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Monday Market Movement

Florida's viral load is so great if it was a country the US would consider blocking travel there

I know we all like to pretend Covid is over but that's the headline I woke up to, in Florida, this morning, along with these:

As Delta Variant Spreads, Florida Hospitals Race to Find Open Beds

As Florida experiences a steep rise in coronavirus cases, AdventHealth’s “mission control” staff monitor data to stay ahead of a new flood of patients. 6 min read

And it's true.  People are starting to talk about who died from Covid in a way that didn't happen in the first few waves.  This is worse – it feels worse.  Even Oil Traders know it's worse as Oil (/CL) fell to $65 this weekend, back where we were at the start of the summer.  These are demand concerns – these are lockdown concerns – and the market is still ignoring them.

Oil began falling long before the market last year as oil trader DO care about what's happening in India and China and Africa. Oil is a truly global commodity that is actually used and produced every day so any changes in demand (or supply) quickly ripple through the price structure.  Oil can be like a thread of a spider's web for the Global Economy, signaling us to danger as soon as it gets touched.  

Warnings only work if you heed them so I would trade very carefully at the moment and make sure you are well-hedged.  Beijing health authorities said last week that the city would cancel all large-scale exhibitions and events for the remainder of August.  China is the world’s biggest importer of oil and “while some countries seem to be flipping to learning to live with the coronavirus, it is adopting a zero-tolerance policy” with stricter travel rules and quarantine measures, said Norbert Rücker, head of economics at Swiss private bank Julius Baer.

Last year we pretended things that were happening in China wouldn't affect the rest of the World – how did that work out for you?  Worries about the economic impact of China’s measures were felt across commodities markets, with metals prices also heading lower. Copper futures, often seen as a bellwether for global economic growth, were down 1.2% at $9,354 a metric ton on the London Metal Exchange. The prices of aluminum and nickel also fell.

Of course there's no reason to get all worked up about Covid when the World is ending.  Yes, it's always something and this weekend the UN issued their first major Climate-Change Report since 2013 and things have gotten much, much worse since then.  Issued by the Intergovernmental Panel on Climate Change, an organization of 195 governments, the report is drawn from a three-year analysis of 14,000 peer-reviewed scientific studies and is the first of 4 reports we'll get over the next year.  

 “We’ve known for decades that the world is warming, but this report tells us that recent changes in the climate are widespread, rapid and intensifying, unprecedented in thousands of years,” said Ko Barrett, vice chair of the panel and the senior adviser for climate at the Office of Oceanic and Atmospheric Research at the National Oceanic and Atmospheric Administration. “Further, it is indisputable that human activities are causing climate change.”

Dan Lunt, a climate scientist at the U.K.’s University of Bristol and one of 234 co-authors of the report, said, “It is now completely apparent that climate is changing everywhere on the planet.”  A global agreement resulting from a 2015 climate summit in Paris called on nations to take steps to limit future global temperature increases to 1.5 degrees Celsius (2.7 degrees Fahrenheit). But the efforts are falling short.  “This report tells us that we probably need even more action by all the major economies to work together to avoid even worse impacts than we’re already seeing now,” said Jane Lubchenco, deputy director for climate and the environment at the White House Office of Science and Technology Policy.

Greenhouse-gas emissions from human activity have raised global temperatures by 1.1 degrees Celsius since around 1850, the report said. Without rapid reductions in emissions, global temperatures could rise more than an additional 1.5 degrees Celsius over the next 20 years, the report forecasts.

Impacts of Climate Change on the Economy and Society - IberdrolaThe report reflects new scientific methodologies honed in an era of growing climate disturbances. It draws on a better understanding of the complex dynamics of the changing atmosphere and greater stores of data about climate change dating back millions of years, as well as a more robust set of satellite measurements and more than 50 computer models of climate change.

Last year, global temperatures tied for the warmest on record, capping the warmest decade in modern times. Oceans are warming, and sea level is increasing by 3.7 mm, or about 0.1 inch, a year, the scientists said in the report. Mountain glaciers, sea ice and polar ice sheets are steadily melting. Weather around the world has grown more extreme by many measures, the scientists said, with more frequent heat waves and prolonged droughts in some regions and heavier rainfall and flooding in others.

Inconvenient truthI'm sorry to have to bring these things up – I know they are depressing to think about but we're tried VERY HARD to ignore it and that certainly didn't make it go away, did it?  And yes, it DOES affect our investing as changes will have to be made… eventually.  

As we discussed last week in our Live Member Chat Room, we've stayed away from investing in insurance companies as the payouts for early deaths, sickness and "natural" disasters are accelerating, that coupled with low interest rates on their insurance reserves  make them far less attractive than usual – especially at these ridiculously inflated market prices.  

Speaking of inflated prices:  Consumers borrowed $37.7Bn to pay for inflated goods and services in June and that's up 10.6% from last year, keeping pace with inflation.  A survey of leading Economorons expected spending to go up $23Bn, so they were only off by $14.7Bn (64%) this time.  Overall, consumers are roughly $4.3Tn in debt – about one full year of retail spending – adding 2.5% since Q1, pretty much keeping pace with our 10% inflation.  

Paying more money for the same stuff is pretty much the theme in our economy and in our markets.  We only have 5 Fed speakers this week, 2 of them just ahead of Wednesday's 10-year auction that has become a farce with the Fed buying up whatever the Government wants to sell so they can calll it a success.  The Job Openings and Labor Turnover Survey (JOLTS) is out this morning on the heals of Friday's excellent NFP Report and we get Small Business Optimism and Productivity tomorrow and then CPI could be ugly on Wedensday with the Atlanta Fed Inflation Report followed by PPI Thursday and Consumer Sentiment on Friday:  

The earnings keep coming and, so far, guidance has not reflected any major concerns about Covid or Global Warming.  If our Corporate Masters aren't worried about it – why should we be?

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  1. good morning




  2. Good morning!  

        

    Tempting to short /NG as it could pay big if it follows the others down.

    Indexes are still at their highs so interesting times.

       

       

    Check out lumber:

    We still have 100M unvaccinated people in this country and 60M of them are children who can't be vaccinated (so far).  I'm very concerned about this whole back to school thing.  

    Gwinnett County Public Schools documented 166 cases in its first two days of school. 

    That's out of 180,000 students so 1/1,000 in two days and it's a 200-day school year so 200/1,000 is 20% infected but, of course, it spreads very quickly once more students start getting it.  Is this really a smart policy?

    Paediatrician Danilo Buonsenso, at the Gemelli University Hospital in Rome, led the first attempt to quantify long COVID in children. He and his colleagues interviewed 129 children aged 6–16 years, who had been diagnosed with COVID-19 between March and November 2020.

    In January, they reported in a preprint that more than one-third had one or two lingering symptoms four months or more after infection, and a further one-quarter had three or more symptoms. Insomnia, fatigue, muscle pain and persistent cold-like complaints were common — a pattern similar to that seen in adults with long COVID. Even children who’d had mild initial symptoms, or were asymptomatic, were not spared these long-lasting effects, Buonsenso says.

    Data released by the UK Office of National Statistics (ONS) in February and updated in April also sparked concern. They showed that 9.8% of children aged 2–11 years and 13% aged 12–16 years reported at least one lingering symptom five weeks after a positive diagnosis. Another report released in April found that one-quarter of children who were surveyed after discharge from hospital in Russia post-COVID-19, had symptoms more than five months later2.

    If 10% or 15% of children, irrespective of the initial severity of the disease, do have long-term symptoms after all, “that’s a true problem”, he says, “so this needs to be studied”.

    We spend so much time pretending it's gone away that we haven't bothered preparing to deal with the consequences of another school year if it hasn't.  We could have spent the summer making schools safer or improving remote schooling programs but instead we're just conducting this national science experiment on our children.



  3. Phil / Gold – any adjustments to the calls / puts that were sold on Friday 

    Barrick Gold (NYSE:GOLD): Q2 Non-GAAP EPS of $0.29 beats by $0.03; GAAP EPS of $0.23 misses by $0.03.

    Revenue of $2.89B (-5.6% Y/Y) misses by $30M.

    Barrick declares $0.09 quarterly dividend per share and adds second $250 million capital return tranche (~14 cents per share)

    Press Release


  4. Phil / GOLD – more on earnings

    Barrick Gold (NYSE:GOLD) -1.6% pre-market after reporting better than expected Q2 earnings but a 5% Y/Y decline in revenues to $2.89B, as the stock may be responding more to an overnight decline in gold prices below $1,700/oz.

    Barrick's Q2 net income attributable to shareholders rose to $411M from $357M in the year-ago period.

    Q2 gold production ticked 9% lower to 1.04M oz. from 1.1M oz. in the prior-year quarter, affected by planned maintenance shutdowns at Nevada Gold Mine in the U.S. and Pueblo Viejo in the Dominican Republic.

    Barrick's average realized gold price rose to $1,820/oz. from $1,777/oz. a year ago but all-in sustaining costs also increased to $2.74/lb. from $2.26/lb. a year ago; copper output increased to 96M lbs. from 93M lbs.

    Barrick says it is on track to achieve its full-year production forecast of 4.4M-4.7M oz. of gold and 410M-460M lbs. of copper despite a mechanical mill failure at the Carlin mine in Nevada during the quarter.

    The company also said the $250M tranche, of $0.14/share, of a return of capital distribution totaling $750M will be paid along with the regular distribution on September 15.

    Now read: Barrick Gold declares regular distribution of $0.09 and capital distribution of $0.14


  5. Graphene binds drugs that kill bacteria on medical implants



  6. hi Phil, would you recommend a new strategy in LL they are low on the 1 yr channel, had good results but receive little love what about  202318/25 call spread for about 3.2 combined with sale of 20 put for 5.3 ?

    thx


  7. A Hotter Future


  8. RE Fla hospitals- A friend who was told he had a stroke but is now verified to have a small inoperable brain tumour was supposed to be admitted to Sarasota ICU for treatment BUT there were no beds available due to covid. He was put in the pediatric ward then released to a rehab center for the interim. He cannot walk, but so far has full brain function. How many others are facing such a daunting challenge.


  9. Phil

    Any  trade on UNG for the fall season  ?

    Thank You


  10. GOLD/Batman – No reason to change anything based on that.  They cut 9% of production in Q2 in a couple of mines and costs went up.  At the moment, we're getting our fills at good prices ($23s are $2.20) and then we wait.

    LL/Youri – I couldn't decide whether all this lumber BS is good or bad for them.  As far as I can tell, they have their supply locked up but they are actually pretty small (1.2Bn in sales) so a very small mistake in costing can cost them most of their profits ($40M).  

    • The company is cautious concerning COVID-19 related supply chain disruptions and higher transportation and material costs and declined to provide financial guidance given the uncertain circumstances.

    Though I did like this:

    • LL Flooring repaid all $101M of outstanding debt during the quarter and will be focusing on rebuilding inventory and maintaining disciplined expense management.

    In other words (extrapolating), they didn't buy more lumber during the run-up and sold existing stock.  Lumber peaked out in early May and is now back to normal so, if they played it right – it's a very nice windfall for the company and they seem to have put it to good use paying down debt, which bodes well for the future.

    $19.50 is $580Bn and they are making $40M so 14.5x is fair earnings for them.  Growth is slow and not a lot of room to improve margins so this is probably the right price which means and $18/25 spread is probably too aggressive.  I would sell 10 of the 2023 $15 puts for $2.85 ($2,850) and buy 20 of the 2023 $18 ($6)/22 ($4) bull call spreads for $2 ($4,000) and that's net $1,150 on the $4,000 spread and then see how that goes.  Worst case there is owning 1,000 shares at $16.15.

    Challenges/Pirate – It's crazy down here and people are putting off going to the doctors and then getting so sick it's an emergency.  About 1/4 of our population is over 65 in Florida.

    UNG/QC – Too crazy.  As I noted above, it's a tempting short to catch up to oil but the LNG macro move says don't bet against it.  Just testing $4 right now in fact.  $4.50 was my prediction for where we'd settle 5 years ago when we started betting on LNG and /NG was barely holding $2.  


  11. BLUE – ouch, down 25%. Wonder if Pharm has any insights for long term outlook. 


  12. For whom who has still space to sell short calls against long stock or calls of TSN, today is the time up 8.5%


  13. BUZZ-Bluebird bio sinks to 7-yr low after downbeat Q2 results, update

     

     

    • U.S. stocks take a jog down late in regular session trading as financial stocks lose much of their strength from earlier in the session amid concerns about global growth.
    • The Nasdaq rises 0.2%. The S&P 500 ends the session in the red (-0.1%) after two brief forays into the green, while the Dow Jones fell 0.3%.
    • The 10-year Treasury yield rises 2 basis point to 1.32%.
    • "Covid is weighing heavily on the financial markets,” Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC. “The surge in cases continues to pressure the cyclical parts of the stock market the most including cyclical sectors like energy and industrials and small cap stocks.”
    • The Russell 2000, made up of smaller-cap stocks, declined. 0.4%.
    • Earlier today, the Atlanta Fed's Raphael Bostic sees potential to start the taper by the end of the year
    • Crude oil dips 2.1% to $66.83 per barrel; and gold settles down 1.7% to $1,732.60 per ounce.
    • By S&P 500 industry sector, Energy (XLE -1.4%) drops the most, followed by Real Estate (XLRE -0.4%) and Industrial (XLI -0.4%); among the gainers, Health Care (XLV +0.4%) was today's strongest followed by Consumer Staples (XLP +0.4%) and Financial (XLF +0.3%).
    • Among the megacaps: Tesla jumped 2.1% as the infrastructure bill gave electric vehicle stocks a boost; Alphabet rose 0.9%, Apple was essentially flat, Microsoft slipped 0.4%, and Facebook dipped 0.5%.
    • The U.S. dollar index gains 0.2% to 92.97.
    • Earlier today, the Atlanta Fed's Raphael Bostic sees potential to start the taper by the end of the year

    LOL:

    • AMC Entertainment (NYSE:AMC): Q2 Non-GAAP EPS of -$0.71 beats by $0.25; GAAP EPS of -$0.71 beats by $0.21.
    • Revenue of $444.7M (+2252.9% Y/Y) beats by $62.59M.
    • Shares +3.7%.
    • Press Release
    • As of June 30, 2021, AMC operated 593 domestic theatres representing 100% of its domestic theatres and 335 international theatres representing approximately 95% of its international theatres. The majority of international theatre operations were suspended for the first two months of the second quarter and did not reopen until early June.
    • Cash at June 30, 2021 was $1,811.2 million excluding restricted cash of $28.4 million. AMC currently has liquidity availability of more than $2.0 billion (including cash and undrawn revolving lines of credit).
    • AMC Entertainment (NYSE:AMC) is up 4.6% in early postmarket going after it easily cleared analyst expectations for its second-quarter earnings – and with an army of retail fanatics already bidding the stock higher.
    • Revenues (non-GAAP) jumped to $437.6 million from a year-ago $18.9 million. Looking at the six months of 2021 so far, revenues are at $585 million, down 39% from the same time span last year.
    • And net loss narrowed to $344 million from a year-ago loss of $561.2 million. For the first six months, losses are down to $911 million vs. a year-ago loss of $2.738 billion in that span.
    • As of June 30, AMC was operating 593 domestic theaters (100% of its total) and 335 international (95% of that total).
    • Attendance for the quarter was 22.07 million (not comparable to attendance of 100,000 in the year-ago quarter). Of that, U.S. markets attendance was 17.8 million; international, 4.27 million. And average screens were up to 8,890 from just 60 a year ago.
    • On all-important liquidity, AMC has cash of $1.81 billion, excluding restricted cash of $28.4 million. And it says it has liquidity available of more than $2 billion, including undrawn revolving credit.
    • It was a "transformational" quarter, CEO Adam Aron says. New liquidity should give AMC "financial staying power to navigate boldly amidst coronavirus waters. And by June 30, substantially all of our theaters were open again to entertain and delight our guests."
    • "And fortunately for us, as guests returned to our theatres, they splurged on our food & beverage offerings, which admittedly is quite a high-margin business," he added. "At the same time, we diligently managed our costs in every aspect of our operations."
    • The company's not out of the woods, but "We would like to think that someday when a movie is filmed about AMC and COVID, its title will be one compelling word, ‘Recovery.’ But, only time will tell.”
    • AMC Entertainment (NYSE:AMC) is jumping to a session high, up 6.5% and bucking a down sector just ahead of its highly anticipated earnings coming after the closing bell.
    • It's a report where the company is widely expected to lose nearly a dollar per share while actually recording some substantial revenue, vs. a trickle in the second quarter last year.
    • And it's moving up despite the uninspiring results from the box office this weekend, where a combination of COVID-19 fears and online release may have sent The Suicide Squad (the weekend's only wide release) to disappointing receipts.
    • Easy comparisons to last year's lockdowns haven't necessarily made this earnings season a cakewalk for movie theaters. Two that have reported so far, Cinemark (CNK -3.3%) and IMAX (IMAX -3.9%), showed some strong year-over-year gains but are still at less than half of revenues from the same period in 2019, pointing the way to an ongoing tough road back.
    • Morgan Stanley reacted to Cinemark's earnings by reiterating its Equal Weight view, saying Cinemark (NYSE:CNK) and the business at large are in the "early innings" of recovery. Cinemark in particular has rebounded back to EBITDA and free cash flow positive, which are important milestones. The firm says after July's $580 million, Q3 domestic box office is on track to reach $1.55 billion, and there is a strong slate for the winter into 2022 thanks in part to push-outs.
    • Still-sunny cinema operators are looking ahead to the fourth quarter for sure, where some pent-up major releases sit (including the much-delayed James Bond film No Time to Die as well as Dune and Top Gun: Maverick). The key question, WSJ notes, is whether Q4's top expected box-office draw, Marvel film Eternals, will also appear online on Disney Plus (DIS -0.2%) – or whether Disney is ready to leave that strategy behind despite some strong results there for Black Widow.
    • Ohter cinema tickers: Cineworld (OTCPK:CNNWF) -4.2%, Marcus (NYSE:MCS) -4%, Reading International (NASDAQ:RDI) +1.6%, Cineplex (OTCPK:CPXGF) +0.8%, National CineMedia (NASDAQ:NCMI) -2.5%
    • Conference call to come at 5 p.m. ET.

    • Berkshire Hathaway (NYSE:BRK.B) B shares rise modestly, only +0.6%, in the first trading session after reporting 21% growth in Q2 operating earnings on Saturday.
    • The company's A shares increase 0.5%.
    • Earnings from its manufacturing, service and retailing unit — which includes such businesses as Lubrizol, Precision Castparts, NetJets, Clayton Homes and Pampered Chef — more than doubled to $3.00B from $1.45B in the year-ago quarter.
    • Railroad, energy and utilities also exhibited gains, while insurance underwriting and investment both slipped.
    • its 10-Q also showed that ~69% of the aggregate fair value of its investment in equity securities are concentrated in four stocks as of June 30 — Apple (NASDAQ:AAPL) at $124.3B, Bank of America (NYSE:BAC) at $42.6B, American Express (NYSE:AXP) at $25.1B, and Coca-Cola (NYSE:KO) at $21.6B.
    • The fair value of all of its investments in equity securities was $307.9B at June 30, up from $281.2B at Dec. 31, 2020.
    • The company, run by Warren Buffett bought back $6.0B of its shares in the most recent quarter, less than the $6.6B it repurchased in Q1 2021.
    • The legal battle goes on between the state of Florida and Norwegian Cruise Line Holdings (NCLH -0.8%). The governor's office says the state will appeal a federal judge's decision to side with NCLH in the near term in its effort to invalidate the state rule barring businesses from requiring proof of COVID-19 vaccination from customers.
    • Last month, the cruise line operator sued Florida's surgeon general on the issue to ramp up the legal squabbling.
    • "We disagree with the judge's legal reasoning and will be appealing to the Eleventh Circuit Court of Appeals," says a spokeswoman for the governor.
    • Norwegian Cruise Line Holdings (NYSE:NCLH) wants to requiring that passengers and crew for both financial and health reasons.
    • NCLH has not traded over $30 since late June after the Delta COVID-19 case growth cut into the recovery timeline story.
    • Tao Value said in an investor letter that "most western observers do not understand" the Chinese system of government and economy, which has led to misunderstandings surrounding Beijing's recent regulatory crackdown and the resulting decline in Chinese stocks.
    • In part because of this view, Tao Value added to its position in Tencent (OTCPK:TCEHY) during the recent quarter, saying "its price became ever cheaper compared to its sound business."
    • In its quarterly fund letter, Tao Value asserted that China operates a "very complex hybrid system" of socialism and capitalism that has "its own merits."
    • Meanwhile, market watchers in areas like the U.S. and Europe "tend to use century-old ideology to over-simplify" the system, Tao Value contended.
    • The fund argued that Chinese authorities tend to overreact at the start of a new regulatory program, overshooting at the initial phase.
    • But then, the government typically reacts quickly to finetune the policy "towards the conceptual goal identified by the central government," Tao Value said.
    • "I believe Chinese policymakers behave similarly like a pendulum, just in much slower motion than [the stock market]," the fund said of the recent regulatory crackdowns in China.
    • "To take advantage of it, we will need to be more patient," Tao Value added.
    • For a similar perspective on Tencent and the market for Chinese stocks in general, check out a report from SA contributor Daniel Schönberger, who says "buy when there is blood in the streets."