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TGIF – Government Shut-Down Averted for Two Weeks!

Watch Out for That Debt Ceiling Time Bomb! - Reform AustinPresident Biden signed a bill Thursday evening extending government funding through Dec. 3rd, averting a partial shutdown hours before current funding expired at midnight.

The legislation, which also includes $28.6 billion in emergency disaster aid and $6.3 billion to help resettle Afghan evacuees, passed 65-35 in the Senate, and 254 to 175 a few hours later in the House.  As we expected, Democrats had initially sought to attach a suspension of the debt ceiling to the funding bill, but Republicans have refused to vote to increase the government’s borrowing limit, tanking that effort in the Senate so the spending bill is moot on October 18th, since we are miles over our debt limit already.  

Also still in limbo is Biden's $1Tn Infrastructure Bill but that also won't matter if they don't raise the debt ceiling to allow it to be funded.  You can make all the budgets you want but, if they cut off your credit cards – all those spending plans go out the window until you earn more money.  And how does the Government "earn" more money?  TAXES!!!

The Debt Ceiling Comics And Cartoons | The Cartoonist GroupThat's right, all this GOP nonsense is simply a way to force the Democrats to raise taxes so the Repbulicans can then blame the Democrats for raising taxes and then they get re-elected so they can lower taxes and run up the debt again – until the next Democrat is elected and they will then say what a terrible thing all this debt is.  

During the 2016 presidential campaign, Republican candidate Trump promised he would eliminate the nation’s debt in eight years (obviously impossible for those familiar with math).  Instead, budget estimates showed that he would actually add at least $8.3 Trillion, increasing the U.S. debt to $28.5 trillion by 2025.  However, the national debt reached that figure much sooner.  When President Trump took office in January 2017, the National Debt stood at $19.9 trillion.  As of June 30th, the end of Trump's final fiscal budget, the National Debt had already passed $28.5Tn – 4 years ahead of the worst-case scenario.

Biden's July 1st, 2021 budget (his first) has us running a $3.2Tn deficit into June of next year and another $1Tn of Infrastructure spending would bring that to $4.2Tn and another $350Bn in the proposed 10-year, $3.5Tn spending bill will put us over $4.5Tn – especially as some of that spending is front-loaded.  That means we're looking at something like $33Tn of National Debt by next June (165% of our GDP) and our spending limit on the Debt Ceiling (currently suspended) is still at $22Tn after being raised 3 times under Trump before being suspended entirely.  

As total public debt outstanding has increased, the statutory debt, a.k.a. the debt ceiling, has also been stepped up. In 2013, the debt ceiling was suspended instead of being stepped up. Since then, there have been 5 periods of debt ceiling suspension leading to today's debt of $28.2 trillion as of May 2021.

Remember when Greece tanked the World's economy with their debts?   Greece has a $200Bn economy and they were $300Bn in debt (150% of GDP) and investors lost faith in their bonds, forcing rates up and rendering the bonds unpayable and the country quickly collapsed into chaos.  The US runs up an ADDITIONAL $350Bn in debt each month – ALL of Greece's debts that destablized the Global Economy – EVERY MONTH.  Think about it…

The markets are bouncing this morning because Consumer Spending was up 0.8% in August (and Income was up 0.2% so Consumers went 0.6% further into debt – yay!) and Merck (MRK) says they have a very effective Covid pill though again, getting back to "normal" still doesn't justify a 30% gain in the markets since 2019.  

Keep that in mind.

Have a great weekend, 

- Phil


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  1. Domestic flyers may need to show proof of vaccination if Senate bill passes

  2. Phil / SPWR going into the Midcap 

  3. Good morning! 

    Big punch-up this morning on Merck pill but wasn't Covid being over the whole reason we rallied in the first place?  How does making it "even more over" give us an additional boost?  And, of course, it's super low-volume so let's see what happens once the machines are on.



    • S&P 4,550 to 4,300 was a 250-point drop so 50-point bounce lines are 4,350 (weak) and 4,400 (strong)
    • Dow 35,500 to 33,600 was a 2,000-point drop so the bounce lines are 34,000 (weak) and 34,400 (strong)
    • Nasdaq 15,700 to 14,740 was a 960-point drop so call it 200-point bounces to 14,940 (weak) and 15,140 (strong)
    • Russell 2,580 to 2,150 was a 430-point drop so 90-point bounces to 2,240 (weak) and 2,330 (strong) 

    We had 3 greens yesterday morning, now we have none – that's the story – everything else is noise.

  4. Here's the zone chart for the S&P, we're predicting an 800-point drop so the retracement zones are 160 points each.  The red lines are the normal Fibonacci retracements:

    At the moment, we're at 4,315.

    Within the zones we can also chart strong and weak bounces.  Since we did consolidate at 4,390 (weak retracement) it's likely 4,230 is bouncy and the strong bounce there is the same as the weak bounce of the 320-point drop from 4,550 so that's going to be 62 points (20% of the drop) back to 4,292 so that's the line to watch as failing that should take us to 4,230 and that has double support so it better not break too easily or the dam might burst to the downside.

    Don't forget it's a very low-volume market so any kind of widespread selling will have trouble finding buyers and equity prices could drop very fast looking for bidders.

    Date Open High Low Close* Adj Close** Volume
    Oct 01, 2021 436.02 431.61 429.85 430.09 430.09 8,310,332
    Sep 30, 2021 436.02 436.77 428.78 429.14 429.14 140,181,200
    Sep 29, 2021 435.19 437.04 433.85 434.45 434.45 82,329,200
    Sep 28, 2021 439.69 440.04 432.94 433.72 433.72 130,436,300
    Sep 27, 2021 442.81 444.05 441.90 442.64 442.64 61,371,100
    Sep 24, 2021 441.44 444.67 441.21 443.91 443.91 62,025,800
    Sep 23, 2021 439.85 444.89 439.60 443.18 443.18 76,396,000
    Sep 22, 2021 436.05 440.03 433.75 437.86 437.86 102,350,100
    Sep 21, 2021 436.53 437.91 433.07 433.63 433.63 92,526,100
    Sep 20, 2021 434.88 436.56 428.86 434.04 434.04 166,445,500
    Sep 17, 2021 444.92 445.37 441.02 441.40 441.40 118,220,200

    So it seems like days over 120M are bad news.  

  5. Good Morning.

  6. Morning Phil. BIG is down on missed earnings and supply chain concerns. Getting a lot of bad press too. I'm looking to initiate a dividend position by buying x shares with put/call sales. What price do you see as a good value entry?

  7. XRX  I think we bought in Aug. for around 24 no 20 would it not a good idea to buy some more stock?

  8. What fun gyrations we are having today.

    BIG/Jeddah – They are a great value down here at $42.36 as that's $1.4Bn and they make a steady $200M/yr and made $600M last year, not less..  The earnings due to supply chain issues will go away eventually so it's perfect for a long-term investor.  We had a position in the LTP and closed it out around $60 but the original spread on 4/14 was 2023 $40 puts with the $45/65 bull call spread.  It's probably early to call for a re-entry but no harm in taking a small position we can scale back up in the LTP:

    • Sell 10 BIG 2024 $40 puts for $10 ($10,000) 
    • Buy 20 BIG 2024 $40 calls for $11 ($22,000)
    • Sell 20 BIG 2024 $55 calls for $6.20 ($12,400) 

    That's a $400 credit on the $30,000 spread and our worst case is owning 1,000 shares of BIG at $40 but then we could sell the 2025 $40 calls for $10 and more puts for $5 and we'd drop the net to $25 on our first 1,000 and maybe $35 for the next 1,000 so – as long as we don't mind owning 2,000 shares of BIG for $25 (40% off) – what's not to love?  

    XRX/Yodi – We never followed through with them as we decided to cash out right after that pick but yes, I like them better now and, for the LTP, we can put in a placeholder by selling 10 2024 $25 puts for $7.85 ($7,850) as the worst case there is having to buy 1,000 shares at net $17.15, about 15% off the current price.  

  9. Phil/BIG

    is way down and I know it was part of the purge…

    Any thoughts on re-entering down here?  Or wait out earnings and supply-chain?

  10. Ooops

    Sorry for the repetetive question about BIG  — did not see in the comments above

    At least I know I am thinking along the same lines as the members….

  11. BIG/Jeddah – That's the greatness of having lots of us watching the markets – we catch good deals with more eyes on things.

  12. So far, only the Dow has hit the weak bounce line (34,000) and only just barely.  

    • Coinbase (COIN +1.4%) stock pares its gain after the cryptocurrency exchange said that hackers stole from the accounts of at least 6,000 of its customers, according to a letter posted on the California Attorney General's website.
    • In the letter to the affected customers, Coinbase (NASDAQ:COIN) said it will deposit funds into "your account equal to the value of the currency improperly removed from your account at the time of the incident."
    • The incident occurred between March and May of this year, it said.
    • The company also said it's working closely with law enforcement in an investigation into those behind the incident. Its own internal investigation is also continuing.
    • The hackers needed email addresses, passwords and phone numbers associated with the Coinbase accounts to access the accounts. This type of hacking usually involves phishing attacks, Coinbase (COIN) said.
    • "We have not found any evidence that these third parties obtained this information from Coinbase itself," the company said in the letter.
    • Recall that in August Poly Network was able to recover assets from a $611M cryptocurrency hack.
    • The number of active drilling rigs in the U.S. continues to climb in Baker Hughes' latest weekly survey, adding another 7 to 528.
    • U.S. rigs targeting crude oil gained 7 to 428, while gas rigs remained unchanged at 99 and one rig was classified as miscellaneous.
    • Rigs targeting oil in the Permian Basin rose by 3 to 262.

    SunPower (SPWR) rallied almost 12% in intraday action, boosted by news it would enter the S&P MidCap 400 index. The stock, which will join the index on Oct. 5, will replace Cimarex Energy (NYSE:XEC), which is being acquired.

    MRNA got killed on MRK announcement, PFE not so much.

    That's why we liked PFE to play Covid – they have other stuff that makes them a good company (we're miles over target still).   MRK is adding 75 points to the Dow today.

    • General Motors (GM -0.0%intends to launch at least 20 new electric vehicles in North America by 2028 as it shifts its focus to technology and software. The top U.S. automaker will hold an investor day on Wednesday, Oct 6 to discuss its plans to spend $35B on electrification through 2025 and will provide revenue and profit growth margins, according to Reuters sources.
    • "GM's gone from an automaker to a platform company and here are all the things you can do with that," commented one source on the conference. "Stay tuned for pretty impressive numbers on revenue and margin expansion."
    • Data on GM's upcoming EV launches, including those for the GMC Hummer pickup, EV600 van, and Cadillac Lyriq crossover, will be provided. AutoForecast Solutions believes that GM will introduce 5 EVs in 2023 and 2024, two in 2026, two in 2027, and one in 2028. GM has already laid out 5 EV launches into late 2022.
    • The automaker will also go into more detail on its Ultium battery partnership with LG Chem and automation after heavy investments in the technology.
    • Crude oil futures are little changed in choppy trading, but energy (XLE +2.5%) nevertheless leads today's S&P sector standings and is this week's top-performing group by a wide margin.
    • Prices are supported by governments in China and Europe taking steps to limit surging prices of coal, electricity and gas, but gains are limited by reports that OPEC+ is considering going beyond its existing deal to boost production by 400K bbl/day when the group meets next week.
    • WTI November crude (CL1:COM) +0.2% to $75.17/bbl, and December Brent (CO1:COM) +0.3% to $78.58/bbl.
    • Among the sector's best performers: OXY +3.4%MRO +2.9%VLO +2.2%.
    • Monday's OPEC+ meeting has the potential to disappoint in terms of adding more supply, OANDA's Jeffrey Halley says, citing the inability of some members to raise production.
    • Bank of America analysts foresee the potential for the global energy crunch to push oil prices above $100/bbl and cause a global economic crisis.
    • BofA says such a boost would be driven by three factors: gas-to-oil switching due to high gas prices, a jump in crude consumption in a cold winter, and higher aviation demand as the U.S. reopens its borders.
    • "If all these factors come together, oil prices could spike and lead to a second round of inflationary pressures around the world… Put differently, we may just be one storm away from the next macro hurricane," BofA writes.
    • Meanwhile, analyst Cathie Wood calls for an eventual catastrophic drop in oil prices, comparing the commodity to the extinction of whale oil in the early 1900s.
    • U.S. crude gained nearly 10% in September, helped by strong demand and constrained supply in the U.S. Gulf of Mexico.
    • House Speaker Nancy Pelosi expects the chamber to vote on a stalled bipartisan infrastructure bill on Friday after it failed to gather enough support from progressives to pass on Thursday night, CNBC reports.
    • The sticking point is that the progressives want the Senate to pass the larger "human infrastructure" package before the House approves the $550B bipartisan bill. The $3.5T package, which would expand the social safety net and address climate change issues, is held up by some moderate Democrats, who are balking at the price tag. Specifically, Democrat Senator Joe Manchin who has said he won't vote for anything over $1.5T.
    • The progressives, meanwhile, contend any budget reconciliation bill must be at least $3T to include such items as free preschool and community college, child-care subsidies and the expansion of Medicare to include dental, vision, and hearing care coverage.
    • White House officials, though, still see the passage of both bills as doable. "A great deal of progress has been made this week, and we are closer to an agreement than ever. But we are not there yet, and so, we will need some additional time to finish the work, starting tomorrow [Friday] morning first thing," White House Press Secretary Jen Psaki said in statement.
    • See also: Explainer – Government shutdown averted, debt ceiling crisis continues
    • Gene Munster, managing partner at Loup Ventures, said Friday that the political wrangling over the U.S. debt limit could hurt tech stocks in the near term, as it adds a level of uncertainty to the economic environment.
    • However, Munster told CNBC that any pullback should be treated as a chance to buy into tech stocks, because the sector's long-term outlook remains bullish.
    • "This is going to be a buying opportunity, because these companies are fundamental to our lives," he said.
    • In terms of individual companies, Munster called Apple (NASDAQ:AAPL) "the clear beneficiary here," arguing that it should be a "$200 stock."
    • The Loup Ventures analyst also underlined Facebook (NASDAQ:FB) as a potential standout. While Munster called its product "toxic to our mental wellbeing," he predicted that the stock "surprisingly does well over the next few years."
    • Looking at their stock performances, FB and AAPL have had similar stories so far this year. After hitting highs in early September, both have come off their peaks in the past several weeks.
    • Comparing the two directly, FB has outperformed both AAPL and the S&P 500, posting a return 24% so far in 2021. AAPL has underperformed with a 7% advance:




    • Toyota Motor's (TM -0.1%) North America has reported September sales of 152,916 vehicles (-22.4% Y/Y).
    • Sales alternative powered vehicles ((APVs)), including hybrids, plug-in hybrids and fuel cells totaled 42,945 vehicles, up 36% on a volume and DSR basis.
    • Q3 sales increased 1.4% to 566,005 vehicles with APV sales  up62.5% and passenger car sales up 2.9%.
    • Press Release
    • Previously (Sept. 1): Toyota's U.S. sales down 2% in August



    • General Motors (GM -0.1%reports Q3 sales dropped 48.8% Y/Y to 446,997 vehicles vs. -31.5% forecast by Edmunds, due to semiconductor supply chain disruptions and historically low inventories.
    • Buick sales down 20.1%, Cadillac -31.7% and Chevrolet slipped 36.1% for the quarter.
    • On YTD basis total sales for Buick increased by 27%, GMC by 8% and Cadillac by 11%.
    • Fleet sales of full-size pickup trucks were up 13 %.
    • The new 2022 Chevrolet Silverado, which was revealed in September will begin arriving at dealerships in spring 2022 and the new 2022 GMC Sierra 1500 will also be revealed later this month.
    • “GM has been agile and decisive in managing COVID-related impacts on our production and wholesale volumes and we appreciate the support of our dealers and the loyalty of our customers,” said Steve Carlisle, executive vice president and president, GM North America. “The semiconductor supply disruptions that impacted our third-quarter wholesale and customer deliveries are improving. As we look to the fourth quarter, a steady flow of vehicles held at plants will continue to be released to dealers, we are restarting production at key crossover and car plants, and we look forward to a more stable operating environment through the fall.”

    • Citi analyst Joanne Wuensch is "taking a pause" on recommending Intuitive Surgical (ISRG

       0.73 0.07%

      Intuitive Surgical, Inc.
      52 Week Range
      653.00 - 1,087.01

      Market Cap.

       -0.2%) shares and downgraded the company to Neutral from Buy with an unchanged price target of $1,100.

    • Wuensch noted that the momentum in shares stalled in early September with management commentary on the impact of the delta variant.
    • The company's shares fell on Sept. 10 the most since January, with the sudden weakness attributed to comments made by the company CFO at the Wells Fargo Healthcare Conference.
    • The image below shows past 1-month total return performance of Intuitive and its peer Stryker and the S&P500:
    • Intuitive' Executive Vice President and CFO Marshall Mohr had noted during the conference in September that that resurgence of COVID due to the Delta variant has had an impact in certain regions, which in turn impacted hospital resources, and a delay in elective procedures.
    • "So, given the resurgence, you should expect that it is having some impact on our procedures. How deep, how much of an impact is really difficult to predict," Mohr commented.
    • The analyst added that in setting the stage for guidance, management noted that it didn't assume any significant disruption or additional costs associated with supply constraints, and it didn't assume any significant or widespread impact of Covid in the U.S. Given this, she is "taking a pause" on recommending Intuitive Surgical shares.
    • Senior Vice President of Finance Jamie Samath had echoed similar thought during the Morgan Stanley conference in September: "And when hospitals, counties or states take actions where they delay elective procedures, then that's going to have an impact on Da Vinci procedures in turn in that location."

    • The Federal Reserve may be close to reaching its inflation goal for raising interest rates, but it may take another year before the employment numbers get to the levels needed for rate liftoff, Philadelphia Fed President Patrick Harker told Reuters in an interview.
    • "We'll see how it pans out over the next couple of months, but I think we're pretty close to, or already have, achieved our inflation goal of running, averaging above 2% for a while so we can average over the longer-run 2% inflation," he said.
    • If the economic recovery unfolds as expected, both inflation and maximum employment goals may be reached as soon as 2023, he told Reuters.
    • "At that point I think the economy should be healthy enough to tolerate some small increases in the Fed funds rate," he said.
    • He expects the U.S. unemployment rate to decline to ~4% by the end of 2022, 3.8% by 2023, and 3.6% by 2024-end.
    • Earlier this week, Harker said he supports tapering the central bank's asset purchases as soon as November.
    • Earlier this month, Fed Chair Jerome Powell said that the decision to start the taper could be made at the Fed's November meeting if there's a "decent" September employment report.
    • It is a Merck party in the going-out part of the retail sector after the company's COVID treatment pill is seen as a potential turning point. The Merck update also follows improving COVID hospitalization trends in key parts of the U.S.
    • Restaurant gainers include Luby's (LUB +11.2%), Bloomin' Brands (BLMN +5.4%), Dave & Buster's Entertainment (PLAY +5.6%), Cheesecake Factory (CAKE +3.0%), Dine Brands Global (DIN +3.9%) and Ruth's Hospitality Group (RUTH +5.1%).
    • Travel and leisure stocks on the move include Carnival (CCL +3.6%), OneSpaWorld Holdings (OSW +3.5%), Hyatt Hotels (H +3.9%), Hilton Worldwide (HLT +3.8%), Marriott International (MAR +3.5%), Planet Fitness (PLNT +3.3%), MGM Resorts (MGM +2.7%), Six Flags Entertainment (SIX +3.1%), TripAdvisor (TRIP +6.4%), Expedia (EXPE +3.6%), Norwegian Cruise Line Holdings (NCLH +4.8%), Royal Caribbean (RCL +3.4%), Booking Holdings (BKNG +2.3%) and Cedar Fair (FUN +2.7%). All those gains come with the broad market relatively flat.

    You can see how the MRK news and Harker's comments are giving us a rally despite the very terrible Auto News and Inflation News.  

    • While Merck (MRK +10.2%) reached a 52-week high after posting early data for the experimental oral coronavirus therapy co-developed with Ridgeback Biotherapeutics, manufacturers of COVID-19 vaccines as well as antibody therapies have come under pressure.
    • In an interim analysis of a Phase 3 trial involving patients with mild-to-moderate COVID-19, Merck’s drug molnupiravir was found to have cut the risk of hospitalization or death by 50%.
    • Established vaccine makers, including Pfizer (PFE -2.3%)/ BioNTech (BNTX -13.4%), and Moderna (MRNA -13.9%), have extended the pre-market losses in morning hours. Meanwhile, other developers such as Johnson & Johnson (JNJ -1.3%), AstraZeneca (AZN -1.5%), and Novavax (NVAX -21.5%) are also trading lower.
    • However, the developers of intravenously administered antibody therapies for COVID-19 have also joined the slump.
    • Notable decliners include, Gilead (GILD -2.7%), Eli Lilly (LLY -2.3%), Vir Biotechnology (VIR -24.0%), GlaxoSmithKline (GSK -0.4%), Regeneron (REGN -6.8%)
    • Despite its partnership with Regeneron (NASDAQ:REGN) for monoclonal antibody cocktail casirivimab and imdevimab, Roche (OTCQX:RHHBY +1.7%) is on the rise as the company has teamed up with Atea Pharmaceuticals (AVIR +14.4%) for another oral COVID-19 drug called AT-527.

    • University of Michigan September Consumer Sentiment: 72.8 vs. 71.0 consensus and 70.3 prior.
    • Current Economic Conditions: 80.1 vs. 78.5 prior
    • Index of Consumer Expectations: 68.1 vs. 65.1 prior
    • The proportion of households who expected to be better off financially in a year fell to 30% in September, the lowest level since August 2016, and favorable financial expectations over the next five years fell to 44% in September, the lowest level in seven years.
    • Annual gains in household incomes were just 1.5% in September, well below the expected 4.6% inflation rate.
    • Real income gains were expected by just 18% of all households in September, the lowest reading since February 2015.

    So actual conditions suck but people BELIEVE things are going to get better.  

    Best Fairies GIFs | Gfycat

  13. I don't see how the MRK news matters if the same idiots refuse to take it.

  14. MRK/Daveo – That's true and also it's 50% effective to prevent major symptoms of Covid – nice to have but not a cure.  Just an excuse to bring the market up on 30% less volume than we went down on yesterday:

    Date Open High Low Close* Adj Close** Volume
    Oct 01, 2021 430.98 436.03 427.23 434.65 434.65 95,988,197

    And where is the weak bounce line?  4,350.

    Nothing impressive about barely making the weak bounce line to close the week.

    I'm thinking, as we've discussed, that the default move for the market is up and now we're seeing that it's up up to 120M so all the Banksters have to do is make sure there's enough good news or not enough bad news to bring the sellers off the sidelines.  So, a possible treatment from MRK and nice noises from Harker (which we anticipated on Monday when we reviewed the Fed speakers) means I don't run my sell program today and the default is bullish for the market (since every day is inflows that cover 120M to the bull side).  If there's no bad news – as long as the volume is low we have enough inflows to cover us to 120M but any additional news that causes otherwise neutral parties to sell – very quickly overloads the buy bots and down we go.  

    Monday Market Mayhem – 13 Fed Speeches and Lots of Data this Week

    Since there are far more hawks than doves on the Fed at the moment but the doves are getting the majority of the speaking time – it's pretty clear which face the Fed is trying to present but it's interesting that they're "experimenting" with Bullard having the very last word on Tuesday without anyone to negate him all day Wednesday.

    That means there's a good chance we have a sell-off Tuesday into Wednesday and the Nasdaq is already plunging this morning and everything has been going downhill since China's open as now power cuts due to electricity shortages are getting bad enough to affect both demand and the factories ability to produce goods (China's PMI will be out Thursday morning – hence the doves coming back to save us). 

    Remember, this is not TA, this is just paying FUNDAMENTAL attention to what's happening in the news along with the MATH of the 5% Rule,which shows us what ranges to expect the market to move in.

    Have a great weekend everyone, 

    - Phil

  15. Super day for /SI, taking that money and running and leaving the 2 long Gold (/GC) over the weekend.  

  16. No Oil!

  17. Phil tinkering a bit with BIG your play above. I got the put at 9.40. But vertical did not fill. I feel to just buy the call at present and set the expectation for the 55 caller a bit higher say 7.10 to 7.50 and wait. Should the stock really recover one can always get a better fill.

  18. BIG/Yodi – Sure, I agree.  We are long so why not just play it long for a while?