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4,400 Thursday – Banks and Inflation Boost Markets Again

Earnings are going well so far but it's the half-point drop in the Dollar that's boosting the market.  

Investors are, so far, pleased about the way companies seem to be handingling inflation, pushing prices along to the consumer and that leads to more profits – even if they only reflect the inflation.  PPI came in this morning showing a 0.5% increase in September, giving us an 8.6% rise for the year so far, accelerating from last month's 8.3% pace.  The good news is, Fuel is up 11.6% and, to the extent that's not a long-lasting problem, prices should calm down a bit going forward – so the markets are happy today.  

We may have reached Peak Pizza as Domino's (DPZ) dropped 3.5% this morning on a revenue miss but United Health (UNH) is up 3% and Walgreens (WBA) is up 2% – that's one we were betting on, of course.  Bank of America is up a full 2.5% on a 58% improvement in profits over last year and Morgan Stanley is heading on the same path with a 36% increase in profits.  

We will see how the Nasdaq handles the critical 15,000 line this week, the last two attempts were firmly rejected.  The fall from 15,600 to 14,600 gave us 200-point bounce lines at 14,800 (weak) and 15,000 (strong) and 14,400 was an overshoot to the downside (same 200 point-zone below 14,600) so what remains to be seen is – are we consolidating for a move back up or back down?

Tech earnings come next week, so these moves are just noise while we wait for them.  The S&P 500 is doing a similar bounce, having fallen from 4,550 to 4,300 which makes for 50-point bounces to 5,350 (weak) and 5,400 (strong) – so that's another line in the sand to watch this morning.   Unfortunately, on the Retail front, 85% of those surveyed expect supply-chain distruptions to hurt holiday sales.  That's going to affect on-line sellers as well.

Based on the Fed Minutes yesterday, the taper is definitely coming but it's certainly not dissuading traders this morning.  “Participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate,” minutes of the Sept. 21-22 Federal Open Market Committee meeting released yesterday said.

“There is a bit of a pivot happening where there is a worry that transitory inflation might be transitioning to concern that it might be structural,” said Michael Pond, head of global inflation market strategy at Barclays. “Even the doves on the committee want to make sure that inflation expectations and financial conditions don’t start to cause alarm.”

The guidance in the September FOMC minutes is clear: the cost of quantitative easing now outweighs the benefits. That means they will very likely look through the weak September jobs report. Taper will be almost certainly announced at the November meeting — and could even begin as early as that month.” -- Anna Wong and Andrew Husby

Most participants saw inflation risks as weighted to the upside because of concerns that supply disruptions and labor shortages might last longer and might have larger or more persistent effects on prices and wages than they currently assumed,” the minutes said.

U.S. consumers are now paying an average of $3.29 a gallon for gasoline, the highest level in seven years, according to the U.S. Energy Information Administration. Steeper energy bills for businesses could increase the pressure to raise prices. “Housing costs, low inventories and rising energy prices will keep inflation higher for longer,” said James Knightley, chief international economist at ING, who now expects consumer inflation to remain above 5% through the first quarter of 2022. He added inflation could prompt the Federal Reserve to act “earlier and swifter” to alter monetary policy to head off inflation.

In September, some 46% of small businesses said they planned to raise prices in the next three months, on net, according to the National Federation of Independent Business, a trade association, the most since monthly records began in 1986.  As new car sales slowed for the fifth straight month, the average price for a new vehicle in September soared nearly $4,900 from a year earlier, according to Kelley Blue Book. Falling prices for used cars and airline fares masked the underlying inflationary trend, said Robert Rosener, senior U.S. economist at Morgan Stanley.

A lot of mixed signals, we are still watching and waiting – for clarity.  


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  1. Why does it feel like the correction never came and we are off to the races again…

  2. SPG/Phil.  SPG has done well, plus dividends, would you be looking to roll out the short calls?

    500 SPG ($69)

    - 5 '23 $110c ($25)

  3. Good Morning.

  4. Comment content omitted because it is too long.

  5. Good morning!

    Correction/Pman – Well we never did have a correction but not off to the races either.  Just waiting to see how things resolve.




  7. SPG/Wing – Your current net is about $52,000 and the $110s are too deep in the money to do a good roll and, meanwhile they are good protection if you like the dividend, which is $6 so you'll collect $3,000 next year but is that worth tying up the money?  Why not cash out, pick up 20 of the 2024 $120 ($29)/145 ($17.50) bull call spreads at $11.50 ($23,000) and sell 5 of the 2024 $120 puts for $20 ($10,000) and then you are in for net $13,000 on the $50,000 spread but you have $39,000 off the table and the worst case is you are back in 500 at net $60,000 as long as you stop out the bull call spread before it falls below $13,000.   So not much risk and $32,000 upside potential vs $6,000 in dividends and $15,500 in gains (at $135) you could collect over 2 years sticking with what you have and, of course, you have $39,000 left to play with while you wait. 

  8. SPG/Phil Great plan Phil but sadly this is in a registered account (RIF) so I can't sell the puts or even set up an options spread, can only sell calls against stock :(

  9. Earnings Portfolio Review:  No changes at all since our September 17th review but we gained $4,657, so we must be doing something right.  We're up 213.6% at $313,588 so it's all about protecting those gains and $282,846 (90.2%) is CASH!!! – so not at all worried about these positions.  The simple strategy of the Earnings Portfolio is to find stocks that have been oversold for dump reasons after their earnings reports, buy them and be patient enough for traders to come to their senses – works like a charm!  

    • GILD – Recent pullback but should get back on track.  It's a $15,000 spread at net $5,857 so worth keeping and good for a new trade with $9,143 upside potential and a reasonable June target.

    • GOLD – We're aggressively long here and not working yet but you know I love this one.

    • PETS – Just waiting for the next explosion.  Still good as a new trade with a net $2,000(ish) credit on the $20,000 spread.  

    • SQQQ – This is a self-hedging portfolio but we hedged the hedge so we're doing great.  There's pretty much zero chance we'll hit $30 in 100 days so no point in spending $900 to close the short Jan calls.

    • VIAC – Nothing exciting so far but net $8,470 on a $30,000 spread has a $21,530 (254%) upside potential – so that's exciting to me.  We're $9,000 in the money too, so great for a new trade but the 2024 $30 ($13)/45 ($6) bull call spread for $7 ($14,000 for 20) with 10 short 2024 $40 puts at $8.75 ($8,750) is only net $5,250 if you don't mind the more aggressive short puts.  

  10. Market/Phil – historically the market is impacted when the 10 yr gets back to about  3% (normal if that still exisits). The idea is that higher rates on fixed income  pull money out of stocks until the dividend yield in stocks starts to improve to a level that is more attractive to investors. The impact of inflation on concumers and rising rates on financing will likely force the market to decline to adjust the dividend yield since dividends are not likely to grow under that scenario. What are your thoughts on how the 10 yr and dividend yield on the index change as the taper progresses? I have my doubts about how far their going to go with the taper since everything has collapsed in the past when they even hinted about it. Thanks.

  11. the oil report coming out today surprised  me the media is being quiet about the build.

  12. 10-year/Seer – We're a very long way from 3% and tapering is not the same as raising rates so 3% is not likely until 2023 unless it's something outside of the Fed's control.  I imagine they'll taper off their bond-buying and raise rates 0.25% at 4 meetings (1/2) next year until we're a little more normal but, if there's any indication things are rising too fast – they'll go right back to QE because 3% of $32Tn is $1Tn a year in interest on our debt – and we certainly can't afford a penny more than that!  

    Oil/Tommy – Despite the build, they are determined to hold $80 so any excuse to push it back up is being taken.  At leas there's a draw on Gasoline, so they can stick to their demand story.


  13. AAPL – Interesting take on this "roumors of production costs). I think Morgans stanly may have it right….

    Wall Street analysts that cover Apple (NASDAQ:AAPL) have begun assessing reports that the company is cutting iPhone 13 production due to shortages among some of its communications chip suppliers. And the significance of the matter appears to stretch between Apple feeling some pain in its holiday season sales, to it being almost a non-event in the long term for the consumer-technology giant.

    Apple (AAPL) is reportedly planning on cutting its iPhone 13 production by up to 10 million units over the last three months of the year due to a shortage of components from suppliers such as Broadcom (NASDAQ:AVGO) and Texas Instruments (NASDAQ:TXN). Goldman Sachs analyst Rod Hall said the reported shortages likely explain what he says has been a "modest decrease" in product lead times in the United States and China. However, Hall said that iPhone 13 lead times are still tracking higher than those of the iPhone 12 when it came out last year.

    Hall said that investors should keep in mind that "lead times represent the balance of supply versus demand as opposed to a direct indicator of demand," and that it is currently difficult to estimate iPhone demand among consumers as most of Apple's demand occurs during the two weeks around Christmas every year.

    "Factors like re-opening, high consumer savings and supply shortages all combine to make predictions more difficult than usual this year," Hall said. "It remains our belief that Apple will find it increasingly hard to grow revenues and may well experience declining revenues for a period."

    Credit Suisse analyst John Pitzer said that Apple's reported production plans paint a meaningful picture of the state of the current semiconductor supply situation.

    "Apple is one of the largest single consumers of chips globally, and is typically at the front of the supply line," Pitzer said. "Shortfalls at Apple should help to punctuate the extent of supply shortages and perhaps provide comfort that the semiconductor cycle is not at risk of an abrupt end despite what is clearly some restocking across the supply chain."

    As trading progressed, Wednesday, Apple (AAPL) shares slipped by 0.5%, while Broadcom (AVGO) was off by 0.2% and TI (TXN) dipped by 0.5%.

    At Morgan Stanley, analyst Katy Huberty said that even if the supply chain issues become more pronounced in the near-term it's important to keep in mind several factors in Apple's favor. Huberty said these include Apple likely getting preferential treatment during times of tight supplies, and the company's well-known loyalty among its customers, which makes it so "any delay in production just pushes iPhone sales into future quarters."

    Huberty said while the current quarter's iPhone shipments may be impacted by the component shortages, she expects little effect on her estimates that Apple will ship 238.5 million iPhones during its 2022 fiscal year.

  14. Just an input to iPhone 13 shortage.  We ordered 3 iPhone 13s.  2 were 13 and 1 was pro max.  We had to wait 4 days or so to get the iphones and Pro Max, we were told that it will be middle of Nov when we would get it.  Not sure what happened, we received the Pro Max couple of days back.  Another family friend of our ordered their 4 phone and they all go their phones within a day or two.  So I believe the supply chain issue is getting better.

  15. AAPL/Batman – Always ahead of earnings they float rumors of whatever they can because AAPL doesn't comment on rumors and that lets them manipulate the prices.  I'd be a lot less worried about AAPL than the effect that AAPL sucking up all the chips will have on everyone else.  If there's a short supply – are you going to screw AAPL or your other clients?   Not to mention Cook is a logistics guy – he knows all these manufacturers personally so I don't believe they will be heavily affected as nothing is going to be a surprise to them.  

    Indexes up 1.5% – back to bullish trend if it holds through tomorrow.

  16. BABA I'm looking for a retrace to 200 as Jack Ma's reappearance + Nov 4th earnings are upside catalysts…

  17. Japan PM dissolves lower house for Oct. 31 national election

  18. BABA/Pman – Yes, way too low at the moment.

    • Coinbase Global (COIN +5.3%) stock advances after the crypto exchange platform signed up more than 1.35M people as of this morning for its not-yet-launched non-fungible token platform (NFT) platform, according to a note from BTIG analyst Mark Palmer.
    • That's more than the 300K+ users on OpenSea, the world's largest NFT marketplace, Palmer wrote in a note to clients. He reiterates his Buy rating and price target of $500.
    • The company plans to launch Coinbase NFT, a peer-to-peer marketplace through which users could mint, collect and trade NFTs, and on Tuesday opened a waiting list for users to get early access to the platform.
    • Palmer sees the NFT platform "offering promise of new, higher-margin revenue stream" as part of its "accelerating diversification effort."
    • The BTIG analyst estimates the new platform could add $137.5M to Coinbase's (NASDAQ:COIN) revenue, or about 2% of Palmer's full-year 2021 revenue estimate.
    • The Buy rating aligns with the Bullish SA author's rating of 3.58 and the Bullish Wall Street analysts rating (9 very Bullish, 5 Bullish, 6 Neutral, 1 Bearish).
    • On Wednesday, ViacomCBS teamed up with RECUR to enter the NFT word.

    COIN is kind of interesting as they are well below their IPO price but NFT is a whole other (and more realistic) revenue stream for them, in addition to being a crypto exchange.  They are making about $1Bn per Q and $260 is $67Bn in market cap – so not too bad, actually.  Good one for the Future is Now Portfolio so let's add:

    • Sell 2 COIN 2024 $200 puts for $44 ($8,800) 
    • Buy 5 COIN 2024 $200 calls for $105 ($52,500) 
    • Sell 5 COIN 2024 $30 calls for $70 ($35,000) 

    That's net $8,700 on the $50,000 spread that's over $25,000 in the money with upside potential of $41,300 (474%) - the future is fun!  

    In the LTP, let's just sell 5 of the 2024 $200 puts for $44 ($22,000) just to keep an eye on them.  We either own them for net $156 ($78,000 – 40% below the current price) or we just keep the $22,000 – I'm good either way…

    And, of course, we wouldn't go in at $156 as we'd roll and sell calls, etc so it's doubtful we're even committing more than 1/2 of a $100,000 allocation block to this one.  

  19. Here is the link to the replay of this week's webinar

  20. Dividend Portfolio Review:  $400,492 is up 100.2 and up $5,630 from our last review, where we made no changes.  In the recent quarter, we collected (or will collect): ET – $306, TWO – $170, Dow – $350, KHC – $400 (missed on 8/31), LYB – $565 (missed on 8/27), MO – $450, NLY – $440, PFE – $390, TWO – $340, VTRS – $220, FRO – Suspended, PETS – $300, SIG – $360, T – $520 – which is $4,811.  That's $19,244 per year just in dividends!  

    The nature of the portfolio is such that we can't use a lot of leverage so we're using $304,507 in cash and $19,244 is 6.3% on top of the gains we hope for in the positions each year.  It's a good, steady way to make money.  

    • GILD – On track.  Looks like we won't get to own them cheaply but we'll keep the $5,375 as a consolation prize. 
    • VIAC – Another one we won't get to own but cash is good too.
    • ET – We will be called away on these.
    • TWO – We will be called away on these.  
    • DOW – Fairly recent.  $31,250 if we get called away and now net $29,760 so not a lot of upside from the position ($1,490) but $1,750 more to collect in dividends makes $3,240 is better than 10% return if KHC is simply flat or better from here. 

    • LYB – A much more exciting dividend on this new position.  $45,000 if called away at $90 and currently net $35,620 is 30% upside plus over $2,000 in dividends is another 5%ish so what a great position this still is!  

    • MO – Right on track but gains have been made here already as it was our first trade in this portfolio.  In fact, short puts and calls are expiring so we get to sell more premium soon (and we nailed the target two years back!).

    • NLY – Love these guys.  Still good for a new trade at net $12,980 on the $14,000 spread paying $2,200 for the next 5 Qs so $3,220 back is 24% over 16 months if they clear $10.

    • PFE – You know I love them.  Way over our mark already.
    • TWO – Right on target and cheaper than our entry at net $7,665 on the $14,000 spread and $1,700 coming in makes $7,965 (103%) upside potential at $7 or better in 16 months.  Not bad for a "boring" dividend play!    Might add this to the Money Talk Portfolio as it's a good teaching position.  

    • VTRS – Limping along so far but $1,100 coming over next 5Qs and $30,000 at $15 is $32,100 back of what is currently a net $20,240 position so better than 50% upside if they get back on track.

    • FRO – I expect the dividends to be re-instated, maybe even a special paid as shipping rates are huge now.  We are aggressively long in anticipation.  

    • PETS – Also aggressively long, waiting for another spike up to sell short calls.

    • SIG – Another one no one believed in for a long time.    We can do better with the money though – so let's cash it in.  

    • T – Since the 2024 $27s are $2.20 and the stock is $25.69, I'd like to buy 1,000 more at $25.69 and sell 10 of the 2024 $27 calls for $2.20 ($2,200) and sell 10 of the 2024 $25 puts for $4.30 ($4,300).  So our net cost of 1,000 more shares is $19.19 for an average of $28.07 on 2,000 shares (not counting previous put and call sales) and we'll roll the short calls up eventually (room for 2x roll) and keep collecting those fat 0.52 quarterly dividends while we wait.

  21. Big finish, all the way to 4,430.  

    Very bullish if we don't pull back tomorrow.  

  22. Butterfly Portfolio Review:  $1,284,042 is up a very nice $43,615 since our last review as we have some very heavy bets paying off nicely now.  This portfolio is up 542% but it's our oldest portfolio – from Jan 2nd, 2018.   It's always a good time to enter a butterfly play, since our goal isn't to make money on the position – but to make money selling premium against the positions.   We have $842,022 (65.6%) in CASH!!! protecting us and the positions are basically self-hedging (and low-touch) but we do take chances to be more aggressive when we feel strongly about a mis-priced asset.  

    • AAPL – We're already up $12,820 on the short calls we sold last month and the short puts are up too.  That's the magic of BEING THE HOUSE!!!  The long spread is simply there to protect us from runaway short calls (we don't fear short puts as we'd love to own AAPL) though it is now tempting to sell 2024 puts.  In fact, let's go ahead and sell 20 of the 2024 $120 puts for $12 ($24,000) and see how that goes.  That's net $108 and we sure don't mind that and, more importantly, it will let us be a little braver in our future call selling (so we can make more money).   

    • AMZN – Doesn't seem like much but we sold $42,900 of January premium in August so that's 4 month's income on this trade alone if we thread the needle and, so far – it's threading!   Unlike AAPL, I don't have enough faith to sell a lot of short puts on AMZN.

    • DIS – Another bullseye if it keeps up and here we sold $45,000 worth of puts and calls that expire in 99 days – and then we get to do it again!  

    • F – Running a bit hot at the moment but we still think the market corrects at some point.  I would sell more calls but they aren't paying very well, the March $16s are just $1.30 so we'll just wait and see how earnings go.  

    • GNW – We got aggressive on these and they popped nicely so let's lock that gain in by selling 40 (not 50) of the 2024 (not 2023) $5 calls for $1 ($4,000) and we'll sell 20 of the Jan $4.50 calls for 0.40 ($800).  This is a very good spread to learn on as the stakes are low.  The short Sept calls expired worthless with a $680 profit and we bought back the old $5 short calls for a $2,000 profit so our original net was $2,360 and now we sold $4,800 against that so, if the new short calls go worthless that's +$2,440 and whatever value remains on the 50 $3 calls is a bonus.  At $5 that would be $10,000.  That's the secret to these plays – they turn into cash machines and just keep spitting out profits over time. 

    • GOLD – We got very aggressive last month and so far, so good.  

    • IMAX – No short calls but now we can cover.  Let's sell 20 of the 2024 $25 calls for $4.75 ($9,500) and use that money to roll our 20 2023 $20 calls at $5 ($10,000) to 30 of the 2024 $17 calls at $8.25 ($24,750) and we'll sell 15 of the Jan $20 calls for $2.35 ($4,700) to start generating some cash.  


    • KO – We just adjusted this one so all good.  

    • MJ – We expect to collect all the short call money and we'll see how earnings go before making any new bets but you can sell 2024 $15 puts for $4.25 and I love that, so let's sell 20 of those for $8,700 – just in case we don't get another chance.  

    • WBA – We were very aggressive on these too and finally heading up but we're in no hurry to cover.  In fact, let's buy 25 2024 $40 ($13)/$55 ($5.75) bull call spreads at $7.25 ($18,125) and then we are ready to sell short-term calls at about $52.50.   

    • WHR – I'm worried the Jan calls will go in the money so let's buy them back and let's sell 10 of the 2024 150 puts for $17 ($17,000).  

    That's all we do in this portfolio – find ways we can generate a little income each quarter.  We just sold $59,200 of premium above and just doing that 4 times a year generates over $200,000 and making money on the positions themselves is just a bonus but keep in mind we have positions like a $480,000 AAPL spread that's currently net $266,000 so AAPL at $150+ in 16 months will add $214,000 by itself.  

  23. And, by the way, AAPL didn't start that way.   When a Butterfly Trade is working, the short puts go worthless and the bull call spread goes in the money but we're often left with short calls in the money so, like WBA above, we double down on the long spread and roll the short calls to a 1.5x or 2x position.  If there's a dip during the following year – the short calls go worthless but we're left with the much bigger spread and, if we recover (and we've recovered every time the past few years) – the profits grow exponentially.  

    Essentially we end up automatically putting more money into the positions that perform best for us.