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Fallback Thursday – Stimulus Cuts and China Woes Take the Edge off the Rally

We're shorting the S&P (at 4,512 avg so far) ahead of the GDP Report next Thursday..

As noted yesterday, the Fed's estimates for Q3 GDP have come down from 6.25% in July to 0.5% as of last week yet the consensus among leading Economorons is still for a 3.75% gain and those are the guys who are yapping on TV and writing the articles you read in the MSM – you know, idiots… 

Part of the discrepancy is, of course, laziness.  3.75% is the average of the Top 10 and Bottom 10 forecasts in the GDPNow Survey and a lot of people still in the Top 10 simply haven't revised their opinion since July, failing to follow the advice of John Maynard Keynes, who said:  "When the Facts Change, I Change My Mind. What Do You Do, Sir?"

Facts have definitely changed in the past 3 months as inflation has spiked, Covid has resurged, shipping has backed up, disrupting supply chains, labor is in short supply and we're even flat out failing to deliver some commodities, causing spikes in Natural Gas, Gasoline, Copper, Uranium…  In short – it's a mess! 

BILLIONAIRES ARE LEAVING THE PLANET, yet we thing everything is fine?  China is certainly not fine as Dollar-bond defaults from Chinese property developers are rising quickly as the country’s housing market slumps, and the problem could worsen as a wave of debt from the beleaguered industry comes due in the coming months.  Real-estate developers dominate China’s international high-yield bond market, making up about 80% of its total $197 billion of debt outstanding, according to Goldman Sachs.

Since Evergrande and Fantasia defaulted on payments earlier this month, at least four other Chinese developers have either defaulted or asked investors to wait longer for repayment. A 30-day grace period for Evergrande to pay international bondholders, meanwhile, runs out this weekend, and investors are expecting the company to default on close to $20 billion in outstanding dollar debt.

That is just a drop in the bucket as Evergrande alone is over $300Bn in debt and, if they want to borrow more – 20% is the going rate.  Does that sound sustainable to you?  The extreme market dislocation raises the risk of a vicious cycle, in which companies can’t refinance coming debts because borrowing costs are too high, leading to more defaults and further hits to investors’ and home buyers’ confidence.  

Even if you are dumb enough to put down a deposit on an Evergrande development project – will you be able to find a bank dumb enough to lend you the rest?  Kill the cash flow and you kill the developer – it's inevitable at this point.  China Properties Group Ltd. defaulted on $226M in three-year notes that matured on Oct. 15. And on Tuesday, S&P Global Ratings downgraded Sinic Holdings (Group) Co. to a “selective default” rating, after the Shanghai-headquartered company failed to repay $250M of bonds that came due a day earlier.  

And keep in mind that's $526M of losses for someone – money removed from the economy as it was scheduled to be returned to the investors at this point and it's already been spent – so it's a pure negative to the current GDP.  Most developers are just skipping debt payments at the moment to preserve cash since it will be difficult to refinance upcoming maturities in the international bond markets if yields remain elevated.  The refinancing pressure is likely to intensify, with more than $6 billion of dollar debt maturing in January.  At the same time, sales are down 20-30% for developers.

Even China's strongers developers, like Logan are getting pulled down while mid-ranger players like Kaisa and Central China are collapsing – even before they have actually had an incident.  “Investors are not looking for bargains yet because the selloff has become pretty damaging,” said AXA’s Mr. Veneau. “There’s probably more of a mind-set of assessing the damage.”  

We've been getting horrific housing data all this week and, like China (and most countries) Real Estate tends to drive our economy, so it's getting very hard to believe these issues won't spill over into our economy – especially as Congress can't even pass a paired-down version of the stimulus package.  What did we have in Q1 and Q2 that we didn't have in Q3 – $1.2Tn in stimulus!  $1.2Tn is 12% of our first half GDP – no wonder it LOOKED like it grew 6% per quarter!

So the main reason the GDP expectations are down 6% is that we did not pass another 6% stimulus for the quarter – isn't math easy?  That means 12% of our GDP is fake, Fake, FAKE!!! and that means 12% of the market's forward expectations are likely to be disappointed too.  We just got the Philly Fed Report this morning and that's down to 23.8 from 30.7 last month.  Slowing economy, rising inflation…

TSLA and IBM are taking hits this mornning but HPQ, which was featured as a Top Trade Alert on July 28th and again on October 13th (it was still cheap) just reported nice earnings and guidance and is back over $30 – congrats to all who played along on that one!  

As we were discussing in yesterday's Live Trading Webinar, value investing requires both conviction and patience – something most traders have little of and, if you learn to play it correctly – it gives you a tremendous advantage in the market.  That's an advantage we are able to capitalize on with our option selling techniques – selling premium to all the impatient investors that lack conviction!  

That recent Top Trade Alert featured 6 trade ideas from our Future is Now Portfolio that are using $32,903 in cash to make up to $109,107 (331%) over the next 16 months – HPQ is one of those trades so don't tell me there are no bargains to be had in this market – you don't have to chase after overpriced BS to make excellent returns.


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  1. Good morning!

    Things are heading up and we'll see how it goes:


    Nikkei was down 2.5% this morning:

    Oil is stilling off but I still have my last /NG long at $5.



  2. Good Morning.

  3. Union Pacific Q3 profit up 23% even with flat volume

  4. Good Morning.  Phil, I currently have SQQQ and TZA 

    2023 call spreads with 10 naked SKF '22 calls. I feel I need a bit more hedge. Which of these would you add to or any other recommended adjustments?

  5. Cargo backlog creates traffic headaches on sea and land

  6. Hedges/Jeddah – Well the STP has been consistently losing money with the hedges so make sure you are making it somewhere.  We've been most successful with our strategy of selling longer calls than we buy on SQQQ but it's not without risk.  For example:

    • Buy 100 SQQQ 2023 $6 calls for $2.85 ($28,500) 
    • Sell 50 SQQQ 2024 $18 calls for $2.50 ($12,500) 
    • Sell 20 SQQQ Jan $10 calls for 0.45 ($900)

    That's net $15,100 on the $120,000 spread and if the Nasdaq drops 40% that's a 120% gain in SQQQ and that's still not $18 so seems like a reasonable target.  Of course the goal is then to sell $900 worth of short calls again and again to help pay off the spread and don't forget, around July, you will have to re-invest and roll the 2023 $6s tot 2024 whatevers or maybe a 2025 spread that covers the short 2024s – and so it goes…

    • Ford (F +3.1%says that its new Maverick Hybrid 2022 compact pickup truck is nearly sold out, with the automaker expecting the 2022 model to be fully reserved by early November.
    • After revealing the Maverick in June, Ford reported that it had already received 100,000 non-binding orders for the pickup. Deliveries are expected to begin in January 2022 following the completion of required state and federal emissions certifications.
    • The vehicle is geared towards entry-level buyers with a starting price of just under $20,000 and an EPA-certified rating of 42 mpg in the city, making it the most fuel-efficient pickup truck in America with a combined 37 mpg rating.
    • Once all 2022 Maverick Hybrids are reserved, customers will have to wait until next summer or purchase a non-hybrid version of the truck.
    • Ford is set to report earnings Wednesday, Oct 27 after the market closes. J.P. Morgan expects an earnings beat based on the automaker's production numbers and a strong pricing environment.
    • Analysts are crediting profit-taking for today's pullback in crude oil prices from multiyear highs, with the energy sector (XLE -1.7%) dragging along at the bottom of the sector standings.
    • December WTI crude (CL1:COM) -2.6% to $81.23/bbl after the November contract expired yesterday at a seven-year high, and December Brent crude (CO1:COM) -2.4% to $83.73/bbl after rising to as high as $86.10, the best level since October 2018.
    • Among today's biggest decliners: FTI -6.3%KMI -6%NOV -4.4%BKR -3.6%HAL -3.6%.
    • "While some projections are as bullish as $100, current price levels already start feeling high for traders, who always have an itch to reap profits from the rising prices," Rystad Energy analyst Louise Dickson tells MarketWatch.
    • But Dickson thinks the trajectory for oil still looks bullish for the rest of the year due to rising demand and OPEC's tight production policy.
    • This week's supply report from the U.S. Energy Information Administration showed tighter crude and fuel inventories, with crude storage at the Cushing hub falling to a three-year low.
    • Crude stocks "remain far below normal for this time of year" and will "need months of a stronger supply/demand balance before moving in line with the five-year average," Schneider Electric's Robbie Fraser says.
    • Kinder Morgan trades sharply lower after Q3 earnings missed expectations.
    • Bitcoin (BTC-USD) marked new territory on Wednesday, reaching a new all-time high of $67.7K just a day after the first bitcoin futures exchange-traded fund, ProShares Bitcoin Strategy ETF (NYSEARCA:BITO) begins trading on the secondary market.
    • The world's largest crypto by market cap has since pulled back to as low as $62.5K on Thursday, now changing hands at around $63.5K.
    • However, J.P. Morgan strategists believe bitcoin's (BTC-USD) extensive rally is being driven by concerns over the inflation overshoot, potentially offsetting losses seen in the price of gold (NYSEARCA:GLD), which trades in net negative territory Y/Y.
    • The bitcoin ETF launch is "unlikely to trigger a new phase of significantly more fresh capital entering Bitcoin," JPM strategists said in a note to clients. "The initial hype with BITO could fade after a week."
    • Previously, (Oct. 7) Bitcoin's recent rally reflects increased use as inflation hedge, J.P. Morgan says.
    • Nassim Nicholas Taleb, the author of "The Black Swan" believes bitcoin (BTC-USD) is as irrational to buy it as it is to short it, saying "I am not "bearish" on #BTC," in a tweet.
    • Meanwhile, bitcoin (BTC-USD -5.6%) pulls back even further to net negative territory intra-day from its newly marked all-time high from Wednesday, reaching as low as $62.2K on Thursday, now changing hands at $62.8K.
    • He likens the digital token to the 17th century tulip mania that saw the price of tulip bulbs surge before crashing, but without the aesthetics, and it's disguised as a "currency," he writes.
    • In contrast, SkyBridge's Anthony Scaramucci said the crypto drop from September was a good buying opportunity; BTC has climbed about 48% since his call from less than a month ago.
    • Earlier this week, Paul Tudor Jones said inflation is a "very bleak picture," but crypto, particularly bitcoin, offers a great hedge.
    • Facebook's (NASDAQ:FB) independent oversight board on Thursday called out the social media giant for not being transparent enough with how it has evaluated and treated content posted by high-profile individuals and celebrities.
    • The oversight board made its assessment of Facebook's (FB) "cross-check" system as part of its first quarterly transparency report on cases brought to Facebook regarding content viewed as inappropriate. The board posted the report covering the fourth quarter of 2020 and the first two quarters of 2021 on its Twitter feed.
    • The board said it had received more than 500,000 appeals of Facebook (FB) and Instagram posts between October 2020 and June 2021, with user appeal numbers increasing every quarter. Two-thirds of the appeals came from people who wanted their content restored related to hate speech or bullying, and almost 50% of all appeals were from the United States and Canada.
    • But, the highlight of the report was its harsh criticism of how Facebook (FB) has used its cross-check system to give special content-assessment rules for, and treatment of posts made by high-profile site users, including many celebrities. The oversight board cited Facebook for not being open enough about the policies involving the cross-check system.
    • "In the Board’s view, the team within Facebook tasked with providing information has not been fully forthcoming on cross-check," the report said. "On some occasions, Facebook failed to provide relevant information to the Board, while in other instances, the information it did provide was incomplete."
    • Facebook (FB) came under fire recently following a report in the Wall Street Journal that disclosed Facebook research showing that the company knew about postings on Instagram that were potentially harmful to young girls.
    • One case the board specifically mentioned involved Facebook banning former President Donald Trump from the social media platform. The board said it was asked to look at the banning of Trump, but Facebook didn't initially mention the role of cross-check system in its decision.
    • "Given that the referral included a specific policy question about account-level enforcement for political leaders, many of whom the Board believes were covered by cross-check, this omission is not acceptable," the report said. "Facebook only mentioned cross-check to the Board when we asked whether Mr. Trump’s page or account had been subject to ordinary content moderation."
    • The board said that it would keep working to make sure Facebook provides the proper information it needs to do its job, and develop ways to improve the cross-check system.
    • Earlier Thursday, former President Trump detailed plans for a new social media platform called TRUTH Social, and a company called Trump Media & Technology Group that will launch via a SPAC merger with Miami-based Digital World Acquisition (NASDAQ:DWAC).
    • Dear Readers: We recognize that politics often intersects with the financial news of the day, so we invite you to click here to join the separate political discussion.

  7. What’s up all?     I’m thinking of dipping my toes in ARKG for a long term account, something like our future is now .  Yesterday I saw a 17,000 lot option trade in some 2024 calls and a Jan 23 bull put spread.  This is the genomics etf and it holds an interesting assortment of companies.  It’s had a 50% retrace off its high 

  8. Hi Phil…/HG falling sharply on demand concerns. You mostly dont focus on base metals – can you pls remind again why?

    Also, any update on your long /NG and short /ES, or as new ones?


  9. Phil:  Do you think at these levels IBM is worth a trade?

  10. Very strange on T fist up and about now down from 26.20 to 25.60 and WTRH up .23 and I am down over 2K

  11. Phil,

    Would like your counsel on selling calls against 4k of EPD which transports more gas than oil. Range has been 10 to 30, now 24+, my entry @19, yield >7%. Premiums are very meager. Does it even pay to sell calls, e.g. Dec 25s are .36, Mar are .80ish? I feel this rally in oil may have more to run short term.


  12. Do we have a BYND play in Future is Now if McDonald's adds

  13. John c.  I would rather have PYPL.   Something like selling the 2024 $200 puts but I’m not at my computer so I don’t know the price of those 

     though I doubt Phil would agree due to valuation 

  14. Stockbern:  Thanks. I'll take a look.

  15. /NG heading back up – still just the one contract left.  

    Oil tested $81.


    ARKG/Stock – Just make sure you are happy with their top holdings.  

    Top 10 Holdings (42.38% of Total Assets)

    Get Quotes for Top Holdings

    Name Symbol % Assets
    Teladoc Health Inc TDOC 6.85%
    Exact Sciences Corp EXAS 5.00%
    Pacific Biosciences of California Inc PACB 4.79%
    CareDx Inc CDNA 4.25%
    Regeneron Pharmaceuticals Inc REGN 4.05%
    Vertex Pharmaceuticals Inc VRTX 3.64%
    Ionis Pharmaceuticals Inc IONS 3.62%
    Fate Therapeutics Inc FATE 3.58%
    Twist Bioscience Corp TWST 3.56%
    CRISPR Therapeutics AG CRSP 3.04%

    I'm not a big fan of ETFs, I'd rather just buy shares in the two or three best companies in the group.

    Copper/RS – As I was saying in the Webinar yesterday, I only play futures when they are interesting.  If I see very good support or resistance and a strong catalyst that makes me think things are going in a certain direction – THEN I might play  – but that's not too often.  We were playing copper long when it fell back to near $2 but lost interest over $3.  

    As to /NG and /ES – We're way ahead on /NG so letting it ride and we have A LOT of longs so /ES is just a fund hedge – as a bet I'd be very careful but currently 4 short at 4,512ish.

    IBM/John – No sense in catching a knife but I always want IBM if it's cheap.  We don't have them in any of our portfolios at the moment so very exciting that they are going on sale for us but let the Downgrade Police have a crack at them before we decide where the bottom is. 

    • There was no secret regarding the reason for IBM's decline. On Wednesday, the company reported quarterly revenue of $17.62 billion, which fell short of the consensus estimate of $17.81 billion. IBM also said it earned $2.52 a share, which barely beat the consensus forecast of $2.51 a share.
    • One of the main culprits of IBM's (IBM) woes was its technology services business, which saw its sales fall 5% from a year ago, to $6.15 billion, as orders continued to drop. The unit is set to be spun off as a separate company called Kyndryl next month.

    IBM/Wing – took ours off the table on 8/18:

    • IBM – This is a $24,000 spread at net $17,230 so there's $6,770 (39%) left to gain if IBM holds $140 into January but we already made $25,290 as we started with a credit due to aggressive put selling that paid off already.  So we're really risking $25,290 to make $6,770 (26%) more and, though it's short-term, the risk does not justify the reward so we're going to kill it.

    And on 8/17:

    IBM – $35,000 profit, $140,000 if we're forced to own it.  Killl it

    So no, we didn't take it off the table right at $150 but when $140 looked like it was going to fail – there wasn't any point to holding it any longer – not with those risk/reward ratios.

    This is something I say a lot to you guys – no matter how much you love a stock – you have to sell it when it's overpriced.  Maybe it comes back again and you buy it again or maybe it doesn't but if you don't know how to lock in profits – you will always struggle to make them.

    Of course, to get back in, we start with short puts.  IBM is at $127Bn at $129 and they make $10Bn so easy math says I'd be an idiot not to buy them at $100 so, without any fear at all, I would sell puts that put me in around $100.  2024 $125 puts are $20.50 and that nets $104.50 so 10 of those sold in the LTP would put $20,500 in our pockets so that's what I want to do.  

    IBM 2024 $150 puts are $37.50 so I think $25 is a good price for the 2024 $125 puts in the LTP so we'd want to sell 10 of those at that price (if we get it) and 5 short 2024 $125 puts at $25 for the Earnings Portfolio too – as it's our job to take advantage of market foolishness there.  

    If we don't get out price, then we'll pick something else once they stabilize. 

    WTRH/Yodi – Very nice!  Speaking of patience…

    T at least made a bit of an effort:

    EPD/8800 – Well, out of principle you should be selling calls at the top of the channel, right?  You have 4,000 shares of stock and no, it's silly to sell December $25s for 0.36 but 2024 $22s are $3.10 for net $25.10 and that's almost as much as 2 year's dividend ($3.60) so you collect $12,400 which is enough to buy 600 shares at $20 so there's no reason not to sell 10 of the 2024 $25 puts for $5.50 ($5,500) as well as that's $17,900 collected towards your potential $25,000 purchase of more shares.  Your entry at $19 was $76,000 less $17,900 is $58,100 and 2 years of dividends will be $28,800 so, by Jan 2024, you will have dropped your net to $29,300 on 4,000 shares or $7.32/share and then the $1.80 dividend would be 24.5% of what's left on the table and you have free stock in 4 years – even without more options selling.  

    That's why conservative is the way to go.  If you want to be aggressive, put that $17,900 to work right away but don't tie it up in additional risk on a trade you already have.  And, by the way, if you do get called away it's from a $14.525 base (not counting dividends you collected) so it's a 50% profit ahead of schedule – not a tragedy.

    BYND/Pman – We had them but they ran up so much we cashed out.  Back at $108 isn't too cheap at $6.8Bn as they are still running at a loss with $800M in top-line sales so how are they going to make $300M to cover a $7Bn market cap?  We came in around $50, not $100 – it's not really something I'd jump on at this price but, if the market crashed and they go back to $50 – I do think they are a good Stock of the Future.

    PYPL/Stock – Apples and oranges I think.  $300Bn+ for Paypal is not for me.  You know that… V only make $15Bn and MA makes twice as much money ($10Bn) with a $350Bn valuation so this is like betting Dr Pepper beats KO and PEP over time.  It's been 100 years – it's not going to happen…

  16. Phil / INTC –  took it on the chin today after earnings….. I thought quarter earnings were solid….. the outlook / cost for the investments will now be felt into the for 2 years maybe 3 …. if the are successful return to grown….. This look stock will take a hit. and maybe be flat for some time…..   What do you think of all this?