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Thrill is Gone Thursday – QE Not Forever?

ImageRates are going up.

Finally it's not a matter of if, but when and that makes a lot of difference for a market that was not even pricing in if.  As you can see from the statement, only very minor changes were made with the key change being "inflation running persistently below" to "inflation having run persistantly below".  Even the Fed don't want to seem like idiots and the time for ignoring inflation is now past us and a Fed that's fighting inflation is generally fighting fun – it is time for Daddy to take your TBills away…..

Ah, remember the 60s, when "now" used to rhyme with "now" – life was so simple then (or maybe we were idiots?).  I think that's called the Canadian/Japanese Rhyme Scheme (just say whatever and end each sentence in "Eh" or "Neh")?   

Anyways, the Fed said whatever in their statement but it was the data that changed – especially the "Dot Plot", which now shows 7 Members favoring a rate hike (gasp!) next year and pretty much all of them expecting to be (gasp!) 0.5% higher in 2023.  Of course 0.5% is TRIPLE the current rate so gasp! indeed.  Meanwhile, as pointed out by Sven Henrich: "Not a single question (at the FOMC press conference) by the media about record and expanding wealth inequality, asset bubbles, speculative behavior, or the homeless camps.

As I noted yesterday, there are far too many crises or in fact, crisises for us to focus on more than one at a time.  It's like worrying about spilled wine on the carpet of the Titanic as the ship splits in half, bursts into flames and sinks to the bottom of sea – pick a crisis!  At least the icy waters will put out the fire, right?  That's kind of how we're going now – relying on Keynes' adage on debt and why we shouldn't worry about it in the long run (because we'll be dead by then).  In fact, almost 1/2 the population of the planet now live in places that will be uninhabitable by 2070 - so what's a little Wealth Inequality between survivors?  

Image

What people should really be paying attention to is the "Longer Run" Dot Plot, which indicates 2.5% is the expected rate after 2023.  Keep in mind this country is already $28.5 TRILLION in debt and we're running a $3.6 TRILLION deficit this year and not likely to be less in 2023 so we'll be about $35Tn in debt with interest rates over 3% or $1Tn a year in interest alone just to service our debt. 

Introduction to economicsSince the Government only collects $3.4Tn in tax revenues, so just paying the interest will consume 1/3 of that or they can raise taxes 30% to balance it out (pause for laughter) or maybe 60-90% to start paying down that debt (long pause).  That's right, Fiscal Collapse is as inevitable as Global Warming but both are in the future – so we can ignore them and play stock market for now.  As Keynes also said – people gotta eat!  

Unfortunately, food costs are rising out of control, up 25% since last year and Gasoline is up 100% but, as I said, too many things to worry about.  More to the point, we just got the Philadelphia Fed Report and it was a little disappointing as Current Activity dropped to 30.7, down from 45 after the stimulus checks went out.  

The Prices Paid Index rose for the second consecutive month, 4 points to 80.7, its highest reading since June, 1979.  The percentage of firms reporting increases in input prices (82%) was higher than the percentage reporting decreases (1%). The Current Prices Received Index rose for the fourth consecutive month, moving up 9 points to 49.7, its highest reading since October 1980 but still lagging Prices Paid by a very wide margin and that kind of gap is very bad for Corporate Profits – in the short run:

The main points scored to the upside on this survey (and many others) come from optimism about the future.  Even though inflation is rampant and prices are rising, the Fed, the Administration and our beloved Corporate Media have all told us how great things are so no one should be concerned.  Pay no attention to the man behind the curtain, etc.  

I guess there's a certain legitimacy to manipulating Consumer Sentiment since Consumer Sentiment drives the economy so, if you want a stronger economy, you need to convince the consumers things are going to be great.  Is that manipulation or just doing your job?  Doctors want you to have a positive attitude to combat disease but should they lie to you about your condition?  

Be careful out there.

 


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  1. Good Morning.


  2. Well so much for a pullback.   Nas blasting back to 14,000.  

    That's from the rollover

    Greed kills, I should have been happy to get out at $71.50, now $72.50 is the stop.

    Wow!  Do you know how much money that is on /DX?  

    Leading Indicators at 10.


  3. Leading Indicators still going strong.

    “After another large improvement in May, the U.S. LEI now stands above its previous peak reached in January 2020 (112.0), suggesting that strong economic growth will continue in the near term,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Strengths among the leading indicators were widespread, with initial claims for unemployment insurance making the largest positive contribution to the index; housing permits made this month’s only negative contribution. The   Conference Board now forecasts real GDP growth in Q2 could reach 9 percent (annualized), with year-over-year economic growth reaching 6.6 percent for 2021.”

    Rally on! 


  4. The world’s central banks are hanging on how the Fed will respond to a rise in inflation, wary of being caught in the crosscurrents of an extraordinary U.S. economic expansion.


  5. GM Phil// With rate hikes in the cards won't that be bad for gold and  GOLD stock?  Do we need to do any adjustments to our GOLD trade?

    Thanks.


  6. TWO nice pop on inclusion into SP 600. The 2023 7 calls filled at 1.10


  7. Good morning. Here is the replay of this week's webinar

     

  8. Gold/Rookie – Ultimately it's not good for gold but GOLD is a stock that makes money selling Gold for more than they extract it for.  Currently, they are priced (not VALUED) at $21.44, which is $40Bn and last year they made $2.3Bn selling 5M ounces at an average of about $1,700 and this year, we haven't been below $1,700 so they should make about the same and our spread is conservative so the only adjustments we're likely to make are bullish ones on the pullback. 

    If you think the Fed is able to perfectly adjust the economy and wiping out inflation any time they want to by simply hinting at rate hikes then sure, get out of the stock.  I'm staying in.

    TWO/Bert – That's why it pays to be patient.  

    Remember Two Harbors (TWO)?  They are a Mortgage REIT and rising rates are their friend.  Steady rates are also their friend, only declining rates bother these guys and that already happened, most of their early loans were paid off so now they make most of their money servicing.  $7.53 is $2Bn for them as well but pre-covid they were 100% higher.  They wrote off a tremendous amount of assets last year – so they won't be paying taxes for a very long time – a benefit to new shareholders.   I don't peg them for a lot of growth but they are paying 0.68 (8.9%) in dividends and we can take advantage of this in the Dividend Portfolio as follows:

    • Buy 2,000 shares of TWO for $7.53 ($15,060) 
    • Sell 20 TWO 2023 $7 puts for $1.50 ($3,000) 
    • Sell 20 TWO 2023 $7 calls for $1 ($2,000) 

    That's net $10,060 for 2,000 shares ($5.03) and, if we are assigned 2,000 more at $7, our average would be $6.015 – 20% off the current price.  That's our WORST case!  Best case is we collect 0.17 (3.37%) in quarterly dividends while we wait to get called away at $7 for a $1.97 (39%) profit.  


  9. Phil – I think the FB position in the butterfly portfolio still has 2 short 310 calls expiring tomorrow? Or was that addressed?


  10. looks like you got your 71 dollars on cl phil congradulations


  11. It is so insane that this is "normal":

     (RTTNews) – On Thursday, the Treasury Department announced the details of this
    month's auctions of two-year, five-year and seven-year notes.

    The Treasury revealed it plans to sell $60 billion worth of two-year notes, $61
    billion worth of five-year notes and $62 billion worth of seven-year notes.

    The results of the two-year note auction will be announced next Tuesday, the
    results of the five-year note auction will be announced next Wednesday and the
    results of the seven-year note auction will be announced next Thursday.

    Last month, the Treasury also sold $60 billion worth of two-year notes, $61
    billion worth of five-year notes and $62 billion worth of seven-year notes. All
    three auctions attracted above average demand.

    $183Bn/month – not counting 10, 20 and 30s.

    /CL/Tommy – What a relief!  

    Butterfly/Rn – No, that's my job today and tomorrow – updating the Portfolios.


  12. DJ: MW More than 440,000 Americans in these 8 states will lose enhanced unemployment benefits this week
    (MarketWatch 06/17 11:02:10)

      By Elisabeth Buchwald
      What's more, 4 million Americans across 25 Republican-led states are set to
    lose unemployment benefits this month, according to estimates
      Saturday marks the beginning of the end for Americans who've been relying on
    enhanced unemployment benefits for the past year and a half.
      More than 440,000 jobless Americans in Alabama, Idaho, Indiana, Nebraska,
    New Hampshire, North Dakota, West Virginia and Wyoming will stop receiving
    the extra $300 a week months before those benefits were originally set to
    expire in early September.
      That's according to calculations performed by Andrew Stettner an expert in
    unemployment benefits at the Century Foundation, a progressive think-tank.
      Already, more than 300,000 Americans from Alaska, Iowa, Mississippi, and
    Missouri stopped receiving enhanced benefits, as of June 12.
      Americans in at least 13 other Republican-led states will stop receiving the
    $300 benefit in the coming weeks as well.
      The governors of the 25 states, which include Arizona, Texas and Ohio, say
    the extra $300 a week is overly generous and is contributing to mounting
    complaints they hear from employers who cannot fill job vacancies.
      In total, more than 4 million Americans will be cut off from unemployment
    benefits in the coming weeks — some 2 million of whom will be left without
    any unemployment aid, according to Stettner's estimates.
      Over the past two months, some 837,000 jobs were added — far below the 1.6
    million jobs economists were forecasting for April and May. Meanwhile, there
    were some 9.3 million unfilled positions
    (https://www.marketwatch.com/story/u-s-job-opening-leap-to-record-9-3-million-but-hiring-lags-well-behind-11623161366?mod=economy-politics)
    in the U.S. in April, according to the Department of Labor's Job Openings
    and Labor Turnover Survey.
      That's equivalent to the number of people who are currently unemployed,
    according to the latest jobs report
    (https://www.marketwatch.com/story/record-job-openings-and-higher-pay-still-not-enough-to-get-americans-back-to-work-11622826288).


  13. Money Talk Portfolio Review:  This one is easy as we can't make changes.  Our last review was May 11th ("Televised Tuesday – Money Talk Portfolio Update") and we were at $187,273, which was up 87.3% and we had $124,273 in cash so we decided to add GOLD and VIAC as new trades and we cashed out INTC (our Trade of the Year) and M and we re-cast SPWR to make even more money!  As mentioned above, I'd love to be able to take advantage of this dip in GOLD and roll the 2023 $20s to the $15s but we can't do that in this portfolio, as we only trade when we're doing the show.

    Despite GOLD getting off to a poor start, today we're at $197,748 (up 97.7%) and that's up $10,475, which is very nice for a portfolio we only touch once a quarter.  This one has been running since 11/13/19 and now we have $153,025 in CASH!!!, which makes me very happy and consider how great it is that we gained $10,475 with only net $44,723 in positions.  You don't have to play a lot of positions – just the right ones!  

    • GOLD – Great for a new trade but I'd buy the 2023 $15 calls, now $6.85 and sell the $23 calls for $2.85 for net $4 on the $8 spread vs net $3 on the $7 spread we went for last month.  Nothing wrong with the short put target so bonus money!   The one we have is a $17,500 spread currently priced at net $187 so the upside potential is $17,313 or a bazillion percent from this entry.  

    •  IBM – Nice, boring $24,000 spread at net $16,410 so we have $7,390 left to gain.

    • PFE – Here we have a $7,000 spread at net $3,255 so $3,745 in upside potential is 115% in 18 months – that's good for a new trade and think of how rock-solid PFE is – this is a very good stock to have a lot of!  

    • SKT – This is an "I told you so" trade!  I only regret being so conservative but we'll turn $2,675 into $10,000 and if we had something better to do with the money we'd cash out but they just paid a 0.178 ($178) dividend on 4/29 and that's more than the bank pays for the cash…

    • SPWR – I love this company – it's in all our portfolios.  Here we have our new $15,000 spread only at net $5,087 so $9,913 of upside potential (and we're 100% in the money!  Aren't options fun?) means it's good for a new trade – even if you did miss our entry.  

    • VIAC – Our other new trade idea from last show.  This is a $30,000 spread that's already doing well as VIAC went up a bit and the the VIX went down (and we sold a lot of premium).   Currently we're at net $8,650 so $21,350 of upside potential is excellent for a new trade – even if you missed our even more excellent entry.  This one is only 2/3 in the money so far (sorry).  

    So there is $59,711 of upside potential to these $44,723 worth of positions and that's an acceptable gain for our almost $200,000 portfolio.  We play conservatively with lots of cash since we got tired of watching our hedges evaporate (because we couldn't take advantage of short-term dips due to the rules) so we switched to hedging with cash.  If these positions mature in the right direction into August, we'll look to add a few more to make sure we're gaining $50,000/year at least.  


  14. Phil/ AAPL – really moving today….  I don't see any news, other than Chin  growth looked strong in May after dropping in march ?


  15. AAPL/Batman – No, not much news.  Just up with the tech stocks as they are considered "safe" from rising rates.

    Wow, /CL fell all the way to $70 before bouncing.  I was out at $71 though – very happy not to lose.

    Notice we were rejected at $75 on /BZ and then it bounced at $72.50. 


  16. Which states will have 70% of their citizens vaccinated by July 4?




  17. Phil / Im looking at the following on PFE – is this too aggressive?  I know in '23 Covid sales will be tapering wood, if it's not an annual thing…  Below is less than 20% of position) so lots of room to rooollllllll

    Long 50X Jan '23 $33 Calls ( 7) 

    Short 50X Jan '23 ($40 Calls ( 3.3)

    Short 15X Jan '23 $35 Puts ( 3.3)

    thanks


  18. PFE/Batman – Not too aggressive, I think $40 is a fair price.  Not much higher though as they pay out a lot of profits as dividend, so growth is limited.   They lucked out on the Covid vaccines as they had been working on SARS for a decade already – so they didn't have to pump a ton of money into R&D (above what they already did).  That was our logic for picking them early on in the first place.   We're all going to need 2nd doses and PFE vaccines, so far, seem best of the bunch and that should keep things running well into 2023.   15 semi-aggressive puts is a good position and less then $3 to make $6 on the rest – nothing wrong with that – good trade.


  19. Phil / PFE

     

    thank you


  20. Future is Now Portfolio Review: $211,692 is up $6,297 since our last review and up 111.7% overall.  We raised cash to $169,380 and have just $42,312 in open positions so making $6,297 on those is very impressive, actually.  This is another nice, boring portfolio where we simply pick stocks with unrealized strength and strong macro tailwinds - and then wait for the rest of the market to catch up to our analysis.

    • NAK – Very speculative.  We're supposed to sell 1/2 when it hit's $1 so the rest is left in for fee.

    • JETS – At goal already and net $10,238 out of $15,000 so $4,762 upside potential.  As long as the virus doesn't re-surge, we should be OK.

    • CIEN – Miles in the money at just net $10,225 out of $15,000 so, again, we have $4,775 potential upside.  

    • COWN – Still has that new trade smell so good for a new one at net $950 on the $5,000 spread so $4,050 upside potential

    • F – Another brand new trade at net $4,670 out of a potential $15,000 despite being 98% in the money.  Aren't options fun?  $10,330 left to gain if F can manage to gain 0.18 over the next 18 months.  

    • FF – $3,750 spread at net $424 but it's out of the money at the moment but that's because they paid us a special dividend of $2.50 per contract, which shoved the stock back under $10.  As our adjusted target is now $10 – there's really no reason to change anything and we're very likely to collect the entire remaining $3,326

    • SPWR – We also adjusted our SPWR position here last month so this one is brand new and off to a great start.  It's a $75,000 spread (yes, I LOVE SPWR) but only net $17,965 despite the $5,500 gain we already had.  That still leaves $57,025 to gain if SPWR can get back to $35 in 18 months. 

    • WTRH – I like them because they are so cheap compared to their peers.  So far, no good.  Right now it's a net $2,200 credit on the $10,000 spread so $12,200 upside potential if they can get back on track.

    This is a much more aggressive portfolio with $96,468 upside potential against just $42,321 in current positions so the whole portfolio is set up to gain 200% in 18 months on the deployed cash.  With $169,380 on the sidelines, we're self-hedged and, of course, looking for more opportunities.  



  21. Down 200 was not bad after the Fed gets a bit more hawkish.  We'll see how tomorrow goes (quad witching).


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