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Monday Market Movement – Stuck at the Top

Value stocks are up 50% since Novemeber.

Growth stocks, however, are up 30% so it seems a bit like the leadership is changing but when "Value Stocks" are up 50% – is it possible they are no longer values anymore?  This is a situation that doesn't seem to be phasing investors so far in what is being called a "TINA" market, which means:  "There Isn't Any Alternative" to putting your money in stocks when the bank and bond rates don't even come close to keeping up with inflation and housing is scarce and expensive (and bound to collapse when rates rise as well).  

That's keeping the money flowing into stocks and the Fed just hit us with $235Bn in reverse-repo funding, which pulled us off the floor, which was caused by the Fed's last meeting looking a bit more hawkish.  That's taken the S&P 500 (/ES) to 4,272 to start off this week and that's record-highs and only the Dow (34,286) is not back at it's record high (35,000) but that can change on a couple of good days.

What I worry about, with Q2 earnings just around the corner, is how companies will justify these sky-high valuations with inflation eating into their profits.  We're getting a preview of that out of China, where industrial profit growth slowed in May due to rising costs.  They were still 36.4% better than last year (lockdown) but way down from a 57% increase last month and the 83.4% average of the first 5 months of the year.  And that includes a 136% profit increase in the mining sector!  

Rising commodity prices have boosted profits for upstream industries such as raw material producers, but put a squeeze on downstream businesses as input costs climbed. Producer prices rose 9% in May from a year earlier, the fastest pace since 2008, mainly due to higher metal prices.

The pharmaceutical manufacturing sector saw accelerated profit growth driven by demand for pandemic-related medical supplies such as vaccines and test kits.  While Americans may think the virus is defeated, there were 309,453 new cases in the World yesterday led by 46,148 in India alone and 3.9Bn people are dead, so we'll be passing the 4M death mark – just in time for the holidays.  Globally, stocks are up 26% from when the pandemic officially began on Jan 23rd, of 2020 so I guess here's to another prosperous 18 months???

Australia is back on lockdown – by the way.  

Steve Rattner's Morning Joe Charts: An “Infrastructure” Plan for the Ages |  Steve RattnerOn the FREE MONEY front, what is now a $1.2Tn Infrastructure Bill seems to be moving forward as the Democrats have agreed to pretend with the Republicans that we don't have to raise taxes to pay for it because – as usual – the tax cuts will pay for themselves or whatever (it's such BS one tends to lose track).   Biden plans to begin traveling the country on Tuesday to promote the bipartisan deal, with his first stop in Wisconsin, a White House official said. The goal is to build public support not only for the deal but for the now SEPARATE  social-spending and tax increases Democrats hope to include in the second piece of legislation, which would include elements of his American Families Plan.

Next Monday is a holiday so this week will get quieter and quieter as it moves forward but Friday is Non-Farm Payrolls alond with Motor Vehicle Sales and Factory Orderds, so it is worth checking in to see if anything exciting is happening.  Other than that, we have 3 Fed speakers today and that's it (scheduled) but they have taken to popping up all over the place like whack-a-moles, rather than announcing their intentions in advance.

This morning we get the Dallas Fed at 10:30, tomorrw we have Case-Shiller & FHFA Home Prices and Consumer Confidence, Wednesday is Chicage PMI, Pending Home Sales, State Street Cofnidence and Business Uncertainty should be interesting (inflation read) followed by a shocking rise in Farm Prices.  Thursday (if anyone is left by then) we have PMI, ISM and Construction Spending along with what would be a shockingly large Fed Balance Sheet – if we still had the capacity to be shocked by such things.  

 


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  1. Good Morning.


  2. Happy Monday PSW.

    LQDA/ultyguy – whilst it is a difficult path to compete with a gorilla in the room (UTH), I think LQDA has the ability to deliver on this drug (and LQDA's technology is superior to UTH) to the market. Tyveso (treprostinil) is an inhaled solution marketed by UTH. LQDA is a dry powder inhaler.  Very different deliveries, and treprostinil itself is off patent.

    Will they be $100, no.  But I can see them moving quite nicely into the space. I have slowly accumulated on the dips. I do believe it will be approved. The data show the drug works with less dosing frequencies compared to UTH (3-4 vs 9).

    UTH sues everyone and anyone that attempts to enter the space with inhaled treprostinil by driving the companies into the ground through litigation. Now they are suing based upon a UTH person joining LQDA.  I don't know the background info, so I cannot comment, but to keep someone from a job in this field based upon their 'knowledge' would be difficult to stop unless they signed that noncompete.


  3. 1020….hope all is well. The Right coast is lovely…and the white sharks are here as well. :)


  4. Goldman adds NRG to their conviction buy list.  Nice pop


  5. Happy MONDAY! Anyone have thoughts on SOFI as a long-term fintech play?


  6. Thanks Pharm. re: LQDA.  





  7. TAN my play of 6/25 up 3.50. Any one else plaid it?


  8. Good morning!

     

     

    • Last week the government released personal income and spending data that includes the Fed's favorite inflation gauge: the personal consumption expenditures index excluding food and energy.
    • The core PCE showed an annual rate of 3.4% for May, the highest since the early 1990s.
    • Goldman Sachs economists are aligned with the Fed view that the price pressures are largely transitory and should subside in the next three to six months, with core CPI declining from 2.3% next year (down from the recent 3.8%).
    • But strategists led by David Kostin also entertain the possibility that inflation sticks around in a "what if" note out today.
    • "Higher inflation than we expect would boost sales but weigh on corporate profit margins," Kostin writes. "Inflation has been positively correlated with sales but negatively correlated with margins."
    • "Rising input costs, including wages, could weigh on margins if companies fail to raise prices sufficiently to offset inflation," he adds. "In our 1Q 2021 Beige Book, we noted that many firms had begun taking price action but expected inflation to be transitory."
    • "Based on our top-down model, each percentage point of core CPI inflation above our forecast would lift S&P 500 sales growth by about 1 percentage point, reduce net profit margins by about 10 bp, and, for moderate changes in inflation, on net leave S&P 500 EPS unchanged relative to our baseline."
    • That sounds encouraging, but the problem for those currently long the broader market is that Goldman's S&P 500 (SP500) (NYSEARCA:SPY) target is 4,300.
    • That's fewer than 20 points from where the benchmark index closed on Friday.
    • Inflation is a reason Citigroup equity strategists remain cautious about the next few months.
    • "Inflation fears are well-founded as commodity costs are having an impact currently but labor expense could be the next issue to address," Citi's Tobias Levkovich writes in a note today. "There is significant anecdotal evidence about worker shortages and the need to boost pay, plus supply bottlenecks cannot be reversed overnight."
    • "The Manufacturing PMI’s business price index is indicating further CPI increases and rising TIPs breakevens," he says. "NFIB surveys show quality of labor problems and they typically lead compensation direction, which will force companies to lift pricing, in our opinion."
    • Goldman says if inflation is persistent then companies with pricing power will do well. Sectors that have historically done well in high-inflation environments are Healthcare (NYSEARCA:XLV), Energy (NYSEARCA:XLE), Real Estate (NYSEARCA:XLRE) and Consumer Staples (NYSEARCA:XLP).
    • They also point out that if rates don't rise as expected that would boost the S&P target.
    • "All else equal, if interest rates remain roughly flat through the end of this year, our S&P 500 dividend discount model (NYSEARCA:DDM) would suggest a fair value of 4700, or 9% above our current baseline price target of 4300."
    • Check out the breakdown of how the S&P sectors performed last week.

    NRG/Stock – I agree.

    NRG Short Put 2023 20-JAN 28.00 PUT [NRG @ $37.55 $0.74] -10 3/17/2021 (575) $-4,200 $4.20 $-1.68 $-2.55     $2.53 - $1,675 39.9% $-2,525
    NRG Long Call 2023 20-JAN 25.00 CALL [NRG @ $37.55 $0.74] 20 5/26/2021 (575) $18,500 $9.25 $3.95     $13.20 - $7,900 42.7% $26,400

    https://www.philstockworld.com/2021/06/18/philstockworld-june-portfolio-review-2/

    • NRG – We just rolled the longs lower and doubled down on the last dip.  I say $42 would be $17 on the calls for $34,000 and we're at net $25,425 now but we'll sell some short calls like the $40s, which are now $3.25 for maybe $5 ($10,000) and then we'll be net $15,425 on a $30,000 spread so let's call it $12,500 of upside potential.   

    Let's sell 10 NRG 2023 $28 puts for $4.50 ($4,500) in the LTP per Brendan.  

    Submitted on 2021/04/27 at 12:05 pm

    NRG we've discussed before – still stupidly cheap:

    We sold 10 2023 $28 puts for $4.20 in the LTP (now $2.90) and, now that the stock is back in the bottom of the rising channel, let's buy 10 of the 2023 $30 calls for $9 ($9,000) and wait on selling short calls.  Earnings are not until May 6th and they pay their dividend on the 30th.   If all goes well, we'll sell $45 calls, now $3 for $5+ for a very cheap spread.  

    NRG/Jeddah – They took a $750M hit on the storm in Feb and that's about a year's income so 20% off over 5 years is how that comes back.  At $33, they are $8Bn in market cap and they make $1Bn in a good year so nothing wrong with them going forward for the long-term.   In the LTP, we took a flyer back in March but it was small and now I think we're at a good bottom.  Our initial trade was (we bought back the short calls):

    I don't have a problem with the $28 target so we can leave those but let's roll our 10 2023 $30 calls at $7.30 ($7,300) to 20 of the 2023 $25 calls at $9.25 ($18,500) and I want to sell the 2023 $35 calls, now $4, for $5 when they come back a bit.  

    NRG/Jeff – I answered you in the Webinar but then I realized you might not be on it.  

    What I said was, what's our premise?  Our premise is that NRG is bottoming here and we want to DD on the longs and sell the $35 calls when they hit a target and also sell our $30 calls (as part of a roll).

    As you can see, we were able to buy the $25 calls for $9.25, mission accomplished:

    So far, we can only get $6.20 for the $30s, the bid/ask have dropped to $4.20/6.10

    Our premise is to be long and it's a small position so not too much risk just being long 20 of the $25 calls AND 10 of the $30 calls for now but, even if we do sell them for $1 less than goal, it only impacts the 2x longs by 0.50 per contract – not terrible.  I would certainly rather wait to get our price.  

    As to the short $35 calls we hope to sell for $5 – we'll have to wait for that too.

    If NRG drops to $30 (10%), the delta on the $25s is 0.76 so about $2.25 would be lost there but then the $20s with an 0.88 delta would also be cheaper so we could do that roll and sell the $30 calls instead.  Since the downside of having 40 (I'd DD again) of the $20 calls for about $12, which puts us at the money at $32, is not unappealing – I don't mind taking the risk now to hopefully catch a better price on the spread.  

     

    Submitted on 2021/06/09 at 11:06 am

    NRG/Jeddah – Just depends how conservative you want to play it.   I think $30 is a very good floor.  I'd sell the $25s and take the $4 off the table and then you have the $30s at $8.50 and you can ask for $4 for the $40s and worst case is you take that for the $37s if $36 fails to hold and then you are in for net $4.50 with at least $2.50 in upside, hopefully $5.50 and next time it dips you can sell puts and use that money to widen the spread again.

    They grow up right in front of our eyes, don't they?

    Great example of how we leg in.  We sold the puts, the calls got cheaper in late April and, rather than panic, we bought those and then waited for a pop to complete our spread by selling short calls.  Only a bit more then 3 months to have a complete entry.


  9. Phil / VIAC – really moving today… I don't see any news do you…. I was going to cover at 45 but am holding off now….   Do you see any news today?


  10. VIAC/Batman – I think it's something as ordinary as Fast/Furious 9 doing $70M this weekend – that's like all of last year's total box office!  

    Doesn't take a lot of good news to move a stock that's that stupidly cheap.


    • VIAC – Last year's table-banger is down in the dumps again.  We already got more aggressive so just waiting now.  Let's call it a $50,000 spread at target of $50 and currently net $34,235 but if we sell 20 $50 calls for $8, that will knock $16,000 off that net for $8,235 on the $50,000 spread so let's call it a $30,000 upside potential to be conservative.  Fantastic for a new trade -stupidly undervalued – again.  

    Last week's review.


  11. Pharm

    What happen to EXEL today ?

    Thanks


  12. EXEL/qc – looks like progression free survival was ok, but overall was not vs placebo. 



  13. With the pending Discovery merger with AT&T’s Warner Media businessViacomCBS now looks like a potential acquisition target, according to BofA Global Research media analyst Jessica Reif Ehrlich.

     

     

     

    She lifted her rating on the stock by two notches from Underperform to Buy, setting a price target of $53, for a potential gain of 33% from Wednesday’s close. Viacom shares were up 3.7%, to $41.15 in mid morning, while the S&P 500 was 0.6% higher.

    Ehrlich wrote that her previous bearish stance reflected concern that ViacomCBS (ticker:VIAC) would face challenges as a “relatively sub-scale player” as the market transitions to streaming at a time when larger market participants— Netflix (NFLX), Amazon. com (AMZN), Disney (DIS), and the HBO unit of AT&T (T)—were aggressively investing in their services. But she now thinks that the proposed combination of Discovery (DISCA) and Warner Media will spur further media consolidation as others seek increased scale.

    Viacom declined to comment.

     

     

     

    Ehrlich noted that The Wall Street Journal has floated Viacom as a potential target. She added that the company has some attractive assets, with a library of more than 3,600 movies and over 140,000 TV episodes. She thinks the company could be sold in whole or in part at a premium valuation.

    Any Viacom deal would require the approval of Shari Redstone, who through National Amusements controls 77% of the company’s voting shares, the analyst noted. “In the past, she has signaled herself to be an unwilling seller, but market dynamics could increase pressure to consider an offer or to proactively look to sell,” Ehrlich wrote.

    As for potential buyers, Comcast (CMCSA) is at the top of Ehrlich’s list. She said the combination would create “a powerhouse in film (combination of Paramount and Universal Studios), an increased footprint in advertising-based video on demand with Peacock and Pluto, and a deep breadth of entertainment assets.”

     

    She also said the combination could boost the Universal theme-park business, giving it new content on which to create attractions, while noting that the combination likely would require a spinout of CBS, given Comcast’s ownership of NBC.

    She also sees Amazon as a potential buyer, noting recent reports that the company is in talks to acquire the film studio MGM Holdings. She also thinks Apple (AAPL) could be interested in buying Viacom as a way to accelerate the scaling up of Apple TV+. Netflix (NFLX) hasn’t been acquisitive to date, but “the intensifying competitive landscape could facilitate a change in strategy,” Ehrlich said. Viacom’s multiple franchises at Nickelodeon, Paramount and CBS could make the company appealing to Netflix, according to the analyst.

     

    Phil / VIAC – last few weeks there's been a lot of chatter on them being taken over or parts of it spun off.   I believe AAPL would be a good candidate to buy part of this business Content and Development or the whole thing.   VIAC has some good development talent and would be treated well at apple,  but I'm not sure they would pay the premium needed to get it.    


  14. Hey Pharm! – The left coast awaits your return….. ;)


  15. LQDA/Pharm, Ult – The Jan $2.50 (0.95)/5 (0.40) bull call spread at 0.55 is a nice way to place a bet for now.  

    SOFI/Pman – They are still pre-profit and practically pre-revenue so it's hard to say whether they are worth $16Bn.  No it's not, they aren't.  They don't even have MONEY, which makes it hard to be a successful lending whatever-they-are-supped-to-be thing a ma jig.  Seems to me like they get members and then the members lend each other money or something, which is kind of what a bank does and, so far, they have 2.2M members but, do they pay?  

    So $200M in revenues (from $2.6Bn in loans) and they make $4M and next year they project $1.5Bn so maybe they make $30M – when do you think you'll make your $16Bn back?  They will need to be lending $200Bn in loans before they are close to hitting their stride and that means, even if they got 10X more money per Member, they'd still need 10x more members so about 1/10th of the US population (25% of the working population) would need to be pumping $10,000 into SoFi Memberships.  If you are really long-term, they are doing the hard work of clearing regulations which set them up one day to be a lender and their capturing college students early in their earnings cycle is a great idea (I kept my Citibank card for decades) but whether it gels over time enough to bring them up to 200x current earnings and a more realistic valuation remains to be seen.

    VIAC/Batman – I would have once said they are too big to be reasonably taken over but all that logic went out the window in this brave, new World we're in.


  16. Strange day.  Dow down 0.5%, S&P flat, Nas up 0.9% and RUT down 0.9%.

       

    This is one of the few times I'd go long on oil (but staying out of it):

         


  17. 14,500 is a good shorting line on /NQ when it crosses below – tights tops above.


  18. Phil// Any news on COWN?  It has dropped more than 5% today.  Thanks.


  19. COWN/Rookie – No news other than hitting resistance at $45.

    They are up 2.5% post-market.  Also for no reason.