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Monday Market Movement – All Quiet Ahead of the Fed Meeting

The Fed's New Dot PlotFed meeting Wednesday.

Until then, nothing is likely to happen and, after that, anything can happen.  There are currently rumors that the Fed may begin to gear their language to being to anticipate a rate hike sooner than later – due to recent data that has pointed to rampant inflation.  Sooner, of course, would be next year anyway, as the March "Dot Plots" didn't indicate any movement by the Fed through 2023 but the March Fed Data pedicted consumer prices rising 2.4% for the year and, after a 5% Q2, they'd have to flall by more than 1% in Q3 and Q4 for that to be right and, if that happened – we'd be in a recession

Fed officials’ individual March projections, charted in their dot-plot, showed all 18 policy makers expected to leave interest rates unchanged through this year. Four expected to start lifting rates next year, and seven projected that rates would be higher by the end of 2023.  The new dot-plot coming Wednesday should show more individuals expect to raise rates in 2022 or 2023. A June survey of 127 market participants by MacroPolicy Perspectives LLC showed 68% of respondents expecting at least one rate increase in 2023. 

So, EITHER the Fed has to admit that inflation is running away and they need to tighten to control it OR the Fed needs to predict a Recession in the 2nd half of the year – what's it going to be?  Not only has Inflation soared since then, as the economy has rebounded much faster than expected, but businesses have struggled to hire workers and shortages of key materials have wreaked havoc on supply chains.  

T.?ain P? ?P on Twitter: "Dr. Seuss cartooned critically about currency  creation & inflation, coincidence that #CancelCulture has came for him?…  https://t.co/JZs50aQvjL"Signs of surging inflation have emerged faster than the Fed anticipated as recently as its April policy meeting. Fed officials haven’t publicly commented on the May inflation report because it was released Thursday during their self-imposed blackout period, when they refrain from speaking publicly on monetary policy ahead of their meeting.  Before the blackout period began on June 5, officials repeatedly said they expected this year’s inflation surge to prove "transitory."

We have some useful data around the Fed with a lot of Bond Auctions going off this week along with PPI, Empire State Manufacturing, Industrial Production, Business Inventories and Housing – all by 10am.  Wednesday, besides the Fed, we have Housing Starts, Mortgage Applications and the Atlanta Fed's Inflation Expectations ahead of whatever BS the Fed tries to spin at 2pm – that will be fun!   

Thursday it's the Philly Fed and Leading Economic Indicators, which have not been good lately and Friday is the end of the Quarter for options – so that could be crazy all on it's own. 

Earnings are harldy even worth mentioning but there are still some good ones like ORCL, HRB, LEN, KR and ADBE this week but mostly it's all about the Fed.  Oil hit $71.75 this morning and we shorted $71.50 over the weekend so NOT GOOD but if we DD here and hopefully get 1/2 back out at $70 – then all we've done is raised our basis on another silly Monday rally.  Oil is up today because the G7 did not mandate a mostly electric fleet by 2030 over the weekend.  How that affects the price of gas today – I do not know.

The communique reiterated the promise for rich countries to release $100 billion annually in support for developing world efforts to cope with climate change transitions. It said the G-7 members will all increase their contributions but did not disclose by how much.  The G7 also disappointed on the vaccine front, failing to pledge the hoped-for 1Bn doses desperately needed around the World. 

“Recognizing that ending the pandemic in 2022 will require vaccinating at least 60% of the global population, we will intensify our action to save lives,” the leaders said in their final communique from the G-7 summit in the coastal Cornwall region of the U.K. 

That's right, they pledge to get around to it NEXT YEAR!

No wonder Jeff Bezos is leaving the planet…

 


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  1. Phil-If our campground meter is any indication I would say we are already in a recession. Last year at this time it had dozens of big campers staying at the waterfront park since their were no tenters. They closed down the rest room facilities and showers so only allowed the campers with the bathrooms.  This past weekend we had two campers even though the weather was great. I don't see the nonstop traffic heading to Bayfield either and our less expensive Airbnb's were empty too locally. With inflation rampant and gas so high it maybe putting the brakes on vacation spending at least here. Since we are only 3-4 hours from the twin cities that is where most of get-a-way for the weekend people come from..


  2. Good morning!

    Flashy up and down action on the Nasdaq out of the gate.  Dow and S&P still down, RUT just going up.

       

    Campers/Pirate – Jackie came down this weekend and her plane to Florida was not very full, no big lines at the airport but maybe people are holiday'd out after last week when everybody seemed to take the weekend off.  I know it cost me $100 to fill up my tank yesterday – that always sucks.  With a hotel stop along the way, it's cheaper for one person to fly to Florida than drive at the moment.  

    Gasoline not as excited at oil and honey badger don't care:

         

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    G-7 Leaders Rally to Biden’s Call to Challenge China.

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    How bad are global shipping snafus? Home Depot contracted its own container ship as a safeguard

    Markets Are Leaving Little Room for the Fed to Be Wrong on Inflation

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    Reviewing Market Signals As Warnings Increase

    ?Lumber Prices Record Biggest Weekly Drop Ever As Supply Increases

    "It Won't Be Pleasant" – Mark Carney Unveils Dystopian New World To Combat Climate 'Crisis'

    Real Interest Rates Suggest It's A Good Time To Buy And Hold Gold

    Thor Industries Now Has $14 Billion Order Backlog Amid Booming Demand For RVs

    Visualizing The History Of US Inflation Over 100 Years

    Mexican Drug Cartel Unveils "Grupo Elite" Special Forces Unit Hunting Rivals

    Gluten-Free Generation: Children With Celiac Disease Doubles In 25-Years


  3. Phil – any thoughts on THO (Thor Industries), with their 14 B backlog (sold out till end of 2022; you have linked the news above also). 


  4. Good Morning.


  5. What about Winnebago? Wgo?


  6. Mall Owner Washington Prime Files for Chapter 11 Bankruptcy



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  8. Pirate 

    Your campground may be an outlier. It can be hard to find a spot this summer until August.

    Minnesota state parks remain a 'hot' destination | Duluth News Tribune

    People should go to your area for cooler temperatures. The Twin cities have had 10 out of the last days above 90 degrees. The earliest stretch for those temps. The average days above 90 used to be 14, who knows what "average" is anymore?

    People from other states are also frenzy buying north woods lakeshore homes. The average time on market for lakeshore properties is around two weeks this year, last year it was four months. 


  9. That was 14 days above 90 for an entire year..


  10. Huge thunderstorm here – I may lose power.

    THO/RN – We played them once when they were low, I do kind of like them.  $110 is $6.3Bn though and we played them in the teens.   They are now PROJECTING (not making) $600M/yr but it's such a big jump from $223M last year and $400M best previous year that I'm not sure I believe it.  It's really a question of (with the backlog) of what their max production capacity is and, of course, don't forget the supply shortages.  

    Well, it does look like they are banging it out so a good deal as long as the backlog is with us.  It's a shame they are not a cheaper stock (easier to do options spread) but it's a crap dividend (1.44%) so I'd just go this way:

    • Sell 5 THO 2023 $80 puts for $10 ($5,000) 
    • Buy 10 THO 2023 $80 calls for $38.50 ($38,500)
    • Sell 10 THO 2023 $95 calls for $30 ($30,000) 

    That's net $3,500 on a $15,000 spread that's 100% in the money with not too heavy a commitment so you can roll it wider or add more if it holds up well.  A good "getting to know you" play.

    WGO/Pirate – Also a good buy.  Whole sector seems to be doing well and WGO is at $66.38, which is $2.25Bn and they are making $250M so all good there too.  In their case:

    • Sell 5 WGO 2023 $45 puts for $6 ($3,000) 
    • Buy 10 WGO 2023 $40 calls for $30 ($30,000) 
    • Sell 10 WGO 2023 $55 calls for $22 ($22,000) 

    That's net $5,000 on the $15,000 spread, also in the money but the options are thinly traded so it may take a while to fill but I'd sell the puts first, buy the long calls and wait for my price on the short calls – expecting a bounce.


  11. Do we have a trade on REYN ?


  12. Comment content omitted because it is too long.


  13. REYN/Burt – It's in the LTP from March:

    REYN/Yodi – Where have they been hiding?  $30 is just $6.3Bn for these earnings:

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

     

    2,968 2,935 2,957 3,142 3,032 3,263 3,318 3,378 1.91%
    Operating Profit
    $m

     

    474 534 540 513 510 586     4.33%
    Net Profit
    $m

     

    68.0 79.0 302 176 225 363 422 441 39.8%
    EPS Reported
    $

     

    0.336 0.390 1.49 0.869 1.11 1.78     39.5%
    EPS Normalised
    $

     

    0.336 0.390 1.49 0.869 1.11 1.88 2.02 2.13 41.2%
    EPS Growth
    %

     

    +656 +16.2 +282 -41.7 +27.8 +69.5 +7.24 +5.55  
    PE Ratio
    x

     

              15.9 14.8 14.0  
    PEG
     

     

              2.19 2.67 6.09  
    Profitability

    So about 15x earnings in a solid, steady company that throws off a 3% dividend (0.92) – very nice.  Short option chain is why we don't usually bother with them but we can sell 10 of the Dec $25 puts for $1.50 ($1,500) and buy 20 of the Dec $25 ($5.80)/$30 ($2.80) bull call spreads for $3 ($6,000) and that's $4,500 on the $10,000 spread that's in the money now.   Just a small entry for the LTP and hopefully we'll have a chance to widen the spread and add more if they sell off.   If all goes well we'll make $5,500 which is about $500/month (11% on cash).


  14. REYN Long Call 2021 17-DEC 25.00 CALL [REYN @ $30.37 $-0.29] 20 3/25/2021 (186) $11,600 $5.80 $-0.70 $5.80     $5.10 - $-1,400 -12.1% $10,200
    REYN Short Call 2021 17-DEC 30.00 CALL [REYN @ $30.37 $-0.29] -20 3/25/2021 (186) $-5,800 $2.90 $-0.28     $2.63 - $550 9.5% $-5,250
    REYN Short Put 2021 17-DEC 25.00 PUT [REYN @ $30.37 $-0.29] -10 3/25/2021 (186) $-1,400 $1.40 $-0.68     $0.73 - $675 48.2% $-725

    Still good for a new trade! 

    Dow seems to have found a bottom.

    Oil (/CL) hit $71 so back to just 2 short now with $71 average.  


  15. Phil on WGO the 45 put @ 6 x 500 is 3,000 and not 7,000


  16. WGO/Yodi – Ah, yes, I think I was looking at 10 at $7 but then saw it was more likely $6 and then I didn't want to sell so many.