.  Money is simply not being spent in our Economy and that's not the sign of a healthy economy.  Of course, we've been heading this way for two decades now back from the 90s, where $1 earned would circulate through the economy and average of 2.2 times, generating 3.2 GDP Dollars.  Now the velocity of money is getting close to 1, meaning a Dollar earned only adds one more Dollar to the GDP, for 2 GDP Dollars.

What does that mean?  Well it means that you $10Tn in circulation to have a $20Tn GDP where you used to need $6.25 so 60% more Dollars are needed to create a Dollar in GDP these days.  That means the Fed's policies are 60% less effective and that the economy grows 60% slower – for now.  It also means that, if for some reason, the pace of borrowing and spending pick up, that we could easily send prices rising 100% from where they are now, as money speeds up again.  That would, of course, boost our GDP (so yay!) but it would do so in a hyperiflationary way.  

In the 1990s, to keep inflation under 3%, the Fed raised rates from 3% to 6.5% and in 1978-1980, the Inflation Rate in the US was 9%, 13.3% and 12.5% and the Fed Funds rate was 10%, 12% and yes – 18% in 1980.  That's what the Fed has to do to keep a lid on inflation but that tool is no longer available to the Fed since we are now $28Tn in debt and 18% of $28Tn is another $5Tn we simply do not have so this country would become Greece and suffer a massive meltdown if we tried to use the Fed Funds rate to control inflation.

Well, that's a pretty serious problem because look at this other indicator:  The Loan to Deposit ratio has also collapsed, meaning banks are no longer making money lending it to people – which is kind of the whole purpose of banks.  Instead they make money gambling in stocks and derivatives – just like they were doing before the last banking crisis.  

One of the reasons for this is that the Rich, the Top 0.1%, whose wealth begins at $16M per household, have become so rich that they simply don't need to borrow money anymore and, also, they have nothing left to buy so they don't contribute to the GDP – they simply suck all the money (and fun) out of the economy with their massives, static deposits and, since we don't tax them, the money is permanantly removed from the economy and the Fed has to constantly print more of it just to get some into the bottom 99% which, of course, mostly ends up in the hands of the wealth – further increasing the wealth gap.   

This unfun way to make The Rich richer is then reflected in the lack of business activitiy, since consumer spending by the bottom 99% is 60% of the US economy and that then is reflecting in the historically low Earnings Yield of 2.36% by S&P 500 companies, with 6% being "normal".  This isn't just the virus either because we haven't seen 6% more than a couple of ticks in the past 20 years but 2.36% is downright scary – especially for a market that commands record-high prices for those earnings – 35x those earnings at last count.

Best Trump Paper Towels GIFs | GfycatWe are throwing money at this problem and the money certainly isn't working.  It's about as effective as giving people paper towels to help them recover from record-breaking flood damage – what kind of psychopath does that?  The flood of money in the economy is not getting the economy wet – it's still running dry and the Fed is flooring it with rates near 0% and they can try paying you to borrow money but if you think we're misspending Trillions of newly printed Dollars now – wait until you see the waste generated if they pay Corporations to buy back their own stock!  

This all could be good for the market but bad for the people.  The Fed's back is against the wall and the Dollar is down another half a point this morning and on the way back to the December lows of 90 but bouncing there against a backdrop of weak Q1 earnings could lead us to have a correction that looks a little like Bitcoin this weekend – another ridiculous bubble caused by this ridiculous misallocation of Capital Assets – down 10% in 10 days and now testing the strong bounce line at $58,000:

It's a very light week for Econmic Data with literally nothing of note until Wednesday's 20-Year Bond Auction and then Thursday it's Chicaga & KC Fed Reports along with Leading Economic Indicators and Existing Home Sales with New Home Sales and PMI on Friday.  That puts the spotlight squarely on earnings and we'll see if the average US company can manage to make back more than 2.36% of what you pay for their stock this quarter:

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  1. This is the message I got this morning from TDA 

    Did fill out transfer with IB to transfer shares to IB. Will see what happens, before taking further action

    Hello Dieter Kolberg,

    Thank you for your message! Unfortunately, we are not able to convert these shares as we do not have access to the Hong Kong market. There are currently only two options:

    1. Do nothing. The Executive Order currently doesn't require clients to liquidate these securities, however, clients may have difficulty trading them or holding them in the future and there is no guarantee as to what their future value, if any, will be.

    2. Transfer them to a foreign financial institution. 

    We understand this is not the ideal answer you're looking for and we truly apologize for the frustrations this has caused. This situation is still evolving and we cannot speculate on future impacted securities or actions that may be taken by the U.S. government, NYSE, the Over-The-Counter market, or other trading partners in the U.S. financial industry. We are keeping a close eye on this situation.

    We strive to provide the best in-class service to our clients by making it easy for you. Your opinion and satisfaction are essential. If we have not yet met your expectations, or if you see anything we could have done better, please let us know. 

    Thank you for choosing TD Ameritrade, and we hope you have a great day!

    Jennifer Montano
    Private Client Services 
    TD Ameritrade 
    700 Maryville Centre Drive, St. Louis, MO 63141-5824
    800-400-4078 
    privateclientservices@tdameritrade.com


  2. This is obviously from the CHL saga


  3. Good Morning.





  4. Utilities. Analyst Sophie Karp notes the majority of the impact on the sector would not come from direct spending, but from fiscal incentives.

    American Electric Power (NASDAQ:AEP), Southern (NYSE:SO), Duke Energy (NYSE:DUK), Dominion Energy (NYSE:D), Entergy (NYSE:ETR) and Edison International (NYSE:EIX) can benefit from incremental grid investment initiatives and electrifications trends from an EV tide that will "lift all boats."

    Eversource Energy (NYSE:ES), Avangrid (NYSE:AGR), Public Service Enterprise Group (NYSE:PEG), NextEra Energy (NYSE:NEE), Xcel Energy (NASDAQ:XEL), AEP, Sunrun (NASDAQ:RUN), Sunova Energy (NYSE:NOVA) will be helped by the extension of the investment tax credit and the production tax credit further boosting commercial solar and wind.

    Public Service Enterprise Group (PEG), Excelon (NASDAQ:EXC) and Energy Harbor (OTCPK:ENGH)would benefit from any concrete federal program to support nuclear energy.

    First Solar (NASDAQ:FSLR) may get a boost if solar installers can bypass Chinese tariffs.

     

     

    Semiconductors. Analysts John Vinh and Wes Twigg say "expansion incentives would likely be a tailwind for semiconductor equipment demand while easing the capex burden on manufacturers."

    Applied Materials (NASDAQ:AMAT), ASML (NASDAQ:ASML), Advanced Energy Industries (NASDAQ:AEIS), KLA (NASDAQ:KLAC), Lam Research (NASDAQ:LRCX) and Teradyne (NASDAQ:TER)would benefit in equipment names.

    Analog Devices (NASDAQ:ADI), Intel (NASDAQ:INTC), Micron (NASDAQ:MU), ON Semiconductor (NASDAQ:ON) and Texas Instruments (NASDAQ:TXN) are picks among those with domestic manufacturing footprints.

     

    Phil / Infrastructure 

    https://seekingalpha.com/news/3678996-best-stocks-for-bidens-infrastructure-plan-tech

    KeyBanc Capital Markets outlines the best potential beneficiaries from the White House's $2T infrastructure spending plan.

    Vertical Software. Analyst Jason Celino thinks the plan would "accelerate digitization opportunities across the architecture and construction industry."

    Bentley Systems (NASDAQ:BSY) gets 60% of total revenue from infrastructure, so the plan could lead to "meaningful multiyear tailwinds."

    Autodesk (NASDAQ:ADSK) exposure to infrastructure of 15-20% of revenue and the "completion of its Innoyze acquisition, providing solutions for water infrastructure assets, gives us incremental confidence."

    Trimble (NASDAQ:TRMB) has 25-30% of revenue from infrastructure "geospatial, construction, and civil engineering offerings are well positioned."

    Communication Services. Analyst Brandon Nispel says the bill "is positive for infrastructure providers (tower operators) and neutral to negative for network providers (wireless carriers and cable operators)."

    American Tower (NYSE:AMT), Crown Castle (NYSE:CCI), SBA Communications (NASDAQ:SBAC) are picks in towers, which will be helped by improving investment in wireless networks.

    Altice USA (NYSE:ATUS), Cable One (NYSE:CABO), Charter Communications (NASDAQ:CHTR), Comcast (NASDAQ:CMCSA), WildOpenWest (NYSE:WOW) may see a hit to discretionary cash flow due to a higher corporate tax rate.

    AT&T (NYSE:T), T-Mobile U.S. (NASDAQ:TMUS) and Verizon (NYSE:VZ) are the most at risk of a corporate tax rate hike, with T and VZ seeing incremental taxes of $1.5B to $2B.

     


  5. Good morning! 

    Wow, Yodi, could TD possibly be less helpful?

    Indexes taking a little downturn this morning.

    Investors are looking to a volley of blue-chip earnings this week after sending major indexes to all-time highs on Friday.1126 minutes ago

    A huge run-up in foreign holdings of Chinese government bonds has stalled, with international investors hitting pause on their purchases as China’s interest-rate advantage over the U.S. has shrunk.

    Efforts to vaccinate the poorest countries against Covid-19 have slowed to a trickle, leaving many with weakened defenses against the coronavirus.

    Oil companies have for decades made money by extracting carbon from the ground. Now they’re trying to make money putting it back.

    Failures to police money laundering procedures hit two major banks in Europe, dealing a further setback to a region that has struggled to stop financial institutions from serving as conduits for illicit transactions


  6. Any thoughts on KT corporation ($KT)? South Korea's largest telecom. Pays out ~3.5% once a year, P/E<11 


  7. Batman / BSY – used to really like them, but they got expensive. Would love to buy again on a meaningful pullback. 

    Added a T call-spread position heading into earnings. Option premiums are small, and I think HBO max is undervalued/underappreciated. 

    Rolled the VIAC long call position to a lower strike (dropped $3 in strike price for a $1 cost). 


  8. CHL- received the following in response to my email to China Mobile regarding dividend:

    Dear Sir,

    Thank you for your email. Subject to the approval by shareholders at the 2021 AGM which to be held on 29 April 2021. The 2020 Final Dividend will be paid on or about 20 May 2021.  For ADR shareholder, you are still able to receive the 2020 Final Dividend.

    Best regards

    Kiwi Lam


  9. Butterfly Portfolio Review:  $958,287 is up $87,530 from our 3/22 Review as we had a lot of short April premium that expired.  Of course, that's the energy that drives the Butterfly Portfolio – it's our job to sell premium (BEING the House!) and we do it as often as we can…

    Still, we do pick our spots and we don't sell as much ahead of earnings, when our risks are much greater.

    • AAPL – Our long play is 1/2 in the money for net $163,200 out of a possible $480,000 so good for a new trade with $316,800 left to gain and this started out as a "normal" AAPL trade but we doubled down twice and our timing was good and now it's a massive position that can still double on us.  Keep in mind you can initiate this trade as 40/40/10 or 20/20/5 and it's just as good.

    • DIS – Also adjusted on Friday and we're trying to work off our deep in the money short calls so we sold some aggressive short puts in case they don't pull back.  It's a $225,000 spread at net $213 but a little dangerous with those short puts so, as a new trade, I'd just sell 20 of them and see how earnings go before selling more.

    • F – Short calls burning us here but I want to see how the parts shortages will affect guidance before making changes.

    • GOLD – We've been riding out those short puts and we just added the $15/23 spread and so far, so good there with a quick $4,375 gain on last year's Stock of the Year which, inexplicably, got cheap again.  Way too low to sell short calls.  Remember – If you can't explain why the fish are just jumping into your boat – that's no reason not to eat the fish.

    • KO – Getting close to where we want to sell calls again but earnings should be nice so we'll wait.

    • MDLZ – All good here into earnings.

    • MJ – I want to put a stop on the short July $17 calls even at $5 as that last spike was kind of scary.  

    • WHR – My bad, we made $10,000 less this month as I forgot we sold 10 June $210 calls for $17.50 and now WHR has blasted up but we'll see how earnings go before adjusting.  We're miles ahead here and wanted to lock in our gains as it's a $75,000 spread at net $36,500 plus what we can earn selling puts and calls – though mostly calls at this altitude!  


  10. KT/RN – Solid Telco and reasonably priced but they only have thinly-traded, short-term options so it's not something we mess with, though, had you asked at $7 it would have been a fun trade.  

    VIAC/Rick – Still not done going down.

    • After a choppy start to the year, emerging market assets are attractive now thanks to the economic restart, stabilizing Treasury yields and relatively cheap valuations, BlackRock says.
    • Treasury yields and the U.S. dollar are the key drivers of EM assets, strategists at BlackRock's Investment Institute write in a note today.
    • The 10-year yield is up 2 basis points to 1.59% today (NYSEARCA:TBT) +0.5% (NASDAQ:TLT) -0.2%. The dollar index (USDOLLAR) is off 0.4%.
    • "We see greater stability in yields and in the U.S. dollar over coming months, with our new nominal theme confirmed by the Federal Reserve’s comments and recent market moves," BlackRock says. "This should support EM local-currency debt, in our view. Its valuation appears attractive relative to other income sources such as high yield debt, as the chart above shows. Support also comes from loose global financial conditions that make it relatively easy to borrow for now, and reduced foreign ownership in this market that helps keep contagion risk in check."
    • "The powerful economic restart is likely to support many commodities in the near term, including oil," they add. "This should benefit the assets of commodity exporters, including some EMs, as we argued last week. Copper prices have rallied since last year as a result of a supply shortage and activity restart in key consumers including China."
    • "We see structural demand for copper and certain industrial metals associated with a transition toward a low-carbon economy for years to come. This should support prices and likely benefit EM exporters of copper and other commodities, in our view."
    • WTI crude futures (CL1:COM) (NYSEARCA:USO) are up 0.3% today, while copper futures (HG1:COM) are up 1.6%.
    • BlackRock is overweight EM and Asia, ex-Japan, and is "warming up" to EM local-currency debt as a source of income.
    • The iShares Currency Hedged MSCI Emerging Markets ETF (BATS:HEEM) has been struggling since a mid-February high and is up 6% year to date.

     

    • Albemarle (ALB +3.1%) and Livent (LTHM +5.8%) power higher as Evercore ISI's Stephen Richardson upgrades both stocks to Outperform from In-Line with respective $200 and $20 stock price targets, saying he is going "all in" on the two lithium producers.
    • "The movement of spot indices above indicative contract prices is a key catalyst for the stocks," Richardson writes, adding that "the driver here remains [electric vehicle] penetration as the stocks have generally followed EV sales trends."
    • Albemarle is "the 800 lb. gorilla in the lithium market," and has capacity coming on at the right time, with plans for capacity expansion that could add 300K metric tons to its production, or triple its current capabilities, Richardson says, adding that the company "now has a clear line of sight to take advantage of increasing lithium prices and a tightening demand outlook."
    • Livent shares have shed ~30% from their 52-week high partly because of COVID-19 surges in Argentina, where the company has a salt-brine evaporation operation, but the analyst says resource expansion in the country is "a clear priority… We ultimately assume expansion of Hombre Meurto," the Argentine salt flat where Livent extracts lithium.
    • Richardson also rates shares of Piedmont Lithium (PLL -1.1%) as a Buy with a $75 price target.
    • Shares also may be reacting to the earlier news that Orocobre bought Australian lithium mining peer Galaxy Resources in a A$4B deal that will create the world's fifth largest global lithium chemicals company.
    • Credit Suisse Group's (CS -1.5%) two executives in charge of it prime brokerage business are leaving the bank after it was hit with a $4.7B loss due to the implosion of Archegos Capital Management, Bill Hwang's family office.
    • John Dabbs and Ryan Nelson will step down as co-heads of prime services immediately, the Wall Street Journal reports, citing an internal memo. They will assist the bank through mid-May to ensure an orderly transition.
    • Their departures follow the exits of Credit Suisse's chief risk officer and the head of its investment bank. Several other employees from the companies' equities and risk management units also left.
    • In late March, JPMorgan analysts estimated that banks would lose as much as $10B due to the Archegos collapse; at that time Nomura estimated a potential loss of $2B and others had expected Credit Suisse to incur a $3B-$4B loss.
    • Shares in Credit Suisse, Nomura, and Mistubishi UFJ Financial (which may take a $300M loss related to Archegos) underperform Goldman Sachs and Morgan Stanley as seen in six-month chart below.
    • U.S. banks Wells Fargo, Morgan Stanley, and Goldman Sachs discussed the effects of the Archegos during their Q1 earnings calls.
    • The Bank of England forms a task force to explore issuing a central bank digital currency ("CBDC") for use by households and businesses that would exist alongside cash and bank deposits, not replace them.
    • U.K. Treasury chief Rishi Sunak has indicated that it may be called "Britcoin," the Associated Press reports.
    • The U.K.'s government and the Bank of England haven't yet decided on whether to introduce a CBDC in the U.K. They'll get feedback with a range of stakeholders on the benefits, risks, and practicalities of such a move.
    • Many central banks have been looking at the potential for issuing CBDC's, but so far the Bahamas is the only country that's issued one. China is conducting trials in several cities, and Sweden has indicated it may issue one by 2026.
    • The task force will be co-chaired by Deputy Governor for Financial Stability at the BOE, Jon Cunliffe, and Treasury Director General of Financial Services, Katharine Braddick.
    • The U.K.'s central bank is also establishing a CBDC division that will lead its internal exploration of CBDC as well as its external engagement on CBDC, including with other U.K. and international authorities.
    • Federal Reserve Chair Jerome Powell has said a CBDC may increase efficiency and make the payment more inclusive, but he's in no rush to issue a digital currency as there "cyber risk as well as money laundering and terrorist financing" risks involved.
    • Telsey Advisory Group weighs in on the departure of GameStop (GME +8.4%) CEO George Sherman later this year.
    • Analyst Joseph Feldman said, "We continue to believe that GameStop should benefit from: 1) the new gaming cycle, with current demand outpacing supply for new generation Microsoft and Sony consoles; 2) its agreement with RC Ventures and the board refresh; and 3) its healthy balance sheet. However, the company has yet to show financial success in an industry that is rapidly shifting to digital."
    • Similar to most Wall Street analysts covering GameStop, Feldman believes the current valuation far exceeds our rosy fundamental expectations and projected multi-year benefits from the retailer's strategic transformation. An Underperform rating is kept in place and a 12-month price target of $30 is assigned.
    • Far from a perfect proxy for GameStop investor interest, but Google search trends for "GameStop stock" have dried up.
    • The Nasdaq (COMP.IND) -0.9% is the weakest of the major averages as Tesla extends early losses, while cyclical weakness is pushing the S&P 500 (SP500) -0.5% close the the lows of the day.
    • The Dow (DJI) -0.5% is also down as Goldman, Boeing and Caterpillar struggle.
    • The 10-year Treasury yield is back below 1.6% after earlier gains, up 1 basis point to 1.58%.
    • Ten of 11 S&P sectors are lower, with Consumer Discretionary (NYSEARCA:XLY), the home of Tesla, the weakest, followed by Industrials (NYSEARCA:XLI).
    • And Tesla's drop is putting pressure on other EV stocks.
    • Virgin Galactic is sliding again, with the the stock approaching 5-month lows.
    • And Apple has moved into positive territory on speculation of a big dividend hike.

  11. Dividend Portfolio Review: $366,832 is up $10,173 since our last review when we did absolutely nothing.  We added PFE on March 9th and NLY on 4/1 but no other changes recently as this is meant to be a low-touch portfolio and played very conservatively, unlike the Butterfly Portfolio, where we sometimes make aggressive moves.  The one aggressive move we made last year was adding $100,000 to our $50,000 (50% loss) balance when the market crashed a year ago.   That paid off very nicely!

    • GILD – Just promising to buy it if it gets cheap.  If not, we keep the $5,375 we were paid for our promise. 
    • EPD – I forgot we were going to cash out the stock and the short calls and leave the short puts.

    • ET – On track. 
    • IVZ – Dividend is not good enough to keep it.  Let's cash it out.

    • MO – Over target but here we can just roll them along after earnings.
    • PFE – Still has that new trade smell.  Popped nicely already though.

    • F – Not worth keeping.  I'd rather get new trades.
    • NLY – Another new trade.  Love them.  Being very aggressive without short calls yet.

    • PETS – Another aggressive one now and we'll see how earnings go.

    • PFE – Still great for a new trade.
    • SIG – So funny how I had to bang the table for this value play.  $10,000 more to gain isn't worth cashing in unless something better comes along.

    • SKT – This is why I'd rather be bargain-hunting – so much fun when they pay off!  Unfortunately, the net of this trade is more than the $30,000 we'd make if we keep it going (because 10/30 is uncovered) so let's kill it.  

    • SPG – Deep in the money so not worried and they do pay their dividend.
    • T – We got aggressive and now we have to be patient. 

    Now we should have a nice cash pile going into earnings.


  12. CHL/ Pstas, Yodi, et al., Thanks for posting what you have learned about CHL. I have some CHL stock and short puts, but haven't yet done anything about them. I've been waiting to hear from people who know more about this stuff than I do. So thanks.


  13. Not much of a sell-off but more notable because it came alongside a down 0.5% Dollar.

    VIX took note