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2,300 Tuesday – Is the Russell out of Gas?

No progress since February.

That's where the Russell is (or isn't) after the first half of 2021 has come to a close.  That's OK because, before that, the Russell had gone nowhere since 2018 but then it dropped 600 (37.5%) and now it's 700 (43.75%) points higher than where it had been steady before.  

With 2020 earnings being negative, the CAPE (earnings over 10 years) of the Russell 2000 is still well below the 2018 high of 130, hovering around 120 but we're paying 43% more than we did then, when the P/E ratio for the Russell was 83.05.  The means the current P/E for the Russell is around 100 times earnings and we KNOW, for a FACT, that the Government and the Fed have spent over $10Tn (50% of our GDP) in the past 18 months – just to give us that 43%.  We don't know, for a fact, that they will ever stop spending and average of $600Bn/month to prop up the economy and, if so, then maybe paying 100x earnings isn't so crazy but, if they do ever stop….

Fortunately, so far, there are no signs of stopping and no one I spoke to this weekend thinks the Government will or CAN stop stimulating the economy, so I guess we'll just keep betting with the bulls but it's very important to know what a farce this is – especially when we haven't even built anything of lasting value for $10Tn – these "benefits" vanish as soon as the Government stops spending.  

That's the great difference between Capitalism and Socialism – when a Socialist Government spends money, they build transit systems and bridges and schools and power plants – things that will benefit their people for decades to come.  When a Capitalist Government spends money, they buy some of those things but mostly they just funnel money to our Corporate Masters and we hope some of it trickles down to benefit the citizens who paid for it.

Since trickle down is really a fairy tale Conservatives tell to their logic-challenged base, the Russell stocks are starting to feel the pain as they tend to be smaller companies that actually need Consumers to have money to spend.  While we do hear about an uptick in Consumer Savings – it's drastically skewed towards the wealthy and we still have 6% Unemployment and 10M people who live in homes that are facing foreclosure (extended through the end of July).  We are down to kicking these cans down the road 30 days at a time now.

Of course the Personal Savings Rate is also distorted by the stimulus, as distributing several Trillion Dollars is wont to do.  It's also distorted because the PSR is the RATIO of Personal Savings to Income and, when Income drops, the money you give people in stimulus checks tends to read as a greater portion of their Incomes.  As you can see from the chart, DESPITE the $10Tn money shower, we're only doing as good as we did in the 70s – and that was an inflationary/recessionary period for the US.  

Are those who forget the past condemned to repeat it?  We'll have to wait and see what happens to women who go out for drinks with Bill Cosby, won't we?

It's going to be a slow market week as we've only got 4 post-holiday days to play with.  PMI and ISM today, Fed Minutes tomorrow and that's about it for data.

Nobody's reporting earnings either – just a very dull week ahead:


Oil topped out at $77 early this morning and NOW we can short it but it's already down to $76 on /CL but below that line (with tight stops above) is fun as we should calm down to $75 this week or next and that would be good for +$1,000 per contract but, longer-term, there should be a slump between holidays that takes us to $70 – and that's worth playing for!  

And I don't want to be all negative to start the week so I'm not going to talk about China's Debt Bomb (again) but tick, tick, tick it goes….


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  1. Amazon begins new chapter as Bezos hands over CEO role

  2. Wildlife, air quality at risk as Great Salt Lake nears low

  3. Good Morning.

  4. Good morning!

    I hope everyone had a nice holiday.

    LOL – Holy cow, didn't take long for /CL to pay off.  

    OPEC broke without an agreement to raise production and people somehow think that means they'll all go home and say "Well, I guess I'll just voluntarily not sell all the oil I can produce."  If Russia and the Saudis agreed, they would have had an agreement but, since it broke up, one of them wants to produce more (Russia, almost certainly) and that's exactly what they are going to do so, unless the Saudis voluntarily cut their production to match Russia's increase – there will be more oil on the market and that drives prices lower.  Also, the holiday is over and it was a BS pump-up into a well-timed OPEC meeting.

    See – it's just logic – not betting!  

  5. IMAX/Phil – The butterfly portfolio is a $20-$27 call spread, coupled with the short $20 puts and short July $21 Puts and $22 calls. I had previously sold 10 $20 2023 Puts for $4, but did not add any other legs with it. With the current fall to <21, I am thinking of adding legs here. I am thinking that I could go lower on the long call side, such as 20 2023 $15-$25 spread for $4.8 or similar. Does that seem reasonable to you? I can add additional legs to convert to a 'butterfly' later if needed. 

    • The National Retail Federation now expects retail sales in 2021 to grow between 10.5% and 13.5% from the 2020 level to a range of between $4.44T and $4.56T.
    • The new forecast is a pretty significant increase from the prior NRF forecast released in February for retail sales to be up 6.5% to 8.2% for the year.
    • NRF notes that the initial forecast was made when there was still great uncertainty about consumer spending, vaccine distribution, virus infection rates and additional fiscal stimulus.
    • "Since then, we have seen spending grow, vaccines have become available to virtually anyone who wants one, infections have fallen and additional stimulus in the form of the American Rescue Plan has been signed into law," updates Chief Economist Jack Kleinhenz.
    • NRF now expects GDP for the full year to grow close to 7% to mark fastest growth since 1984.
    • Read: Retail sector generates big returns for the first half of the year on re-opening hopes and Reddit buzz.

    ISM Services index slips more than expected in June

    • June ISM Non-Manufacturing Index: 60.1 vs. 63.5 consensus and 64.0 prior.
    • Business activity 60.4 vs. 66.4 consensus and 66.2 prior.
    • Employment 49.3 vs. 55.3 prior.
    • New orders 62.1 vs. 63.9 prior.
    • Prices 79.5 vs. 80.6 prior
    • June U.S. PMI Composite (Final): 63.7 vs. 64.0 consensus and 68.7 prior.
    • Services PMI: 64.6 vs. 64.9 consensus and 70.4 prior.


    • Toyota (NYSE:TM) sold 688,813 vehicles between April and June, taking its U.S. sales above GM (NYSE:GM) for the first time by a 577 unit margin
    • The Japanese car maker didn't cut production or supply orders as much as peers during the pandemic, betting the U.S. auto demand would recover faster than expected. Toyota still had its semiconductor foundry slot when the auto recovery started and left the industry locked in a chip shortage.
    • A Toyota spokeswoman tells the Wall Street Journal the victory was "an unusual case due to production constraints and other factors" that's a "short-term event for this quarter."
    • Background: Auto chip shortage driving $61B in lost sales faces complicated recovery
    • The Middleby (MIDD +0.3%) releases management forecast for Q2 and FY 2021 well ahead of the start of earnings season next week.
    • Q2 2021: The company expects $808M revenue compared to the consensus of $793.61M. Adj. EBITDA is expected to be $186M.
    • FY 2021 Guidance: Revenue is expected to be $3.24B compared to the consensus of $3.16B and adj. EBITDA of $730M.
    • The recent acquisition of Welbilt in an all-stock transaction is to further exceed the company's estimates that included FY 2022 revenue to be $3.19B (vs. consensus $3.37B) and adj. EBITDA of $801M; and FY 2023 revenue to be $3.39B (vs. consensus of $3.56B) and adj. EBITDA of $906M.
    • Backlog: In addition, the company expects its backlog to reach a record level exceeding $1B at the end of Q2 2021, increase from $705M at Q1 2021 and $287M at the end of the pre-Covid period of Q2 2019.
    • Previously  (June 7): Middleby upgraded to buy at Citi with 'deal or no deal' for Welbilt
    • Mark Fields, a former CEO at Ford (NYSE:F), said Tuesday that Tesla (NASDAQ:TSLA) faces increased competition in the electric vehicle space as "everyone is coming to the party with great products."
    • Speaking to CNBC, Fields also predicted that an expansion in the charging infrastructure represents the next major hurdle for the EV market.
    • On Tesla's place in the industry, Fields noted that the Elon Musk-led company once controlled about 75% of the EV market, thanks to its first-mover advantage.
    • However, with the release of viable products from established automakers, Tesla's share has dropped to about 50%, Fields said.
    • Fields spotlighted three major barriers for EV acceptance by the general public: price, range and the presence of adequate charging infrastructure.
    • Fields said automakers were working to bring down the price and improve the range of EV products. As a result, he viewed charging infrastructure as the "limiter" until that issue was solved.
    • Tesla rallied to a new 52-week high in January but came off that level through early March. It has largely traded in a range since then. Tesla closed Friday's session fractionally higher at $678.90, well off its 52-week high of $900.40.

    • Gold jumps above the $1,800/oz level early on in Tuesday’s trading session, taking the precious metal to a recent three-week high. Traders are back from a long holiday weekend and start the day off as buyers after gold has been trading in a lower range and choppy market conditions.
    • While the trading session has just started, gold is looking to close in positive territory and extending its daily winning streak to five days. Dating back to June 30th, and the precious metal is +2.76%.
    • With a continued weakening U.S. dollar, the inversely correlated asset has risen and been supported by investors. As of Tuesday session, gold is +1.00%.
    • Margaret Yang, a strategist at DailyFX stated “It’s mainly a weakening U.S. dollar that is boosting gold prices. Gold was sold down heavily after the June FOMC meeting and now that expectations have been priced in, buyers are back to the market.”
    •  Below is a chart spanning back to June 7th, showing the recent rise gold is on after it plunged to the downside in the middle of June.

  6. Phil,

    Do you have any thoughts as to the seriousness of the sell off in Chinese stocks? Fundamental or technical (normal pullback in bull market) corrections?

    They have more of a governmentally controlled market and in theory, at least, can do more to mitigate an economic downturn. Isn't more of their debt carried by their own population (not to the extent of Japan, but still more than in democracies) and hence less sensitive to free market forces (bond redemptions) ?


  7. IBM 138 !!!!!!!

  8. Phil / WTRH – Looks like the is out of the Russel Index, any change to thinking or change to position on this?

  9. Phil – Trade thoughts on BABA.  More downside or will it base here? 

  10. Wheeeee!  

    $73 on /CL is up $3,000 per contract so I'd strongly suggest taking that and running as it's a 5% drop on the day as well.

    Even though we were HOPING for $70 – that was "at some point" in the next 2 months – not TODAY!  When you make that kind of money that fast – lock it in!

    Big collapse in everything so I guess the end of the month window-dressing is over.


    Investors say they are now looking for fresh catalysts, such as strong corporate earnings reports or more fiscal stimulus, to power the next leg of the rally in stocks.


    “It just may be time for a little bit of a breather or a pause in the pace of equity market returns,” said Chris Dyer, director of global equities at Eaton Vance. “A lot of the good news is priced in and I think that makes it a little bit more tricky for the equity markets to grind higher in the short term.”

    Trading volumes have also dropped as many investors choose to wait for a clearer view on the Federal Reserve’s next course of action, Mr. Dyer said. “There is a risk that the market has become a little bit complacent and is lacking conviction going into the summer season,” he added.

    China/8800 – I think China is the canary in the Global coal mine and I have been warning about them for a long time.  We still have FXP in the STP:

    • FXP – The short June $35 calls paid off and we can cash out with a nice profit or maintain a hedge on China.  Nothing has really changed there so let's roll our 40 Sept $30 calls at $1.95 ($7,800) to 40 Dec $30 calls at $3 ($12,000) and pay for that by selling 40 Dec $40 calls for $1.25 ($5,000).  That's net $800 back in our pocket and we've get 3 more months to make gains on our spread.

    China isn't like us and they do think debt matters so they've reigned in spending and if you rely on your own people to fund your debt – what happens when they run out of money?  Our people ran out of money and the Fed now buys all our debt.  I don't know why people like to imagine China has such total control of their economy – they are subject to the same market forces as everyone else and you can kick cans down the road but they are still cans – no matter what language the label is in.

    IBM/Yodi – Nasty hit. 

    WTRH/Batman – Still waiting and seeing on my end. 

    BABA/Daniel – Well people are nervous on Chinese stocks at the moment and we do have an aggressive play on BABA in the LTP:

    BABA Short Put 2023 20-JAN 200.00 PUT [BABA @ $210.20 $-7.55] -10 2/3/2021 (563) $-33,250 $33.25 $-1.23 $-25.45     $32.03 $1.98 $1,225 3.7% $-32,025
    BABA Long Call 2023 20-JAN 230.00 CALL [BABA @ $210.20 $-7.55] 20 5/13/2021 (563) $68,000 $34.00 $-2.05     $31.95 $-5.05 $-4,100 -6.0% $63,900

    They are priced at about 35x forward earnings but growth has been around 30% per year so 20x by 2024 is acceptable and that's what we're playing for.   Assuming they hit (their own projections) $174Bn with $33.5Bn in profit in 2023, they should get some bumps along the way as growth is announced.  BUT, they are not going to be China-proof and if China starts selling off BABA will go down too.

    Our initial obligation here is to own $200,000 worth of BABA and that's manageable but, if $200 fails – I think I'd rather take a $10,000 loss and close it out than chase after it.  We'll have enough to worry about with our US stocks if they can't hold $200.

  11. IMAX/RN – We sold 5 short-term puts and 10 short-term longs, so we were bearish into July.  We like IMAX enough where we're happy to roll the short puts to 2x at a lower strike (the Jan $15s are 0.65 and we'd LOVE to own them for $15).  We paid net $500 for the whole spread so it's not about targeting $27 here – it's about covering $1,500 in quarterly put and call sales and anything over $20 is a nice bonus. 

    You, on the other hand, seem to be looking at IMAX as a profit play BUT, while we do have one of those in the LTP, it's a 2023 $10/15 bull call spread with short $12 puts – THOSE I feel good about but you spending lots of money 33% above our target — not so much.  If you only have 10 short 2023 $20 puts at $4, there's nothing wrong with net $16 – especially if you REALLY want to own 1,000 shares of IMAX for $16,000.  I would not, however, be so fast to add legs until they show us where the bottom is.  The $12s are $9.75 and the $20s are $5.25 so $4 for the $8 spread is pretty good.  Let's say you offer $3 and get 5 and they go lower, then rolling to the $10s for + $1 and doubling down would be no big deal and then you could sell some $17s to pay for those.  Something like that if you don't want to wait.

    IMAX Long Call 2023 20-JAN 20.00 CALL [IMAX @ $20.35 $-1.09] 20 5/28/2021 (563) $11,800 $5.90 $-1.15 $5.90     $4.75 - $-2,300 -19.5% $9,500
    IMAX Short Call 2023 20-JAN 27.00 CALL [IMAX @ $20.35 $-1.09] -15 5/28/2021 (563) $-5,550 $3.70 $-1.30     $2.40 - $1,950 35.1% $-3,600
    IMAX Short Put 2023 20-JAN 20.00 PUT [IMAX @ $20.35 $-1.09] -10 6/2/2021 (563) $-4,000 $4.00 $0.10     $4.10 - $-100 -2.5% $-4,100
    IMAX Short Call 2021 16-JUL 22.00 CALL [IMAX @ $20.35 $-1.09] -10 5/28/2021 (10) $-1,300 $1.30 $-1.15     $0.15 $-0.30 $1,150 88.5% $-150
    IMAX Short Put 2021 16-JUL 21.00 PUT [IMAX @ $20.35 $-1.09] -5 5/26/2021 (10) $-500 $1.00 $-0.05     $0.95 - $25 5.0% $-475


    We're still not back to normal at the movies so I don't see IMAX moving too much higher in the short term.

    Movie Theaters Slowly Recover, But 2021 Box Office Still Down 81% From Pre-Pandemic Times

  12. Hong Kong’s Security Law: One Year Later, a City Remade

  13. Techno-Feudalism Is Taking Over

  14. Phil – thx – DanB

  15. IMAX/Phil – Thanks. 

  16. Phil,

    Thanks for your take on China. I just wonder if The Emperor of "The Emperor has no clothes fame" got away with it so long because he was the Emperor. I seem to recall folks saying that the Asian cultures were relatively more law abiding – aka people did what they were told – because the penalty for disobeying/ breaking any law was the same… death.

  17. 8800/orientalism – Nahh, Asian cultures are sort of more law-abiding because they're more group-oriented. Don't know exactly why, although my cousin has a good hypothesis. He married a Thai woman, and through some happenstance lived in her rural village for several years, working as a rice farmer (his actual profession is building the equipment needed for chip production). He found that wet rice agriculture is very labor intensive, not at all a one-person operation, but a village pitch-in. That was my experience when I was in the Peace Corps in Korea in the early 70s as well (although I was doing TB control). If you're an isolated rice farmer in Asia, you'll starve.

    And that where Confucius came from………  ;)

  18. Well the markets are still very bouncy but that was a good reality check.

    Emperors/8800 – It's always easy to imagine people on the other side of the World can do all these amazing things.  We used to believe Russia had tight control of their people and that they believed everything they read in Pravda – turned out the people were actually revolting.  

    Collectivism/Snow – We are all the properties of our environment.  

    We Are The Borg - Home | Facebook

  19. Image

    Good indicator of general market sentiment.

  20. This is cool, from the Economist:


  21. Getting ready to buy on the dip:




  22. Good morning everyone. Here is the link to today's webinar

  23. Phil/SQQQ-SDS

    I get the feeling that SQQQ and SDS are going to reverse split soon (just because of the decaying nature of the ETF) — any other hedges worth switching over to before these become hard to unwind?